<PAGE>
As filed with the Securities and Exchange Commission on June 3, 1999
Registration No. 333-74619
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 3
To
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act Of 1933
---------------
WIT CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 6211 13-3900397
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification Number)
of incorporation or Classification Code
organization) Number)
826 Broadway, Sixth Floor
New York, New York 10003
(212) 253-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Robert H. Lessin
Ronald Readmond
Co-Chief Executive Officers
Wit Capital Group, Inc.
826 Broadway, Sixth Floor
New York, New York 10003
(212) 253-4400
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
---------------
Copies to:
Stephen P. Farrell, Esq. Robert Rosenman, Esq.
Eduardo Vidal, Esq. Cravath, Swaine & Moore
Morgan, Lewis & Bockius LLP Worldwide Plaza
101 Park Avenue 825 Eighth Avenue
New York, New York 10178 New York, New York 10019
(212) 309-6000 (212) 474-1000
Fax: (212) 309-6273 Fax: (212) 474-3700
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class of Maximum Maximum
Securities to be Amount to Offering Price Aggregate Amount of
Registered be Registered(1) Per Share Offering Price(1)(2) Registration Fee
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share(3)...... 8,740,000 Shares $9.00 $78,660,000 (4)
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes shares to be sold upon exercise of the underwriters' over-
allotment option. See "Underwriting."
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of Regulation C under the Securities Act of 1933, as amended.
(3) Includes the associated rights to purchase preferred stock.
(4) Registration fee was previously paid.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 3, 1999
PROSPECTUS
7,600,000 Shares
[WIT CAPITAL LOGO]
Common Stock
------------
We are an Internet investment banking and brokerage firm. This is an initial
public offering of our common stock. We anticipate that the initial public
offering price will be between $7.00 and $9.00 per share.
There is currently no public market for the shares. We have applied to have our
common stock approved for quotation on the Nasdaq National Market under the
symbol "WITC."
See "Risk Factors" beginning on page 7 to read about risks that you should
consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
------------
<TABLE>
<CAPTION>
Per
Share Total
<S> <C> <C>
Public offering price ............................................ $ $
Underwriting discounts and commissions ........................... $ $
Total proceeds, before expenses, to us............................ $ $
</TABLE>
------------
The underwriters may purchase up to an additional 1,140,000 shares of common
stock from us at the initial public offering price less the underwriting
discount to cover over-allotments.
The underwriters expect to deliver the shares of common stock in New York, New
York on , 1999.
------------
Bear, Stearns & Co. Inc. Wit Capital Corporation
Thomas Weisel Partners LLC
The date of this prospectus is , 1999.
<PAGE>
[Text: As we underwrite new public offerings, our customer
accounts, customer trading activity and Web site page views have grown each
month.]
[Bargraphs indicating number of customers, secondary
market trades per month and page impressions per month.]
[Logo of Wit Capital]
[Text: We are developing an e-Dealer/TM/ network of online brokerage firms whom
customers, once the network is operational, may purchase securities in
underwritten offerings in which we are the e-Manager/TM/. We now have
exclusive e-Dealer/TM/ agreements with 22 online brokerage firms whom
customers we believe accounted for 29% of online trading acitivity in the
fourth quarter of 1998.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Dilution................................................................. 17
Capitalization........................................................... 19
Selected Historical Financial Data....................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 27
Management............................................................... 39
Certain Transactions..................................................... 52
Stock Ownership Management and Principal Stockholders.................... 55
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 65
Legal Opinions........................................................... 67
Experts.................................................................. 67
Where You Can Find More Information...................................... 68
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
An electronic version of this prospectus is available on a special Web site
(http://www.witcapital.com/stok3/stok/WITCb.html) being maintained by our
broker-dealer subsidiary, Wit Capital Corporation, which is acting as a co-lead
manager (designated as e-Manager(TM)) in this initial public offering.
This prospectus contains registered service marks, trademarks and trade names
of Wit Capital including the Wit Capital name.
(i)
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. It may not
contain all the information that is important to you. To understand this
offering fully, you should read carefully the entire prospectus, including the
risk factors and the financial statements. Unless otherwise indicated, all
information in this prospectus (1) reflects the conversion of all currently
outstanding shares of our common stock into Class C common stock effected May
26, 1999, (2) reflects a 7 for 10 reverse stock split of our Class C common
stock and our Series E preferred stock effected June 2, 1999, (3) reflects the
automatic conversion upon consummation of this offering of all outstanding
shares of our Series A, B, C and D preferred stock into an aggregate of
33,977,313 shares of our Class C common stock and all outstanding shares of
Series E preferred stock into 11,666,667 shares of Class B common stock, and
(4) assumes no exercise of the underwriters' over-allotment option. Our common
stock, our Class B common stock and our Class C common stock are economically
equivalent, but our Class B common stock is non-voting and our Class C common
stock is non-transferable until 180 days after the completion of this offering
when it converts into our common stock.
Our Business
We are an Internet investment banking and brokerage firm that uses electronic
mail and the Web to offer and sell shares in public offerings to individuals.
We also produce and electronically disseminate investment research to
individual investors. Directly and through arrangements with twenty-two
discount brokerage firms, we expect to be able to offer and sell shares to a
substantial number of online individual investors. We also advise corporate
clients in connection with significant transactions like mergers and
acquisitions and assist them with the development of Internet strategies and
businesses and in raising funds from private sources. Our investment banking
activities focus on companies that principally use the Internet to conduct
their businesses and, more generally, on issuers seeking to market their stock
offerings to online individual investors. Beginning recently, we are focusing
as well on other rapidly growing sectors of the economy that are related to or
dependent on Internet technology. We also provide online brokerage services and
are developing a Web-based after-hours digital trading facility through which
individual investors will be able to trade Nasdaq and exchange listed
securities directly with each other. In addition, we intend to create and
manage proprietary Angel Funds(TM) primarily for high net worth individuals.
Under our management, these funds will make private investments in companies in
the Internet sector and other industries. In 1998, our investment banking
revenue and our brokerage revenue represented 74% and 14% of our total
revenues, respectively. In the first quarter of 1999, our investment banking
revenue and our brokerage revenue represented 80% and 11% of our total
revenues, respectively. As our business develops and our client and customer
bases grow, these percentages may change, and, accordingly, they may not be
indicative of our future results.
We believe the Internet will open the equity markets to individual investors
and thereby change the model of capital formation that exists today. In
particular, we believe that the Internet presents the opportunity to align the
interests of individual investors and corporate issuers by making public
offering materials and investment research available to individuals on a timely
basis and by providing individual investors the opportunity to purchase new
issue shares at the offering price. By marketing public offerings to individual
investors electronically, we believe underwriters and corporate issuers will be
able to access efficiently individual investors in the so-called retail market
and will have at hand nearly instantaneous information as to the level of these
investors' interest for their equity offerings. Information about individual
investor interest in public offerings should lead to more accurate pricing as
compared to the pricing of these securities under traditional methods that
focus primarily on institutional investor demand.
As the Internet rapidly becomes a critical medium for collecting and
exchanging information and conducting commerce for nearly all businesses, we
believe that corporate clients will gravitate towards those investment banking
firms that use their knowledge and expertise about the Internet. The speed of
this development is driven by the Internet's power to reduce costs related to
the sale and delivery of traditionally provided goods and services and by its
capacity to support new forms of business-to-business, business-to-consumer and
consumer-to-consumer relationships. It is also driven by the increasing
awareness of, and the relatively inexpensive access to, the Internet by
individuals.
1
<PAGE>
Investment Banking
We participate in public offerings of securities through the Internet. In
contrast to the way securities are offered by traditional underwriters, we
offer and sell shares to online individual investors on a first-come, first-
served basis. We have recently changed our first-come, first-served allocation
process so that those investors who place their conditional offers for shares
within a stipulated period have equal priority. We also assist issuers in
electronically marketing their offerings to individuals who have a preexisting
relationship with them, which we refer to as an affinity relationship, such as
their customers, suppliers or employees. Since commencing operations in
September 1997, we have participated in ninety-one public equity offerings,
including seventy initial public offerings. In twenty-three of these offerings,
we played a sufficiently significant role such that our name appeared on the
cover of the prospectus. When we facilitate online distribution in a public
offering and our name appears on the cover of the prospectus, we characterize
our role as e-Manager, a term for which we have a pending trademark
application. As of May 31, 1999, we were participating as e-Manager in an
additional seventeen offerings in registration, including this offering. In
every public offering in which we have participated or are participating, one
or more traditional investment banking firms acted or is acting as the lead
manager.
We maintain direct access to online individual investors who have accounts
with us or who are active members on our electronic mailing list. In addition,
we expect to be able to offer and sell shares to a substantial number of online
investors through relationships with twenty-two online discount brokerage firms
("e-Dealers(TM)"). While we have agreements ("e-Dealer agreements") with each
of these e-Dealers, the e-Dealer network is in the developmental stage and is
currently only partially operational. Under the e-Dealer agreements, the e-
Dealers will be able to act as selected dealers in public offerings in which we
are the e-Manager. In the aggregate, we believe these firms handled
approximately 29% of the total number of online brokerage trades in the fourth
quarter of 1998. When we act as e-Manager, subject to the agreement of the lead
manager and the issuer, online brokerage customers of the participating e-
Dealers and our direct customers will be offered the shares designated for
electronic distribution in a first-come, first-served process that allocates
shares to them without regard to which brokerage firm holds their accounts. To
date, only two e-Dealers have offered shares to their customers in offerings in
which we have participated. The remaining e-Dealers have not completed the
technical interfaces necessary to bring the e-Dealer network into full
operation.
Through the Internet, we offer issuers contemplating initial public offerings
several capabilities:
. We provide broad dissemination of offerings to online individual
investors, which should result in more demand for shares in the offering
and in the secondary market. For retail-oriented issuers, such broad
dissemination should also result in increased customer awareness for the
company's products or services.
. We broaden the investor demand for the issuer's shares by providing a
timely and cost-effective way to access groups having an affinity
relationship with the issuer.
. We are able to deliver and analyze data about the retail demand for a
proposed offering with our central electronic order book. This should
enable issuers to negotiate more appropriate prices for their shares as
compared to prices negotiated primarily on the basis of data about
institutional investor interest.
. We offer broad online dissemination to individuals of investment
research, which should result in more interest in and recognition of the
issuer among individual investors in the secondary market.
Brokerage
We offer brokerage services to our direct customers using our Web site and
touch-tone telephone access. Our brokerage services include stock and option
trading, access to more than 3,800 mutual funds, portfolio tracking and record
management as well as cash management services and market information, news and
other information services. Our ordinary commission rates are $14.95 for market
orders and $19.95 for limit orders.
2
<PAGE>
The following table shows the growth in the number of customers who have
opened accounts with us and in the daily average number of secondary market
trades these customers have executed through us. Secondary market trades, which
involve the buying and selling of publicly traded securities, do not include
shares purchased in public offerings.
<TABLE>
<CAPTION>
Daily Average Number
Approximate Number of Secondary Market
of Customer Accounts Trades During
at Period End Three-Month Period
-------------------- --------------------
<S> <C> <C>
March 31, 1998........................ 3,100 12
June 30, 1998......................... 5,300 25
September 30, 1998.................... 7,800 45
December 31, 1998..................... 10,800 106
March 31, 1999........................ 26,000 405
</TABLE>
At April 30, 1999, we had approximately 41,000 customer accounts, and the daily
average number of secondary market trades for the month of April 1999 was 926.
Recent Developments
In April 1999, The Goldman Sachs Group, L.P. purchased securities that will
automatically convert at the time this offering is consummated into shares of
Class B common stock constituting approximately 16.7% of our outstanding stock
after completion of this offering and warrants exercisable for shares of Class
B common stock. If Goldman Sachs were to exercise these warrants, which will
become exercisable in October 2000, its ownership interest would increase to
approximately 24.7% of our outstanding stock after completion of this offering
(assuming no other exercises of options or warrants). In connection with
Goldman Sachs' investment in us, Goldman Sachs and we agreed to cooperate, on a
non-exclusive basis, with respect to portions of our respective investment
banking businesses.
Competitive Strengths
First Mover Advantage. As the first Internet investment banking firm, we have
pioneered the business of online retail distribution of shares in public
offerings. As a result, we have benefited from publicity and word of mouth
exposure which we believe has established Wit Capital as a leading provider of
online investment banking services.
E-Dealer Agreements. We have agreements with twenty-two online discount
brokerage firms that give us the exclusive right to offer these e-Dealers
participation in public offerings in which retail customer orders from more
than one broker-dealer are aggregated in a central electronic order book. All
but two of these agreements have remaining terms of two to three years; those
two agreements expire in August 2000.
Investment Banking Relationships. We believe that our relationship with
Goldman Sachs will enhance our investment banking business in several important
ways, particularly by giving us increased stature in the investment banking
community and with corporate clients. We have also worked with several other
traditional investment banking firms and plan to continue to develop these
mutually commercially beneficial relationships.
Strong Client Relationships and Internet Experience. Our investment bankers,
executive officers and investors have strong relationships with corporate
issuers, venture capitalists and others in the financial services sector. In
addition, our senior investment banking and research professionals have a
strong history of working with Internet companies and developing Internet
strategies and businesses. Venture capital funds that have invested in our
company also provide valuable access to prospective corporate clients.
3
<PAGE>
Experienced and Innovative Management. Our chairman and co-chief executive
officer, Robert H. Lessin, was previously vice chairman at Salomon Smith
Barney. Our co-chief executive officer and president, Ronald Readmond, was
previously vice chairman of Charles Schwab. Our founder and chief strategist,
Andrew Klein, engineered the world's first Internet public offering. Our
director of investment banking, Mark Loehr, was previously head of equity
capital markets at Salomon Smith Barney.
Technology. We have developed or acquired significant software and procedures
that, among other things, allow us to effectively market and execute public
offerings over the Internet.
Low Customer Acquisition Cost. We have experienced growth in our customer
base with limited marketing expenditures. The number of page impressions on our
Web site has increased from 1.9 million page impressions during January 1999 to
38 million page impressions during April 1999.
Corporate Information
We are a Delaware corporation. Our executive offices are located at 826
Broadway, Sixth Floor, New York, New York 10003. Our telephone number is (212)
253-4400. Our Web site is http://www.witcapital.com. Other than the electronic
version of this prospectus that is available on a special Web site, none of the
information on our Web sites is part of this prospectus. Our regulated
activities are carried out through our wholly owned subsidiary, Wit Capital
Corporation, which is a broker-dealer licensed with the Securities and Exchange
Commission and a member of the National Association of Securities Dealers.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock Offered...................... 7,600,000 shares
Common Stock to be Outstanding after this
Offering................................. 70,649,489 shares(1)(2)
Use of Proceeds........................... We intend to use the net proceeds
from this offering for general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol.... WITC
</TABLE>
- --------
(1) Excludes up to 1,140,000 additional shares of common stock subject to a 30-
day option granted to the underwriters to cover over-allotments, if any.
(2) Based on the number of shares of all classes of our common stock currently
outstanding and to be issued as a result of the conversion of our
outstanding preferred stock upon consummation of this offering. Does not
include (a) 1,015,931 shares of Class C common stock and 5,637,295 shares
of Class B common stock issuable upon exercise of outstanding warrants, (b)
the 560,000 shares of Class C common stock that are referred to in
"Business--Legal Matters", (c) 153,247 shares of Class B common stock
subject to additional warrants that may be issued to Goldman Sachs after
September 25, 1999 as described in "Business--Investment Banking" and (d)
17,500,000 shares of Class C common stock reserved for issuance under our
Stock Incentive Plan, of which options to purchase 9,730,677 shares were
outstanding on May 31, 1999 (see "Management--Management Benefit Plans").
5
<PAGE>
Summary Consolidated Financial Information
<TABLE>
<CAPTION>
Period From
March 27, 1996
(Inception) Year Ended Three Months Ended
through December 31, March 31,
December 31, --------------------- -----------------------
1996 1997 1998 1998 1999
-------------- --------- ---------- ----------- ----------
(unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 41 $ 246 $ 2,038 $ 76 $ 3,903
Operating loss.......... (1,758) (2,970) (8,760) (1,390) (4,882)
Net loss................ (1,774) (2,993) (8,794) (1,398) (4,900)
Basic and diluted net
loss per share......... $ (.33) $ (.41) $ (1.23) $ (.20) $ (.67)
Weighted average shares
outstanding used in
computing basic and
diluted net loss per
share.................. 5,378,167 7,303,013 7,140,123 7,056,095 7,266,428
Pro forma net loss per
share(1)............... $ (.33) $ (.30) $ (.58) $ (.11) $ (.17)
Shares used in computing
pro forma basic and
diluted net loss per
share(1)............... 5,452,997 9,930,376 15,120,868 12,848,431 28,074,407
</TABLE>
- --------
(1) Per share amounts are computed by using the weighted average number of
shares of common stock outstanding in the relevant period as adjusted to
give effect to the conversion of the shares of preferred stock outstanding
during the respective periods.
In the following table the Actual column reflects our financial condition as
of March 31, 1999. The Pro Forma column reflects the issuance and sale to
Goldman Sachs of 11.7 million shares of Series E preferred stock and the
receipt of $24.9 million in net cash proceeds as well as the exercise of an
aggregate of 2,974,488 stock options by employees and related loans from us as
described in "Certain Transactions--Loans to Officers" subsequent to March 31,
1999. The Pro Forma As Adjusted column reflects the sale of 7,600,000 shares of
common stock in this offering (at an assumed offering price of $8.00) after
deducting underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $41,194 $66,094 $121,294
Working capital................................... 41,902 66,186 121,386
Total assets...................................... 50,292 75,192 130,392
Stockholders' equity.............................. 47,500 71,784 126,984
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below may not be
the only ones we will face. Additional risks and uncertainties not presently
known to us or that we currently deem not material may also impair our
business operations. If any of the following risks actually occur, our
business, financial condition or results of operations could be materially
adversely affected. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.
Risks Related to Our Business
We have a limited operating history upon which you may evaluate us.
We have a limited operating history upon which to evaluate the merits of
investing in our common stock. Our prospects are subject to the risks,
expenses and uncertainties encountered by companies in the new and rapidly
evolving markets for Internet products and services. These risks include the
failure to continue to develop our name recognition and reputation, the
rejection of our services by Internet users or vendors, our inability to
maintain and increase the usage of our online services, increased competition
from other investment banking firms and our inability to attract, retain and
motivate highly qualified employees. While these risks can affect any
business, they are particularly relevant to new companies, like ours, which do
not have a firmly established reputation or a large customer base, and
Internet sector companies whose customers are just recently dealing with
electronic commerce. We may not be successful in addressing these risks, and
our business and financial condition could suffer.
We have incurred losses since our inception and expect to incur significant
losses at least through December 31, 2000.
As of March 31, 1999, we had cumulative losses of $18.5 million. Although
our revenue has grown in recent periods, there can be no assurance that our
revenues will continue at their current level or increase in the future. We
have not achieved profitability on a quarterly or annual basis to date. We
anticipate that we will continue to incur net losses at least through December
31, 2000. We currently expect to increase our operating expenses
significantly, expand our investment banking staff and our sales and marketing
operations and continue to develop and extend our online services. If such
expenses precede or are not followed by increased revenues, our business,
results of operations and financial condition could be materially and
adversely affected.
Our limited operating history and the uncertain nature of the markets we
address make it difficult or impossible to predict future results of
operations. Therefore, our recent revenue growth should not be an indicator of
the rate of revenue growth, if any, we can expect in the future.
Our investment banking business may be adversely affected if the e-Dealer
system does not become fully operational.
While we have agreements with the e-Dealers, the e-Dealer network is in a
developmental stage. Recently, two of the twenty-two e-Dealers became
operational. The other e-Dealers are in various stages of developing the
technical capacity and interfaces necessary to enable them to participate in
offerings in which we are the e-Manager. There can be no assurance that these
e-Dealers will complete development of this technical capacity and the
necessary interfaces or that the e-Dealer network will ever become fully
operational.
Our investment banking business may be adversely affected if the e-Dealer
network becomes operational and the e-Dealers fail to participate in
offerings in which we act as e-Manager.
The e-Dealer agreements do not obligate the e-Dealers to accept our
invitation to participate in any offerings. Their failure to participate could
adversely affect our ability to demand an adequate share of the
7
<PAGE>
management fees or a sufficient allotment of shares in public offerings in
which we participate. Moreover, the exclusivity provisions of the e-Dealer
agreements all have remaining terms of less than three years. There can be no
assurance that the individual e-Dealers will elect to extend these commitments
following their expiration. In addition, our inability to provide specified
share allocations in public offerings or a specified number of offers to
participate in public offerings to the e-Dealers could lead to the early
termination of the exclusivity provisions based on our failure to meet the
minimum criteria stated in the e-Dealer agreements. If the exclusivity
provisions of the e-Dealer agreements expire and are not renewed or are
terminated before their expiration dates, our ability to participate in
underwriting syndicates and ultimately to develop a profitable online
investment banking business could be adversely affected.
We must receive increased share allotments in underwritten offerings or our
investment banking business may be seriously affected by limited revenues
from public underwriting activities.
To date, we have been given only minimal share allocations in the offerings
in which we have participated, and, until recently, we have received none or
only neglible portions of the fees usually paid to co-managing underwriters
for their services. As a result, our revenues from public underwriting
activities have been limited. An inability to secure more than a minimal
portion of the underwriting and management fees and selling concessions may
force us to rethink our strategy of seeking to be a co-manager only and
require us to seek to be a lead underwriter, which may be more difficult to
achieve and would result in our having significant additional
responsibilities. These responsibilities include forming and managing
underwriting syndicates, leading underwriters' due diligence examination of
the issuers, taking the lead underwriter's role in the preparation of
prospectuses and other offering materials and developing and coordinating the
marketing efforts for the securities. While we have been assembling an
experienced group of investment bankers and syndicate managers, the ability to
coordinate these efforts and effectively sell an issuer's securities will be
critical to our ability to develop and maintain a reputation as a leading
investment banking firm.
We must receive increased share allotments in underwritten offerings and
improve our telecommunications capacity and infrastructure or our investment
banking business may be seriously affected by customer dissatisfaction.
We have not received in any offering an allotment of shares for sale that
has satisfied our customers' demand. We have experienced a high level of
customer dissatisfaction principally due to our inability to sell to our
customers the number of shares they want to purchase, and the customers of the
e-Dealers that have become operational may be similarly dissatisfied. We have
also experienced customer dissatisfaction due to our telecommunications
system's inability to manage the level of our customer inquiries and to
failures which have temporarily disrupted our Web site service.
We may incur losses and liabilities in the course of business which could
prove costly to defend or resolve.
Participation in underwritings involves significant economic risks. An
underwriter may incur losses if it is unable to resell the securities it is
committed to purchase or if it is forced to liquidate its commitment at less
than the price at which it purchased the securities from the issuer. In
addition, the trend toward larger commitments on the part of managing
underwriters means that, from time to time, an underwriter may retain
significant position concentrations in individual securities.
Underwriters also face significant legal risks, and the volume and amount of
damages claimed in lawsuits against financial intermediaries are increasing.
These risks include potential liability under federal and state securities and
other laws for allegedly false or misleading statements made in connection
with securities offerings and other transactions. We also face the possibility
that customers or counterparties will claim that we improperly failed to
apprise them of applicable risks or that they were not authorized or permitted
under applicable corporate or regulatory requirements to enter into
transactions with us and that their obligations to us are not enforceable.
8
<PAGE>
These risks often may be difficult to assess or quantify and their existence
and magnitude often remain unknown for substantial periods of time. We may
incur significant legal expenses in defending against litigation. We expect to
be active in the underwriting of initial public offerings and follow-on
offerings of the securities of emerging and mid-size growth companies, which
often involve a high degree of risk and volatility. Substantial legal
liability or a regulatory action against us could have a material adverse
financial effect on us.
Our relationship with Goldman Sachs may make it more difficult for us to
develop or maintain strategic relationships with other investment banking
firms.
Since our inception, we have consistently tried to develop constructive
working relationships with a number of traditional investment banking firms.
In certain cases, these relationships have enabled us to obtain assignments in
public offerings that we might not otherwise have obtained. The Goldman Sachs
investment may make it more difficult for us to develop or maintain
relationships with firms that compete with Goldman Sachs and, as a result, may
make it more difficult for us to obtain assignments in public offerings lead
managed by competitors of Goldman Sachs. In addition, under the terms of our
agreement with Goldman Sachs, if we intend to offer equity securities
representing more than 5% of our shares on a fully diluted basis to any of a
number of designated competitors of Goldman Sachs, Goldman Sachs will have a
first right to purchase all the offered shares on the same terms as offered to
the competitor.
Our agreement with Goldman Sachs is not exclusive and does not prohibit
Goldman Sachs from competing directly or indirectly with us.
Although Goldman Sachs has invested in us, it is not prohibited from
assisting any other broker-dealer involved in online investment banking.
Goldman Sachs is not precluded from competing directly against us. Moreover,
Goldman Sachs will have an observer attend meetings of our Board of Directors
and will have access to our confidential information. Finally, Goldman Sachs
is not required to reserve for us any particular number of shares--or even to
include us--in any public offerings that they lead manage. Our relationship
with Goldman Sachs is very recent and we cannot predict how it will develop or
whether we will receive significant benefits from our association with them.
The failure of our brokerage customers to meet their margin requirements may
cause us to incur significant liabilities.
Our brokerage business, by its nature, is subject to risks related to
defaults by our customers in paying for securities they have agreed to
purchase and deliver securities they have agreed to sell. U.S. Clearing, a
division of Fleet Securities, Inc., provides clearing services to our
brokerage business, including the confirmation, receipt, execution, settlement
and delivery functions involved in securities transactions, as well as the
safekeeping of customers' securities and assets and certain customer record
keeping, data processing and reporting functions. U.S. Clearing makes margin
loans to our customers to purchase securities with funds they borrow from U.S.
Clearing. We must indemnify U.S. Clearing for, among other things, any loss or
expense incurred due to defaults by our customers in failing to repay margin
loans or to maintain adequate collateral for those loans. We are subject to
risks inherent in extending credit, especially during periods of rapidly
declining markets and we are particularly at risk because many of our
customers purchase Internet stocks, the trading prices of which are highly
volatile, leading potentially to higher risk of customer defaults.
Our planned digital trading facility is subject to risks associated with
development, enhancement and proper functioning, and may never meet its
performance expectations.
We intend to invest substantial amounts of time and capital in the launch of
our digital trading facility. This investment is subject to the following
risks:
. Our software is still in the developmental phase, and any delays in
development or problems discovered in the testing of the software could
result in significant delays. We cannot assure you that we will
9
<PAGE>
complete development of a product that provides secure and dependable
technology and meets performance expectations. In addition, our technology
will require continual enhancements if we are to maintain a competitive
edge. Accordingly, we will need to make substantial ongoing investments in
software design and development.
. Established markets such as the New York Stock Exchange and the Nasdaq-
Amex Group have announced plans to extend their trading hours, and this
may adversely affect our plans for an after-hours trading facility.
. We cannot assure you that the digital trading facility will attract a
critical mass of trading activity to ensure the liquidity needed for a
viable market.
If we do not become the after-hours digital trading facility of choice for
individual investors, our investment may prove to be of little or no value.
We have not implemented, and may not implement successfully, our goals of
conducting private equity placements over the Internet and creating
profitable Angel Funds.
Our private equity group currently focuses on raising capital from
traditional institutional and venture capital sources and strategic investors.
In the future, we plan to offer private equity to high net worth individuals
through the Internet. This may not be feasible. In particular, this plan faces
the legal uncertainty of determining under applicable securities laws the
degree to which we can leverage the distributive capacity of the Internet in
offering private equity. Our Angel Funds have not yet been established and we
cannot assure you as to how much money we can raise or how quickly we can
raise those funds. Once the first Angel Funds are established, they may not be
successful. Failure of these Angel Funds may impair our ability to establish
additional Angel Funds.
We may not be able to keep up in a cost-effective way with rapid technological
change.
The online financial services industry is characterized by rapid
technological change, changes in customer requirements, frequent new service
and product introductions and enhancements and evolving industry standards.
Our future success will depend, in part, on our ability to develop
technologies and enhance our existing services and products. We must also
develop new services and products that address the increasingly sophisticated
and varied needs of our customers and prospective customers. We must respond
to technological advances and evolving industry standards and practices on a
timely and cost-effective basis. The development and enhancement of services
and products entails significant technical and financial risks. We may not (1)
effectively use new technologies, (2) adapt services and products to evolving
industry standards or (3) develop, introduce and market service and product
enhancements or new services and products. In addition, we may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of these services and products, and our new service
and product enhancements may not achieve market acceptance. If we encounter
these problems, our business, financial condition and operating results will
be materially adversely affected.
Periods of declining securities prices, inactivity or uncertainty in the
public or private equity markets may adversely affect our revenues.
Our revenues are likely to be lower during periods of declining securities
prices or securities market inactivity in the sectors on which we focus. Our
business is particularly dependent on the public and private equity markets
for companies in the Internet and technology industries. The public markets
have historically experienced significant volatility not only in the number
and size of share offerings, but also in the secondary market trading volume
and prices of newly issued securities. For example, the market for offerings
by companies in the Internet industry has recently experienced significant
activity and volatility. This recent activity may not sustain its current
levels. Activity in the private equity markets frequently reflects the trends
in the public markets. As a result, our revenues from private capital raising
activity may also be adversely affected during periods of declining prices or
inactivity in the public markets. In addition, we may lose customers who have
incurred losses by investing in highly volatile securities of Internet-related
companies.
10
<PAGE>
The growth in our revenues will depend largely on a significant increase in
the number and size of underwritten transactions by companies in our targeted
industries and by the related increase in secondary market trading for these
companies. Underwriting activity in these industries can decline for a number
of reasons. Such activity may also decrease during periods of market
uncertainty occasioned by concerns over inflation, rising interest rates and
related issues. Disappointments in quarterly performance relative to analysts'
expectations or changes in long-term prospects for an industry can also
adversely affect capital raising activities to a significant degree.
We may not be able to develop and maintain marketing relationships with other
Internet companies, which may adversely affect our business growth.
Our strategy for expanding brand recognition and exposure depends to some
extent on our relationship with other Internet companies. We plan to enter
into marketing agreements with these companies that will permit us to
advertise our products and services on their Web pages. We plan to reach a
larger and broader potential customer base by disseminating our own investment
research and the quote and execution streams for the digital trading facility
on popular Web sites. If we cannot secure or maintain these marketing
agreements on favorable terms, our prospects could be harmed. Additionally,
other online brokers which advertise on popular Web sites may object to and
attempt to undermine our marketing agreements or relationships. If successful,
the efforts of competing brokers could materially and adversely affect our
growth.
We may not be able to protect our intellectual property rights, which may
cause us to incur significant costs.
Our business is dependent on proprietary technology and other intellectual
property rights. We rely primarily on copyright, trade secret and trademark
law to protect our technology. We currently have no patents. We have, however,
filed patent applications covering concepts and technologies integral to the
digital trading facility. These concepts and technologies may not be
patentable. In addition, effective trademark protection may not be available
for our trademarks. Notwithstanding the precautions we have taken, a third
party may copy or otherwise obtain and use our software or other proprietary
information without authorization or may develop similar software
independently. Policing unauthorized use of our technology is difficult,
particularly because the global nature of the Internet makes it difficult to
control the ultimate destination or security of software or other data
transmitted. The laws of other countries may afford us little or no effective
protection of our intellectual property. The steps we have taken may not
prevent misappropriation of our technology or the agreements entered into for
that purpose may not be enforceable. In addition, litigation may be necessary
in the future to enforce our intellectual property rights, to protect our
trade secrets, to determine the validity and scope of the proprietary rights
of others or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversions of resources,
either of which could have a material adverse effect on our business,
financial condition and operating results.
Our success is dependent on our key personnel whom we may not be able to
retain, and we may not be able to hire enough additional qualified personnel
to meet our growing needs.
Our business requires the employment of highly skilled personnel. The
recruitment and retention of experienced investment banking professionals and
proficient technologists are particularly important to our performance and
success. We do not have "key person" life insurance policies on any of our
officers or associates. The loss of the services of any of our key personnel
or the inability to recruit and retain experienced investment banking
professionals and proficient technologists in the future could have a material
adverse effect on our business, financial condition and operating results. Our
chairman and co-chief executive officer was hospitalized for approximately
eight weeks with a stroke in 1994. We expect further growth in the number of
our personnel, particularly if markets remain favorable to investment banking
transactions. Competition for such personnel is intense. Our continued ability
to compete effectively in our business depends on our ability to attract and
retain the quality personnel our operations and development require.
11
<PAGE>
We may have difficulty effectively managing our growth.
We expect our business to develop rapidly. Our current senior management has
limited experience managing a rapidly growing enterprise and may not be able
to effectively manage our growth.
The intensifying competition we face from both established and recently formed
entities may adversely affect our revenues and profitability.
We encounter intense competition in all aspects of our business, and we
expect this competition to increase. Our principal competitors in connection
with our investment banking activities are traditional investment banking
firms, some of which offer their underwritten securities through the Internet.
We also face competition from recently formed online investment banking
initiatives, such as E*Offering, recently formed by online broker E*Trade in
conjunction with the founder and former chief executive of Robertson Stephens,
Sanford Robertson, or W. R. Hambrecht & Co., recently formed by the founder
and former chief executive of Hambrecht & Quist, William Hambrecht. In the
context of online distributions of public offerings, we are facing growing
competition from brokerage firms such as Charles Schwab, Fidelity Brokerage
Services and E*Trade, among others, which offer equity securities through the
Internet. In our online brokerage business, we encounter direct competition
from discount brokerage firms and online brokerage firms, including Charles
Schwab, Fidelity Brokerage Services, Waterhouse Investor Services and Datek
Online, and from full-service brokerage firms such as Morgan Stanley Dean
Witter, PaineWebber, Donaldson, Lufkin & Jenrette and Merrill Lynch. Most of
these investment banking and brokerage firms have been established for longer
and are far better capitalized and staffed than we are, and have much larger,
established customer bases than we do. See "Business--Competition."
Operational risks may disrupt our business or limit our growth.
Our business is highly dependent on information processing and
telecommunications systems. We face operational risks arising from mistakes
made in the confirmation or settlement of transactions or from transactions
not being properly booked, evaluated or accounted for. Our business is highly
dependent on our ability, and the ability of our clearing firm, to process, on
a daily basis, a large and growing number of transactions across numerous and
diverse markets. Consequently, our clearing firm and we rely heavily on our
respective financial, accounting, telecommunications and other data processing
systems. If any of these systems do not operate properly or are unavailable
due to problems with our physical infrastructure, we could suffer financial
loss, a disruption of our business, liability to clients, regulatory
intervention or reputational damage. In addition, the rapidly increasing level
of telephone and e-mail customer inquiries has at times strained the capacity
of our telecommunications system and our customer service staff. On occasion
we have also experienced temporary disruptions in our Web site service. As a
result, our customers have sometimes been unable to contact us in a timely
manner. The inability of our systems to accommodate an increasing volume of
transactions and customer inquiries could also constrain our ability to expand
our businesses. We are currently upgrading and expanding the capabilities of
our data and telecommunications systems and other operating technology. We
expect that in the future we will need to continue to upgrade and expand our
systems infrastructure. We intend to expand our telecommunications system
capacity in order to better ensure customer satisfaction.
If we fail to comply with applicable laws and regulations, we may face
penalties or other sanctions that may be detrimental to our business.
When enacted, the Securities Act of 1933, which governs the offer and sale
of securities, and the Securities Exchange Act of 1934, which governs, among
other things, the operation of the securities markets and broker-dealers, did
not contemplate the conduct of a securities business through the Internet.
Uncertainty regarding the application of these laws and other regulations to
our business may adversely affect the viability and profitability of our
business. If we fail to comply with an applicable law or regulation,
government regulators and self regulatory organizations may institute
administrative or judicial proceedings against us that could result in
censure, fine, civil penalties (including treble damages in the case of
insider trading violations), the issuance of cease-and-desist orders, the loss
of our status as a broker-dealer, the suspension or disqualification of our
officers or employees or other adverse consequences. The imposition of any
material penalties or orders on us could have a material adverse effect on our
business, operating results and financial condition.
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<PAGE>
If we engage in market-making or proprietary trading activities in the future,
we will face increased risks which could be harmful to our business.
We do not currently engage in market-making or proprietary trading, which is
the buying and selling of securities for our own account. We may, however,
engage in such activities in the future. These activities involve significant
risks, including market, credit, leverage, counterparty and liquidity risks.
We may not be able to secure financing if we need it in the future.
We may require additional financing beyond the proceeds of this offering to
support more rapid expansion, develop new or enhanced services and products,
respond to competitive pressures, acquire complementary businesses or
technologies or respond to unanticipated requirements. We can give investors
no assurance that additional financing will be available when needed on
favorable terms, if at all.
Employee misconduct could harm us and is difficult to detect and deter.
There have been a number of highly publicized cases involving fraud or other
misconduct by employees in the financial services industry in recent years,
and we run the risk that employee misconduct could occur. Misconduct by
employees could include binding us to transactions that exceed authorized
limits or present unacceptable risks, or hiding from us unauthorized or
unsuccessful activities. In either case, this type of conduct could result in
unknown and unmanaged risks or losses. Employee misconduct could also involve
the improper use of confidential information, which could result in regulatory
sanctions and serious reputational harm. It is not always possible to deter
employee misconduct, and the precautions we take to prevent and detect this
activity may not be effective in all cases.
An independent business venture of our co-chief executive officer may present
a potential conflict of interest.
Our co-chief executive officer, Robert Lessin, is the majority owner and a
general partner of DT Advisors, which manages Dawntreader Fund I, a venture
capital fund. This fund invests in developmental stage companies. Such
investments may prove to be in competition with one or more of the Angel Funds
we intend to organize and manage. It is not possible now to determine whether
any such conflict will in fact develop or what steps would be appropriate in
the event such a situation were to arise. We have recently reached an
agreement in principle with DT Advisors relating to the development and
management of new venture capital funds and the management of our Angel Funds.
See "Certain Transactions--Venture Capital Fund Management."
Despite our efforts, our systems as well as those of others may prove not to
be Year 2000 compliant, which could significantly disrupt our business.
We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant. Because we are largely
dependent on our ability to conduct our operations through the Internet, any
significant disruption of this computer infrastructure caused by the Year 2000
problem could significantly interfere with our business operations. Our
potential areas of exposure include products purchased from third parties,
computers, software, telephone systems and other equipment used internally. If
our present efforts to address Year 2000 compliance issues are not successful,
or if vendors with whom we conduct business do not successfully address such
issues, our business, operating results and financial position could be
materially and adversely affected.
Risks Related to Online Commerce and the Internet
Our long-term success depends on the development of the Internet as a
commercial marketplace, which is uncertain.
The markets for investment banking and brokerage services through the
Internet are at an early stage of development and are rapidly evolving.
Because the markets for our online services are new and evolving, it is
difficult to predict the future growth (if any) and the future size of these
markets. We cannot assure you that the markets for our online services will
continue to develop or become sustainable. A substantial number of our clients
have been Internet related companies. Sales of many of our services and
products will depend upon the
13
<PAGE>
acceptance of the Internet as a widely used medium for commerce and
communication. A number of factors could prevent such acceptance, including
the following:
. Electronic commerce is at an early stage and buyers may be unwilling to
shift their purchasing from traditional vendors to online vendors;
. The necessary network infrastructure for substantial growth in usage of
the Internet may not be adequately developed;
. Increased government regulation or taxation may adversely affect the
viability of electronic commerce;
. Insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times or
increased costs; and
. Adverse publicity and consumer concern about the security of electronic
commerce transactions could discourage its acceptance and growth.
Conducting investment banking operations through the Internet involves a new
approach to the securities business. We may have to undertake intensive
marketing and sales efforts to educate prospective clients on the uses and
benefits of our services and products in order to generate demand. For
example, corporate issuers may be reluctant to accept our online underwriting
capabilities.
Questions related to the security of our systems and our ability to transmit
confidential information over the Internet may adversely impact our business.
The need to securely transmit confidential information over the Internet has
been a significant barrier to electronic commerce and communications. We are
potentially vulnerable to attempts by unauthorized computer users to penetrate
our network security. If successful, those individuals could misappropriate
proprietary information or cause interruptions in our online services. We may
be required to expend significant capital and resources to protect against the
threat of such security breaches or to alleviate problems. In addition to
security breaches, inadvertent transmission of computer viruses could expose
us to the risk of disruption of our business, loss and possible liability.
Continued concerns over the security of Internet transactions and the privacy
of its users may also inhibit the growth of the Internet generally as a means
of conducting commercial transactions.
Failure of our encryption technology could compromise the confidentiality of
our customer transactions and adversely affect our business.
We rely upon encryption and authentication technology, including public key
cryptography technology licensed from third parties, to provide the security
and authentication necessary to effect secure transmission of confidential
information over the Internet. Advances in computer capabilities, new
discoveries in the field of cryptography or other developments could result in
a compromise or breach of the procedures we use to protect customer
transaction data. If any such compromise of our security occurs, our business,
financial condition and operating results could be materially adversely
affected.
Risks Related to this Offering
We have broad discretion in how we use the proceeds from this offering.
We intend to use the net proceeds from the sale of the shares of common
stock offered through this prospectus for general corporate purposes.
Accordingly, our management will have significant flexibility in applying the
net proceeds of this offering. The failure of our management to apply such
funds effectively could have a material adverse effect on our business,
results of operations and financial condition. See "Use of Proceeds."
Our common stock has never been publicly traded so we cannot predict the
extent to which a market will develop for our common stock or how volatile
that market will be.
Prior to this offering, there has been no market for our common stock. The
initial public offering price of our common stock will be determined by
negotiations between ourselves and Bear Stearns. The price of our
14
<PAGE>
common stock after this offering may fluctuate widely. The reasons for such
fluctuations may include the business community's perception of our prospects
and of the securities and financial services industries in general.
Differences between our actual operating results and those expected by
investors and analysts and changes in analysts' recommendations or projections
could also affect the price of our common stock. Other factors potentially
causing volatility in the price for our common stock may include changes in
general economic or market conditions and broad market fluctuations,
particularly those affecting the prices of the common stocks of companies
engaged in commerce through the Internet. Our common stock has been approved
for quotation on the Nasdaq National Market. Such inclusion does not, however,
guarantee that an active and liquid trading market for our common stock will
develop.
Shares eligible for future sale by our current stockholders may adversely
affect our stock price.
The future sale of shares by our existing stockholders may adversely affect
our stock price. After completion of this offering, our existing stockholders
will own an aggregate of 63,049,489 shares of Class B and Class C common stock
and holders of options and warrants will have the right to acquire an
aggregate of 16,383,903 shares of Class B and Class C common stock. The number
of shares underlying these options and warrants represents approximately 18.8%
of the shares of all classes of our common stock that will be outstanding
after the completion of this offering, assuming the exercise of all of these
options and warrants. The holder of all outstanding shares of Class B common
stock has agreed not to sell or otherwise dispose of any of those shares until
180 days after the date of this prospectus. Shares of Class C common stock are
not transferable until they convert into common stock 180 days after the
completion of this offering. This restriction on transferability may not be
changed without our first obtaining the consent of Bear, Stearns & Co. and
then taking all Board of Directors and stockholder actions necessary to amend
our Certificate of Incorporation. Thereafter, all the shares of common stock
into which shares of Class C common stock are converted will be available for
sale in the public market, subject in some cases to compliance with the
holding period and volume and manner of sale limitations contained in Rule 144
under the Securities Act. See "Shares Eligible for Future Sale" for a more
detailed description of the restrictions on selling shares after this
offering.
This offering will cause immediate dilution.
Investors in this offering will experience immediate and substantial
dilution in the net tangible book value of $6.17 per share based on an assumed
initial public offering price of $8.00.
We do not anticipate paying dividends.
We do not anticipate paying cash dividends on our common stock in the
foreseeable future.
Anti-takeover provisions and our right to issue preferred stock could make a
third-party acquisition of us difficult.
Certain provisions of the Delaware General Corporation Law may delay,
discourage or prevent a change in control. These provisions may discourage
bids for our common stock at a premium over the market price and may adversely
affect the market price and the voting and other rights of the holders of our
common stock. In addition, upon consummation of this offering, our governing
documents will provide for a staggered board and authorize the issuance of up
to 30 million shares of preferred stock. Such preferred stock, which will be
issuable without stockholder approval, could grant its holders rights and
powers that would tend to discourage changes in control.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements are
found in the material set forth under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as in the prospectus generally. When used
in this prospectus, the words "anticipate," "believe," "expect," "estimate"
and similar expressions are generally intended to identify forward-looking
statements. Our actual results could differ materially from those anticipated
in the forward-looking statements as a result of certain factors, including
the risks described in "Risk Factors" and elsewhere in this prospectus.
15
<PAGE>
USE OF PROCEEDS
Based upon an assumed offering price of $8.00, we estimate that we will
receive net proceeds from the sale of the 7,600,000 shares of common stock
offered through this prospectus (after deducting underwriting discounts and
commissions and estimated offering expenses) of $55.2 million ($63.7 million
if the underwriters exercise their over-allotment option in full).
We intend to use the net proceeds from this offering for general corporate
purposes. While we have not determined specifically how the proceeds will be
allocated, we are conducting this offering at this time because we believe the
proceeds from this offering will be required for the development and expansion
of our business over the next two years and to enable us to compete against
other investment banking firms with much larger capital bases than we
currently have. The general corporate purposes for which we expect to use the
net proceeds of this offering include expanding our investment banking staff
and our sales and marketing capabilities, expanding our investment research
department, launching our digital trading facility, working capital
requirements and making investments, as appropriate, in the Angel Funds we
plan to establish. A portion of the net proceeds may possibly be used for
proprietary trading in support of our investment banking business and for
strategic acquisitions or investments. The proceeds of this offering will
generally help us cover operating costs, including compensation for
professionals, at a time when our revenues are growing but are not sufficient
to cover our costs. Finally, as we expand our underwriting, trading and other
market activities, we will need to maintain larger capital balances under
applicable regulatory requirements.
The foregoing represents our present intentions based upon our present plans
and business conditions. The occurrence of unforeseen events or changed
business conditions, however, could result in the application of the proceeds
of this offering in a manner other than as described in this prospectus.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and do
not expect to do so in the foreseeable future. We currently intend to retain
any earnings to finance the expansion and development of our business. Any
future payment of dividends will be made at the discretion of our Board of
Directors based upon conditions then existing, including our earnings,
financial condition and capital requirements as well as such economic and
other conditions as our Board of Directors may deem relevant.
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DILUTION
The net tangible book value of our common equity as of March 31, 1999, after
giving effect to (1) the sale of Series E preferred stock to Goldman Sachs,
(2) the exercise of an aggregate of 2,974,488 stock options by employees and
the related loans from us as described in "Certain Transactions--Loans to
Officers" subsequent to March 31, 1999 and (3) the conversion of all
outstanding preferred stock upon consummation of this offering, was $71.8
million, or $1.16 per share of common equity. Net tangible book value per
share is equal to our total tangible assets minus total liabilities divided by
the number of shares of common equity outstanding. After giving effect to the
sale of 7,600,000 shares of common stock offered through this prospectus at an
assumed initial public offering price of $8.00 per share (the mid-point of the
pricing range), deducting underwriting discounts and commissions and estimated
offering expenses payable by us, our net tangible book value as adjusted as of
March 31, 1999, would have been $127.0 million, or $1.83 per share of common
equity. This represents an immediate increase in net tangible book value as
adjusted of $0.67 per share to existing stockholders, and an immediate
dilution in net tangible book value as adjusted of $6.17 per share to new
investors purchasing shares of common stock in this offering. Dilution is
determined by subtracting pro forma net tangible book value per share after
this offering from the amount of cash paid by a new investor for a share of
common stock.
The following table illustrates the dilution per share as described above:
<TABLE>
<S> <C>
Assumed initial public offering price................................ $8.00
Net tangible book value as of March 31, 1999 (after giving effect to
the sale of shares of preferred stock, the exercise of an aggregate
of 2,974,488 stock options by employees and the related loans from
us subsequent to March 31, 1999 and the conversion of all outstand-
ing preferred stock upon consummation of this offering)............. 1.16
Increase in net tangible book value attributable to new investors.... .67
Pro forma net tangible book value after this offering................ 1.83
-----
Dilution per share to new investors.................................. $6.17
=====
</TABLE>
The following table sets forth on an as adjusted basis, as of March 31,
1999, after giving effect to (1) the sale of Series E preferred stock to
Goldman Sachs, (2) the exercise of an aggregate of 2,974,488 stock options by
employees and the related loans from us as described in "Certain
Transactions--Loans to Officers" subsequent to March 31, 1999 and (3) the
conversion of all outstanding preferred stock upon consummation of this
offering, the number of shares of common equity previously purchased from us,
the total cash consideration paid and the average price per share paid by the
existing stockholders and by new investors purchasing shares of common stock
in this offering, assuming an initial public offering price of $8.00 per
share:
<TABLE>
<CAPTION>
Total Cash
Shares Purchased Consideration Average
------------------ -------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 61,794,936 89% $ 88,481,003 59% $1.43
New Investors............. 7,600,000 11 60,800,000 41 8.00
---------- ----- ------------ -----
Total..................... 69,394,936 100.0% 149,281,003 100.0%
========== ===== ============ =====
</TABLE>
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The foregoing tables assume no exercise of the underwriters' over-allotment
option. If the underwriters' over-allotment is exercised in full, the pro
forma net tangible book value as of March 31, 1999, as adjusted, would have
been $135.5 million, or $1.92 per share, which would result in dilution to the
new investors of $6.08 per share, and the number of shares held by the new
investors would increase to 8,740,000, or 12% of the total number of shares to
be outstanding after this offering, and the number of shares held by the
existing stockholders would be 61,794,936 shares, or 88% of the total number
of shares to be outstanding after this offering. As of May 31, 1999, there
were outstanding options and warrants to purchase an aggregate of 16,383,903
shares of Class B and Class C common stock, 2,242,682 of which were then
exercisable, and we had also reserved up to an additional 3,818,066 shares of
Class C common stock for issuance upon the exercise of options which had not
yet been granted under the Stock Incentive Plan. To the extent options or
warrants are exercised, there will be further dilution to new investors.
18
<PAGE>
CAPITALIZATION
The following table shows our capitalization as of March 31, 1999:
. on an Actual basis;
. on a Pro Forma basis to give effect to: (1) the issuance and sale to
Goldman Sachs of Series E preferred stock subsequent to March 31, 1999 and
the receipt of $24.9 million in net proceeds; (2) the exercise of an
aggregate of 2,974,488 stock options by employees and related loans from
us as described in "Certain Transactions--Loans to Officers" subsequent to
March 31, 1999; (3) the increase in the number of authorized shares of
preferred stock; (4) the authorization of our Class B common stock and
Class C common stock; (5) the authorization of the class of common stock
offered by this prospectus and the conversion of all previously
outstanding shares of common stock into Class C common stock; and (6) the
conversion of all outstanding preferred stock into Class B and Class C
common stock upon consummation of this offering; and
. on a Pro Forma As Adjusted basis to reflect the sale of 7,600,000 shares
of common stock in this offering (at an assumed offering price of $8.00)
after deducting underwriting discounts and commissions and estimated
offering expenses.
This table should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes thereto included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Series A through E preferred stock, $.01 par
value, 60,000,000 shares authorized,
48,539,018 issued and outstanding, actual;
104,000,000 shares authorized, none issued
and outstanding, pro forma and pro forma as
adjusted................................... $ 485 $ -- $ --
Preferred stock, $.001 par value, none
authorized, issued and outstanding, actual;
30,000,000 shares authorized, none issued
and outstanding, pro forma and pro forma as
adjusted................................... -- -- --
Common stock, $.01 par value, 120,000,000
shares authorized, 13,176,468 issued and
outstanding, actual; none authorized,
issued and outstanding, pro forma and pro
forma as adjusted.......................... 132 -- --
Common stock, $.01 par value, none
authorized, issued and outstanding, actual;
500,000,000 shares authorized, none issued
and outstanding, pro forma; 500,000,000
shares authorized, 7,600,000 issued and
outstanding, pro forma as adjusted......... -- -- 76
Class B common stock, $.01 par value, none
authorized, issued and outstanding, actual;
75,000,000 shares authorized, 11,666,667
issued and outstanding, pro forma and pro
forma as adjusted.......................... -- 117 117
Class C common stock, $.01 par value, none
authorized, issued and outstanding, actual;
159,000,000 shares authorized, 50,128,269
issued and outstanding, pro forma and pro
forma as adjusted.......................... -- 501 501
Additional paid-in capital.................. 74,918 104,960 160,084
Notes receivable............................ (9,575) (15,334) (15,334)
Accumulated deficit......................... (18,460) (18,460) (18,460)
------- ------- --------
Total stockholders' equity................. 47,500 71,784 126,984
------- ------- --------
Total capitalization....................... $47,500 $71,784 $126,984
======= ======= ========
</TABLE>
This table excludes 10,746,608 shares of Class C common stock issuable upon
exercise of outstanding options and warrants and 5,637,295 shares of Class B
common stock issuable upon exercise of warrants. This table also excludes the
560,000 shares of Class C common stock that are referred to in "Business--
Legal Matters" and the 153,247 shares of Class B common stock subject to
additional warrants that may be issued to Goldman Sachs after September 25,
1999, as described in "Business--Investment Banking."
19
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data as of December 31, 1996,
1997 and 1998 and as of March 31, 1999 and for the period from March 27, 1996
(inception) to December 31, 1996, for the years ended December 31, 1997 and
1998 and for the three months ended March 31, 1999 have been derived from
audited financial statements included elsewhere in this prospectus. These
financial statements have been audited by Arthur Andersen LLP, independent
public accountants. The following selected financial data as of and for the
three months ended March 31, 1998 are derived from unaudited financial
statements which, in management's opinion, include all adjustments, consisting
of only normally recurring adjustments, necessary for a fair presentation.
Results of the interim periods are not necessarily indicative of results to be
obtained for a full fiscal year. Pro forma per share amounts are computed by
using the weighted average number of shares of common equity outstanding in
the relevant period as adjusted to give effect to the conversion of shares of
preferred stock outstanding during the respective periods. The Pro Forma
column reflects the issuance and sale to Goldman Sachs of Series E preferred
stock and the receipt of $24.9 million in net cash proceeds as well as the
exercise of an aggregate of 2,974,488 stock options by employees and related
loans from us as described in "Certain Transactions--Loans to Officers"
subsequent to March 31, 1999. The Pro Forma As Adjusted column reflects the
sale of 7,600,000 shares of common stock in this offering (at an assumed
offering price of $8.00) after deducting underwriting discounts and
commissions and estimated offering expenses. Our historical results are not
necessarily indicative of future results. You should read the following
selected financial data together with the financial statements and notes
thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from March Year Ended Three Months Ended
27, 1996 December 31, March 31,
(Inception) to --------------------- -----------------------
December 31, 1996 1997 1998 1998 1999
----------------- --------- ---------- ----------- ----------
(unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Investment banking.... $ -- $ 43 $ 1,515 $ 34 $ 3,122
Brokerage............. -- 10 295 22 434
Interest.............. 31 54 183 20 192
Other................. 10 139 45 -- 155
--------- --------- ---------- ---------- ----------
Total revenues...... 41 246 2,038 76 3,903
Expenses:
Compensation and
benefits............. 378 1,550 4,444 549 6,558
Marketing............. 326 503 900 231 51
Occupancy............. 42 201 237 42 90
Data processing and
communications....... 50 238 625 150 300
Technology
development.......... 532 511 1,156 51 336
Professional
services............. 283 330 878 94 681
Depreciation and
amortization......... 9 229 897 158 220
Brokerage and
clearance............ 2 6 186 14 261
Other................. 177 (352) 1,475 177 288
--------- --------- ---------- ---------- ----------
Total expenses...... 1,799 3,216 10,798 1,466 8,785
--------- --------- ---------- ---------- ----------
Operating loss........ (1,758) (2,970) (8,760) (1,390) (4,882)
Income tax provision.. 16 23 34 8 18
--------- --------- ---------- ---------- ----------
Net loss................ $ (1,774) $ (2,993) $ (8,794) $ (1,398) $ (4,900)
========= ========= ========== ========== ==========
Basic and diluted net
loss per share....... (0.33) (0.41) (1.23) (0.20) (0.67)
Weighted averaged
shares outstanding
used in basic and
diluted net loss per
common share
calculation.......... 5,378,167 7,303,013 7,140,123 7,056,095 7,266,428
Pro forma net loss per
share................ $ (.33) $ (.30) $ (.58) $ (.11) $ (.17)
Shares used in
computing pro forma
basic and diluted net
loss per share....... 5,452,997 9,930,376 15,120,868 12,848,431 28,074,407
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------
December 31,
-------------------- Pro Forma
1996 1997 1998 Actual Pro Forma As Adjusted
----- ------ ------- ------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 750 $1,111 $18,110 $41,194 $66,094 $121,294
Working capital......... 490 2,494 18,613 41,902 66,186 121,386
Total assets............ 2,655 5,837 22,296 50,292 75,192 130,392
Stockholders' equity.... 1,480 4,859 20,608 47,500 71,784 126,984
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with our financial statements and
the related notes and other financial information included elsewhere in this
prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including but not limited to those listed under "Risk Factors" and included in
other portions of this prospectus.
Overview
Founded in March 1996, we are an Internet investment banking and brokerage
firm. During 1996 and the first nine months of 1997, we engaged in organizing
activities, including the raising of capital to begin our business. We did not
conduct revenue generating activities during this period. During the last
three months of 1997 and the first three months of 1998, we generated only
minimal revenues from our investment banking and brokerage activities. As a
result, comparisons of our results of operations for the three months ended
March 31, 1998 and 1999 and for the years ended December 31, 1996, 1997 and
1998 are not meaningful or indicative of our future operating results. Our
present operations include investment banking and brokerage services, which we
aggregate into one reporting segment. Although revenues are reported by
activity, we do not presently allocate expenses related to the separate
activities.
As an Internet company, we have made a significant investment in our fixed
cost structure, and we will continue to expend substantial resources as we
upgrade our processing capabilities, expand the range of our brokerage
services, complete technical interfaces with our e-Dealers and launch our
digital trading facility. After these initial investments, we expect to
continually maintain and enhance these facilities and technology. As a result
of our investment in automated capabilities and since our customer acquisition
model does not depend on substantial sales and marketing-related costs, we
expect our variable costs in important aspects of our business will be lower
than the variable costs of traditional firms who rely on human brokers and
physical infrastructure, including branch offices.
Years Ended December 31, 1996, 1997 and 1998 and Three Months Ended March 31,
1998 and 1999
Revenues
<TABLE>
<CAPTION>
December 31, March 31,
------------------------- -------------------
1996 1997 1998 1998 1999
------ ------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Investment banking................ $ -- $43,000 $1,500,000 $ 34,000 $3,100,000
We derive investment banking revenue by underwriting equity offerings,
providing financial advisory services and arranging private equity placements.
Historically, the revenues we generated from underwriting activities were
limited since we received none or negligible portions of the management fees
usually paid to co-managing underwriters and our underwriting and sales
credits reflected our limited allocations of the shares being underwritten.
Recently, we have begun to receive management fees and larger allocations of
the shares in the underwritten offerings in which we are participating. For
financial advisory and private equity placement services, our revenues are
determined as a percentage of the total dollar value associated with the
specific size and type of transaction. In 1998, approximately 36% of this
revenue was generated by one financial advisory assignment in connection with
the sale of a company. For the three months ended March 31, 1999, our
investment banking revenue increased as a result of the continued development
of this business. This revenue came primarily from underwriting equity
offerings and financial advisory services.
<CAPTION>
December 31, March 31,
------------------------- -------------------
1996 1997 1998 1998 1999
------ ------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Brokerage......................... $ -- $10,000 $ 295,000 $ 22,000 $ 434,000
</TABLE>
21
<PAGE>
We also derive revenues from our brokerage operations. We charge a brokerage
commission of $19.95 for limit orders and $14.95 for market orders and earn
execution fees from market makers to whom our customer orders are routed. In
1998, brokerage revenue reflected the increases in the number of our customer
accounts and in customer trading activity. For the three months ended March
31, 1999, our brokerage revenue continued to reflect the increase in the
number of customers accounts which were opened and a corresponding increase in
the number of trades that we executed.
<TABLE>
<CAPTION>
December 31, March 31,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Interest..................... $ 31,000 $ 54,000 $ 183,000 $ 20,000 $ 192,000
Interest revenue is derived from the investment of cash balances raised
through private financing activities until the funds are used in our business.
The increases in interest revenue reflect the increase in investments our
stockholders made in us.
<CAPTION>
December 31, March 31,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Other........................ $ 10,000 $ 139,000 $ 45,000 $ -- $ 155,000
We had other revenue in 1996 relating to a consulting assignment. In 1997,
we had other revenue consisting of a one-time publishing royalty payment
assigned to us by Mr. Klein. In 1998, we had other revenue consisting of
unrealized gain on an investment. Other revenue for the three months ended
March 31, 1999 was related to an unrealized gain on an equity security
position that we had received as consideration for financial advisory
services.
Expenses
<CAPTION>
December 31, March 31,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Compensation................. $378,000 $1,550,000 $4,444,000 $549,000 $6,558,000
Compensation consists of salaries, bonuses and benefits we pay or give to
our employees. In addition to their base salaries, our investment bankers and
other personnel are entitled to incentive compensation consisting of up to 40%
of the revenues generated in each investment banking transaction after
deducting certain deal-related expenses. The increases in compensation expense
reflect the increases in the number of our employees. We had 9, 25 and 66
employees, respectively, at December 31, 1996, 1997 and 1998 and 111 employees
at March 31, 1999. We hired new employees and members of management in all
areas of our business including investment banking and research. As we hire
more investment banking professionals and participate in more transactions, we
expect our compensation expense to grow significantly. In February 1999, we
entered into employment contracts with several professionals which entitled
them to a total of $5.5 million in up front payments. We recognized
compensation expense of $2.6 million related to those portions of the amount
paid for which no future services by the employees are required.
<CAPTION>
December 31, March 31,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Marketing.................... $326,000 $ 503,000 $ 900,000 $231,000 $51,000
</TABLE>
Our marketing expenses are associated with promoting our investment banking
business and acquiring new brokerage customers. The increases in our marketing
expense during 1997 and 1998 reflect our increasing efforts to develop our
name brand recognition. Although our marketing expenses during the first
quarter of 1999 were less than in the prior year period, we expect these
expenses to increase significantly in connection with marketing our growing
investment banking capabilities and with the planned roll-out of our digital
trading facility. In 1997 and 1998, we used $750,000 of media credits we had
previously purchased. Our marketing expense decreased from the three months
ended March 31, 1998 to the three months ended March 31, 1999 as we have
focused on acquiring customers simply by offering access to initial public
offerings.
22
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
------------------------------ -----------------
1996 1997 1998 1998 1999
---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Occupancy........................... $ 42,000 $201,000 $ 237,000 $ 42,000 $90,000
Our occupancy expense includes costs related to our leasing of office space
in New York and San Francisco. The increases in occupancy expense reflect our
growth and need for expanded office facilities. In 1998, we opened our San
Francisco investment banking office. We leased an additional floor in our New
York office during the three months ended March 31, 1999. We expect these
costs to increase as we grow.
<CAPTION>
December 31, March 31,
------------------------------ -----------------
1996 1997 1998 1998 1999
---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Data processing and communications.. $ 50,000 $238,000 $ 625,000 $150,000 $300,000
Our data processing and communications expense reflects the costs of our
communications equipment and our brokerage operations. The increases in data
processing and communications expense are attributable to an increased number
of customer accounts and trades executed by our customers, as these costs
relate primarily to trade processing and clearance, and communication with our
customers.
<CAPTION>
December 31, March 31,
------------------------------ -----------------
1996 1997 1998 1998 1999
---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Technology.......................... $ 532,000 $511,000 $1,156,000 $ 51,000 $336,000
Our technology expense includes the costs related to the operation of our
online underwriting and brokerage system and the development of our digital
trading facility. Technology expense was reduced between 1996 and 1997 as we
focused on launching our investment banking operations in 1997. In 1998, our
technology expense reflected the development of our systems and increased
commitment to the digital trading facility. We expect technology costs to
increase with our growth and the roll-out of our digital trading facility. For
the three months ended March 31, 1999, technology expense reflected the
continuing development of our digital trading facility and enhancement of our
Web site and current technology cababilities. We currently estimate that we
will spend up to an additional $1.5 million in 1999 for the technical
development of our digital trading facility.
<CAPTION>
December 31, March 31,
------------------------------ -----------------
1996 1997 1998 1998 1999
---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Professional services............... $ 283,000 $330,000 $ 878,000 $ 94,000 $681,000
Our professional services expense encompasses legal, accounting, recruiting
and consulting fees associated with all aspects of our business. The increase
in professional services expense from 1996 to 1997 reflected the ordinary
growth of our business. In 1998, our need for professional services increased
due to the expansion of our investment banking operations and the development
of our digital trading facility. For the three months ended March 31, 1999, we
incurred significant professional recruiting expenses.
<CAPTION>
December 31, March 31,
------------------------------ -----------------
1996 1997 1998 1998 1999
---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Depreciation and amortization....... $ 9,000 $229,000 $ 897,000 $158,000 $220,000
Depreciation and amortization consists primarily of depreciation of property
and equipment and amortization of intangible assets related to software
acquisitions. The increases in depreciation and amortization reflected the
increased investments we made in our equipment and the expansion of our
facilities.
<CAPTION>
December 31, March 31,
------------------------------ -----------------
1996 1997 1998 1998 1999
---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Brokerage and clearance............. $ 2,000 $ 6,000 $ 186,000 $ 14,000 $261,000
</TABLE>
23
<PAGE>
Brokerage and clearing expense consists mainly of fees paid to our clearing
agent. The increases in our brokerage and clearance expense reflect the growth
of our brokerage operations.
<TABLE>
<CAPTION>
December 31, March 31,
------------------------------ -----------------
1996 1997 1998 1998 1999
-------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Other.......................... $177,000 $(352,000) $1,475,000 $177,000 $288,000
</TABLE>
Other expenses include travel, entertainment and other administrative
expenses. In 1997, other expenses included a credit of $750,000 to reflect a
repurchase of our common stock and a corresponding reduction of other expenses
(see note 5 to our consolidated financial statements). The increase in other
expenses in 1998 includes write-downs of $782,000 related to media credits we
had previously acquired but which we, in view of a revised marketing strategy
in 1998, decided not to use. In 1998 and through the first quarter of 1999, we
experienced an increase in travel and entertainment expenses related to
expanding our business and an increase in administrative expenses.
Liquidity And Capital Resources
Historically, we have satisfied our cash requirements primarily through
private placements of convertible preferred stock and common stock. As of
March 31, 1999, we had $41.2 million in cash and cash equivalents. After
giving effect to the sale of preferred stock to Goldman Sachs, we had $66.1
million in cash and cash equivalents. We believe that the cash proceeds from
this offering, together with our existing cash balances, will be sufficient to
meet anticipated cash requirements for at least the twelve months following
the date of this prospectus. We may, nonetheless, seek additional financing to
support our activities during the next twelve months or thereafter. There can
be no assurance, however, that additional capital will be available to us on
reasonable terms, if at all, when needed or desired.
Net cash used in operating activities was $1.7 million for the three months
ended March 31, 1998 and $8.1 million for the three months ended March 31,
1999. Net cash used in operating activities was $6.9 million for 1998 and $3.9
million for 1997. Cash used in operating activities for 1998 resulted
primarily from a net loss of $8.8 million and a net increase in operating
liabilities of $711,000 and a net increase in operating assets of $1.2
million, offset by depreciation and amortization of $897,000 and non-cash
expenses of $1.5 million. Cash used in operating activities in 1997 was
primarily attributable to a net loss of $3.0 million, plus non-cash expense
reimbursement of $750,000.
Net cash used in investing activities for the three months ended March 31,
1998 was $31,000 and for the three months ended March 31, 1999 was $543,000.
Net cash used in investing activities for 1998 of $458,000 was primarily
attributable to purchases of fixed assets. Net cash used in investing
activities of $828,000 for 1997 was attributable to $240,000 used for the
purchase of fixed assets and $588,000 used in computer software development.
Net cash provided by financing activities was $1.3 million for the three
months ended March 31, 1998 and $31.8 million for the three months ended March
31, 1999. Net cash provided by financing activities was $24.3 million for 1998
and primarily consisted of proceeds from the issuance of preferred stock. Net
cash provided by financing activities was $5.1 million for 1997 and primarily
consisted of proceeds from the issuance of preferred stock.
Year 2000
The Year 2000 issue involves the potential for system and processing
failures of date-related data resulting from computer-controlled systems using
two digits rather than four to define the applicable year. For example,
computer programs that contain time-sensitive software may recognize a date
using two digits of "00" as the year 1900 rather than the year 2000. This
could result in system failure or miscalculations causing disruptions of our
operations, including, among other things, a temporary inability to process
transactions in connection with our investment banking and brokerage
activities.
24
<PAGE>
Because we are dependent, to a very substantial degree, upon the proper
functioning of computer systems, the failure of any computer system to be Year
2000 compliant could materially adversely affect us. Failure of this kind
could, for example, cause settlement of trades to fail, lead to incomplete or
inaccurate accounting, recording or processing of trades in securities, result
in generation of erroneous results or give rise to uncertainty about our
exposure to trading risks and our need for liquidity. If not remedied,
potential risks include business interruption or shutdown, financial loss,
regulatory actions, reputational harm and legal liability.
We have formed a committee, the Y2K steering committee, to investigate and
resolve Year 2000 compliance issues. This committee's mandate is to guide and
coordinate the efforts of the various core business units which are working on
Year 2000 compliance and to manage the assessment, planning, testing and
implementation of Year 2000 compliant systems for the entire company. The Y2K
steering committee created a process for developing an inventory of all
information systems we use. The inventory included all internal and external
systems that were mission critical. To determine whether a mission critical
system posed a potential problem for us, we:
.interviewed vendors;
.analyzed the system with testing software;
.interviewed programmers and developers; and
.reviewed program code.
During the planning stage of the project, we received additional investments
from stockholders which, among other things, permitted us to accelerate our
replacement strategy. Information systems originally in need of remediation
for Year 2000 compliance have or will be replaced by June 30, 1999, after
which we will promptly begin the new systems' testing. These include:
.telephone switch and all related instruments;
.internal LAN and router environment;
.internal hosted Web site; and
.our servers.
We have completed our internal information technology and non-information
technology assessment, and we believe that our internal software and hardware
systems will function properly with respect to dates in the year 2000 and
thereafter. Our costs to date related to our Year 2000 assessment and
remediation plans are $25,000, and we estimate that we will have additional
remediation costs of $100,000.
In addition, we depend upon the proper functioning of third-party computer
and non-information technology systems. These parties include depositories,
clearing agencies, clearing houses, commercial banks and other vendors. We
have contacted every material vendor with whom we have important financial or
operational relationships to determine the extent to which they are vulnerable
to the Year 2000 issue. We have carefully assessed the responses to the Year
2000 questions we asked these vendors. Each vendor has participated in
and passed the Year 2000 compliance tests formulated by the Securities
Industry Association. These vendors have also provided us written
documentation that they are Year 2000 compliant and confirmed that they have
passed the SIA sponsored industry test. Since we do not require unique
services from any of these vendors, we believe the SIA testing indicates general
Year 2000 compliance. In the event any of these vendors prove not to be Year
2000 compliant, we believe that we could find a replacement vendor who is Year
2000 compliant, although not without significant expense or delay. However,
based on management's current information, we expect to incur no significant
costs in the future for Year 2000 problems.
Our management's worst case scenario in connection with Year 2000 issues is
that there will be a failure on the part of one or more of our important
vendors and that we will experience difficulties in finding replacement
vendors. If these vendors are not Year 2000 compliant, despite their internal
and external testing, we, as well as many of their other clients, will face
system and processing failures until these issues can be resolved. We plan to
complete our contingency plan by June 30, 1999. Additionally, any Year 2000
problems experienced by our advertising customers could affect the placement
of advertisements on our online services.
25
<PAGE>
Disruption or suspension of activity in the world's financial markets is
also possible. In addition, uncertainty about the success of remediation
efforts generally may cause many market participants to reduce the level of
their market activities temporarily as they assess the effectiveness of these
efforts during a "phase-in" period beginning in late 1999 and early 2000. This
in turn could result in a general reduction in trading and other market
activities (and lost revenues) as well as reduced funding availability in late
1999 and early 2000. We cannot predict the impact that such reduction would
have on our business.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP
98-1 provided guidance over accounting for computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. We do not expect the adoption of this
standard to have a material effect on our capitalization policy.
26
<PAGE>
BUSINESS
Our business comprises Internet investment banking and online brokerage. We
are also developing a Web-based after-hours digital trading facility and, in
the future, we intend to create and manage proprietary Angel Funds primarily
for high net worth individuals. In 1998, our investment banking revenue and
our brokerage revenue represented 74% and 14% of our total revenues,
respectively. In the first quarter of 1999, our investment banking revenue and
our brokerage revenue represented 80% and 11% of our total revenues,
respectively. As our business develops and our client and customer bases grow,
these percentages may change, and, accordingly, they may not be indicative of
our future results.
Investment Banking
Our Internet investment banking services are divided into three revenue
generating categories: public underwriting, financial advisory services and
private equity. We also produce investment research which we believe will
enable us to win investment banking mandates, increase our underwriting share
allocations and provide beneficial information to our individual customers. In
the future, we may engage in proprietary trading to support our investment
banking activities.
Our investment banking activities focus on the Internet sector and, more
generally, on issuers seeking to market their stock offerings to online
investors. Beginning recently, we are focusing as well on other rapidly
growing sectors of the economy that are related to or dependent on Internet
technology.
We believe the Internet will open the equity markets to individual investors
and thereby change the model of capital formation that exists today. In
particular, we believe that the Internet presents the opportunity to align the
interests of individual investors and corporate issuers by making public
offering materials and investment research available to individuals on a
timely basis and by providing individual investors the opportunity to purchase
new issue shares at the offering price. Traditionally, major underwriters have
presented public offerings primarily to select institutional purchasers who,
as a result, have played a dominant role in pricing new issues. Individual
investors, who account for approximately 43% of direct ownership of publicly
traded equity securities, have been largely excluded from these offerings. We
believe that a primary reason for this is the extensive human effort and cost
required to market equity offerings with printed prospectuses and to monitor
and confirm the interest of numerous individuals by person-to-person
communication. By marketing public offerings to individual investors
electronically, we believe underwriters and corporate issuers will be able to
access efficiently the retail market and will have at hand instantaneous
information as to the level of retail interest for their equity offerings.
This information about individual investor interest in public offerings should
lead to more accurate pricing.
As the Internet rapidly becomes a critical medium for collecting and
exchanging information and conducting commerce for nearly all businesses, we
believe that corporate clients will gravitate towards those investment banking
firms that leverage their knowledge and expertise about the Internet. The
speed of this development is driven by the Internet's power to reduce costs
related to the sale and delivery of traditionally provided goods and services
and by its capacity to support new forms of business-to-business, business-to-
consumer and consumer-to-consumer relationships. It is also driven by the
increasing awareness of, and the relatively inexpensive access to, the
Internet by individuals. According to Jupiter Communications, the percentage
of households in the United States using the Internet grew from 9.7% in 1994
to 34.2% in 1998.
We have built a team of forty-six investment banking and research
professionals with broad abilities to perform traditional investment banking
functions such as deal selection and origination, due diligence, valuation,
deal structuring and prospectus preparation. Our investment bankers, executive
officers and investors have strong relationships with corporate issuers,
venture capitalists and other influential persons and entities in the
financial services sector. In addition, our senior investment banking and
research professionals have a strong history of working with Internet
companies and developing Internet strategies and businesses. Our chairman and
co-chief executive officer, Robert H. Lessin, was previously a vice chairman
at Salomon Smith Barney and was head of investment banking at Smith Barney
prior to its merger with Salomon Brothers. Prior to that, he was vice
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chairman of the investment banking operating committee at Morgan Stanley. Our
director of research, Jonathan Cohen, was previously Merrill Lynch's senior
Internet analyst and for each of the last three years was named to
Institutional Investor's "All American Research Team" for the Internet sector.
Other senior banking personnel also have significant business generating
capabilities and investment banking experience in the Internet sector.
Public Underwriting
We have pioneered the business of online retail distribution of shares in
public offerings. As a result, we have benefited from publicity and word of
mouth exposure which we believe has established Wit Capital as a leading
provider of online investment banking services. Since commencing operations in
September 1997, we have participated in ninety-one public equity offerings,
including seventy initial public offerings, lead managed by established
investment banking firms, including BancBoston Robertson Stephens, Bear
Stearns, BT Alex. Brown, Donaldson Lufkin & Jenrette, Goldman Sachs, Hambrecht
& Quist, J.P. Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, Salomon
Smith Barney and Schroders. As of May 31, 1999, we were participating in
seventeen public offerings that are in registration, including this offering.
The following list reflects the public offerings in which we have played or
are playing a sufficiently significant role such that our name has appeared or
will appear on the cover of the prospectus. In such circumstances, we
characterize our role as e-Manager, a term for which we have a pending
trademark application.
<TABLE>
<CAPTION>
Number of Shares Percentage of Total
Issuer Lead Manager Date Underwritten by Us Underwritten Shares
------------------------- ------------------------ ----------------- ------------------ -------------------
<C> <S> <C> <C> <C>
EarthWeb Inc. J.P. Morgan & Co. November 10, 1998 63,000 3%
MarketWatch.com, Inc. BT Alex. Brown and January 15, 1999 69,000 2%
Donaldson, Lufkin &
Jenrette
VerticalNet, Inc. Lehman Brothers February 10, 1999 70,000 2%
Prodigy Communications Bear, Stearns & Co. Inc. February 10, 1999 184,000 2%
Corporation
iVillage Inc. Goldman, Sachs & Co. March 18, 1999 57,500 1%
MiningCo.com, Inc. Bear, Stearns & Co. Inc. March 23, 1999 69,000 2%
OneMain.com, Inc. BT Alex. Brown March 24, 1999 402,500 4%
Globix Corporation Donaldson, Lufkin & March 22, 1999 35,000 1%
Jenrette
Network Appliance, Inc. Lehman Brothers March 31, 1999 55,000 2%
PLX Technology, Inc. Merrill Lynch & Co. April 5, 1999 135,000 4%
XOOM.com, Inc. Bear, Stearns & Co. Inc. April 8, 1999 200,000 4%
iTurf Inc. BT Alex. Brown and April 8, 1999 75,000 2%
Hambrecht & Quist
Net Perceptions, Inc. BancBoston Robertson April 22, 1999 125,000 3%
Stephens
SoftNet Systems, Inc. BT Alex. Brown April 22, 1999 103,500 2%
Mpath Interactive, Inc. BancBoston Robertson April 28, 1999 125,000 3%
Stephens
AppliedTheory Corporation Bear, Stearns & Co. Inc. April 30, 1999 163,300 3%
Flycast Communications BT Alex. Brown May 4, 1999 90,000 3%
Corporation
EarthWeb Inc. J.P. Morgan & Co. May 6, 1999 65,000 5%
theglobe.com, inc. Bear, Stearns & Co. Inc. May 19, 1999 120,000 2%
CAIS Internet, Inc. Bear, Stearns & Co. Inc. May 20, 1999 456,000 8%
barnesandnoble.com inc. Goldman, Sachs & Co. May 25, 1999 940,000 4%
and Merrill Lynch & Co.
StarMedia Network, Inc Goldman, Sachs & Co. May 25, 1999 80,000 1%
1-800-FLOWERS.COM, Inc. Goldman, Sachs & Co. In Registration -- --
Audible, Inc. Credit Suisse First In Registration -- --
Boston
BackWeb Technologies Ltd. BancBoston Robertson In Registration -- --
Stephens
</TABLE>
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<TABLE>
<CAPTION>
Number of Shares Percentage of Total
Issuer Lead Manager Date Underwritten by Us Underwritten Shares
----------------------------- ------------------------ --------------- ------------------ -------------------
<C> <S> <C> <C> <C>
Blockbuster Inc. Salomon Smith Barney and In Registration -- --
Bear Stearns & Co. Inc.
Care Insight Merrill Lynch & Co. In Registration -- --
Covad Communications Group Bear, Stearns & Co. Inc. In Registration -- --
and Morgan Stanley
drkoop.com, Inc. Bear, Stearns & Co. Inc. In Registration -- --
Hoover's, Inc. J.P. Morgan and Lehman In Registration -- --
Brothers
Internet Capital Group Merrill Lynch & Co. In Registration -- --
Mail.com, Inc. Salomon Smith Barney In Registration -- --
Medscape, Inc. Donaldson, Lufkin & In Registration -- --
Jenrette
MyPoints.com, Inc. BancBoston Robertson In Registration -- --
Stephens
Student Advantage Inc. BancBoston Robertson In Registration -- --
Stephens
US SEARCH Corp.com Bear, Stearns & Co. Inc. In Registration -- --
Viant Corporation Goldman, Sachs & Co. In Registration -- --
WatchGuard Technologies, Inc. Dain Rauscher Wessels In Registration -- --
</TABLE>
In every transaction, we accept underwriting risks and liabilities in the
same manner as do traditional investment banking firms, and we perform the
requisite services, such as assisting in deal structure, due diligence and
prospectus preparation. In contrast to the way securities are offered and sold
by traditional underwriters, however, we offer and sell shares to individual
investors on a first-come, first-served basis. We have recently changed our
first-come, first-served allocation process so that those investors who place
their conditional offers for shares within a stipulated period have equal
priority. We use a random number generation process if we need to establish
priority within this group. We determine priority among those investors who
place their conditional offers after the stipulated period based on the time
of receipt of their conditional offers. For certain issuers, we also
facilitate special or affinity distributions to online investors having some
existing relationship with the issuer, such as their customers, suppliers and
employees.
We maintain direct access to individual investors who have accounts with us
or who are active members on our electronic mailing list. In addition, we
expect to be able to offer and sell shares to a substantial number of online
investors through exclusive e-Dealer agreements entered into with twenty-two
online discount brokerage firms. These firms include Quick & Reilly,
SureTrade, Waterhouse Investor Services, National Discount Brokers, Datek
Online, Southwest Securities and Wall Street Access. In the aggregate, we
believe these e-Dealers handled approximately 29% of the total number of
online brokerage trades in the fourth quarter of 1998. The e-Dealer agreements
give us the exclusive right to offer the e-Dealers participation as selected
dealers in any public offering in which retail orders from more than one
broker-dealer are aggregated in a central electronic order book. The e-Dealer
agreements do not obligate the e-Dealers to accept our invitation to
participate in any of these offerings. All but two of these agreements have
remaining terms of two to three years; those two agreements expire in August
2000. The exclusivity provisions of the e-Dealer agreements may be terminated
before the end of their respective terms if we are unable to provide specified
share allocations in public offerings or a specified number of offers to
participate in public offerings, and, at the time, we are not the leading
facilitator of online distribution through an electronic network of dealers.
The e-Dealers are in various stages of developing the technical capacity and
interfaces that will enable them to participate in our offerings. See "Risk
Factors." In public offerings in the future, if and when such technical
capacity and interfaces are established, where we act as e-Manager of the
offering, we intend to invite the customers of the e-Dealers, together with
our direct customers, to purchase shares in such public offerings on a first-
come, first-served basis without regard to which brokerage firm has the
investor's account. We expect to share with the e-Dealers selling concessions
from the shares sold to their customers.
We have developed an automated Web-based system to handle securities
offerings. This automated system includes basic brokerage functions through
which investors can view offering documents and enter orders to
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<PAGE>
purchase securities. The system includes features that allow us to test for
customer suitability (to manage regulatory obligations) and for customer
buying power (to manage risk). The system assists our policy of discouraging
"flipping" of securities. Flipping generally refers to buying shares in an
initial public offering and selling them immediately for a profit. By tracking
our customers' holding and sale of underwritten securities they purchase from
us, our system assists our policy of discouraging our customers' selling of
these securities before 60 days have elapsed. Customers who flip lose priority
to customers who have not flipped in our first-come, first-served selling
process. The system also includes a fully automated electronic order book. We
are developing enhancements to our system, including interfaces and database
management tools, that will enable multiple e-Dealers to send orders to, and
view, modify or cancel orders in, our electronic order book.
Our basic procedures for offering and selling shares to individual investors
in public offerings are as follows:
. The printed preliminary prospectus is finalized and the traditional
roadshow commences.
. We place a digital version of the preliminary prospectus on the Web.
. We send by electronic mail an alert notifying our direct customers and
persons on our e-mail list and, once the e-Dealers are able to
participate, the e-Dealer customers, that a new issue is available. In
some cases, we also send an electronic mail alert to online investors
having an affinity relationship with the issuer.
. Each alert contains a link to the digital version of the preliminary
prospectus.
. Investors interested in the offering are invited by the alert to click on
a hyperlink that takes them directly to the preliminary prospectus. At
this point, investors must submit their e-mail address to gain access to
the preliminary prospectus.
. Before placing a conditional offer, investors must open a brokerage
account with us if they do not already have one with us or with one of the
e-Dealers that has become operational and is participating in the
offering. Investors interested in purchasing shares then click to a Web
page where they can place a conditional offer.
. The conditional offers flow through automated brokerage systems to ensure
regulatory compliance and protect against credit risks.
. Validated offers are routed to our electronic order book, where they are
time and date stamped to ensure the integrity of our first-come, first-
served process.
. When the SEC declares the registration statement containing the
prospectus effective, we then obtain affirmative confirmation of each
investor's conditional offer by again sending an e-mail notice with a
hyperlink to a Web page.
. After pricing, the lead underwriter determines the number of shares
allocated for us to sell. We then allocate those shares on a first-come,
first-served basis to investors who have confirmed offers in our
electronic order book, subject to minimum and maximum amounts per
customer. All those investors who have placed their conditional offers
within a stipulated period will have equal priority. We use a random
number generation process if we need to establish priority within this
group. We determine priority among those investors who place their
conditional offers after the stipulated period based on the time of
receipt of their conditional offers. Affinity group allocations are made
separately.
. Finally, we confirm each customer's purchase through electronic mail.
We offer issuers contemplating public offerings several capabilities:
. We provide broad dissemination of offerings to online individual
investors, which should result in more demand for shares once they are
publicly traded. For retail-oriented issuers, such broad dissemination
should also result in increased customer awareness for the issuer's
products or services.
. We broaden the investor demand for the issuer's shares by providing a
timely and cost-effective way to access groups having an affinity
relationship with the issuer, such as customers, suppliers or employees.
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<PAGE>
. We are able to deliver and analyze data about the retail demand for a
proposed offering by collecting conditional offers from online individual
investors in our central electronic order book. This should enable issuers
to negotiate more appropriate prices for their shares as compared to
prices negotiated primarily on the basis of data about institutional
investor interest.
. We offer broad online dissemination to individuals of investment
research, which should result in more interest in and recognition of the
issuer among individual investors in the secondary market.
Although we believe recent transactions demonstrate our ability to win
mandates to facilitate Internet distribution, we have not yet been compensated
fully as a co-manager. We have earned only a negligible share of the
management fee or no management fee at all. Moreover, we have not received
large enough share allocations to satisfy our customers' demand. We believe
that our ability to create and broadly disseminate high quality investment
research will be an important factor in obtaining more significant share
allocations and earning full compensation as co-managers. In addition, while
we do not intend to engage in market making as a separate line of business, we
are considering engaging in limited proprietary trading, that is, the buying
and selling of securities for our own account, to the extent we conclude that
having such a trading capacity will enhance our ability to obtain investment
banking assignments.
We currently focus on originating public offerings of common stock. In the
future, we intend to explore opportunities to extend our investment banking
services to include preferred stock, convertible securities and other debt and
debt-related securities that we believe will appeal to individual investors.
Financial Advisory Services
In addition to our capital raising services, we also advise corporate
clients in connection with developing Internet strategies and businesses and
with mergers and acquisitions. These activities complement our public and
private equity businesses and allow us to offer a mix of investment banking
services to our clients during the course of their development. Senior members
of our management have had advisory relationships with a number of
corporations that are now clients or potential clients.
Private Equity
We have a private equity group that assists private and public corporate
issuers, as well as investment funds, in raising private capital. The private
equity group is focused on raising equity capital from traditional
institutional and venture capital sources and strategic investors. In these
activities, the private equity group uses the Internet to reduce transaction
costs for the clients and investors. In the future, we plan to offer private
equity to high net worth individual investors online. We may also market to
the same individuals our Angel Funds, which will themselves make investments
on a private placement basis.
Private placements cannot be offered through general solicitation, and thus
our private equity group will not be able to fully leverage the mass
communication potential of the Internet. On the other hand, since private
equity transactions are generally subject to less stringent regulations
regarding the form and content of marketing materials, the private equity
group has greater latitude to use online marketing materials and other means
of efficient dissemination of information as compared to public underwriting
practices.
Investment Research
Our newly formed research department will initially provide investment
research on the Internet industry and Internet companies. To support our
investment banking activities, we intend to extend our research coverage into
other fast growing sectors of the economy that are related to or dependent on
Internet technology, including hardware, software, consumer goods,
telecommunications, education, and healthcare and to issuers who are seeking
access to the online investor base. Building our research capability will
require a substantial investment in qualified personnel. However, we believe
that investment research will enable us to win investment banking mandates,
increase our underwriting share allocations and provide beneficial information
to our individual investor customers.
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Recently we hired Jonathan Cohen to become our director of research. Mr.
Cohen is now building a team of junior and mid-level research analysts to work
with him. We have also recently hired a senior editor from BusinessWeek to
design and execute a plan for creating a research platform that uses the
interactive capabilities of the Internet and also speaks to individual
investors in a manner more comprehensible as compared to traditional
investment research.
In contrast to established research practices--where high quality research
is closely held and shared only with a brokerage firm's favored clients--we
intend to disseminate our research for free on our Web site to our customers
and to customers of our e-dealers through their Web sites. We also plan to
disseminate our research through syndication arrangements with other Web
content and portal companies. We will not charge customers, brokerage firms or
Web content or portal sites for our research. We believe that this strategy
will enable us to build brand recognition and exposure rapidly, without the
cost of advertising or marketing. Our e-Dealer relationships are expected to
ensure a broad platform for the dissemination of our research product.
Recent Investment by Goldman Sachs
Goldman Sachs and we have agreed to work together to solicit investment
banking assignments when we both agree that such efforts will be mutually
commercially beneficial. In addition, Goldman Sachs has agreed to support our
participation in public offerings of equity securities when we both agree that
such participation will be similarly beneficial. Goldman Sachs also has
agreed, under certain circumstances, to support us as an investment banking
firm to handle sales of underwritten shares to groups having a preexisting, or
affinity, relationship with the issuer in connection with any public offering
which they lead manage.
We believe our relationship with Goldman Sachs will provide us important
strategic advantages for our investment banking business, including valuable
access to new prospective clients and to large and desirable public offerings
and other transactions and assignments. We further believe our relationship
will enhance our efforts to diversify and expand our investment banking
capabilities beyond our initial Internet focus. Additionally, we expect our
relationship to give us increased acceptance and stature in the investment
banking community and with corporate clients. Our relationship with Goldman
Sachs may, however, make it more difficult for us to develop or maintain
relationships with other investment banking firms. See "Risk Factors."
On April 9, 1999, we issued 11,666,667 shares of Series E preferred stock
for a purchase price of $25 million. Goldman Sachs also received 5,637,295
warrants to purchase Series E preferred stock. The warrants may be exercised
beginning in October 2000 at a per share exercise price equal to the average
of $2.14 and the initial public offering price of this offering. Upon
consummation of this offering, shares of Series E preferred stock will convert
automatically into an equal number of shares of Class B common stock and the
warrants, when exercisable, will be exercisable for Class B common stock. In
addition, Goldman Sachs has the right to receive up to an additional 153,247
warrants to purchase Class B common stock depending upon the resolution of the
dispute referred to in "--Legal Matters."
Brokerage
We offer to our direct customers brokerage services such as stock and option
trading, access to more than 3,800 mutual funds, portfolio tracking and record
management as well as cash management services and market information. These
services are provided through the Internet and touch-tone telephone access.
Our ordinary commission rates are $14.95 for market orders and $19.95 for
limit orders. As part of brokerage services, we provide news and other
information services through arrangements with third-party vendors, including
CBS Marketwatch, Big Charts, Zacks, Briefing.com, Free Edgar, Hoovers, IPO
Monitor, Individual Investor, Moneyclub.com, Wired News and Red Herring. As of
April 30, 1999, we had approximately 41,000 customer accounts. As of March 31,
1999, we had approximately 26,000 customer accounts, compared to 10,800 on
December 31, 1998, 7,800 on September 30, 1998, 5,300 on June 30, 1998 and
3,100 on March 31, 1998. The daily average number of secondary market trades
our customers executed through us during April 1999 was 926.
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The daily average number of secondary market trades our customers executed
through us during the three-month period ending March 31, 1999 was 405,
compared to 106 for the three-month period ended December 31, 1998, 45 for the
three-month period ended September 30, 1998, 25 for the three-month period
ended June 30, 1998 and 12 for the three-month period ended March 31, 1998.
Customer Service and Compliance. We are making a substantial commitment to
provide a high quality of customer service through our call center. We are
expanding our telephone system capacity and additional aspects of our
infrastructure. We are increasing the number of operators in our call center
and the amount of office space they occupy, and we have hired additional
management to supervise our call center. We are also expanding the hours of
operation of our call center in order to better ensure the satisfaction of our
customers. In addition, we are making a substantial investment to ensure that
our operations are adequately structured and supervised to be in compliance
with applicable regulations. The rapidly increasing level of telephone and e-
mail inquiries at times has strained the capacity of our telecommunications
system and our customer service staff. In addition, on occasion we have
experienced temporary disruptions in our Web site service. As a result, our
customers have sometimes been unable to contact us in a timely manner.
Clearing and Settlement. U.S. Clearing, a division of Fleet Securities,
clears our customer transactions on a fully-disclosed basis. U.S. Clearing is
a registered broker-dealer that provides clearing services to over 300
brokerage firms. Its services for our customers include the confirmation,
receipt, execution, settlement and delivery functions involved in securities
transactions, as well as safekeeping of customers' securities and assets and
certain customer record keeping, data processing and reporting functions. We
are also increasing our trade processing capabilities to better facilitate the
clearing of trades we execute for our customers.
Under our agreement with U.S. Clearing, we pay clearing and execution fees
according to a schedule. In addition, the agreement requires U.S. Clearing to
share with us execution revenues and interest revenue earned in connection
with margin and stock borrowing balances kept by our customers and also
provide us a fee on balances maintained by these customers with selected money
market funds. We must indemnify U.S. Clearing for, among other things, any
loss or expense due to the failure of customers to: (1) pay for securities
purchased by them, (2) promptly deliver securities sold by them, (3) deposit
sufficient collateral to support their borrowing when requested by U.S.
Clearing and (4) remit excessive disbursements of funds or any other valid
charges imposed by U.S. Clearing.
Digital Trading Facility
We are developing an after-hours Web-based digital trading facility in which
our customers and customers of other participating brokers will be able to
trade Nasdaq and exchange listed securities directly with each other outside
of regular market hours. Through this facility, investors will be able to post
orders to a public limit order book accessible by all other participants in
the facility. Investors can then accept orders posted by others in the limit
order book.
We plan to offer the after-hours digital trading facility later in 1999. To
successfully launch our digital trading facility, we need to complete the core
technology, provide a sound operational environment, secure the participation
of a sufficient number of broker-dealers and complete arrangements for
marketing the facility through Web content and portal companies and otherwise.
We can make no assurances that we will accomplish all required steps in a
timely and cost-effective manner. See "Risk Factors."
We will offer direct access to the digital trading facility to our
customers. In addition, by collaborating with brokerage firms, we plan to
offer access to the digital trading facility to their customers as well.
However, we have no agreements as of yet with any brokerage firms to this
effect. We expect that participating brokerage firms will provide credit in
support of their customers' trades in the digital trading facility as well as
clearing and settlement services. We will provide these firms access to the
proprietary technology and trading interfaces that we have developed. Trades
executed for our direct brokerage customers will be cleared and settled by our
regular clearing firm, U.S. Clearing.
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We intend to promote the digital trading facility by disseminating quote and
execution data through arrangements with Web portal and other online media
companies. We do not, however, have arrangements in place with any of these
companies at this time. We expect the digital trading facility to generate per
share execution fees for us as well as revenues from advertising and
sponsorship.
In developing and launching our digital trading facility, we are making
substantial investments. These investments may not prove sufficient to produce
a successful digital trading facility. In particular, we may not be able to
attract enough activity to the trading facility to produce meaningful
liquidity, which means investors may not find buyers or sellers when they seek
to trade. In addition, if there is limited activity in the system for a
particular stock, investors may encounter spreads between bid and ask prices
in our system that are wider than the bid and ask spreads generally maintained
in the day market for the same stock.
Angel Funds
We plan to develop a series of Web-based investment funds designed primarily
for venture capital investing by high net worth individuals. Our funds, which
we plan to call Angel Funds after the term commonly used to define seasoned
business people who invest in early stage private companies, will allow high
net worth individual investors to pool their resources and thus get access to
a quality of deal flow currently available nearly exclusively for proprietary
funds backed by large institutions. Although we plan to market our Angel Funds
primarily to individuals, we may also solicit the participation of
institutional investors.
We also intend to use Internet tools such as electronic mail, bulletin
boards and chat rooms to facilitate on-going relationships between the fund
managers and investors in the funds. This will enable the fund managers to
provide portfolio companies with the collective contacts, experiences and
advice of a wide range of interested parties. Through our Angel Funds, we aim
to preserve the strong benefits of angel investing while reducing the
significant disadvantage investors typically face when competing for the best
deals against large pre-funded pools of capital--the lack of readily
accessible funds and deal flow.
We are currently formulating a strategy to develop and market our Angel
Funds and have hired a senior management employee to be responsible for this
process. Initially, we plan to launch a private venture capital fund by the
end of 1999. Thereafter, we intend to develop additional types of funds. A
portion of the net proceeds from this offering may be used, as appropriate, to
make investments in the Angel Funds we plan to establish. We expect to derive
revenue from our Angel Funds activity through management fees and sharing in
profits realized by the funds.
Proprietary Trading
We may engage in limited proprietary trading to the extent we conclude that
having such a trading capacity will enhance our ability to obtain investment
banking assignments. Prior to engaging in such proprietary trading activities,
we will have to make a substantial investment in experienced personnel and
technology. We will also need to develop compliance and risk management
procedures. Although as a firm we have not previously engaged or prepared to
engage in these activities, our senior management has had substantial
experience overseeing market making, specialist and other proprietary trading
operations.
International Opportunities
Since the opportunity to reengineer the capital formation process is not
limited to the U.S. marketplace, we want to leverage our technology and
intellectual capital by creating international joint ventures. We have
completed, together with Mitsubishi Corporation (which through a subsidiary
has an investment in us), a study of the feasibility of creating an Internet
investment banking and brokerage firm for the Japanese market. In addition, we
have held preliminary discussions with a number of major European banks
regarding possible relationships. We would like to emerge as a global brand
representing preeminence in online capital raising and Internet investment
banking. We would also like to see our digital trading facility become a
global trading facility.
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Information Technology
Technology is fundamental to our business strategy. We are committed to the
ongoing development, maintenance and use of technology throughout our
organization and across all business lines. Where possible, our preference is
to license or purchase software products and to build internally only what we
cannot cost effectively acquire or license. As a result, our systems include a
combination of licensed, purchased and internally developed products.
We have acquired or developed significant proprietary software and systems
over the past three years. We continue to enhance our software and systems.
Our technology initiatives can be categorized into three efforts:
. for our investment banking business, tools that enable and facilitate the
public and private offering of securities to our direct customers and
through our network of e-Dealers;
. a "middleware" system that maintains customer account and other data,
provides for order management, order validation and order routing; and
. for our digital trading facility, processing, matching and communications
engines, as well as customer interfaces, including HTML pages, Java
applets and a Java application for user access.
We have filed patent applications covering concepts and technologies
integral to the digital trading facility. These concepts and technologies,
however, may not be patentable. See "Risk Factors."
While technology in itself does not provide any sustainable competitive
advantage in our business, we believe our software and systems represent a
substantial advantage in that we have the current ability to conduct
activities today which would require others months or years of technological
development to reproduce.
We currently have projects underway to ensure that our technology is Year
2000 compliant. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Year 2000."
Marketing
We have experienced growth in our customer base and Web site page
impressions with limited marketing expenditures. The number of page
impressions on our Web site has increased from 1.9 million page impressions
during January 1999 to 38 million pages impressions during April 1999. We
acquire brokerage customers primarily by making available public securities
offerings to individuals on a first-come, first-served basis. To date, no
other investment banking firm has offered individual investors the opportunity
to invest in initial public offerings in this manner. In addition, we acquire
brokerage customers when we assist issuers in marketing their stock offerings
to their affinity groups. These affinity marketing programs are particularly
cost effective since they allow us to reach a broad base of prospective
customers at little to no cost as our initial public offering alerts are
distributed by electronic mail to lists provided for free by the issuer. To
purchase shares in any offering through us, investors are required to open a
brokerage account with us, which allows us to offer subsequent transactions or
other services to the investor.
We want to cost effectively build our brand equity by distributing public
offerings and investment research through the Web sites of the e-Dealers and
through arrangements with Web content and portal companies. Following this
offering, we plan to increase our marketing activities. In particular, we want
to promote our expanding investment banking capabilities and to successfully
launch our after-hours digital trading facility. We have not yet developed
specific plans for these additional marketing efforts.
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Competition
The financial services industry is highly competitive and we expect
competition to intensify in the near future. We encounter direct competition
primarily from established investment banks, as well as from traditional and
online brokerage firms. We compete with some of these firms on a national
basis and with others on a regional basis. Our competitors include large and
well established Wall Street firms as well as relatively new securities firms,
a growing number of which are rapidly developing firms that are using
technology to win business away from the more traditional firms. General
financial success within the securities industry and the increasing popularity
of the Internet will together attract additional competitors for us, such as
banks, software development companies, insurance companies and providers of
online financial and information services.
In recent years there has been a significant consolidation in the financial
services industry. Commercial banks and other financial institutions have
acquired or established broker-dealer affiliates and begun offering financial
services to individuals traditionally offered by securities firms. These firms
have the ability to offer a wide range of products, including lending, deposit
taking, insurance, brokerage, investment management and investment banking
services. This may enhance their competitive position by attracting and
retaining customers through the convenience of one-stop shopping. They also
have the ability to support investment banking and securities products with
commercial banking, insurance and other financial service revenue in an effort
to gain market share.
Many of our competitors have significantly greater financial, technical,
marketing and other resources than we do. Some of our competitors also offer a
wider range of products and services than we do and have greater name
recognition, more established reputations and more extensive client and
customer bases. These competitors may be able to respond more quickly to new
or changing opportunities, technologies and customer requirements due to
superior systems capabilities. They may also be better able to undertake more
extensive promotional activities, offer more attractive terms to customers,
clients and employees and adopt more aggressive pricing policies compared to
our firm.
Investment Banking. Our principal competitors in connection with our
investment banking business are traditional investment banking firms. These
investment banks may also seek to offer individual investors participation in
offerings through the Internet. We also face competition from recently formed
online investment banking initiatives, such as E*Offering, recently formed by
online broker E*Trade in conjunction with the founder and former chief
executive of BancBoston Robertson Stephens, Sanford Robertson, and W.R.
Hambrecht & Co., recently formed by the founder and former chief executive of
Hambrecht & Quist, William Hambrecht. In the context of online distribution of
public offerings, we are facing growing competition from brokerage firms such
as Charles Schwab, Fidelity Brokerage Services and E*Trade, among others,
which offer equity securities through the Internet. In addition, we expect
that investment banking firms will create or acquire captive online brokerage
distribution, such as Morgan Stanley has accomplished through its ownership of
Discover Direct and Donaldson, Lufkin & Jenrette has accomplished through the
development of DLJdirect.
Brokerage. In our online brokerage business, we compete with discount
brokerage firms, which generally execute transactions for customers without
offering other services such as research, portfolio valuation and investment
recommendations. We compete directly with the approximately one hundred
discount brokerage firms already operating on the Internet. Our principal
competitors include Charles Schwab, Fidelity Brokerage Services, E*Trade,
Waterhouse Investor Services and Datek Online. Many of these firms execute
transactions for their customers through the Internet. The number of online
discount brokers will likely increase rapidly if the favorable treatment of
these firms by the equity markets continues. The principal competitive factors
in online discount brokerage include price, customer service, system
reliability, quality of trade execution, delivery platform capabilities, ease
of use, graphical user interface, range of products and services, innovation,
branding and reputation. In our brokerage business we also encounter
competition from established full-commission brokerage firms such as Morgan
Stanley Dean Witter, PaineWebber, Donaldson, Lufkin & Jenrette and Merrill
Lynch. Many of these brokerage firms have also begun conducting business
online.
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<PAGE>
Digital Trading Facility. There is currently no competitor offering
individual investors regular access to after-hours trading services. However,
there are firms, such as Eclipse Trading, which are developing plans and
systems that would directly compete with our digital trading facility. Some of
these firms could have substantially greater resources than we have.
Traditional stock markets, including the New York Stock Exchange and the
Nasdaq-Amex Group, have announced plans to offer individual investors after-
hours trading and/or access to electronic trading facilities. We also expect
competition from the growing number of electronic communication networks, such
as Island or Instinet, which may establish competitive trading facilities.
Personnel. Competition is also intense for the attraction and retention of
qualified employees in the securities industry. Our ability to compete
effectively in our businesses will depend on our ability to attract new
employees and retain and motivate our existing employees.
Regulation
Regulation of the Securities Industry and Broker-Dealers. Our business is
subject to extensive regulation applicable to the securities industry in the
United States and elsewhere. As a matter of public policy, regulatory bodies
in the United States and rest of the world are charged with safeguarding the
integrity of the securities and other financial markets and with protecting
the interests of customers participating in those markets. In the United
States, the SEC is the federal agency responsible for the administration of
the federal securities laws. We are registered as a broker-dealer with the SEC
and in all 50 states, the District of Columbia and Puerto Rico. We are also a
member of the NASD, a self regulatory body to which all broker-dealers belong.
Certain self-regulatory organizations, such as the NASD, adopt rules and
examine broker-dealers and require strict compliance with their rules and
regulations. The SEC, self-regulatory organizations and state securities
commissions may conduct administrative proceedings which can result in
censure, fine, the issuance of cease-and-desist orders or the suspension or
expulsion of a broker-dealer, its officers or employees. The SEC and self-
regulatory organization rules cover many aspects of a broker-dealer's
business, including capital structure and withdrawals, sales methods, trade
practices among broker-dealers, use and safekeeping of customers' funds and
securities, record-keeping, the financing of customers' purchases, broker-
dealer and employee registration and the conduct of directors, officers and
employees.
Effect of Net Capital Requirements. As a registered broker-dealer and member
of the NASD, we are subject to the Uniform Net Capital Rule under the Exchange
Act. The Uniform Net Capital Rule specifies the minimum level of net capital a
broker-dealer must maintain and also requires that at least a minimum part of
its assets be kept in relatively liquid form. As of March 31, 1999, our
broker-dealer subsidiary was required to maintain minimum net capital of
$100,000 and had total net capital of approximately $10,769,266, or
$10,669,266 in excess of the minimum amount required.
The SEC and the NASD impose rules that require notification when net capital
falls below certain predefined criteria, dictate the ratio of debt to equity
in the regulatory capital composition of a broker-dealer and constrain the
ability of a broker-dealer to expand its business under certain circumstances.
Additionally, the Uniform Net Capital Rule and the NASD rules impose certain
requirements that may have the effect of prohibiting a broker-dealer from
distributing or withdrawing capital and requiring prior notice to the SEC and
the NASD for certain withdrawals of capital. Because our principal asset will
be the ownership of stock in our broker-dealer subsidiary, these rules
governing net capital and restrictions on withdrawals of funds could operate
to prevent us from meeting our financial obligations on a timely basis.
Application of Securities Act and Exchange Act to Internet Business. The
Securities Act governs the offer and sale of securities. The Exchange Act
governs, among other things, the operation of the securities markets and
broker-dealers. When enacted, the Securities Act and the Exchange Act did not
contemplate the conduct of a securities business through the Internet.
Although the SEC, in releases and no-action letters, has provided guidance on
various issues related to the offer and sale of securities and the conduct of
a securities business
37
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through the Internet, the application of the laws to the conduct of a
securities business through the Internet continues to evolve. Uncertainty
regarding these issues may adversely affect the viability and profitability of
our business.
Foreign Securities Authorities. We are actively considering various joint
ventures and other projects for the establishment of a broker-dealer business
in foreign countries. Any such business would be subject to foreign law and
the rules and regulations of foreign governmental and regulatory authorities.
This may include laws, rules and regulations relating to any aspect of the
securities business, including sales methods, trade practices among broker-
dealers, use and safekeeping of customers' funds and securities, capital
structure, record-keeping, the financing of customers' purchases, broker-
dealer and employee registration requirements and the conduct of directors,
officers and employees.
Digital Trading Facility. Securities exchanges must register with the SEC
and comply with various requirements of the Exchange Act. Effective April
1999, new rules expanded the scope of exchange regulation to include many
brokerage matching and execution systems, such as the digital trading facility
which we will operate. The new rules provide an exemption from exchange
registration for systems operating by registered broker-dealers that comply
with Regulation ATS, which imposes various requirements relating to fair
access, capacity, security, recordkeeping and reporting. Our broker-dealer
subsidiary expects to operate the digital trading facility in compliance with
Regulation ATS. Although we do not expect the compliance costs to be
significant, our broker-dealer subsidiary could encounter unforseen expenses
associated with operation of these rules.
Changes in Existing Laws and Rules. Additional legislation or regulation,
changes in existing laws and rules or changes in the interpretation or
enforcement of existing laws and rules, either in the United States or
elsewhere, may directly affect our mode of operation and our profitability.
Employees
We believe that one of our strengths is the quality and dedication of our
people and the shared sense of being part of a team. We strive to maintain a
work environment that fosters professionalism, excellence, diversity and
cooperation among our employees. We also believe that our employees should
have an equity stake in the firm. Following this offering, our employees as a
group will own roughly 14% of the equity of the company on a fully diluted
basis. As of April 30, 1999, we had 138 employees.
Properties
Our principal executive offices are located in New York City where we lease
20,000 square feet of loft space. The term of the lease expires in November
2006. We also operate a 1,000-square foot office for our investment banking
group in San Francisco. This lease expires in May 2000.
Legal Matters
We are not a party to any material legal proceedings. A person formerly
associated with us has asserted a right to purchase 560,000 shares of common
stock (now Class C common stock) at $1.43 per share. We believe the assertion
is without merit and intend to contest it if any lawsuit is filed against us.
These 560,000 shares have not been included in our financial statements or in
any of the share amounts included in this prospectus.
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MANAGEMENT
The following table lists our executive officers and key employees. Our
executive officers are Messrs. Lessin, Readmond, Klein, Siegel, Loehr, Diener,
Fiske, Lieberman and Lang and Ms. Berkowitz.
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Robert H. Lessin........ 44 Chairman and co-chief executive officer
Ronald Readmond......... 56 Vice chairman, co-chief executive officer and president
Andrew D. Klein......... 39 Vice chairman, founder and chief strategist
M. Bernard Siegel....... 43 Senior vice president and chief financial officer
Mark Loehr.............. 42 Director of investment banking
Alan Diener............. 46 Senior vice president and director of brokerage
Ronald Fiske............ 37 Senior vice president and director of operations
George M. Lieberman..... 55 Senior vice president and chief information officer
Everett F. Lang......... 56 President--digital trading facility
Susan J. Berkowitz...... 34 Senior vice president--marketing
Lloyd H. Feller......... 56 Senior vice president and co-general counsel
Robert C. Mendelson..... 48 Senior vice president and co-general counsel
Jonathan Cohen.......... 34 Director of research
David M. Blumberg....... 40 Managing director--investment banking
Matthew P. Carbone...... 32 Managing director--investment banking
Paul Ezekiel............ 33 Managing director--investment banking
Charles Hall............ 32 Managing director--investment banking
Christopher Mulligan.... 35 Managing director--investment banking
Elliot S. Prince........ 37 Managing director--research
Ronald O. Drake......... 31 Director of private equity
William C. Feeley....... 40 Director of capital markets
Walter Buist............ 54 Director of software development
George Tashie........... 33 Vice president--sales
Amy Cortese............. 37 Vice president--content
Maureen Brille.......... 36 Vice president--Angel Funds
</TABLE>
Executive Officers and Key Employees
Robert H. Lessin, chairman and co-chief executive officer, joined us in
April 1998. Before joining us, he was a vice chairman of Salomon Smith Barney
until April 1998, having previously been a vice chairman of Smith Barney from
1993 until the merger with Salomon Brothers in November 1997. He served as
head of investment banking at Smith Barney from June 1993 to January 1997.
Prior to joining Salomon Smith Barney, Mr. Lessin spent 16 years with Morgan
Stanley in the position of managing director and was responsible for the
firm's financial entrepreneurs, media and retailing groups. Mr. Lessin was
also vice chairman of Morgan Stanley's investment banking operating committee
and chairman of their strategic planning committee. He is a director of
Marketwatch.com, iParty, MaMaMedia and sixdegrees and a general partner of
Dawntreader Fund I, a venture capital fund. He has an MBA from Harvard
Business School.
Ronald Readmond, vice chairman, co-chief executive officer and president,
joined us in May 1998 and has served as a director since 1997. Before joining
us, he had served as vice chairman of Charles Schwab where he was responsible
for operations, capital markets and trading, international and mutual funds as
well as strategic acquisitions and industry relations. Prior to that, Mr.
Readmond was a managing director at Alex. Brown & Sons. Mr. Readmond has
served as co-chairman of the U.S. Working Committee on Clearance and
Settlement of the Group of 30, as a member of the New York Stock Exchange
operations advisory committee and the nominating committee of the Options
Clearing Corporation. Mr. Readmond is the former chairman of the board of the
National Securities Clearing Corporation and for five years served as a
director. In addition, he served for two
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years as a director of NASD Market Services, Inc. Mr. Readmond is currently a
director of ProBusiness, chairman of International Equity Partners and a
director of The American Council for Capital Formation.
Andrew D. Klein, vice chairman, founder and chief strategist, has been with
us since our inception in April 1996. Previously, in January 1993 Mr. Klein
founded microbrewery Spring Street Brewing Company, which two years later
became the first company to complete a public offering over the Internet and,
in March 1996, created the first ever Web-based trading mechanism allowing
investors to buy and sell Spring Street shares. Prior to starting Spring
Street, Mr. Klein practiced corporate and securities law at Cravath, Swaine &
Moore for six years. He has a law degree from Harvard Law School. In 1997 Mr.
Klein was the subject of a civil order of the Commonwealth of Massachusetts
alleging that he and Spring Street used its Web site to gather names of
potential investors and then mailed an unregistered private placement
memorandum to these persons in violation of Massachusetts securities laws.
While neither admitting nor denying that the violations occurred, Mr. Klein
agreed to offer a refund to six investors and paid a fine of $3,000.
M. Bernard Siegel, senior vice president and chief financial officer, joined
us in October 1998. He has more than twenty years experience in the financial
services industry. He served as chief financial officer and director of risk
management of Waterhouse Investor Services from November 1993 to June 1998.
Prior to that, he was chief financial officer and chief operating officer of
Fleet Brokerage Securities. Mr. Siegel is a CPA who spent eight years with
KPMG LLP, last serving as a senior audit manager in the financial services
division.
Mark Loehr, director of investment banking, joined us in March 1999. He
spent a total of eight years with Smith Barney, from 1978 to 1983 and from
1994 to 1997, and two years with Salomon Smith Barney, from 1997 to 1999. He
spent eleven years with CS First Boston, from 1983 to 1994. While at Smith
Barney and, later, Salomon Smith Barney, he served as head of global equity
sales and head of equity capital markets. While at CS First Boston, Mr. Loehr
served as co-head of U.S. equity capital markets.
Alan Diener, senior vice president and director of brokerage, joined us in
April 1999. He spent eight years with Charles Schwab where he held a variety
of vice president level positions in capital markets, strategic planning and
retail management. Prior to working at Charles Schwab, Mr. Diener was employed
by Chemical Bank and also by Citicorp. He has an MBA from the Massachusetts
Institute of Technology.
Ronald Fiske joined us in May 1999 as senior vice president and director of
operations. He has ten years of experience in the financial services industry.
Mr. Fiske was most recently a principal in the Private Client division of BT
Alex. Brown. Prior to that, he was director of retail brokerage for BT
Brokerage. Before working at Bankers Trust, Mr. Fiske was a senior consultant
at Andersen Consulting. He has an MBA from Cornell University.
George M. Lieberman, senior vice president and chief information officer,
joined us in February 1999. He has more than 30 years of information
technology management and development experience across a broad spectrum of
industries. He was first vice president and director of technology strategy
and planning for Merrill Lynch & Co. from June 1991 to December 1998. He holds
two computer-related patents and was formerly on the Merrill Lynch technology
advisory board. Prior to joining Merrill Lynch, he was the chief information
officer for Telerate Inc., the chief information officer for Chargit Inc. and
responsible for the development of major systems projects at many financial
industry companies including Citibank and ADP. He has advanced degrees in
Industrial Engineering and Operations Research.
Everett F. Lang became president--digital trading facility in February 1999.
Dr. Lang was previously chief executive of National Discount Brokers where he
introduced the concept of "Flat Fee" trading to consumers. Prior to that, he
was chairman and chief executive of BT Brokerage Corporation, a New York Stock
Exchange member firm which he helped to organize. In 1995, Dr. Lang founded
the Discount Brokerage Association which was assimilated into the Securities
Industry Association along with twenty-three other member firms. He currently
serves as co-chairman of this entity. Dr. Lang has a doctoral degree in
organizational psychology from the University of Virginia.
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Lloyd H. Feller, senior vice president and co-general counsel, joined us in
April 1999. Previously, he was a partner at Morgan, Lewis & Bockius LLP.
Before joining Morgan, Lewis & Bockius LLP in 1979, Mr. Feller served at the
SEC as the Associate Director of the Division of Market Regulation, in charge
of the Office of Market Structure and Trading Practices. Mr. Feller has a law
degree from New York University.
Robert C. Mendelson, senior vice president and co-general counsel, joined us
in April 1999. Previously, he was a partner at Morgan, Lewis & Bockius LLP.
Mr. Mendelson was a member of the Legal Advisory Board of the NASD and
formerly chaired the Market Transaction Advisory Committee created by the SEC.
Mr. Mendelson has an MA from Brandeis University and a law degree from Boston
College.
Jonathan Cohen joined us as director of research in 1999, and was previously
head of Merrill Lynch's Internet equity research effort. Mr. Cohen was named
to the 1996, 1997 and 1998 Institutional Investors "All American Research
Team" for the Internet sector. He has been named as one of the 25 Best U.S.
analysts by both Bloomberg and Financial World Magazine. Prior to joining
Merrill Lynch in 1998, Mr. Cohen was a managing director and head of Internet
and PC Software research at UBS Securities from 1997 to 1998. Prior to UBS,
Mr. Cohen was a senior analyst and managing director at Smith Barney from 1993
to 1997, where his coverage focused on information technology companies. Mr.
Cohen has an MBA from Columbia University.
David M. Blumberg has served as managing director--investment banking since
January 1997. Previously he was President of Blumberg Associates, Inc., which
he co-founded in 1993. During an eight-month period in 1994 and 1995, Mr.
Blumberg was a partner of RLM Partners, LP, an investment fund. From 1991 to
1992, Mr. Blumberg was a Managing Director of Merrill Lynch and from 1988 to
1993 he was a senior vice president of Merrill Lynch Interfunding Inc. Mr.
Blumberg has been a director of Norton McNaughton, a public company, since
January of 1994. He has an MBA from New York University's Stern School of
Business.
Matthew P. Carbone has served as managing director--investment banking since
May 1998. He was most recently a senior vice president in Salomon Smith
Barney's investment banking division, focusing on emerging growth companies.
Prior to joining Smith Barney in 1993, he was an investment banker with CS
First Boston and Morgan Stanley. Mr. Carbone has an MBA from Harvard Business
School.
Paul Ezekiel, M.D. joined us in March 1999 as managing director--investment
banking. He previously headed NationsBanc Montgomery Securities' health care
Internet investment banking initiative. Dr. Ezekiel joined Montgomery in 1996
and served as a senior member of the health care services investment banking
team since 1997. Prior to that, Dr. Ezekiel served as an associate at both
Prudential Securities during 1995 and CS First Boston during 1994. Dr. Ezekiel
received his medical degree from the University of Western Australia and holds
an MBA from Cornell University.
Charles Hall, managing director--investment banking, was formerly head of
Salomon Smith Barney's Education Group until he joined us in 1999. Mr. Hall
founded this group in May 1996. Mr. Hall joined Smith Barney in 1988. He
served as a senior member of Smith Barney's industrial group from 1992 to 1996
and worked in the mergers and acquisitions group from 1990 to 1991. Prior to
that, Mr. Hall worked in London in Smith Barney's European investment banking
division. Mr. Hall has an MS degree in Engineering Science from Oxford
University.
Christopher Mulligan joined us as managing director--investment banking in
1999, and previously headed Salomon Smith Barney's Internet retailing
investment banking effort. Mr. Mulligan joined Smith Barney in 1992 to help
establish that company's consumer sector investment banking effort, where he
focused on direct-to-customer companies and specialty retailers. Mr. Mulligan
has an MBA from the University of Chicago.
Elliot S. Prince, managing director--research, joined us in February 1999
after spending more than twelve years in the research departments of major
Wall Street firms. Prior to joining us, he spent five years at Salomon Smith
Barney where he was responsible for macroeconomic research on Israel and
research on Israeli companies, including various technology sector and
telecommunications equipment companies, and companies spanning such industries
as broadband access technologies and products and various Internet
infrastructure technologies. Prior to that, Mr. Prince spent six years
researching the computer software industry, covering such companies as
Microsoft, Oracle and Adobe. He has been a Chartered Financial Analyst since
1989. Mr. Prince has an MBA from the Columbia University Graduate School of
Business.
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Susan J. Berkowitz has served as senior vice president--marketing since
October 1998. She is an Internet industry veteran who most recently ran the
marketing, advertising sales and business development functions at
theglobe.com from 1996 to 1998. Previously, she has held marketing and sales
positions at Spin Magazine from 1994 to 1996, J. Walter Thompson from 1992 to
1994 and Chase Manhattan Bank from 1987 to 1992. Ms. Berkowitz has an MBA from
Duke University.
Ronald O. Drake joined us in June 1998 in our private equity practice and
has served as director of private equity since April 1999. Previously he was a
vice president at McKinley Capital Partners, Limited, a merchant banking firm,
where he focused on raising and investing private equity for Internet-related
and media and communications companies. Prior to joining McKinley Capital
Partners in 1993, he was an associate portfolio manager at Sanford C.
Bernstein & Co., Inc.
William C. Feeley has served as director of capital markets since October
1997. He has 19 years of experience in new issue investment banking. Prior to
joining us, he was managing director of equity capital markets at Bankers
Trust from 1996 to 1997. Prior to that, he was president of Quintessence
Capital Partners LTD in 1995. Previously, he was the director of equity
capital markets at First Albany Corporation from 1993 to 1995. From 1980 to
1993, Mr. Feeley worked at Kemper Securities, most recently as director of
corporate finance and syndicate services. He has an MBA from Loyola
University.
Walter D. Buist has led our software development since August 1996 and
became director of software development in 1999. Previously, he was head of
applications development at Global Trade since 1992. Prior to that, he was
responsible for several floor automation projects as a consultant to the New
York Stock Exchange. He has also developed a back-office system for the J.J.
Kenney, municipal securities brokers. He was also responsible for all software
applications at M.S. Wien, a large over-the-counter dealer.
George Tashie has served as vice president--sales since June 1998. He was
employed previously by Dreyfus Service Corporation from 1989 until 1998. Most
recently, he held the position of vice president and director of investor
communications at Dreyfus. Previously, he was a vice president of national
sales and sales operations manager for Dreyfus.
Amy Cortese has served as vice president--content since November 1998.
Previously she was a journalist for ten years, covering the technology
industry from both coasts. For the past four years, she was an editor at
BusinessWeek, where she directed the magazine's coverage of software and the
Internet and wrote many high profile and award winning articles. Prior to her
career in journalism, Ms. Cortese was a research analyst with International
Data Corporation.
Maureen Brille joined us as vice president--Angel Funds in 1999, and was
previously with J.P. Morgan in the private client group from January 1995 to
December 1998, where she advised high net worth individuals on all aspects of
their personal finances, including asset allocation, discretionary investment
management, securities brokerage, private equity investments and trust and
estate planning. Prior to that, Ms. Brille spent eight years at Chemical Bank
from 1986 to 1994, both as principal of Chemical Venture Partners-Northeast
where she originated and executed growth capital and leveraged buyout
investments, and as advisor to middle market companies on a wide variety of
investment banking transactions. Ms. Brille has an MBA from the College of
William and Mary.
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Directors
Our Board of Directors currently consists of nine directors. Messrs. Lessin,
Readmond and Klein are described above as executive officers. Our Board of
Directors is divided into three classes of directors serving staggered three-
year terms: Class A directors, Class B directors and Class C directors will
serve until our annual meetings of stockholders held in 2000, 2001 and 2002,
respectively. The following table lists our directors:
<TABLE>
<CAPTION>
Name Age Class
---- --- -----
<S> <C> <C>
John H.N. Fisher................................................... 40 B
Edward H. Fleischman............................................... 66 C
Steven M. Gluckstern............................................... 47 C
Joseph R. Hardiman................................................. 61 A
Andrew D. Klein.................................................... 39 A
Robert H. Lessin................................................... 44 C
Gilbert C. Maurer.................................................. 70 B
Adam Mizel......................................................... 29 A
Ronald Readmond.................................................... 56 B
</TABLE>
John H.N. Fisher is a managing director of Draper Fisher Jurvetson, a
Redwood City, California venture capital firm providing start-up and early
stage financing. On behalf of Draper Fisher Jurvetson, Mr. Fisher serves on
the boards of various Internet and technology companies, including Centraal,
Convoy, Entegrity Solutions, Praxon, Selectica, Sonnet Financial, Transactor
Networks and Webline Communications. Previously, Mr. Fisher was a venture
capitalist at ABS Ventures. Prior to that, he was an investment banker at
Alex. Brown & Sons and an account executive in the capital markets group at
Bank of America. Mr. Fisher has an MBA from Harvard Business School.
Edward H. Fleischman is senior counsel to the London based international law
firm of Linklaters & Paines, where he specializes in securities and financing
law and related areas. Mr. Fleischman served as a Commissioner of the
Securities and Exchange Commission from 1986 to 1992. Previously, he practiced
law for 27 years at Beekman & Bogue in New York. Mr. Fleischman has a law
degree from Columbia University.
Steven M. Gluckstern is a founding partner of Capital Z Partners, a manager
of alternative investment pools, including Capital Z Financial Services Fund
II, L.P., a $1.8 billion private equity fund. Mr. Gluckstern also currently
serves as non-executive Chairman of both Zurich Re, the global reinsurance
network of Zurich Financial Services, and of Zurich Centre Group/Centre
Solutions. Previously, he served as chief executive officer of both Zurich Re
and Centre Re from 1988 to 1998, and, prior to that, as general manager of
reinsurance operations of the Berkshire Hathaway Insurance Group. Mr.
Gluckstern also serves on the boards of Aames Financial Corporation, Zurich
Payroll Solutions, United Payors and United Providers Inc. Mr. Gluckstern has
an MBA from Stanford University.
Joseph R. Hardiman was president and chief executive officer of the National
Association of Securities Dealers, Inc. and its wholly owned subsidiary, the
Nasdaq Stock Market, Inc., from September 1987 through January 1997.
Previously, he was managing director, chief operating officer and a member of
the board of directors of Alex. Brown & Sons.
Gilbert C. Maurer had been employed since 1973 by The Hearst Corporation,
one of the nation's largest private companies engaged in a broad range of
publishing, broadcasting, cable networking and diversified communications
activities. Most recently, he held the position of chief operating officer
from 1990 until his retirement in 1998. Previously, Mr. Maurer served as
president of Hearst's magazines division for 14 years. Prior to joining
Hearst, Mr. Maurer worked for 19 years with Cowles Communications, Inc.
Adam Mizel is also a founding partner of Capital Z Partners. Previously, he
was a managing director of Zurich Centre Investments, Inc., where he oversaw
U.S. private equity investing activities between April 1994 and July 1998.
Currently, Mr. Mizel serves as a director on a number of boards, including
Aames Financial Corporation, Caliber Holdings, Inc., ZC Sterling Holdings and
Channelpoint Inc.
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Committees of the Board
The Board of Directors has established an Audit Committee, the members of
which are Edward H. Fleischman, Joseph R. Hardiman and Adam Mizel, all of whom
are non-employee directors, and a Compensation Committee, the members of which
are John H.N. Fisher, Steven M. Gluckstern, Gilbert C. Maurer and Ronald
Readmond.
The Audit Committee is responsible for recommending to the Board of
Directors the engagement of our independent auditors and reviewing with our
independent auditors the scope and results of the audits, our internal
accounting controls, audit practices and the professional services furnished
by our independent auditors.
The Compensation Committee is responsible for reviewing and approving all
compensation arrangements for our officers, and is also responsible for
administering the Stock Incentive Plan.
Special Advisory Board
To complement our Board of Directors, we are also developing a special
advisory board consisting of accomplished professionals and entrepreneurs from
the fields of technology, new media, finance and law. The first members of
this advisory board are Joseph H. Flom and Edward J. Mathias. Members of our
special advisory board attend, but do not vote at, meetings of our Board of
Directors. They also provide our management with strategic advice and other
assistance with the planning and development of our business.
Joseph H. Flom has been a partner in the law firm of Skadden, Arps, Slate,
Meagher & Flom LLP for more than five years. Mr. Flom is currently a director
of The Warnaco Group, Inc. and the America-Israel Friendship League. He is a
Trustee of the Petrie Stores Liquidating Trust and also a Trustee of Mount
Sinai-NYU Medical Center and Health System. Mr. Flom received his law degree
from Harvard Law School.
Edward J. Mathias has been, for more than five years, a Managing Director of
The Carlyle Group, a global investment firm that he helped to establish. Prior
to joining the Carlyle Group, Mr. Mathias worked for T. Rowe Price from 1971
to 1993 during which time he served on its Board of Directors and was also a
member of its management committee. Mr. Mathias is currently a director of
Condor Technology Solutions, Inc., U.S. Office Products, Inc. and U.S.A.
Floral Products, Inc. He has an MBA from Harvard Business School.
Compensation of Directors and Special Advisory Board Members
We do not currently pay directors cash compensation. However, we have
granted certain non-employee directors as well as the members of the advisory
board options to purchase common stock. The non-employee directors designated
by our venture capital investors do not receive any compensation from us. In
addition, Messrs. Flom and Mathias hold, respectively, 116,666 and 140,000
shares of our Class C common stock.
The following non-employee members of our Board of Directors and of our
special advisory board have received the respective numbers of stock options
indicated below.
<TABLE>
<CAPTION>
Number of Securities
Underlying Options
Name Granted Exercise Price Expiration Date
- ---- -------------------- -------------- ---------------
<S> <C> <C> <C>
Edward H. Fleischman........ 35,000 $1.43 11/11/08
17,500 2.14 3/17/09
Joseph R. Hardiman.......... 35,000 1.43 11/11/08
17,500 2.14 3/17/09
Gilbert C. Maurer........... 35,000 1.43 11/11/08
17,500 2.14 3/17/09
Joseph Flom................. 35,000 1.43 11/11/08
Edward Mathias.............. 35,000 1.43 11/11/08
</TABLE>
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<PAGE>
Compensation Committee Interlocks and Insider Participation
None of our executive officers:
(1) has served as a member of the compensation committee of another entity,
one of whose executive officers has served on our Compensation
Committee;
(2) has served as a director of another entity, one of whose executive
officers has served on our Compensation Committee; and
(3) has served as a member of the compensation committee of another entity,
one of whose executive officers has served as one of our directors.
Executive Compensation
Since we employed a majority of our executive officers at different times in
1998, the compensation they earned from the various dates of their hire is not
meaningful or indicative of their future compensation. The following table
sets forth the salaries, and to the extent determinable, the bonuses that we
intend to pay our co-chief executive officers and the other four executive
officers whom we presently expect will be our most highly compensated
executive officers during 1999. We have also indicated, where applicable, the
compensation paid to these persons during 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
--------------------------------- ------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
- --------------------------- ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Lessin......... 1999 $250,000 (1) -- -- --
Co-chief executive
officer 1998 -- $135,685 -- -- --
Ronald Readmond.......... 1999 250,000 250,000(1) -- -- --
Co-chief executive offi- 1998 146,000 -- -- 1,750,000 $116,000(3)
cer and president
Andrew D. Klein.......... 1999 250,000 (1) -- -- --
Founder and chief
strategist 1998 120,000 -- -- -- --
Mark Loehr............... 1999 200,000 (2) -- -- --
Director of investment
banking 1998 -- -- -- -- --
Everett Lang............. 1999 200,000 50,000(1) -- 367,500 50,000(4)
President--digital
trading facility 1998 -- -- -- -- --
George Lieberman......... 1999 200,000 (1) -- 280,000 --
Senior vice president 1998 -- -- -- -- --
and chief information
officer
</TABLE>
- --------
(1) Participates in the Annual Bonus Plan for Executives. Mr. Readmond is
guaranteed to receive at least $250,000 under the Annual Bonus Plan for
Executives. Mr. Lang is guaranteed to receive at least $50,000 under the
Annual Bonus Plan for Executives.
(2) Participates in the Annual Bonus Plan for the Investment Banking Group.
(3) Represents expense reimbursement in connection with commencement of his
employment.
(4) Represents compensation in connection with commencement of his employment.
45
<PAGE>
Stock Options
Option Grants. The following table sets forth information regarding stock
options granted under our stock option plans between January 1, 1998 and April
30, 1999 to the co-chief executive officers and the other four most highly
compensated executive officers. We have never granted stock appreciation
rights.
<TABLE>
<CAPTION>
Option Grants in Period Beginning January 1, 1998 and Ended April 30, 1999
-----------------------------------------------------------------------------
Individual Grants
-----------------------------------------------------------------------------
Percentage of
Total Options Potential Realizable
Granted to Employees Value at Assumed
(net of forfeitures) Annual Rates of
Number of in the period Stock Price
Securities Beginning Appreciation for
Underlying January 1, 1998 Exercise or Option Terms(4)
Options and Ended April 30, Base Price Expiration ---------------------
Name Granted(1) 1999(2) ($/Share)(3) Date 5% 10%
---- ---------- -------------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Lessin........ -- -- -- -- -- --
Ronald Readmond......... 1,750,000 14.9% $1.43 9/17/08 $4,072,237 $6,484,356
Andrew D. Klein......... -- -- -- -- -- --
Mark Loehr.............. -- -- -- -- -- --
Everett Lang............ 367,500 3.1 2.14 2/12/09 1,282,755 2,042,572
George Lieberman........ 280,000 2.4 2.14 1/1/09 977,337 1,556,245
</TABLE>
- --------
(1) Such options were granted pursuant to and in accordance with our Stock
Incentive Plan.
(2) Based on an aggregate of 11,760,000 options granted (net of forfeitures)
to employees in the period beginning January 1, 1998 and ended April 30,
1999, including options granted to the other four most highly compensated
executive officers.
(3) The exercise price per share of each option was equal to the fair market
value of the common stock on the date of the grant as determined by the
Board of Directors. The Board of Directors determined fair market value of
the common stock on the date of the grant based upon the most recent price
paid by a third party for our preferred stock discounted to reflect the
preferred stock having a liquidation preference, the right to board
representation and a cumulative preferred dividend.
(4) Amounts represent hypothetical values that could be achieved for the
respective options if exercised at the end of the option term. These
values are based on assumed rates of stock price appreciation of 5% and
10% compounded annually from the date the respective options were granted
to their expiration date based on the market price of the underlying
securities on the date of the grant. These assumptions are not intended to
forecast future appreciation of our stock price. The potential realizable
value computation does not take into account federal or state income tax
consequences of option exercises or sales of appreciated stock.
Option Values. Messrs. Readmond, Lang and Lieberman accepted the opportunity
from us to exercise on April 30, 1999 all their existing stock options, other
than incentive stock options, whether or not vested, with funds we loaned to
them. The shares they purchased by exercising those of their options which
were not vested at the time can be repurchased by us at their respective
option exercise prices, unless they remain in our employ through the
respective periods when these options would originally have vested. They are
personally liable for all interest due on their loans and are similarly liable
for up to one-half of the principal amounts of their loans. Each loan is
secured by the shares purchased with the proceeds of that loan. Each loan
becomes due and payable on March 31, 2003 or earlier if the individual's
employment is terminated or he no longer owns the shares. The respective total
number of shares purchased by, and the amounts we loaned to, Messrs. Readmond,
Lang and Lieberman are set forth in the table below. The following table also
sets forth information concerning the value at April 30, 1999 of exercisable
and unexercisable options held by the co-chief executive officers and the
other four most highly compensated executive officers. The values of
unexercised in-the-money options represent the positive spread between the
respective exercise prices of outstanding stock options and an assumed initial
public offering price of $8.00 per share.
46
<PAGE>
Aggregated Option Exercises in Period Beginning January 1,
1998 and Ended April 30, 1999 and Period End Option Values
<TABLE>
<CAPTION>
From January 1, 1998 to April 30, 1999 Option Values at April 30, 1999
------------------------------------------- ---------------------------------------------------
Number of Securities
Number of Underlying Unexercised Value of Unexercised In-
Shares Options the-Money Options
Acquired Value Loan ------------------------- -------------------------
Name On Exercise Received Amount Exercisable Unexercisable Exercisable Unexercisable
---- --------------- --------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert H. Lessin........ -- -- -- -- -- -- --
Ronald Readmond......... 1,561,000 -- $ 2,787,500 -- 280,000 -- $1,839,600
Andrew D. Klein......... -- -- -- -- -- -- --
Mark Loehr.............. -- -- -- -- -- -- --
Everett Lang............ 157,864 -- 338,281 -- 209,636 -- 1,228,467
George Lieberman........ 93,333 -- 200,000 -- 169,167 -- 991,319
</TABLE>
Employment Agreements
Robert H. Lessin. Mr. Lessin has an employment agreement with us to serve as
co-chief executive officer. The agreement is for a term of two years,
beginning January 1, 1999, with an automatic one-year extension, unless either
party elects not to extend the term of the agreement. During the term of this
agreement, Mr. Lessin will receive a minimum annual base salary of $250,000,
subject to increases based on annual reviews by the Board. Mr. Lessin is
entitled to participate in our Annual Bonus Plan for Executives and Long-Term
Incentive Plan on the same terms as are applicable to senior executives
generally. Mr. Lessin is entitled to participation in our 401(k) Plan, Stock
Incentive Plan and such other employee benefits as provided to other senior
executives.
We have extended to Mr. Lessin an interest-bearing loan in the amount of
$5,750,000 with which he has purchased 4,025,000 shares of common stock (now
Class C common stock) at $1.43 per share. He is personally liable for all
interest due on his loan and is similarly liable for up to one-half of the
principal amount of his loan. This loan is secured by the shares purchased
with the proceeds of this loan. In the event Mr. Lessin ceases to be employed
by us, we have the right to repurchase his unvested shares at the lower of
their fair market value or $1.43 per share. These shares vest as follows:
1,341,667 shares on June 8, 1998 and the remainder quarterly beginning July 1,
1998, at the rate of 223,612 per quarter until April 1, 2001. Our right to
repurchase the unvested shares terminates on April 1, 2001. In addition, Mr.
Lessin's loan becomes due and payable in the event that his employment
terminates or in the event that he no longer owns the shares. Mr. Lessin also
has "piggyback" and demand registration rights relating to the shares.
In addition to the other compensation due under his employment agreement,
upon the twelve-month anniversary, the twenty-four month anniversary and the
thirty-month anniversary of our initial public offering, Mr. Lessin will be
entitled to cash payments of $2 million, $2 million and $1 million,
respectively. Upon a sale of Wit Capital, Mr. Lessin will be entitled to a
payment of up to $5 million less any payments he has received on any
applicable anniversary of an initial public offering. He will not, however, be
entitled to these payments if he violates his non-competition covenants and
fails to cure the violation within thirty days or if he is no longer employed
by us for a reason other than his termination for "cause," his disability or
death or for "good reason."
Mr. Lessin has agreed, during the term of his employment or until April 1,
2001 not to own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be connected as a director,
officer, employee, or lender with, or be compensated by an entity that is an
NASD registered broker-dealer, or that provides financial advisory services or
engages in capital raising activities. Mr. Lessin has the right to engage in
financial advisory or capital raising activities only through an entity in
which he is an investor or director, so long as any fee payable in connection
with such activities is pursuant to an arrangement for which registration as a
broker-dealer is not required. He may participate in certain venture capital
activities so long as they do not violate the other terms of his employment
agreement. The restrictive covenants contained in his employment agreement
will not apply if Mr. Lessin is terminated other than for "cause" or quits for
"good reason."
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<PAGE>
Mr. Lessin is also a party to a non-disclosure and assignment of inventions
agreement. He has agreed not to reveal any confidential information belonging
to us, except as may be required in the course of performing his duties as our
employee. He has also agreed to assign to us any rights which he may have with
respect to inventions, software programs, data or other developments created
or discovered during his employment term.
Ronald Readmond. Mr. Readmond has an employment agreement with us to serve
as co-chief executive officer. The agreement is for a term of two years,
beginning January 1, 1999, with an automatic one-year extension, unless the
agreement has been previously terminated (which either party has the right to
do upon 90 days' notice). Under the agreement, Mr. Readmond is entitled to a
minimum annual base salary of $250,000, subject to increases based on annual
reviews by the Board, and an annual guaranteed bonus of $250,000. If Mr.
Readmond's employment is terminated by us without "cause" or by him for "good
reason," he is entitled to a lump sum cash payment equal to the sum of the
amount of his base salary through the end of the three-year period of his
agreement, bonus amounts accrued through the date of termination and a portion
of his annual guaranteed bonus prorated through the date of termination. He is
also entitled to participate in our Annual Bonus Plan for Executives and Long-
Term Incentive Plan on the same terms as are applicable to senior executives
generally. Mr. Readmond is entitled to participation in our 401(k) Plan, Stock
Incentive Plan and such other employee benefits as are provided to other
senior executives.
We have extended to Mr. Readmond an interest-bearing loan in the amount of
$2,787,500 with which he has purchased 1,561,000 shares of common stock (now
Class C common stock) by exercising all vested and non-vested options, other
than incentive stock options, previously held by him. The shares Mr. Readmond
purchased by exercising those options which were not vested at the time can be
repurchased by us at $1.43 per share, unless he remains employed by us through
the period when these options would originally have vested. He is personally
liable for all interest due on his loan and is similarly liable for up to one-
half of the principal amount of his loan. This loan is secured by the shares
purchased with the proceeds of this loan. Mr. Readmond's loan becomes due and
payable March 31, 2003 or earlier in the event his employment terminates or in
the event that he no longer owns the shares.
Mr. Readmond is also a party to our Employee Non-Disclosure, Non-Competition
and Assignment of Inventions Agreement. Mr. Readmond has agreed not to reveal
any confidential information belonging to us, except as may be required in the
course of performing his duties as our employee. He has also agreed to assign
to us any rights which he may have with respect to inventions, software
programs, data or other developments created or discovered during his
employment term. Mr. Readmond agrees that while he is employed by us he will
not compete with any business we conduct and, for one year after his
termination, he will not solicit any of our employees, customers or suppliers.
Andrew D. Klein. Mr. Klein has an employment agreement with us to serve as
chief strategist. The agreement is for a term of two years, beginning January
1, 1999, with an automatic one-year extension, unless the agreement has been
previously terminated (which either party has the right to do upon 90 days'
notice). Under the agreement, he is entitled to a minimum annual base salary
of $250,000, subject to increases based on annual reviews by the Board. If Mr.
Klein's employment is terminated by us without "cause" or by him for "good
reason," he is entitled to a lump sum cash payment equal to the sum of the
amount of his base salary through the end of the three-year period of his
agreement and bonus amounts accrued through the date of termination. He is
also entitled to participate in our Annual Bonus Plan for Executives and Long-
Term Incentive Plan on the same terms as are applicable to senior executives
generally. Mr. Klein is entitled to participation in our 401(k) Plan, Stock
Incentive Plan and such other employee benefits as provided to other senior
executives.
Mr. Klein is also a party to our Employee Non-Disclosure, Non-Competition
and Assignment of Inventions Agreement. He has agreed not to reveal any
confidential information belonging to us, except as may be required in the
course of performing his duties as our employee. He has also agreed to assign
to us any rights which he may have with respect to inventions, software
programs, data or other developments created or discovered during his
employment term. Mr. Klein agrees that while he is employed by us he will not
compete with any business we conduct and, for one year after his termination,
he will not solicit any of our employees, customers or suppliers.
48
<PAGE>
Mark Loehr. Mr. Loehr has an employment agreement with us for a term of
three years, beginning March 8, 1999, subject to the right of each party to
terminate the agreement upon 90 days' notice. Under the agreement, Mr. Loehr
is entitled to a minimum annual base salary of $200,000, subject to increases
based on annual reviews by the Board. If his employment is terminated by us
without "cause," excluding a termination due to his death or disability, or by
him for "good reason," we will continue to pay him his base salary through the
end of the three-year period of his agreement and bonus amounts accrued
through the date of termination. He is also entitled to participate in our
Investment Banking Bonus Pool and Long-Term Incentive Plan on the same terms
as are applicable to senior executives generally. Mr. Loehr is entitled to
participation in our 401(k) Plan, Stock Incentive Plan and such other employee
benefits as provided to other senior executives.
We have extended to Mr. Loehr an interest-bearing loan in the amount of
$1,875,000 with which he has purchased 875,000 shares of common stock (now
Class C common stock) at $2.14 per share. He is personally liable for all
interest due on his loan and is similarly liable for one-half of the principal
amounts of his loan. This loan is secured by the shares purchased with the
proceeds of this loan. In the event Mr. Loehr violates his non-competition
restrictions or ceases to be employed by us (except for termination other than
for "cause" or for "good reason"), we have the right to repurchase his
unvested shares at the lower of their fair market value or $2.14 per share. If
Mr. Loehr is terminated other than for "cause," for death or disability or for
"good reason," we will not have the right to purchase these shares on these
terms. These shares vest quarterly, beginning June 30, 1999, at the rate of
54,688 shares per quarter until March 31, 2003. Our right to repurchase the
unvested shares terminates on March 31, 2003. In addition, Mr. Loehr's loan
becomes due and payable in the event that his employment terminates or in the
event that he no longer owns the shares. Mr. Loehr also has "piggyback" and
demand registration rights relating to the shares.
Mr. Loehr is also a party to our Employee Non-Disclosure, Non-Competition
and Assignment of Inventions Agreement. He has agreed not to reveal any
confidential information belonging to us, except as may be required in the
course of performing his duties as our employee. He has also agreed to assign
to us any rights which he may have with respect to inventions, software
programs, data or other developments created or discovered during his
employment term. Mr. Loehr agrees that while he is employed by us and for one
year after his termination, he will neither compete with any business we
conduct nor solicit any of our employees, customers or suppliers.
Everett F. Lang. Mr. Lang has an employment agreement which terminates on
December 31, 2002. Mr. Lang's agreement provides for an annual base salary of
$200,000 and a guaranteed bonus equal to at least $50,000 in 1999 and 2000,
and thereafter provides for an annual base salary of $200,000 and a bonus
based on the performance of our digital trading facility.
We have extended to Mr. Lang an interest-bearing loan in the amount of
$338,281 with which he has purchased 157,864 shares of common stock (now Class
C common stock) by exercising all vested and non-vested options, other than
incentive stock options, previously held by him. The shares Mr. Lang purchased
by exercising those options which were not vested at the time can be
repurchased by us at $2.14 per share, unless he remains employed by us through
the period when these options would originally have vested. He is personally
liable for all interest due on his loan and is similarly liable for up to one-
half of the principal amount of his loan. This loan is secured by the shares
purchased with the proceeds of this loan. Mr. Lang's loan becomes due and
payable March 31, 2003 or earlier in the event that his employment terminates
or in the event he no longer owns the shares.
Management Benefit Plans
Stock Incentive Plan
We have a Stock Incentive Plan which permits us to grant stock and stock-
based awards to our employees, officers, directors and consultants, including
stock options, stock appreciation rights, restricted and unrestricted stock,
phantom stock awards, performance awards, convertible debentures and other
stock and cash awards. The
49
<PAGE>
purpose of the plan is to promote our long-term growth and profitability by
providing our people with incentives to improve stockholder value and
contribute to our growth and financial success. The awards also enable us to
attract, retain and reward the best available people for positions of
substantial responsibility.
Up to 17,500,000 shares of stock may be issued under the Stock Incentive
Plan. This limit includes shares issued with respect to awards granted before,
and awards that will be granted after, the 1999 amendment to the plan. The
limit is subject to adjustment to reflect any stock dividends, split-ups,
recapitalizations, mergers, consolidations, business combinations, exchanges
of shares and the like. If any award expires, becomes unexercisable, or is
forfeited or surrendered, or if any shares of our stock are surrendered to us
as payment or settlement in connection with any award, the shares subject to
the award and the surrendered shares will become available for issuance under
the plan. As of May 31, 1999, a total of 207 current and former employees and
key consultants hold options to purchase 9,730,677 shares of our Class C
common stock, of which the options are vested with respect to 2,277,682
shares. Following the conversion of our Class C common stock into common
stock, all stock options will be exercisable for common stock.
A committee appointed by the Board or the Board itself will administer the
plan. The administrator will have the authority to take all actions necessary
to carry out the purpose of the plan, including the authority to select the
participants, to determine the sizes and types of the awards to grant, to
establish the terms and conditions of the awards and to modify outstanding
awards.
Annual Bonus Plans
We adopted the Annual Bonus Plan for Executives. The plan will pay
performance-based bonuses to executive officers and key executives as
incentive for the participants to contribute to our profitability. A committee
appointed by the Board will administer the plan. Each year, the committee will
determine the amount of the bonus pool from which the bonuses will be paid.
The bonus pool will be determined based on a formula, as adopted at the
committee's discretion, which will taken into account one or more of the
following measures of our financial performance: (a) pre-tax or after-tax
return on equity; (b) earnings per share; (c) pre-tax or after-tax net income;
(d) pre-tax operating income; (e) net revenues; (f) profits before taxes; (g)
book value per share; (h) market price per share and (i) earnings available to
common stockholders. The committee will determine the percentage of the bonus
pool payable to each participant, subject to adjustment based on achievement
of individual, group or corporate performance goals. We will pay the bonuses
in cash, in stock or stock-based awards under the Stock Incentive Plan or in
any combination of methods. Subject to the terms of the Deferred Compensation
Plan, a participant may elect to defer payment of his bonus and receive the
payment under the Deferred Compensation Plan.
To foster the same motivation among our investment bankers and analysts (the
"Investment Banking Group") to contribute to our profitability, we also
adopted the Annual Bonus Plan for the Investment Banking Group. The bonuses
under this plan will be paid on a quarterly basis from a bonus pool which will
consist of 40% of the net cash and securities generated quarterly by the
Investment Banking Group. A committee, as appointed by the Board to administer
the plan, will annually in advance select the participants and determine the
formula for allocating the bonus pool among the participants. The bonus of a
participant may be increased or decreased by up to 20% based on the
participant's performance or other factors as determined by the committee. We
will pay the bonuses in cash, in securities generated by the Investment
Banking Group, in stock or stock-based awards under the Stock Incentive Plan
or in any combination of those methods. Subject to the terms of the Deferred
Compensation Plan, a participant may elect to defer payment of his bonus and
receive the payment under the Deferred Compensation Plan. A portion of the
Annual Bonus Plan for the Investment Banking Group pool may be allocated to
the Annual Bonus Plan for Executives.
Long-Term Incentive Plan
To attract and retain employees who contribute to our continued growth,
development and financial success, we adopted the Long-Term Incentive Plan
(the "LTIP"). A committee appointed by the Board will administer the LTIP and
will select those executives and key employees who are eligible to participate
in the LTIP. The
50
<PAGE>
LTIP provides for the payment of performance awards if certain objective
performance goals are met over a three-year performance period. Performance
goals and corresponding performance awards are set by the committee at the
beginning of the three-year period and are based on one or more of the
following measures of our financial performance: (1) net revenue or income;
(2) stock price; (3) return on equity; (4) earnings per share; (5) profits
before taxes; (6) operating income and (7) any other factors as determined by
the administrator. The administrator reserves the right to adjust the amount
of a performance award payable to any participant based on additional factors
such as individual performance and contributions to our success. Performance
awards are paid only to participants who are employed by us at the end of the
three-year performance period. Performance awards will be paid in cash, stock
or a combination thereof. Subject to the terms of the Deferred Compensation
Plan, a participant may elect to defer payment of a performance award and
receive the payment under the Deferred Compensation Plan.
Deferred Compensation Plan
We adopted the Deferred Compensation Plan for the employees participating in
the three bonus plans (the Long-Term Incentive Plan, the Annual Bonus Plan for
Executives and the Annual Bonus Plan for the Investment Banking Group).
Participation in the Deferred Compensation Plan will be limited to those bonus
plan participants who would represent a "select group of management and highly
compensated employees" under applicable federal law governing employee benefit
plans. The plan permits the participants to make annual elections to defer all
or a portion of the bonuses they might earn under the bonus plans. The
deferred amounts will be credited to the participants' accounts, which will be
maintained for recordkeeping purposes and will not hold assets. The cash
bonuses deferred under the plan will be credited with gains and losses as if
actually invested in the investment alternatives selected by the participants
from a menu available under the plan. The bonuses in shares of our common
stock that are deferred under the plan will be credited with gains and losses
based on the value of the stock and any stock dividends. If there will be cash
dividends and distributions on the shares credited to the accounts, those
amounts will be credited with earnings at a fixed annual percentage rate. The
participants' interest in their accounts will be vested and non-forfeitable.
Each account will be paid out at the time and in the manner and form as
selected by the participant from a menu of alternatives available under the
plan.
401(k) Plan
We maintain a 401(k) retirement savings plan. All of our employees meeting
certain minimum eligibility requirements are eligible to participate in the
401(k) plan. Under the 401(k) plan, an employee may contribute up to 15% of
his or her pre-tax gross compensation. The contribution cannot exceed a
statutorily prescribed annual limit. The 401(k) plan permits us, but does not
require us, to make additional contributions to the 401(k) plan. All amounts
contributed by the employee participants in conformance with plan requirements
and earnings on such contributions are fully vested at all times. For the
years ended December 31, 1997 and 1998, we did not contribute to the 401(k)
Plan.
51
<PAGE>
CERTAIN TRANSACTIONS
Except as described below, none of our directors, officers or principal
security holders has or has had a direct or indirect material interest in any
transaction to which we are or have been a party. We believe that the terms of
each of the transactions described below were no less favorable to us than
could have been obtained from unaffiliated third parties. In addition, we will
not enter into additional transactions or agreements with directors, officers,
principal security holders or other affiliated parties unless the terms
thereof are no less favorable to us than could be obtained from unaffiliated
third parties. In any event, we will not enter into any transaction with
directors, officers or principal security holders without the affirmative vote
of a majority of disinterested directors.
Loans to Officers
Messrs. Lessin and Loehr were given loans by us to purchase shares of common
stock (now Class C common stock) pursuant to their respective employment
agreements as described under "Management--Employment Agreements." In
addition, Messrs. Readmond, Lang and Lieberman and Ms. Berkowitz accepted the
opportunity we offered them to exercise all their vested and non-vested stock
options on April 30, 1999, other than incentive stock options, with funds we
loaned to them. The shares they purchased by exercising those of their options
which were not vested at the time can be repurchased by us at their respective
option exercise prices, unless they remain in our employ through the
respective periods when these options would originally have vested. The
individuals are personally liable for all interest due on their loans and are
similarly liable for one-half of the principal amounts of their loans. Each
loan is secured by the shares purchased with the proceeds of that loan. Each
loan becomes due and payable on March 31, 2003 or earlier if the individual's
employment is terminated or he or she no longer owns the shares. The
respective total number of shares purchased and the amounts loaned are set
forth in the table below.
<TABLE>
<CAPTION>
Number of Shares
Acquired on Exercise Loan Amount
-------------------- -----------
<S> <C> <C>
Ronald
Readmond..... 1,561,000 $2,787,500
Everett F.
Lang......... 157,864 338,281
George M.
Lieberman.... 93,333 200,000
Susan J.
Berkowitz.... 52,500 93,750
</TABLE>
Stock Issuances to Executive Officers, Directors and Our Largest Stockholders
The following table sets forth issuances of our capital stock to our
executive officers, directors and our largest stockholders. All purchases
during April 1999 by officers were pursuant to the exercise of their
outstanding options. All shares of common stock reflected in this table were
subsequently converted into Class C common stock. All shares of Series A, B, C
and D preferred stock will convert automatically into an equal number of
shares of Class C common stock upon completion of this offering. All shares of
Class C common stock will automatically convert into shares of common stock
180 days after the completion of this offering. All shares of Series E
Preferred Stock will convert into an equal number of shares of Class B common
stock upon completion of this offering.
<TABLE>
<CAPTION>
Price Share
Stockholder Capital Stock Per Share Amounts Issuance Date
- ----------- ------------- --------- ------- -------------
<S> <C> <C> <C> <C>
The Goldman Sachs Group,
L.P.(1)................ Series E Preferred $2.14 11,666,667 April 8, 1999
Capital Z Partners(2)... Series D Preferred 2.14 11,666,667 February 23, 1999
Draper Fisher
Jurvetson(3)........... Series D Preferred 2.14 933,333 March 8, 1999
Series D Preferred 2.14 233,333 December 8, 1998
Series C Preferred 1.43 3,500,000 September 17, 1998
Andrew D. Klein......... Common Stock 0.01 5,600,000 April 4, 1996
Robert H. Lessin........ Series D Preferred 2.14 91,000 December 8, 1998
Common Stock 1.43 35,000 April 13, 1998
Common Stock 1.43 4,025,000 August 3, 1998
Ronald Readmond......... Series A Preferred 1.43 70,000 January 29, 1998
Series A Preferred 1.43 21,000 April 30, 1997
Common Stock 1.43 1,561,000 April 30, 1999
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Price Share
Stockholder Capital Stock Per Share Amount Issuance Date
- ----------- ------------- --------- ------ -------------
<S> <C> <C> <C> <C>
Edward H. Fleischman...... Series D Preferred $2.14 23,333 December 8, 1998
Joseph R. Hardiman........ Series A Preferred 1.43 35,000 December 9, 1997
Mark Loehr................ Common Stock 2.14 875,000 March 5, 1999
M. Bernard Siegel......... Common Stock 1.43 35,000 April 5, 1999
Everett F. Lang........... Common Stock 2.14 157,864 April 30, 1999
George M. Lieberman....... Common Stock 2.14 93,333 April 30, 1999
Common Stock 2.14 17,500 April 14, 1999
Susan J. Berkowitz........ Common Stock 1.43 52,500 April 30, 1999
Common Stock 1.43 43,750 April 5, 1999
</TABLE>
- --------
(1) The Goldman Sachs Group, L.P. owns warrants to purchase up to 5,637,295
shares of Class B common stock. Goldman Sachs also has the right to
receive warrants to purchase an additional 153,247 shares of Class B
common stock in certain circumstances after September 25, 1999. All
warrants issued to Goldman Sachs become exercisable in October 2000.
(2) Steven Gluckstern and Adam Mizel, two of our directors, are general
partners of Capital Z Partners.
(3) John H.N. Fisher, one of our directors, is a managing director of Draper
Fisher Jurvetson. Draper Fisher Jurvetson owns warrants to purchase
483,021 shares of Series C preferred stock. These warrants will be
exercisable for Class C common stock during the 180-day period following
the completion of this offering and will be exercisable for common stock
thereafter.
Agreement with Stockholders
Capital Z Partners and Draper Fisher Jurvetson, who are the beneficial
owners of 11,666,667 and 5,149,687 shares, respectively, of our Class C common
stock that will be issued upon conversion of their preferred stock when this
offering is consummated, Goldman Sachs, who is the beneficial owner of
11,666,667 shares of Class B common stock that will be issued upon conversion
of their preferred stock upon consummation of this offering, and Messrs.
Readmond and Lessin, the holders of 1,652,000 and 4,151,000 shares,
respectively, of our Class C common stock, are entitled to certain rights and
subject to certain obligations in connection with the ownership of these
shares. The rights and obligations that will survive this offering are as
follows:
. Capital Z Partners may not to attempt to acquire beneficial ownership of
greater than 25% of our common equity (calculated as if all outstanding
options and rights are exercised and the related shares are issued).
This restriction will terminate three years after completion of this
offering or earlier if any other person acquires or intends to acquire
at least 25% of our common equity (calculated in a similar manner).
. Goldman Sachs and its affiliates may not acquire, with certain
exceptions, beneficial ownership of more than 25% of our common equity
(calculated as if all outstanding options and rights are exercised and
the related shares are issued). This restriction will terminate three
years after completion of this offering or earlier if any other person
acquires or intends to acquire at least 25% of our common equity
(calculated in a similar manner).
. If we intend to offer shares of our common equity, or other securities
convertible into our common equity, representing more than 5% of our
common equity (again calculated as if all outstanding options and rights
are exercised and the related common shares are issued) to any of a
number of designated competitors of Goldman Sachs, Goldman Sachs will
have a first right to buy all of the offered shares on the same terms as
those offered to the competitor. This right of first refusal will
terminate in April 2009 or earlier if Goldman Sachs and its affiliates
cease to own at least 10% of our common equity (calculated, again, in a
similar manner).
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<PAGE>
. In any year after this offering, Messrs. Lessin and Readmond cannot
transfer more than the sum of half of the total number of shares each is
permitted to transfer under Rule 144 under the Securities Act, plus a
percentage of any share amount transferred by Capital Z Partners in that
year, plus any allowable transfer amount carried over from a previous
year without the consent of Capital Z Partners.
Venture Capital Fund Management
We and DT Advisors have reached an agreement in principle relating to the
development and management of new venture capital funds and the management of
our Angel Funds for a three-year period through a new jointly owned entity.
Robert Lessin, our co-chief executive officer, who is also the majority owner
and a general partner of DT Advisors, will not participate in DT Advisors'
share of the new entity's fees, although he will have a 50% share in our
interests in profits of the new entity. These arrangements are subject to our
entering into a binding agreement and must be approved by the disinterested
members of our Board of Directors.
Spring Street
We are a party with Spring Street Brewing Company to a license and
reciprocal marketing agreement dated April 4, 1996. Pursuant to this
agreement, we issued to Spring Street 700,000 shares of common stock (now
Class C common stock). At the time, Mr. Klein was a director of Spring Street.
In 1998, Spring Street transferred all of its assets to Long Shore Brewing
Company and its affiliate MMB Properties LLC as part of a merger.
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<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common equity as of May 31, 1999 (assuming the conversion of
all of our outstanding preferred stock) by: (1) each person or entity that we
know beneficially owns 5% or more of our common equity; (2) our co-chief
executive officers and the other four most highly compensated executive
officers as of May 31, 1999; (3) each of our directors; and (4) all our current
directors and executive officers as a group.
<TABLE>
<CAPTION>
Number of Percentage of Common
Shares Equity Beneficially
Beneficially Owned
Owned --------------------
Prior to Prior to After
Name of Beneficial Owner Offering(1) Offering Offering(2)
- ------------------------ ------------ -------- -----------
<S> <C> <C> <C>
Capital Z Financial Services Fund II, L.P... 11,666,667 18.5% 16.5%
One Chase Manhattan Plaza, 44th Floor
New York, NY 10005
Draper Fisher Jurvetson(3).................. 5,149,687 8.1 7.2
400 Seaport Court
Redwood City, CA 94063
John H.N. Fisher(4)......................... -- -- --
400 Seaport Court
Redwood City, CA 94063
Edward H. Fleischman(5)..................... 25,521 * *
Steven Gluckstern(6)........................ -- -- --
One Chase Manhattan Plaza, 44th Floor
New York, NY 10005
The Goldman Sachs Group, L.P.(7) ........... 11,666,667 18.5 16.5
85 Broad Street
New York, NY 10004
Joseph R. Hardiman(5)...................... 39,375 * *
Andrew D. Klein(8).......................... 4,378,338 6.9 6.2
Everett Lang(9)............................. 170,966 * *
Robert H. Lessin(10)........................ 4,641,000 7.4 6.6
George Lieberman (11)....................... 122,111 * *
Mark Loehr.................................. 875,000 1.4 1.2
Gilbert C. Maurer(5)........................ 4,375 * *
Adam Mizel(6)............................... -- -- --
One Chase Manhattan Plaza, 44th Floor
New York, NY 10005
Ronald Readmond(12)......................... 1,675,333 2.7 2.4
All executive officers and directors as a 13,019,830 20.5 18.3
group (17 persons)(13).....................
</TABLE>
55
<PAGE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC. In general, a person who has voting power and/or investment power
with respect to securities is treated as a beneficial owner of those
securities. For purposes of this table, shares subject to options,
warrants or rights currently exercisable or exercisable within 60 days of
May 31, 1999 are considered as beneficially owned by the person holding
such options, warrants or rights. Unless indicated otherwise, we believe
that the persons named in this table have sole voting and investment power
with respect to the shares shown.
(2) Assumes no exercise of the underwriters' over-allotment option.
(3) Includes warrants to purchase 483,021 shares of Series C preferred stock.
These warrants will be exercisable for an equal number of shares of Class
C common stock during the 180-day period following the completion of this
offering and will be exercisable for common stock thereafter.
(4) Mr. Fisher is a managing director of Draper Fisher Jurvetson and therefore
may be deemed to beneficially own shares held by Draper Fisher Jurvetson.
(5) Includes 2,188 shares issuable upon exercise of options exercisable within
60 days. Also has an additional 30,625 options exercisable after 60 days.
(6) General partner of Capital Z Partners and therefore may be deemed to
beneficially own shares held by Capital Z Financial Services Fund II, L.P.
(7) Excludes warrants to purchase 5,637,295 shares of Series E preferred
stock, none of which is exercisable within 60 days. These warrants will be
exercisable for Class B common stock after this offering. Also has the
right to receive up to an additional 153,247 similar warrants in certain
circumstances after September 25, 1999. Class B common stock is not
entitled to vote for the election of directors, but will be automatically
converted into shares of common stock if transferred to a non-affiliate of
Goldman Sachs at any time following 180 days after the completion of this
offering.
(8) Does not include 21,013 shares owned by MMB Properties LLC of which Mr.
Klein is a director.
(9) Includes 13,102 which are exercisable within 60 days and excludes 196,534
which are exercisable after 60 days.
(10) In addition to his purchases from us, Mr. Lessin purchased shares from
two of our stockholders.
(11) Includes 11,278 shares issuable upon exercise of options exercisable
within 60 days. Also has an additional 157,889 options exercisable after
60 days.
(12) Includes 23,333 shares issuable upon exercise of options exercisable
within 60 days. Also has an additional 256,667 options exercisable after
60 days.
(13) If we include shares beneficially owned by Capital Z Financial Services
Fund II, L.P. and Draper Fisher Jurvetson, each of which has designated
one or more members of our Board of Directors, then the number of shares
and percentages would be 29,836,184, 47.8% and 42.7%.
Venture capital funds that have invested in our company but are not listed
on the table above include Highland Capital Partners, MC Capital (a subsidiary
of Mitsubishi Corporation), Media One Interactive Services and Comcast
Interactive Investments.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock consists of 500,000,000 shares of common stock,
$.01 par value, 75,000,000 shares of Class B common stock, $.01 par value,
159,000,000 shares of Class C common stock, $.01 par value and 30,000,000
shares of preferred stock, $.001 par value. Upon consummation of this
offering, there will be 7,600,000 shares of common stock, 11,666,667 shares of
Class B common stock and 51,382,822 shares of Class C common stock (assuming
no exercise of outstanding stock options and warrants and giving effect to the
issuance of 11,666,667 shares of Class B common stock and 33,977,313 shares of
Class C common stock upon the conversion of all outstanding preferred stock).
There will also be outstanding options and warrants to purchase an aggregate
of 16,383,903 shares of Class B and Class C common stock.
The following summary of the terms and provisions of our capital stock does
not purport to be complete. Reference should be made to our Amended and
Restated Certificate of Incorporation and our By-Laws, and to applicable law,
for the complete description of the terms and provisions of our capital stock.
Common Stock and Class C Common Stock
The holders of common stock and Class C common stock are entitled to one
vote for each share on all matters voted upon by stockholders, including the
election of directors. The holders of the common stock and Class C common
stock are entitled to such dividends as may be declared in the discretion of
the Board of Directors out of funds legally available therefor, subject to the
preferential dividend rights of any shares of preferred stock. See "Dividend
Policy." Upon liquidation, holders of common stock and Class C common stock
are entitled to share ratably in the remaining assets upon liquidation after
payment or provision for all liabilities and any preferential liquidation
rights of any preferred stock. The holders of common stock and Class C common
stock have no preemptive rights to purchase shares of our stock. Shares of
common stock and Class C common stock are not subject to any redemption
provisions, and shares of common stock are not convertible into any other
securities. All outstanding shares of common stock and Class C common stock
are fully paid and nonassessable. The shares of our common stock we will sell
in this offering will also be fully paid and nonassessable when we receive
payment for the shares. Shares of Class C common stock are not transferable
until they automatically convert into common stock 180 days after the
completion of this offering.
Class B Common Stock
The holders of Class B common stock are generally not entitled to vote
except as required by law. The holders of the Class B common stock are
entitled to any dividends declared by our Board of Directors which are payable
to holders of common stock on the same terms and in the same form as those
dividends paid to holders of common stock. Upon liquidation, holders of Class
B common stock are entitled to share ratably in the remaining assets after
payment or provision for all liabilities and any preferential liquidation
rights of any preferred stock. The Class B common stock will be treated in an
identical manner as the common stock with respect to any reclassification,
recapitalization, stock split or similar transaction and in any merger,
consolidation or share exchange. The holders of Class B common stock have no
preemptive rights to purchase shares of our stock. If any person or entity
other than Goldman Sachs or any of its affiliates becomes the beneficial owner
of shares of Class B common stock during the 180-day period following the
completion of this offering, these shares will automatically convert into an
equal number of shares of Class C common stock or, thereafter, into an equal
number of shares of common stock. Shares of Class B common stock are not
subject to any redemption provisions. All outstanding shares of Class B common
stock are fully paid and non-assessable.
Preferred Stock
Our Amended and Restated Certificate of Incorporation provides for 30
million authorized shares of preferred stock, of which none is outstanding.
The existence of authorized but unissued preferred stock may enable the Board
of Directors to render more difficult or to discourage an attempt to obtain
control of us by means of a merger, tender offer, proxy contest or otherwise.
For example, if in the due exercise of its fiduciary
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<PAGE>
obligations, the Board of Directors were to determine that a takeover proposal
is not in our best interests, the Board of Directors could cause shares of
preferred stock to be issued without stockholder approval in one or more
private offerings or other transactions that might dilute the voting or other
rights of the proposed acquiror or insurgent stockholder group. In this
regard, the Amended and Restated Certificate of Incorporation grants the Board
of Directors broad power to establish the rights and preferences of authorized
and unissued preferred stock. The issuance of shares of preferred stock
pursuant to the Board of Directors' authority described above could decrease
the amount of earnings and assets available for distribution to holders of
shares of common stock and adversely affect the rights and powers, including
voting rights, of such holders and may have the effect of delaying, deterring
or preventing a change in control of us. The Board of Directors currently does
not intend to seek stockholder approval prior to any issuance of preferred
stock, unless otherwise required by law.
Registration Rights
Following the automatic conversion of Class C common stock into common
stock, Goldman Sachs, Capital Z Partners, Draper Fisher Jurvetson and certain
other stockholders, or their respective transferees, will be entitled to
certain registration rights with respect to the registrable securities. These
rights are provided under the terms of the registrable securities and
agreement between us and the holders of these registrable securities. This
agreement provides demand registration rights under the Securities Act
beginning six months after this offering. These stockholders may require that
we file up to an aggregate of six registration statements, subject to certain
conditions. In addition, the holders are entitled to require us to include
their registrable securities in future registration statements we file under
the Securities Act, often referred to as "piggyback" registration rights. The
holders are also entitled to require us to register their registrable
securities on a registration statement on Form S-3 once we are eligible to use
a Form S-3 in connection with such registrations. However, holders of these
shares will be restricted from exercising such rights until six months after
the date of this prospectus, and within six months after the filing of any
subsequent registration statement. Registration of shares of common stock
pursuant to the exercise of demand registration rights, piggyback registration
rights or S-3 registration rights would result in such shares becoming freely
tradable without restriction under the Securities Act immediately upon the
effectiveness of such registration subject to any lock-up agreements we have
with these stockholders. We are required to bear substantially all
registration and selling expenses in connection with the above-described
registrations, except for underwriting discounts, income and transfer taxes
(if any), selling expenses and the fees and expenses of more than one counsel
representing the holders of the registrable securities. These registration
rights are transferable in certain circumstances and may be amended or waived
only with our written consent and the consent of a specified number of holders
of the registrable securities. See "Risk Factors," "Shares Eligible for Future
Sale" and "Certain Transactions."
Stockholder Rights Plan
Each share of common stock offered hereby includes one voting class right
("Voting Class Right"), each share of Class C common stock includes one Voting
Class Right and each share of Class B common stock includes one nonvoting
class right ("Class B Common Right"). The Voting Class Rights and the Class B
Common Rights are referred to collectively herein as the "Rights". Each Voting
Class Right entitles its registered holder to purchase from us a unit
consisting of one one-hundredth of a share (a "Fractional Share") of Class 1
Series A Junior Participating Preferred Stock, par value $.001 per share, and
each Class B Common Right entitles the registered holder to purchase from us a
unit consisting of a Fractional Share of Class 2 Series A Junior Participating
Preferred Stock, par value $.001 per share (the Class 1 Series A Junior
Participating Preferred Stock and the Class 2 Series A Junior Participating
Preferred Stock collectively referred to as the "Preferred Shares"), at a
purchase price of $40.00 per Fractional Share (assuming an offering price of
$8.00 per share), subject to adjustment (the "Purchase Price").
Initially, the Voting Class Rights will be attached to all certificates
representing outstanding shares of common stock and Class C common stock and
the Class B Common Rights will be attached to all certificates representing
outstanding shares of Class B common stock, and no separate certificates for
the Rights ("Rights Certificates") will be distributed. The Voting Rights will
separate from the common stock and Class C common stock and the Class B Common
Rights will separate from the Class B common stock and a "Distribution Date"
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<PAGE>
will occur, with certain exceptions, upon the earlier of (i) ten days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of
common stock and Class C common stock (the date of the announcement being the
"Stock Acquisition Date"), or (ii) ten business days following the
commencement of a tender offer or exchange offer that would result in a
person's becoming an Acquiring Person.
However, as long as Capital Z Financial Services Fund II, L.P., together
with all of its affiliates and associates, does not become the beneficial
owner of 25% or more of all outstanding shares of common stock of all classes
(assuming the exercise of all outstanding options, rights and warrants to
acquire common stock), Capital Z, together with its affiliates and associates,
shall not be or become an Acquiring Person. Furthermore, as long as The
Goldman Sachs Group, L.P., together with all its affiliates and associates,
does not become the beneficial owner of 25% or more of all such outstanding
shares of common stock, Goldman Sachs, together with its affiliates and
associates, shall not be or become an Acquiring Person. In certain
circumstances, the Distribution Date may be delayed by the Board of Directors.
Certain inadvertent acquisitions will not result in a person's becoming an
Acquiring Person if the person promptly divests itself of sufficient common
stock.
Until the Distribution Date, (a) the Voting Class Rights will be evidenced
by the common stock certificates and Class C common stock certificates and the
Class B Common Rights will be evidenced by the Class B common stock
certificates and both will be transferred with and only with such common stock
certificates and Class C common stock certificates and such Class B common
stock certificates, as the case may be, (b) common stock certificates, Class C
common stock certificates and Class B common stock certificates will contain a
notation incorporating the Rights Agreement by reference and (c) the surrender
for transfer of any certificate for common stock will also constitute the
transfer of the Rights associated with either the common stock, Class C common
stock or the Class B common stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on September 30, 2009, unless earlier redeemed or
exchanged by us as described below.
As soon as practicable after the Distribution Date, Rights Certificates will
be mailed to holders of record of common stock, Class C common stock and Class
B common stock as of the close of business on the Distribution Date and, from
and after the Distribution Date, the separate Rights Certificates alone will
represent the Rights. All shares of common stock, Class C common stock and
Class B common stock issued prior to the Distribution Date will be issued with
the appropriate Rights. Shares of common stock, Class C common stock and Class
B common stock issued after the Distribution Date in connection with certain
employee benefit plans or upon conversion of certain securities will be issued
with appropriate Rights. Except as otherwise determined by the Board of
Directors, no other shares of common stock, Class C common stock or Class B
common stock issued after the Distribution Date will be issued with Rights.
In the event (a "Flip-In Event") that a person becomes an Acquiring Person
(except pursuant to a tender or exchange offer for all outstanding shares of
common stock and Class C common stock at a price and on terms that a majority
of the independent directors of our Board of Directors determines to be fair
to and otherwise in our best interests and the best interests of our
stockholders (a "Permitted Offer")), each holder of a Voting Class Right will
thereafter have the right to receive, upon exercise of such Right, a number of
shares of common stock and each holder of a Class B Common Right will
thereafter have the right to receive, upon exercise of such Right, a number of
shares of Class B common stock (or, in certain circumstances, cash, property
or other securities) having a Current Market Price (as defined in the Rights
Agreement) equal to approximately two times the exercise price of the Right.
Notwithstanding the foregoing, following the occurrence of any Triggering
Event, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by or transferred to an Acquiring
Person (or by certain related parties) will be null and void in the
circumstances set forth in the Rights Agreement. However, Rights are not
exercisable following the occurrence of any Flip-In Event until such time as
the Rights are no longer redeemable by us as set forth below.
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<PAGE>
In the event (a "Flip-Over Event") that, at any time from and after the time
an Acquiring Person becomes such, (i) our company is acquired in a merger or
other business combination transaction (other than certain mergers that follow
a Permitted Offer), or (ii) 50% or more of our assets or earning power is sold
or transferred, each holder of a Right (except Rights that are voided as set
forth above) shall thereafter have the right to receive, upon exercise, a
number of shares of common stock of the acquiring company having a Current
Market Price equal to two times the exercise price of the Right. Flip-In
Events and Flip-Over Events are collectively referred to as "Triggering
Events."
The number of outstanding Rights associated with a share of common stock,
Class C common stock or Class B common stock, or the number of Fractional
Shares of Preferred Shares issuable upon exercise of a Right and the Purchase
Price, are subject to adjustment in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the common stock, Class C
common stock or Class B common stock occurring prior to the Distribution Date.
The Purchase Price payable, and the number of Fractional Shares of Shares or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution in the event of certain
transactions affecting the Preferred Shares.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional shares of Preferred Shares that are not integral
multiples of a Fractional Share are required to be issued and, in lieu
thereof, an adjustment in cash may be made based on the market price of the
Preferred Shares on the last trading date prior to the date of exercise or
certificates of scrip or warrants may be issued entitling the holders thereof
to receive a full share in return for such scrip or warrants aggregating a
full share. Pursuant to the Rights Agreement, we reserve the right to require
prior to the occurrence of a Triggering Event that, upon any exercise of
Rights, a number of Rights be exercised so that only whole shares of Preferred
Shares will be issued.
At any time until the date of the first public announcement of the
occurrence of a Flip-In Event, we may redeem the Rights in whole, but not in
part, at a price of $.01 per Right, payable, at our option, in cash, shares of
common stock, in the case of holders of Voting Class Rights, or Class B common
stock, in the case of holders of Class B Common Rights, or such other
consideration as the Board of Directors may determine. Immediately upon the
effectiveness of the action of the Board of Directors ordering redemption of
the Rights, the Rights will terminate and the only right of the holders of
Rights will be to receive the $.01 redemption price. In the event that prior
to the Distribution Date, the Class B common stock is converted, in whole or
in part, into common stock or Class C common stock, as the case may be, the
Class B Common Rights attached to the shares of Class B common stock will be
converted to Voting Class Rights pursuant to a conversion ratio equivalent to
the conversion ratio used for converting the Class B common stock to common
stock. In the event that on or after the Distribution Date, all outstanding
shares of Class B common stock are converted into shares of common stock or
Class C common stock, as the case may be, all Class B Common Rights then
outstanding will be converted to Voting Class Rights pursuant to a conversion
ratio equivalent to the conversion ratio used for converting the Class B
common stock to common stock or Class C common stock, as the case may be.
At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of common stock and
Class C common stock then outstanding or the occurrence of a Flip-Over Event,
we may exchange the Rights (other than Rights owned by an Acquiring Person or
an Affiliate or an associate of an Acquiring Person, which will have become
void), in whole or in part, at an exchange ratio of one share of common stock,
in the case of holders of Voting Class Rights, or Class B common stock, in the
case of holders of Class B Common Rights, and/or other equity securities
deemed to have the same value as one share of common stock, per Voting Class
Right, or one share of Class B common stock, per Class B Common Right, subject
to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder, including, without limitation, the right to vote or to
receive dividends. While the distribution of the Rights should not be taxable
to stockholders or to us, stockholders may, depending upon the circumstances,
recognize taxable income in the event that the Rights become exercisable for
our common stock or Class B common stock (or other consideration) or for the
common stock of the acquiring company as set forth above or are exchanged as
provided in the preceding paragraph.
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<PAGE>
Other than the redemption price, any of the provisions of the Rights
Agreement may be amended by the Board of Directors of the Company as long as
the Rights are redeemable. Thereafter, the provisions of the Rights Agreement
other than the redemption price may be amended by the Board of Directors in
order to cure any ambiguity, defect or inconsistency, to make changes that do
not materially adversely affect the interests of holders of Rights (excluding
the interests of any Acquiring Person), or to shorten or lengthen any time
period under the Rights Agreement; provided, however, that no amendment to
lengthen the time period governing redemption shall be made at such time as
the Rights are not redeemable.
Limitation On Directors' Liabilities
Our Amended and Restated Certificate of Incorporation limits, to the maximum
extent permitted under Delaware law, the personal liability of directors and
officers for monetary damages for breach of their fiduciary duties as
directors and officers, except in certain circumstances involving certain
wrongful acts, such as a breach of the director's duty of loyalty or acts of
omission which involve intentional misconduct or a knowing violation of law.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits us
to indemnify officers, directors or employees against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement in
connection with legal proceedings if the officer, director or employee acted
in good faith and in a manner he reasonably believed to be in or not opposed
to our best interests, and, with respect to any criminal act or proceeding, he
had no reasonable cause to believe his conduct was unlawful. Indemnification
is not permitted as to any matter as to which the person is adjudged to be
liable unless, and only to the extent that, the court in which such action or
suit was brought upon application that, despite the adjudication of liability,
but in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such expenses as the court deems proper.
Individuals who successfully defend such an action are entitled to
indemnification against expenses reasonably incurred in connection therewith.
Our By-Laws require us to indemnify directors and officers against, to the
fullest extent permitted by law, liabilities which they may incur under the
circumstances described in the preceding paragraph.
We plan to maintain standard policies of insurance under which coverage is
provided (1) to our directors and officers against loss arising from claims
made by reason of breach of duty or other wrongful act and (2) to us with
respect to payments which may be made by us to such officers and directors
pursuant to the above indemnification provision or otherwise as a matter of
law.
In addition, we are entering into indemnification agreements with our
directors and executive officers. Under these agreements, we agree to
indemnify each director and officer to the fullest extent permitted by law for
any acts performed, or for failures to act, on our behalf or on behalf of
another person or entity for which that director or officer is performing
services at our request. We will not indemnify a director or officer for any
breach of loyalty to us or to our stockholders, or if the director or officer
does not act in good faith or for acts involving intentional misconduct, or
for acts or omissions falling under Section 174 of the DGCL, or for any
transaction for which the director or officer derives an improper benefit. We
agree to indemnify for expenses related to indemnifiable events, and to pay
for these expenses in advance. Our obligation to indemnify and to provide
advances for expenses are subject to the approval of a review process with a
reviewer to be determined by the Board. The rights of directors and officers
will not exclude any rights to indemnification otherwise available under law
or under the Amended and Restated Certificate of Incorporation.
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<PAGE>
ANTI-TAKEOVER PROVISIONS
General
Certain provisions of the DGCL and our Amended and Restated Certificate of
Incorporation and By-Laws may delay, discourage or prevent a change in control
of us unless such takeover or change in control is approved by our Board of
Directors. Such provisions also may render the removal of directors and
management more difficult. Such provisions may discourage bids for common
stock at a premium over the market price and may adversely affect the market
price and voting and other rights of the holders of common stock.
Amended and Restated Certificate of Incorporation and By-Laws
Our Amended and Restated Certificate of Incorporation provides that the
Board of Directors is divided into three classes of directors, serving
staggered three-year terms. With a classified Board of Directors, at least two
annual meetings of stockholders, instead of one, will generally be required to
effect a change in the majority of the Board of Directors. As a result, a
classified Board of Directors, as well as the inability of stockholders to
remove directors without cause and to fill vacancies on the Board, may
discourage proxy contests for the election of directors or purchases of a
substantial block of the common stock because such provision could operate to
prevent obtaining control of us in a relatively short period of time. This
classification provision also could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
us. In addition, the stockholders may only remove a director from office for
cause and only with the affirmative vote of at least two-thirds of the total
voting power of all of our outstanding stock and only the Board of Directors
may fill vacancies on the Board. We believe, however, that a classified Board
of Directors will help to assure the continuity and stability of the Board of
Directors and our business strategies and policies as determined by the Board
of Directors, since a majority of the directors at any given time will have
had prior experience as our directors. We believe that this, in turn, will
permit the Board of Directors to more effectively represent the interest of
stockholders.
Our Amended and Restated Certificate of Incorporation provides that
stockholders may act only at an annual or special meeting of stockholders and
may not act by written consent. Our By-Laws provide that special meetings of
stockholders may be called only by the Chairman of the Board of Directors,
either Co-Chief Executive Officer or the Board of Directors. The By-Laws
require advance written notice, which generally must be received by our
Secretary not less than 30 days nor more than 60 days prior to a meeting of
stockholders (subject to certain exceptions) of a proposal or director
nomination which a stockholder desires to present at such a meeting.
All amendments to the provisions of our Amended and Restated Certificate of
Incorporation relating to the classified Board must be approved by the holders
of two-thirds of the outstanding capital stock entitled to vote and all
amendments to the By-Laws must be approved by either the holders of two-thirds
of the outstanding capital stock entitled to vote or by a majority of the
Board of Directors.
These provisions reduce our vulnerability to an unsolicited acquisition
proposal and to discourage certain tactics that may be used in proxy fights.
However, such provisions could have the effect of discouraging others from
making tender offers for shares of common stock and, as a consequence, they
also may inhibit fluctuations in the market price of our common stock that
could result from actual or rumored takeover attempts. These provisions also
may have the effect of preventing changes in our management. See "Risk
Factors."
Delaware Anti-Takeover Law
We are subject to Section 203 of the DGCL. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the
date the person became an interested stockholder, unless (with certain
exceptions) the "business combination" or the transaction in which the person
became an "interested stockholder" is approved
62
<PAGE>
in a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale or other transaction resulting in a financial benefit to
the "interested stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns 15% or more of a corporation's
outstanding voting stock, or was the owner of 15% or more of a corporation's
outstanding voting stock at any time within the prior three years, other than
"interested stockholders" prior to the time our common stock is quoted on
Nasdaq. The existence of this provision would be expected to have an anti-
takeover effect with respect to transactions not approved in advance by the
Board of Directors, including discouraging takeover attempts that might result
in a premium over the market price for the shares of common stock held by
stockholders.
Listing
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "WITC."
Transfer Agent and Registrar
American Stock Transfer will serve as transfer agent and registrar for the
common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock. Sales of substantial amounts of common stock in the public market, or
the perception that such sales could occur, could adversely affect the market
price of the common stock and could impair our future ability to raise capital
through the sale of equity securities.
Upon the completion of this offering, there will be outstanding 7,600,000
shares of common stock (8,740,000 shares if the underwriters exercise their
over-allotment option in full), 11,666,667 shares of Class B common stock and
51,382,822 shares of Class C common stock, assuming no exercise of outstanding
options and warrants. The 7,600,000 shares of common stock to be sold in this
offering, or 8,740,000 shares if the underwriters exercise their over-
allotment option in full, will be immediately eligible for sale in the public
market. Shares of Class C common stock are not transferable until they convert
into common stock 180 days following the completion of this offering. This
restriction on transferability may not be changed without our first obtaining
the consent of Bear, Stearns & Co. and then taking all Board of Directors and
stockholder actions necessary to amend our Certificate of Incorporation.
Following this conversion, all of these shares will be immediately available
for sale in the public market, subject to the holding period and volume and
manner of sale limitations contained in Rule 144 under the Securities Act.
Goldman Sachs, which holds all 11,666,667 outstanding shares of Class B common
stock and warrants to purchase an additional 5,637,295 shares of Class B
common stock (which will become exercisable in October 2000), has agreed not
to sell or dispose of any of those shares until 180 days after the date of
this prospectus. Thereafter, if Goldman Sachs transfers any shares of Class B
common stock to a non-affiliate of Goldman Sachs, those shares will convert
automatically into shares of common stock which will then be available for
sale in the public market, subject to the holding period, volume and manner of
sale limitations contained in Rule 144. In addition, we currently have
outstanding a total of 10,746,608 options and warrants, which, until 180 days
following the completion of this offering, will entitle their holders to
purchase shares of Class C common stock that are subject to the transfer
restrictions discussed above. When these transfer restrictions expire, these
options and warrants will entitle their holders to purchase shares of common
stock, which will be available for sale in the public market, subject to the
holding period and volume and manner of sale limitations contained in Rule
144.
In general, under Rule 144, as currently in effect, a person who owns shares
that were acquired from the issuer or an affiliate of the issuer at least one
year prior to the proposed sale is entitled to sell, within any three-month
period commencing 90 days after the date of this prospectus, a number of
shares that does not exceed the greater of (1) 1% of the then outstanding
shares of common stock (approximately 706,495 shares immediately after this
offering) or (2) the average weekly trading volume in the common stock during
the four calendar weeks preceding the date on which notice of that sale is
filed, subject to certain additional public information and notification
requirements. In addition, if the shares were acquired from the issuer or an
affiliate of the issuer at
63
<PAGE>
least two years prior to the proposed sale, a person who has not been an
affiliate of the issuer during the preceding three months is entitled to sell
those shares under Rule 144(k) without regard to the requirements described
above.
Following the automatic conversion of Class C common stock into common
stock, some stockholders will have rights to have their shares of common stock
registered for resale under the Securities Act. See "Description of Capital
Stock--Registration Rights."
64
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among us and the underwriters, each of the underwriters named below, for whom
Bear, Stearns & Co. Inc., Wit Capital Corporation (as e-Manager) and Thomas
Weisel Partners LLC are acting as representatives, has severally agreed to
purchase from us the number of shares of common stock set forth opposite its
name below:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc............................................
Wit Capital Corporation............................................
Thomas Weisel Partners LLC.........................................
---------
Total............................................................ 7,600,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to conditions. The nature of the underwriters' obligations is that
they are committed to purchase and pay for all of the above shares of common
stock if any are purchased.
Public Offering Price and Dealers Concession. The underwriters propose
initially to offer the shares of common stock offered by this prospectus to
the public at the initial public offering price per share set forth on the
cover page of this prospectus and to certain dealers at that price less a
concession not in excess of $ per share. The underwriters may allow, and
these dealers may reallow, concessions not in excess of $ per share on
sales to certain other dealers. After commencement of this offering, the
offering price, concessions and other selling terms may be changed by the
underwriters. No such change will alter the amount of proceeds to be received
by us as set forth on the cover page of this prospectus.
Over-Allotment Option. We have granted the underwriters an option, which may
be exercised within 30 days after the date of this prospectus, to purchase up
to 1,140,000 additional shares of common stock to cover over-allotments, if
any, at the initial public offering price less the underwriting discount, each
as set forth on the cover page of this prospectus. If the underwriters
exercise this option in whole or in part, each of the underwriters will be
severally committed, subject to certain conditions, to purchase these
additional shares of common stock in proportion to their respective purchase
commitments as indicated in the preceding table and we will be obligated to
sell these additional shares to the underwriters. The underwriters may
exercise this option only to cover over-allotments made in connection with the
sale of the shares of common stock offered by this prospectus. These
additional shares will be sold by the underwriters on the same terms as those
on which the shares offered by this prospectus are being sold.
Underwriting Compensation. The following table summarizes the compensation
to be paid to the underwriters by us in connection with this offering:
<TABLE>
<CAPTION>
Total
-------------------------------------------
Without Exercise With Exercise
of the Over-Allotment of the Over-Allotment
Per Share Option Option
--------- --------------------- ---------------------
<S> <C> <C> <C>
Underwriting discounts..
</TABLE>
Prospectus in Electronic Format. Wit Capital Corporation, as e-Manager, is
making an electronic version of this prospectus available on a special Web
site located at http://www.witcapital.com/stok3/stok/WITCb.html. In addition,
pursuant to the e-Dealer agreements, those e-Dealers participating in this
offering have also agreed to make an electronic version of this prospectus
available on Web sites maintained by them. Other than the electronic version
of this prospectus, neither the information on Web sites maintained by the e-
Dealers nor the information on our Web sites is a part of this prospectus or
the registration statement of which this prospectus forms a part, and none of
this information has been approved or endorsed by us or any underwriter in
such capacity. Accordingly, this information should not be relied on by
prospective investors in making a decision whether to buy our common stock.
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<PAGE>
Indemnification of Underwriters. In the underwriting agreement, we have
agreed to indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in connection with these liabilities.
Discretionary Accounts. The underwriters have informed us that they do not
intend to confirm sales to any account over which they exercise discretionary
authority.
NASD Matters. The provisions of Rule 2720 of the NASD's Conduct Rules apply
to this offering because Wit Capital Corporation, a representative of the
underwriters and e-Manager of this offering, is our affiliate. When an NASD
member participates in the underwriting of an affiliate's securities, the
NASD's Conduct Rules provide that the public offering price per share can be
no higher than that recommended by a "qualified independent underwriter"
meeting specified standards. In accordance with this requirement, Bear,
Stearns & Co. Inc. has assumed the responsibilities of acting as a qualified
independent underwriter and will recommend a public offering price for shares
of our common stock in compliance with the requirements of Rule 2720 of the
NASD's Conduct Rules. Both in its role as lead manager of this offering and in
its role as a qualified independent underwriter, Bear, Stearns & Co. Inc. has
performed due diligence investigations and reviewed and participated in the
preparation of this prospectus and the registration statement of which this
prospectus forms a part. Bear, Stearns & Co. Inc. will not receive any
additional compensation in connection with acting as a qualified independent
underwriter with respect to this offering. We have agreed to indemnify Bear,
Stearns & Co. Inc. against certain liabilities it may incur in connection with
its responsibilities as a qualified independent underwriter, or to contribute
to payments Bear, Stearns & Co. Inc. may be required to make in connection
with those liabilities.
Thomas Weisel Partners LLC. Thomas Weisel Partners LLC, one of the
representatives of the underwriters, was organized and registered as a broker-
dealer in December 1998. Since December 1998, Thomas Weisel Partners has been
named as a lead or co-manager on thirty-three filed public offerings of equity
securities, of which twelve have been completed, and has acted as a syndicate
member in an additional ten public offerings of equity securities. Thomas
Weisel Partners does not have any material relationship with us or any of our
officers, directors or other controlling persons, except with respect to its
contractual relationship with us pursuant to the underwriting agreement
entered into in connection with this offering.
Determination of Offering Price. Prior to this offering, there has been no
market for our common stock. Accordingly, the initial public offering price
for the common stock will be determined by negotiation between us and Bear,
Stearns & Co. Inc. Among the factors to be considered in these negotiations
will be:
. the results of our operations in recent periods;
. our financial condition;
. estimates of our future prospects and of the prospects for the industry
in which we compete;
. an assessment of our management;
. the general state of the securities markets at the time of this offering;
and
. the prices of similar securities of companies considered comparable to
us.
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "WITC". There can be no assurance, however, that an
active or orderly trading market will develop for our common stock or that our
common stock will trade in the public markets after this offering at or above
the initial offering price.
Stabilization and Other Transactions. In order to facilitate this offering,
persons participating in this offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during
and after this offering, including over-allotment, stabilizing and short-
covering transactions and the imposition of penalty bids. Persons
participating in this offering may also engage in passive market-making
transactions in the common stock on the Nasdaq National Market. Specifically,
the underwriters may over-allot or otherwise create a short position in the
common stock for their own account by selling more shares of common
66
<PAGE>
stock than have been sold to them by us. The underwriters may elect to cover
this short position by purchasing shares of common stock in the open market or
by exercising the over-allotment option granted to the underwriters. In
addition, the underwriters may stabilize or maintain the price of the common
stock by bidding for or purchasing shares of common stock in the open market
and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering
are repurchased in connection with stabilization transactions or otherwise.
The effect of these transactions may be to stabilize or maintain the market
price at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid may also affect the price of the common stock
to the extent that it discourages resales. No representation is made as to the
magnitude or effect of these stabilization transactions. These transactions
may be effected on the Nasdaq National Market or otherwise and, if commenced,
may be discontinued at any time.
LEGAL OPINIONS
The validity of common stock offered by this prospectus will be passed upon
by Morgan, Lewis & Bockius LLP, New York, New York. Certain legal matters
related to this offering will be passed upon for the underwriters by Cravath,
Swaine & Moore, New York, New York.
EXPERTS
Our financial statements and schedule included in this prospectus and
elsewhere in the registration statement to the extent and for the periods
indicated in their report have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included in the prospectus in reliance upon the authority of
this firm as experts in giving this report.
67
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement (of which this prospectus forms a part) on Form S-1 with respect to
the common stock being offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto. For further information with respect to us and
the shares of common stock offered hereby, reference is made to the
registration statement, including the exhibits and schedules thereto.
Statements contained in this prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete and, where such
contract is an exhibit to the registration statement, each such statement is
qualified in all respects by the provisions of such exhibit, to which such
reference is hereby made. You may read and copy any document we file at the
Public Reference Section of the Securities and Exchange Commission, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and the Securities and
Exchange Commission's Regional Offices located at 500 West Madison Street,
Suite 1400, Chicago, IL 60661, and 7 World Trade Center, 13th Floor, New York,
NY 10048.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Upon approval of the
common stock for quotation on the Nasdaq National Market, such reports, proxy
and information statements and other information may also be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The Securities and Exchange Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and
Exchange Commission. The address of the Securities and Exchange Commission's
Web site is http://www.sec.gov.
In addition, an electronic version of this prospectus is available on a
special Web site (http://www.witcapital.com/stok3/stok/WITCb.html) being
maintained by our broker-dealer subsidiary. Other than the electronic version
of this prospectus that is available on this special Web site, none of the
information on our Web sites is part of this prospectus.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
Report of Independent Public Accountants................................ F-2
Consolidated Statements of Financial Condition as of March 31, 1999,
December 31, 1998 and 1997............................................. F-3
Consolidated Statements of Operations for the periods ended March 31,
1999 and 1998 (unaudited) and the years ended December 31, 1998 and
1997 and for the period from March 27, 1996 (inception) to December 31,
1996................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the
period ended March 31, 1999 and the years ended December 31, 1998 and
1997 and for the period from March 27, 1996 (inception) to December 31,
1996................................................................... F-5
Consolidated Statements of Cash Flows for the periods ended March 31,
1999 and 1998 (unaudited) and the years ended December 31, 1998 and
1997 and for the period from March 27, 1996 (inception) to December 31,
1996................................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Schedule to Consolidated Financial Statements........................... F-15
Note to Condensed Financial Statements.................................. F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Wit Capital Group, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Wit Capital Group, Inc. (a Delaware corporation) and subsidiaries
as of March 31, 1999, December 31, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
the period ended March 31, 1999, the years ended December 31, 1998 and 1997
and for the period from March 27, 1996 (inception) to December 31, 1996. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wit Capital Group, Inc. and
subsidiaries as of March 31, 1999, December 31, 1998 and 1997, and the results
of their operations and their cash flows for the period ended March 31, 1999,
the years ended December 31, 1998 and 1997 and for the period from March 27,
1996 (inception) to December 31, 1996, in conformity with generally accepted
accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index on
page F-1 is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not a part of the basic financial
statements. Such schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as whole.
/s/ Arthur Andersen LLP
New York, New York
April 23, 1999 (except for the matters discussed in note 14, for which the
dates are May 26, 1999 and June 2, 1999, respectively)
F-2
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1999, DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS............ $ 41,193,606 $ 18,110,146 $ 1,110,787
RECEIVABLE FROM CLEARING BROKER...... 477,215 119,312 136,364
SECURITIES OWNED, at market or fair
value............................... 781,627 758,293 540,504
PREPAID EXPENSES..................... 368,492 144,430 1,582,657
INVESTMENT BANKING FEES RECEIVABLE... 1,440,127 512,952 --
FURNITURE, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, net of accumulated
depreciation and amortization of
$328,782, $243,527 and $98,757 at
March 31, 1999, December 31, 1998
and 1997, respectively.............. 1,065,192 615,181 335,044
COMPUTER SOFTWARE, net of accumulated
amortization of $685,642, $560,277
and $127,050 at March 31, 1999,
December 31, 1998 and 1997,
respectively........................ 1,497,164 1,614,735 2,026,420
OTHER ASSETS......................... 3,468,785 421,357 104,870
------------ ------------ -----------
Total assets......................... $ 50,292,208 $ 22,296,406 $ 5,836,646
============ ============ ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
<S> <C> <C> <C>
Accounts payable and accrued
expenses.......................... $ 2,358,604 $ 1,032,463 $ 875,871
Deferred advisory fees............. 377,526 595,486 --
Other liabilities.................. 56,420 60,203 101,500
------------ ------------ -----------
Total liabilities.................... 2,792,550 1,688,152 977,371
------------ ------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $.01 par
value, 9,000,000 shares
authorized; 8,997,952, 8,997,952
and 7,720,002 shares issued and
outstanding at March 31, 1999,
December 31, 1998 and 1997,
respectively...................... 89,980 89,980 77,200
Series B Preferred Stock, $.01 par
value, 3,000,000 shares
authorized; 2,304,982 shares
issued and outstanding at March
31, 1999 and December 31, 1998.... 23,050 23,050 --
Series C Preferred Stock, $.01 par
value, 7,445,000 shares
authorized; 5,902,750 shares
issued and outstanding at March
31, 1999 and December 31, 1998.... 59,028 59,028 --
Series D Preferred Stock, $.01 par
value, 31,333,334 and 10,000,000
shares authorized; 31,333,334 and
9,933,334 shares issued and
outstanding at March 31, 1999 and
December 31, 1998, respectively... 313,334 99,333 --
Common Stock, $.01 par value,
120,000,000, 60,000,000 and
25,000,000 shares authorized;
13,176,468, 11,264,600 and
7,056,095 shares issued and
outstanding at March 31, 1999,
December 31, 1998 and 1997,
respectively...................... 131,765 112,647 70,561
Additional paid-in capital......... 74,918,108 39,534,657 9,786,065
Notes receivable from
stockholders...................... (9,575,000) (5,750,000) --
Series A Preferred Stock
subscriptions receivable.......... -- -- (308,000)
Accumulated deficit................ (18,460,607) (13,560,441) (4,766,551)
------------ ------------ -----------
Total stockholders' equity....... 47,499,658 20,608,254 4,859,275
------------ ------------ -----------
Total liabilities and
stockholders' equity............ $ 50,292,208 $ 22,296,406 $ 5,836,646
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED) AND
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM MARCH 27, 1996
(INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Periods Ended March 31, Periods Ended December 31,
------------------------ -------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Investment banking.... $ 3,122,420 $ 33,868 $ 1,515,105 $ 42,567 $ --
Brokerage............. 434,207 22,501 294,454 10,403 --
Interest.............. 191,670 19,687 182,880 53,821 31,172
Other................. 154,824 -- 45,370 138,750 10,000
----------- ----------- ----------- ----------- -----------
Total revenues........ 3,903,121 76,056 2,037,809 245,541 41,172
----------- ----------- ----------- ----------- -----------
EXPENSES:
Compensation and
benefits............. 6,558,126 549,135 4,444,271 1,549,958 378,337
Professional
services............. 681,509 93,573 877,822 329,334 282,806
Technology
development.......... 335,795 50,900 1,155,959 511,076 532,265
Data processing and
communications....... 299,611 150,303 625,231 237,608 49,599
Brokerage and
clearance............ 260,628 14,154 186,322 5,563 1,750
Depreciation and
amortization......... 220,495 158,030 896,652 229,209 9,438
Occupancy............. 90,007 42,400 237,334 200,673 41,889
Marketing............. 51,006 230,880 899,899 503,379 326,114
Other................. 288,110 176,740 1,474,128 (351,729) 177,444
----------- ----------- ----------- ----------- -----------
Total expenses...... 8,785,287 1,466,115 10,797,618 3,215,071 1,799,642
----------- ----------- ----------- ----------- -----------
Loss before income
tax provision...... (4,882,166) (1,390,059) (8,759,809) (2,969,530) (1,758,470)
INCOME TAX PROVISION.... 18,000 8,029 34,081 23,051 15,500
----------- ----------- ----------- ----------- -----------
Net loss............ $(4,900,166) $(1,398,088) $(8,793,890) $(2,992,581) $(1,773,970)
=========== =========== =========== =========== ===========
NET LOSS PER SHARE:
Basic................. $ (0.67) $ (0.20) $ (1.23) $ (0.41) $ (0.33)
Diluted............... (0.67) (0.20) (1.23) (0.41) (0.33)
WEIGHTED AVERAGE SHARES
USED IN THE COMPUTATION
OF NET LOSS PER SHARE:
Basic................. 7,266,428 7,056,095 7,140,123 7,303,013 5,378,167
Diluted............... 7,266,428 7,056,095 7,140,123 7,303,013 5,378,167
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED MARCH 31, 1999,
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND FOR THE PERIOD
FROM MARCH 27, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Notes
Additional Receivable
Preferred Common Paid-in Accumulated from Subscriptions
Stock Stock Capital Deficit Stockholders Receivable Total
--------- -------- ----------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY,
March 27, 1996......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock................. -- 79,311 3,174,563 -- -- -- 3,253,874
Issuance of Series A
Preferred Stock....... 2,500 -- 497,500 -- -- -- 500,000
Repurchase and
retirement of common
stock................. -- (3,500) (496,500) -- -- -- (500,000)
Net loss............... -- -- -- (1,773,970) -- -- (1,773,970)
-------- -------- ----------- ------------ ----------- --------- -----------
STOCKHOLDERS' EQUITY,
December 31, 1996...... 2,500 75,811 3,175,563 (1,773,970) -- -- 1,479,904
Issuance of Series A
Preferred Stock....... 69,700 -- 6,860,252 -- -- (308,000) 6,621,952
Conversion of common
stock to Series A
Preferred Stock....... 5,000 (3,500) (1,500) -- -- -- --
Repurchase and
retirement of common
stock................. -- (1,750) (248,250) -- -- -- (250,000)
Net loss............... -- -- -- (2,992,581) -- -- (2,992,581)
-------- -------- ----------- ------------ ----------- --------- -----------
STOCKHOLDERS' EQUITY,
December 31, 1997...... 77,200 70,561 9,786,065 (4,766,551) -- (308,000) 4,859,275
Issuance of common
stock................. -- 1,836 262,115 -- -- -- 263,951
Issuance of common
stock for note
receivable............ -- 40,250 5,709,750 -- (5,750,000) -- --
Issuance of Series A
Preferred Stock....... 12,780 -- 1,286,600 -- -- 308,000 1,607,380
Issuance of Series B
Preferred Stock....... 23,050 -- 2,251,932 -- -- -- 2,274,982
Issuance of Series C
Preferred Stock....... 59,028 -- 5,782,184 -- -- -- 5,841,212
Issuance of Series D
Preferred Stock....... 99,333 -- 14,456,011 -- -- -- 14,555,344
Net loss............... -- -- -- (8,793,890) -- -- (8,793,890)
-------- -------- ----------- ------------ ----------- --------- -----------
STOCKHOLDERS' EQUITY,
December 31, 1998...... 271,391 112,647 39,534,657 (13,560,441) (5,750,000) -- 20,608,254
Issuance of common
stock................. -- 1,268 213,773 -- -- -- 215,041
Issuance of common
stock for notes
receivable............ -- 17,850 3,807,150 -- (3,825,000) -- --
Issuance of Series D
Preferred Stock....... 214,001 -- 31,362,528 -- -- -- 31,576,529
Net loss............... -- -- -- (4,900,166) -- -- (4,900,166)
-------- -------- ----------- ------------ ----------- --------- -----------
STOCKHOLDERS' EQUITY,
March 31, 1999......... $485,392 $131,765 $74,918,108 $(18,460,607) $(9,575,000) $ -- $47,499,658
======== ======== =========== ============ =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED),
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND
FOR THE PERIOD FROM MARCH 27, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Period Ended March 31, December 31,
------------------------ -------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $(4,900,166) $(1,398,088) $(8,793,890) $(2,992,581) $(1,773,970)
Adjustments to
reconcile net loss to
net cash used in
operating
activities--
Non-cash expenses.... -- 46,750 1,522,901 -- --
Non-cash expense
reimbursement....... -- -- -- (750,000) --
Depreciation and
amortization........ 220,495 158,030 896,652 229,209 9,438
(Increase) decrease in
operating assets--
Receivable from
clearing broker..... (357,903) 21,521 17,052 (35,753) (100,611)
Securities owned..... (23,334) (218,727) (217,789) (540,504) --
Prepaid expenses..... (224,062) 87,748 (188,343) (132,659) --
Investment banking
fees receivable..... (927,175) -- (512,952) -- --
Other assets......... (3,016,693) 28,550 (316,487) 45,848 (185,127)
Increase (decrease) in
operating
liabilities--
Accounts payable and
accrued expenses.... 1,326,144 (396,841) 156,592 207,445 659,996
Deferred advisory
fees................ (217,960) -- 595,486 -- --
Other liabilities.... (3,783) (7,505) (41,297) 86,000 15,500
----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities........ (8,124,437) (1,678,562) (6,882,075) (3,882,995) (1,374,774)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Computer software
purchased............. (7,794) (777) (21,542) (588,470) --
Payments for purchases
of furniture,
equipment and
leasehold
improvements.......... (535,266) (30,189) (436,243) (239,568) (194,233)
----------- ----------- ----------- ----------- -----------
Cash used in
investing
activities........ (543,060) (30,966) (457,785) (828,038) (194,233)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of common stock....... 174,428 -- 60,301 -- 1,818,875
Proceeds from issuance
of preferred stock.... 31,576,529 1,276,436 24,278,918 5,071,952 500,000
----------- ----------- ----------- ----------- -----------
Net cash provided
by financing
activities........ 31,750,957 1,276,436 24,339,219 5,071,952 2,318,875
----------- ----------- ----------- ----------- -----------
Net increase
(decrease) in cash
and cash
equivalents....... 23,083,460 (433,092) 16,999,359 360,919 749,868
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 18,110,146 1,110,787 1,110,787 749,868 --
----------- ----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, end of
period................. $41,193,606 $ 677,695 $18,110,146 $ 1,110,787 $ 749,868
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
period for--
Interest............ $ -- $ -- $ 7,211 $ 4,362 $ --
Taxes............... 18,000 -- 43,181 19,337 --
NON-CASH TRANSACTIONS:
Issuance of common and
preferred stock for
computer software.... $ -- $ -- $ -- $ 400,000 $ 1,125,000
Issuance of common
stock for web site
development.......... -- -- 203,650 -- --
Issuance of common and
preferred stock for
advertising credits.. -- -- -- 1,150,000 300,000
Series A Preferred
Stock subscriptions
receivable........... -- -- -- 308,000 --
Issuance of common
stock to stockholders
for notes
receivable........... 3,825,000 -- 5,750,000 -- --
Repurchase of common
stock................ -- -- -- 250,000 500,000
Conversion of common
stock to preferred
stock................ -- -- -- 5,000 --
Issuance of common
stock for consulting
services............. 40,613 -- -- -- --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Wit Capital Group, Inc. ("WCG" or the "Company") was incorporated on March
27, 1996 and commenced operations in September 1997. The consolidated
financial statements include the accounts of WCG and its wholly owned
subsidiaries, Wit Capital Corporation ("WCC") and BidPlus Corporation
("BidPlus"). Through September 1997, WCG also held a 55% investment in Brat
Incorporated ("Brat"), which was incorporated in December 1996.
The Company was formed as an investment banking and brokerage firm
arranging the offering and trading of securities through the Internet and the
World Wide Web. The Company provides retail investors access to stock
offerings and electronic brokerage facilities. The Company has developed an
electronic broker-dealer operated trading system for WCC. (Note 5).
During 1997 and 1996, the Company had yet to generate significant revenues
from sales of its services.
WCC has an agreement with U.S. Clearing (a division of Fleet Securities,
Inc.), pursuant to which U.S. Clearing clears securities transactions, carries
customers' accounts on a fully disclosed basis, and performs record-keeping
functions for WCC. Either party upon 90 days written notice can cancel the
agreement. The agreement states that WCC will assume customer obligations
should a customer of WCC default. U.S. Clearing controls credit risk of
customers by requiring maintenance of margin collateral in compliance with
various regulatory and internal guidelines.
2. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL INFORMATION
The audited interim consolidated financial statements and the unaudited
interim consolidated financial information as of March 31, 1999 and March 31,
1998, respectively are presented in the accompanying financial statements. The
unaudited interim consolidated financial information reflects all adjustments,
which are, in the opinion of management, necessary for a fair presentation of
the results for such period. Results of the interim periods are not
necessarily indicative of results to be obtained for a full fiscal year.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Management does not believe
that actual results will differ materially from these estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, WCC and BidPlus. Material intercompany
balances and transactions have been eliminated in consolidation.
F-7
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents
Cash and cash equivalents include amounts that are readily convertible into
cash and highly liquid investments with a maturity of three months or less
when acquired.
Securities Owned
Securities transactions and the related expenses are recorded on a trade
date basis and are valued at market or fair value.
Computer Software
Costs capitalized related to the purchase of computer software are being
amortized over a period of three years.
Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are carried at cost less
accumulated depreciation and amortization. Depreciation and amortization are
recorded on a straight-line basis over the estimated useful lives of the
assets, ranging from two and three years for furniture and computer hardware,
respectively, to ten years for leasehold improvements.
Fair Value of Financial Instruments
Substantially all assets and liabilities carried at historical cost or
contract value approximate fair value due to their relatively short-term
nature.
Revenue Recognition
The Company derives revenues from commissions and other brokerage fees
related to customer transactions which are recorded on a settlement date basis
which is not materially different from trade date. The Company records
investment banking fees as earned. Investment banking retainer fees are
initially deferred and are recognized as income over the contracted period.
Reportable Operating Segment
The Company considers its present operations to be one reportable segment
for purposes of presenting financial information and for evaluating its
performance. The financial statement information presented in the accompanying
financial statements is consistent with the preparation of financial
information for the purpose of internal use.
4. SECURITIES OWNED
As of March 31, 1999 and December 31, 1998 and 1997, securities owned
consist of restricted equity securities of $671,964, $430,560 and $nil; United
States Treasury bills of $nil, $218,865 and $436,985; and certificates of
deposit of $109,663, $108,868 and $103,519, respectively.
F-8
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBISIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. RELATED PARTY TRANSACTIONS
In 1996, WCG acquired from Global Trade, Inc. ("GTI") all outstanding
shares of BidPlus, the sole asset of which was a proprietary electronic
brokerage and trading system, in exchange for 525,000 shares of common stock.
The software was recorded at $1,125,000 representing management's estimate of
the fair value of the 525,000 shares of common stock at $2.14 per share.
Effective December 31, 1996, the founder of GTI agreed to exchange 350,000 of
the shares of the common stock of WCG for a 45% equity interest in Brat, a
newly formed subsidiary of WCG. In consideration for the exchange, WCG agreed
to contribute certain rights to Brat to use the proprietary electronic
brokerage and trading system software, as well as providing technology,
general and administrative support on behalf of Brat. In 1997, GTI's founder
sought greater control over the development of Brat and in September 1997,
exchanged the remaining 175,000 shares of WCG common stock and the rights to
the use of the software for all of WCG's shares of Brat. The aforementioned
exchange of the 525,000 shares of common stock of WCG has been accounted for
as a stock repurchase at $1.43 per share, which represents the fair value of
the common stock on the date of the exchange and corresponding $750,000
reduction of other expenses related to the cost of services provided to Brat.
6. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," which requires the recognition of deferred tax liabilities and assets
at tax rates expected to be in effect when these balances reverse. Future tax
benefits attributable to temporary differences are recognized to the extent
that realization of such benefits is more likely than not.
WCG files consolidated Federal and combined New York State and New York
City income tax returns with WCC and BidPlus. The income tax provisions
included in the consolidated statements of operations are calculated based on
state and local minimum and alternative methods.
At March 31, 1999, December 31, 1998 and 1997, WCG had deferred tax assets
of approximately $8,000,000, $5,200,000 and $2,300,000 which were generated by
net operating losses of approximately $20,000,000, $13,000,000 and $5,300,000,
respectively. The deferred tax assets are fully offset by valuation
allowances.
7. STOCKHOLDERS' EQUITY
Common Stock
In 1996, the Company issued 210,000 shares of common stock at $1.43 per
share in exchange for $300,000 of media credits. These credits could be used
to offset future expenditures including, among other things, communications,
travel and advertising. The Company used $18,000 of these credits in 1997, and
accordingly, prepaid expenses include $282,000 of these credits as of December
31, 1997. This remaining balance of $282,000 was expensed as unused by the
Company in 1998.
The Chairman and Co-Chief Executive Officer has been extended a partial
recourse, interest bearing loan in the amount of $5,750,000 with which
4,025,000 shares of common stock at $1.43 per share were purchased. Interest
on the loan is recourse, nonrefundable and payable annually on June 30. In the
event this employee ceases to be employed by the Company, the Company has the
right to repurchase two thirds of such shares at the lower of fair market
value or $1.43 per share. Such repurchase rights terminate on April 1, 2001.
In addition, the loan may be prepaid at any time by the employee and
accelerates in the event of employment termination. The loan is collateralized
by the Company's stock and will be reflected as a note receivable in
stockholders' equity until repaid.
F-9
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other employees have also been extended partial recourse, interest bearing
loans, totaling $3,825,000 with which 1,785,000 shares of common stock at
$2.14 were purchased. Interest on the loans is recourse and nonrefundable. In
the event the employees cease to be employed by the Company, the Company has
the right to purchase the unvested portion of such shares at the lower of the
fair market value or $2.14 per share. Such repurchase rights terminate on
March 31, 2003. In addition, the loans may be repaid at any time by the
employees and accelerate in the event of employment termination. The loans are
collateralized by the Company's stock and will be reflected as notes
receivable in stockholders' equity until repaid.
Preferred Stock
As of March 31, 1999, the Company has authorized 60,000,000 shares of
preferred stock of which 50,778,334 have been designated to four series as
shown on the accompanying consolidated statements of financial condition.
As of December 31, 1998, the Company has authorized 30,000,000 shares of
preferred stock of which 29,445,000 shares have been designated to four series
as shown in the accompanying consolidated statements of financial condition.
The preferred stock has voting and dividend rights equal to the rights of
common stock and has liquidation preference. The holder of a share of the
series of preferred stock is entitled to convert such share into 0.7 shares of
common stock at any time. In addition, each share of preferred stock will
automatically convert into 0.7 shares of common stock in the event WCG
completes an initial public offering of shares of common stock in which the
aggregate net proceeds are at least $5 million for each Series A and B; $25
million for each Series C and D and the per share price to the public is at
least $4.29 per share for each Series A and B and $6.43 per share for each
Series C and D.
In 1997, WCG issued 500,000 shares of Series A Preferred Stock at $1.00 per
share in exchange for $500,000 of media credits. Prepaid expenses include
$500,000 of these credits as of December 31, 1997. The balance of $500,000 was
expensed as unused by the Company in 1998.
In 1997, WCG issued a total of 650,000 shares of Series A Preferred Stock at
$1.00 per share to three separate investors in exchange for advertising in
print and on-line media and access to and usage of on-line and print
subscriber lists. Related total cash consideration for such services was
$100,000. Prepaid expenses include $719,000 of these credits as of December
31, 1997. During 1997 and 1998, the Company used $31,000 and $719,000 of these
advertising credits, respectively, which was recorded as marketing expense on
the accompanying statement of operations.
In 1996, WCG entered into a service bureau, software development and
licensing agreement with Kingland Systems Corporation ("Kingland"). As part of
this agreement, WCG and Kingland negotiated an optional purchase license price
of $400,000 for the Kingland software. In April 1997, Kingland contributed the
license to WCG in exchange for 400,000 shares of Series A Preferred Stock
valued at $1.00 per share.
F-10
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. NET LOSS PER SHARE
The following table sets forth the calculation of shares used in the
computation of basic and diluted net loss per share:
<TABLE>
<CAPTION>
Periods Ended March
31, Periods Ended December 31,
--------------------- -----------------------------
1999 1998 1998 1997 1996
--------- ----------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Shares used in
computations:
Weighted average common
shares used in
computation of basic net
loss per share.......... 7,266,428 7,056,095 7,140,123 7,303,013 5,378,167
Dilutive effect of common
stock equivalents....... -- -- -- -- --
--------- --------- --------- --------- ---------
Weighted average shares
used in computation of
diluted net loss per
share................. 7,266,428 7,056,095 7,140,123 7,303,013 5,378,167
========= ========= ========= ========= =========
</TABLE>
Because the Company reported a net loss in each of the periods above, the
calculation of diluted earnings per share does not include convertible
preferred stock, options, warrants and common stock collateralizing the notes
receivable from stockholders, as they are anti-dilutive and would result in a
reduction of net loss per share. If the Company had reported net income, there
would have been an additional 24,991,082, 5,871,086, 8,189,535, 2,706,114 and
231,538 shares as of March 31, 1999 and 1998, December 31, 1998, 1997 and
1996, respectively, included in the calculation of diluted earnings per share.
9. EMPLOYEE BENEFIT PLANS AND OTHER COMPENSATION
Health Care
WCG provides certain health care benefits for its full-time employees by
contract with a health care insurer.
Other Compensation
In February 1999, the Company entered into employment contracts with several
employees which entitled the employees to a total of $5,450,000 in upfront
payments. The Company recognized compensation expense of $2,550,000 related to
amounts paid for which no future service by the employee is required. The
Company recorded advances of $2,900,000 which are being expensed over the two-
year employment contract periods for amounts for which the employee is
required to provide service and is obligated to repay any unearned
compensation in the event of termination or resignation prior to completing
the contract term. As of March 31, 1999, advances to employees of
approximately $2,712,000 related to these contracts are included in other
assets on the accompanying consolidated statements of financial condition.
Stock Option Plan
WCG has adopted a stock option plan and restricted stock purchase plan (the
"Plan"). Under the Plan, key employees, directors and certain consultants of
WCG are eligible to receive grants of stock options intended to qualify as
incentive stock options (within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended), or which are nonqualified stock options. An
aggregate of 14,000,000 and 9,100,000 shares were reserved for issuance under
the Plan as of March 31, 1999 and December 31, 1998, respectively. The
exercise price of any share covered by an option granted to a person owning
more than 10% of the voting power of all classes of stock of WCG cannot be
less than 110% of the fair market value on the day of the grant. The exercise
price of any share covered by an option granted to any person cannot be less
than 85% of the fair value on the day of the grant. Options expire five or ten
years from the date of grant, with the majority of the options expiring in the
year 2008.
F-11
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123") WCG has accounted
for options granted to employees using the intrinsic value method prescribed
by Accounting Practice Bulletin ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." WCG has granted options with exercise prices that are
equal to or greater than management's estimate of the fair value of such
common stock at the date of grant, and accordingly, the Company has recorded
no related compensation expense. This estimate is based upon share issuances
to independent third party investors. As required by SFAS No. 123, the Company
has presented pro forma disclosures of net income and earnings per share as if
the Company had adopted the method of accounting prescribed by SFAS No. 123.
The following table summarizes the status of the Company's stock options as
of March 31, 1999, December 31, 1998 and 1997 and for the period from March
27, 1996 to December 31, 1996 and the changes during these periods:
<TABLE>
<CAPTION>
March 31, December 31,
------------------- --------------------------------------------------------
1999 1998 1997 1996
------------------- ------------------ ------------------ ------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
---------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of period.............. 8,154,822 $1.47 3,267,772 $1.66 1,509,197 $1.64 -- $ --
Granted................ 5,057,500 2.14 5,834,500 1.49 1,904,700 1.59 1,509,197 1.64
Exercised.............. 16,683 1.43 5,950 1.71 -- -- -- --
Forfeited.............. 416,500 1.44 941,500 1.56 146,125 3.54 -- --
Outstanding, end of
period................. 12,779,139 1.74 8,154,822 1.47 3,267,772 1.66 1,509,197 1.64
Options exercisable, end
of period.............. 3,797,326 1.49 3,437,535 1.43 1,801,865 1.64 369,436 1.84
</TABLE>
The range of exercisable prices for the options outstanding and the options
exercisable is $.36--$3.57 and the weighted average is $1.74. The weighted
average contractual lives for outstanding and exercisable options are 8.81 and
6.82 as of March 31, 1999, and 8.89 and 8.03 years as of December 31, 1998,
respectively.
The fair value of each option granted during 1998, 1997 and 1996 was
estimated on the date of the grant using the minimum value method prescribed
by SFAS No. 123, assuming a dividend yield of zero and a risk-free interest
rate of 6%. If the Company had recorded compensation expense for its stock
options granted during the three months ended March 31, 1999 and 1998 and for
the periods ended December 31, 1998, 1997 and 1996, in accordance with SFAS
No. 123, the Company's pro forma net loss and pro forma net loss per share
would be as follows:
<TABLE>
<CAPTION>
March 31,
--------------------------------------------------
1999 1998 (unaudited)
------------------------ ------------------------
As Reported Pro Forma As Reported Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss.......... $(4,900,166) $(5,864,249) $(1,398,088) $(1,473,386)
Net loss per
common share:
Basic........... $ (.67) $ (.81) $ (.20) $ (.21)
Diluted......... $ (.67) $ (.81) $ (.20) $ (.21)
<CAPTION>
December 31,
------------------------------------------------------------------------------
1998 1997 1996
-------------------------- ------------------------- -------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
------------ ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net loss.......... $(8,793,890) $(9,268 ,941) $(2,992,581) $(3,294,797) $(1,773,970) $(1,854,453)
Net loss per
common share:
Basic........... $ (1.23) $ (1.30) $ (.41) $ (.45) $ (.33) $ (.34)
Diluted......... $ (1.23) $ (1.30) $ (.41) $ (.45) $ (.33) $ (.34)
</TABLE>
F-12
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. WARRANTS OUTSTANDING
The Company has 1,322,181 outstanding warrants as of March 31, 1999 and
December 31, 1998, respectively. Warrants were issued to be convertible to
either common or preferred shares of WCG stock. The following table summarizes
the status of the Company's warrants as of March 31, 1999, December 31, 1998
and 1997 and for the period March 27, 1996 to December 31, 1996 and the
changes during these periods:
<TABLE>
<CAPTION>
March 31, December 31,
------------------ ----------------------------------------------------
1999 1998 1997 1996
------------------ ------------------ ---------------- ----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
--------- -------- --------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of period.............. 1,322,181 $1.50 221,900 $1.84 148,400 $2.06 -- $ --
Granted............... 105,000 1.43 1,100,281 1.43 73,500 1.43 148,400 2.06
Exercised............. 35,000 1.43 -- -- -- -- -- --
Forfeited............. 70,000 0.36 -- -- -- -- -- --
Outstanding, end of
period................. 1,322,181 1.56 1,322,181 1.50 221,900 1.84 148,400 2.06
Warrants exercisable,
end of period.......... 1,307,598 1.56 1,302,348 1.50 179,435 1.91 142,800 2.00
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
WCG has a noncancelable operating lease covering office space that includes
scheduled rent increases every two years commencing November 1998 and an
initial free rent period. Additionally, the Company has a one-year
noncancelable operating lease for office space located in California, which
expires in May 1999. Rent expense for the periods ended March 31, 1999 and
1998 (unaudited) and for the years ended December 31, 1998 and 1997 and the
period ended December 31, 1996 is $90,000, $42,400, $137,454, $122,500 and
$41,889, respectively. Future lease commitments are as follows:
<TABLE>
<CAPTION>
Minimum Lease
Obligation
-------------
<S> <C>
Year ending December 31:
1999 $237,491
2000 255,938
2001 297,250
2002 266,438
2003 268,640
Thereafter 819,829
</TABLE>
The Company is currently subject to claims and legal proceedings arising in
the normal course of its business. In the opinion of management, based on
discussions with legal counsel, the resolution of such legal proceedings will
not have a material adverse effect on the financial position, results of
operations or liquidity of the Company.
Additionally, a person formerly associated with the Company has asserted a
right to purchase 560,000 shares of common stock at $1.43 per share. In the
opinion of management, such assertion is without merit, and the Company
intends to contest any lawsuit filed against it. These 560,000 shares of
common stock have been reported as forfeited stock options in 1998.
F-13
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. CAPITAL REQUIREMENTS
WCC is subject to the SEC's Uniform Net Capital Rule 15c3-1. WCC's net
capital, as defined, shall be required to be the greater of $100,000 or the
minimum net capital required based on aggregate indebtedness. As of March 31,
1999 and December 31, 1998, WCC's ratio of aggregate indebtedness to net
capital was .12 to 1 and .09 to 1 and its net capital was $10,769,266 and
$8,446,190 which was $10,669,266 and $8,346,190 in excess of the minimum net
capital requirement of $100,000, respectively.
13. SUBSEQUENT EVENTS
In April 1999, the Company authorized an additional 64,000,000 shares of
common stock, increasing the number of authorized common shares to 184,000,000
of which 159,000,000 represent shares of common stock and 25,000,000 represent
shares of Class B Common Stock. Additionally, the Company authorized an
additional 44,000,000 shares of preferred stock, increasing the number of
authorized preferred shares to 104,000,000 of which 11,666,667 were designated
to Series E Preferred Stock and 5,790,542 were reserved for issuance upon
exercise of warrants to purchase Series E Preferred Stock.
In April 1999, the Company issued 11,666,667 shares of Series E Preferred
Stock to a third party for $25,000,000. This third party also received
warrants to purchase 5,637,295 shares of Series E Preferred Stock.
14. CLASS C COMMON STOCK AND REVERSE STOCK SPLIT
On May 26, 1999, all outstanding common stock was converted into a newly
created Class C Common Stock.
On June 2, 1999, a 7 for 10 reverse stock split of Class C Common Stock and
Series E Preferred Stock was effected. Accordingly, all references in the
financial statements to the number of common stock and Series E Preferred
shares and rights and per share amounts have been retroactively restated to
reflect this reverse split. The conversion rate of Series A, B, C and D
Preferred Stock into Class C Common Stock after giving effect to the reverse
split is 1.43 to 1.
15. CAPITAL STOCK TRANSACTIONS (Unaudited)
In May 1999, the Board of Directors authorized and the stockholders approved
the creation of a new class of common stock to be sold in the Company's
initial public offering.
In May 1999, the Company authorized and the stockholders approved an
additional 391,000,000 shares of common stock, increasing the number of
authorized common shares to 734,000,000 of which 500,000,000 represent shares
of common stock (the "Common Stock"), 75,000,000 represent shares of non-
voting Class B Common Stock and 159,000,000 represent voting Class C Common
Stock. Additionally, the Company authorized 30,000,000 shares of preferred
stock. The aforementioned capital stock transactions will become effective
upon the filing of the Amended and Restated Certificate of Incorporation.
The Common Stock, the Class B Common Stock and the Class C Common Stock are
economically equivalent except that the Class B Common Stock is non-voting and
the Class C Common Stock is not transferable until it converts to Common Stock
at the earlier of 180 days after the consummation of an initial public
offering of the Company's Common Stock or February 1, 2000.
F-14
<PAGE>
WIT CAPITAL GROUP, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ------------ -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS............................. $ 9,180,804 $ 549,640
PREPAID EXPENSES...................................... 95,671 1,582,657
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net
of accumulated depreciation and amortization of
$240,747 and $97,856 at December 31, 1998 and 1997,
respectively......................................... 611,953 331,307
COMPUTER SOFTWARE, net of accumulated amortization of
$254,973 and $64,768 at December 31, 1998 and 1997,
respectively......................................... 286,687 354,976
INVESTMENT IN SUBSIDIARIES............................ 10,716,505 2,686,012
OTHER ASSETS.......................................... 110,760 116,985
------------ -----------
Total assets...................................... $ 21,002,380 $ 5,621,577
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses............... $ 333,923 $ 684,685
Other liabilities................................... 60,203 77,617
------------ -----------
Total liabilities................................. 394,126 762,302
------------ -----------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $.01 par value, 9,000,000
shares authorized; 8,997,952 and 7,720,002 shares
issued and outstanding at December 31, 1998 and
1997, respectively.................................. 89,980 77,200
Series B Preferred Stock, $.01 par value, 3,000,000
shares authorized; 2,304,982 shares issued and
outstanding at December 31, 1998.................... 23,050 --
Series C Preferred Stock, $.01 par value, 7,445,000
shares authorized; 5,902,750 shares issued and
outstanding at December 31, 1998.................... 59,028 --
Series D Preferred Stock, $.01 par value, 10,000,000
shares authorized; 9,933,334 shares issued and
outstanding at December 31, 1998.................... 99,333 --
Common Stock, $.01 par value, 60,000,000 and
25,000,000 shares authorized; 11,264,600 and
7,056,095 shares issued and outstanding at December
31, 1998 and 1997, respectively..................... 112,647 70,561
Additional paid-in capital........................... 39,534,657 9,786,065
Note receivable from stockholder..................... (5,750,000) --
Series A Preferred Stock subscriptions receivable.... -- (308,000)
Accumulated deficit.................................. (13,560,441) (4,766,551)
------------ -----------
Total stockholders' equity........................ 20,608,254 4,859,275
------------ -----------
Total liabilities and stockholders' equity........ $ 21,002,380 $ 5,621,577
============ ===========
</TABLE>
See Note to Condensed Financial Statements
F-15
<PAGE>
WIT CAPITAL GROUP, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND FOR THE PERIOD
FROM MARCH 27, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Consulting fees........................ $ -- $ 22,500 $ --
Interest............................... 77,117 21,372 20,568
Other.................................. -- 138,750 10,000
----------- ----------- -----------
Total revenues...................... 77,117 182,622 30,568
----------- ----------- -----------
EXPENSES:
Compensation and benefits.............. 3,969,604 1,549,958 376,897
Technology development................. 922,036 385,095 534,311
Marketing.............................. 746,048 503,379 326,114
Depreciation and amortization.......... 659,259 153,184 9,438
Data processing and communications..... 414,181 186,940 49,599
Professional services.................. 415,443 86,478 255,574
Occupancy.............................. 237,334 200,673 41,889
Other.................................. 1,362,916 (446,618) 169,016
----------- ----------- -----------
Total expenses...................... 8,726,821 2,619,089 1,762,838
----------- ----------- -----------
Loss before income tax provision and
equity in net
loss of subsidiaries............... (8,649,704) (2,436,467) (1,732,270)
INCOME TAX PROVISION.................... 27,081 9,051 15,000
----------- ----------- -----------
Loss before equity in loss of
subsidiaries....................... (8,676,785) (2,445,518) (1,747,270)
Equity in net loss of subsidiaries..... (117,105) (547,063) (26,700)
----------- ----------- -----------
Net loss............................ $(8,793,890) $(2,992,581) $(1,773,970)
=========== =========== ===========
</TABLE>
See Note to Condensed Financial Statements
F-16
<PAGE>
WIT CAPITAL GROUP, INC.
(Parent Company Only)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND FOR THE PERIOD
FROM MARCH 27, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Note
Additional Receivable
Preferred Common Paid-in Accumulated from Subscriptions
Stock Stock Capital Deficit Stockholder Receivable Total
--------- --------- ----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY,
March 27, 1996......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock................. -- 79,311 3,174,563 -- -- -- 3,253,874
Issuance of Series A
Preferred Stock....... 2,500 -- 497,500 -- -- -- 500,000
Repurchase and
retirement of
common stock.......... -- (3,500) (496,500) -- -- -- (500,000)
Net loss............... -- -- -- (1,773,970) -- -- (1,773,970)
-------- --------- ----------- ------------ ----------- ----------- -----------
STOCKHOLDERS' EQUITY,
December 31, 1996...... 2,500 75,811 3,175,563 (1,773,970) -- -- 1,479,904
Issuance of Series A
Preferred Stock....... 69,700 -- 6,860,252 -- -- (308,000) 6,621,952
Conversion of common
stock to Series A
Preferred Stock....... 5,000 (3,500) (1,500) -- -- -- --
Repurchase and
retirement of
common stock.......... -- (1,750) (248,250) -- -- -- (250,000)
Net loss............... -- -- -- (2,992,581) -- -- (2,992,581)
-------- --------- ----------- ------------ ----------- ----------- -----------
STOCKHOLDERS' EQUITY,
December 31, 1997...... 77,200 70,561 9,786,065 (4,766,551) -- (308,000) 4,859,275
Issuance of common
stock................. -- 1,836 262,115 -- -- -- 263,951
Issuance of common
stock for
note receivable....... -- 40,250 5,709,750 -- (5,750,000) -- --
Issuance of Series A
Preferred Stock....... 12,780 -- 1,286,600 -- -- 308,000 1,607,380
Issuance of Series B
Preferred Stock....... 23,050 -- 2,251,932 -- -- -- 2,274,982
Issuance of Series C
Preferred Stock....... 59,028 -- 5,782,184 -- -- -- 5,841,212
Issuance of Series D
Preferred Stock....... 99,333 -- 14,456,011 -- -- -- 14,555,344
Net loss............... -- -- -- (8,793,890) -- -- (8,793,890)
-------- --------- ----------- ------------ ----------- ----------- -----------
STOCKHOLDERS' EQUITY,
December 31, 1998...... $271,391 $ 112,647 $39,534,657 $(13,560,441) $(5,750,000) $ -- $20,608,254
======== ========= =========== ============ =========== =========== ===========
</TABLE>
See Note to Condensed Financial Statements
F-17
<PAGE>
WIT CAPITAL GROUP, INC.
(Parent Company Only)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND FOR THE PERIOD
FROM MARCH 27, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................. $(8,793,890) $(2,992,581) $(1,773,970)
Adjustments to reconcile net loss to
net cash used
in operating activities-
Equity in net losses of
subsidiaries.......................... 117,105 547,063 26,700
Non-cash expenses.................. 1,522,901 -- --
Non-cash expense reimbursement..... -- (750,000) --
Depreciation and amortization...... 659,259 153,184 9,438
(Increase) decrease in operating
assets-
Prepaid expenses................... (139,584) (132,659) --
Other assets....................... (101,275) 30,141 (137,126)
Increase (decrease) in operating
liabilities-
Accounts payable and accrued
expenses.............................. (350,762) (76,383) 761,068
Other liabilities.................. (17,414) 62,617 15,000
----------- ----------- -----------
Net cash used in operating
activities............................ (7,103,660) (3,158,618) (1,098,890)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries.......... (8,147,598) (1,434,775) (700,000)
Computer software purchased.......... (21,917) (19,742) --
Payments for purchases of furniture,
equipment and
leasehold improvements.............. (434,880) (234,929) (194,233)
----------- ----------- -----------
Cash used in investing
activities............................ (8,604,395) (1,689,446) (894,233)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock................................. 60,301 -- 1,818,875
Proceeds from issuance of preferred
stock................................. 24,278,918 5,071,952 500,000
----------- ----------- -----------
Net cash provided by financing
activities............................ 24,339,219 5,071,952 2,318,875
----------- ----------- -----------
Net increase in cash and cash
equivalents........................... 8,631,164 223,888 325,752
CASH AND CASH EQUIVALENTS, beginning of
period................................ 549,640 325,752 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 9,180,804 $ 549,640 $ 325,752
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for--
Interest........................... $ 7,211 $ 4,362 $ --
Taxes.............................. 43,181 19,337 --
NON-CASH TRANSACTIONS:
Issuance of common stock for
investments in subsidiaries........... $ -- $ -- $ 1,125,000
Issuance of common stock for computer
software.............................. -- 400,000 --
Issuance of common stock for web site
development........................... 203,650 -- --
Issuance of common and preferred
stock for advertising credits....... -- 1,150,000 300,000
Series A Preferred Stock
subscriptions receivable.............. -- 308,000 --
Issuance of common stock to
stockholder for note receivable....... 5,750,000 -- --
Repurchase of common stock........... -- 250,000 500,000
Conversion of common stock to
preferred stock....................... -- 5,000 --
</TABLE>
See Note to Condensed Financial Statements
F-18
<PAGE>
WIT CAPITAL GROUP, INC.
(Parent Company Only)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. NOTE TO CONDENSED FINANCIAL INFORMATION
The condensed financial information of Wit Capital Group, Inc. (parent
company only) should be read in conjunction with the consolidated financial
statements of Wit Capital Group, Inc. and Subsidiaries and the notes
thereto contained elsewhere in this prospectus.
F-19
<PAGE>
[Text: First-come, first-served offering process for Wit Capital customers.]
[Images of Web site pages demonstrating offering process for Wit Capital
customers]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. Neither
Wit Capital Group, Inc. nor any underwriter has authorized anyone to provide
prospective investors with any different or additional information. This
prospectus is not an offer to sell nor is it seeking an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus is correct only as of the date of this
prospectus, regardless of the time of the delivery of this prospectus or any
sale of these securities.
Until , 1999 (25 days after the date of this prospectus), all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Dilution................................................................. 17
Capitalization........................................................... 19
Selected Historical Financial Data....................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 27
Management............................................................... 39
Certain Transactions..................................................... 52
Principal Stockholders................................................... 55
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 65
Legal Opinions........................................................... 67
Experts.................................................................. 67
Where You Can Find More Information...................................... 68
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Wit Capital Group, Inc.
7,600,000 Shares
[WIT CAPITAL LOGO]
Common Stock
---------------
PROSPECTUS
---------------
Bear, Stearns & Co. Inc.
Wit Capital Corporation
Thomas Weisel Partners LLC
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than underwriting
compensation expected to be incurred) in connection with this offering. All of
such amounts (except the SEC registration fee and the NASD filing fee) are
estimated.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 22,240
NASDAQ listing fee............................................... 94,000
NASD filing fee.................................................. 8,500
Printing and Engraving Costs..................................... 350,000
Legal fees and expenses.......................................... 650,000
Accounting fees and expenses..................................... 300,000
Transfer Agent and Registrar fees and expenses................... 3,500
Miscellaneous.................................................... 52,500
----------
Total.......................................................... $1,480,740
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Our By-Laws provide that we shall, subject to the limitations contained in
the Delaware General Corporation Law, as amended from time to time, indemnify
all persons whom it may indemnify pursuant thereto.
The Underwriting Agreement, filed as Exhibit 1, provides that the
Underwriters named therein will indemnify us and hold us harmless and each of
our directors, officers or controlling persons from and against certain
liabilities, including liabilities under the Securities Act. The Underwriting
Agreement also provides that such Underwriters will contribute to certain
liabilities of such persons under the Securities Act.
Item 15. Recent Sales of Unregistered Securities.
The Registrant has sold and issued the following securities since March 27,
1996 (inception):
(1) On April 4, 1996, we issued 5,600,000 shares of common stock (now
Class C common stock) to Andrew D. Klein for an aggregate purchase price of
$80,000.
(2) On April 4, 1996, we issued Spring Street Brewing Company, Inc.
700,000 shares of common stock (now Class C common stock) for a purchase
price of $10,000.
(3) On September 30, 1996, we issued 525,000 shares of our common stock
(now Class C common stock) to Global Trade, Inc. in exchange for 900,000
shares of common stock of its wholly owned subsidiary, BidPlus Corporation,
representing all of the outstanding shares of common stock of BidPlus.
(4) From May 1996 to December 1996, we issued 934,064 shares of common
stock (now Class C common stock) to accredited investors, including one of
our directors, for $1.43 per share.
(5) On December 31, 1996, we executed a Stock Swap Agreement with Global
Trade, Inc., pursuant to which we exchanged 450,000 shares of common stock
of our wholly owned subsidiary, Brat Incorporated, for 350,000 shares of
our common stock held by Global Trade. On September 7, 1997, we exchanged
our remaining 550,000 shares of common stock of Brat for 175,000 shares of
our common stock held by Global Trade.
(6) From April 30, 1997 to April 24, 1998, we issued a total of 7,447,952
shares of Series A Convertible Preferred Stock to accredited investors,
including two of our directors, for $1.43 per share. These shares will be
converted into 5,213,566 shares of Class C common stock upon consummation
of this offering.
II-1
<PAGE>
(7) In April 1997, pursuant to a service bureau, software development and
licensing agreement, we issued 400,000 shares of Series A Preferred Stock
to Kingland Systems Corporation in exchange for the license to the Kingland
software. These shares will be converted into 280,000 shares of Class C
common stock upon consummation of this offering.
(8) In July 1997, we issued a total of 650,000 shares of Series A
Preferred Stock to three different investors in exchange for advertising
products and services valued at $650,000. These shares will be converted
into 455,000 shares of Class C common stock upon consummation of this
offering.
(9) On April 23, 1996 and May 12, 1997, we executed agreements with Icon
International, Inc., pursuant to which Icon granted us $935,000 of trade
credits for media-related products and services in exchange for 210,000
shares of our common stock (now Class C common stock) and 500,000 shares of
our Series A Convertible Preferred Stock, which we issued to Growth Capital
Partners Media Fund, an entity jointly owned by Growth Capital Partners,
LLC and Icon. The preferred shares will be converted into 350,000 shares of
Class C common stock upon consummation of this offering.
(10) On April 9, 1998, we signed an employment agreement with Robert H.
Lessin covering Mr. Lessin's employment as co-chief executive officer. We
have extended to Mr. Lessin an interest-bearing loan in the amount of
$5,750,000 with which he has purchased 4,025,000 shares of common stock
(now Class C common stock) at $1.43 per share. The principal portion of
this loan is partial recourse and the interest portion is full recourse. In
the event Mr. Lessin ceases to be employed by us, we have the right to
repurchase two-thirds of these shares at the lower of their fair market
value or $1.43 per share. These repurchase rights terminate on April 1,
2001. Mr. Lessin's loan becomes due and payable in the event that his
employment terminates. On April 13, 1998, Mr. Lessin also purchased 35,000
shares of common stock (now Class C common stock) for $1.43 per share.
(11) From May 18, 1998 to September 23, 1998, we issued a total of
2,304,982 shares of Series B Convertible Preferred Stock to accredited
investors for $1.00 per share. These shares will be converted into
1,613,487 shares of Class C common stock upon consummation of this
offering.
(12) From April 1998 to September 1998, we issued 142,555 shares of
common stock (now Class C common stock) to Mauro/Mauro Design, Inc. in
exchange for $203,650 of Web site design services.
(13) From October 30, 1998 to December 8, 1998, we issued a total of
5,902,750 shares of Series C Convertible Preferred Stock and 690,030
warrants to accredited investors for $1.00 per share. These shares will be
converted into 4,131,925 shares of Class C common stock upon consummation
of this offering.
(14) From December 8, 1998 through March 8, 1999, we issued 31,333,334
shares of Series D Convertible Preferred Stock to accredited investors,
including two of our directors, for $1.50 per share. These shares will be
converted into 21,933,333 shares of Class C common stock upon the
consummation of this offering.
(15) On April 8, 1999, we issued 11,666,667 shares of Series E
Convertible Preferred Stock and 5,637,295 warrants to The Goldman Sachs
Group, L.P. for $2.14 per share. Goldman Sachs has the right to receive up
to an additional 153,247 similar warrants in certain circumstances after
September 25, 1999. The shares of preferred stock will be converted into
11,666,667 shares of Class B common stock upon the consummation of this
offering.
(16) On March 5, 1999, we signed an employment agreement with Mark Loehr.
We have extended to Mr. Loehr a 50% recourse promissory note which he
purchased 875,000 shares of common stock (now Class C common stock) subject
to incremental vesting. The shares will vest as follows: 54,688 shares will
vest on June 30, 1999, 54,688 shares will vest on the last day of each
fiscal quarter until March 31, 2003, upon which day the remainder will
vest. We may purchase the shares at the lower of $2.14 per share or the
fair market value for the shares (as determined by our Board of Directors)
before the final vesting date if Mr. Loehr violates the non-competition
restrictions contained in his employment agreement or if he is no longer
employed by us. If he is terminated other than for cause, or for death or
disability, or if he leaves his position for good reason, he will still be
entitled to these shares.
(17) On October 15, 1998, we issued warrants to purchase 87,500 shares of
common stock (now Class C common stock) at $1.43 per share to a former
employee in exchange for 87,500 options to purchase common stock previously
granted to the employee.
II-2
<PAGE>
(18) From April 1996 to March 1999, we issued 786,660 warrants to
purchase common stock (now Class C common stock) to nine investors for
prices between $1.43-$3.57 per share for providing consulting services.
(19) From January 1, 1999 to April 30, 1999, we issued a total of 285,184
shares of common stock (now Class C common stock) to accredited investors,
including one of our directors, for $2.14 per share.
(20) From January 1, 1999 to May 31, 1999, we issued a total of 964,987
shares of common stock (now Class C common stock) to 47 of our employees
for exercise of their stock options for $1.43 and $2.14 per share.
(21) On April 15, 1999, we extended Robert Mendelson and Lloyd Feller
interest-bearing loans totaling $1,950,000 with which they purchased
910,000 shares of common stock (now Class C common stock) at $2.14 per
share. The principal portion of these loans is partial recourse and the
interest portion is full recourse. In the event that Mr. Mendelson or Mr.
Feller ceases to be employed by us, we have the right to purchase the
unvested portion of their respective shares at the lower of their fair
market value or $2.14 per share. These repurchase rights terminate on March
31, 2003. In addition, the loans may be repaid at any time by Mr. Mendelson
and Mr. Feller and become due and payable in the event of termination of
employment.
(22) On April 30, 1999, we issued a total of 2,974,488 shares of common
stock (now Class C common stock) to four of our executive officers and five
of our key employees for exercise of their stock options for $1.43 and
$2.14 per share. The exercise prices were paid with the proceeds of loans
we made to these executive officers and key employees.
(23) From March 1999 to May 31, 1999, we issued a total of 487,500 shares
of common stock (now Class C common stock) to four investors for exercise
of their warrants to purchase common stock for $1.43 to $3.57 per share.
The sale of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or, with respect to
issuances to employees, directors and consultants, Rule 701 promulgated
under Section 3(b) of the Securities Act as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory
benefit plans and contracts relating to compensation as provided under Rule
701. The recipients of securities in each such transaction represented
their intentions to acquire the securities for investment only and not with
a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the instruments representing such
securities issued in such transactions. All recipients either received
adequate information about us or had adequate access, through their
relationships with the us, to such information.
(24) In May 1999, we converted our outstanding common stock into Class C
common stock. This conversion is exempt from registration under the
Securities Act pursuant to Section 3(a)(9) of the Securities Act. All
outstanding options and warrants will be exercisable for Class C common
stock for 180 days following the completion of this offering. Warrants
exercisable for Class B common stock will remain exercisable for such Class
B common stock.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement
3.1 --Certificate of Incorporation of Wit Capital Group, Inc.
3.2 --Form of Amended and Restated Certificate of Incorporation of Wit
Capital Group, Inc.**
3.3 --By-Laws of Wit Capital Group, Inc.**
3.4 --Form of Amended and Restated By-Laws of Wit Capital Group, Inc.
4.1 --Form of Rights Agreement between Wit Capital Group, Inc. and
American Stock Transfer & Trust Company, as Rights Agent
5.1 --Opinion of Morgan, Lewis & Bockius LLP
10.1 --Stock Incentive Plan
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.2 --Annual Bonus Plan**
10.3 --Investment Banking Bonus Pool**
10.4 --Long-Term Incentive Plan**
10.5 --Deferred Compensation Plan**
10.6 --Employment Agreement between Wit Capital Group, Inc. and Robert H.
Lessin**
10.7 --Employment Agreement between Wit Capital Group, Inc. and Ronald
Readmond**
10.8 --Employment Agreement between Wit Capital Group, Inc. and Andrew D.
Klein**
10.9 --Employment Agreement between Wit Capital Group, Inc. and Mark
Loehr**
10.10 --Employment Agreement between Wit Capital Group, Inc. and Everett
Lang**
10.11 --Second Amended and Restated Stockholders Agreement dated February
23, 1999 between Wit Capital Group, Inc. and Stockholders Named
Therein**
10.12 --Form of e-Dealer Agreement+
10.13 --Third Amended and Restated Stockholders Agreement dated April 8,
1999 between Wit Capital Group, Inc. and Stockholders Named Therein**
10.14 --Third Amended and Restated Registration Rights Agreement dated April
8, 1999 between Wit Capital Group, Inc. and Stockholders Named
Therein**
10.15 --Purchase Agreement dated as of March 29, 1999 by and between Wit
Capital Group, Inc. and The Goldman Sachs Group, L.P.**
21.1 --List of subsidiaries of Wit Capital Group, Inc.**
23.1 --Consent of Arthur Andersen LLP
23.2 --Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5)
24.1 --Powers of Attorney (included on signature page)**
27.1 --Financial Data Schedule**
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested with respect to certain portions
of this document.
(b) Financial Statement Schedules
The financial statement schedules are omitted because they are inapplicable
or the requested information is shown in the consolidated financial statements
of Wit Capital or related notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes as follows:
(1) The undersigned will provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations
and registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance on Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it is declared effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, the State of
New York, on the 3rd day of June, 1999.
Wit Capital Group, Inc.
/s/ Robert H. Lessin
By: _________________________________
Name: Robert H. Lessin
Title: Chairman of the Board and
Co-Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
--------- ----- ---
/s/ Robert H. Lessin Co-Chief Executive Officer
and Director
- --------------------------------- June 3, 1999
Robert H. Lessin
/s/ Ronald Readmond Co-Chief Executive Officer
and Director
- --------------------------------- June 3, 1999
Ronald Readmond
/s/ Andrew D. Klein* Director
- --------------------------------- June 3, 1999
Andrew D. Klein
/s/ John Fisher* Director
- --------------------------------- June 3, 1999
John Fisher
/s/ Edward H. Fleischman* Director
- --------------------------------- June 3, 1999
Edward H. Fleischman
/s/ Steven M. Gluckstern* Director
- --------------------------------- June 3, 1999
Steven M. Gluckstern
/s/ Joseph R. Hardiman* Director
- --------------------------------- June 3, 1999
Joseph R. Hardiman
Director
- --------------------------------- June 3, 1999
Gilbert C. Maurer
/s/ Adam Mizel* Director
- --------------------------------- June 3, 1999
Adam Mizel
/s/ M. Bernard Siegel* Chief Financial Officer
- --------------------------------- June 3, 1999
M. Bernard Siegel
* By:
/s/ Ronald Readmond
----------------------------
Ronald Readmond
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement
3.1 --Certificate of Incorporation of Wit Capital Group, Inc.
3.2 --Form of Amended and Restated Certificate of Incorporation of Wit
Capital Group, Inc.**
3.3 --By-Laws of Wit Capital Group, Inc.**
3.4 --Form of Amended and Restated By-Laws of Wit Capital Group, Inc.
4.1 --Form of Rights Agreement between Wit Capital Group, Inc. and
American Stock Transfer & Trust Company, as Rights Agent
5.1 --Opinion of Morgan, Lewis & Bockius LLP
10.1 --Stock Incentive Plan
10.2 --Annual Bonus Plan**
10.3 --Investment Banking Bonus Pool**
10.4 --Long-Term Incentive Plan**
10.5 --Deferred Compensation Plan**
10.6 --Employment Agreement between Wit Capital Group, Inc. and Robert H.
Lessin**
10.7 --Employment Agreement between Wit Capital Group, Inc. and Ronald
Readmond**
10.8 --Employment Agreement between Wit Capital Group, Inc. and Andrew D.
Klein**
10.9 --Employment Agreement between Wit Capital Group, Inc. and Mark
Loehr**
10.10 --Employment Agreement between Wit Capital Group, Inc. and Everett
Lang**
10.11 --Second Amended and Restated Stockholders Agreement dated February
23, 1999 between Wit Capital Group, Inc. and Stockholders Named
Therein**
10.12 --Form of e-Dealer Agreement+
10.13 --Third Amended and Restated Stockholders Agreement dated April 8,
1999 between Wit Capital Group, Inc. and Stockholders Named Therein**
10.14 --Third Amended and Restated Registration Rights Agreement dated April
8, 1999 between Wit Capital Group, Inc. and Stockholders Named
Therein**
10.15 --Purchase Agreement dated as of March 29, 1999 by and between Wit
Capital Group, Inc. and The Goldman Sachs Group, L.P.**
21.1 --List of subsidiaries of Wit Capital Group, Inc.**
23.1 --Consent of Arthur Andersen LLP
23.2 --Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5)
24.1 --Powers of Attorney (included on signature page)**
27.1 --Financial Data Schedule**
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested with respect to certain portions of
this document.
<PAGE>
[Draft--06/01/99]
7,600,000 Shares of Common Stock
Wit Capital Group, Inc.
UNDERWRITING AGREEMENT
----------------------
June 3, 1999
BEAR, STEARNS & CO. INC.
Wit Capital Corporation, as e-Manager
Thomas Weisel Partners LLC
as Representatives of the
several Underwriters named in
Schedule I attached hereto
- ----------
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY 10167
Dear Sirs:
Wit Capital Group, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Company"), proposes, subject to the
terms and conditions stated herein, to issue and sell to the several
underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
----------
7,600,000 shares (the "Firm Shares") of its common stock, par value $.01 per
share (the "Common Stock") and, for the sole purpose of covering over-allotments
in connection with the sale of the Firm Shares, at the option of the
Underwriters, up to an additional 1,140,000 shares (the "Additional Shares") of
Common Stock. The Firm Shares and any Additional Shares purchased by the
Underwriters are referred to herein as the "Shares". The Shares are more
<PAGE>
2
fully described in the Registration Statement referred to below.
1. Representations and Warranties of the Company. The Company
----------------------------------------------
represents and warrants to, and agrees with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (No. 333-74619), and may
have filed an amendment or amendments thereto, for the registration of the
Shares under the Securities Act of 1933, as amended (the "Act"). Such
registration statement, including the prospectus, financial statements and
schedules, exhibits and all other documents filed as a part thereof, as amended
at the time of effectiveness of the registration statement, including any
information deemed to be a part thereof as of the time of effectiveness pursuant
to paragraph (b) of Rule 430A or Rule 434 of the Rules and Regulations of the
Commission under the Act (the "Regulations"), is herein called the "Registration
Statement", and the prospectus, in the form first filed with the Commission
pursuant to Rule 424(b) of the Regulations or filed as part of the Registration
Statement at the time of effectiveness if no Rule 424(b) or Rule 434 filing is
required, is herein called the "Prospectus". The term "preliminary prospectus"
as used herein means a preliminary prospectus as described in Rule 430 of the
Regulations.
(b) At the time of the effectiveness of the Registration Statement or
the effectiveness of any post-effective amendment to the Registration Statement,
when the Prospectus is first filed with the Commission pursuant to Rule 424(b)
or Rule 434 of the Regulations, when any supplement to or amendment of the
Prospectus is filed with the Commission and at the Closing Date and the
Additional Closing Date, if any (as hereinafter respectively defined), the
Registration Statement and the Prospectus and any amendments thereof and
supplements thereto complied or will comply in all material respects with the
applicable provisions of the Act and the Regulations and did not or will not
contain an untrue statement of a material fact and did not or will not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein (i) in the case of the Registration Statement, not
misleading and (ii) in the case of the Prospectus, in light of the circumstances
under which they were made, not misleading. When the preliminary prospectus
dated May 18, 1999 relating to the Shares was first filed with the Commission
(whether filed as part of the
<PAGE>
3
registration statement for the registration of the Shares or any amendment
thereto or pursuant to Rule 424(a) of the Regulations) and when any amendment
thereof or supplement thereto was first filed with the Commission, such
preliminary prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations and did not contain an untrue statement of a material fact and
did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein in light of the circumstances
under which they were made not misleading. No representation and warranty is
made in this subsection (b), however, with respect to any information contained
in or omitted from the Registration Statement or the Prospectus or any related
preliminary prospectus or any amendment thereof or supplement thereto in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter through you as herein stated
expressly for use in connection with the preparation thereof. If Rule 434 is
used, the Company will comply with the requirements of Rule 434.
(c) Arthur Andersen LLP, who have certified the financial statements
and supporting schedules included in the Registration Statement, are independent
public accountants with respect to the Company as required by the Act and the
Regulations.
(d) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as disclosed in
the Registration Statement and the Prospectus, there has been no material
adverse change or any development involving a prospective material adverse
change in the business, prospects, properties, operations, condition (financial
or other) or results of operations of the Company and its subsidiaries taken as
a whole, whether or not arising from transactions in the ordinary course of
business (a "Material Adverse Effect"), and since the date of the latest balance
sheet presented in the Registration Statement and the Prospectus, neither the
Company nor any of its subsidiaries has incurred or undertaken any liabilities
or obligations, direct or contingent, which are material to the Company and its
subsidiaries taken as a whole, except for liabilities or
<PAGE>
4
obligations which are reflected in the Registration Statement and the
Prospectus.
(e) This Agreement and the transactions contemplated herein have been
duly and validly authorized by the Company and this Agreement has been duly and
validly executed and delivered by the Company.
(f) The execution, delivery, and performance of this Agreement and
the consummation of the transactions contemplated hereby do not and will not (i)
conflict with or result in a breach of any of the terms and provisions of, or
constitute a default (or an event which with notice or lapse of time, or both,
would constitute a default) under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to, any agreement, instrument, franchise,
license or permit to which the Company or any of its subsidiaries is a party or
by which any of such corporations or their respective properties or assets may
be bound or (ii) violate or conflict with any provision of the certificate of
incorporation or by-laws of the Company or any of its subsidiaries or any
judgment, decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their respective properties or assets. No
consent, approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or any public, governmental or regulatory
agency or body having jurisdiction over the Company or any of its subsidiaries
or any of their respective properties or assets is required for the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, including the issuance, sale and delivery of
the Shares to be issued, sold and delivered by the Company hereunder, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, orders, registrations, filings, qualifications, licenses and
permits as may be required under state securities or Blue Sky laws and the rules
of the National Association of Securities Dealers, Inc. (the "NASD") in
connection with the purchase and distribution of the Shares by the Underwriters.
<PAGE>
5
(g) All of the outstanding shares of (i) the Company's Class C common
stock, par value $.01 per share (the "Class C Common Stock"), and (ii) the
Company's Series A through E preferred stock, par value $.01 per share
(collectively, the "Series Preferred Stock"), are duly and validly authorized
and issued, fully paid and nonassessable and were not issued and are not now in
violation of or subject to any preemptive rights, except such rights as have
been waived. The Shares, when issued, delivered and sold in accordance with
this Agreement, will be duly and validly issued and outstanding, fully paid and
nonassessable, and will not have been issued in violation of or be subject to
any preemptive rights, except such rights as have been waived. The Company had,
at March 31, 1999 (after giving effect to the 7 for 10 reverse stock split of
the Class C Common Stock and Series E Preferred Stock as described in the
Prospectus), an authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus under the caption "Capitalization".
The Company's Class B common stock, par value $.01 per share (the "Class B
Common Stock"), the Class C Common Stock, the Common Stock, the Firm Shares, the
Additional Shares and the Series Preferred Stock conform to the descriptions
thereof contained in the Registration Statement and the Prospectus.
(h) Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation. Each of the Company and its subsidiaries is duly
qualified and in good standing as a foreign corporation in each jurisdiction in
which the character or location of its properties (owned, leased or licensed) or
the nature or conduct of its business makes such qualification necessary, except
for those failures to be so qualified or in good standing which will not,
individually or in the aggregate, have a Material Adverse Effect. Each of the
Company and its subsidiaries has all requisite power and authority, and all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public, regulatory or
governmental agencies and bodies, to own, lease and operate its properties and
conduct its business as now being conducted and as described in the Registration
Statement and the Prospectus, and no such consent, approval, authorization,
order, registration, qualification, license or permit contains a materially
<PAGE>
6
burdensome restriction not adequately disclosed in the Registration Statement
and the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation
or default of (i) any provision of its certificate of incorporation or by-laws
(or other organizational documents), (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which it is a party
or bound or to which its property is subject or (iii) any statute, law, rule,
regulation, judgment, order or decree of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or such subsidiary or any of its properties, as
applicable, except, with respect to clauses (ii) and (iii) only, for violations
or defaults that would not, individually or in the aggregate, have a Material
Adverse Effect.
(j) Except as described in the Prospectus, there is no litigation or
governmental proceeding to which the Company or any of its subsidiaries is a
party or to which any property of the Company or any of its subsidiaries is
subject or which is pending or, to the knowledge of the Company, contemplated
against the Company or any of its subsidiaries which might reasonably be
expected to result in a Material Adverse Effect or which is required to be
disclosed in the Registration Statement and the Prospectus.
(k) There is no statute, regulation, contract or other document of a
character required to be described in the Registration Statement or the
Prospectus, or, in the case of a contract or other document, to be filed as an
exhibit to the Registration Statement, that is not described or filed, as the
case may be, as required.
(l) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which constitutes or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of shares of Common Stock to facilitate the sale or
resale of the Shares.
<PAGE>
7
(m) The financial statements, including the notes thereto, and the
supporting schedule included in the Registration Statement and the Prospectus
present fairly the consolidated financial position of the Company and its
subsidiaries as of the dates indicated and the consolidated results of their
operations and cash flows for the periods specified; except as otherwise stated
in the Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis; and the supporting schedule included in the Registration Statement
presents fairly the information required to be stated therein; and the other
financial and statistical information and data included in the Registration
Statement and the Prospectus is, in all material respects, accurately presented
and prepared on a basis consistent with such financial statements and the books
and records of the Company.
(n) Except such rights as have been waived or as described in the
Prospectus, no holder of securities of the Company has any rights to the
registration of securities of the Company because of the filing of the
Registration Statement or otherwise in connection with the sale of the Shares
contemplated hereby.
(o) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, subject to registration as an "investment
company" under the Investment Company Act of 1940.
(p) The Common Stock of the Company, including the Shares, has been
approved for quotation on the Nasdaq National Market, subject only to official
notice of issuance.
(q) No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the knowledge of the Company, is imminent, and the
Company is not aware of any existing, threatened or imminent labor dispute or
disturbance by the employees of any of its principal customers, suppliers,
contractors or providers of outsourced services that might have a Material
Adverse Effect.
<PAGE>
8
(r) The Company and its subsidiaries own, possess, license or have
rights to use all patents, patent applications, trade and service marks, trade
and service mark registrations, trade names, copyrights, licenses, inventions,
technology, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other intellectual property (collectively, the "Intellectual Property")
necessary for the conduct of the Company's business as now conducted or as
proposed in the Prospectus to be conducted. Except as described in the
Prospectus, (i) to the Company's knowledge, there is no material infringement by
third parties of any such Intellectual Property, (ii) there is no pending or, to
the Company's knowledge, threatened action, suit, proceeding or claim by others
challenging the Company's rights in or to any such Intellectual Property, and
the Company is unaware of any facts which would form a reasonable basis for any
such claim, (iii) there is no pending or, to the Company's knowledge, threatened
action, suit, proceeding or claim by others challenging the validity or scope of
any such Intellectual Property, and the Company is unaware of any facts which
would form a reasonable basis for any such claim, (iv) there is no pending or,
to the Company's knowledge, threatened action, suit, proceeding or claim by
others that the Company infringes or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary rights of others, and the Company
is unaware of any other fact which would form a reasonable basis for any such
claim, (v) to the Company's knowledge, there is no U.S. patent or published U.S.
patent application which contains claims that dominate or may dominate any
Intellectual Property described in the Prospectus as being owned by or licensed
to the Company or that interferes with the issued or pending claims of any such
Intellectual Property and (vi) there is no prior art of which the Company is
aware that may render any U.S. patent held by the Company invalid or any U.S.
patent application held by the Company unpatentable which has not been disclosed
to the U.S. Patent and Trademark Office. True and correct copies of all
material licenses and other material agreements between the Company, its
subsidiaries and any third parties relating to the Intellectual Property, and
all amendments and supplements thereto, have been provided to the Underwriters
or their counsel.
<PAGE>
9
(s) The Company and its subsidiaries (i) are in compliance in all
material respects with any and all applicable foreign, Federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all material permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, individually or in
the aggregate, have a Material Adverse Effect.
(t) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for cleanup, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which would,
individually or in the aggregate, have a Material Adverse Effect.
(u) The Company and its subsidiaries own no real property and have
good and marketable title to all personal property owned by them which is
material to the business of the Company and its subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as are described in
the Prospectus or such as do not materially affect the value of such property
and do not materially interfere with the use made of such property by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not materially interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries, in each case except
as described in or contemplated by the Prospectus.
<PAGE>
10
(v) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as (i) the Company believes are prudent and customary in the businesses
in which it is engaged and (ii) are consistent with insurance coverage
maintained by similar companies in similar businesses; neither the Company nor
any such subsidiary has been refused any insurance coverage sought or applied
for, and neither the Company nor any such subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not result in a
Material Adverse Effect.
(w) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(x) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors, officers,
stockholders, customers, suppliers or providers of outsourced services of the
Company or any of its subsidiaries on the other hand, which is required by the
Act to be described in the Registration Statement and the Prospectus which is
not so described.
(y) The Company and its subsidiaries have implemented a comprehensive
program to analyze and address the risk that their internal information
technology and non-information technology systems may be unable to recognize and
properly execute date-sensitive functions involving certain dates prior to and
any dates after December 31, 1999 (the "Year 2000 Problem"), and the Company
believes, based
<PAGE>
11
on such assessment, that its and its subsidiaries' computer hardware and
software systems are and will be able to process date information prior to and
after December 31, 1999 without any errors, aborts, delays or other
interruptions in operations associated with the Year 2000 Problem; and the
Company has contacted those of its vendors with whom it has important financial
or operational relationships and believes (i) based on information received from
such vendors, that each such vendor has remedied or will remedy on a timely
basis the Year 2000 Problem and (ii) that it could find a suitable replacement
vendor without significant delay or expense in the event that any such vendor
fails to remedy on a timely basis the Year 2000 Problem.
(z) There are no transfer taxes or other similar fees or charges
under Federal law or the laws of any state, or any political subdivision
thereof, required to be paid in connection with the execution and delivery of
this Agreement or the issuance by the Company or sale by the Company of the
Securities.
(aa) No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus.
(bb) Each of the Company and its subsidiaries has fulfilled its
obligations, if any, under the minimum funding standards of Section 302 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the
regulations thereunder with respect to each "plan" (as defined in Section 3(3)
of ERISA and such regulations) in which employees of the Company and its
subsidiaries are eligible to participate and each such plan is in compliance in
all material respects with the presently applicable provisions of ERISA and such
regulations. The Company and its subsidiaries have not incurred any unpaid
liability to the Pension Benefit Guaranty Corporation (other than for the
<PAGE>
12
payment of premiums in the ordinary course) or to any such plan under Title IV
of ERISA.
2. Purchase, Sale and Delivery of the Shares.
------------------------------------------
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at a purchase
price per share of $., the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule I hereto plus any additional
----------
number of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 10 hereof.
(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the offices of Cravath, Swaine & Moore,
Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019, or at such other
place as shall be agreed upon by you and the Company, at 10:00 A.M. on the third
or fourth business day (as permitted under Rule 15c6-1 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (unless postponed in
accordance with the provisions of Section 10 hereof) following the date of the
effectiveness of the Registration Statement (or, if the Company has elected to
rely upon Rule 430A of the Regulations, the third or fourth business day (as
permitted under Rule 15c6-1 under the Exchange Act) after the determination of
the initial public offering price of the Shares), or such other time not later
than 10 business days after such date as shall be agreed upon by you and the
Company (such time and date of payment and delivery being herein called the
"Closing Date"). Payment shall be made to the Company by wire transfer of
immediately available funds to an account designated by the Company, against
delivery to you for the respective accounts of the Underwriters of certificates
for the Firm Shares to be purchased by them. Certificates for the Firm Shares
shall be registered in such name or names and in such authorized denominations
as you may request in writing at least two full business days prior to the
Closing
<PAGE>
13
Date. The Company will permit you to examine and package such certificates for
delivery at least one full business day prior to the Closing Date. If you so
elect, delivery of the Firm Shares purchased from the Company may be made by
credit through full fast transfer to the accounts at The Depository Trust
Company designated by you.
(c) In addition, the Company hereby grants to the Underwriters the
option to purchase up to 1,140,000 Additional Shares at the same purchase price
per share to be paid by the Underwriters to the Company for the Firm Shares as
set forth in this Section 2, for the sole purpose of covering over-allotments in
the sale of Firm Shares by the Underwriters. This option may be exercised at
any time, in whole or in part, on or before the thirtieth day following the date
of the Prospectus, by written notice by you to the Company. Such notice shall
set forth the aggregate number of Additional Shares as to which the option is
being exercised and the date and time, as reasonably determined by you, when the
Additional Shares are to be delivered (such date and time being herein sometimes
referred to as the "Additional Closing Date"); provided, however, that the
-------- -------
Additional Closing Date shall not be earlier than the Closing Date or earlier
than the second full business day after the date on which the option shall have
been exercised nor later than the eighth full business day after the date on
which the option shall have been exercised (unless such time and date are
postponed in accordance with the provisions of Section 10 hereof). Certificates
for the Additional Shares shall be registered in such name or names and in such
authorized denominations as you may request in writing at least two full
business days prior to the Additional Closing Date. The Company will permit you
to examine and package such certificates for delivery at least one full business
day prior to the Additional Closing Date. If you so elect, delivery of the
Additional Shares purchased from the Company may be made by credit through full
fast transfer to the accounts at The Depository Trust Company designated by you.
The number of Additional Shares to be sold to each Underwriter shall
be the number which bears the same ratio to the aggregate number of Additional
Shares being purchased as the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto (or such number increased as set forth
----------
in Section 10 hereof) bears to 7,600,000, subject, however, to such adjustments
to
<PAGE>
14
eliminate any fractional shares as you in your sole discretion shall make.
Payment for the Additional Shares shall be made by wire transfer of
immediately available funds to an account designated by the Company, and the
closing shall take place at the offices of Cravath, Swaine & Moore, Worldwide
Plaza, 825 Eighth Avenue, New York, New York 10019, or such other location as
may be mutually acceptable, upon delivery of the certificates for the Additional
Shares to you for the respective accounts of the Underwriters.
3. Offering. Upon your authorization of the release of the Firm
---------
Shares, the Underwriters propose to offer the Shares for sale to the public upon
the terms set forth in the Prospectus.
4. Covenants of the Company. The Company covenants and agrees with
-------------------------
the Underwriters that:
(a) If the Registration Statement has not yet been declared effective
the Company will use its best efforts to cause the Registration Statement and
any amendments thereto to become effective as promptly as possible, and if Rule
430A is used or the filing of the Prospectus is otherwise required under Rule
424(b) or Rule 434, the Company will file the Prospectus (properly completed if
Rule 430A has been used) pursuant to Rule 424(b) or Rule 434 within the
prescribed time period and will provide evidence satisfactory to you of such
timely filing. If the Company elects to rely on Rule 434, the Company will
prepare and file a term sheet that complies with the requirements of Rule 434.
The Company will notify you immediately (and, if requested by you,
will confirm such notice in writing) (i) when the Registration Statement and any
amendments thereto become effective, (ii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the Prospectus
or for any additional information, (iii) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement
<PAGE>
15
or any post-effective amendment thereto or of the initiation, or the
threatening, of any proceedings therefor, (v) of the receipt of any comments
from the Commission, and (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for that
purpose. If the Commission shall propose or enter a stop order at any time, the
Company will make every reasonable effort to prevent the issuance of any such
stop order and, if issued, to obtain the lifting of such order as soon as
possible. The Company will not file any amendment to the Registration Statement
or any amendment of or supplement to the Prospectus (including the prospectus
required to be filed pursuant to Rule 424(b) or Rule 434) that differs from the
prospectus on file at the time of the effectiveness of the Registration
Statement before or after the effective date of the Registration Statement to
which you shall reasonably object in writing after being timely furnished in
advance a copy thereof.
(b) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act any event shall have occurred as a result
of which the Prospectus as then amended or supplemented would, in the judgment
of the Underwriters or the Company, include an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it shall be necessary, in the
judgment of the Underwriters or the Company, at any time to amend or supplement
the Prospectus or Registration Statement to comply with the Act or the
Regulations, the Company will notify you promptly and prepare and file with the
Commission an appropriate amendment or supplement (in form and substance
satisfactory to you) which will correct such statement or omission and will use
its best efforts to have any amendment to the Registration Statement declared
effective as soon as possible.
(c) The Company will promptly deliver to you one signed copy of the
Registration Statement, including exhibits and all amendments thereto, and will
maintain in the Company's files manually signed copies of such documents for at
least five years from the date of filing. The
<PAGE>
16
Company will promptly deliver to each of the Underwriters such number of copies
of any preliminary prospectus, the Prospectus, the Registration Statement, and
all amendments of and supplements to such documents, if any, as you may
reasonably request.
(d) The Company shall cause to be prepared and delivered, at its
expense, within one business day from the effective date of this Agreement, to
Bear, Stearns & Co. Inc., Wit Capital Corporation and Thomas Weisel Partners LLC
an "electronic Prospectus" to be used by the Underwriters in connection with the
offering and sale of the Shares. As used herein, the term "electronic
Prospectus" means a form of Prospectus, and any amendment or supplement thereto,
that meets each of the following conditions: (i) it shall be encoded in an
electronic format, satisfactory to Bear, Stearns & Co. Inc., that may be
transmitted electronically by Bear, Stearns & Co. Inc. and the other
Underwriters to offerees and purchasers of the Shares for at least during the
period when the Prospectus is required to be delivered under the Act or the
Exchange Act ("the Prospectus Delivery Period"); (ii) it shall disclose the same
information as the paper Prospectus and Prospectus filed with the Commission
through its "EDGAR" system (as such term is defined in Regulation S-T
promulgated by the Commission), except to the extent that graphic and image
material cannot be disseminated electronically, in which case such graphic and
image material shall be replaced in the electronic Prospectus with a fair and
accurate narrative description or tabular representation of such material, as
appropriate and (iii) it shall be in or convertible into a paper format or an
electronic format, reasonably satisfactory to Bear, Stearns & Co. Inc., that
will allow investors to store and have continuously ready access to the
Prospectus at any future time, without charge to investors (other than any fee
charged for subscription to the system as a whole and for on-line time). Such
electronic Prospectus may consist of a Rule 434 preliminary prospectus, together
with the applicable term sheet, provided that it otherwise satisfies the format
and conditions described in the immediately preceding sentence.
(e) The Company will endeavor in good faith, in cooperation with you,
at or prior to the time of effectiveness of the Registration Statement, to
qualify the
<PAGE>
17
Shares for offering and sale under the securities laws relating to the offering
or sale of the Shares of such jurisdictions as you may designate and to maintain
such qualification in effect for so long as required for the distribution
thereof, but in no event for longer than one year; except that in no event shall
the Company be obligated in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process.
(f) The Company will make generally available (within the meaning of
Section 11(a) of the Act) to its security holders and to you as soon as
practicable, but not later than 45 days after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earning statement (in form complying with the provisions of
Rule 158 of the Regulations) covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement.
(g) The Company shall engage and maintain, at its expense, a
registrar and transfer agent for the Common Stock.
(h) During the period of 180 days from the date of the Prospectus,
the Company will not, without the prior written consent of Bear, Stearns & Co.
Inc., issue, offer, sell, contract to sell, pledge or otherwise dispose of (or
enter into any transaction which is designed to, or could be expected to, result
in the disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by the Company or any affiliate
of the Company or any person in privity with the Company or any affiliate of the
Company) directly or indirectly, including the filing (or participation in the
filing) of a registration statement with the Commission in respect of, or
establish or increase a "put equivalent position" or liquidate or decrease a
"call equivalent position" within the meaning of the rules promulgated under
Section 16 of the Exchange Act with respect to, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock,
or publicly announce an intention to effect any such transaction, and the
Company will obtain the undertaking of the holder of all shares of Class B
Common Stock to be outstanding after the
<PAGE>
18
consummation of the transactions contemplated hereby not to engage in any of the
aforementioned transactions with respect to shares of Class B Common Stock
during such 180-day period; provided, however, that the Company may (i)
-------- -------
sell the Shares hereunder, (ii) issue and sell Class C Common Stock
pursuant to any employee stock option plan, stock ownership plan, retirement
plan or dividend reinvestment plan of the Company in effect on the date of this
Agreement, (iii) issue Class C Common Stock issuable upon the conversion of
securities or the exercise of warrants outstanding on the date of this Agreement
and (iv) issue and sell shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, or grant or issue any
options, rights or warrants to purchase shares of Common Stock and issue shares
of Common Stock upon conversion, exercise of exchange thereof (all such shares
of Common Stock referred to in this clause (iv) are collectively referred to as
"Supplemental Shares") in connection with raising additional capital or making
acquisitions so long as each person who acquires any Supplemental Shares enters
into an agreement with the Company that contains provisions to the effect that
such person may not sell, offer to sell, solicit an offer to buy, contract to
sell, pledge, grant any option to purchase, or otherwise transfer or dispose of,
any such Supplemental Shares, without the prior written consent of Bear, Stearns
& Co. Inc. at any time during the period of 180 days from the date of the
Prospectus (which agreement shall provide that such provisions may not be
amended, nor may the performance of any obligations under such provisions be
waived, without the prior written consent of Bear, Stearns & Co. Inc.), and the
certificates evidencing such Supplemental Shares bear a legend that sets forth
such restrictions on transfer or disposition.
(i) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its shareholders and (ii) all reports, financial statements and proxy
or information statements filed by the Company with the Commission or any
national securities exchange.
(j) The Company will apply the proceeds from the sale of the Shares
as set forth under "Use of Proceeds" in the Prospectus.
<PAGE>
19
(k) The Company will use its best efforts to cause the Shares to be
qualified for inclusion in the Nasdaq National Market.
(l) During a period of 180 days from the date of the Prospectus, the
Company shall not propose, or agree to any proposal, to amend any provision of
the Company's certificate of incorporation that relates the restrictions on
transferability of the Class C Common Stock contained therein without the prior
written consent of Bear, Stearns & Co. Inc.
5. Payment of Expenses. Whether or not the transactions contemplated
--------------------
in this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any amendments
or supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), the underwriting documents and all other
documents related to the public offering of the Shares (including those supplied
to the Underwriters in reasonable quantities as hereinabove stated), (ii) the
issuance, transfer and delivery of the Shares to the Underwriters, including any
transfer or other taxes payable thereon, (iii) the qualification of the Shares
under state or foreign securities or Blue Sky laws, including the costs of
printing and mailing a preliminary and final "Blue Sky Survey" and the fees of
counsel for the Underwriters and such counsel's disbursements in relation
thereto, (iv) quotation of the Shares on the Nasdaq National Market, (v) filing
fees of the Commission and the NASD, (vi) the cost of printing certificates
representing the Shares and (vii) the cost and charges of any transfer agent or
registrar.
<PAGE>
20
6. Conditions of Underwriters' Obligations. The obligations of the
----------------------------------------
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company herein contained, as of the date hereof and as of the
Closing Date (for purposes of this Section 6 "Closing Date" shall refer to the
Closing Date for the Firm Shares and any Additional Closing Date, if different,
for the Additional Shares), to the absence from any certificates, opinions,
written statements or letters furnished to you or to Cravath, Swaine & Moore
("Under writers' Counsel") pursuant to this Section 6 of any misstatement or
omission, to the performance by the Company of its obligations hereunder, and to
the following additional conditions:
(a) The Registration Statement shall have become effective not later
than (i) if pricing pursuant to Rule 430A, 5:30 P.M., New York time, on the date
of this Agreement or (ii) if pricing pursuant to a pricing amendment, 12:00
P.M., New York time, on the date an amendment to the Registration Statement
containing the public offering price has been filed with the Commission, or at
such later time and date as shall have been consented to in writing by you; if
the Company shall have elected to rely upon Rule 430A or Rule 434 of the
Regulations, the Prospectus shall have been filed with the Commission in a
timely fashion in accordance with Section 4(a) hereof; and, at or prior to the
Closing Date no stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereof shall have been issued and no
proceedings therefor shall have been initiated or threatened by the Commission.
(b) At the Closing Date you shall have received the opinion of
Morgan, Lewis & Bockius LLP, counsel for the Company, dated the Closing Date
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) Each of the Company and its wholly owned subsidiary, Wit Capital
Corporation, a New York corporation (the "Subsidiary"), has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of
<PAGE>
21
incorporation. Each of the Company and the Subsidiary is duly qualified and
in good standing as a foreign corporation in each jurisdiction in which the
character or location of its properties (owned, leased or licensed) or the
nature or conduct of its business makes such qualification necessary,
except for those failures to be so qualified or in good standing which will
not in the aggregate have a material adverse effect on the Company and the
Subsidiary taken as a whole. Each of the Company and the Subsidiary has all
requisite corporate authority to own, lease and license its respective
properties and conduct its business as now being conducted and as described
in the Registration Statement and the Prospectus. All the issued and
outstanding capital stock of the Subsidiary has been duly and validly
issued and is fully paid and nonassessable and, to such counsel's
knowledge, was not issued in violation of preemptive rights, except such
rights as have been waived, and is owned directly or indirectly by the
Company, free and clear of any lien, encumbrance, claim, security interest,
restriction on transfer, shareholders' agreement, voting trust or other
defect of title whatsoever.
(ii) The Company has authorized capital stock as set forth in the
Registration Statement and the Prospectus. All of the outstanding shares
of Class C Common Stock and Series Preferred Stock are duly and validly
authorized and issued, are fully paid and nonassessable and, to such
counsel's knowledge, were not issued in violation of or subject to any
preemptive rights, except such rights as have been waived. The Shares to
be delivered on the Closing Date have been duly and validly authorized and,
when issued, sold and delivered by the Company in accordance with this
Agreement, will be duly and validly issued, fully paid and nonassessable
and, to such counsel's knowledge, will not have been issued in violation of
or subject to any preemptive rights, except such rights as have been
waived. The Class B Common Stock, the Class C Common Stock, the Common
Stock, the Firm Shares, the Additional Shares and the Series Preferred
Stock conform to the descriptions thereof contained in the Registration
Statement and the Prospectus.
<PAGE>
22
(iii) The Shares to be sold under this Agreement to the Underwriters
have been duly registered pursuant to Section 12 of the Exchange Act.
(iv) This Agreement has been duly and validly authorized, executed
and delivered by the Company.
(v) There is no litigation or governmental or other action, suit,
proceeding or investigation before any court or before or by any public,
regulatory or governmental agency or body pending or to the best of such
counsel's knowledge, threatened against, or involving the properties or
business of, the Company or the Subsidiary, which is of a character
required to be disclosed in the Registration Statement and the Prospectus
which has not been properly disclosed therein.
(vi) There is no statute, regulation, contract or other document
known to such counsel of a character required to be described in the
Registration Statement or the Prospectus, or, in the case of a contract or
other document, to be filed as an exhibit to the Registration Statement,
that is not described or filed, as the case may be, as required.
(vii) The execution, delivery, and performance of this Agreement and
the consummation of the transactions contemplated hereby by the Company do
not and will not (A) conflict with or result in a breach of any of the
terms and provisions of, or constitute a default (or an event which with
notice or lapse of time, or both, would constitute a default) under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or the Subsidiary pursuant to,
any agreement, instrument, franchise, license or permit known to such
counsel to which the Company or the Subsidiary is a party or by which
either of such corporations or their respective properties or assets may be
bound or (B) violate or conflict with any provision of the certificate of
incorporation or by-laws of the Company or the Subsidiary, or, to the
knowledge of such counsel, any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or
<PAGE>
23
regulatory agency or body having jurisdiction over the Company or the
Subsidiary or any of their respective properties or assets. No consent,
approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or any public, governmental, or
regulatory agency or body having jurisdiction over the Company or the
Subsidiary or any of their respective properties or assets is required for
the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, except for (1) such
as may be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the Underwriters (as to
which such counsel need express no opinion) and (2) such as have been made
or obtained under the Act and the rules of the NASD.
(viii) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(ix) The Registration Statement and the Prospectus and any
amendments thereof or supplements thereto (other than the financial
statements and the supporting schedule and other financial data included
therein, as to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the Regulations.
(x) The Registration Statement is effective under the Act, and, to
the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereof has been issued and no proceedings therefor have been initiated or
threatened by the Commission; and all filings required by Rule 424(b) of
the Regulations have been made.
(xi) To such counsel's knowledge, no holder of any security of the
Company has any right, not effectively satisfied or waived, to require
inclusion of shares of Common Stock or any other security of the Company in
the Registration Statement.
<PAGE>
24
In addition, such opinion shall also contain a statement that such
counsel has participated in conferences with officers and representatives of the
Company, representatives of the independent public accountants for the Company
and the Underwriters at which the contents of the Registration Statement and the
Prospectus and related matters were discussed, and no facts have come to the
attention of such counsel which would lead such counsel to believe that either
the Registration Statement at the time it became effective (including the
information deemed to be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b) or Rule 434, if applicable), or any
amendment thereof made prior to the Closing Date as of the date of such
amendment, contained an untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus as of its date (or any
amendment thereof or supplement thereto made prior to the Closing Date as of the
date of such amendment or supplement) and as of the Closing Date contained or
contains an untrue statement of a material fact or omitted or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief or
opinion with respect to the financial statements and schedules and other
financial data included therein).
The opinion of such counsel shall be limited to the laws of the United
States, the General Corporation Law of the State of Delaware and the laws of the
State of New York and, in rendering such opinion, such counsel may rely (A) as
to matters involving the application of laws other than the laws of the United
States, the General Corporation Law of the State of Delaware and the laws of the
State of New York, to the extent such counsel deems proper and to the extent
specified in such opinion, if at all, upon an opinion or opinions (in form and
substance reasonably satisfactory to Underwriters' Counsel) of other counsel
reasonably acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and certificates or other written
statements of
<PAGE>
25
officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company and the
Subsidiary, provided that copies of any such statements or certificates shall be
delivered to Underwriters' Counsel. The opinion of such counsel for the Company
shall state that the opinion of any such other counsel is in form satisfactory
to such counsel and, in their opinion, you and they are justified in relying
thereon.
(c) At the Closing Date you shall have received the opinion of
Potter, Anderson & Corroon LLP, special Delaware counsel to the Company, dated
the Closing Date addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that [(i) the
reclassification of the Company's then-outstanding common stock, par value $.01
per share, into Class C Common Stock, which was effected pursuant to an
amendment to the Company's certificate of incorporation filed with the Secretary
of State of the State of Delaware on May 26, 1999 (the "Amendment"), is legal
and valid under the General Corporation Law of the State of Delaware, (ii) the
restrictions on transfer relating to the Class C Common Stock set forth in the
Amendment are legal and valid under the General Corporation Law of the State of
Delaware and (iii) the 10 for 7 reverse stock split relating to the Class C
Common Stock and Series E Preferred Stock effected on June 2, 1999 was validly
adopted and approved by the stockholders of the Company in accordance with the
Company's certificate of incorporation and by-laws and the General Corporation
Law of the State of Delaware]./1/
(d) All proceedings taken in connection with the sale of the Firm
Shares and the Additional Shares as herein contemplated shall be satisfactory in
form and substance to you and to Underwriters' Counsel, and the Underwriters
shall have received from said Underwriters' Counsel a favorable opinion, dated
as of the Closing Date with respect to the issuance and sale of the Shares, the
Registration Statement and the Prospectus and such other related matters as you
may reasonably require, and the Company shall have furnished to
___________________________
/1/ To be discussed with Delaware counsel.
<PAGE>
26
Underwriters' Counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(e) At the Closing Date you shall have received a certificate of a
Co-Chief Executive Officer and the Chief Financial Officer of the Company, dated
the Closing Date to the effect that (i) the condition set forth in subsection
(a) of this Section 6 has been satisfied, (ii) as of the date hereof and as of
the Closing Date the representations and warranties of the Company set forth in
Section 1 hereof are accurate, (iii) as of the Closing Date the obligations of
the Company to be performed hereunder on or prior thereto have been duly
performed and (iv) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company and its
subsidiaries have not sustained any material loss or interference with their
respective businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding, and there has not been any material
adverse change, or any development involving a prospective material adverse
change, in the business prospects, properties, operations, condition (financial
or otherwise), or results of operations of the Company and its subsidiaries
taken as a whole, except in each case as described in or contemplated by the
Prospectus.
(f) At the time this Agreement is executed and at the Closing Date,
you shall have received a letter, from Arthur Andersen LLP, independent public
accountants for the Company, dated, respectively, as of the date of this
Agreement and as of the Closing Date addressed to the Underwriters and in form
and substance satisfactory to you, to the effect that: (i) they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the Regulations and stating that the answer to Item 10 of the
Registration Statement is correct insofar as it relates to them; (ii) stating
that, in their opinion, the financial statements and schedules of the Company
included in the Registration Statement and the Prospectus and covered by their
opinion therein comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable published rules and
regulations of the Commission thereunder; (iii) on the
<PAGE>
27
basis of procedures consisting of a reading of the latest available unaudited
interim consolidated financial statements of the Company and its subsidiaries, a
reading of the minutes of meetings and consents of the shareholders and boards
of directors of the Company and its subsidiaries and the committees of such
boards subsequent to March 31, 1999, inquiries of officers and other employees
of the Company and its subsidiaries who have responsibility for financial and
accounting matters of the Company and its subsidiaries with respect to
transactions and events subsequent to March 31, 1999 and other specified
procedures and inquiries to a date not more than five days prior to the date of
such letter, nothing has come to their attention that would cause them to
believe that: (A) the unaudited consolidated financial statements and schedules
of the Company presented in the Registration Statement and the Prospectus do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the applicable published rules and regulations of
the Commission thereunder or that such unaudited consolidated financial
statements are not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited consolidated financial statements of the Company and its
subsidiaries included in the Registration Statement and the Prospectus; (B) with
respect to the period subsequent to March 31, 1999 there were, as of the date of
the most recent available monthly consolidated financial statements of the
Company and its subsidiaries, if any, and as of a specified date not more than
five days prior to the date of such letter, any changes in the capital stock or
long-term indebtedness of the Company or any decrease in the net current assets
or stockholders' equity of the Company, in each case as compared with the
amounts shown in the most recent balance sheet presented in the Registration
Statement and the Prospectus, except for changes or decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur or
which are set forth in such letter; or (C) that during the period from April 1,
1999 to the date of the most recent available monthly consolidated financial
statements of the Company and its subsidiaries, if any, and to a specified date
not more than five days prior to the date of such letter, there was any
decrease, as compared with the corresponding period in the prior fiscal year, in
total revenues, or any increase, as compared with the
<PAGE>
28
corresponding period in the prior fiscal year, in operating loss or total or per
share net loss, except for decreases or increases, as the case may be, which the
Registration Statement and the Prospectus disclose have occurred or may occur or
which are set forth in such letter; and (iv) stating that they have compared
specific dollar amounts, numbers of shares, percentages of revenues and
earnings, and other financial information pertaining to the Company and its
subsidiaries set forth in the Registration Statement and the Prospectus, which
have been specified by you prior to the date of this Agreement, to the extent
that such amounts, numbers, percentages, and information may be derived from the
general accounting and financial records of the Company and its subsidiaries or
from schedules furnished by the Company, and excluding any questions requiring
an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate procedures
specified by you set forth in such letter, and found them to be in agreement.
(g) Prior to the Closing Date the Company shall have furnished to you
such further information, certificates and documents as you may reasonably
request.
(h) You shall have received from the holder of all shares of Class B
Common Stock to be outstanding after the consummation of the transactions
contemplated hereby an agreement to the effect that such holder will not,
directly or indirectly, without the prior written consent of Bear, Stearns & Co.
Inc., offer, sell, contract to sell, pledge or otherwise dispose of (or enter
into any transaction which is designed to, or could be expected to, result in
the disposition (whether by actual disposition or effective economic disposition
due to cash settlement or otherwise) by such person or by the Company or any
affiliate of the Company or any person in privity with the Company or any
affiliate of the Company) directly or indirectly, including the filing (or
participation in the filing) of a registration statement with the Commission in
respect of, or establish or increase a "put equivalent position" or liquidate or
decrease a "call equivalent position" within the meaning of the rules
promulgated under Section 16 of the Exchange Act with respect to, any shares of
Class B Common Stock or any securities convertible into or exercisable or
exchangeable for Class B Common Stock, or publicly announce
<PAGE>
29
an intention to effect any such transaction, for a period of 180 days after the
date of the Prospectus; provided, however, that such agreement shall in any way
-------- -------
limit the rights of the Company to issue and sell Class C Common Stock or Common
Stock as provided in Section 4(h) of this Agreement.
(i) At the Closing Date, the Shares shall have been approved for
quotation on the Nasdaq National Market.
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
canceled by you at, or at any time prior to, the Closing Date and the
obligations of the Underwriters to purchase the Additional Shares may be
canceled by you at, or at any time prior to, the Additional Closing Date.
Notice of such cancelation shall be given to the Company in writing, or by
telephone, telex or telegraph, confirmed in writing.
<PAGE>
30
7. Indemnification.
----------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any and all losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the registration
statement for the registration of the Shares, as originally filed or any
amendment thereof, or any related preliminary prospectus or the Prospectus, or
in any supplement thereto or amendment thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
- -------- -------
extent but only to the extent that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any Underwriter through you expressly for use therein. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who shall have signed the Registration Statement, and
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
not limited to attorneys' fees and any and
<PAGE>
31
all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), jointly or
several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement for the registration of the Shares, as originally filed
or any amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that any
such loss, liability, claim, damage or expense arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
you expressly for use therein; provided, however, that in no case shall
-------- -------
any Underwriter be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder. This indemnity will be in addition to any liability which any
Underwriter may otherwise have including under this Agreement. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page and in the eighth, eleventh and fourteenth paragraphs and the first
sentence of the sixth paragraph under the caption "Underwriting" in the
Prospectus constitute the only information furnished in writing by or on behalf
of any Underwriter expressly for use in the registration statement relating to
the Shares as originally filed or in any amendment thereof, any related
preliminary prospectus or the Prospectus or in any amendment thereof or
supplement thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party
<PAGE>
32
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party shall not relieve it
from any liability which it may have under this Section 7). In case any such
action is brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties. Anything in
this subsection to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.
-------- -------
8. Contribution. In order to provide for contribution in
-------------
circumstances in which the indemnification provided for in Section 7 hereof is
for any reason held to be unavailable from any indemnifying party or is
insufficient to hold harmless a party indemnified thereunder, the Company and
the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation,
<PAGE>
33
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Company any contribution received by the Company from persons,
other than the Underwriters, who may also be liable for contribution, including
persons who control the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, officers of the Company who signed the
Registration Statement and directors of the Company) as incurred to which the
Company and one or more of the Underwriters may be subject, in such proportions
as is appropriate to reflect the relative benefits received by the Company and
the Underwriters from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company and the
Underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Underwriters shall be deemed to be in the same proportion as (x) the
total proceeds from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by the Company and (y) the underwriting
discounts and commissions received by the Underwriters, respectively, in each
case as set forth on the cover page of the Prospectus. The relative fault of the
Company and of the Underwriters shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that no intent or knowledge of, or
-------- -------
access to information or opportunity to correct or prevent any such statement or
omission by, Wit Capital Corporation shall be attributed to any other
Underwriter. The Company and the Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by
<PAGE>
34
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 8, (i) in no case shall any Underwriter be liable or
responsible for any amount in excess of the underwriting discount applicable to
the Shares purchased by such Underwriter hereunder, and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this Section 8
and the preceding sentence, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act shall have the same rights to contribution as such
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i) and (ii) of the second preceding
sentence. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against another party or
parties, notify each party or parties from whom contribution may be sought, but
the omission to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent;
provided, however, that such consent was not unreasonably withheld.
- -------- -------
9. Qualified Independent Underwriter.
----------------------------------
<PAGE>
35
(a) The Company hereby confirms its engagement of the services of
Bear, Stearns & Co. Inc. as, and Bear, Stearns & Co. Inc. hereby confirms its
agreement with the Company to render services without compensation as, a
"qualified independent underwriter" (in such capacity, the "QIU") within the
meaning of Rule 2720(b)(15) of the Conduct Rules of the NASD with respect to the
offering and sale of the Shares.
(b) The QIU hereby represents and warrants to, and agrees with, the
Company and the other Underwriters that, with respect to the offering and sale
of the Shares as described in the Prospectus:
(i) the QIU qualifies as, and constitutes, a "qualified independent
underwriter" within the meaning of Rule 2720(b)(15) of the Conduct Rules of
the NASD;
(ii) the QIU has participated in the preparation of the Registration
Statement and the Prospectus and has exercised the usual standards of "due
diligence" in respect thereto;
(iii) the QIU has agreed in acting as a "qualified independent
underwriter" within the meaning of Rule 2720(b)(15) of the Conduct Rules of
the NASD to undertake the legal responsibilities and liabilities of an
underwriter under the Act, specifically including those inherent in Section
11 thereof;
(iv) based upon, among other factors, the information set forth in
the Prospectus and its review of such other documents and the taking of
such other actions as the QIU, in its sole discretion, has deemed necessary
or appropriate for the purposes of delivering its recommendation hereunder,
the QIU recommends, as of the date of the execution and delivery of this
Agreement, that the price at which the Shares are to be distributed to the
public shall not be
<PAGE>
36
higher than that set forth on the cover page of the Prospectus, which price
should in no way be considered or relied upon as an indication of the value
of the Shares; and
(v) the QIU will furnish to the other Representatives on the Closing
Date a letter, dated the date thereof, in form and substance satisfactory
to the other Representatives, to the effect of clauses (i) through (iv)
above.
(c) The Company, the QIU and the other Underwriters agree to comply
in all material respects with all of the requirements of Rule 2720 of the
Conduct Rules of the NASD applicable to them in connection with the offering and
sale of the Shares. The Company agrees to cooperate with the Underwriters,
including the QIU, to enable the Underwriters to comply with Rule 2720 of the
Conduct Rules of the NASD and to enable the QIU to perform the services
contemplated by this Agreement.
(d) The Company agrees promptly to reimburse the QIU for all out-of-
pocket expenses, including fees and disbursements of counsel, reasonably
incurred in connection with the services to be rendered as QIU hereunder.
(e) The QIU hereby consents to the references to it in its capacity
as "qualified independent underwriter" as set forth under the caption
"Underwriting" in the Prospectus.
(f) The Company will indemnify and hold harmless the QIU against any
losses, claims, damages or liabilities, joint or several, to which the QIU may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon the QIU's acting (or alleged failing to act) as a "qualified independent
underwriter" within the meaning of Rule 2720(b)(15) of the Conduct Rules of the
NASD with respect to the offering and sale of the Shares and will reimburse the
QIU for any legal or other expenses reasonably incurred by the QIU in connection
with
<PAGE>
37
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred.
10. Default by an Underwriter.
--------------------------
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Additional Shares hereunder, and if the
Firm Shares or Additional Shares with respect to which such default relates do
not (after giving effect to arrangements, if any, made by you pursuant to
subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares
or Additional Shares, the Firm Shares or Additional Shares to which the default
relates shall be purchased by the non-defaulting Underwriters in proportion to
the respective proportions which the numbers of Firm Shares set forth opposite
their respective names in Schedule I hereto bear to the aggregate number of Firm
----------
Shares set forth opposite the names of the non-defaulting Underwriters.
(b) In the event that such default relates to more than 10% of the
Firm Shares or Additional Shares, as the case may be, you may in your discretion
arrange for yourself or for another party or parties (including any non-
defaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares or Additional Shares, as the case may be, to which such default relates
on the terms contained herein. In the event that within 5 calendar days after
such a default you do not arrange for the purchase of the Firm Shares or
Additional Shares, as the case may be, to which such default relates as provided
in this Section 10, this Agreement or, in the case of a default with respect to
the Additional Shares, the obligations of the Underwriters to purchase and of
the Company to sell the Additional Shares shall thereupon terminate, without
liability on the part of the Company with respect thereto (except in each case
as provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in
this Agreement shall relieve a defaulting Underwriter or Underwriters of its or
their liability, if any, to the other Underwriters and the Company for damages
occasioned by its or their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to which
the default relates are to be purchased by the non-defaulting Underwriters, or
are to be
<PAGE>
38
purchased by another party or parties as aforesaid, you or the Company shall
have the right to postpone the Closing Date or Additional Closing Date, as the
case may be, for a period, not exceeding five business days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus or in any other documents and arrangements, and the Company
agrees to file promptly any amendment or supplement to the Registration
Statement or the Prospectus which, in the opinion of Underwriters' Counsel, may
thereby be made necessary or advisable. The term "Underwriter" as used in this
Agreement shall include any party substituted under this Section 10 with like
effect as if it had originally been a party to this Agreement with respect to
such Firm Shares and Additional Shares.
11. Survival of Representations and Agreements. All representations
-------------------------------------------
and warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5,
the indemnity agreements contained in Section 7 and the contribution agreements
contained in Section 8, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or any
controlling person thereof or by or on behalf of the Company, any of its
officers and directors or any controlling person thereof, and shall survive
delivery of and payment for the Shares to and by the Underwriters. The
representations contained in Section 1 and the agreements contained in Sections
5, 7, 8 and 12(d) hereof shall survive the termination of this Agreement,
including termination pursuant to Section 10 or 12 hereof.
12. Effective Date of Agreement; Termination.
-----------------------------------------
<PAGE>
39
(a) This Agreement shall become effective, upon the later of when (i)
you and the Company shall have received notification of the effectiveness of the
Registration Statement or (ii) the execution of this Agreement. If either the
initial public offering price or the purchase price per Share has not been
agreed upon prior to 5:00 P.M., New York time, on the fifth full business day
after the Registration Statement shall have become effective, this Agreement
shall thereupon terminate without liability to the Company or the Underwriters
except as herein expressly provided. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Company by notifying you or by you by
notifying the Company. Notwithstanding the foregoing, the provisions of this
Section 12 and of Sections 1, 5, 7 and 8 hereof shall at all times be in full
force and effect.
(b) You shall have the right to terminate this Agreement at any time
prior to the Closing Date or the obligations of the Underwriters to purchase the
Additional Shares at any time prior to the Additional Closing Date, as the case
may be, if (A) any domestic or international event or act or occurrence has
materially disrupted, or in your opinion will in the immediate future materially
disrupt, the market for the Company's securities or securities in general; or
(B) if trading on the New York or American Stock Exchanges or on Nasdaq shall
have been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been required, on
the New York or American Stock Exchanges or on Nasdaq by the New York or
American Stock Exchanges, the NASD or by order of the Commission or any other
governmental authority having jurisdiction; or (C) if a banking moratorium has
been declared by a state or Federal authority or if any new restriction
materially adversely affecting the distribution of the Firm Shares or the
Additional Shares, as the case may be, shall have become effective; or (D) (i)
if, after the date hereof, the United States becomes engaged in hostilities or
there is an escalation of hostilities involving the United States or there is a
declaration of a national emergency or war by the United States or (ii) if there
shall have been such change in political, financial or economic conditions if
the effect of any such event in (i) or (ii) as in your judgment makes it
impracticable or inadvisable to proceed with the offering, sale and delivery
<PAGE>
40
of the Firm Shares or the Additional Shares, as the case may be, on the terms
contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 12 shall be by
telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 12(a) hereof or (ii) Section 10(b) or 12(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will, subject to demand by you, reimburse the Underwriters for all out-
of-pocket expenses (including the fees and expenses of their counsel), incurred
by the Underwriters in connection herewith.
13. Notices. All communications hereunder, except as may be
--------
otherwise specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, NY 10167, Attention of [Bear Stearns to provide]; if sent to the
Company, shall be mailed, delivered, or telegraphed and confirmed in writing to
the Company, 826 Broadway, Sixth Floor, New York, NY 10003, Attention of:
Robert H. Lessin and Ronald Readmond, Co-Chief Executive Officers.
14. Parties. This Agreement shall inure solely to the benefit of,
--------
and shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Sections 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Shares from any of the Underwriters.
<PAGE>
41
15. Governing Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.
<PAGE>
42
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
WIT CAPITAL GROUP, INC.
by
----------------------
Name:
Title:
Accepted as of the date
first above written:
BEAR, STEARNS & CO. INC.,
Wit Capital Corporation, as e-Manager
Thomas Weisel Partners LLC
On behalf of themselves and the other
Underwriters named in Schedule I
----------
hereto
BY: BEAR, STEARNS, & CO. INC.
by
-----------------------
Name:
Title:
<PAGE>
43
SCHEDULE I
<TABLE>
<CAPTION>
Name of Underwriter Number of Firm
Shares to be
Purchased
- --------------------------------------------
<S> <C>
Bear, Stearns & Co. Inc.
- --------------------------------------------
Wit Capital Corporation
- --------------------------------------------
Thomas Weisel Partners LLC
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
Total
- --------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
WIT CAPITAL GROUP, INC.
________________________
FIRST: The name of the Corporation is
WIT CAPITAL GROUP, INC.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of
New Castle. The name of the Corporation's registered agent at such address is
Corporation Service Company.
THIRD: The purposes for which the Corporation is formed are to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 90,000,000 shares, consisting of
(a) 60,000,000 shares of Common Stock, $.01 par value ("Common Stock"), and (b)
30,000,000 shares of Preferred Stock, $.01 par value ("Preferred Stock"). The
Preferred Stock may be issued from time to time in one or more series of any
number of shares, provided that the aggregate number of shares issued and not
canceled of any and all such series shall not exceed 30,000,000. The Board of
Directors of the Corporation is authorized to establish by resolution each
series of Preferred Stock, and to determine the powers, designations,
preferences and relative, participating, optional or other rights, if any, and
the qualifications, limitations or restrictions thereof, if any, from time to
time.
<PAGE>
FIFTH: The name and mailing address of the sole incorporator of the
Corporation are as follows:
Morri Weinberg
45 Rockefeller Plaza
New York, N.Y. 10111
SIXTH: In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the Board of Directors of the Corporation
is expressly authorized and empowered to make, alter or repeal the By-laws of
the Corporation, subject to the power of the stockholders of the Corporation to
alter or repeal any By-law made by the Board of Directors.
SEVENTH: The Corporation reserves the right at any time and from time
to time to amend, alter, change or repeal any provisions contained in this
Certificate of Incorporation; and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article.
EIGHTH: (a) The Corporation shall, to the fullest extent permitted
by Section 145 of the Delaware General Corporation Law, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities and other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
2
<PAGE>
(b) No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware or (iv) for
any transaction from which the director derived an improper personal benefit.
If the General Corporation Law of the State of Delaware is subsequently amended
to further eliminate or limit the liability of a director, then a director of
the Corporation, in addition to the circumstances in which a director is not
personally liable as set forth in the preceding sentence, shall not be liable to
the fullest extent permitted by the amended General Corporation Law of the State
of Delaware. For purposes of this Article EIGHTH, "fiduciary duty as a
director" shall include any fiduciary duty arising out of serving at the
Corporation's request as a director of another corporation, partnership, joint
venture or other enterprise, and "personal liability to the Corporation or its
stockholder"" shall include any liability to such other corporation,
partnership, joint venture, trust or other enterprise, and any liability to the
Corporation in its capacity as a security holder, joint venturer, partner,
beneficiary, creditor or investor of or in any such other corporation,
partnership, joint venture, trust or other enterprise.
IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinabove named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, does make this Certificate,
hereby declaring, certifying and acknowledging under penalties of perjury that
the facts herein stated are true and that this Certificate is his act and deed,
and accordingly has hereunto set his hand, this 2nd day of July 1998.
/s/ Morri Weinberg
------------------------------
Morri Weinberg
Incorporator
3
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A PREFERRED STOCK
OF
WIT CAPITAL GROUP, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
___________________________________________
WIT CAPITAL GROUP, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that,
pursuant to authority vested in the Board of Directors of the Corporation by
Article Fourth of the Certificate of Incorporation of the Corporation, the
following resolution was adopted as of July 2, 1998 by the Board of Directors of
the Corporation pursuant to Section 141 of the Delaware General Corpora tion
Law:
"RESOLVED that, pursuant to authority vested in the Board of Directors
of the Corporation by Article Fourth of the Corporation's Certificate of
Incorporation of the total authorized number of 30,000,000 shares of Preferred
Stock, par value $.01 per share, of the Corporation, there shall be designated a
series of 9,000,000 shares which shall be issued in and constitute a single
series to be known as "Series A Preferred Stock" (hereinafter called the "Series
A Preferred Stock"). The shares of Series A Preferred Stock shall have the
voting powers, designations, preferences and other special rights, and
qualifications, limitations and re strictions thereof set forth below:
1. Dividends. The holders of Series A Preferred Stock shall not be
---------
entitled to receive dividends in any fixed amount, provided, however, that
-------- -------
in the event that the Corporation shall at any time pay a dividend on the
Common Stock (other than a dividend payable solely in shares of Common
Stock), it shall, at the same time, pay to each holder of Series A
Preferred Stock a dividend equal to the dividend that would have been
payable to such holder if the shares of Series A Preferred Stock held by
such holder had been converted into Common Stock on the date of
determination of holders of Common Stock entitled to receive such
dividends.
<PAGE>
2. Liquidation. Upon any liquidation, dissolution or winding up of
-----------
the Corporation, whether voluntary or involuntary, the holders of the
shares of Series A Preferred Stock shall be entitled, before any
distribution or payment is made upon any Common Stock, to be paid an amount
equal to $1.00 per share, and the holders of the Series A Preferred Stock
shall not be entitled to any further payment, such amounts being herein
sometimes referred to as the "Liquidation Payments." If upon such
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Series A Preferred Stock of the Corporation shall be insufficient to permit
payment to the holders of Series A Preferred Stock of the full amount of
the Liquidation Payments, then the entire assets of the Corporation to be
so distributed shall be distributed ratably per share among the holders of
Series A Preferred Stock in proportion to the amounts to which they
respectively are entitled. Upon any such liquidation, dissolution or
winding up of the Corporation, after the holders of the Series A Preferred
Stock shall have been paid in full the amounts to which they shall be
entitled, the remaining net assets of the Corporation shall be distributed
ratably to the holders of Common Stock. Written notice of such
liquidation, dissolution or winding up, stating a payment date, the amount
of the Liquidation Payment and the place where said sums shall be payable
shall be given by mail, postage prepaid, not less than 30 or more than 60
days prior to the payment date stated therein, to the holders of record of
the Series A Preferred Stock and the Common Stock, such notice to be
addressed to each shareholder at his post office address as shown by the
records of the Corporation. Neither the consolidation or merger of the
Corporation into or with any other corporation or corporations, nor the
sale or transfer by the Corporation of all or any part of its assets, shall
be deemed to be a liqui dation, dissolution or winding up of the
Corporation within the meaning of any of the provisions of this paragraph
2.
3. Conversion.
----------
3A Right to Convert. Subject to the terms and conditions of this
----------------
paragraph 3, the holder of any share or shares of Series A Preferred Stock
shall have the right, at its option at any time, to convert any such shares
of Series A Preferred Stock into such number of fully paid and
nonassessable whole shares of Common Stock as is obtained by multiplying
the number of shares of Series A Preferred Stock so to be converted by
$1.00 and dividing the result by the conversion price of $1.00 per share
or, if there has been an adjustment of the conversion price, by the
conversion price as last adjusted and in effect at the date any share or
shares of Series A Preferred Stock are surrendered for conversion (such
price, or such price as last adjusted, being referred to herein as the
"Conversion Price"). Such rights of conversion shall be exercised by the
holder thereof by giving written notice that the holder elects to convert a
stated number of shares of Series A Pre ferred Stock into Common Stock and
by surrender of a certificate or certificates for the shares so to be
converted to the Corporation at its principal office (or such other office
or agency of the Corporation as the Corporation may designate by notice in
writing to the holder or holders of the Series A Preferred Stock) at any
time during its usual business
2
<PAGE>
hours on the date set forth in such notice, together with a statement of
the name or names (with address), subject to compliance with applicable
laws to the extent such designation shall involve a transfer, in which the
certificate or certificates for shares of Common Stock shall be issued.
3B. Issuance of Certificates; Time Conversion Effected. Promptly
--------------------------------------------------
after the receipt by the Corporation of the written notice referred to in
subparagraph 3A and surrender of the certificate or certificates for the
share or shares of the Series A Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and delivered,
to the holder, registered in such name or names as such holder may direct,
subject to compliance with applicable laws to the extent such designation
shall involve a transfer, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Series A Preferred Stock. To the extent permitted by law, such
conversion shall be deemed to have been effected and the Conversion Price
shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the
certificate or certifi cates for such share or shares shall have been
surrendered as aforesaid, and at such time the rights of the holder of such
share or shares of Series A Preferred Stock shall cease, and the person or
persons in whose name or names any certificate or certificates for shares
of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented
thereby.
3C. Fractional Shares; Dividends; Partial Conversion. No fractional
------------------------------------------------
shares shall be issued upon conversion of the Series A Preferred Stock into
Common Stock and the number of shares of Common Stock to be issued shall be
rounded to the nearest whole share, and no payment or adjustment shall be
made upon any conversion on account of any cash dividends on the Series A
Preferred Stock so converted or the Common Stock issued upon such
conversion. In case the number of shares of Series A Preferred Stock
represented by the certificate or certificates surrendered pursuant to
subparagraph 3A exceeds the number of shares converted, the Corporation
shall, upon such conversion, execute and deliver to the holder thereof, at
the expense of the Corporation, a new certificate or certificates for the
number of shares of Series A Preferred Stock, represented by the
certificate or certificates surrendered which are not to be converted.
3D. Adjustment of Price Upon Issuance of Common Shares. Except as
--------------------------------------------------
provided in subparagraph 3E hereof, if and whenever the Corporation shall
issue or sell, or is, in accordance with subparagraphs 3D(1) through 3D(7),
deemed to have issued or sold, any shares ("Additional Common Shares") of
its Common Stock without consider ation or for a consideration per share
less than the Conversion Price in effect immediately prior to the time of
such issue or sale, then, the Conversion Price shall be reduced,
concurrently with such issue or sale, to a price (calculated to the nearest
cent) determined by dividing (x) an amount equal to the aggregate
consideration received by the Corpora tion upon such issue or sale, by (y)
the total number of Additional Common Shares so
3
<PAGE>
issued or sold. In the event that any Additional Common Shares are issued
or sold without consideration, then the consideration per share shall be
deemed to be $.01.
No adjustment of the Conversion Price, however, shall be made in an
amount less than $.01 per share, and any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried
forward shall amount to $.01 per share or more.
For purposes of this subparagraph 3D, the following subparagraphs
3D(1) to 3D(7) shall also be applicable:
3D(1). Issuance of Rights or Options. In case at any time the
-----------------------------
Corporation shall in any manner grant (whether directly or by assumption in
a merger or otherwise) any rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such rights or options
being herein called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities") whether or not
such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by the
Corporation as consider ation for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the case of
such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or sale
of such Convert ible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of
such Options) shall be less than the Conversion Price in effect immediately
prior to the time of the granting of such Options, then the total maximum
number of shares of Common Stock issuable upon the exercise of such Options
or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the date of
granting of such Options and thereafter shall be deemed to be outstanding.
Except as otherwise provided in subparagraph 3D(3), no adjustment of the
Conversion Price shall be made upon the actual issue of such Common Stock
or of such Convertible Securities upon exercise of such Options or upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
3D(2). Issuance of Convertible Securities. In case the Corporation
----------------------------------
shall in any manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert thereunder are
4
<PAGE>
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) the
total amount received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the
Conversion Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be deemed
to have been issued for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall be deemed to be
outstanding, provided that (a) except as otherwise provided in subparagraph
3D(3) below, no adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any Option to purchase any
such Convertible Securities for which adjustments of the Conversion Price
have been or are to be made pursuant to other provisions of this
subparagraph 3D, no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
3D(3). Change in Option Price or Conversion Rate. Upon the happening
-----------------------------------------
of any of the following events, namely, if the purchase price provided for
in any Option referred to in subparagraph 3D(1), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraph 3D(1) or 3D(2), or the
rate at which any Convertible Securities referred to in subparagraph 3D(1)
or 3D(2) are convertible into or exchangeable for Common Stock shall change
at any time (in each case other than under or by reason of provisions
designed to protect against dilution), the Conversion Price in effect at
the time of such event shall forthwith be readjusted to the Conversion
Price which would have been in effect at such time had such Options or Con
vertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at
the time initially granted, issued or sold; and on the expiration of any
such Option or the termination of any such right to convert or exchange
such Convertible Securities, the Conversion Price then in effect hereunder
shall forthwith be increased to the Conversion Price which would have been
in effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If the purchase
price provided for in any such Option referred to in subparagraph 3D(1) or
the rate at which any Convertible Securities referred to in subpara graph
3D(1) or 3D(2) are convertible into or exchangeable for Common Stock shall
be reduced at any time under or by reason of provisions with respect
thereto designed to protect against dilution, then, in case of the delivery
of Common Stock upon the exercise of any such Option or upon conversion or
exchange of any such Convertible Securities, the Conversion Price then in
effect hereunder shall forthwith be adjusted to such respec-
5
<PAGE>
tive amount as would have been obtained had such Option or Convertible
Securities never been issued as to such Common Stock and had adjustments
been made upon the issuance of the shares of Common Stock delivered as
aforesaid, but only if as a result of such adjustment the Conversion Price
then in effect hereunder is thereby reduced.
3D(4). Stock Dividends. In case the Corporation shall declare a
---------------
dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock, Options or Convertible Securities, any Common
Stock, Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been
issued or sold without consideration and the Conversion Price then in
effect immediately prior to such dividend declaration or distribution shall
be reduced as if the Corporation had subdivided its outstanding shares of
Common Stock into a greater number of shares as provided in subparagraph
3D(5).
3D(5). Subdivision or Combination of Stock. In case the Corporation
-----------------------------------
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares or shall declare or pay a dividend on its
outstanding shares of Common Stock payable in shares of Common Stock, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Corporation shall be combined into a smaller number of
shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
3D(6). Consideration for Stock. In case any shares of Common Stock,
-----------------------
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received
by the Corporation therefor, without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Corporation in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors of
the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. The amount of consideration deemed to be received
by the Corporation pursuant to the foregoing provisions of this
subparagraph 3D(6) upon any issuance and/or sale of shares of Common Stock,
Options or Convertible Securities, pursuant to an established compensation
plan of the Corporation, to directors, officers or employees of the
Corporation in connection with their employment shall be increased by the
amount of any tax benefit realized by the Corporation as a result of such
issuance and/or sale, the amount of such tax benefit being the amount by
which the Federal and/or state income or other tax liability of the
Corporation shall be reduced by reason of any deduction or credit in
respect of such issuance and/or sale. In case any Options shall be issued
in connection with the issue and sale of other securities of the
Corporation, to-
6
<PAGE>
gether comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto, such
Options shall be deemed to have been issued without consideration.
3D(7). Record Date. In case the Corporation shall take a record of
-----------
the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options
or Convertible Securities, or (ii) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
3E. Certain Issues of Common Stock Excepted. Anything herein to the
---------------------------------------
contrary notwithstanding, the Corporation shall not make any adjustment of
the Conver sion Price in the case of (i) the issuance of shares of Common
Stock upon conversion of Series A Preferred Stock and (ii) the issuance of
up to 2,500,000 shares of Common Stock reserved for issuance to employees,
officers, directors and consultants of the Corporation pursuant to stock
options granted pursuant to a plan approved by the Board of Directors of
the Corporation.
3F. Reorganization or Reclassification. If any capital
----------------------------------
reorganization or reclassification of the capital stock of the Corporation
shall be effected in such a way (including, without limitation, by way of
consolidation or merger) that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for
Common Stock, then, as a condition of such reorganization or
reclassification, lawful and adequate provision (in form satisfactory to
the holders of at least 66-2/3% of the outstanding shares of Series A
Preferred Stock) shall be made whereby each holder of a share or shares of
Series A Preferred Stock shall thereafter have the right to receive, upon
the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock of the Corporation immediately theretofore
receivable upon the conver sion of such share or shares of the Series A
Preferred Stock, such shares of stock, securi ties or assets as may be
issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of
such stock immediately theretofore so receivable had such reorganization or
reclassification not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of such
holder to the end that the provisions hereof (including without limita
tion provisions for adjustments of the Conversion Price) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliver able upon the exercise of such
conversion rights (including an immediate adjustment, by reason of such
reorganization or reclassification, of the Conversion Price to the value
for the Common Stock reflected by the terms of such reorganization or
reclassification if the value so reflected is less than the Conversion
7
<PAGE>
Price in effect immediately prior to such reorganization or
reclassification). In the event of a merger or consolidation of the
Corporation as a result of which a greater or lesser number of shares of
common stock of the surviving corporation are issuable to holders of Common
Stock of the Corporation outstanding immediately prior to such merger or
consolidation, the Conversion Price in effect immediately prior to such
merger or consolidation shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of Common
Stock of the Corporation. The Corporation will not effect any such
consolida tion or merger, or any sale of all or substantially all its
assets and properties, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) re sulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument (in form reasonably satisfactory to the
holders of at least 66-2/3% of the shares of Series A Preferred Stock at
the time outstanding) executed and mailed or delivered to each holder of
shares of Series A Preferred Stock at the last address of such holder
appearing on the books of the Corporation, the obligation to deliver to
such holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to receive.
3G. Notice of Adjustment. Upon any adjustment of the Conversion
--------------------
Price, then and in each such case the Corporation shall give written notice
thereof, by first class mail, postage prepaid, addressed to each holder of
shares of Series A Preferred Stock at the address of such holder as shown
on the books of the Corporation, which notice shall state the Conversion
Price resulting from such adjustment, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is
based.
3H. Other Notices. In case at any time:
-------------
(1) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(2) the Corporation shall offer for subscription pro rata to the
--- ----
holders of its Common Stock any additional shares of stock of any class or
other rights;
(3) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with, or a sale of all or substantially all its assets to,
another corporation; or
(4) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by
first class mail, postage prepaid, addressed to each holder of any shares
of Series A Preferred Stock at the
8
<PAGE>
address of such holder as shown on the books of the Corporation, (a) at
least 15 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determin ing rights to vote in
respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, and (b) in the case
of any such reor ganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least 15 days' prior written
notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in the case of
any such dividend, distribution or subscription rights, the date on which
the holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (b) shall also specify the date on
which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
3I. Mandatory Conversion. The Series A Preferred Stock shall be
--------------------
automatically converted if at any time the Corporation shall effect an
initial public offering (an "Initial Public Offering") of shares of its
Common Stock registered under the Securities Act of 1933, as amended, in
which (i) the aggregate net proceeds to the Corporation are at least
$5,000,000 and (ii) the per share price to the public is not less than
$3.00 (appropriately adjusted for any stock splits, combinations or stock
dividends); such conversion shall be effected at the time of and subject to
the closing of the sale of such shares.
3J. Stock to be Reserved. The Corporation will at all times reserve
--------------------
and keep available out of its authorized but unissued Common Stock, solely
for the purpose of issuance upon the conversion of the Series A Preferred
Stock as herein provided, such number of shares of Common Stock as shall
then be issuable upon the conversion of all outstanding shares of Series A
Preferred Stock. All shares of Common Stock which shall be so issued shall
be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges arising out of or by reason of the issue
thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action
as may be requisite to assure that the par value per share of the Common
Stock is at all times equal to or less than the effective Conversion Price.
The Corporation will take all such action within its control as may be
necessary on its part to assure that all such shares of Common Stock may be
so issued without violation of any applicable law or regulation, or of any
requirements of any national securities exchange upon which the Common
Stock of the Corporation may be listed. The Corporation will not take any
action which results in any adjustment of the Conversion Price if after
such action the total number of shares of Common Stock issued and
outstanding and thereafter issuable upon exercise of all options and
conversion of Convertible Securities, including upon conversion of the
Series A Preferred Stock, would exceed the total number of shares of Common
Stock then authorized by the Corporation's Certificate of Incorporation.
9
<PAGE>
3K. No Reissuance of Series A Preferred Stock. Shares of Series A
-----------------------------------------
Preferred Stock that are converted into shares of Common Stock as provided
herein shall not be reissued.
3L. Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon conversion of the Series A Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series A Preferred Stock which is being converted.
3M. Closing of Books. The Corporation will at no time close its
----------------
transfer books against the transfer of any Series A Preferred Stock or of
any shares of Common Stock issued or issuable upon the conversion of any
shares of Series A Preferred Stock in any manner which interferes with the
timely conversion of such Series A Preferred Stock.
3N. Definition of Common Stock. As used in this paragraph 3, the
--------------------------
term "Common Stock" shall mean and include the Corporation's authorized
Common Stock as constituted on the date of filing of this Certificate of
Designation and shall also include any capital stock of any class of the
Corporation thereafter authorized that shall not be limited to a fixed sum
in respect of the rights of the holders thereof to participate in dividends
or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; provided,
--------
however, that such term, when used to describe the securities receivable
-------
upon conversion of shares of the Series A Preferred Stock of the
Corporation, shall include only shares designated as Common Stock of the
Corporation on the date of filing of this Certificate of Designation, any
shares resulting from any combina tion or subdivision thereof referred to
in subparagraph 3D(5), or in case of any reorganiza tion or
reclassification of the outstanding shares thereof, the stock, securities
or assets provided for in subparagraph 3F.
4. Voting - Series A Preferred Stock. Except as otherwise provided
---------------------------------
by law and this Certificate of Incorporation, the holders of Series A
Preferred Stock shall vote together with the holders of Common Stock on all
matters to be voted on by the share holders of the Corporation, and each
holder of Series A Preferred Stock shall be entitled to one vote for each
share of Common Stock that would be issuable to such holder upon the
conversion of all the shares of Series A Preferred Stock held by such
holder on the record date for the determination of shareholders entitled to
vote.
5. Restrictions. At any time when shares of Series A Preferred Stock
------------
are out standing, and in addition to any other vote of shareholders
required by law or by the Certificate of Incorporation, without the prior
consent of the holders of a majority of the outstanding Series A Preferred
Stock, given in person or by proxy, either in writing or at a
10
<PAGE>
special meeting called for that purpose, at which meeting the holders of
the shares of such Series A Preferred Stock shall vote together as a class:
(i) the Corporation will not (y) create or authorize the creation
of any additional class of shares unless the same ranks junior to or on
parity with the Series A Preferred Stock as to the distribution of assets
on liquidation, or (z) increase the authorized amount of the Series A
Preferred Stock, or increase the authorized amount of any additional class
of shares unless the same ranks junior to or on parity with the Series A
Preferred Stock as to the distribution of assets on liquida tion, in each
case whether any such creation or authorization or increase shall be by
means of amendment of the Certificate of Incorporation, merger,
consolidation or otherwise;
(ii) the Corporation will not amend, alter or repeal the
Corporation's Certificate of Incorporation or By-laws in any manner, or
file any directors' resolutions pursuant to Delaware General Corporation
Law containing any provision, in either case which affects the respective
preferences, voting power, qualifications, special or relative rights or
privileges of the Series A Preferred Stock or the holders thereof; and
(iii) the Corporation will not declare, or set aside funds for
the payment of, a cash dividend on Common Stock in contemplation of
the liquidation, dissolution or winding up of the Corporation.
6. No Waiver. Except as otherwise modified or provided for herein,
---------
the holders of Series A Preferred Stock shall also be entitled to, and
shall not be deemed to have waived, any other applicable rights granted to
such holders under the Delaware General Corporation Law.
7. No Impairment. The Corporation will not, through any
-------------
reorganization, transfer of assets, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation but will at all time in good faith assist in
the carrying out of all the provisions of this Article Fourth and in the
taking of all such action as may be necessary or appropriate in order to
protect the conversion rights and liquidation preferences granted hereunder
of the holders of the Series A Preferred Stock against impairment."
11
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations has been executed
by the Corporation by its President as of this 2nd day of July, 1998.
WIT CAPITAL GROUP, INC.
By /s/ Ronald Readmond
-------------------------
Ronald Readmond
President
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B PREFERRED STOCK
OF
WIT CAPITAL GROUP, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
___________________________________________
WIT CAPITAL GROUP, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that,
pursuant to authority vested in the Board of Directors of the Corporation by
Article Fourth of the Certificate of Incorporation of the Corporation, the
following resolution was adopted as of July 2, 1998 by the Board of Directors of
the Corporation pursuant to Section 141 of the Delaware General Corpora tion
Law:
"RESOLVED that, pursuant to authority vested in the Board of Directors
of the Corporation by Article Fourth of the Corporation's Certificate of
Incorporation of the total authorized number of 30,000,000 shares of Preferred
Stock, par value $.01 per share, of the Corporation, there shall be designated a
series of 3,000,000 shares which shall be issued in and constitute a single
series to be known as "Series B Preferred Stock" (hereinafter called the "Series
B Preferred Stock"). The shares of Series B Preferred Stock shall have the
voting powers, designations, preferences and other special rights, and
qualifications, limitations and re strictions thereof set forth below:
1. Dividends. The holders of Series B Preferred Stock shall not be
---------
entitled to receive dividends in any fixed amount, provided, however, that
-------- -------
in the event that the Corporation shall at any time pay a dividend on the
Common Stock (other than a dividend payable solely in shares of Common
Stock), it shall, at the same time, pay to each holder of Series B
Preferred Stock a dividend equal to the dividend that would have been
payable to such holder if the shares of Series B Preferred Stock held by
such holder had been converted into Common Stock on the date of
determination of holders of Common Stock entitled to receive such
dividends.
<PAGE>
2. Liquidation. Upon any liquidation, dissolution or winding up of
-----------
the Corporation, whether voluntary or involuntary, the holders of the
shares of Series B Preferred Stock shall be entitled, before any
distribution or payment is made upon any Common Stock, to be paid an amount
equal to $1.00 per share, and the holders of the Series B Preferred Stock
shall not be entitled to any further payment, such amounts being herein
sometimes referred to as the "Liquidation Payments." If upon such
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Series B Preferred Stock of the Corporation shall be insufficient to permit
payment to the holders of Series B Preferred Stock of the full amount of
the Liquidation Payments, then the entire assets of the Corporation to be
so distributed shall be distributed ratably per share among the holders of
Series B Preferred Stock in proportion to the amounts to which they
respectively are entitled. Upon any such liquidation, dissolution or
winding up of the Corporation, after the holders of the Series B Preferred
Stock shall have been paid in full the amounts to which they shall be
entitled, the remaining net assets of the Corporation shall be distributed
ratably to the holders of Common Stock. Written notice of such
liquidation, dissolution or winding up, stating a payment date, the amount
of the Liquidation Payment and the place where said sums shall be payable
shall be given by mail, postage prepaid, not less than 30 or more than 60
days prior to the payment date stated therein, to the holders of record of
the Series B Preferred Stock and the Common Stock, such notice to be
addressed to each shareholder at his post office address as shown by the
records of the Corporation. Neither the consolidation or merger of the
Corporation into or with any other corporation or corporations, nor the
sale or transfer by the Corporation of all or any part of its assets, shall
be deemed to be a liqui dation, dissolution or winding up of the
Corporation within the meaning of any of the provisions of this paragraph
2.
3. Conversion.
----------
3A Right to Convert. Subject to the terms and conditions of this
----------------
paragraph 3, the holder of any share or shares of Series B Preferred Stock
shall have the right, at its option at any time, to convert any such shares
of Series B Preferred Stock into such number of fully paid and
nonassessable whole shares of Common Stock as is obtained by multiplying
the number of shares of Series B Preferred Stock so to be converted by
$1.00 and dividing the result by the conversion price of $1.00 per share
or, if there has been an adjustment of the conversion price, by the
conversion price as last adjusted and in effect at the date any share or
shares of Series B Preferred Stock are surrendered for conversion (such
price, or such price as last adjusted, being referred to herein as the
"Conversion Price"). Such rights of conversion shall be exercised by the
holder thereof by giving written notice that the holder elects to convert a
stated number of shares of Series B Pre ferred Stock into Common Stock and
by surrender of a certificate or certificates for the shares so to be
converted to the Corporation at its principal office (or such other office
or agency of the Corporation as the Corporation may designate by notice in
writing to the holder or holders of the Series B Preferred Stock) at any
time during its usual business
2
<PAGE>
hours on the date set forth in such notice, together with a statement of
the name or names (with address), subject to compliance with applicable
laws to the extent such designation shall involve a transfer, in which the
certificate or certificates for shares of Common Stock shall be issued.
3B. Issuance of Certificates; Time Conversion Effected. Promptly
--------------------------------------------------
after the receipt by the Corporation of the written notice referred to in
subparagraph 3A and surrender of the certificate or certificates for the
share or shares of the Series B Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and delivered,
to the holder, registered in such name or names as such holder may direct,
subject to compliance with applicable laws to the extent such designation
shall involve a transfer, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Series B Preferred Stock. To the extent permitted by law, such
conversion shall be deemed to have been effected and the Conversion Price
shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the
certificate or certifi cates for such share or shares shall have been
surrendered as aforesaid, and at such time the rights of the holder of such
share or shares of Series B Preferred Stock shall cease, and the person or
persons in whose name or names any certificate or certificates for shares
of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented
thereby.
3C. Fractional Shares; Dividends; Partial Conversion. No fractional
------------------------------------------------
shares shall be issued upon conversion of the Series B Preferred Stock into
Common Stock and the number of shares of Common Stock to be issued shall be
rounded to the nearest whole share, and no payment or adjustment shall be
made upon any conversion on account of any cash dividends on the Series B
Preferred Stock so converted or the Common Stock issued upon such
conversion. In case the number of shares of Series B Preferred Stock
represented by the certificate or certificates surrendered pursuant to
subparagraph 3A exceeds the number of shares converted, the Corporation
shall, upon such conversion, execute and deliver to the holder thereof, at
the expense of the Corporation, a new certificate or certificates for the
number of shares of Series B Preferred Stock, represented by the
certificate or certificates surrendered which are not to be converted.
3D. Adjustment of Price Upon Issuance of Common Shares. Except as
--------------------------------------------------
provided in subparagraph 3E hereof, if and whenever the Corporation shall
issue or sell, or is, in accordance with subparagraphs 3D(1) through 3D(7),
deemed to have issued or sold, any shares ("Additional Common Shares") of
its Common Stock without consider ation or for a consideration per share
less than the Conversion Price in effect immediately prior to the time of
such issue or sale, then, the Conversion Price shall be reduced,
concurrently with such issue or sale, to a price (calculated to the nearest
cent) determined by dividing (x) an amount equal to the aggregate
consideration received by the Corpora tion upon such issue or sale, by (y)
the total number of Additional Common Shares so
3
<PAGE>
issued or sold. In the event that any Additional Common Shares are issued
or sold without consideration, then the consideration per share shall be
deemed to be $.01.
No adjustment of the Conversion Price, however, shall be made in an
amount less than $.01 per share, and any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried
forward shall amount to $.01 per share or more.
For purposes of this subparagraph 3D, the following subparagraphs
3D(1) to 3D(7) shall also be applicable:
3D(1). Issuance of Rights or Options. In case at any time the
-----------------------------
Corporation shall in any manner grant (whether directly or by assumption in
a merger or otherwise) any rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such rights or options
being herein called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities") whether or not
such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by the
Corporation as consider ation for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the case of
such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or sale
of such Convert ible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of
such Options) shall be less than the Conversion Price in effect immediately
prior to the time of the granting of such Options, then the total maximum
number of shares of Common Stock issuable upon the exercise of such Options
or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the date of
granting of such Options and thereafter shall be deemed to be outstanding.
Except as otherwise provided in subparagraph 3D(3), no adjustment of the
Conversion Price shall be made upon the actual issue of such Common Stock
or of such Convertible Securities upon exercise of such Options or upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
3D(2). Issuance of Convertible Securities. In case the Corporation
----------------------------------
shall in any manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert thereunder are
4
<PAGE>
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) the
total amount received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the
Conversion Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be deemed
to have been issued for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall be deemed to be
outstanding, provided that (a) except as otherwise provided in subparagraph
3D(3) below, no adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities, and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any Option to purchase any
such Convertible Securities for which adjustments of the Conversion Price
have been or are to be made pursuant to other provisions of this
subparagraph 3D, no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.
3D(3). Change in Option Price or Conversion Rate. Upon the happening
-----------------------------------------
of any of the following events, namely, if the purchase price provided for
in any Option referred to in subparagraph 3D(1), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraph 3D(1) or 3D(2), or the
rate at which any Convertible Securities referred to in subparagraph 3D(1)
or 3D(2) are convertible into or exchangeable for Common Stock shall change
at any time (in each case other than under or by reason of provisions
designed to protect against dilution), the Conversion Price in effect at
the time of such event shall forthwith be readjusted to the Conversion
Price which would have been in effect at such time had such Options or Con
vertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at
the time initially granted, issued or sold; and on the expiration of any
such Option or the termination of any such right to convert or exchange
such Convertible Securities, the Conversion Price then in effect hereunder
shall forthwith be increased to the Conversion Price which would have been
in effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If the purchase
price provided for in any such Option referred to in subparagraph 3D(1) or
the rate at which any Convertible Securities referred to in subpara graph
3D(1) or 3D(2) are convertible into or exchangeable for Common Stock shall
be reduced at any time under or by reason of provisions with respect
thereto designed to protect against dilution, then, in case of the delivery
of Common Stock upon the exercise of any such Option or upon conversion or
exchange of any such Convertible Securities, the Conversion Price then in
effect hereunder shall forthwith be adjusted to such respective amount as
would have been obtained had such Option or Convertible Securities never
been issued as to such Common Stock and had adjustments been made upon the
issuance of the shares of Common Stock delivered as aforesaid, but only if
as a result of such adjustment the Conversion Price then in effect
hereunder is thereby reduced.
5
<PAGE>
3D(4). Stock Dividends. In case the Corporation shall declare a
---------------
dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock, Options or Convertible Securities, any Common
Stock, Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been
issued or sold without consideration and the Conversion Price then in
effect immediately prior to such dividend declaration or distribution shall
be reduced as if the Corporation had subdivided its outstanding shares of
Common Stock into a greater number of shares as provided in subparagraph
3D(5).
3D(5). Subdivision or Combination of Stock. In case the Corporation
-----------------------------------
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares or shall declare or pay a dividend on its
outstanding shares of Common Stock payable in shares of Common Stock, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Corporation shall be combined into a smaller number of
shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
3D(6). Consideration for Stock. In case any shares of Common Stock,
-----------------------
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received
by the Corporation therefor, without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Corporation in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors of
the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. The amount of consideration deemed to be received
by the Corporation pursuant to the foregoing provisions of this
subparagraph 3D(6) upon any issuance and/or sale of shares of Common Stock,
Options or Convertible Securities, pursuant to an established compensation
plan of the Corporation, to directors, officers or employees of the
Corporation in connection with their employment shall be increased by the
amount of any tax benefit realized by the Corporation as a result of such
issuance and/or sale, the amount of such tax benefit being the amount by
which the Federal and/or state income or other tax liability of the
Corporation shall be reduced by reason of any deduction or credit in
respect of such issuance and/or sale. In case any Options shall be issued
in connection with the issue and sale of other securities of the
Corporation, together comprising one integral transaction in which no
specific consideration is allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued without consideration.
6
<PAGE>
3D(7). Record Date. In case the Corporation shall take a record of
-----------
the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options
or Convertible Securities, or (ii) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
3E. Certain Issues of Common Stock Excepted. Anything herein to the
---------------------------------------
contrary notwithstanding, the Corporation shall not make any adjustment of
the Conver sion Price in the case of (i) the issuance of shares of Common
Stock upon conversion of Series B Preferred Stock and (ii) the issuance of
up to 2,500,000 shares of Common Stock reserved for issuance to employees,
officers, directors and consultants of the Corporation pursuant to stock
options granted pursuant to a plan approved by the Board of Directors of
the Corporation.
3F. Reorganization or Reclassification. If any capital
----------------------------------
reorganization or reclassification of the capital stock of the Corporation
shall be effected in such a way (including, without limitation, by way of
consolidation or merger) that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for
Common Stock, then, as a condition of such reorganization or
reclassification, lawful and adequate provision (in form satisfactory to
the holders of at least 66-2/3% of the outstanding shares of Series B
Preferred Stock) shall be made whereby each holder of a share or shares of
Series B Preferred Stock shall thereafter have the right to receive, upon
the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock of the Corporation immediately theretofore
receivable upon the conversion of such share or shares of the Series B
Preferred Stock, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of
such stock immediately theretofore so receivable had such reorganization or
reclassification not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of such
holder to the end that the provisions hereof (including without limita
tion provisions for adjustments of the Conversion Price) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliver able upon the exercise of such
conversion rights (including an immediate adjustment, by reason of such
reorganization or reclassification, of the Conversion Price to the value
for the Common Stock reflected by the terms of such reorganization or
reclassification if the value so reflected is less than the Conversion
7
<PAGE>
Price in effect immediately prior to such reorganization or
reclassification). In the event of a merger or consolidation of the
Corporation as a result of which a greater or lesser number of shares of
common stock of the surviving corporation are issuable to holders of Common
Stock of the Corporation outstanding immediately prior to such merger or
consolidation, the Conversion Price in effect immediately prior to such
merger or consolidation shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of Common
Stock of the Corporation. The Corporation will not effect any such
consolidation or merger, or any sale of all or substantially all its
assets and properties, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) re sulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument (in form reasonably satisfactory to the
holders of at least 66-2/3% of the shares of Series B Preferred Stock at
the time outstanding) executed and mailed or delivered to each holder of
shares of Series B Preferred Stock at the last address of such holder
appearing on the books of the Corporation, the obligation to deliver to
such holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to receive.
3G. Notice of Adjustment. Upon any adjustment of the Conversion
--------------------
Price, then and in each such case the Corporation shall give written notice
thereof, by first class mail, postage prepaid, addressed to each holder of
shares of Series B Preferred Stock at the address of such holder as shown
on the books of the Corporation, which notice shall state the Conversion
Price resulting from such adjustment, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is
based.
3H. Other Notices. In case at any time:
-------------
(1) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(2) the Corporation shall offer for subscription pro rata to the
--- ----
holders of its Common Stock any additional shares of stock of any class or
other rights;
(3) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with, or a sale of all or substantially all its assets to,
another corporation; or
(4) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by
first class mail, postage prepaid, addressed to each holder of any shares
of Series B Preferred Stock at the
8
<PAGE>
address of such holder as shown on the books of the Corporation, (a) at
least 15 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, and (b) in the case
of any such reor ganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least 15 days' prior written
notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in the case of
any such dividend, distribution or subscription rights, the date on which
the holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (b) shall also specify the date on
which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
3I. Mandatory Conversion. The Series B Preferred Stock shall be
--------------------
automatically converted if at any time the Corporation shall effect an
initial public offering (an "Initial Public Offering") of shares of its
Common Stock registered under the Securities Act of 1933, as amended, in
which (i) the aggregate net proceeds to the Corporation are at least
$5,000,000 and (ii) the per share price to the public is not less than
$3.00 (appropriately adjusted for any stock splits, combinations or stock
dividends); such conversion shall be effected at the time of and subject to
the closing of the sale of such shares.
3J. Stock to be Reserved. The Corporation will at all times reserve
--------------------
and keep available out of its authorized but unissued Common Stock, solely
for the purpose of issuance upon the conversion of the Series B Preferred
Stock as herein provided, such number of shares of Common Stock as shall
then be issuable upon the conversion of all outstanding shares of Series B
Preferred Stock. All shares of Common Stock which shall be so issued shall
be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges arising out of or by reason of the issue
thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action
as may be requisite to assure that the par value per share of the Common
Stock is at all times equal to or less than the effective Conversion Price.
The Corporation will take all such action within its control as may be
necessary on its part to assure that all such shares of Common Stock may be
so issued without violation of any applicable law or regulation, or of any
requirements of any national securities exchange upon which the Common
Stock of the Corporation may be listed. The Corporation will not take any
action which results in any adjustment of the Conversion Price if after
such action the total number of shares of Common Stock issued and
outstanding and thereafter issuable upon exercise of all options and
conversion of Convertible Securities, including upon conversion of the
Series B Preferred Stock, would exceed the total number of shares of Common
Stock then authorized by the Corporation's Certificate of Incorporation.
9
<PAGE>
3K. No Reissuance of Series B Preferred Stock. Shares of Series B
-----------------------------------------
Preferred Stock that are converted into shares of Common Stock as provided
herein shall not be reissued.
3L. Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon conversion of the Series B Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series B Preferred Stock which is being converted.
3M. Closing of Books. The Corporation will at no time close its
----------------
transfer books against the transfer of any Series B Preferred Stock or of
any shares of Common Stock issued or issuable upon the conversion of any
shares of Series B Preferred Stock in any manner which interferes with the
timely conversion of such Series B Preferred Stock.
3N. Definition of Common Stock. As used in this paragraph 3, the
--------------------------
term "Common Stock" shall mean and include the Corporation's authorized
Common Stock as constituted on the date of filing of this Certificate of
Designation and shall also include any capital stock of any class of the
Corporation thereafter authorized that shall not be limited to a fixed sum
in respect of the rights of the holders thereof to participate in dividends
or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; provided,
--------
however, that such term, when used to describe the securities receivable
-------
upon conversion of shares of the Series B Preferred Stock of the
Corporation, shall include only shares designated as Common Stock of the
Corporation on the date of filing of this Certificate of Designation, any
shares resulting from any combina tion or subdivision thereof referred to
in subparagraph 3D(5), or in case of any reorganiza tion or
reclassification of the outstanding shares thereof, the stock, securities
or assets provided for in subparagraph 3F.
4. Voting - Series B Preferred Stock. Except as otherwise provided
---------------------------------
by law and this Certificate of Incorporation, the holders of Series B
Preferred Stock shall vote together with the holders of Common Stock on all
matters to be voted on by the share holders of the Corporation, and each
holder of Series B Preferred Stock shall be entitled to one vote for each
share of Common Stock that would be issuable to such holder upon the
conversion of all the shares of Series B Preferred Stock held by such
holder on the record date for the determination of shareholders entitled to
vote.
5. Restrictions. At any time when shares of Series B Preferred Stock
------------
are out standing, and in addition to any other vote of shareholders
required by law or by the Certificate of Incorporation, without the prior
consent of the holders of a majority of the outstanding Series B Preferred
Stock, given in person or by proxy, either in writing or at a
10
<PAGE>
special meeting called for that purpose, at which meeting the holders of
the shares of such Series B Preferred Stock shall vote together as a class:
(i) the Corporation will not (y) create or authorize the creation
of any additional class of shares unless the same ranks junior to or on
parity with the Series B Preferred Stock as to the distribution of assets
on liquidation, or (z) increase the authorized amount of the Series B
Preferred Stock, or increase the authorized amount of any additional class
of shares unless the same ranks junior to or on parity with the Series B
Preferred Stock as to the distribution of assets on liquidation, in each
case whether any such creation or authorization or increase shall be by
means of amendment of the Certificate of Incorporation, merger,
consolidation or otherwise;
(ii) the Corporation will not amend, alter or repeal the
Corporation's Certificate of Incorporation or By-laws in any manner, or
file any directors' resolutions pursuant to Delaware General Corporation
Law containing any provision, in either case which affects the respective
preferences, voting power, qualifications, special or relative rights or
privileges of the Series B Preferred Stock or the holders thereof; and
(iii) the Corporation will not declare, or set aside funds for
the payment of, a cash dividend on Common Stock in contemplation of the
liquidation, dissolution or winding up of the Corporation.
6. No Waiver. Except as otherwise modified or provided for herein,
---------
the holders of Series B Preferred Stock shall also be entitled to, and
shall not be deemed to have waived, any other applicable rights granted to
such holders under the Delaware General Corporation Law.
7. No Impairment. The Corporation will not, through any
-------------
reorganization, transfer of assets, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation but will at all time in good faith assist in
the carrying out of all the provisions of this Article Fourth and in the
taking of all such action as may be necessary or appropriate in order to
protect the conversion rights and liquidation preferences granted hereunder
of the holders of the Series B Preferred Stock against impairment.
8. Pari Passu Treatment. Except as and to the extent expressly set
--------------------
forth hereinabove, each of the Series B Preferred Stock and the Series A
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"),
of the Corporation shall be pari passu to the other in all respects,
provided, however, that with respect to voting rights, the
-------- -------
11
<PAGE>
holders of Series A Preferred Stock and the holders of Series B Preferred
Stock shall vote as separate classes on all matters for which such holders
are entitled to vote."
IN WITNESS WHEREOF, this Certificate of Designations has been executed
by the Corporation by its President as of this 2nd day of July, 1998.
WIT CAPITAL GROUP, INC.
By /s/ Ronald Readmond
-----------------------
Ronald Readmond
President
12
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES C PREFERRED STOCK
OF
WIT CAPITAL GROUP, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
_________________________________________
WIT CAPITAL GROUP, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that,
pursuant to authority vested in the Board of Directors of the Corporation by
Article Fourth of the Certificate of Incorporation of the Corporation, the
following resolution was adopted as of September __, 1998 by the Board of
Directors of the Corporation pursuant to Section 141 of the Delaware General
Corporation Law:
"RESOLVED that, pursuant to authority vested in the Board of
Directors of the Corporation by Article Fourth of the Corporation's Certificate
of Incorporation of the total authorized number of 30,000,000 shares of
Preferred Stock, par value $.01 per share, of the Corporation, there shall be
designated a series of 7,445,000 shares which shall be issued in and constitute
a single series to be known as "Series C Preferred Stock" (hereinafter called
the "Series C Preferred Stock"). The shares of Series C Preferred Stock shares
have the voting powers, designations, preferences and other special rights, and
qualifications, limitations and restrictions thereof set forth below:
1. Dividends. The holders of Series C Preferred Stock shall not be
---------
entitled to receive dividends in any fixed amount, provided, however, that
-------- -------
in the event that the Corporation shall at any time pay a dividend on the
Common Stock (other than a dividend payable solely in shares of Common
Stock), it shall, at the same time, pay to each holder of Series C
Preferred Stock a dividend equal to the dividend that would have been
payable to such holder if the shares of Series C Preferred Stock held by
such holder had been converted into Common Stock on the date of
determination of holders of Common Stock entitled to receive such
dividends.
2. Liquidation. Upon any liquidation, dissolution or winding up of
-----------
the Corporation, whether voluntary or involuntary, the holders of the
shares of Series C Preferred Stock shall be entitled, before any
distribution or payment is made upon any Common Stock, Series A Preferred
Stock or Series B Preferred Stock, to be paid an
<PAGE>
amount equal to $1.00 per share (appropriately adjusted to reflect the
occurrence of any stock split, stock dividend, stock combination, stock
subdivision or like occurrences) plus any declared and unpaid dividends
(the "Series C Preferred Liquidation Preference") payable with respect to
such share under Section 1 before any distributions shall be made to the
holders of the Series A Preferred Stock, the Series B Preferred Stock, the
Common Stock or any other class of capital stock of the Corporation
ranking junior to the Series C Preferred Stock. If upon such liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of Series C
Preferred Stock of the Corporation shall be insufficient to permit payment
to the holders of Series C Preferred Stock of the full amount of the
Liquidation Payments, then the entire assets of the Corporation to be so
distributed shall be distributed ratably per share among the holders of
Series C Preferred Stock in proportion to the amounts to which they
respectively are entitled. Upon any such liquidation, dissolution or
winding up of the Corporation after the holders of the Series C Preferred
Stock shall have been paid in full the amounts to which they shall be
entitled, and after the holders of the Series A Preferred Stock and the
Series B Preferred Stock shall have been paid in full in accordance with
the rights and preferences to which they are entitled, the remaining net
assets of the Corporation shall be distributed ratably and exclusively to
the holders of Common Stock. Written notice of such liquidation,
dissolution or winding up, stating a payment date, the amount of the
Liquidation Payment and the place where said sums shall be payable shall
be given by mail, postage prepaid, not less than 30 or more than 60 days
prior to the payment date stated therein, to the holders of record of the
Series C Preferred Stock and the Common Stock, such notice to be addressed
to each shareholder at his post office address as shown by the records of
the Corporation. Unless waived in writing by the holders of 66-2/3% of the
Series C Preferred Stock, a consolidation or merger of the Corporation
into or with any other corporation or corporations, or the sale or
transfer by the Corporation of all or substantially all of its assets, in
each case under circumstances in which the holders of a majority in voting
power of the outstanding capital stock of the Corporation, immediately
prior to such a merger, consolidation or sale, own less than a majority in
voting power of the outstanding capital stock of the corporation or the
surviving or resulting corporation or acquirer, as the case may be,
immediately following such a merger, consolidation or sale (each such
transaction being hereinafter referred to as a "Corporate Transaction").
3. Conversion.
----------
3A. Right to Convert. Subject to the terms and conditions of this
----------------
paragraph 3, the holder of any share or shares of Series C Preferred Stock
shall have the right, at its option at any time, to convert any such
shares of Series C Preferred Stock into such number of fully paid and
nonassessable whole shares of Common Stock as is obtained by multiplying
the number of shares of Series C Preferred Stock so to be converted by
$1.00 and dividing the result by the conversion price of $1.00 per share
or, if there has been an adjustment of the conversion price, by the
conversion price as last adjusted and in effect at the date any share or
shares of Series C Preferred Stock are surrendered
2
<PAGE>
for conversion (such price, or such price as last adjusted, being referred
to herein as the "'Conversion Price"). Such rights of conversion shall be
exercised by the holder thereof by giving written notice that the holder
elects to convert a stated number of shares of Series C Preferred Stock
into Common Stock and by surrender of a certificate or certificates for
the shares so to be converted to the Corporation at its principal office
(or such other office or agency of the Corporation as the Corporation may
designate by notice in writing to the holder or holders of the Series C
Preferred Stock) at any time during its usual business hours on the date
set forth in such notice, together with a statement of the name or names
(with address), subject to compliance with applicable laws to the extent
such designation shall involve a transfer, in which the certificate or
certificates for shares of Common Stock shall be issued.
3B. Issuance of Certificates; Time Conversion Effected. Promptly
--------------------------------------------------
after the receipt by the Corporation of the written notice referred to in
subparagraph 3A and surrender of the certificate or certificates for the
share or shares of the Series C Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and delivered,
to the holder, registered in such name or names as such holder may direct,
subject to compliance with applicable laws to the extent such designation
shall involve a transfer, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Series C Preferred Stock. To the extent permitted by law, such
conversion shall be deemed to have been effected and the Conversion Price
shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the
certificate or certificates for such share or shares shall have been
surrendered as aforesaid, and at such time the rights of the holder of
such share or shares of Series C Preferred Stock shall cease, and the
person or persons in whose name or names any certificate or certificates
for shares of Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the shares
represented thereby.
3C. Fractional Shares; Dividends; Partial Conversion. No
------------------ -----------------------------
fractional shares shall be issued upon conversion of the Series C
Preferred Stock into Common Stock and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share, and no payment
or adjustment shall be made upon any conversion on account of any cash
dividends on the Series C Preferred Stock so converted or the Common Stock
issued upon such conversion. In case the number of shares of Series C
Preferred Stock represented by the certificate or certificates surrendered
pursuant to subparagraph 3A exceeds the number of shares converted, the
Corporation shall upon such conversion, execute and deliver to the holder
thereof, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Series C Preferred Stock
represented by the certificate or certificates surrendered which are not
to be converted.
3D. Adjustment of Price Upon Issuance. If and at any time or from
---------------------------------
time to time, after the Original Issuance Date for the Series C Preferred
Stock and prior to the
3
<PAGE>
consummation of a Qualified Offering (as hereinafter defined), the
Corporation shall issue or sell, or is, in accordance with subparagraphs
3D(l) through 3D(7), deemed to have issued or sold, any shares
("Additional Common Shares") of its Common Stock other than Excluded Stock
(as defined hereinafter) without consideration or for a consideration per
share less than the Conversion Price in effect immediately prior to the
time of such issue or sale, then the Conversion Price shall be reduced,
concurrently with issue or sale, to a price equal to the price paid (or
deemed to have been paid) per share for such Additional Common Shares. If
the Corporation shall at any time after a Qualified Offering issue or
sell, or is, in accordance with subparagraphs 3D(l) through 3D(7) below,
deemed to have issued or sold, any Additional Common Shares other than
Excluded Stock without consideration or for a consideration per share less
than the Conversion Price in effect immediately prior to the time of such
issue or sale, then the Conversion Price in effect immediately prior to
each such issuance shall be reduced, concurrently with such issue or sale,
to a price equal to the quotient obtained by dividing: (A) an amount equal
to the sum of (x) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued pursuant
to subparagraphs 3D (1) through 3D (7) below) immediately prior to such
issuance, multiplied by the applicable Conversion Price in effect
immediately prior to such issuance of Additional Common Shares, and (y)
the consideration received by the Corporation upon such issuance; by (B)
the total number of shares of Common Stock outstanding (including any
shares of Common Stock deemed to have been issued pursuant to
subparagraphs 3D (1) through 3D (7) below) immediately after such issuance
of the Additional Comon Shares. As used herein, the term "Qualified
Offering" shall mean the consummation by the Corporation of any equity
financing, in a single transaction or series or related transactions,
yielding aggregate gross proceeds to the Corporation of at least
$15,000,000, at a price per share of at least $3.00 (appropriately
adjusted to reflect the occurrence of any stock split, stock dividend,
stock combination, stock subdivision or like occurrences).
No adjustment of the Conversion Price, however, shall be made in an
amount less than $.01 per share, and any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried
forward shall amount to $.01 per share or more.
For purposes of this subparagraph 3D, the following subparagraphs
3D(l) to 3D(7) shall also be applicable:
3D(l). Issuance of Rights or Options. In case at any time the
-----------------------------
Corporation shall in any manner grant (whether directly or by assumption
in a merger or otherwise) any rights to subscribe for or to purchase, or
any option for the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such rights or options
being herein called "Options" and such convertible or exchangeable stock
or securities being herein called "Convertible Securities") whether or not
such Options or the right to convert or exchange any such Convertible
4
<PAGE>
Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the case of
such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or sale
of such Convertible Securities and upon the conversion or exchange thereof
by (ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options)
shall be less than the Conversion Price in effect immediately prior to the
time of the granting of such Options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to
have been issued for such price per share as of the date of granting of
such Options and thereafter shall be deemed to be outstanding. Except as
otherwise provided in subparagraph 3D(3), no adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such Options or upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities.
3D(2). Issuance of Convertible Securities. In case the Corporation
----------------------------------
shall in any manner issue (whether directly or by assumption in a merger
or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the issue
or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof by (ii) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issue or sale of
such Convertible Securities and thereafter shall be deemed to be
outstanding, provided that (a) except as otherwise provided in
subparagraph 3D(3) below, no adjustment of the Conversion Price shall be
made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities, and (b) if any such issue or sale
of such Convertible Securities is made upon exercise of any Option to
purchase any such Convertible Securities for which adjustments of the
Conversion Price have been or are to be made pursuant to other provisions
of this subparagraph 3D, no further adjustment of the Conversion Price
shall be made by reason of such issue or sale.
5
<PAGE>
3D(3). Change in Option Price or Conversion Rate. Upon the
-----------------------------------------
happening of any of the following events after December 31, 1998, namely,
if the purchase price provided for in any Option referred to in
subparagraph 3D(l), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
subparagraph 3D(l) or 3D(2), or the rate at which any Convertible
Securities referred to in subparagraph 3D(l) or 3D(2) are convertible into
or exchangeable for Common Stock shall change at any time (in each case
other than under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such event shall
forthwith be readjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold; and on the expiration of any such
Option or the termination of any such right to convert or exchange such
Convertible Securities, the Conversion Price then in effect hereunder
shall forthwith be increased to the Conversion Price which would have been
in effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination never been issued, and the Common Stock
issuable thereunder shall no longer be deemed to be outstanding. If the
purchase price provided for in any such Option referred to in subparagraph
3D(l) or the rate at which any Convertible Securities referred to in
subparagraph 3D(l) or 3D(2) are convertible into or exchangeable for
Common Stock shall be reduced at any time under or by reason of provisions
with respect thereto designed to protect against dilution, then, in case
of the delivery of Common Stock upon the exercise of any such Option or
upon conversion or exchange of any such Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be adjusted to
such respective amount as would have been obtained had such Option or
Convertible Securities never been issued as to such Common Stock and had
adjustments been made upon the issuance of the shares of Common Stock
delivered as aforesaid, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced.
3D(4). Stock Dividends. In case the Corporation shall declare a
---------------
dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock, Options or Convertible Securities, any Common
Stock, Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been
issued or sold without consideration and the Conversion Price then in
effect immediately prior to such dividend declaration or distribution
shall be reduced as if the Corporation had subdivided its outstanding
shares of Common Stock into a greater number of shares as provided in
subparagraph 3D(5).
3D(5). Subdivision or Combination of Stock. In case the Corporation
-----------------------------------
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares or shall deduct or pay a dividend on its
outstanding shares of Common Stock payable in shares of Common Stock, the
Conversion Price in effect immediately prior
6
<PAGE>
to such subdivision shall be proportionately reduced, and conversely, in
case the outstanding shares of Common Stock of the Corporation shall be
combined into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased.
3D(6). Consideration for Stock. In case any shares of Common Stock,
-----------------------
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received
by the Corporation therefor, without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Corporation in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors
of the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. The amount of consideration deemed to be
received by the Corporation pursuant to the foregoing provisions of this
subparagraph 3D(6) upon any issuance and/or sale of shares of Common
Stock, Options or Convertible Securities, pursuant to an established
compensation plan of the Corporation, to directors, officers or employees
of the Corporation in connection with their employment shall be increased
by the amount of any tax benefit realized by the Corporation as a result
of such issuance and/or sale, the amount of such tax benefit being the
amount by which the Federal and/or state income or other tax liability of
the Corporation shall be reduced by reason of any deduction or credit in
respect of such issuance and/or sale. In case any Options shall be issued
in connection with the issue and sale of other securities of the
Corporation, together comprising one integral transaction in which no
specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without
consideration.
3D(7). Record Date. In case the Corporation shall take a record of
-----------
the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options
or Convertible Securities, or (ii) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.
3E. Excluded Stock. As used herein, the term "Excluded Stock" shall
--------------
mean (i) shares of Common Stock issuable upon the exercise of stock
options or stock purchase rights or as restricted stock or otherwise that
have been or may be granted to officers, directors, employees or
consultants of the Corporation with the approval of the Board of
Directors, (ii) shares of Common Stock issued by the Corporation as a
stock dividend or upon any subdivision, combination or split-up of Common
Stock, (iii)
7
<PAGE>
securities issued pursuant to commercial transactions approved by the
Board of Directors (including, without limitation, equipment leases or
bank lines or credit), (iv) securities issued in connection with
acquisitions or strategic investments or corporate partnering transactions
or relationships, (v) securities issuable pursuant to the exercise of the
warrants [identify], (vi) stock subscription warrants issued or issuable
to Draper Fisher Jurvetson Fund V, L.P. and Draper Fisher Jurveston
Partners LLC pursuant to the Series C Stock Purchase Agreement dated as of
the Original Issuance Date for the Series C Preferred Stock, among the
Corporation and the other signatories thereto or any shares of Series C
Preferred Stock issuable upon exercise thereof, (vii) securities that have
been approved for issuance or grant by the holders of a majority, by
voting power, of the outstanding shares of Series C Preferred Stock or
(viii) shares of Common Stock issuable upon conversion of Series A
Preferred Stock, Series B Preferred Stock and/or Series C Preferred Stock.
3F. Reorganization or Reclassification. If any capital
----------------------------------
reorganization or reclassification of the capital stock of the Corporation
shall be effected in such a way (including, without limitation, by way of
consolidation or merger) that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for
Common Stock then, as a condition of such reorganization or
reclassification, lawful and adequate provision (in form satisfactory to
the holders of at least 66-2/3% of the outstanding shares of Series C
Preferred Stock) shall be made whereby each holder of a share or shares of
Series C Preferred Stock shall thereafter have the right to receive, upon
the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock of the Corporation immediately theretofore
receivable upon the conversion of such share or shares of the Series C
Preferred Stock, such shares of stock securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore so receivable had such reorganization or
reclassification not taken place and in any such case appropriate provision
shall be made with respect to the rights and interests of such holder to
the end that the provisions hereof (including without limitation provisions
for adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of such conversion rights
(including an immediate adjustment, by reason of such reorganization or
reclassification, of the Conversion Price to the value for the Common Stock
reflected by the terms of such reorganization or reclassification if the
value so reflected is less than the Conversion Price in effect immediately
prior to such reorganization or reclassification). In the event of a
merger or consolidation of the Corporation as a result of which a greater
or lesser number of shares of common stock of the surviving corporation are
issuable to holders of Common Stock of the Corporation outstanding
immediately prior to such merger or consolidation, the Conversion Price in
effect immediately prior to such merger or consolidation shall be adjusted
in the same manner as though there were a subdivision or combination of the
outstanding shares of Common Stock of the Corporation. The Corporation
will not effect any such consolidation or merger, or any sale of all or
substantially all its assets
8
<PAGE>
and properties, unless prior to the consummation thereof the successor
corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument (in form reasonably satisfactory to the
holders of at least 66-2/3% of the shares of Series C Preferred Stock at
the time outstanding) executed and mailed or delivered to each holder of
shares of Series C Preferred Stock at the last address of such holder
appearing on the books of the Corporation, the obligation to deliver to
such holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to receive.
3G. Notice of Adjustment. Upon any adjustment of the Conversion
--------------------
Price, then and in each such case the Corporation shall give written
notice thereof by first class mail, postage prepaid, addressed to each
holder of shares of Series C Preferred Stock at the address of such holder
as shown on the books of the Corporation, which notice shall state the
Conversion Price resulting from such adjustment, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
3H. Other Notices. In case at any time:
-------------
(1) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(2) the Corporation shall offer for subscription pro rata to the
--- ----
holders of its Common Stock any additional shares of stock of any class or
other rights;
(3) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with, or a sale of all or substantially all its assets to,
another corporation; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by
first class mail, postage prepaid, addressed to each holder of any shares
of Series C Preferred Stock at the address of such holder as shown on the
books of the Corporation, (a) at least 15 days prior written notice of the
date on which the books of the Corporation shall close or a record shall
be taken for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, at least 15 days prior written notice of the date when the
same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the
9
<PAGE>
date on which the holders of Common Stock shall be entitled thereto, and
such notice in accordance with the foregoing clause (b) shall also specify
the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable
upon such reorganization, reclassification consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be.
3I. Mandatory Conversion. Each share of Series C Preferred Stock
--------------------
shall be automatically converted into the number of shares of Common Stock
equal to the quotient obtained by dividing (i) the product of $1.00 and
the number of shares of Series C Preferred Stock being converted by (ii)
the Conversion Price, as last adjusted and then in effect, if at any time
the Corporation shall effect an initial public offering (an "Initial
Public Offering") of shares of its Common Stock registered under the
Securities Act of 1933, as amended (the "Securities Act"), hereof in which
(i) the aggregate net proceeds to the Corporation are at least $25,000,000
and (ii) the per share price to the public is not less than $3.00
(appropriately adjusted to reflect the occurrence of any stock split,
stock dividend, stock combination, stock subdivision or like occurrences).
Such conversion shall be effected at the time of and subject to the
consummation of the Initial Public Offering and otherwise in accordance
with the provisions of subparagraphs 3B and 3C hereof.
3J. Stock to be Reserved. The Corporation will at all times reserve
--------------------
and keep available out of its authorized but unissued Common Stock solely
for the purpose of issuance upon the conversion of the Series C Preferred
Stock as herein provided, such number of shares of Common Stock as shall
then be issuable upon the conversion of all outstanding shares of Series C
Preferred Stock. All shares of Common Stock which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and free
from all taxes, liens and charges arising out of or by reason of the issue
thereof and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action
as may be requisite to assure that the par value per share of the Common
Stock is at all times equal to or less than the effective Conversion
Price. The Corporation will take all such action within its control as
may be necessary on its part to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any national securities exchange
upon which the Common Stock of the Corporation may be listed. The
Corporation will not take any action which results in any adjustment of
the Conversion Price if after such action the total number of shares of
Common Stock issued and outstanding and thereafter issuable upon exercise
of all options and conversion of Convertible Securities, including upon
conversion of the Series C Preferred Stock, would exceed the total number
of shares of Common Stock then authorized by the Corporation's Certificate
of Incorporation.
3K. No Reissuance of Series C Preferred Stock. Shares of Series C
-----------------------------------------
Preferred Stock that are converted into shares of Common Stock as
provided herein shall not be reissued.
10
<PAGE>
3L. Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon conversion of the Series C Preferred Stock shall be made
without charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the
holder of the Series C Preferred Stock which is being converted.
3M. Closing of Books. The Corporation will at no time close its
----------------
transfer books against the transfer of any Series C Preferred Stock or of
any shares of Common Stock issued or issuable upon the conversion of any
------
shares of Series C Preferred Stock in any manner which interferes with the
timely conversion of such Series C Preferred Stock.
3N. Definition of Common Stock. As used in this paragraph 3, the
----------------------------
term "Common Stock" shall mean and include the Corporation's authorized
Common Stock as constituted on the date of filing of this Certificate of
Designation and shall also include any capital stock of any class of the
Corporation thereafter authorized that shall not be limited to a fixed sum
in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation,
provided, however, that such term, when used to describe the Securities
------------------
receivable upon conversion of shares of the Series C Preferred Stock of
the Corporation, shall include only shares designated as Common Stock of
the Corporation on the date of filing of this Certificate of Designation,
any shares resulting from any combination or subdivision thereof referred
to in subparagraph 3D(5), or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock, securities
or assets provided for in subparagraph 3F.
4. Optional Redemption. (a) In the event that the Corporation has not,
-------------------
on or before the sixth anniversary of the Original Issuance Date for the
Series C Preferred Stock, consummated an initial public offering of shares
of Common Stock pursuant to the Securities Act or a Corporate Transaction
has not been consummated or the original purchaser of Series C Preferred
Stock has not disposed of such Series C Preferred Stock, then such original
holder of Series C Preferred Stock shall have the option, exercisable by
written notice in accordance with the first sentence of Section 4(b) from
such holder delivered to the Corporation, to cause the Corporation to
redeem, and the Corporation shall (unless prohibited by law) so redeem (the
"Optional Redemption") that number of shares as shall equal 50% of the
shares of Series C Preferred Stock held by such holder on the seventh
anniversary of the Original Issuance Date for the Series C Preferred Stock
and the balance of such shares of Series C Preferred Stock on the eighth
anniversary of the Original Issuance Date for the Series C Preferred Stock
(each an "Optional Redemption Date"), at a redemption price per share (the
"Optional Redemption Price") equal to the fair market value thereof as at
the sixth anniversary of the Original Issuance Date for the Series C
Preferred Stock as determined by an
11
<PAGE>
investment banking firm or other third party mutually designated by the
Corporation and the holders of a majority of the then outstanding shares of
Series C Preferred Stock.
(b) Notice of the exercise of the redemption option pursuant to Section
4(a) shall be sent by first-class certified mail, postage prepaid and
return receipt requested, or by overnight courier to the Corporation. At
any time on or after the Optional Redemption Date, the holders of record of
shares of Series C Preferred Stock exercising their right to Optional
Redemption, shall, as to the shares of Series C Preferred Stock to be
redeemed on such date, be entitled to receive payment in cash of the
Optional Redemption Price with respect to such Series C Preferred Stock
upon actual delivery to the Corporation or its agent of the certificate or
certificates representing the shares of Series C Preferred Stock to be
redeemed. If the Corporation does not have sufficient funds legally
available to redeem all shares of Series C Preferred Stock to be redeemed
at the Optional Redemption Date, then it shall redeem such shares pro rata
(based on the portion of the aggregate Optional Redemption Price payable in
respect of such shares) to the extent possible and shall redeem the
remaining shares to be redeemed as soon as sufficient funds are legally
available.
(c) On and after the Optional Redemption Date with respect to the shares
of Series C Preferred Stock to be redeemed by the Corporation pursuant to
this Section 4 on such date (unless the Corporation (i) is legally
prohibited from redeeming such shares of Series C Preferred Stock as have
been requested to be redeemed on such Optional Redemption Date, in which
event such right shall be exercisable until the removal of such legal
disability or (ii) otherwise fails to pay the Optional Redemption Price
applicable thereto) all rights in respect of the shares of Series C
Preferred Stock to be redeemed, except the right to review the Optional
Redemption Price as herein provided, shall cease and terminate; and such
shares shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the
Corporation.
(d) Anything contained herein to the contrary notwithstanding, the
holders of shares of Series C Preferred Stock exercising their optional
redemption rights under this Section 4 shall have the right, exercisable at
any time up to the close of business on the applicable Optional Redemption
Date, to convert all or any part of such shares into shares of Common Stock
pursuant to Section 3 hereof.
5. Voting - Series C Preferred Stock. Except as otherwise provided by
---------------------------------
law and this Certificate of Incorporation, the holders of Series C
Preferred Stock shall vote together with the holders of Series Common Stock
on all matters to be voted on by the shareholders of the Corporation, and
each holder of Series C Preferred Stock shall be entitled to one vote for
each share of Common Stock that would be issuable to such holder upon the
conversion of all the shares of Series C Preferred Stock held by such
holder on the record date for the determination of shareholders entitled to
vote.
12
<PAGE>
6. Restrictions. At any time when shares of Series C Preferred Stock
------------
are outstanding, and in addition to any other vote of shareholders required
by law or by the Certificate of Incorporation, without the prior consent of
the holders of 66-2/3% of the outstanding Series C Preferred Stock, given
in person or by proxy, either in writing or at a special meeting called for
that purpose, at which meeting the holders of the shares of such Series C
Preferred Stock shall vote together as a class, the Corporation will not:
(i) authorize, create, designate or establish any class or series of
capital stock ranking senior to the Series C Preferred Stock or reclassify
any shares of Common Stock into shares having any preference or priority as
to dividends or assets superior to any such preference or priority of
Series C Preferred Stock; (ii) sell all or substantially all of the
Corporation's assets; (iii) amend the Certificate of Incorporation or By-
laws of the Corporation in any manner that would materially adversely
affect the powers, preferences or rights, or qualifications, limitations or
restrictions of the shares of Series C Preferred Stock; (iv) approve or
authorize any liquidation or dissolution of the Corporation or (v) approve
or authorize a Corporate Transaction.
7. No Waiver. Except as otherwise modified or provided for herein,
---------
the holders of Series C Preferred Stock shall also be entitled to, and
shall not be deemed to have waived, any other applicable rights granted to
such holders under the Delaware General Corporation Law.
8. No Impairment. The Corporation will not, through any
-------------
reorganization, transfer of assets, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation but will at all time in good faith assist in
the carrying out of all the provisions of this Article Fourth and in the
taking of all such action as may be necessary or appropriate in order to
protect the conversion rights and liquidation preferences granted
hereunder of the holders of the Series C Preferred Stock against
impairment.
13
<PAGE>
IN WITNESS WHERFOF, this Certificate of Designation has been executed
by the Corporation by its President as of this 17th day of September, 1998.
WIT CAPITAL GROUP, INC.
By: /s/ Ronald W. Readmond
-------------------------
Name: Ronald W. Readmond
Title: President
14
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:29 PM 11/19/1998
981447358 - 2916664
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
WIT CAPITAL GROUP, INC.
WIT CAPITAL GROUP, INC., Delaware corporation (the "Corporation"),
hereby certifies as follows:
1. The current name of the Corporation is "WIT CAPITAL GROUP, INC."
2. Effective immediately, Section 2 of the Certificate of Designations,
Preferences, and Rights of Series C Preferred Stock of WIT Capital Group, Inc.
(the "Certificate of Designation"), is hereby amended to read in its entirety as
follows:
"2. Liquidation. Upon any liquidation, dissolution or winding
-----------
up of the Corporation, whether voluntary or involuntary, the holders of
the shares of Series C Preferred Stock shall be entitled, before any
distribution or payment is made upon any Common Stock, Series A
Preferred Stock or Series B Preferred Stock, and pari passu with the
---- -----
holders of Series D Preferred Stock, to be paid an amount equal
to $1.00 per share (appropriately adjusted to reflect the occurrence of
any stock split, stock dividend, stock combination, stock subdivision or
like occurrences) plus any declared and unpaid dividends (the "Series C
Preferred Liquidation Preference") payable with respect to such share
under Section 1 pari passu with the holders of Series D Preferred Stock
---- -----
before any distributions shall be made to the holders of the Series A
Preferred Stock, the Series B Preferred Stock, the Common Stock or any
other class of capital stock of the Corporation ranking junior to the
Series D Preferred Stock and the Series C Preferred Stock. If upon such
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders
of Series D Preferred Stock and Series C Preferred Stock of the
Corporation shall be insufficient to permit payment to the holders of
Series D Preferred Stock and Series C Preferred Stock of the full amount
of the Liquidation Payments, then the entire assets of the Corporation
to be so distributed shall be distributed ratably per share among the
holders of Series D Preferred Stock and Series C Preferred Stock in
proportion to the amounts to which they respectively are entitled. Upon
any such liquidation, dissolution or winding up of the Corporation after
the holders of Series D Preferred Stock and Series C Preferred Stock
shall have been paid in full the amounts to which they shall be
entitled, and after the holders of the Series A Preferred Stock and the
Series B Preferred Stock shall have been paid in full in accordance with
the rights and preferences to which they are entitled, the remaining net
assets of the Corporation shall be distributed ratably and exclusively
to the holders of Common Stock. Written notice of such liquidation,
dissolution or winding up, stating a payment date, the amount of the
Liquidation Payment and the place where said sums shall be payable shall
be given by
<PAGE>
mail, postage prepaid, not less than 30 or more than 60 days prior to
the payment date stated therein, to the holders of record of the Series
D Preferred Stock, Series C Preferred Stock and the Common Stock, such
notice to be addressed to each shareholder at his post office address as
shown by the records of the Corporation. Unless waived in writing by the
holders of 66-2/3% of the Series C Preferred Stock and Series D
Preferred Stock, voting together as one class, a consolidation or merger
of the Corporation into or with any other corporation or corporations,
or the sale or transfer by the Corporation of all or substantially all
of its assets, in each case under circumstances in which the holders of
a majority in voting power of the outstanding capital stock of the
Corporation, immediately prior to such a merger, consolidation or sale,
own less than a majority in voting power of the outstanding capital
stock of the corporation or the surviving or resulting corporation or
acquirer, as the case may be, immediately following such a merger,
consolidation or sale (each such transaction being hereinafter referred
to as a "Corporate Transaction") shall be deemed to be a liquidation
within the meaning of this Section 2."
3. Effective immediately, Section 3E(v) of the Certificate of Designation
is amended to read in its entirety as follows:
"(v) securities issuable upon the exercise of warrants outstanding on
the Original Issuance Date."
4. Effective immediately, Section 3E(viii) is hereby amended by inserting
at the end thereof "and/or Series D Preferred Stock."
5. Effective immediately, Section 3F is hereby amended by inserting at the
end of the second parenthetical therein "and Series D Preferred Stock, voting
together as one class" and by inserting after reference to Series C Preferred
Stock in the last parenthetical therein "and Series D Preferred Stock, voting
together as one class."
6. Effective immediately, Section 6 of the Certificate of Designation is
hereby amended to read in its entirety as follows:
"6. Restrictions. At any time when shares of Series D Preferred
------------
Stock and Series C Preferred Stock are outstanding, and in addition to
any other vote of shareholders required by law or by the Certificate of
Incorporation, without the prior consent of the holders of 66-2/3% of
the outstanding Series D Preferred Stock and Series C Preferred Stock,
voting together as one class, given in person or by proxy, either in
writing or at a special meeting called for that purpose, at which
meeting the holders of the shares of such Series D Preferred Stock and
the Series C Preferred Stock shall vote together as a class, the
Corporation will not: (i) sell all or substantially all of the
Corporation's assets; (ii) approve or authorize any liquidation or
dissolution of the Corporation or (iii) approve or authorize a Corporate
Transaction. At any time when shares of Series C Preferred Stock are
outstanding, and in addition to any other vote of shareholders required
by law or by the Certificate of Incorporation, without the prior consent
of the holders of 66-2/3% of the outstanding Series C Preferred Stock,
given in person or by proxy, either in writing or at a special meeting
called for that purpose, at which meeting the holders of the shares of
such Series C Preferred Stock shall vote together as a class, the
Corporation will not: (i) authorize, create, designate or establish any
class or series of capital stock ranking senior to the Series C
Preferred Stock or reclassify any shares of Common Stock into shares
having any preference or priority as to dividends or assets superior to
any such preference
2
<PAGE>
or priority of Series C Preferred Stock or (ii) amend the Certificate of
Incorporation or By-laws of the Corporation in any manner that would
materially adversely affect the powers, preferences or rights, or
qualifications, limitations or restrictions of the shares of Series C
Preferred Stock."
7. This Amendment was duly adopted by the Board of Directors of the
Corporation, acting by unanimous written consent in lieu of a meeting effective
as of this date, pursuant to Section 242 of the General Corporation Law of the
State of Delaware and by the stockholders of the Corporation, acting by written
consent in lieu of a meeting effective as of this date pursuant to Section 228
of the General Corporation Law of the State of Delaware and Paragraph Sixth of
the Certificate of Incorporation of the Corporation.
*****
3
<PAGE>
IN WITNESS WHEREOF, this Corporation has caused this Certificate
of Amendment of Certificate of Incorporation to be signed as of the 19th day of
November, 1998, by its President, who hereby affirms and acknowledges, under
penalty of perjury, that this Certificate is the act and deed of the Corporation
and that the facts stated herein are true.
WIT CAPITAL GROUP, INC.
By: /s/ Ronald Readmond
----------------------
Name: Ronald Readmond
Title: President
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES D PREFERRED STOCK
OF
WIT CAPITAL GROUP, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
_________________________________________
WIT CAPITAL GROUP, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that,
pursuant to authority vested in the Board of Directors of the Corporation by
Article Fourth of the Certificate of Incorporation of the Corporation, the
following resolution was adopted as of November __, 1998 by the Board of
Directors of the Corporation pursuant to Section 141 of the Delaware General
Corporation Law:
"RESOLVED that, pursuant to authority vested in the Board of
Directors of the Corporation by Article Fourth of the Corporation's Certificate
of Incorporation of the total authorized number of 30,000,000 shares of
Preferred Stock, par value $.01 per share, of the Corporation, there shall be
designated a series of 8,000,000 shares which shall be issued in and constitute
a single series to be known as "Series D Preferred Stock" (hereinafter called
the "Series D Preferred Stock"). The shares of Series D Preferred Stock shares
have the voting powers, designations, preferences and other special rights, and
qualifications, limitations and restrictions thereof set forth below:
1. Dividends. The holders of Series D Preferred Stock shall not be
---------
entitled to receive dividends in any fixed amount, provided, however, that
-------- -------
in the event that the Corporation shall at any time pay a dividend on the
Common Stock (other than a dividend payable solely in shares of Common
Stock), it shall, at the same time, pay to each holder of Series D
Preferred Stock a dividend equal to the dividend that would have been
payable to such holder if the shares of Series D Preferred Stock held by
such holder had been converted into Common Stock on the date of
determination of holders of Common Stock entitled to receive such
dividends.
2. Liquidation. Upon any liquidation, dissolution or winding up of
-----------
the Corporation, whether voluntary or involuntary, the holders of the
shares of Series D Preferred Stock shall be entitled, before any
distribution or payment is made upon any Common Stock, Series A Preferred
Stock or Series B Preferred Stock, and pari passu
---- -----
<PAGE>
with the holders of Series C Preferred Stock, to be paid an amount equal
to $1.50 per share (appropriately adjusted to reflect the occurrence of
any stock split, stock dividend, stock combination, stock subdivision or
like occurrences) plus any declared and unpaid dividends (the "Series D
Preferred Liquidation Preference") payable with respect to such share
under Section 1 pari passu with the holders of Series C Preferred Stock
---- -----
before any distributions shall be made to the holders of the Series A
Preferred Stock, the Series B Preferred Stock, the Common Stock or any
other class of capital stock of the Corporation ranking junior to the
Series D Preferred Stock and the Series C Preferred Stock. If upon such
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders
of Series D Preferred Stock and the Series C Preferred Stock of the
Corporation shall be insufficient to permit payment to the holders of
Series D Preferred Stock and Series C Preferred Stock of the full amount
of the Liquidation Payments, then the entire assets of the Corporation to
be so distributed shall be distributed ratably per share among the holders
of Series D Preferred Stock and Series C Preferred Stock in proportion to
the amounts to which they respectively are entitled. Upon any such
liquidation, dissolution or winding up of the Corporation after the
holders of Series D Preferred Stock and Series C Preferred Stock shall
have been paid in full the amounts to which they shall be entitled, and
after the holders of the Series A Preferred Stock and the Series B
Preferred Stock shall have been paid in full in accordance with the rights
and preferences to which they are entitled, the remaining net assets of
the Corporation shall be distributed ratably and exclusively to the
holders of Common Stock. Written notice of such liquidation, dissolution
or winding up, stating a payment date, the amount of the Liquidation
Payment and the place where said sums shall be payable shall be given by
mail, postage prepaid, not less than 30 or more than 60 days prior to the
payment date stated therein, to the holders of record of the Series D
Preferred Stock and Series C Preferred Stock and the Common Stock, such
notice to be addressed to each shareholder at his post office address as
shown by the records of the Corporation. Unless waived in writing by the
holders of 66-2/3% of the Series C Preferred Stock and Series D Preferred
Stock, voting together as one class, a consolidation or merger of the
Corporation into or with any other corporation or corporations, or the
sale or transfer by the Corporation of all or substantially all of its
assets, in each case under circumstances in which the holders of a
majority in voting power of the outstanding capital stock of the
Corporation, immediately prior to such a merger, consolidation or sale,
own less than a majority in voting power of the outstanding capital stock
of the corporation or the surviving or resulting corporation or acquirer,
as the case may be, immediately following such a merger, consolidation or
sale (each such transaction being hereinafter referred to as a "Corporate
Transaction") shall be deemed to be a liquidation within the meaning of
this Section 2.
3. Conversion.
----------
3A. Right to Convert. Subject to the terms and conditions of this
----------------
paragraph 3, the holder of any share or shares of Series D Preferred Stock
shall have the right, at its option at any time, to convert any such
shares of Series D Preferred Stock into such
2
<PAGE>
number of fully paid and nonassessable whole shares of Common Stock as is
obtained by multiplying the number of shares of Series D Preferred Stock
so to be converted by $1.50 and dividing the result by the conversion
price of $1.50 per share or, if there has been an adjustment of the
conversion price, by the conversion price as last adjusted and in effect
at the date any share or shares of Series D Preferred Stock are
surrendered for conversion (such price, or such price as last adjusted,
being referred to herein as the "'Conversion Price"). Such rights of
conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of
Series D Preferred Stock into Common Stock and by surrender of a
certificate or certificates for the shares so to be converted to the
Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the
holder or holders of the Series D Preferred Stock) at any time during its
usual business hours on the date set forth in such notice, together with a
statement of the name or names (with address), subject to compliance with
applicable laws to the extent such designation shall involve a transfer,
in which the certificate or certificates for shares of Common Stock shall
be issued.
3B. Issuance of Certificates; Time Conversion Effected. Promptly
--------------------------------------------------
after the receipt by the Corporation of the written notice referred to in
subparagraph 3A and surrender of the certificate or certificates for the
share or shares of the Series D Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and delivered,
to the holder, registered in such name or names as such holder may direct,
subject to compliance with applicable laws to the extent such designation
shall involve a transfer, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Series D Preferred Stock. To the extent permitted by law, such
conversion shall be deemed to have been effected and the Conversion Price
shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the
certificate or certificates for such share or shares shall have been
surrendered as aforesaid, and at such time the rights of the holder of
such share or shares of Series D Preferred Stock shall cease, and the
person or persons in whose name or names any certificate or certificates
for shares of Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the shares
represented thereby.
3C. Fractional Shares; Dividends; Partial Conversion. No
------------------ -----------------------------
fractional shares shall be issued upon conversion of the Series D
Preferred Stock into Common Stock and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share, and no payment
or adjustment shall be made upon any conversion on account of any cash
dividends on the Series D Preferred Stock so converted or the Common Stock
issued upon such conversion. In case the number of shares of Series D
Preferred Stock represented by the certificate or certificates surrendered
pursuant to subparagraph 3A exceeds the number of shares converted, the
Corporation shall upon such conversion, execute and deliver to the holder
thereof, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Series D
3
<PAGE>
Preferred Stock represented by the certificate or certificates surrendered
which are not to be converted.
3D. Adjustment of Price Upon Issuance. If and at any time or from
---------------------------------
time to time, after the Original Issuance Date for the Series D Preferred
Stock and prior to the consummation of a Qualified Offering (as
hereinafter defined), the Corporation shall issue or sell, or is, in
accordance with subparagraphs 3D(l) through 3D(7), deemed to have issued
or sold, any shares ("Additional Common Shares") of its Common Stock other
than Excluded Stock (as defined hereinafter) without consideration or for
a consideration per share less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the Conversion
Price shall be reduced, concurrently with issue or sale, to a price equal
to the price paid (or deemed to have been paid) per share for such
Additional Common Shares. If the Corporation shall at any time after a
Qualified Offering issue or sell, or is, in accordance with subparagraphs
3D(l) through 3D(7) below, deemed to have issued or sold, any Additional
Common Shares other than Excluded Stock without consideration or for a
consideration per share less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the Conversion
Price in effect immediately prior to each such issuance shall be reduced,
concurrently with such issue or sale, to a price equal to the quotient
obtained by dividing: (A) an amount equal to the sum of (x) the total
number of shares of Common Stock outstanding (including any shares of
Common Stock deemed to have been issued pursuant to subparagraphs 3D (1)
through 3D (7) below) immediately prior to such issuance, multiplied by
the applicable Conversion Price in effect immediately prior to such
issuance of Additional Common Shares, and (y) the consideration received
by the Corporation upon such issuance; by (B) the total number of shares
of Common Stock outstanding (including any shares of Common Stock deemed
to have been issued pursuant to subparagraphs 3D (1) through 3D (7) below)
immediately after such issuance of the Additional Comon Shares. As used
herein, the term "Qualified Offering" shall mean the consummation by the
Corporation of any equity financing, in a single transaction or series or
related transactions, yielding aggregate gross proceeds to the Corporation
of at least $15,000,000, at a price per share of at least $3.00
(appropriately adjusted to reflect the occurrence of any stock split,
stock dividend, stock combination, stock subdivision or like occurrences).
No adjustment of the Conversion Price, however, shall be made in an
amount less than $.01 per share, and any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried
forward shall amount to $.01 per share or more.
For purposes of this subparagraph 3D, the following subparagraphs
3D(l) to 3D(7) shall also be applicable:
3D(l). Issuance of Rights or Options. In case at any time the
-----------------------------
Corporation shall in any manner grant (whether directly or by assumption
in a merger or otherwise) any
4
<PAGE>
rights to subscribe for or to purchase, or any option for the purchase of,
Common Stock or any stock or securities convertible into or exchangeable
for Common Stock (such rights or options being herein called "Options" and
such convertible or exchangeable stock or securities being herein called
"Convertible Securities") whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable
upon the exercise of such Options or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the
granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of all such
Options, plus, in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if
any, payable upon the issue or sale of such Convertible Securities and
upon the conversion or exchange thereof by (ii) the total maximum number
of shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the
Conversion Price in effect immediately prior to the time of the granting
of such Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to have been issued for such
price per share as of the date of granting of such Options and thereafter
shall be deemed to be outstanding. Except as otherwise provided in
subparagraph 3D(3), no adjustment of the Conversion Price shall be made
upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such Options or upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities.
3D(2). Issuance of Convertible Securities. In case the Corporation
----------------------------------
shall in any manner issue (whether directly or by assumption in a merger
or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the issue
or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof by (ii) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issue or sale of
such Convertible Securities and thereafter shall be deemed to be
outstanding, provided that (a) except as otherwise provided in
subparagraph 3D(3) below, no adjustment of the Conversion Price shall be
made upon the actual issue of such Common Stock upon conversion or
exchange of
5
<PAGE>
such Convertible Securities, and (b) if any such issue or sale
of such Convertible Securities is made upon exercise of any Option to
purchase any such Convertible Securities for which adjustments of the
Conversion Price have been or are to be made pursuant to other provisions
of this subparagraph 3D, no further adjustment of the Conversion Price
shall be made by reason of such issue or sale.
3D(3). Change in Option Price or Conversion Rate. Upon the
-----------------------------------------
happening of any of the following events after December 31, 1998, namely,
if the purchase price provided for in any Option referred to in
subparagraph 3D(l), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
subparagraph 3D(l) or 3D(2), or the rate at which any Convertible
Securities referred to in subparagraph 3D(l) or 3D(2) are convertible into
or exchangeable for Common Stock shall change at any time (in each case
other than under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such event shall
forthwith be readjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold; and on the expiration of any such
Option or the termination of any such right to convert or exchange such
Convertible Securities, the Conversion Price then in effect hereunder
shall forthwith be increased to the Conversion Price which would have been
in effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination never been issued, and the Common Stock
issuable thereunder shall no longer be deemed to be outstanding. If the
purchase price provided for in any such Option referred to in subparagraph
3D(l) or the rate at which any Convertible Securities referred to in
subparagraph 3D(l) or 3D(2) are convertible into or exchangeable for
Common Stock shall be reduced at any time under or by reason of provisions
with respect thereto designed to protect against dilution, then, in case
of the delivery of Common Stock upon the exercise of any such Option or
upon conversion or exchange of any such Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be adjusted to
such respective amount as would have been obtained had such Option or
Convertible Securities never been issued as to such Common Stock and had
adjustments been made upon the issuance of the shares of Common Stock
delivered as aforesaid, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced.
3D(4). Stock Dividends. In case the Corporation shall declare a
---------------
dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock, Options or Convertible Securities, any Common
Stock, Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been
issued or sold without consideration and the Conversion Price then in
effect immediately prior to such dividend declaration or distribution
shall be reduced as if the Corporation had subdivided its outstanding
shares of Common Stock into a greater number of shares as provided in
subparagraph 3D(5).
6
<PAGE>
3D(5). Subdivision or Combination of Stock. In case the Corporation
-----------------------------------
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares or shall deduct or pay a dividend on its
outstanding shares of Common Stock payable in shares of Common Stock, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Corporation shall be combined into a smaller number of
shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
3D(6). Consideration for Stock. In case any shares of Common Stock,
-----------------------
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received
by the Corporation therefor, without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Corporation in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors
of the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. The amount of consideration deemed to be
received by the Corporation pursuant to the foregoing provisions of this
subparagraph 3D(6) upon any issuance and/or sale of shares of Common
Stock, Options or Convertible Securities, pursuant to an established
compensation plan of the Corporation, to directors, officers or employees
of the Corporation in connection with their employment shall be increased
by the amount of any tax benefit realized by the Corporation as a result
of such issuance and/or sale, the amount of such tax benefit being the
amount by which the Federal and/or state income or other tax liability of
the Corporation shall be reduced by reason of any deduction or credit in
respect of such issuance and/or sale. In case any Options shall be issued
in connection with the issue and sale of other securities of the
Corporation, together comprising one integral transaction in which no
specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without
consideration.
3D(7). Record Date. In case the Corporation shall take a record of
-----------
the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options
or Convertible Securities, or (ii) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.
7
<PAGE>
3E. Excluded Stock. As used herein, the term "Excluded Stock" shall
--------------
mean (i) shares of Common Stock issuable upon the exercise of stock options
or stock purchase rights or as restricted stock or otherwise that have been
or may be granted to officers, directors, employees or consultants of the
Corporation with the approval of the Board of Directors, (ii) shares of
Common Stock issued by the Corporation as a stock dividend or upon any
subdivision, combination or split-up of Common Stock, (iii) securities
issued pursuant to commercial transactions approved by the Board of
Directors (including, without limitation, equipment leases or bank lines or
credit), (iv) securities issued in connection with acquisitions or
strategic investments or corporate partnering transactions or
relationships, (v) securities issuable pursuant to the exercise of warrants
outstanding on the Original Issuance Date, (vi) securities that have been
approved for issuance or grant by the holders of a majority, by voting
power, of the outstanding shares of Series D Preferred Stock or (vii)
shares of Common Stock issuable upon conversion of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D
Preferred Stock.
3F. Reorganization or Reclassification. If any capital
----------------------------------
reorganization or reclassification of the capital stock of the Corporation
shall be effected in such a way (including, without limitation, by way of
consolidation or merger) that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for
Common Stock then, as a condition of such reorganization or
reclassification, lawful and adequate provision (in form satisfactory to
the holders of at least 66-2/3% of the outstanding shares of Series D
Preferred Stock and Series C Preferred Stock, voting together as one class)
shall be made whereby each holder of a share or shares of Series D
Preferred Stock shall thereafter have the right to receive, upon the basis
and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock of the Corporation immediately theretofore
receivable upon the conversion of such share or shares of the Series D
Preferred Stock, such shares of stock securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore so receivable had such reorganization or
reclassification not taken place and in any such case appropriate provision
shall be made with respect to the rights and interests of such holder to
the end that the provisions hereof (including without limitation provisions
for adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of such conversion rights
(including an immediate adjustment, by reason of such reorganization or
reclassification, of the Conversion Price to the value for the Common Stock
reflected by the terms of such reorganization or reclassification if the
value so reflected is less than the Conversion Price in effect immediately
prior to such reorganization or reclassification). In the event of a
merger or consolidation of the Corporation as a result of which a greater
or lesser number of shares of common stock of the surviving corporation are
issuable to holders of Common Stock of the Corporation outstanding
immediately prior to such merger or consolidation, the Conversion Price in
effect immediately prior to such merger or consolidation shall be adjusted
in the same manner
8
<PAGE>
as though there were a subdivision or combination of the outstanding shares
of Common Stock of the Corporation. The Corporation will not effect any
such consolidation or merger, or any sale of all or substantially all its
assets and properties, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument (in form reasonably satisfactory to the
holders of at least 66-2/3% of the shares of Series D Preferred Stock at
the time outstanding) executed and mailed or delivered to each holder of
shares of Series D Preferred Stock and Series C Preferred Stock, voting
together as one class, at the last address of such holder appearing on the
books of the Corporation, the obligation to deliver to such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to receive.
3G. Notice of Adjustment. Upon any adjustment of the Conversion
--------------------
Price, then and in each such case the Corporation shall give written notice
thereof by first class mail, postage prepaid, addressed to each holder of
shares of Series D Preferred Stock at the address of such holder as shown
on the books of the Corporation, which notice shall state the Conversion
Price resulting from such adjustment, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is
based.
3H. Other Notices. In case at any time:
-------------
(1) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(2) the Corporation shall offer for subscription pro rata to the
--- ----
holders of its Common Stock any additional shares of stock of any class or
other rights;
(3) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with, or a sale of all or substantially all its assets to,
another corporation; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give,
by first class mail, postage prepaid, addressed to each holder of any
shares of Series D Preferred Stock at the address of such holder as shown
on the books of the Corporation, (a) at least 15 days prior written notice
of the date on which the books of the Corporation shall close or a record
shall be taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, at least 15 days prior written notice of the date when the
9
<PAGE>
same shall take place. Such notice in accordance with the foregoing clause
(a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause
(b) shall also specify the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be.
3I. Mandatory Conversion. Each share of Series D Preferred Stock
--------------------
shall be automatically converted into the number of shares of Common Stock
equal to the quotient obtained by dividing (i) the product of $1.50 and the
number of shares of Series D Preferred Stock being converted by (ii) the
Conversion Price, as last adjusted and then in effect, if at any time the
Corporation shall effect an initial public offering (an "Initial Public
Offering") of shares of its Common Stock registered under the Securities
Act of 1933, as amended (the "Securities Act"), hereof in which (i) the
aggregate net proceeds to the Corporation are at least $25,000,000 and (ii)
the per share price to the public is not less than $4.50 (appropriately
adjusted to reflect the occurrence of any stock split, stock dividend,
stock combination, stock subdivision or like occurrences). Such conversion
shall be effected at the time of and subject to the consummation of the
Initial Public Offering and otherwise in accordance with the provisions of
subparagraphs 3B and 3C hereof.
3J. Stock to be Reserved. The Corporation will at all times reserve
--------------------
and keep available out of its authorized but unissued Common Stock solely
for the purpose of issuance upon the conversion of the Series D Preferred
Stock as herein provided, such number of shares of Common Stock as shall
then be issuable upon the conversion of all outstanding shares of Series D
Preferred Stock. All shares of Common Stock which shall be so issued shall
be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges arising out of or by reason of the issue
thereof and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action
as may be requisite to assure that the par value per share of the Common
Stock is at all times equal to or less than the effective Conversion Price.
The Corporation will take all such action within its control as may be
necessary on its part to assure that all such shares of Common Stock may be
so issued without violation of any applicable law or regulation, or of any
requirements of any national securities exchange upon which the Common
Stock of the Corporation may be listed. The Corporation will not take any
action which results in any adjustment of the Conversion Price if after
such action the total number of shares of Common Stock issued and
outstanding and thereafter issuable upon exercise of all options and
conversion of Convertible Securities, including upon conversion of the
Series D Preferred Stock, would exceed the total number of shares of Common
Stock then authorized by the Corporation's Certificate of Incorporation.
3K. No Reissuance of Series D Preferred Stock. Shares of Series D
-----------------------------------------
Preferred Stock that are converted into shares of Common Stock as provided
herein shall not be reissued.
10
<PAGE>
3L. Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon conversion of the Series D Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series D Preferred Stock which is being converted.
3M. Closing of Books. The Corporation will at no time close its
----------------
transfer books against the transfer of any Series D Preferred Stock or of
any shares of Common Stock issued or issuable upon the conversion of any
shares of Series D Preferred Stock in any manner which interferes with the
timely conversion of such Series D Preferred Stock.
3N. Definition of Common Stock. As used in this paragraph 3, the
----------------------------
term "Common Stock" shall mean and include the Corporation's authorized
Common Stock as constituted on the date of filing of this Certificate of
Designation and shall also include any capital stock of any class of the
Corporation thereafter authorized that shall not be limited to a fixed sum
in respect of the rights of the holders thereof to participate in dividends
or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, provided,
---------
however, that such term, when used to describe the Securities receivable
--------
upon conversion of shares of the Series D Preferred Stock of the
Corporation, shall include only shares designated as Common Stock of the
Corporation on the date of filing of this Certificate of Designation, any
shares resulting from any combination or subdivision thereof referred to in
subparagraph 3D(5), or in case of any reorganization or reclassification of
the outstanding shares thereof, the stock, securities or assets provided
for in subparagraph 3F.
4. Optional Redemption. (a) In the event that the Corporation has
-------------------
not, on or before the sixth anniversary of the Original Issuance Date for
the Series D Preferred Stock, consummated an initial public offering of
shares of Common Stock pursuant to the Securities Act or a Corporate
Transaction has not been consummated or the original purchaser of Series D
Preferred Stock has not disposed of such Series D Preferred Stock, then
such original holder of Series D Preferred Stock shall have the option,
exercisable by written notice in accordance with the first sentence of
Section 4(b) from such holder delivered to the Corporation, to cause the
Corporation to redeem, and the Corporation shall (unless prohibited by law)
so redeem (the "Optional Redemption") that number of shares as shall equal
50% of the shares of Series D Preferred Stock held by such holder on the
seventh anniversary of the Original Issuance Date for the Series D
Preferred Stock and the balance of such shares of Series D Preferred Stock
on the eighth anniversary of the Original Issuance Date for the Series D
Preferred Stock (each an "Optional Redemption Date"), at a redemption price
per share (the "Optional
11
<PAGE>
Redemption Price") equal to the fair market value thereof as at the sixth
anniversary of the Original Issuance Date for the Series D Preferred Stock
as determined by an investment banking firm or other third party mutually
designated by the Corporation and the holders of a majority of the then
outstanding shares of Series D Preferred Stock.
(b) Notice of the exercise of the redemption option pursuant to
Section 4(a) shall be sent by first-class certified mail, postage prepaid
and return receipt requested, or by overnight courier to the Corporation.
At any time on or after the Optional Redemption Date, the holders of record
of shares of Series D Preferred Stock exercising their right to Optional
Redemption, shall, as to the shares of Series D Preferred Stock to be
redeemed on such date, be entitled to receive payment in cash of the
Optional Redemption Price with respect to such Series D Preferred Stock
upon actual delivery to the Corporation or its agent of the certificate or
certificates representing the shares of Series D Preferred Stock to be
redeemed. If the Corporation does not have sufficient funds legally
available to redeem all shares of Series D Preferred Stock to be redeemed
at the Optional Redemption Date, then it shall redeem such shares pro rata
(based on the portion of the aggregate Optional Redemption Price payable in
respect of such shares) to the extent possible and shall redeem the
remaining shares to be redeemed as soon as sufficient funds are legally
available.
(c) On and after the Optional Redemption Date with respect to the
shares of Series D Preferred Stock to be redeemed by the Corporation
pursuant to this Section 4 on such date (unless the Corporation (i) is
legally prohibited from redeeming such shares of Series D Preferred Stock
as have been requested to be redeemed on such Optional Redemption Date, in
which event such right shall be exercisable until the removal of such legal
disability or (ii) otherwise fails to pay the Optional Redemption Price
applicable thereto) all rights in respect of the shares of Series D
Preferred Stock to be redeemed, except the right to review the Optional
Redemption Price as herein provided, shall cease and terminate; and such
shares shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the
Corporation.
(d) Anything contained herein to the contrary notwithstanding, the
holders of shares of Series D Preferred Stock exercising their optional
redemption rights under this Section 4 shall have the right, exercisable at
any time up to the close of business on the applicable Optional Redemption
Date, to convert all or any part of such shares into shares of Common Stock
pursuant to Section 3 hereof.
5. Voting - Series D Preferred Stock. Except as otherwise provided
---------------------------------
by law and this Certificate of Incorporation, the holders of Series D
Preferred Stock shall vote together with the holders of Common Stock on all
matters to be voted on by the shareholders of the Corporation, and each
holder of Series D Preferred Stock shall be entitled to one vote for each
share of Common Stock that would be issuable to such holder upon the
conversion of all the shares of Series D Preferred Stock held by such
holder on the record date for the determination of shareholders entitled to
vote.
12
<PAGE>
6. Restrictions. At any time when shares of Series D Preferred
------------
Stock and Series C Preferred Stock are outstanding, and in addition to any
other vote of shareholders required by law or by the Certificate of
Incorporation, without the prior consent of the holders of 66-2/3% of the
outstanding Series D Preferred Stock and Series C Preferred Stock, voting
together as one class, given in person or by proxy, either in writing or at
a special meeting called for that purpose, at which meeting the holders of
the shares of such Series D Preferred Stock and the Series C Preferred
Stock shall vote together as a class, the Corporation will not: (i) sell
all or substantially all of the Corporation's assets; (ii) approve or
authorize any liquidation or dissolution of the Corporation or (iii)
approve or authorize a Corporate Transaction. At any time when shares of
Series D Preferred Stock are outstanding, and in addition to any other vote
of shareholders required by law or by the Certificate of Incorporation,
without the prior consent of the holders of 66-2/3% of the outstanding
Series D Preferred Stock, given in person or by proxy, either in writing or
at a special meeting called for that purpose, at which meeting the holders
of the shares of such Series D Preferred Stock shall vote together as a
class, the Corporation will not: (i) authorize, create, designate or
establish any class or series of capital stock ranking senior to the Series
D Preferred Stock or reclassify any shares of Common Stock into shares
having any preference or priority as to dividends or assets superior to any
such preference or priority of Series D Preferred Stock; (ii) amend the
Certificate of Incorporation or By-laws of the Corporation in any manner
that would materially adversely affect the powers, preferences or rights,
or qualifications, limitations or restrictions of the shares of Series D
Preferred Stock.
7. No Waiver. Except as otherwise modified or provided for herein,
---------
the holders of Series D Preferred Stock shall also be entitled to, and
shall not be deemed to have waived, any other applicable rights granted to
such holders under the Delaware General Corporation Law.
8. No Impairment. The Corporation will not, through any
-------------
reorganization, transfer of assets, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation but will at all time in good faith assist in
the carrying out of all the provisions of this Article Fourth and in the
taking of all such action as may be necessary or appropriate in order to
protect the conversion rights and liquidation preferences granted hereunder
of the holders of the Series D Preferred Stock against impairment.
13
<PAGE>
IN WITNESS WHERFOF, this Certificate of Designation has been executed
by the Corporation by its President as of this 19th day of November, 1998.
WIT CAPITAL GROUP, INC.
By: /s/ Ronald Readmond
-------------------------
Name: Ronald Readmond
Title: President
14
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:30 PM 12/30/1998
981508519 - 2916664
CERTIFICATE OF INCREASE
OF SERIES D PREFERRED STOCK
OF WIT CAPITAL GROUP, INC.
WIT CAPITAL GROUP, INC., a Delaware corporation (the
"Corporation"), acting pursuant to Section 151 of the General Corporation Law of
the State of Delaware, does hereby submit the following Certificate of Increase
its Series D Preferred Stock:
DOES HEREBY CERTIFY:
FIRST: That, pursuant to authority conferred upon the
Board of Directors of the Corporation (the "Board") by the Certificate of
Incorporation of said Corporation, said Board, acting by unanimous written
action in lieu of a meeting thereof dated as of December 17, 1998, duly
determined that an additional 6,666,667 shares of Preferred Stock, $.01 par
value, shall be designated "Series D Preferred Stock" and to that end the Board
adopted a resolution providing for the designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations and
restrictions, of the Series D Preferred Stock, which resolution is as follows:
"RESOLVED, that the Board, pursuant to the authority vested in
it by the provisions of the Certificate of Incorporation of the
Corporation, as amended, hereby authorizes the designation of an
additional 6,666,667 shares of preferred stock, $.01 par value,
of the Corporation, as "Series D Preferred Stock" (the
"Additional Series D Preferred Stock") (representing an
aggregate of 14,666,667 shares of preferred stock designated as
Series D Preferred Stock as of the date hereof). The Additional
Series D Preferred Stock shall have such designations,
preferences and relative, participating, optional or other
rights, and the qualifications, limitations and restrictions as
set forth in the Certificate of Incorporation of the
Corporation, as amended and in effect as of the date hereof."
SECOND: That said determination of the designations,
preferences and relative, participating, optional or other rights, and the
qualifications, limitations and restrictions, of the Series D Preferred Stock
was duly made by the Board pursuant to the provisions of the Certificate of
Incorporation of the Corporation and in accordance with the provisions of the
General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, this Certificate of Increase has been signed by the
President, and attested to by the Secretary, of the Corporation, this 20th day
of December, 1998.
WIT CAPITAL GROUP, INC.
By: /s/ Ronald Readmond
----------------------
Ronald Readmond
President
ATTEST:
/s/ M. Bernard Siegel
- ---------------------
M. Bernard Siegel
Secretary
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:00 PM 03/16/1999
991103450 - 2916664
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
WIT CAPITAL GROUP, INC.
WIT CAPITAL GROUP, INC., Delaware corporation (the "Corporation"),
hereby certifies as follows:
1. FIRST: The current name of the Corporation is "WIT CAPITAL GROUP, INC."
2. SECOND: The fourth paragraph of the Certificate of Incorporation of Wit
Capital Group be, and hereby is, amended by deleting (a) the reference to
"90,000,000" and inserting in lieu thereof "180,000,000" (b) the reference to
"60,000,000" and inserting in lieu thereof "120,000,000" and (c) both references
to "30,000,000" and inserting in lieu of each thereof "60,000,000".
3. THIRD: The sixth paragraph of the Certificate of Designations,
Preferences and Rights of Series C Preferred Stock of the Corporation be, and
hereby is, amended to delete the initial sentence thereof in its entirety.
3. FOURTH: The sixth paragraph of the Certificate of Designations,
Preferences and Rights of Series D Preferred Stock of the Corporation be, and
hereby is, amended to delete the initial sentence thereof in its entirety.
4. FIFTH: This Amendment was duly adopted by the Board of Directors of the
Corporation, acting by unanimous written consent in lieu of a meeting effective
as of this date, pursuant to Section 242 of the General Corporation Law of the
State of Delaware and by the stockholders of the Corporation, acting by written
consent in lieu of a meeting effective as of this date pursuant to Section 228
of the General Corporation Law of the State of Delaware and Paragraph Sixth of
the Certificate of Incorporation of the Corporation.
*****
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation to be signed as of the 15 day of
--
March, 1999, by its President, who hereby affirms and acknowledges, under
penalty of perjury, that this Certificate is the act and deed of the Corporation
and that the facts stated herein are true.
WIT CAPITAL GROUP, INC.
By: /s/ Ronald Readmond
---------------------------
Name: Ronald Readmond
Title: President
ATTEST:
By: /s/ Bernard Siegel
----------------------------
Name: Bernard Siegel
Title: Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "WIT CAPITAL GROUP, INC.", FILED IN THIS OFFICE ON THE SIXTEENTH
DAY OF MARCH, A.D. 1999, AT 4:01 O'CLOCK P.M.
[SEAL APPEARS HERE]
/s/ Edward J. Freel
-----------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9687280
DATE: 04-14-99
<PAGE>
CERTIFICATE OF INCREASE
OF SERIES D PREFERRED STOCK
OF WIT CAPITAL GROUP, INC.
WIT CAPITAL GROUP, INC., a Delaware corporation (the "Corporation"),
acting pursuant to Section 151 of the General Corporation Law of the State of
Delaware, does hereby submit the following Certificate of Increase of its Series
D Preferred Stock:
DOES HEREBY CERTIFY:
FIRST: That pursuant to authority conferred upon the Board of
Directors of the Corporation (the "Board") by the Certificate of Incorporation
of said Corporation, said Board, acting by unanimous written action in lieu of a
meeting thereof dated as of January 28 1999, duly determined that an additional
16,666,667 shares of Preferred Stock, $.01 par value, shall be designated
"Series D Preferred Stock" and to that end the Board adopted a resolution
providing for the designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations and restrictions,
of the Series D Preferred Stock, which resolution is as follows:
"RESOLVED, that the Board, pursuant to the authority vested in it by
the provisions of the Certificate of Incorporation of the Corporation,
as amended, hereby authorizes the designation of an additional
16,666,667 shares of preferred stock, $.01 par value, of the
Corporation, as "Series D Preferred Stock" (the "Additional Series D
Preferred Stock") (representing an aggregate of 31,333,334 shares of
preferred stock designated as Series D Preferred Stock as of the date
hereof). The Additional Series D Preferred Stock shall have such
designations, preferences and relative, participating, optional or
other rights, and the qualifications, limitations and restrictions as
set forth in the Certificate of Incorporation of the Corporation, as
amended and in effect as of the date hereof."
SECOND: That said determination of the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations and restrictions, of the Series D Preferred Stock was duly made by
the Board pursuant to the provisions of the Certificate of Incorporation of the
Corporation and in accordance with the provisions of the General Corporation Law
of the State of Delaware.
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:01 PM 03/16/1999
991103466 - 2916664
<PAGE>
IN WITNESS WHEREOF, this Certificate of Increase has been signed by
the President, and attested to by the Secretary, of the Corporation this 4 day
-
of February, 1999.
WIT CAPITAL GROUP, INC.
By: /s/ Ronald Readmond
--------------------------
Ronald Readmond
President
ATTEST:
/s/ Bernard Siegel
- ------------------------
M. Bernard Siegel
Secretary
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 04/08/1999
991138703 - 2916664
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
WIT CAPITAL GROUP, INC.
WIT CAPITAL GROUP, INC., a Delaware corporation (the "Corporation"),
hereby certifies as follows:
1. The current name of the Corporation is "WIT CAPITAL GROUP, INC."
2. Article FOURTH of the Certificate of Incorporation of Wit Capital Group,
Inc. be, and hereby is, amended by:
(i) inserting immediately prior to the reference to "("Common
Stock")" the following: "of which 159,000,000 shall be voting Common Stock"; and
inserting immediately following the reference to "("Common Stock")" the
following: "and 25,000,000 shall be shares of non-voting Class B Common Stock,
("Class B Common Stock")";
(ii) deleting the reference to "180,000,000" and inserting in lieu
thereof "288,000,000", deleting the reference to "120,000,000" and inserting in
lieu thereof "184,000,000" and deleting the reference to "60,000,000" and
inserting in lieu thereof "104,000,000"; and
(iii) inserting at the end thereof:
"Terms of the Common Stock and the Class B Common Stock
------------------------------------------------------
(a) Voting rights. Each outstanding share of Common Stock shall have one
-------------
vote on all matters submitted to a vote of the stockholders. The Common Stock
shall vote as a single class with the Preferred Stock.
The Class B Common Stock shall have no voting rights except (i) as may be
required by the Delaware General Corporation law, (ii) such rights as may be
otherwise provided in this Certificate of Incorporation and (iii) the right, as
a separate class, to approve any amendment or repeal of any provision of this
Certificate of Incorporation (including, without limitation, by way of a merger
or consolidation of the Corporation) that would adversely affect the rights and
preferences of the holders of the Class B Common Stock; provided that a merger
--------
or consolidation that (x) constitutes a Corporate Transaction and (y) in which
all holders of Class B Common stock receive in such merger or consolidation the
same consideration they would have received had their Class B Common Stock been
converted into Common Stock immediately
<PAGE>
prior to the record date for such transaction, shall not be deemed to adversely
affect the rights, preferences, privileges or voting powers of the holders of
the Class B Common Stock.
(b) Dividend and Distributions.
--------------------------
(i) Subject to the provisions of this Article FOURTH, the
Corporation shall not pay dividends or make distributions to
any holder of Common Stock unless simultaneously with such
dividend or distribution, as the case may be, the Corporation
makes the same dividend or distribution with respect to each
outstanding share Class B Common Stock.
(ii) In the case of any dividend or other distribution on any share
of Common Stock payable in Common Stock (including, without
limitation, distributions pursuant to stock splits or divisions
of Common Stock), shares of Class B Common Stock shall be
distributed with respect to each outstanding share of Class B
Common Stock. In each case the number of shares of Class B
Common Stock payable per share Class B Common Stock shall be
equal to the number of shares of Common Stock payable per share
of Common Stock.
(iii) In the case of any dividend or other distribution on any share
of Common Stock consisting of other voting securities of the
Corporation or of voting securities of any Subsidiary of
the Corporation, the Corporation shall declare and pay each
such dividend in securities of two separate classes, identical
in all respects, except that: (A) the voting rights of each
such security paid to the holders of Class B Common Stock shall
have the same voting rights as the Class B Common Stock; (B)
such security paid to the holders of the Class B Common Stock
shall convert into the security paid to the holders of the
Common Stock on the same terms and conditions applicable to the
conversion of the Class B Common Stock into the Common Stock;
and (C) with respect only to dividends or distributions of
voting securities of any Person that is a Subsidiary of the
Corporation, the respective voting rights of each such security
paid to the holders of the Class B Common Stock shall otherwise
be as comparable as is practicable to those of the Class B
Common Stock.
(iv) In the case of any dividend or distribution on any share of
Common Stock consisting of securities convertible into, or
exchangeable for, voting securities of the Corporation or
voting securities of a Subsidiary of the Corporation, the
Corporation shall declare and pay such dividend or distribution
in securities of two separate classes, and provide that such
convertible or exchangeable securities and the underlying
securities be identical in all respects, except that (A) the
voting rights of each security underlying the convertible or
exchangeable security paid to the holders of Class B Common
Stock shall have the same voting rights as the Class B Common
Stock; and (B) such underlying securities issuable to the
holders of the Class B Common Stock shall convert into the
underlying securities
2
<PAGE>
paid to the holders of the Common Stock on the same terms and
conditions applicable to the conversion of the Class B Common
Stock into the Common Stock.
(c) Class B Common Stock to Receive Equal Treatment. The Class B Common
-----------------------------------------------
Stock shall, with respect to any reclassification, recapitalization, stock split
or similar transaction and in any merger, consolidation or share exchange, be
treated in all respects identical to the Common Stock except as otherwise
required by law.
(d) Conversion. Upon any Transfer of shares of Class B Common Stock to any
----------
Person other than a GS Holder such transferred shares of Class B Common Stock
shall be automatically and irrevocably converted into an equal number of shares
of Common Stock, and thereafter all rights of the holder of such transferred
shares of Class B Common Stock as a holder of Class B Common Stock shall cease
and the Person or Persons in whose name or names the certificate or certificates
of Common Stock are to be issued shall be treated for all purposes as having
become the holder or holders of such shares of Common Stock.
(e) Corporation to Reserve Shares of Common Stock for Conversion of Class
---------------------------------------------------------------------
B Common Stock.
--------------
The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
issuance upon conversion or exchange of the shares of Class B Common Stock and,
as may be applicable, shares of the Series E Preferred Stock, at least such
number of shares of Common Stock as is equal to the sum of (x) the number of
shares of Series E Preferred Stock then outstanding or issuable upon exercise of
warrants or options then outstanding or upon conversion or exchange of other
securities then outstanding and (y) the number of shares of Class B Common Stock
then outstanding or issuable upon exercise of warrants or options then
outstanding or upon conversion or exchange of other securities then outstanding.
(f) For purposes of this Article FOURTH, the following terms shall have
the following meanings:
"Affiliate" means, with respect to any Person, any Person who, directly or
---------
indirectly, controls, is controlled by or is under common control with that
Person. For purposes of this definition, "control" when used with respect
to any Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise;
"Common Stock Equivalent" means any security of the Corporation which is
-----------------------
convertible into, exercisable for or exchangeable for, directly or
indirectly, Common Stock or Class B Common Stock of the Corporation,
whether at the time of issuance or upon the passage of time or the
occurrence of some future event;
"Corporate Transaction" means a consolidation or merger of the Corporation
---------------------
into or with any other corporation or corporations, or the sale or transfer
by the Corporation of all or substantially all of its assets, in each case
under circumstances in which the holders of a majority in voting power of
the outstanding capital stock of the Corporation, immediately
3
<PAGE>
prior to such a merger, consolidation or sale, own less than a majority in
voting power of the outstanding capital stock of the Corporation or the
surviving or resulting corporation or acquirer, as the case may be,
immediately following such a merger, consolidation or sale;
"GS Holder" means The Goldman Sachs Group, L.P. and any Affiliate of such
---------
Person to which The Goldman Sachs Group, L.P., directly or indirectly,
transfers Common Stock, Class B Common Stock or Common Stock Equivalents
and any successive transferees thereafter that are Affiliates of The
Goldman Sachs Group, L.P.;
"Person" means any individual, corporation, partnership, limited liability
------
company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof;
"Subsidiary" of any Person means (x) a corporation a majority of whose
----------
outstanding shares of capital stock or other equity interests with voting
power, under ordinary circumstances, to elect directors, is at the time,
directly or indirectly, owned by such Person, by one or more Subsidiaries
of such Person or by such Person and one or more Subsidiaries of such
Person, and (y) any other Person (other than a corporation) in which such
Person, a Subsidiary of such Person or such Person and one or more
Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, has (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of the directors or other
governing body of such Person; and
"Transfer" means any sale or other disposition, whether voluntary or
--------
involuntary, of beneficial ownership of any class B Common Stock."
3. This Amendment was duly adopted by the Board of Directors of the
Corporation, voting at a meeting of the Board of Directors of the Corporation
held on April 1, 1999, and by a majority of the stockholders of the
Corporation, voting at a special meeting of stockholders held on April 6, 1999
pursuant to Section 211 of the General Corporation Law of the State of Delaware.
*****
4
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation to be signed as of the 8/th/ day of
April, 1999, by its President, who hereby affirms and acknowledges, under
penalty of perjury, that this Certificate is the act and deed of the Corporation
and that the facts stated herein are true.
WIT CAPITAL GROUP, INC
By: /s/ Ronald Readmond
-----------------------------
Name: Ronald Readmond
Title: President & Co. CEO
April 7, 1999
ATTEST:
By: /s/ Bernard Siegel
---------------------------
Name: M. Bernard Siegel
Title: Secretary
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES E PREFERRED STOCK
OF
WIT CAPITAL GROUP, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
____________________________
WIT CAPITAL GROUP, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that,
pursuant to authority vested in the Board of Directors of the Corporation by
Article Fourth of the Certificate of Incorporation, the following resolution was
adopted as of April 1, 1999 by the Board of Directors of the Corporation
pursuant to Section 141 of the Delaware General Corporation Law.
"RESOLVED that, pursuant to authority vested in the Board of Directors
of the Corporation by Article Fourth of the Corporation's Certificate of
Incorporation of the total authorized number of 104,000,000 shares of Preferred
Stock, par value $.01 per share, of the Corporation, there shall be designated a
series of 24,938,870 shares which shall be issued in and constitute a single
series to be known as "Series E Preferred Stock" (hereinafter called the "Series
E Preferred Stock"). The shares of Series E Preferred Stock have the vesting
powers, designations, preferences and other special rights, and qualifications,
limitations and restrictions thereof set forth below:
1. Dividends. The holders of Series E Preferred Stock shall not be
---------
entitled to receive dividends in any fixed amount, provided, however, that
-------- -------
in the event that the Corporation shall at any time pay a dividend on the
Common Stock and, if any shares of Class B Common Stock are then
outstanding, Class B Common Stock (other than a dividend payable solely in
shares of Common Stock or Class B Common Stock), it shall, at the same
time, pay to each holder of Series E Preferred Stock a dividend equal to
the dividend that would have been payable to such holder if the shares of
Series E Preferred Stock held by such holder had been converted into Class
B Common Stock or, upon or after a Qualifying Transfer (as defined in
Section 3A below), Common Stock on the date of determination of holders of
Common Stock and Class B Common Stock entitled to receive such dividends;
and provided, further, that so long as any shares of the
-------- -------
Series E
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:31 PM 04/08/1999
991138717 - 2916664
<PAGE>
Preferred Stock are outstanding, no dividends shall be declared or paid or set
apart for payment on the Series C Preferred Stock, the Series D Preferred Stock
or any other Preferred Stock of the Corporation of any series ranking, as to
dividends, junior to or on a parity with the Series E Preferred Stock, unless a
dividend shall be paid at the same time to each holder of Series E Preferred
Stock, in an amount such that the holders of such other series of Preferred
Stock, on the hand, and the holders of Series E Preferred Stock, on the other,
receive dividends in the same relative proportions that each would have received
had all such shares of Preferred Stock been converted into Common Stock and/or
Class B Common Stock immediately prior to the declaration of a dividend on such
Preferred Stock.
2. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
Corporation, whether voluntary or involuntary, the holders of the shares of
Series E Preferred Stock shall be entitled, before any distribution or payment
is made upon any Common Stock, Class B Common Stock, Series A Preferred Stock or
Series B Preferred Stock, and pari passu with the holders of Series D Preferred
---- -----
Stock and Series C Preferred Stock, to be paid an amount equal to $1.50 per
share (approximately adjusted to reflect the occurrence of any stock split,
stock dividend, stock combination, stock subdivision or like occurrences) plus
any declared and unpaid dividends (the "Series E Preferred Liquidation
Preference") payable with respect to such share under Section 1 pari passu with
---- -----
the holders of Series D Preferred Stock and Series C Preferred Stock before any
distributions shall be made to the holders of the Series A Preferred Stock, the
Series B Preferred Stock, the Common Stock, the Class B Common Stock or any
other class of capital stock of the Corporation ranking junior to the Series E
Preferred Stock, the Series D Preferred Stock and the Series C Preferred Stock.
If upon such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Series E Preferred Stock, the Series D Preferred Stock and the Series C
Preferred Stock of the Corporation shall be insufficient to permit payment to
the holders of Series E Preferred Stock, Series D Preferred Stock and Series C
Preferred Stock of the full amount of the Liquidation Payments, then the entire
assets of the Corporation to be so distributed shall be distributed ratably per
share among the holders of Series E Preferred Stock, Series D Preferred and
Series C Preferred Stock in proportion to the amounts to which they respectively
are entitled. Upon any such liquidation, dissolution or winding up of the
Corporation after the holders of Series E Preferred Stock, Series D Preferred
Stock and Series C Preferred Stock shall have been paid in full the amounts to
which they shall be entitled, and after the holders of the Series A Preferred
Stock and the Series B Preferred Stock shall have been paid in full in
accordance with the rights and preferences to which they are entitled, the
remaining net assets of the Corporation shall be distributed ratably and
exclusively to the holders of Common Stock and Class B Common Stock. Written
notice of such liquidation, dissolution or winding up, stating a payment date,
the amount of the Liquidation Payment and the place where said sums shall be
payable shall be given by mail, postage prepaid, not less than 30 or
-2-
<PAGE>
more than 60 days prior to the payment date stated therein, to the holders
of record of the Series E Preferred Stock, Series D Preferred Stock and
Series C Preferred Stock and the Common Stock and Class B Common Stock,
such notice to be addressed to each shareholder at his post office address
as shown by the records of the Corporation. Unless waived in writing by the
holders of 66-2/3% of the Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock, voting together as one class, a
consolidation or merger of the Corporation into or with any other
corporation or corporations, or the sale or transfer by the Corporation of
all or substantially all of its assets, in each case under circumstances in
which the holders of a majority in voting power of the outstanding capital
stock of the Corporation, immediately prior to such a merger, consolidation
or sale, own less than a majority in voting power of the outstanding
capital stock of the corporation or the surviving or resulting corporation
or acquirer, as the case may be, immediately following such a merger,
consolidation or sale (each such transaction being hereinafter referred to
as a "Corporate Transaction") shall be deemed to be a liquidation within
the meaning of this Section 2.
3. Conversion.
----------
3A. Right to Convert. Subject to the terms and conditions of this
----------------
paragraph 3, the holder of any share or shares of Series E Preferred Stock
shall have the right, at its option at any time, to convert any such shares
of Series E Preferred Stock into such number of fully paid and
nonassessable whole shares of Class B Common Stock or, upon and after a
Qualifying Transfer (as defined in this paragraph 3A), shares of Common
Stock, as is obtained by multiplying the number of shares of Series E
Preferred Stock so to be converted by $1.50 and dividing the result by the
conversion price of $1.50 per share or, if there has been an adjustment of
the conversion price, by the conversion price as last adjusted and in
effect at the date any share or shares of Series E Preferred Stock are
surrendered for conversion (such price, or such price as last adjusted,
being referred to herein as the "Conversion Price"). Such rights of
conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of
Series E Preferred Stock into Class B Common Stock or Common Stock, as the
case may be, and by surrender of a certificate or certificates for the
shares so to be converted to the Corporation at its principal office (or
such other office or agency of the Corporation as the Corporation may
designate by notice in writing to the holder or holders of the Series E
Preferred Stock) at any time during its usual business hours on the date
set forth in such notice, together with a statement of the name or names
(with address), subject to compliance with applicable laws to the extent
such designation shall involve a transfer, in which the certificate or
certificates for shares of Class B Common Stock or Common Stock, as the
case may be, shall be issued. If at any time after the original issuance of
the Series E Preferred Stock, Beneficial Ownership of shares of Series E
Preferred Stock are sold or otherwise transferred to a Person other than a
GS Holder (as defined in the Third Amended and Restated Stockholders
Agreement (the
-3-
<PAGE>
"Stockholders Agreement"), dated as of April 8, 1999, among the Corporation
and the signatories listed therein, each such transfer, a "Qualifying
Transfer"), then such shares of Series E Preferred Stock shall thereafter,
without any further action on the part of such holder, be convertible,
subject to the other terms and conditions of this paragraph 3, into whole
shares of Common Stock and the holder of record of such shares of Series E
Preferred Stock (whether or not such holder is also the Beneficial Owner
thereof) shall be deemed to be the holder of record of Shares of Series E
Preferred Stock convertible, subject to the terms and conditions of this
paragraph 3, into shares of Common Stock, notwithstanding that certificates
evidencing such shares of Series E Preferred Stock shall not have been
registered in the name of the transferee thereof or shall not have been
delivered to such transferee. For purposes of this paragraph (3),
"Beneficially Owned" or "Beneficial Ownership" shall have the meaning
ascribed to such terms in Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended, provided, however, that for the purposes
-------- -------
of calculating the number of shares Beneficially Owned by The Goldman Sachs
Group, L.P. or the GS Holders and their Controlled Affiliates (as such
terms are defined in the Stockholders Agreement), there shall be excluded
from such calculation any shares Beneficially Owned by a Controlled
Affiliate of The Goldman Sachs Group, L.P. or any other GS Holder that are
held (i) for the account of a registered investment company advised by The
Goldman Sachs Group, L.P. or any of its Controlled Affiliates, (ii) in an
account with respect to which The Goldman Sachs Group, L.P. or any of its
Controlled Affiliates has investment or voting discretion or (iii) in a
fiduciary capacity for others.
3B. Issuance of Certificates: Time Conversion Effected. Promptly
--------------------------------------------------
after the receipt by the Corporation of the written notice referred to in
subparagraph 3A and surrender of the certificate or certificates for the
share or shares of the Series E Preferred Stock to be converted, the
Corporation shall issue and deliver, or cause to be issued and delivered,
to the holder, registered in such name or names as such holder may direct,
subject to compliance with applicable laws to the extent such designation
shall involve a transfer, a certificate or certificates for the number of
whole shares of Class B Common Stock, or Common Stock, as the case may be,
issuable upon the conversion of such share or shares of Series E Preferred
Stock. To the extent permitted by law, such conversion shall be deemed to
have been effected and the Conversion Price shall be determined as of the
close of business on the date on which such written notice shall have been
received by the Corporation and the certificate or certificates for such
shares shall have been surrendered as aforesaid, and at such time the
rights of the holder of such share or shares of Series E Preferred Stock
shall cease, and the person or persons in whose name or names any
certificate or certificates for shares of Class B Common Stock, as the case
may be, shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
-4-
<PAGE>
3C. Fractional Shares: Dividends: Partial Conversion. No fractional shares
------------------------------------------------
shall be issued upon conversion of the Series E Preferred Stock into Class B
Common Stock or Common Stock, as the case may be, and the number of the shares
of Class B Common Stock or Common Stock to be issued shall be rounded to the
nearest whole share, and no payment or adjustment shall be made upon any
conversion on account of any cash dividends on the Series E Preferred Stock so
converted or the Class B Common Stock issued upon such conversion. In case the
number of shares of Series E Preferred Stock represented the certificate or
certificates surrendered pursuant to subparagraph 3A exceeds the number of
shares converted, the Corporation shall upon such conversion, execute and
deliver to the holder thereof, at the expense of the Corporation, a new
certificate for the number of shares of Series E Preferred Stock represented by
the certificate or certificates surrendered which are not to be converted.
3D. Adjustment of Price Upon Issuance. If and at any time or from time to
---------------------------------
time, after the Original Issuance Date for the Series E Preferred Stock and
Prior to the consummation of a Qualified Offering (as hereinafter defined), the
Corporation shall issue or sell, or is, in accordance with subparagraphs 3D(1)
through 3D(7), deemed to have issued or sold, any shares ("Additional Common
Shares") of its Common Stock other than Excluded Stock (as defined hereinafter)
without consideration or for a consideration per share less than the Conversion
Price in effect immediately prior to the time of such issue or sale, then the
Conversion Price in effect immediately prior to the time of such issue or sale,
then the Conversion Price shall be reduced, concurrently with issue or sale, to
a price equal to the price paid (or deemed to have been paid) per share for such
Additional Common Shares. If the Corporation shall at any time after a Qualified
Offering issue or sell, or is, in accordance with subparagraphs 3D(1) through
3D(7) below, deemed to have issued or sold, any Additional Common Shares other
than Excluded Stock without consideration or for a consideration per share less
than the Conversion Price in effect immediately prior to the time of such issue
or sale, then the Conversion Price in effect immediately prior to each such
issuance shall be reduced, concurrently with such issue or sale, to a price
equal to the quotient obtained by dividing: (A) an amount equal to the sum of
(x) the total number of shares of Common Stock outstanding (including any shares
deemed to have been issued pursuant to subparagraphs 3D(1) through 3D(7) below)
immediately prior to such issuance, multiplied by the applicable Conversion
Price in effect immediately prior to such issuance of Additional Common Shares,
and (y) the consideration received by the Corporation upon such issuance: by (B)
the total number of shares of Common Stock outstanding (including any shares
deemed to have been issued pursuant to subparagraphs 3D(1) through 3D(7) below)
immediately after such issuance of the Additional Common Shares. As used herein,
the term "Qualified Offering" shall mean the consummation by the Corporation of
any equity financing, in a single transaction or series or related transactions,
yielding aggregate gross proceeds to the Corporation of at least $15,000,000 at
a price per share of at least $3.00 (appropriately adjusted to reflect the
occurrence of any stock split, stock dividend, stock combination, stock
subdivision or like occurrences).
-5-
<PAGE>
No adjustment of the Conversion Price, however, shall be made in an amount
less than $0.01 per share, and any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which together with any adjustments so carried forward shall amount
to $.01 per share or more.
For purposes of this subparagraph 3D, the following paragraphs 3D(1)to
3D(7) shall also be applicable:
3D(1). Issuance of Rights or Options. In case at any time the
-----------------------------
Corporation shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any rights to subscribe for or to purchase, or any option
for the purchase of, Common Stock or Class B Common Stock or any stock or
securities convertible into or exchangeable for Common Stock (such rights or
options being herein called "Options" and such convertible or exchangeable stock
or securities being herein called "Convertible Securities"), whether or not such
Options or the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or exchange of
such Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or exchange thereof
by (ii) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be less
than the Conversion Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issued upon the
exercise of such Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options and thereafter shall be deemed
to be outstanding. Except as otherwise provided in subparagraph 3D(3), no
adjustment of the Conversion Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of such Options or
upon the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
3D(2). Issuance of Convertible Securities. In case the Corporation shall
----------------------------------
in any manner issue (whether directly or by assumption in a merger or otherwise)
or sell any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable and the price per share for which
Common Stock is issuable
-6-
<PAGE>
upon such conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof by (ii) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the Conversion Price in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities shall
be deemed to have been issued for such price per share as of the date of the
issue or sale of such Convertible Securities and thereafter shall be deemed to
be outstanding, provided that (a) except as otherwise provided in subparagraph
3D(3) below, no adjustment of the Conversion Price shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities, and (b) if any such issue or sale of such Convertible Securities is
made upon exercise of any Option to purchase any such Convertible Securities for
which adjustments of the Conversion Price have been or are to be made pursuant
to other provisions of this subparagraph 3D, no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
3D(3). Change in Option Price or Conversion Rate. Upon the happening of
-----------------------------------------
any of the following events after the original date of issuance of Series E
Preferred Stock, namely, if the purchase price provided for in any Option
referred to in subparagraph 3D(1), the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities referred to in
subparagraph 3D(1) or 3D(2), or the rate at which any Convertible Securities
referred to in subparagraph 3D(1) or 3D(2) are convertible into or exchangeable
for Common Stock shall change at any time (in each case other than under or by
reason of provisions designed to protect against dilution), the Conversion Price
in effect at the time of such event shall forthwith be readjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold; and on the expiration of any such Option
or the termination of any such right to convert or exchange such Convertible
Securities, the Conversion Price then in effect hereunder shall forthwith be
increased to the Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination never
been issued, and the Common Stock issuable thereunder shall no longer be deemed
to be outstanding. If the purchase price provided for in any such Option
referred to in subparagraph 3D(1) or the rate at which any Convertible
Securities referred to in subparagraph 3D(1) or 3D(2) are convertible into or
exchangeable for Common Stock shall be reduced at any time under or by reason of
provisions with respect thereto designed to protect against dilution, then, in
case of the delivery of Common
-7-
<PAGE>
Stock upon the exercise of any such Option or upon conversion or exchange of any
such Convertible Securities, the Conversion Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would have been obtained had
such Option or Convertible Securities never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares of Common Stock
delivered as aforesaid, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced.
3D(4). Stock Dividends. In case the Corporation shall declare a dividend or
---------------
make any other distribution upon any stock of the Corporation payable in Common
Stock, Options or Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration and the Conversion Price then in effect immediately prior to such
dividend declaration or distribution shall be reduced as if the Corporation had
subdivided its outstanding shares of Common Stock into a greater number of
shares as provided in subparagraph 3D(5).
3D(5). Subdivision or Combination of Stock. In case the Corporation shall
-----------------------------------
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares or shall declare or pay a dividend on its outstanding shares of
Common Stock payable in shares of Common Stock, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock of the Corporation
shall be combined into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination shall be proportionately increased.
3D(6). Consideration for Stock. In case any shares of Common Stock, Options
-----------------------
or Convertible Securities shall be issued or sold for cash, the consideration
received shall be deemed to be the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Corporation in connection
therewith. In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall be deemed to be
the fair value of such consideration as determined in good faith by the Board of
Directors of the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation in
connection therewith. The amount of consideration deemed to be received by the
Corporation pursuant to the foregoing provisions of this subparagraph 3D(6) upon
any issuance and/or sale of shares of Common Stock, Options or Convertible
Securities, pursuant to an established compensation plan of the Corporation, to
directors, officers or employees of the Corporation in connection with their
employment shall be increased by the amount of any tax benefit realized by the
Corporation as a result of such issuance
-8-
<PAGE>
and/or sale, the amount of any tax benefit being the amount by which the Federal
and/or state income or other liability of the Corporation shall be reduced by
reason of any deduction or credit in respect of such issuance and/or sale. In
case any Options shall be issued in connection with the issue and sale of other
securities of the Corporation together comprising one Integral transaction in
which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without consideration.
3D(7). Record Date. In case the Corporation shall take a record of the
-----------
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities, or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
3E. Excluded Stock. As used herein, the term "Excluded Stock" shall mean
--------------
(i) shares of Common Stock issuable upon the exercise of stock options or stock
purchase rights or as restricted stock or otherwise that have been or may be
granted to officers, directors, employees or consultants of the Corporation with
the approval of the Board of Directors, (ii) shares of Common Stock issued by
the Corporation as a stock dividend or upon any subdivision, combination or
split-up of Common Stock, (iii) securities issued pursuant to commercial
transactions approved by the Board of Directors (including without limitation,
equipment leases or bank lines or credit), (iv) securities issued in connection
with acquisitions or strategic investments or corporate partnering transactions
or relationships, (v) securities issuable pursuant to the exercise of warrants
outstanding on the Original Issuance Date, (vi) securities that have been
approved for issuance or grant by the holders of a majority of the outstanding
shares of Series E Preferred Stock or (vii) shares of Common Stock issuable upon
conversion of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock.
3F. Reorganization or Reclassification. If any capital reorganization or
----------------------------------
reclassification of the capital stock of the Corporation shall be effected in
such a way (including, without limitation, by way of the consolidation or
merger) that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock then, as a
condition of such reorganization or reclassification, lawful and adequate
provision (in form satisfactory to the holders of at least 66-2/3% of the
outstanding shares of Series E Preferred Stock, Series D Preferred Stock and
Series C Preferred Stock, voting together as one class) shall be made whereby
each holder of a share or shares of Series E Preferred Stock shall thereafter
have the right
-9-
<PAGE>
to receive, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Class B Common Stock or Common Stock of
the Corporation immediately theretofore receivable upon the conversion of
such share or shares of the Series E Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of Common Stock equal to the
number of shares of such stock immediately theretofore so receivable had
such reorganization or reclassification not taken place and in any such
case appropriate provision shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the Conversion Price)
shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise of such conversion rights (including an immediate adjustment, by
reason of such reorganization or reclassification, of the Conversion Price
to the value for the Common Stock reflected by the terms of such
reorganization or reclassification if the value so reflected is less than
the Conversion Price in effect immediately prior to such reorganization or
reclassification); provided that with respect to any outstanding shares of
--------
Series E Preferred Stock that have not been the subject of a Qualifying
Transfer, the holder of such shares shall have the right to elect, in
respect of any shares of stock or other securities as may be issued or
payable in lieu of Common Stock or Class B Common Stock as aforesaid, to
receive only shares or securities having no greater voting rights than that
of the Series E Preferred Stock. In the event of a merger or consolidation
of the Corporation as a result of which a greater or lesser number of
shares of common stock of the surviving corporation are issuable to holders
of the Common Stock of the Corporation outstanding immediately prior to
such merger or consolidation, the Conversion Price in effect immediately
prior to such merger or consolidation shall be adjusted in the same manner
as though there were a subdivision or combination of the outstanding shares
of Common Stock of the Corporation. The Corporation will not effect any
such consolidation or merger, or any sale of all or substantially all its
assets and properties, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument (in form reasonably satisfactory to the
holders of at least 66-2/3% of the shares of Series E Preferred Stock,
Series D Preferred Stock and Series C Preferred Stock, voting together as
one class, at the time outstanding) executed and mailed or delivered to
each holder of shares of Series E Preferred Stock at the last address of
such holder appearing on the books of the Corporation, the obligation to
deliver to such holder such shares of stocks, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
receive.
3G. Notice of Adjustment. Upon any adjustment of the Conversion Price,
--------------------
then, and in each such case the Corporation shall give written notice
thereof by first class mail, postage prepaid, addressed to each holder of
shares of Series E Preferred Stock at
-10-
<PAGE>
the address of such holder as shown on the books of the Corporation, which
notice shall state the Conversion Price resulting from such adjustment,setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
3H. Other Notices. In case at any time:
-------------
(1) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the holders of its
Common Stock;
(2) the Corporation shall offer for subscription pro rata to the holders
--- ----
of its Common Stock any additional shares of such stock of any class or other
rights;
(3) there shall be any capital reorganization or reclassification of the
capital stock of the Corporation, or a consolidation or merger of the
Corporation with, or a sale of all or substantially all its assets to, another
corporation; or
(4) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, addressed to each holder of any shares of Series E
Preferred Stock at the address of such holder as shown on the books of the
Corporation, (a) at least 15 days prior written notice of the date on which the
books of the Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 15 days prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause(a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
3I. Mandatory Conversion. Each share of Series E Preferred Stock shall
--------------------
be automatically converted into the number of shares of Class B Common Stock
(or, after a Qualifying Transfer, Common Stock) equal to the quotient obtained
by dividing (i) the product of $1.50 and the number of shares of Series E
Preferred Stock being converted by (ii) the Conversion Price, if at any time
the Corporation shall effect an initial public
-11-
<PAGE>
offering (a "Qualified Public Offering") of shares of its Common Stock
registered under the Securities Act of 1933, as amended (the "Securities
Act"), hereof in which (i) the aggregate net proceeds to the Corporation
are at lease $25,000,000 and (ii) the per share price to the public is not
less than $4.50 (appropriately adjusted to reflect the occurrence of any
stock split, stock dividend, stock combination, stock subdivision or like
occurrences). Such conversion shall be effected at the time of and subject
to the consummation of the Qualified Public Offering and otherwise in
accordance with the provisions of subparagraphs 3B and 3C hereof.
3J. Stock to be Reserved. The Corporation will at all times reserve
--------------------
and keep available out of its authorized but unissued Class B Common Stock
and Common Stock solely for the purpose of issuance upon the conversion of
the Series E Preferred Stock as herein provided, such number of shares of
Class B Common Stock and Common Stock as shall then be issuable upon the
conversion of all outstanding shares of Series E Preferred Stock. All
shares of Class B Common Stock or Common Stock, as the case may be, which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes liens and charges arising out of or
by reason of the issue thereof and, without limiting the generality of the
foregoing, the Corporation covenants that it will from time to time take
all such action as may be requisite to assure that the par value per share
of each of the Class B Common Stock and the Common Stock is at all times
equal to or less than the effective Conversion Price. The Corporation will
take all such action within its control as may be necessary on its part to
assure that all such shares of Class B Common Stock and Common Stock may be
so issued without violation of any applicable law or regulation, or of any
requirements of any national securities exchange upon which the Class B
Common Stock Common Stock, as the case may be, of the Corporation may be
listed. The Corporation will not take any action which results in any
adjustment of the Conversion Price if after such action the total number of
shares of Class B Common Stock or Common Stock issued and outstanding and
thereafter issuable upon exercise of all options and conversion of
Convertible Securities, including upon conversion of the Series E Preferred
Stock, would exceed the total number of shares of such class of Common
Stock then authorized by the Corporation's Certificate of Incorporation.
3K. No Reissuance of Series E Preferred Stock. Shares of Series E
-----------------------------------------
Preferred Stock that are converted into shares of Class B Common Stock or
Common Stock as provided herein shall not be reissued.
3L. Issue Tax. The issuance of certificates for shares of Class B
---------
Common Stock or Common Stock, as the case may be, upon conversion of the
Series E Preferred Stock shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificate
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<PAGE>
in a name other than that of the holder of the Series E Preferred Stock which is
being converted.
3M. Closing of Books. The Corporation will at no time close its transfer
----------------
books against the transfer of any Series E Preferred Stock or of any shares of
Class B Common Stock or Common stock issued or issuable upon the conversion of
any shares of Series E Preferred Stock in any manner which interferes with the
timely conversion of such Series E Preferred Stock.
3N. Definition of Common Stock. As used in this paragraph 3, the term
--------------------------
"Common Stock" shall mean and include the Corporation's authorized Common
Stock and Class B Common Stock as constituted on the date of filing of this
Certificate of Designation and shall also include any capital stock of any class
of the Corporation thereafter authorized that shall not be limited to a fixed
sum in respect of the rights of the holders thereof to participate in dividends
or in the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided however, that such term,
--------
when used to describe the Securities receivable upon conversion of shares of the
Series E Preferred Stock of the Corporation and when used in paragraph 5, shall
include only shares designated as Class B Common Stock or designated as Common
Stock of the Corporation on the date of filing of this Certificate of
Designation, any shares resulting from any combination or subdivision thereof
referred to in subparagraph 3D(5), or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in subparagraph 3F.
4. Optional Redemption. (a) In the event that the Corporation has not, on
-------------------
or before the sixth anniversary of the Original Issuance Date for the Series E
Preferred Stock, consummated an initial public offering shares of Common Stock
pursuant to the Securities Act or a Corporate Transaction has not been
consummated or the original purchaser of Series E Preferred Stock has not
disposed of such Series E Preferred Stock, then such original holder of Series E
Preferred Stock shall have the option, exercisable by written notice in
accordance with the first sentence of Section 4(b) from such holder delivered to
the Corporation, to cause the Corporation to redeem, and the Corporation shall
(unless prohibited by law) so redeem (the "Optional Redemption") that number of
shares as shall equal 50% of the shares of Series E Preferred Stock held by such
holder on the seventh anniversary of the Original Issuance Date for the Series E
Preferred Stock and the balance of such shares of Series E Preferred Stock on
the eighth anniversary of the Original Issuance Dates for the Series E Preferred
Stock (each an "Optional Redemption Date"), at a redemption price per share (the
"Optional Redemption Price") equal to the fair market value thereof as at the
sixth anniversary of the Original Issuance Date for the Series E Preferred Stock
as determined by an investment banking firm or other third party mutually
designated by the Corporation and the holders of a majority of the then
outstanding shares of Series E Preferred Stock.
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<PAGE>
(b) Notice of the exercise of the redemption option pursuant to
Section 4(a) shall be sent by first-class certified mail, postage prepaid
and return receipt requested, or by overnight courier to the Corporation.
At any time on or after the Optional Redemption Date, the holders of
record of shares of Series E Preferred Stock exercising their right to
Optional Redemption, shall, as to the shares of Series E Preferred Stock to
be redeemed on such date, be entitled to receive payment in cash of the
Optional Redemption Price with respect to such Series E Preferred Stock
upon actual delivery to the Corporation or its agent of the certificate or
certificates representing the shares of Series E Preferred Stock to be
redeemed. If the Corporation does not have sufficient funds legally
available to redeem all shares of Series E Preferred Stock to be redeemed
at the Optional Redemption Date, then it shall redeem such shares pro rata
(based on the portion of the aggregate Optional Redemption Price payable in
respect of such shares) to the extent possible and shall redeem the
remaining shares to be redeemed as soon as sufficient funds are legally
available.
(c) On and after the Optional Redemption Date with respect to the
shares of Series E Preferred Stock to be redeemed by the Corporation
pursuant to this Section 4 on such date (unless the Corporation (i) is
legally prohibited from redeeming such shares of Series E Preferred Stock
as have been requested to be redeemed on such Optional Redemption Date, in
which event such right shall be exercisable until the removal of such legal
disability or (ii) otherwise fails to pay the Optional Redemption Price
applicable thereto) all rights in respect of the shares of Series E
Preferred Stock to be redeemed, except the right to review the Optional
Redemption Price as herein provided, shall cease and terminate; and such
shares shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the
Corporation,
(d) Anything contained herein to the contrary notwithstanding, the
holders of shares of Series E Preferred Stock exercising their optional
redemption rights under this Section 4 shall have the right, exercisable at
any time up to the close of business on the applicable Optional Redemption
Date, to convert all or any part of such shares into shares of Common Stock
pursuant to Section 3 hereof.
5. Voting - Series E Preferred Stock. Except as otherwise provided
---------------------------------
by law and this Certificate of Incorporation, the holders of Series E
Preferred Stock shall have no voting rights other than the right to vote on
any matter on which the holders of Class B Common Stock are entitled to
vote. Notwithstanding the foregoing, from and after a Qualifying Transfer,
holders of shares of Series E Preferred Stock that are thereafter
convertible into shares of Common Stock shall have the right to vote on any
matter on which the holders of Common Stock are entitled to vote. With
respect to the voting rights of the holders of the Series E Preferred Stock
pursuant to the preceding two sentences, each holder of Series E Preferred
Stock shall be entitled to one vote for each
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<PAGE>
share of Class B Common Stock or Common Stock, as the case may be, that would be
issuable to such holder upon the conversion of all shares of Series E Preferred
Stock held by such holder on the record date for the determination of
shareholders entitled to vote and they shall vote together as a class with the
Class B Common Stock, as the case may be.
6. Further Restrictions. At any time when shares of Series E Preferred
--------------------
Stock are outstanding, and in addition to any other vote of the holders of
Series E Preferred Stock required by law or by the Certificate of Incorporation,
without the prior consent of the holders of 66-2/3% of the outstanding Series E
Preferred Stock, given in person or by proxy, either in writing or at a special
meeting called for that purpose, at which meeting the holders of the shares of
such Series E Preferred Stock shall vote together as a class, the Corporation
will not: (i) authorize, create, designate, establish or issue any class or
series of capital stock ranking senior to the Series E Preferred Stock or
reclassify any shares of Common Stock into shares having any preference or
priority as to dividends or assets superior to any such preference or priority
of Series E Preferred Stock; or (ii) amend, alter or repeal, whether by merger,
consolidation or otherwise, the Certificate of Incorporation or By-Laws of the
Corporation or the Resolutions contained in this Certificate of Designations of
the Series E Preferred Stock and the powers, preferences, privileges, relative,
participating, optional and other special rights and qualifications, limitations
and restrictions thereof, which would adversely affect any right, preference
privilege or voting power of the Series E Preferred Stock, or which would
increase the amount of authorized shares of the Series E Preferred Stock, or of
any other series of preferred stock ranking senior to the Series E Preferred
Stock, with respect to the payment of dividends (whether or not such series of
preferred stock is cumulative or noncumulative as to payment of dividends) or
liquidation, provided that a merger or consolidation (i) that constitutes a
--------
Corporate Transaction, and (ii) in which all holders of Preferred Stock receive
in such merger or consolidation the same consideration they would have received
had their Preferred Stock been converted into Common Stock and/or Class B Common
Stock immediately prior to the record date for such transaction, shall not be
deemed to adversely affect the rights, preferences, privileges or voting powers
of the Series E Preferred Stock.
7. No Waiver. Except as otherwise modified or provided for herein, the
---------
holders of Series E Preferred Stock shall also be entitled to, and shall not be
deemed to have waived, any other applicable rights granted to such holders under
the Delaware General Corporation Law.
8. No Impairment. The Corporation will not, through any reorganization,
-------------
transfer of assets, merger, dissolution, issue or sale of securities on any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation but
will at all time in good faith
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<PAGE>
assist in the carrying out of all the provisions of this Article Fourth and
in the taking of all such aution as may be necessary or appropriate in
order to protect the conversion rights and liquidation preferences granted
hereunder of the holders of the Series E Preferred Stock against
impairment.
IN WITNESS WHEREOF, this Certificate of Designation has been executed
by the Corporation by its Chief Financial Officer as of this 1st day of April
1999.
WIT CAPITAL GROUP, INC.
By: /s/ M. Bernard Siegel
------------------------
Name: M. Bernard Siegel
Title: Chief Financial Officer
-16-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
WIT CAPITAL GROUP, INC.
--------------------------------------------
WIT CAPITAL GROUP, INC., a Delaware corporation hereby certifies as
follows:
1. FIRST: The current name of the Corporation is "Wit Capital Group,
Inc."
2. SECOND: The text of Article FOURTH of the Certificate of Incorporation
is hereby amended and restated to read in its entirety as follows:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 447,000,000 shares, consisting
of 343,000,000 shares of common stock, $.01 par value, of which 159,000,000
shall be voting Common Stock ("Common Stock"), 25,000,000 shall be shares
of non-voting Class B Common Stock ("Class B Common Stock"), 159,000,000
shall be voting Class C Common Stock ("Class C Common Stock") and
104,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock"). The Preferred Stock may be issued from time to time in one or
more series of any number of shares, provided that the aggregate number of
shares issued and not canceled of any and all such series shall not exceed
104,000,000. The Board of Directors of the Corporation is authorized to
establish by resolution each series of Preferred Stock, and to determine
the powers, designations, preferences and relative, participating, optional
or other rights, if any, and the qualifications, limitations or
restrictions thereof, if any, from time to time.
Upon the filing of this Certificate of Amendment of Certificate of
Incorporation pursuant to the General Corporation Law of the State of Delaware
(the "Effective Time"): (i) the Corporation shall have the authority to issue
an additional class of common stock, $.01 par value (the "New Common Stock"),
the terms of which are hereinafter described, and 159,000,000 shares of a new
class of Class C Common Stock, $.01 par value (the "Class C Common Stock"), the
terms of which are hereinafter described; (ii) each share of common stock, $.01
par value, outstanding immediately prior to the Effective Time (the "Old Common
Stock"), shall be converted at the Effective Time into one share of Class C
Common Stock; and (iii) the terms of the Old Common Stock shall be deleted in
their entirety and replaced with the terms of the New Common Stock as
hereinafter described. At such Effective Time, each holder of shares of Old
Common Stock shall
88
<PAGE>
automatically be and become the holder of one share of Class C Common Stock for
every share of Old Common Stock then held by such holder. As soon as practicable
after such Effective Time, the stockholders of the Corporation as of the date of
such conversion shall be notified thereof, and, upon delivery by the holders of
Old Common Stock of their certificates for such stock to the Corporation, shall
be sent stock certificates representing their shares of Class C Common Stock.
Terms of the Common Stock and the Class C Common Stock.
------------------------------------------------------
(a) Voting Rights. Except as otherwise provided herein or as
-------------
otherwise required by law, the entire voting power and all voting rights
shall be vested exclusively in the Common Stock and the Class C Common
Stock, the holders of which shall vote together on all matters to be voted
on by the stockholders of the Corporation. Each outstanding share of
Common Stock and each outstanding share of Class C Common Stock shall
entitle the holder thereof to one vote, in person or by proxy, on all
matters submitted to a vote of the stockholders of the Corporation. The
Common Stock and Class C Common Stock shall vote as a single class with the
Preferred Stock
(b) Transfer Restrictions. Prior to the Transfer Restriction
---------------------
Termination Date (as hereinafter defined), no holder of Class C Common
Stock may transfer or dispose of any share of Class C Common Stock or any
interest in any such share. Any purported transfer or disposition of a
share of Class C Common Stock in violation of the aforesaid restriction
shall be null and void and the Corporation shall not be required to
register the same or otherwise give effect thereto. Certificates
evidencing shares of Class C Common Stock shall bear a legend evidencing
the foregoing restriction. For purposes hereof, the term "Transfer
Restriction Termination Date" shall mean the earlier of (i) the date which
is 180 days following the closing by the Corporation of an initial public
offering of shares of the Common Stock registered under the Securities Act
of 1933, as amended, in which (a) the aggregate net proceeds to the
Corporation are at least $5,000,000 and (b) the per share price to the
public is not less than $3.00 (appropriately adjusted for any stock splits,
combinations or stock dividends) and (ii) February 1, 2000.
(c) Conversion. Each share of Class C Common Stock shall be
----------
automatically and irrevocably converted into one share of Common Stock,
without further on the part of the holder thereof, upon the Transfer
Restriction Termination Date and thereafter all rights of the holders of
shares of Class C Common Stock, as holders of Class C Common Stock, shall
cease and such holders shall be treated for all purposes as having become
the holders of shares of Common Stock.
(d) Corporation to Reserve Shares of Common Stock for Conversion
------------------------------------------------------------
of Class C Common Stock. The Corporation shall at all times reserve and
-----------------------
keep available out of its authorized but unissued shares of Common Stock,
89
<PAGE>
solely for the purpose of issuance upon conversion or exchange of the
shares of Class C Common Stock, at least the number of shares of Common
Stock that is equal to the number of shares of Class C Common Stock then
outstanding plus the number of shares of Class C Common Stock issuable upon
exercise of warrants, options and rights to acquire shares of Class C
Common Stock then outstanding or upon conversion or exchange of other
securities exercisable for or exchangeable into shares of Class C Common
Stock then outstanding.
(e) Class C Common Stock to Receive Equal Treatment. The Class C
-----------------------------------------------
Common Stock shall, with respect to any reclassification, recapitalization,
stock split or similar transaction and in any merger, consolidation or
share exchange, be treated in all respects identical to the Common Stock
except as otherwise required by law.
Terms of the Class B Common Stock.
---------------------------------
(a) Voting Rights. The Class B Common Stock shall have no
-------------
voting rights except (i) as may be required by law, (ii) such rights as may
be otherwise provided herein and (iii) the right, as a separate class, to
approve any amendment or repeal of any provision of this Amended and
Restated Certificate of Incorporation (including, without limitation, by
way of a merger or consolidation of the Corporation) that would adversely
affect the voting powers, designations, preferences and rights of the Class
B Common Stock; provided that a merger or consolidation that (x)
--------
constitutes a Corporate Transaction and (y) in which all holders of Class B
Common Stock receive in such merger or consolidation the same consideration
they would have received had their Class B Common Stock been converted into
Common Stock immediately prior to the record date for such transaction,
shall not be deemed to adversely affect the voting powers, designations,
preferences and rights of the holders of the Class B Common Stock.
(b) Dividends and Distributions.
---------------------------
(i) Subject to the provisions of this Article FOURTH, the
Corporation shall not pay dividends or make distributions to any
holder of Common Stock unless simultaneously with such dividend or
distribution, as the case may be, the Corporation makes the same
dividend or distribution with respect to each outstanding share of
Class B Common Stock.
(ii) In the case of any dividend or other distribution on any
share of Common Stock payable in Common Stock (including,
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without limitation, distributions pursuant to stock splits or
divisions of Common Stock), shares of Class B Common Stock shall be
distributed with respect to each outstanding share of Class B Common
Stock. In each case the number of shares of Class B Common Stock
payable per share of Class B Common Stock shall be equal to the number
of shares of Common Stock payable per share of Common Stock.
(iii) In the case of any dividend or other distribution on any
share of Common Stock consisting of other voting securities of the
Corporation or of voting securities of any Subsidiary of the
Corporation, the Corporation shall declare and pay each such dividend
in securities of two separate classes, identical in all respects,
except that: (A) the voting rights of each such security paid to the
holders of Class B Common Stock shall have the same voting rights as
the Class B Common Stock; (B) such security paid to the holders of the
Class B Common Stock shall convert into the security paid to the
holders of the Common Stock on the same terms and conditions
applicable to the conversion of the Class B Common Stock into the
Common Stock; and (C) with respect only to dividends or distributions
of voting securities of any Person that is a Subsidiary of the
Corporation, the respective voting rights of each such security paid
to the holders of the Class B Common Stock shall otherwise be as
comparable as is practicable to those of the Class B Common Stock.
(iv) In the case of any dividend or distribution on any share of
Common Stock consisting of securities convertible into, or
exchangeable for, voting securities of the Corporation or voting
securities of a Subsidiary of the Corporation, the Corporation shall
declare and pay such dividend or distribution in securities of two
separate classes, and provide that such convertible or exchangeable
securities and the underlying securities be identical in all respects,
except that (A) the voting rights of each security underlying the
convertible or exchangeable security paid to the holders of Class B
Common Stock shall have the same voting rights as the Class B Common
Stock and (B) such underlying securities issuable to the holders of
the Class B Common Stock shall convert into the underlying securities
paid to the holders of the Common Stock on the same terms and
conditions applicable to the conversion of the Class B Common Stock
into the Common Stock.
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(c) Class B Common Stock to Receive Equal Treatment. The Class B
-----------------------------------------------
Common Stock shall, with respect to any reclassification, recapitalization,
stock split or similar transaction and in any merger, consolidation or
share exchange, be treated in all respects identical to the Common Stock
except as otherwise required by law.
(d) Conversion. Upon any Transfer of shares of Class B Common
----------
Stock to any Person other than a GS Holder such transferred shares of Class
B Common Stock shall be automatically and irrevocably converted into an
equal number of shares of common stock, and thereafter all rights of the
holder of such transferred shares of Class B Common Stock as a holder of
Class B Common Stock shall cease and the Person or Persons in whose name or
names the certificate or certificates of common stock are to be issued
shall be treated for all purposes as having become the holder or holders of
such shares of common stock.
(e) Corporation to Reserve Shares of Common Stock for Conversion
------------------------------------------------------------
of Class B Common Stock. The Corporation shall at all times reserve and
-----------------------
keep available out of its authorized but unissued shares of common stock,
solely for the purpose of issuance upon conversion or exchange of the
shares of Class B Common Stock at least such number of shares of common
stock as is equal to the number of shares of Class B Common Stock then
outstanding plus the number of shares of Class B Common Stock issuable upon
exercise of warrants or options exercisable for or exchangeable into shares
of Class B Common Stock then outstanding or upon conversion or exchange of
other securities exercisable for or exchangeable into shares of Class B
Common Stock then outstanding.
(f) No Preemptive or Preferential Rights. No stockholder
------------------------------------
shall, by reason of the holding of shares of any class or series of capital
stock of the Corporation, have a preemptive or preferential right to
acquire or subscribe for any shares or securities of any class, whether now
or hereafter authorized, which may at any time be issued, sold or offered
for sale by the Corporation, unless specifically provided for in a
resolution by the Board of Directors with respect to a series of Preferred
Stock.
(g) Cumulative Voting. Cumulative voting of shares of any
-----------------
class or series of capital stock having voting rights is prohibited unless
specifically provided for in a resolution by the Board of Directors with
respect to a series of Preferred Stock.
(h) Definitions. For purposes of this Article FOURTH, the
-----------
following terms shall have the following meanings:
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"Affiliate" means, with respect to any Person, any Person who, directly or
---------
indirectly, controls, is controlled by or is under common control with that
Person. For purposes of this definition, "control" when used with respect
to any Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise;
"Common Stock Equivalent" means any security of the Corporation which is
-----------------------
convertible into, exercisable for or exchangeable for, directly or
indirectly, Common Stock, Class B Common Stock or Class C Common Stock of
the Corporation, whether at the time of issuance or upon the passage of
time or the occurrence of some future event;
"Corporate Transaction" means a consolidation or merger of the Corporation
---------------------
into or with any other corporation or corporations, or the sale or transfer
by the Corporation of all or substantially all of its assets, in each case
under circumstances in which the holders of a majority in voting power of
the outstanding capital stock of the Corporation, immediately prior to such
a merger, consolidation or sale, own less than a majority in voting power
of the outstanding capital stock of the Corporation or the surviving or
resulting corporation or acquirer, as the case may be, immediately
following such a merger, consolidation or sale;
"GS Holder" means The Goldman Sachs Group, L.P. and any Affiliate of such
---------
Person to which The Goldman Sachs Group, L.P., directly or indirectly,
transfers Common Stock, Class B Common Stock, Class C Common Stock or
Common Stock Equivalents and any successive transferees thereafter that are
Affiliates of The Goldman Sachs Group, L.P.;
"Person" means any individual, corporation, partnership, limited liability
------
company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof;
"Subsidiary" of any Person means (x) a corporation a majority of whose
----------
outstanding shares of capital stock or other equity interests with voting
power, under ordinary circumstances, to elect directors, is at the time,
directly or indirectly, owned by such Person, by one or more Subsidiaries
of such Person or by such Person and one or more Subsidiaries of such
Person, and (y) any other Person (other than a corporation) in which such
Person, a Subsidiary of such Person or such Person and one or more
Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof, has (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of the directors or other
governing body of such Person; and
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<PAGE>
"Transfer" means any sale or other disposition, whether voluntary or
--------
involuntary, of beneficial ownership of any Class B Common Stock.
3. THIRD: Upon the filing of this Certificate of Amendment each
outstanding share of the Corporation's existing common stock, par value $.01 per
share, shall be converted into one share of the Corporation's Class C Common
Stock. Thereafter all options, rights and warrants, including the rights of the
holders of the Preferred Stock of the Corporation to convert their shares of
Preferred Stock under certain circumstances into shares of the common stock of
the Corporation, shall represent options, rights and warrants to acquire Class C
Common Stock until such time as all outstanding shares of Class C Common Stock
are converted into Common Stock as provided above, whereupon such options,
rights and warrants shall represent rights to acquire Common Stock. Subject to
the terms of the Series E Preferred Stock, the Class B Common Stock and any
warrants convertible into Series E Preferred Stock and, under certain
circumstances, Class B Common Stock, any options, rights and warrants, including
the rights of the holders of the Series E Preferred Stock of the Corporation and
such warrants to convert their shares of Series E Preferred Stock under certain
circumstances into shares of Class B Common Stock, prior to any Transfer to any
Person other than a GS Holder, shall continue to be convertible or exercisable
for shares of Class B Common Stock pursuant to such terms.
4. FOURTH: This Amendment was duly adopted by the Board of Directors of
the Corporation at a meeting of the Board of Directors on May 14, 1999 and in
accordance with the Certificate of Incorporation and Sections 228 and 242 of the
Delaware General Corporation Law by the stockholders of the Corporation.
IN WITNESS WHEREOF, this Certificate of Amendment which amends the
provisions of the Certificate of Incorporation of this Corporation, and which
has been duly adopted in accordance with the General Corporation Law of the
State of Delaware, has been executed by its duly authorized officer this 25th
day of May, 1999.
WIT CAPITAL GROUP, INC.
By: /s/ Robert C. Mendelson
--------------------------------------------
Name: Robert C. Mendelson
Title: Senior Vice President and Secretary
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<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
WIT CAPITAL GROUP, INC.
WIT CAPITAL GROUP, INC., a Delaware corporation, hereby certifies as
follows:
1. The name of the Corporation is "WIT CAPITAL GROUP, INC."
2. Article FOURTH of the Certificate of Incorporation of Wit Capital Group,
Inc. is hereby amended to include the following paragraph at the end thereof:
Each share of Class C Common Stock, par value $.01 per share, issued and
outstanding immediately prior to 6:00 P.M., Delaware time, on the date of the
filing of this Certificate of Amendment, shall be subdivided as of such date at
6:00 P.M., Delaware time, into 0.7 of a share of Class C Common Stock, par value
$.01 per share. Each share of Series E Preferred Stock, par value $0.01 per
share, issued and outstanding immediately prior to 6:00 P.M., Delaware time, on
the date of the filing of this Certificate of Amendment, shall be subdivided as
of such date at 6:00 P.M., Delaware time, into 0.7 of a share of Series E
Preferred Stock, par value $.01 per share. The Corporation shall thereafter
issue to each holder of record of shares of Class C Common Stock and each holder
of record of shares of Series E Preferred Stock a stock certificate evidencing a
number of whole shares of Class C Common Stock or of Series E Preferred Stock,
as the case may be, equal to the product of 0.7 multiplied by the number of
shares of Class C Common Stock or Series E Preferred Stock, as the case may be,
held of record by such holder immediately prior to 6:00 P.M., Delaware time, on
the date of filing of this Certificate of Amendment. No fractional shares
resulting from such subdivisions shall be issued but, in lieu thereof, the
Corporation will pay to each holder of a fractional share of Class C Common
Stock or of Series E Preferred Stock in cash an amount equal to the fair value,
immediately prior to 6:00 P.M., Delaware time, on the date of the filing of this
Certificate of Amendment, of such fractional share. For purposes of the
Certificate of Designations, Preferences and Rights of Series E Preferred Stock,
from and after the effective time of this Certificate of Amendment, the first
reference to "$1.50" in the first sentence of Section 3A and the reference to
$1.50 in Section 3I shall be "$2.1428571", and the Series E Preferred
Liquidation Preference shall thereupon be an amount equal to $2.1428571 (as may
thereafter be appropriately adjusted to reflect the occurrence of any subsequent
stock split, stock dividend, stock combination, stock subdivision or like
occurrences) plus any declared and unpaid dividends.
3. This Amendment was duly adopted by the Board of Directors of the
Corporation, and in accordance with the Certificate of Incorporation and
Sections 228 and 242 of the Delaware General Corporation Law, by the
stockholders of the Corporation.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment of
the Certificate of Incorporation to be signed as of the 2nd day of June, 1999,
by its President, who hereby affirms and acknowledges, under penalty of perjury,
that this Certificate is the act and deed of the Corporation and that the facts
stated herein are true.
WIT CAPITAL GROUP, INC.
By: /s/ Ronald Readmond
---------------------
Ronald Readmond
President
June 2, 1999
ATTEST:
By: /s/ Robert C. Mendelson
-------------------------
Robert C. Mendelson
Secretary
<PAGE>
EXHIBIT 3.4
BY-LAWS
OF
WIT CAPITAL GROUP, INC.
_______________________
ARTICLE I
---------
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of the stockholders of
--------------
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
----------------
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Chief Executive Officer or the
Board of Directors pursuant to a resolution adopted by the affirmative vote of a
majority of the entire Board. Any special meeting of the stockholders shall be
held on such date, at such time and at such place within or without the State of
Delaware as the Board of Directors or the officer calling the meeting may
designate. At a special meeting of the stockholders, no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting or brought before the meeting by or at the direction of
the Board of Directors.
<PAGE>
SECTION 3. Notice of Stockholder Business and Nominations.
----------------------------------------------
Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders by or at the direction of the
Board of Directors or by any stockholder of the Corporation who was a
stockholder of record on the record date established for the giving of notice of
such meeting, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in these By-Laws.
In the event the Corporation calls a special meeting of stockholders for
the purpose of electing directors, nominations of persons for election to the
Board of Directors may be made by or at the direction of the Board of Directors
or by any stockholder of the Corporation who was a stockholder of record at the
record date for the giving of notice of such meeting, who was a stockholder of
record on the record date established for the giving of notice of such meeting,
who is entitled to vote at the meeting and who complies with the notice
procedures set forth in these By-Laws.
A notice to be given by a stockholder shall set forth: (a) as to each
person whom the stockholder proposes to nominate for election as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934 and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of such business, the reasons
for conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on
-2-
<PAGE>
whose behalf the nomination or proposal is made, (i) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
For nominations or other business to be properly brought before an annual
meeting of stockholders by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To be
timely, a stockholder's notice shall be given to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
ninetieth (90th) day nor earlier than the close of business on the one hundred
twentieth (120th) day prior to first anniversary of the date of the annual
meeting for the preceding year (or, in the case of the annual meeting of
stockholders to be held in 2000, not fewer than ninety (90) nor more than one
hundred twenty (120) days prior to May 1, 2000). In the event that the date of
an annual meeting is more than thirty (30) days before or more than sixty (60)
days after the date of the annual meeting in the preceding year, notice by a
stockholder to be timely shall be given not earlier than the close of business
on the one hundred twentieth (120th) day prior to such annual meeting and not
later than the close of business on the later of the ninetieth (90th) day prior
to such annual meeting or the tenth (10th) day following the day on which public
announcement or disclosure of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of notice by a
stockholder as described in these By-Laws.
-3-
<PAGE>
Notwithstanding any provision of this Section 3 to the contrary, in the
event that the number of directors to be elected to the Board of Directors of
the Corporation at an annual meeting of stockholders is increased by virtue of
an increase in the size of the Board of Directors and either all of the nominees
for director at such annual meeting of stockholders or the size of the increased
Board of Directors is not publicly announced or disclosed by the Corporation at
least one hundred (100) days prior to the first anniversary of the annual
meeting in the preceding year (or, in the case of the annual meeting of
stockholders to be held in 2000, at least one hundred (100) days prior to May 1,
2000), a notice given by a stockholder, containing the information set forth
above, shall also be considered timely hereunder, but only with respect to
nominees to stand for election at the annual meeting as the result of any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close of
business on the tenth (10th) day following the first day on which all such
nominees or the size of the increased Board of Directors shall have been
publicly announced or disclosed.
For nominations by a stockholder to be properly brought before a special
meeting of stockholders called for the purpose of electing directors, the
stockholder must have given a timely notice in writing, containing the
information set forth above, to the Secretary of the Corporation. To be timely,
a stockholder's notice shall be given to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
ninetieth (90th) day nor earlier than the close of business on the one hundred
twentieth (120th) day prior to such special meeting, or the tenth (10th) day
following the day on which the public announcement or disclosure is first made
of the date of the special meeting. In no event shall the public
-4-
<PAGE>
announcement or disclosure of an adjournment of a special meeting commence a new
time period for the giving of notice by a stockholder as described in these By-
Laws.
Only such persons who are nominated in accordance with the procedures set
forth in these By-Laws shall be eligible to serve as directors and only such
business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with these By-Laws. Except as
otherwise provided by law, the Certificate of Incorporation or these By-Laws,
the Chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth herein
and, if any proposed nomination or business is not in compliance with procedures
set forth herein, to declare that such defective proposal or nomination shall be
disregarded.
Nothing herein shall be deemed to limit or restrict the procedures
required to be followed in connection with stockholder proposals to be brought
before a meeting of stockholders pursuant to Regulation 14A under the Securities
Exchange Act of 1934 and Rule 14a-8 thereunder.
SECTION 4. Notice of Meetings. Except as otherwise provided in these
------------------
By-Laws or by law, a written notice of each meeting shall be given not fewer
than ten (10) days nor more than sixty (60) days before the date of the meeting
to each stockholder of record entitled to vote at such meeting. The notice shall
state the place, date and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to a stockholder at his or her address as it
appears on the records of the Corporation.
-5-
<PAGE>
SECTION 5. Quorum. At any meeting of the stockholders, the holders of a
------
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the outstanding shares of such
class, present in person or represented by proxy, shall constitute a quorum for
purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
SECTION 6. Adjourned Meetings. Whether or not a quorum shall be present
------------------
in person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been
-6-
<PAGE>
transacted by them at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting.
SECTION 7. Organization. The Chief Executive Officer or, in the absence
------------
of the Chief Executive Officer, the Chairman of the Board or, in the absence of
the Chairman of the Board, the Chief Operating Officer shall call all meetings
of the stockholders to order, and shall act as a Chairman of such meetings. In
the absence of the Chairman of the Board and the Chief Operating Officer, the
holders of a majority in number of the shares of stock of the Corporation
present in person or represented by proxy and entitled to vote at such meeting
shall elect a Chairman.
The Secretary of the Corporation or, in the absence of the Secretary, the
Assistant Secretary of the Corporation shall act as Secretary of all meetings of
the stockholders, but in the absence of the Secretary and the Assistant
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting. It shall be the duty of the Secretary to prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of
stockholders entitled to vote at such meeting, arranged in alphabetical order
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open during ordinary
business hours, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten (10) days
next preceding the meeting, to the examination of any stockholder for any
purpose germane to the meeting, and shall be produced and kept at the time
-7-
<PAGE>
and place of the meeting during the whole time thereof and subject to the
inspection of any stockholder who may be present.
SECTION 8. Voting and Election of Directors. Except as otherwise
--------------------------------
provided in the Certificate of Incorporation or by law, each stockholder shall
be entitled to one vote for each share of the capital stock of the Corporation
entitled to vote registered in the name of such stockholder upon the books of
the Corporation. Each stockholder entitled to vote at a meeting of stockholders
may authorize another person or persons to act for him or her by proxy executed
in writing by the stockholder or by such person's duly authorized attorney-in-
fact, but no such proxy shall be voted or acted upon after three (3) years from
its date, unless the proxy provides for a longer period.
Except as otherwise provided by law or by the Certificate of
Incorporation and subject to the rights of the holders of any class of capital
stock to elect directors, directors shall be elected by a plurality of the votes
cast at a meeting of stockholders by the stockholders entitled to vote in the
election and, whenever any corporate action, other than the election of
directors is to be taken, it shall be authorized by a majority of the votes cast
at a meeting of stockholders by the stockholders entitled to vote generally for
the election of directors.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 9. Inspectors of Elections; Opening and Closing the Polls. When
------------------------------------------------------
required by law or directed by the presiding officer or upon the demand of any
stockholder entitled to vote, but not otherwise, the polls shall be opened and
closed, the proxies shall be received and
-8-
<PAGE>
taken in charge, and all questions touching the qualification of voters, the
validity of proxies and the acceptance or rejection of votes shall be decided at
any meeting of the stockholders by one or more inspectors who may be appointed
by the Board of Directors before the meeting, or if not so appointed, shall be
appointed by the presiding officer at the meeting. If any person so appointed
fails to appear or act, the vacancy may be filled by appointment in like manner.
The Chairman of the meeting may fix and announce at the meeting the date and
time of the opening and the closing of the polls for each matter upon which the
stockholders will vote at a meeting.
SECTION 10. No Stockholder Action by Written Consent. Any action
----------------------------------------
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of the stockholders, upon
due notice and in accordance with the other provisions of these By-Laws and may
not be effected by any consent in writing by the stockholders.
SECTION 11. Record Date. In order that the Corporation may determine
-----------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, as the case may be, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty (60) days nor fewer than ten
(10) days before the date of such meeting, or more than sixty (60) days prior to
any other action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held; and the record date for determining
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stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE II
----------
Board of Directors
------------------
SECTION 1. Number and Term of Office. The business and affairs of the
-------------------------
Corporation shall be managed under the direction of the Board of Directors, none
of whom need be stockholders of the Corporation. Except as otherwise provided
by the Certificate of Incorporation, the number of the directors of the
Corporation shall be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of the Board of Directors. The Board of
Directors shall be classified, with respect to the time for which the directors
severally hold office, into three classes as nearly equal in number as possible,
with the term of those directors of the first class to expire at the next annual
meeting of stockholders, the term of those directors of the second class to
expire at the next succeeding annual meeting of stockholders, and the term of
those directors of the third class to expire at the second succeeding annual
meeting of stockholders, with each director to hold office until his successor
is elected and qualified. At each succeeding annual meeting of stockholders,
directors elected to succeed those directors whose terms then expire shall be
elected for a term of office to expire at the third succeeding
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annual meeting of stockholders after their election, with each director to hold
office until his successor is elected and qualified or until his earlier death,
resignation or removal.
SECTION 2. Removal, Vacancies and Additional Directors. The
-------------------------------------------
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove for cause any director and fill the vacancy;
provided that whenever any director shall have been elected by the holders of
any class of stock of the Corporation voting separately as a class under the
provisions of the Certificate of Incorporation, such director may be removed,
with or without cause, and the vacancy filled only by the holders of that class
of stock voting separately as a class. Vacancies caused by any such removal and
not filled by the stockholders at the meeting at which such removal shall have
been made, or any vacancy caused by the death or resignation of any director or
for any other reason, and any newly created directorship resulting from any
increase in the authorized number of directors, may be filled by the affirmative
vote of a majority of the directors then in office, although less than a quorum,
and not by the stockholders. Any director so elected to fill any such vacancy
or newly created directorship shall hold office until his successor is elected
and qualified or until his earlier resignation or removal. No decrease in the
number of directors constituting the Board shall shorten the term of any
incumbent director.
Except as may otherwise be provided by law, cause for removal of a
director shall be deemed to exist only if: (i) the director whose removal is
proposed has been convicted, or the director is granted immunity to testify in a
case where another person has been convicted, of a felony by a court of
competent jurisdiction and such conviction is no longer subject to direct appeal
(for this purpose, the entry by a director of a plea of nolo contendere shall be
deemed to be a conviction not subject to appeal); (ii) such director has been
found by the affirmative vote of a majority of the entire Board of Directors at
any regular or special meeting of the Board of
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Directors called for that purpose or by a court of competent jurisdiction to
have been grossly negligent or guilty of misconduct in the performance of his
duties to the Corporation in a matter of substantial importance to the
Corporation; or (iii) such director has been adjudicated by a court of competent
jurisdiction to be mentally incompetent, which mental incompetency directly
affects his ability to function as a director of the Corporation.
SECTION 3. Place of Meetings. The Board of Directors may hold its
-----------------
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of Directors
----------------
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice shall be required for any regular meeting
of the Board of Directors; but a copy of every resolution fixing or changing the
time or place of regular meetings shall be mailed to every director at least
five (5) days before the first meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board of Directors
----------------
shall be held whenever called by direction of the Chief Executive Officer, the
Chairman of the Board, the Chief Operating Officer, the President of the
Corporation or by any two of the directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
the place and time of the meetings.
Notice of the day, hour and place of holding of each special meeting
shall be given by mailing the same at least two (2) days before the meeting or
by causing the same to be given by facsimile, electronic communication,
telegraph or telephone at least one day before the meeting to each director.
Unless otherwise indicated in the notice thereof, any and all business other
than an amendment of these By-Laws may be transacted at any special meeting, and
an amendment of
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these By-Laws may be acted upon if the notice of the meeting shall have stated
that the amendment of these By-Laws is one of the purposes of the meeting. At
any meeting at which every director shall be present, even though without any
notice, any business may be transacted, including the amendment of these By-
Laws.
SECTION 6. Quorum. Subject to the provisions of Section 1 of this
------
Article II, a majority of the members of the Board of Directors in office (but,
unless the Board shall consist solely of one director, in no case less than one-
third of the entire Board nor fewer than two directors) shall constitute a
quorum for the transaction of business and the vote of the majority of the
directors present at any meeting of the Board of Directors at which a quorum is
present shall be the act of the Board of Directors. If at any meeting of the
Board there is less than a quorum present, a majority of those present may
adjourn the meeting from time to time.
SECTION 7. Organization. The Chairman of the Board or, in the absence
------------
or at the request of the Chairman of the Board, the Chief Executive Officer
shall preside at all meetings of the Board of Directors. In the absence of the
Chairman of the Board and the Chief Executive Officer, a Chairman shall be
elected from the directors present. The Secretary of the Corporation or, in the
absence of the Secretary of the Corporation, the Assistant Secretary of the
Corporation shall act as Secretary of all meetings of the Board of Directors;
but in the absence of the Secretary and the Assistant Secretary, the Chairman
may appoint any person to act as Secretary of the meeting.
SECTION 8. Committees and Executive Committee.
----------------------------------
(A) Committees.
----------
The Board of Directors may, by a majority of the total number of
directors, designate one or more committees, each committee to consist of one or
more of the directors of the
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Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members present at any meeting of the
committee and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or disqualified member.
Unless otherwise restricted by the Certificate of Incorporation or by these By-
Laws, any such committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers that may require it.
A majority of any committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. Notice of such
meetings shall be given to each member of the committee in the manner provided
for in this Article II of these By-Laws. The Board shall have power at any time
to fill vacancies in, to change the membership of, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority of the Board.
Each Committee shall keep regular minutes of its meetings and, on no less
than a quarterly basis, report such minutes to the Board of Directors.
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(B) Executive Committee.
-------------------
The Board of Directors may, by resolution passed by a majority of the
Board of Directors, designate an Executive Committee consisting of the Chief
Executive Officer (or Chief Executive Officers if there are more than one) and
such number of other directors, not fewer than one, as the Board may appoint.
Vacancies occurring on the Executive Committee for any reason may be filled by
the Board of Directors at any time. Any member of the Executive Committee shall
be subject to removal, with or without cause, at any time by the Board of
Directors or by a majority in voting interest of the stockholders.
The Executive Committee, subject to any limitation prescribed by the
Board of Directors, shall possess and may exercise, during the intervals between
meetings of the Board of Directors, all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers that
require it; provided, however, that the Executive Committee shall not have such
power or authority in reference to amending the Certificate of Incorporation of
the Corporation, adopting an agreement of merger or consolidation, recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, filling
vacancies on the Board of Directors, changing the membership or filling
vacancies on the Executive Committee or amending these By-Laws. The Executive
Committee shall not have the power and authority to declare dividends, to
authorize the issuance of stock of the Corporation or to adopt a certificate of
merger unless such power and authority shall be expressly delegated to it by a
resolution passed by the Board of Directors.
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<PAGE>
A majority of the Executive Committee shall constitute a quorum, and the
vote of a majority of those members of the Executive Committee present at any
meeting thereof at which a quorum is present shall be necessary for the passage
of any resolution or act of the Executive Committee. The Board of Directors may
designate a chairman for the Executive Committee, who shall preside at meetings
thereof, and a vice-chairman, who shall preside at such meetings in the absence
of the chairman.
SECTION 9. Compensation of Directors. Directors, as such, except as may
-------------------------
be otherwise provided by the Board, shall not receive any stated salary for
their services but, by resolution of the Board of Directors, a specific sum
fixed by the Board plus expenses may be allowed for attendance at each regular
or special meeting of the Board or any committee thereof; provided, however,
that nothing herein contained shall be construed to preclude any director from
serving the Corporation or any parent or subsidiary corporation thereof in any
other capacity and receiving compensation therefor.
SECTION 10. Conference Telephone Meetings. Unless otherwise restricted
-----------------------------
by the Certificate of Incorporation or by these By-Laws, the members of the
Board of Directors or any committee designated by the Board, may participate in
a meeting of the Board or such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
SECTION 11. Consent of Directors or Committee in Lieu of Meeting.
----------------------------------------------------
Unless otherwise restricted by the Certificate of Incorporation or by these By-
Laws, any action required or permitted to be taken at any meeting of the Board
of Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be,
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<PAGE>
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board or committee, as the case may be.
ARTICLE III
-----------
Officers
--------
SECTION 1. Officers. The Corporation shall have such officers including
--------
a Chairman of the Board, one or more Chief Executive Officers, a Chief Operating
Officer, a President, one or more Vice Presidents, a Secretary and a Treasurer
as shall be elected by the Board of Directors pursuant to this Article III. The
Chairman of the Board, if elected, shall be elected from among the directors.
The officers shall be elected by the Board of Directors at its first meeting
after each annual meeting of the stockholders. The failure to hold such
election shall not of itself terminate the term of office of any officer. All
officers shall hold office at the pleasure of the Board of Directors. Any
officer may resign at any time upon written notice to the Corporation. Officers
may, but need not, be directors. Any number of offices may be held by the same
person.
All officers, agents and employees shall be subject to removal, with
or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to his contract rights, if any.
The election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
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Any vacancy caused by the death, resignation or removal of any officer,
or otherwise, may be filled by the Board of Directors, and any officer so
elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation
as set forth in these By-Laws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. Chief Executive Officer. The Board of Directors shall
-----------------------
designate one of the officers of the Corporation to be the Chief Executive
Officer of the Corporation, or one or more of the officers of the Corporation,
each to be a Chief Executive Officer of the Corporation. Subject to the control
of the Board of Directors, the Chief Executive Officer shall have general charge
and control of all the business and affairs of the Corporation and shall have
all powers and shall perform all duties incident to the position of Chief
Executive Officer. The Chief Executive Officer shall make reports to the Board
of Directors and to the stockholders, and shall see that all orders and
resolutions of the Board of Directors and of any committee thereof are carried
into effect. The Chief Executive Officer shall preside at all meetings of the
stockholders and shall have such other powers and perform such other duties as
may from time to time be assigned by these By-Laws or by the Board of Directors.
Any reference to the Chief Executive Officer in these By-Laws shall be
deemed to mean, if there are Co-Chief Executive Officers, each Co-Chief
Executive Officer, each of whom may individually exercise the full power and
authority of the office of the Chief Executive Officer.
SECTION 3. Chief Operating Officer. The Board of Directors may
-----------------------
designate one of the officers of the Corporation to be the Chief Operating
Officer of the Corporation. Subject to
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the control of the Board of Directors and the Chief Executive Officer, the Chief
Operating Officer may have general charge and control of all the operations of
the Corporation and may have all powers and may perform all duties incident to
the position of Chief Operating Officer. The Chief Operating Officer may act in
a general executive capacity and assist the Chief Executive Officer in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The Chief Operating Officer may have
such other powers and perform such other duties as may from time to time be
assigned by these By-Laws or by the Board of Directors or by the Chief Executive
Officer.
SECTION 4. Chief Financial Officer. The Board of Directors shall
-----------------------
designate one of the officers of the Corporation to be the Chief Financial
Officer of the Corporation. Subject to the control of the Board of Directors,
the Chief Executive Officer and the Chief Operating Officer, the Chief Financial
Officer shall (a) keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings
and shares; (b) deposit all money and other valuables in the name and to the
credit of the Corporation with such depositories as may be designated by the
Board of Directors; (c) disburse the funds of the Corporation as may be directed
by the Board of Directors, the Chief Executive Officer or the Chief Operating
Officer; and (d) render to the Chief Executive Officer, to the Chief Operating
Officer or to the Board of Directors, whenever requested, an account of all of
transactions by the Chief Financial Officer and of the financial condition and
results of operations of the Corporation. The Chief Financial Officer shall
have such other powers and perform such other duties as may from time to time be
assigned by these By-Laws, by the Board of Directors, by the Chief Executive
Officer or by the
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Chief Operating Officer. The books of account shall at all reasonable times
during business hours be open to inspection by any director.
SECTION 5. Chairman of the Board. The Chairman of the Board shall
---------------------
perform all duties incident to the office of Chairman of the Board. The
Chairman shall preside at all meetings of the Board of Directors and shall have
such other powers and perform such other duties as may from time to time be
assigned by these By-Laws or by the Board of Directors.
SECTION 6. President and Vice Presidents. The President and each Vice
-----------------------------
President shall have such powers which are incidental to their respective
positions and which are required by law and shall have such other powers and
perform such duties as may from time to time be assigned by these By-Laws, by
the Board of Directors, by the Chief Executive Officer or by the Chief Operating
Officer.
SECTION 7. Treasurer. The Treasurer shall have all powers and shall
---------
perform all duties incident to the position of Treasurer which may be required
by law and shall have such other powers and perform such other duties as may
from time to time be assigned by these By-Laws, by the Board of Directors, by
the Chief Executive Officer, by the Chief Operating Officer or by the Chief
Financial Officer.
SECTION 8. Secretary. The Secretary shall keep the minutes of all
---------
meetings of the Board of Directors and the minutes of all meetings of the
stockholders in books provided for that purpose. The Secretary shall attend to
the giving or serving of all notices of the Corporation; shall have custody of
the corporate seal of the Corporation and shall affix the same to such documents
and other papers as the Board of Directors or the Chief Executive Officer shall
authorize and direct; shall have charge of the stock certificate books, transfer
books and stock ledgers and such other books and papers as the Board of
Directors or the Chief Executive Officer
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<PAGE>
shall direct, all of which shall at all reasonable times be open to the
examination of any director, upon application, at the office of the Corporation
during business hours; and whenever required by the Board of Directors or the
Chief Executive Officer shall render statements of such accounts. The Secretary
shall have all powers and shall perform all duties incident to the office of
Secretary and shall also have such other powers and shall perform such other
duties as may from time to time be assigned by these By-Laws or by the Board of
Directors, by the Chief Executive Officer or by the Chief Operating Officer.
SECTION 9. Additional Officers. The Board of Directors may from time to
-------------------
time elect such other officers (who may but need not be directors), including
one or more Vice Chairmen of the Board, a Controller, one or more Assistant
Controllers, one or more Assistant Secretaries and one or more Assistant
Treasurers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned by
the Board of Directors, the Chief Executive Officer, the Chief Operating Officer
or, in the case of a Controller, an Assistant Controller or an Assistant
Treasurer, by the Chief Financial Officer, or if appropriate, the Treasurer.
The Board of Directors may from time to time by resolution delegate to
any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer, and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 10. Voting Upon Stocks. Unless otherwise ordered by the Board
------------------
of Directors, the Chairman of the Board, the Chief Executive Officer, the Chief
Operating Officer, the President, any Vice President, the Chief Financial
Officer, the Treasurer or the Secretary shall have full power and authority on
behalf of the Corporation to attend and to act and to vote, or in
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the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any corporation in which the Corporation may hold stock, and at
any such meeting shall possess and may exercise, in person or by proxy, any and
all rights, powers and privileges incident to the ownership of such stock. The
Board of Directors may from time to time, by resolution, confer like powers upon
any other person or persons.
SECTION 11. Compensation of Officers. The officers of the Corporation
------------------------
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors or by persons appointed by
the Board of Directors.
ARTICLE IV
----------
Indemnification of Directors and Officers
-----------------------------------------
SECTION 1. Nature of Indemnity. The Corporation shall indemnify any
-------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
director or officer of another corporation, limited liability company,
partnership, joint venture, trust, employee benefit plan or other enterprise, or
by reason of any action alleged to have been taken or omitted in such capacity,
and may indemnify any person who was or is a party or is threatened to be made a
party to such an action, suit or proceeding by reason of the fact that he or she
is or was or has agreed to become an employee or agent of the Corporation, or is
or was serving or has agreed to serve at the request of the Corporation as an
employee or agent of another corporation,
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limited liability company, partnership, joint venture, trust, employee benefit
plan or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person or on his or her behalf in connection with such action, suit or
proceeding and any appeal therefrom, if the person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful;
except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall be
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit, and (2) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
SECTION 2. Successful Defense. To the extent that a director, officer,
------------------
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action,
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suit or proceeding referred to in Section 1 of this Article IV or in defense of
any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection therewith.
SECTION 3. Determination that Indemnification is Proper. Any
--------------------------------------------
indemnification of a director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) if there
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
SECTION 4. Advance Payment of Expenses. Unless the Board of Directors
---------------------------
otherwise determines in a specific case, expenses incurred by a director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized in this
Article IV. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate. The Board of Directors
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may authorize the Corporation's legal counsel to represent such director,
officer, employee or agent in any action, suit or proceeding, whether or not the
Corporation is a party to such action, suit or proceeding.
SECTION 5. Survival; Preservation of Other Rights. The foregoing
--------------------------------------
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the General Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit,
or proceeding previously or thereafter brought or threatened based in whole or
in part upon any such state of facts. Such a contract right may not be modified
retroactively without the consent of such director, officer, employee or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which a person indemnified may be entitled
under the Certificate of Incorporation, any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person. The Corporation may enter into an
agreement with any of its directors, officers, employees or agents providing for
indemnification and advancement of expenses, including attorneys fees, that may
change, enhance, qualify or limit any right to indemnification or advancement of
expenses created by this Article IV.
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SECTION 6. Severability. If this Article IV or any portion hereof shall
------------
be invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by the Certificate of Incorporation or applicable law.
SECTION 7. Subrogation. In the event of payment of indemnification to a
-----------
person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
SECTION 8. No Duplication of Payments. The Corporation shall not be
--------------------------
liable under this Article IV or the Certificate of Incorporation to make any
payment in connection with any claim made against a person described in Section
1 of this Article IV to the extent such person has otherwise received payment
(under any insurance policy, By-Law or otherwise) of the amounts otherwise
payable as indemnity hereunder.
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ARTICLE V
---------
Stock-Seal-Fiscal Year
----------------------
SECTION 1. Certificates For Shares of Stock. The certificates for
--------------------------------
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
Chief Executive Officer, the Chief Operating Officer, the President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and shall not be valid unless so signed. Any and all the
signatures on a certificate may be facsimile.
In case any officer or officers who shall have signed or whose facsimile
signature has been placed upon any such certificate or certificates shall cease
to be such officer or officers of the Corporation, whether because of death,
resignation or otherwise, before such certificate or certificates shall have
been delivered by the Corporation, such certificate or certificates may
nevertheless be issued and delivered as though the person or persons who signed
such certificate or certificates had not ceased to be such officer or officers
of the Corporation.
All certificates for shares of stock shall be consecutively numbered as
the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
-27-
<PAGE>
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a person
--------------------------------------
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he or she shall file in the office of the
Corporation an affidavit setting forth, to the best of his or her knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to indemnify
the Corporation and its agents against any claim that may be made against it or
them on account of the alleged loss, theft or destruction of any such
certificate or the issuance of a new certificate in replacement therefor.
Thereupon the Corporation may cause to be issued to such person a new
certificate in replacement for the certificate alleged to have been lost, stolen
or destroyed. Upon the stub of every new certificate so issued shall be noted
the fact of such issue and the number, date and the name of the registered owner
of the lost, stolen or destroyed certificate in lieu of which the new
certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation shall
------------------
be transferred on the books of the Corporation by the holder thereof, in person
or by his attorney duly authorized in writing, upon surrender and cancellation
of certificates for the number of shares of stock to be transferred, except as
provided in Section 2 of this Article V.
SECTION 4. Regulations. The Board of Directors shall have power and
-----------
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Dividends. Subject to the provisions of the Certificate of
---------
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
-28-
<PAGE>
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 6. Corporate Seal. The Board of Directors shall provide a
--------------
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be used
by any officer of the Corporation designated by the Board of Directors.
SECTION 7. Fiscal Year. The fiscal year of the Corporation shall be
-----------
such fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of exchange,
------------------
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Chief Financial Officer, the Treasurer and/or such other officers or
persons as the Board of Directors from time to time may designate.
-29-
<PAGE>
SECTION 2. Loans. No loans and no renewals of any loans shall be
-----
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation
may effect loans and advances for the Corporation from any bank, trust company
or other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Contracts. Except as otherwise provided in these By-Laws or
---------
by law or as otherwise directed by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer, the Chief Operating Officer, the President,
the Chief Financial Officer or any Vice President shall be authorized to execute
and deliver, in the name and on behalf of the Corporation, all agreements,
bonds, contracts, deeds, mortgages, and other instruments, either for the
Corporation's own account or in a fiduciary or other capacity, and the seal of
the Corporation, if appropriate, shall be affixed thereto by any of such
officers or the Secretary or an Assistant Secretary. The Board of Directors,
the Chief Executive Officer, the Chief Operating Officer, the President, the
Chief Financial Officer or any Vice President designated by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer, the Chief
Operating Officer, the President or the Chief Financial Officer, may authorize
any other officer, employee or agent to execute and deliver, in the name and on
behalf of the Corporation, agreements, bonds, contracts, deeds, mortgages, and
other instruments, either for the Corporation's own account or
-30-
<PAGE>
in a fiduciary or other capacity, and, if appropriate, to affix the seal of the
Corporation thereto. The grant of such authority by the Board or any such
officer may be general or confined to specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is required
-----------------
to be given by law, by the Certificate of Incorporation or by these By-Laws to
any person or persons, a waiver thereof in writing, signed by the person or
persons entitled to the notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
SECTION 5. Offices Outside of Delaware. Except as otherwise required by
---------------------------
the laws of the State of Delaware, the Corporation may have an office or offices
and keep its books, documents and papers outside of the State of Delaware at
such place or places as from time to time may be determined by the Board of
Directors or the Chief Executive Officer.
ARTICLE VII
-----------
Amendments
----------
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes of
the meeting; but these By-Laws and any amendment thereof, may be altered,
amended or repealed or new By-Laws may be adopted by the holders of two-thirds
of the voting power of all outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors at
-31-
<PAGE>
any annual meeting or at any special meeting, provided, in the case of any
special meeting, that notice of such proposed alteration, amendment, repeal or
adoption is included in the notice of the meeting.
-32-
<PAGE>
EXHIBIT 4.1
================================================================================
WIT CAPITAL GROUP, INC.
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY,
AS RIGHTS AGENT
RIGHTS AGREEMENT
DATED AS OF__________, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1. Certain Definitions............................................................................. 1
Section 2. Appointment of Rights Agent.................................................................... 9
Section 3. Issue of Rights Certificates................................................................... 9
Section 4. Form of Rights Certificates.................................................................... 11
Section 5. Countersignature and Registration.............................................................. 12
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates................................................................................... 12
Section 7. Exercise of Rights; Purchase Price............................................................. 13
Section 8. Cancellation and Destruction of Rights Certificates............................................ 15
Section 9. Reservation and Availability of Capital Stock.................................................. 15
Section 10. Preferred Stock Record Date.................................................................... 17
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights............................................................................... 18
Section 12. Certificate of Adjusted Purchase Price or Number of Shares..................................... 27
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.................................................................................. 27
Section 14. Fractional Rights and Fractional Shares........................................................ 30
Section 15. Rights of Action............................................................................... 31
Section 16. Agreement of Rights Holders.................................................................... 31
Section 17. Rights Certificate Holder Not Deemed a Stockholder............................................. 32
Section 18. Concerning the Rights Agent.................................................................... 33
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 19. Merger or Consolidation or Change of Name of Rights Agent...................................... 33
Section 20. Duties of Rights Agent......................................................................... 34
Section 21. Change of Rights Agent......................................................................... 36
Section 22. Issuance of New Rights Certificates............................................................ 37
Section 23. Redemption and Termination..................................................................... 37
Section 24. Exchange....................................................................................... 38
Section 25. Notice of Certain Events....................................................................... 40
Section 26. Notices........................................................................................ 41
Section 27. Supplements and Amendments..................................................................... 41
Section 28. Successors..................................................................................... 42
Section 29. Determinations and Actions by the Board of Directors, Etc...................................... 42
Section 30. Benefits of This Agreement..................................................................... 42
Section 31. Severability................................................................................... 42
Section 32. Governing Law.................................................................................. 43
Section 33. Counterparts................................................................................... 43
Section 34. Descriptive Headings........................................................................... 43
</TABLE>
Exhibit A-1 - Form of Certificate of Designations of Class 1 Series A Junior
Participating Preferred Stock
Exhibit A-2 - Form of Certificate of Designations of Class 2 Series A Junior
Participating Preferred Stock
Exhibit B-1 - Form of Voting Class Rights Certificate
Exhibit B-2 - Form of Class B Common Rights Certificate
Exhibit C - Summary of Rights to Purchase Preferred Stock
-ii-
<PAGE>
RIGHTS AGREEMENT
This Rights Agreement, dated as of ________, 1999 (the"Agreement"),
between Wit Capital Group, Inc., a Delaware corporation (the "Company"), and
American Stock Transfer & Trust Company (the"Rights Agent"),
WITNESSETH:
WHEREAS, on May 17, 1999 (the "Rights Dividend Declaration Date"), the
Board of Directors of the Company authorized (i) the issuance of one voting
class right for each share of Voting Common Stock ("Voting Class Right")
outstanding upon the closing of the Company's Initial Public Offering; (ii) the
issuance of one Voting Class Right for each share of Class C Common Stock of the
Company outstanding at the close of business on May 18, 1999 (the "Record
Date"); and (iii) the issuance of one nonvoting class right for each share of
Class B Common Stock ("Class B Common Right") of the Company outstanding at the
Record Date, and has authorized the issuance of one Voting Class Right (as such
numbers may hereinafter be adjusted pursuant to the provisions of Section 11(p)
hereof) for each share of Voting Common Stock and Class C Common Stock and one
Class B Common Right for each share of Class B Common Stock, respectively,
issued (whether originally issued or delivered from the Company's treasury)
between the Record Date and the earlier of the Distribution Date (as hereinafter
defined) and the Expiration Date (as hereinafter defined), and, in certain
circumstances provided for in Section 22 hereof, after the Distribution Date,
each Voting Class Right initially representing the right to purchase one
Fractional Share (as hereinafter defined) of Class 1 Series A Junior
Participating Preferred Stock of the Company, and each Class B Right initially
representing the right to purchase one Fractional Share of Class 2 Series A
Junior Participating Preferred Stock of the Company, upon the terms and subject
to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement,
-------------------
the following terms shall have the meanings indicated:
"Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
15% or more of the shares of Common Stock then outstanding, provided, however,
-------- -------
that a Person shall not be or become an Acquiring Person if such Person,
together with its Affiliates and Associates, shall become the Beneficial Owner
of 15% or more of the shares of Common Stock then outstanding solely as a result
of a reduction in the number of shares of Common Stock outstanding due to the
repurchase of Common Stock by the Company, unless and until such time as such
Person or any Affiliate or Associate of such Person shall purchase or otherwise
become the Beneficial Owner
<PAGE>
of additional shares of Common Stock constituting 1% or more of the then
outstanding shares of Common Stock or any other Person (or Persons) who is (or
collectively are) the Beneficial Owner of shares of Common Stock constituting 1%
or more of the then outstanding shares of Common Stock shall become an Affiliate
or Associate of such Person, unless, in either such case, such Person, together
with all Affiliates and Associates of such Person, is not then the Beneficial
Owner of 15% or more of the shares of Common Stock then outstanding; and
provided, further, that if the Board of Directors, with the concurrence of a
- -------- -------
majority of the members of the Board of Directors who are not, and are not
representatives, nominees, Affiliates or Associates of, such Person or an
Acquiring Person, determines in good faith that a Person that would otherwise be
an "Acquiring Person" has become such inadvertently (including, without
limitation, because (i) such Person was unaware that it beneficially owned a
percentage of Common Stock that would otherwise cause such Person to be an
"Acquiring Person" or (ii) such Person was aware of the extent of its Beneficial
Ownership of Common Stock but had no actual knowledge of the consequences of
such Beneficial Ownership under this Agreement) and without any intention of
changing or influencing control of the Company, and if such Person as promptly
as practicable divested or divests itself of Beneficial Ownership of a
sufficient number of shares of Common Stock, so that such Person would no longer
be an "Acquiring Person," then such Person shall not be deemed to be or to have
become an "Acquiring Person" for any purposes of this Agreement.
Notwithstanding anything in this definition of "Acquiring Person" to
the contrary; (i) no Exempt Person shall be deemed to be or become an "Acquiring
Person" or an Affiliate or Associate of an Acquiring Person; (ii) so long as the
Existing Stockholder, together with its Affiliates and Associates thereof, does
not become the Beneficial Owner of 25% or more of the Fully-Diluted Common
Shares, the Existing Stockholder, together with its Affiliates and Associates,
shall not be or become an Acquiring Person; and (iii) so long as a GS Holder,
together with all Affiliates or Associates, does not become the Beneficial Owner
of 25% or more of the Fully-Diluted Common Shares, a GS Holder, together with
its Affiliates and Associates, shall not be or become an Acquiring Person.
At any time that the Rights are redeemable, the Board of Directors
may, generally or with respect to any specified Person or Persons, determine to
increase to a specified percentage greater than that set forth herein or
decrease to a specified percentage lower than that set forth herein or determine
a number of shares to be (but in no event less than or equal to the percentage
or number of shares of Common Stock then beneficially owned by such Person), the
level of Beneficial Ownership of Common Stock at which a Person or such Person
or Persons becomes an Acquiring Person.
Notwithstanding anything in this Agreement to the contrary, no Person
shall be or become an Acquiring Person until after the consummation of the
Company's Initial Public Offering of the Common Stock.
"Adjustment Shares" shall have the meaning set forth in Section
11(a)(ii) hereof.
-2-
<PAGE>
"Affiliate" shall mean a Person that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with, the Person specified.
"Associate" shall mean, with reference to any Person, (i) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than the Company or a Subsidiary of the Company) of which
such Person is an officer or general partner (or officer or general partner of a
general partner) or is, directly or indirectly, the Beneficial Owner of 10% or
more of any class of equity securities, (ii) any trust or other estate in which
such Person has a substantial beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity and (iii) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person.
A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, is the "beneficial owner" of (as
determined pursuant to Rule 13d-3 under the Exchange Act as in effect on
the date of this Agreement) or otherwise has the right to vote or dispose
of, including pursuant to any agreement, arrangement or understanding
(whether or not in writing); provided, however, that a Person shall not be
-------- -------
deemed the "Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (i) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (A) arises solely from a revocable proxy or consent given in
response to a public (i.e., not including a solicitation exempted by Rule
---
14a-2(b)(2) under the Exchange Act as in effect on the date of this
Agreement) proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions rules under the Exchange Act and
(B) is not then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report);
(ii) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right or obligation to acquire
(whether such right or obligation is exercisable or effective immediately
or only after the passage of time or the occurrence of an event) pursuant
to any agreement, arrangement or understanding (whether or not in writing)
or upon the exercise of conversion rights, exchange rights, other rights,
warrants or options, or otherwise; provided, however, that a Person shall
-------- -------
not be deemed the "Beneficial Owner" of, or to "beneficially own," (A)
securities tendered pursuant to a tender or exchange offer made by such
Person or any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange, (B) securities issuable
upon exercise of Rights at any time prior to the occurrence of a Triggering
Event or (C) securities issuable upon exercise of Rights from and after the
occurrence of a Triggering Event which Rights were acquired by such Person
or any of such Person's Affiliates or Associates prior to the Distribution
Date or pursuant to
-3-
<PAGE>
Section 3(a) or Section 22 hereof (the "Original Rights") or pursuant to
Section 11(i) or (p) hereof in connection with an adjustment made with
respect to any Original Rights; or
(iii) that are beneficially owned, directly or indirectly, by (A)
any other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any agreement,
arrangement or understanding (whether or not in writing) for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy or consent
as described in the proviso to subparagraph (i) of this definition) or
disposing of any voting securities of the Company or (B) any group (as that
term is used in Rule 13d-5(b) under the Exchange Act) of which such Person
is a member;
provided, however, that nothing in this definition shall cause a Person engaged
- -------- -------
in business as an underwriter of securities to be the "Beneficial Owner" of, or
to "beneficially own," any securities acquired through such Person's
participation in good faith in a firm commitment underwriting (including,
without limitation, securities acquired pursuant to stabilizing transactions to
facilitate a public offering in accordance with Regulation M promulgated under
the Exchange Act or to cover overallotments created in connection with a public
offering) until the expiration of forty days after the date of such acquisition.
For purposes of this Agreement, "voting" a security shall include voting,
granting a proxy, acting by consent, making a request or demand relating to
corporate action (including, without limitation, calling a stockholder meeting)
or otherwise giving an authorization (within the meaning of Section 14(a) of the
Exchange Act as in effect on the date of this Agreement) in respect of such
security.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Class B Common Right" shall have the meaning set forth in the
Recitals.
"Class B Common Stock" shall mean the Class B Common Stock, par value
$.01 per share, of the Company.
"Class C Common Stock" shall mean the Class C Common Stock, par value
$.01 per share, of the Company.
"close of business" on any given date shall mean 5:00 p.m., New York
time, on such date; provided, however, that if such date is not a Business Day,
-------- -------
it shall mean 5:00 p.m., New York time, on the next succeeding Business Day.
"Closing Price" of a security for any day shall mean the last sales
price, regular way, on such day or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, on such day,
in either case as reported in the principal transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
-4-
<PAGE>
Exchange, or, if such security is not listed or admitted to trading on the New
York Stock Exchange, on the principal national securities exchange on which such
security is listed or admitted to trading, or, if such security is not listed or
admitted to trading on any national securities exchange but sales price
information is reported for such security, as reported by NASDAQ or such other
self-regulatory organization or registered securities information processor or
alternative trading system (as such terms are used under the Exchange Act) that
then reports information concerning such security, or, if sales price
information is not so reported, the average of the high bid and low asked prices
in the over-the-counter market on such day, as reported by NASDAQ or such other
entity, or, if on such day such security is not quoted by any such entity, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in such security selected by the Board of Directors
of the Company. If on such day no market maker is making a market in such
security, the fair value of such security on such day as determined in good
faith by the Board of Directors of the Company shall be used.
"Common Shares" shall mean the shares of Voting Common Stock, Class C
Common Stock and Class B Common Stock of the Company.
"Common Share Equivalents" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Common Stock" shall mean the Voting Common Stock and the Class C
Common Stock, collectively, except that "common stock" when used with reference
to equity interests issued by any Person other than the Company shall mean the
capital stock of such Person with the greatest voting power, or the equity
securities or other equity interest having power to control or direct the
management, of such Person.
"Company" shall mean the Person named as the "Company" in the Preamble
of this Agreement until a successor Person shall have become such or until a
Principal Party shall assume, and thereafter be liable for, all obligations and
duties of the Company hereunder, pursuant to the applicable provisions of this
Agreement, and thereafter "Company" shall mean such successor Person or
Principal Party.
"Current Market Price" shall have the meaning set forth in Section
11(d) hereof.
"Current Value" shall have the meaning set forth in Section 11(a)(iii)
hereof.
"Distribution Date" shall mean the earlier of (i) the close of
business on the tenth day (or, if such Stock Acquisition Date results from the
consummation of a Permitted Offer, such later date as may be determined by the
Company's Board of Directors as set forth below before the Distribution Date
occurs) after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date, the close of business on the
Record Date) or (ii) the close of business on the tenth Business Day (or such
later date as may be determined by the Company's Board of Directors as set forth
below before the Distribution Date occurs) after the
-5-
<PAGE>
date that a tender offer or exchange offer by any Person (other than any Exempt
Person) is first published or sent or given within the meaning of Rule 14d-2(a)
under the Exchange Act as then in effect, if upon consummation thereof, such
Person would be an Acquiring Person, other than a tender or exchange offer that
is determined before the Distribution Date occurs to be a Permitted Offer. The
Board of Directors of the Company may, to the extent set forth in the preceding
sentence, defer the date set forth in clause (i) or (ii) of the preceding
sentence to a specified later date or to an unspecified later date to be
determined by a subsequent action or event (but in no event to a date later than
the close of business on the tenth day after the first occurrence of a
Triggering Event).
"Equivalent Preferred Stock" shall have the meaning set forth in
Section 11(b) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Ratio" shall have the meaning set forth in Section 24
hereof.
"Exempt Person" shall mean the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of the Company,
and any Person organized, appointed or established by the Company for or
pursuant to the terms of any such plan or for the purpose of funding any such
plan or funding other employee benefits for employees of the Company or any
Subsidiary of the Company.
"Existing Stockholder" shall mean Capital Z Financial Services Fund
II, L.P. and any Affiliate or Associate thereof.
"Expiration Date" shall mean the earliest of (i) the Final Expiration
Date, (ii) the time at which the Rights are redeemed as provided in Section 23
hereof, (iii) the time at which the Rights expire pursuant to Section 13(d)
hereof and (iv) the time at which all Rights then outstanding and exercisable
are exchanged pursuant to Section 24 hereof.
"Final Expiration Date" shall mean the close of business on September
30, 2009.
"Flip-In Event" shall mean an event described in Section 11(a)(ii)
hereof.
"Flip-In Trigger Date" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Flip-Over Event" shall mean any event described in clause (x), (y) or
(z) of Section 13(a) hereof, that occurs from and after the time when an
Acquiring Person has become such, but excluding any transaction described in
Section 13(d) hereof that causes the Rights to expire.
-6-
<PAGE>
"Fractional Share" with respect to the Preferred Stock shall mean one
one-hundredth of a share of Preferred Stock.
"Fully-Diluted Common Shares" means, at any time of determination, all
then outstanding Common Shares plus (without duplication) all Common Shares
issuable, whether at such time or upon the passage of time or the occurrence of
future events, upon the conversion, exercise or exchange of all then outstanding
securities that are convertible into, exercisable for or exchangeable into,
directly or indirectly, Common Shares.
"GS Holder" shall mean The Goldman Sachs Group, L.P. and any Affiliate
or Associate thereof.
"Initial Public Offering" means the underwritten public offering of
the Company's Voting Common Stock pursuant to a registration statement under the
Securities Act where both (i) the proceeds of the Company (prior to deducting
any underwriters' discounts and commissions) equal or exceed twenty million
dollars ($20,000,000) and (ii) the initial price per share at which such Voting
Common Stock is sold to the public in such offering is at least $4.50 (subject
to equitable adjustment for stock splits, stock combinations, recapitalizations
and similar occurrences).
"NASDAQ" shall mean the trading system operated by the NASDAQ Stock
Market, Inc.
"Original Rights" shall have the meaning set forth in the definition
of "Beneficial Owner."
"Permitted Offer" shall mean a tender offer or an exchange offer for
all outstanding shares of Common Stock at a price and on terms determined by at
least a majority of the members of the Board of Directors, and concurred in by a
majority of those members who are not officers or employees of the Company and
who are not, and are not representatives, Affiliates or Associates of, an
Acquiring Person or the person making the offer, after receiving advice from one
or more investment banking firms, to be (a) at a price and on terms that are
fair to stockholders (taking into account all factors that such members of the
Board deem relevant including, without limitation, prices that could reasonably
be achieved if the Company or its assets were sold on an orderly basis designed
to realize maximum value) and (b) otherwise in the best interests of the Company
and its stockholders.
"Person" shall mean any individual, firm, corporation, partnership,
limited liability company, association, trust, unincorporated organization or
other entity.
"Preferred Stock" shall mean in the case of the Voting Class Rights,
the Class 1 Series A Junior Participating Preferred Stock, par value $.001 per
share, of the Company having the rights, powers and preferences set forth in the
form of Certificate of Designations attached
-7-
<PAGE>
hereto as Exhibit A-1 and, in the case of the Class B Common Rights, the Class 2
Series A Junior Participating Preferred Stock, par value $.001 per share, of the
Company having the rights, powers and preferences set forth in the form of
Certificate of Designations attached hereto as Exhibit A-2, and to the extent
that there is not a sufficient number of shares of Class 1 Series A Junior
Participating Preferred Stock or Class 2 Series A Junior Participating Preferred
Stock, as the case may be, authorized to permit the full exercise of the Rights,
any other series of Preferred Stock, par value $.001 per share, of the Company
designated for such purpose containing terms substantially similar to the terms
of the Class 1 Series A Junior Participating Preferred Stock or the Class 2
Series A Junior Participating Preferred Stock, as the case may be.
"Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
"Purchase Price" shall have the meaning set forth in Section 4(a)
hereof.
"Record Date" shall have the meaning set forth in the Recitals at the
beginning of this Agreement.
"Redemption Price" shall have the meaning set forth in Section 23(a)
hereof.
"Right" shall mean in the case of the Common Stock, a Voting Class
Right, and in the case of the Class B Common Stock, a Class B Common Right.
"Rights Agent" shall mean the Person named as the "Rights Agent" in
the Preamble of this Agreement until a successor Rights Agent shall have become
such pursuant to the applicable provisions hereof, and thereafter "Rights
Agent"shall mean such successor Rights Agent. If at any time there is more than
one Person appointed by the Company as Rights Agent pursuant to the applicable
provisions of this Agreement, "Rights Agent" shall mean and include each such
Person.
"Rights Certificates" shall mean the certificates evidencing the
Rights.
"Rights Dividend Declaration Date" shall have the meaning set forth in
the Recitals at the beginning of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
"Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition and Section 23, shall
include, without limitation, a report filed pursuant to Section 13(d) of the
Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has
become such.
-8-
<PAGE>
"Subsidiary" shall mean, with reference to any Person, any corporation
or other Person of which an amount of voting securities sufficient to elect at
least a majority of the directors or other persons performing similar functions
is beneficially owned, directly or indirectly, by such Person, or otherwise
controlled by such Person.
"Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
"Summary of Rights" shall mean the Summary of Rights to Purchase
Preferred Stock sent pursuant to Section 3(b) hereof.
"Trading Day" with respect to a security shall mean a day on which the
principal national securities exchange on which such security is listed or
admitted to trading is open for the transaction of business, or, if such
security is not listed or admitted to trading on any national securities
exchange but is quoted by NASDAQ, a day on which NASDAQ reports trades, or, if
such security is not so quoted, a Business Day.
"Triggering Event" shall mean any Flip-In Event or any Flip-Over
Event.
"Voting Common Stock" shall mean the class of common stock, par value
$.01 per share, of the Company that is registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended.
"Voting Class Right" shall have the meaning set forth in the Recitals.
Section 2. Appointment of Rights Agent. The Company hereby appoints
---------------------------
the Rights Agent to act as agent for the Company and to take certain actions in
respect of the holders of the Rights in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such Co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Rights Certificates.
----------------------------
(1) Until the Distribution Date, (x) the Rights will be evidenced
(subject to the provisions of paragraph (b) of this Section 3) by the
certificates for Common Shares registered in the names of the holders of Common
Shares and not by separate certificates, and (y) the Rights will be transferable
only in connection with the transfer of the underlying shares of Common Shares
(including a transfer to the Company). As soon as practicable after the
Distribution Date, the Rights Agent will send by first-class, insured, postage
prepaid mail, to each record holder of Common Shares as of the close of business
on the Distribution Date (other than any Person referred to in the first
sentence of Section 7(e)), at the address of such holder shown on the records of
the Company, one or more Rights Certificates, evidencing one Right for each
Common Share so held, subject to adjustment as provided herein. In the event
that an adjustment in the number of Rights per Common Share has been made
pursuant to Section 11(p)
-9-
<PAGE>
hereof, at the time of distribution of the Rights Certificates, the Company
shall make the necessary and appropriate rounding adjustments (in accordance
with Section 14(a) hereof) so that Rights Certificates representing only whole
numbers of Rights are distributed and cash is paid in lieu of any fractional
Rights. As of and after the Distribution Date, the Rights will be evidenced
solely by such Rights Certificates.
(2) As promptly as practicable following the Record Date, the Company
will send a copy of a Summary of Rights to Purchase Preferred Stock, in
substantially the form attached hereto as Exhibit C, by first-class, postage
prepaid mail, to each record holder of Common Shares as of the close of business
on the Record Date, at the address of such holder shown on the records of the
Company. With respect to certificates for Common Shares outstanding as of the
Record Date, until the Distribution Date or the earlier surrender for transfer
thereof or the Expiration Date, the Rights associated with the Common Shares
represented by such certificates shall be evidenced by such certificates for
Common Shares together with the Summary of Rights, and the registered holders of
the Common Shares shall also be the registered holders of the associated Rights.
Until the earlier of the Distribution Date or the Expiration Date, the transfer
of any of the certificates for Common Shares outstanding on the Record Date,
with or without a copy of the Summary of Rights, shall also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificates.
(3) Rights shall be issued in respect of all Common Shares that are
issued (whether originally issued or delivered from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date or, in certain circumstances provided in Section 22 hereof,
after the Distribution Date. Certificates issued for Common Shares that shall so
become outstanding or shall be transferred or exchanged after the Record Date
but prior to the earlier of the Distribution Date or the Expiration Date shall
also be deemed to be certificates for Rights, and shall bear the following
legend (which legend may be modified as necessary on the certificates for the
Common Stock or Class B Common Stock, as the case may be, to reflect the
application of this Agreement to the Common Stock or the Class B Common Stock,
as the case may be):
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between Wit Capital
Group, Inc. (the "Company") and American Stock Transfer & Trust Company
(the "Rights Agent") dated as of ________, 1999 as it may from time to time
be supplemented or amended (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file at
the principal offices of the Company. Under certain circumstances, as set
forth in the Rights Agreement, such Rights may be redeemed, may be
exchanged, may expire or may be evidenced by separate certificates and will
no longer be evidenced by this certificate. The Company will mail to the
holder of this certificate a copy of the Rights Agreement, as in effect on
the date of mailing, without charge promptly after receipt of a written
request therefor. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS
AGREEMENT, RIGHTS BENEFICIALLY OWNED BY OR TRANSFERRED TO ANY PERSON WHO
IS, WAS OR
-10-
<PAGE>
BECOMES AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE THEREOF (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), AND CERTAIN TRANSFEREES
THEREOF, WILL BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
With respect to such certificates containing the foregoing legend, until the
earlier of the Distribution Date or the Expiration Date, the Rights associated
with the Common Shares represented by such certificates shall be evidenced by
such certificates alone, and registered holders of Common Shares shall also be
the registered holders of the associated Rights, and the transfer of any of such
certificates shall also constitute the transfer of the Rights associated with
the Common Shares represented by such certificates.
Section 4. Form of Rights Certificates.
---------------------------
(1) The Rights Certificates (and the forms of election to purchase
and of assignment to be printed on the reverse thereof), when, as and if issued,
shall be substantially in the form set forth in Exhibit B hereto and may have
such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or quotation system
on which the Rights may from time to time be listed or quoted, or to conform to
usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever issued, shall be dated as of the Record Date and on their
face shall entitle the holders thereof to purchase such number of Fractional
Shares of Preferred Stock as shall be set forth therein at the price set forth
therein (such exercise price per Fractional Share (or, as set forth in this
Agreement, for other securities), the"Purchase Price"), but the amount and type
of securities purchasable upon the exercise of each Right and the Purchase Price
thereof shall be subject to adjustment as provided herein.
(2) Any Rights Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights beneficially owned by a Person described in the
first sentence of Section 7(e), and any Rights Certificate issued pursuant to
Section 6 or Section 11 hereof upon transfer, exchange, replacement or
adjustment of any such Rights, shall contain (to the extent feasible) the
following legend, modified as applicable to apply to such Person:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person (as such terms are defined in
the Rights Agreement). Accordingly, this Rights Certificate and the Rights
represented hereby will have become null and void in the circumstances and
with the effect specified in Section 7(e) of such Agreement.
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<PAGE>
The provisions of Section 7(e) of this Agreement shall be operative whether or
not the foregoing legend is contained on any such Rights Certificate. The
Company shall give notice to the Rights Agent promptly after it becomes aware of
the existence of any Acquiring Person or any Associate or Affiliate thereof.
Section 5. Countersignature and Registration.
---------------------------------
(1) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive Officer, its Chief
Operating Officer, its President or any Vice President, either manually or by
facsimile signature, and shall have affixed thereto the Company's seal or a
facsimile thereof, which shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Rights
Certificates shall be countersigned by the Rights Agent, either manually or by
facsimile signature, and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Rights Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificate may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
(2) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the certificate number and the date of
each of the Rights Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
- ----------------------------------------------------------------------
(1) Subject to the provisions of Section 4(b), Section 7(e), Section
13(d), Section 14 and Section 24 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
Expiration Date, any Rights Certificate or Rights Certificates may be
transferred, split up, combined or exchanged for another Rights Certificate or
Rights Certificates, entitling the registered holder to purchase a like number
of Fractional Shares of Preferred Stock (or, following a Triggering Event,
Common Shares, other securities, cash or other assets, as the case may be) as
the Rights Certificate or Rights Certificates surrendered then entitled such
holder (or former holder in the case of a transfer) to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Rights
Certificate or Rights
-12-
<PAGE>
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Rights Certificate or Rights Certificates to be
transferred, split up, combined or exchanged at the principal office or offices
of the Rights Agent designated for such purpose. Neither the Rights Agent nor
the Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) thereof or of the Affiliates or Associates thereof as
the Company shall reasonably request. Thereupon the Rights Agent shall, subject
to Section 4(b), Section 7(e), Section 13(d), Section 14 and Section 24 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment by the holder of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split-
up, combination or exchange of Rights Certificates.
(2) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company will, subject to Section 4(b), Section 7(e), Section
13(d), Section 14 and Section 24, execute and deliver a new Rights Certificate
of like tenor to the Rights Agent for countersignature and delivery to the
registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price.
----------------------------------
(1) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly completed and executed, to the
Rights Agent at the principal office or offices of the Rights Agent designated
for such purpose, together with payment of the aggregate Purchase Price with
respect to the total number of Fractional Shares of Preferred Stock (or other
securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the Expiration Date.
(2) The Purchase Price for each Fractional Share of Preferred Stock
pursuant to the exercise of a Right shall initially be $ __.00, and shall be
subject to adjustment from time to time as provided in Sections 11 and 13(a)
hereof and shall be payable in accordance with paragraph (c) below.
-13-
<PAGE>
(3) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate on the reverse
side thereof duly executed, accompanied by payment, with respect to each Right
so exercised, of the Purchase Price per Fractional Share of Preferred Stock (or
other shares, securities, cash or other assets, as the case may be) to be
purchased as set forth below and an amount equal to any applicable transfer tax,
the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly
(i)(A) requisition from any transfer agent of the shares of Preferred Stock (or
make available, if the Rights Agent is the transfer agent for such shares)
certificates for the total number of Fractional Shares of Preferred Stock to be
purchased, and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company, in its sole discretion,
shall have elected to deposit the shares of Preferred Stock issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from the
depositary agent depositary receipts representing interests in such number of
Fractional Shares of Preferred Stock as are to be purchased (in which case
certificates for the shares of Preferred Stock represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company will direct the depositary agent to comply with such request, (ii)
requisition from the Company the amount of cash, if any, to be paid in lieu of
fractional shares in accordance with Section 14 hereof, (iii) after receipt of
such certificates or depositary receipts, cause the same to be delivered to or
upon the order of the registered holder of such Rights Certificate, registered
in such name or names as may be designated by such holder and (iv) after receipt
thereof, deliver such cash, if any, to or upon the order of the registered
holder of such Rights Certificate. The payment of the Purchase Price (as such
amount may be reduced pursuant to Section 11(a)(iii) hereof) may be made in cash
or by certified check, cashier's or official bank check or bank draft payable to
the order of the Company or the Rights Agent. In the event that the Company is
obligated to issue other securities (including Common Shares) of the Company,
pay cash and/or distribute other property pursuant to Section 11(a) or Section
13(a) hereof, the Company will make all arrangements necessary so that such
other securities, cash and/or other property are available for distribution by
the Rights Agent, if and when appropriate. The Company reserves the right to
require prior to the occurrence of a Triggering Event that, upon exercise of
Rights, a number of Rights be exercised so that only whole shares of Preferred
Stock would be issued.
(4) In case the registered holder of any Rights Certificate shall
exercise fewer than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
(5) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Triggering Event, any Rights beneficially
owned by or transferred to (i) an Acquiring Person or an Associate or Affiliate
of an Acquiring Person other than any such Person that became such pursuant to a
Permitted Offer and the Board of Directors in good faith determines was not
involved in and did not cause or facilitate, directly or indirectly, such
Triggering Event, (ii) a direct or indirect transferee of such Rights from such
Acquiring Person
-14-
<PAGE>
(or any such Associate or Affiliate) who becomes a transferee after such
Triggering Event or (iii) a direct or indirect transferee of such Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with such Triggering Event and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from such Acquiring
Person (or such Affiliate or Associate) to holders of equity interests in such
Acquiring Person (or such Affiliate or Associate) or to any Person with whom
such Acquiring Person (or such Affiliate or Associate) has any continuing
agreement, arrangement or understanding regarding the transferred Rights or (B)
a transfer that the Board of Directors of the Company determines is part of a
plan, arrangement or understanding that has as a primary purpose or effect the
avoidance of this Section 7(e), shall become null and void without any further
action, no holder of such Rights shall have any rights whatsoever with respect
to such Rights, whether under any provision of this Agreement or otherwise, and
such Rights shall not be transferable. The Company shall use all reasonable
efforts to ensure that the provisions of this Section 7(e) and Section 4(b)
hereof are complied with, but shall have no liability to any holder of Rights
Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or its Affiliates, Associates
or transferees hereunder.
(6) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
---------------------------------------------------
Rights Certificates surrendered for the purpose of exercise, transfer, split-up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Rights Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
---------------------------------------------
(1) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued Common Shares and/or
-15-
<PAGE>
other securities or out of its authorized and issued shares held in its
treasury), the number of shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Shares and/or other securities) that,
as provided in this Agreement, including Section 11(a)(iii) hereof, will be
sufficient to permit the exercise in full of all outstanding Rights.
(2) So long as any shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Shares and/or other securities)
issuable and deliverable upon the exercise of the Rights are listed on any
national securities exchange or quoted on any trading system, the Company shall
use its best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on such
exchange, or quoted on such system, upon official notice of issuance upon such
exercise. Following the occurrence of a Triggering Event, the Company will use
its best efforts to list (or continue the listing of) the Voting Class Rights
and the securities issuable and deliverable upon the exercise of the Voting
Class Rights on one or more national securities exchanges or to cause the Rights
and the securities purchasable upon exercise of the Voting Class Rights to be
reported by NASDAQ or such other transaction reporting system then in use.
(3) The Company shall use its best efforts to (i) prepare and file,
as soon as practicable following the first occurrence of a Flip-In Event or, if
applicable, as soon as practicable following the earliest date after the first
occurrence of a Flip-In Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined pursuant to this
Agreement (including in accordance with Section 11(a)(iii) hereof), a
registration statement on an appropriate form under the Securities Act with
respect to the securities purchasable upon exercise of the Voting Class Rights,
(ii) cause such registration statement to become effective as soon as
practicable after such filing, and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the earlier of (A) the date as of which the Voting Class
Rights are no longer exercisable for such securities and (B) the Expiration
Date. The Company will also take such action as may be appropriate under, or to
ensure compliance with, the securities or "blue sky" laws of the various states
in connection with the exercisability of the Voting Class Rights. The Company
may temporarily suspend, for a period of time not to exceed 90 days after the
date set forth in clause (i) of the first sentence of this Section 9(c), the
exercisability of the Voting Class Rights in order to prepare and file such
registration statement and permit it to become effective. In addition, if the
Company shall determine that the Securities Act requires an effective
registration statement under the Securities Act following the Distribution Date,
the Company may temporarily suspend the exercisability of the Voting Class
Rights until such time as such a registration statement has been declared
effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Voting Class Rights have
been temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. Notwithstanding any provision of this
Agreement to the contrary, the Voting Class Rights shall not be exercisable in
any jurisdiction if the requisite qualification in such jurisdiction shall not
have been obtained, the exercise thereof shall not be permitted under applicable
law or any required registration statement shall not have been declared
effective.
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<PAGE>
(4) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Fractional Shares of Preferred
Stock (and, following the occurrence of a Triggering Event, Common Shares and/or
other securities) delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(5) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges that
may be payable in respect of the issuance or delivery of the Rights Certificates
and of any certificates for a number of Fractional Shares of Preferred Stock (or
Common Shares and/or other securities, as the case may be) upon the exercise of
Rights. The Company shall not, however, be required to pay any transfer tax that
may be payable in respect of any transfer or delivery of Rights Certificates to
a Person other than, or the issuance or delivery of a number of Fractional
Shares of Preferred Stock (or Common Shares and/or other securities, as the case
may be) in respect of a name other than that of, the registered holder of the
Rights Certificates evidencing Rights surrendered for exercise or to issue or
deliver any certificates for a number of Fractional Shares of Preferred Stock
(or Common Shares and/or other securities, as the case may be) in a name other
than that of the registered holder upon the exercise of any Rights until such
tax shall have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been established to
the Company's satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name
---------------------------
any certificate for a number of Fractional Shares of Preferred Stock (or Common
Shares and/or other securities, as the case may be) is issued upon the exercise
of Rights shall for all purposes be deemed to have become the holder of record
of such shares (fractional or otherwise) of Preferred Stock (or Common Shares
and/or other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; provided, however, that if the
-------- -------
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Shares and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock (or Common
Shares and/or other securities, as the case may be) transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Rights Certificate, as such, shall not be entitled to any rights of
a stockholder of the Company with respect to shares for which the Rights shall
be exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein.
-17-
<PAGE>
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
-------------------------------------------------------
or Number of Rights. The Purchase Price, the number and kind of shares or other
- -------------------
securities subject to purchase upon exercise of each Right and the number of
Rights outstanding are subject to adjustment from time to time as provided in
this Section 11.
(a)(i) In the event the Company shall at any time after the
Rights Dividend Declaration Date (A) declare a dividend on the outstanding
shares of Preferred Stock payable in shares of Class 1 Series A Junior
Participating Preferred Stock or Class 2 Series A Junior Participating
Preferred Stock, as the case may be, (B) subdivide the outstanding shares
of Preferred Stock, (C) combine the outstanding shares of Preferred Stock
into a smaller number of shares of Class 1 Series A Junior Participating
Preferred Stock or Class 2 Series A Junior Participating Preferred Stock,
as the case may be, or (D) otherwise reclassify the outstanding shares of
Preferred Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a) and
Section 7(e) hereof, the Purchase Price in effect at the time of the record
date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of
Preferred Stock or Common Shares, as the case may be, issuable on such
date, shall be proportionately adjusted so that the holder of any Voting
Class Right or Class B Common Right, as the case may be, exercised after
such time shall be entitled to receive, upon payment of the Purchase Price
then in effect, the aggregate number and kind of shares of Preferred Stock
or Common Shares, as the case may be, which, if such Voting Class Right or
Class B Common Right, as the case may be, had been exercised immediately
prior to such date and at a time when the Preferred Stock transfer books of
the Company were open, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs that would require an adjustment under
both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment
provided for in this Section 11(a)(i) shall be in addition to, and shall be
made prior to, any adjustment required pursuant to Section 11(a)(ii)
hereof.
(ii) Subject to Sections 23 and 24 of this Agreement,
in the event any Person shall, at any time after the Rights Dividend
Declaration Date, become an Acquiring Person, unless the event causing such
Person to become an Acquiring Person is (1) a Flip-Over Event or (2) an
acquisition of shares of Common Shares pursuant to a Permitted Offer
(provided that this clause (2) shall cease to apply if such Acquiring
--------
Person thereafter becomes the Beneficial Owner of any additional shares of
Common Shares other than pursuant to such Permitted Offer or a transaction
set forth in Section 13(a) or 13(d) hereof), then (x) the Purchase Price
shall be adjusted to be the Purchase Price immediately prior to the first
occurrence of a Flip-In Event multiplied by the number of Fractional Shares
of Preferred Stock for which a Right was exercisable immediately prior to
such first occurrence and (y) each holder of a Right (except as provided
below in Section 11(a)(iii) and in Section 7(e) hereof) shall thereafter
have the
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<PAGE>
right to receive, upon exercise thereof at a price equal to the
Purchase Price in accordance with the terms of this Agreement, in lieu
of shares of Preferred Stock, such number of shares of Voting Common
Stock or Class B Common Stock, as the case may be, as shall equal the
result obtained by dividing the Purchase Price by 50% of the Current
Market Price per share of Voting Common Stock on the date of such
first occurrence (such number of shares, the "Adjustment Shares");
provided that the Purchase Price and the number of Adjustment Shares
--------
shall be further adjusted as provided in this Agreement to reflect any
events occurring after the date of such first occurrence.
(iii) In the event that the number of shares of Common Stock or
Class B Common Stock that are authorized by the Company's certificate
of incorporation but not outstanding or reserved for issuance for
purposes other than upon exercise of the Rights is not sufficient to
permit the exercise in full of the Voting Class Rights or Class B
Common Rights, as the case may be, in accordance with the foregoing
subparagraph (ii) of this Section 11(a), the Company shall, to the
extent permitted by applicable law and regulation, (A) determine the
excess of (1) the value of the Adjustment Shares issuable upon the
exercise of a Right (computed using the Current Market Price used to
determine the number of Adjustment Shares) (the "Current Value") over
(2) the Purchase Price (such excess is herein referred to as the
"Spread"), and (B) with respect to each Right, make adequate provision
to substitute for the Adjustment Shares, upon the exercise of the
Rights and payment of the applicable Purchase Price, (1) cash, (2) a
reduction in the Purchase Price, (3) Voting Common Stock in the case of
holders of Voting Class Rights and Class B Common Stock in the case of
holders of Class B Common Rights or other equity securities of the
Company (including, without limitation, shares, or units of shares, of
preferred stock (including, without limitation, the Preferred Stock)
that the Board of Directors of the Company has determined to have the
same value as shares of Voting Common Stock or Class B Common Stock, as
the case may be (such shares of preferred stock are herein referred to
as "Common Share Equivalents")), (4) debt securities of the Company,
(5) other assets or (6) any combination of the foregoing, having an
aggregate value equal to the Current Value, where such aggregate value
has been determined by the Board of Directors of the Company based upon
the advice of a nationally recognized investment banking firm selected
by the Board of Directors of the Company; provided, however, if the
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Company shall not have made adequate provision to deliver value
pursuant to clause (B) above within 30 days following the later of (x)
the first occurrence of a Flip-In Event and (y) the date on which the
Company's right of redemption pursuant to Section 23(a) expires (the
later of (x) and (y) being referred to herein as the "Flip-In Trigger
Date"), then the Company shall be obligated to deliver, upon the
surrender for exercise of a Right and without requiring payment of the
Purchase Price, shares of Voting Common Stock in the case of the
holders of Voting Class Rights and Class B Common Stock in the case of
holders of Class B Common Rights (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal
to the Spread. If the Board of Directors of the Company shall determine
in good faith that it is likely that sufficient additional shares of
Common Stock could be authorized for issuance upon
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<PAGE>
exercise in full of the Rights, the 30-day period set forth above may
be extended to the extent necessary, but not more than 90 days after
the Flip-In Trigger Date, in order that the Company may seek
stockholder approval for the authorization of such additional shares
(such period, as it may be extended, the "Substitution Period"). To the
extent that the Company or the Board of Directors determines that some
action need be taken pursuant to the first and/or second sentences of
this Section 11(a)(iii), the Company (x) shall provide, subject to
Section 7(e) hereof, that such action shall apply uniformly to all
outstanding Rights, and (y) may suspend the exercisability of the
Rights until the expiration of the Substitution Period in order to seek
any authorization of additional shares and/or to decide the appropriate
form of distribution to be made pursuant to such first sentence and to
determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as
a public announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(iii), the value of the
Common Stock or, if applicable, the Class B Common Stock shall be the
Current Market Price per share of the Voting Common Stock or, if
applicable, the Current Market Price per share of the Class B Common
Stock, in each case on the Flip-In Trigger Date and the value of any
Common Share Equivalent shall be deemed to have the same value as the
Voting Common Stock or, if applicable, the Class B Common Stock on such
date.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within 45
calendar days after such record date) Preferred Stock (or shares having the same
rights, privileges and preferences as the shares of Preferred Stock ("Equivalent
Preferred Stock")) or securities convertible into Preferred Stock or Equivalent
Preferred Stock at a price per share of Preferred Stock or per share of
Equivalent Preferred Stock (or having a conversion price per share, if a
security convertible into Preferred Stock or Equivalent Preferred Stock) less
than the Current Market Price per share of Preferred Stock on such record date,
the Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of shares of Preferred
Stock that the aggregate offering price of the total number of shares of
Preferred Stock and/or Equivalent Preferred Stock so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such Current Market Price, and the denominator of
which shall be the number of shares of Preferred Stock outstanding on such
record date, plus the number of additional shares of Preferred Stock and/or
Equivalent Preferred Stock to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible). In
case such subscription price may be paid by delivery of consideration, part or
all of which may be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of the Rights.
Shares of Preferred Stock owned by or held for the account of the Company shall
not be deemed
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<PAGE>
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed, and in the event that
such rights or warrants are not so issued, the Purchase Price shall be adjusted
to be the Purchase Price that would then be in effect if such record date had
not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness, cash (other
than a regular quarterly cash dividend out of the earnings or retained earnings
of the Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the Current Market
Price per share of Preferred Stock on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent) of the portion of the cash,
assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to a share of Preferred Stock and the denominator
of which shall be such Current Market Price per share of Preferred Stock. Such
adjustments shall be made successively whenever such a record date is fixed, and
in the event that such distribution is not so made, the Purchase Price shall be
adjusted to be the Purchase Price that would have been in effect if such record
date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iii) hereof, the
"Current Market Price" per share of Common Stock or Class B Common
Stock on any date shall be deemed to be the average of the daily
Closing Prices per share of such Voting Common Stock or Class B Common
Stock, as the case may be, for the 30 consecutive Trading Days
immediately prior to such date, and for purposes of computations made
pursuant to Section 11(a)(iii) hereof, the "Current Market Price" per
share of Common Stock or Class B Common Stock on any date shall be
deemed to be the average of the daily Closing Prices per share of such
Voting Common Stock or Class B Common Stock, as the case may be, for
the 10 consecutive Trading Days immediately following such date;
provided, however, that in the event that the Current Market Price per
-------- -------
share of Common Stock or Class B Common Stock is determined during a
period following the announcement of (A) a dividend or distribution on
such Common Stock or Class B Common Stock, as the case may be, other
than a regular quarterly cash dividend or the dividend of the Voting
Class Rights or Class B Common Rights, as the case may be, or (B) any
subdivision, combination or reclassification of such Common Stock or
Class B Common Stock, and the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, shall not have occurred prior to the commencement of
the requisite 30 Trading Day or 10 Trading Day period, as set forth
above, then, and in each
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<PAGE>
such case, the Current Market Price shall be properly adjusted to take
into account ex-dividend trading. If the Voting Common Stock is not
publicly held or so listed or traded, "Current Market Price" per share
of the Common Stock shall mean the fair value per share of Voting
Common Stock as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be conclusive for all purposes.
If the Class B Common Stock is not listed or admitted to trading on a
national securities exchange or traded in the over-the-counter market,
the Current Market Price per share of the Class B Common Stock on any
date shall be the same as the Current Market Price per share of the
Common Stock on such date.
(ii) For the purpose of any computation hereunder, the
"Current Market Price" per share (or Fractional Share) of Class 1
Series A Junior Participating Preferred Stock shall be determined in
the same manner as set forth for the Common Stock in this Section 11(d)
and the "Current Market Price" per share (or Fractional Share) of Class
2 Series A Junior Participating Preferred Stock shall be determined in
the same manner as set forth for the Class B Common Stock in this
Section 11(d). If the Current Market Price per share (or Fractional
Share) of Class 1 Series A Junior Participating Preferred Stock cannot
be determined in the manner provided above or if the Class 1 Series A
Junior Participating Preferred Stock is not publicly held or listed or
traded in a manner described in clause (i) of this Section 11(d), the
"Current Market Price" per share of Class 1 Series A Junior
Participating Preferred Stock or Class 2 Junior Participating Preferred
Stock, as the case may be, shall be conclusively deemed to be an amount
equal to 100 (as such number may be appropriately adjusted for such
events as stock splits, stock dividends and recapitalizations with
respect to the Common Stock or the Class B Common Stock, as the case
may be, occurring after the date of this Agreement) multiplied by the
Current Market Price per share of the Common Stock in the case of the
Class 1 Series A Junior Participating Preferred Stock or the Current
Market Price per share of the Class B Common Stock in the case of the
Class 2 Series A Junior Participating Preferred Stock. If neither the
Common Stock nor the Class 1 Series A Junior Participating Preferred
Stock is publicly held or so listed or traded, Current Market Price per
share of each of the Class 1 Series A Junior Participating Preferred
Stock and Class 2 Series A Junior Participating Preferred Stock shall
mean the fair value per share of Class 1 Series A Junior Participating
Preferred Stock and the fair value per share of Class 2 Series A Junior
Participating Preferred Stock, in each case as determined in good faith
by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be
conclusive for all purposes. For all purposes of this Agreement, the
Current Market Price of a Fractional Share of Preferred Stock shall be
equal to the Current Market Price of one share of Preferred Stock
divided by 100.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of
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<PAGE>
at least 1% in the Purchase Price; provided, however, that any adjustments that
-------- -------
by reason of this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest ten-
thousandth of a share of Common Stock or Class B Common Stock or other share or
to the nearest ten- thousandth of a Fractional Share of Class 1 Series A Junior
Participating Preferred Stock and Class 2 Series A Junior Participating
Preferred Stock, as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three years from the date of the transaction which
mandates such adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive in respect of such Right any shares of capital
stock other than Preferred Stock, thereafter the number of such other shares so
receivable upon exercise of any Right and the Purchase Price thereof shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Preferred Stock
contained in Sections 11(a), (b), (c), (e), (f), (g), (h), (i), (j), (k) and (m)
hereof, and the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect
to the Preferred Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of Fractional Shares of
Preferred Stock purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
Fractional Shares of Class 1 Series A Junior Participating Preferred Stock or
Class 2 Series A Junior Participating Preferred Stock, as the case may be
(calculated to the nearest one ten-thousandth of a Fractional Share) obtained by
(i) multiplying (x) the number of Fractional Shares of Class 1 Series A Junior
Participating Preferred Stock or Class 2 Series A Junior Participating Preferred
Stock, as the case may be, covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect, on or after the date of any
adjustment of the Purchase Price, to adjust the number of Voting Class Rights or
Class B Common Rights as the case may be, in lieu of any adjustment in the
number of Fractional Shares of Class 1 Series A Junior Participating Preferred
Stock or Class 2 Series A Junior Participating Preferred Stock, as the case may
be, purchasable upon the exercise of Voting Class Rights or Class B Common
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<PAGE>
Rights, as the case may be. Each of the Rights outstanding after the adjustment
in the number of Rights shall be exercisable for the number of Fractional Shares
of Class 1 Series A Junior Participating Preferred Stock or Class 2 Series A
Junior Participating Preferred Stock, as the case may be, for which a Voting
Class Right or Class B Common Right, as the case may be, was exercisable
immediately prior to such adjustment. Each Voting Class Right or Class B Common
Right held of record prior to such adjustment of the number of Voting Class
Rights or Class B Common Rights shall become that number of Voting Class Rights
or Class B Common Rights (calculated to the nearest ten-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment of the
Purchase Price by the Purchase Price in effect immediately after adjustment of
the Purchase Price. The Company shall make a public announcement of its election
to adjust the number of Voting Class Rights or Class B Common Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Rights Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Rights Certificates have been issued, upon each adjustment of
the number of Voting Class Rights or Class B Common Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record date
Rights Certificates evidencing, subject to Section 14 hereof, the additional
Voting Class Rights or Class B Common Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Rights Certificates held by such holders prior to the date
of adjustment, and upon surrender thereof, if required by the Company, new
Rights Certificates evidencing all the Voting Class Rights or Class B Common
Rights to which such holders shall be entitled after such adjustment. Rights
Certificates so to be distributed shall be issued, executed and countersigned in
the manner provided for herein (and may bear, at the option of the Company, the
adjusted Purchase Price) and shall be registered in the names of the holders of
record of Rights Certificates on the record date specified in the public
announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of Fractional Shares of Preferred Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per Fractional Share and the
number of Fractional Shares that were expressed in the initial Rights
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value, if any, or the stated
capital of the number of Fractional Shares of Preferred Stock or of the number
of shares of Common Stock or Class B Common Stock, as the case may be, or other
securities issuable upon exercise of a Voting Class Right or Class B Common
Right, as the case may be, the Company shall take any corporate action that may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable such number of Fractional
Shares of Class 1 Series A Junior Participating Preferred Stock or Class 2
Series A Junior Participating Preferred Stock, as
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<PAGE>
the case may be, or such number of shares of Common Stock or Class B Common
Stock, as the case may be, or other securities at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Voting Class Right or Class B Common
Right, as the case may be, exercised after such record date the number of
Fractional Shares of Class 1 Series A Junior Participating Preferred Stock or
Class 2 Series A Junior Participating Preferred Stock, as the case may be, and
other capital stock or securities of the Company, if any, issuable upon such
exercise over and above the number of Fractional Shares of Class 1 Series A
Junior Participating Preferred Stock or Class 2 Series A Junior Participating
Preferred Stock, as the case may be, and other capital stock or securities of
the Company, if any, issuable upon such exercise on the basis of the Purchase
Price in effect prior to such adjustment; provided, however, that the Company
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shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares (fractional or
otherwise) or securities upon the occurrence of the event requiring such
adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board of
Directors of the Company shall determine to be advisable in order that any (i)
consolidation or subdivision of the Class 1 Series A Junior Participating
Preferred Stock or Class 2 Series A Junior Participating Preferred Stock, as the
case may be, (ii) issuance wholly for cash of any shares of Class 1 Series A
Junior Participating Preferred Stock or Class 2 Series A Junior Participating
Preferred Stock, as the case may be, at less than the current market price,
(iii) issuance wholly for cash of shares of Class 1 Series A Junior
Participating Preferred Stock or Class 2 Series A Junior Participating Preferred
Stock, as the case may be, or securities that by their terms are convertible
into or exchangeable for shares of Class 1 Series A Junior Participating
Preferred Stock or Class 2 Series A Junior Participating Preferred Stock, as the
case may be, (iv) stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11 hereafter made by the Company to holders of its
Preferred Stock shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any
time that there is an Acquiring Person, (i) consolidate with any other Person,
(ii) merge with or into any other Person, or (iii) sell, lease or transfer (or
permit one or more Subsidiaries to sell, lease or transfer), in one transaction
or a series of related transactions, assets or earning power aggregating more
than 50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons, if (x) at the time of or
immediately after such consolidation, merger, sale, lease or transfer there are
any rights, warrants or other instruments or securities of the Company or any
other Person outstanding or agreements, arrangements or understandings in effect
that would substantially diminish or otherwise eliminate the benefits intended
to be afforded by the Rights, (y) prior to, simultaneously with or immediately
after such consolidation,
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<PAGE>
merger, sale, lease or transfer, the stockholders or other equity owners of the
Person who constitutes, or would constitute, the "Principal Party" for purposes
of Section 13(a) hereof shall have received a distribution of Rights previously
owned by such Person or any of its Affiliates or Associates, or (z) the
identity, form or nature of organization of the Principal Party (including
without limitation the selection of the Person that will be the Principal Party
as a result of the Company's entering into one or more consolidations, mergers,
sales, leases, transfers or transactions with more than one party) would
preclude or limit the exercise of Rights or otherwise diminish substantially or
eliminate the benefits intended to be afforded by the Rights.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23, Section 24 or
Section 27 hereof, take (or permit any Subsidiary to take) any action if the
purpose of such action is to, or if at the time such action is taken it is
reasonably foreseeable that such action will, diminish substantially or
eliminate the benefits intended to be afforded by the Rights, other than Rights
that have become null and void pursuant to Section 7(e) hereof.
(p) Notwithstanding Section 3(c) hereof or any other provision
of this Agreement to the contrary, in the event that the Company shall at any
time after the Rights Dividend Declaration Date and prior to the Distribution
Date (i) declare a dividend on the outstanding shares of Common Stock or Class B
Common Stock, as the case may be, payable in shares of Common Stock or Class B
Common Stock, as the case may be, (ii) subdivide the outstanding shares of
Common Stock or Class B Common Stock, as the case may be, (iii) combine the
outstanding shares of Common Stock or Class B Common Stock, as the case may be,
into a smaller number of shares or (iv) otherwise reclassify the outstanding
shares of Common Stock or Class B Common Stock, as the case may be, (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), the number of Voting
Class Rights associated with each share of Common Stock then outstanding or the
number of Class B Common Rights associated with each share of Class B Common
Stock then outstanding, or issued or delivered thereafter but prior to the
Distribution Date, shall be proportionately adjusted so that the number of
Voting Class Rights thereafter associated with each share of Common Stock or the
number of Class B Common Rights associated with each share of Class B Common
Stock following any such event shall equal the result obtained by multiplying
the number of Voting Class Rights associated with each share of Common Stock, or
the number of Class B Common Rights associated with each share of Class B Common
Stock, as the case may be, immediately prior to such event by a fraction (the
"Adjustment Fraction") the numerator of which shall be the total number of
shares of Common Stock, in the case of an adjustment of Voting Class Rights, or
Class B Common Stock, in the case of an adjustment of Class B Common Rights,
outstanding immediately prior to the occurrence of the event and the denominator
of which shall be the total number of shares of Common Stock, in the case of an
adjustment of Voting Class Rights, or Class B Common Stock, in the case of an
adjustment of Class B Common Rights, outstanding immediately following the
occurrence of such event. In lieu of such adjustment in the number of Voting
Class Rights associated with each share of Common Stock or of such adjustment in
the number of Class B
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<PAGE>
Voting Rights associated with each share of Class B Common Stock, the Company
may elect to adjust the number of Fractional Shares of Class 1 Series A Junior
Preferred Stock or Class 2 Series A Junior Preferred Stock, as the case may be,
purchasable upon the exercise of one Right and the Purchase Price. If the
Company makes such election, the number of Voting Class Rights associated with
each share of Common Stock or the number of Class B Common Rights associated
with each share of Class B Common Stock shall, in either case, remain unchanged,
and the number of Fractional Shares of Preferred Stock purchasable upon exercise
of one Right and the Purchase Price shall be proportionately adjusted so that
(i) the number of Fractional Shares of Preferred Stock purchasable upon exercise
of a Right following such adjustment shall equal the product of the number of
Fractional Shares of Preferred Stock purchasable upon exercise of a Right
immediately prior to such adjustment multiplied by the Adjustment Fraction and
(ii) the Purchase Price following such adjustment shall equal the product of the
Purchase Price immediately prior to such adjustment multiplied by the Adjustment
Fraction.
Section 12. Certificate of Adjusted Purchase Price or Number of
---------------------------------------------------
Shares. Whenever an adjustment is made as provided in Section 11 or Section 13
- ------
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Common Shares, a copy of such certificate and (c) mail a
brief summary thereof to each registered holder of a Rights Certificate (or, if
prior to the Distribution Date, to each registered holder of a certificate
representing shares of Common Stock) in accordance with Section 26 hereof. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
------------------------------------------------------
Earning Power.
- -------------
(1) In the event that, from and after the time an Acquiring Person has
become such, directly or indirectly, (x) the Company shall consolidate with, or
merge with and into, any other Person, and the Company shall not be the
continuing or surviving corporation of such consolidation or merger, (y) any
Person shall consolidate with, or merge with or into, the Company, and the
Company shall be the continuing or surviving corporation of such consolidation
or merger, and, in connection with such consolidation or merger, all or part of
the outstanding Common Shares shall be changed into or exchanged for stock or
other securities of the Company or any other Person or cash or any other
property, or (z) the Company shall sell, lease or otherwise transfer (or one or
more of its Subsidiaries shall sell, lease or otherwise transfer), in one
transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons (other than the Company
or any wholly owned Subsidiary of the Company or any combination thereof in one
or more transactions each of which complies (and all of which together comply)
with Section 11(o) hereof), then, and in each such case (except as may be
contemplated by Section 13(d) hereof), proper provision shall be made so that:
(i) the Purchase Price shall be adjusted to be the Purchase Price immediately
prior
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<PAGE>
to the first occurrence of a Triggering Event multiplied by the number of
Fractional Shares of Preferred Stock for which a Right was exercisable
immediately prior to such first occurrence; (ii) on and after the Distribution
Date, each holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the right to receive, upon the exercise thereof at the Purchase
Price in accordance with the terms of this Agreement, in lieu of shares of
Preferred Stock or Common Shares of the Company, such number of validly
authorized and issued, fully paid, nonassessable and freely tradeable shares of
Common Stock of the Principal Party (as such term is hereinafter defined), not
subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by dividing the Purchase Price
by 50% of the Current Market Price per share of the Common Stock of such
Principal Party on the date of consummation of such Flip-Over Event; provided
that the Purchase Price and the number of shares of Common Stock of such
Principal Party issuable upon exercise of each Right shall be further adjusted
as provided in this Agreement to reflect any events occurring after the date of
such first occurrence of a Triggering Event or after the date of such Flip-Over
Event, as applicable; (iii) such Principal Party shall thereafter be liable for,
and shall assume, by virtue of such Flip-Over Event, all the obligations and
duties of the Company pursuant to this Agreement; (iv) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Flip-Over Event; (v) such
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock) in connection
with the consummation of any such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock thereafter deliverable upon
the exercise of the Rights; and (vi) the provisions of Section 11(a)(ii) hereof
shall be of no effect following the occurrence of any Flip-Over Event.
(2) "Principal Party" shall mean
(1) in the case of any transaction described in clause (x) or (y) of
the first sentence of Section 13(a), (A) the Person that is the issuer of
any securities into which Common Shares of the Company are converted in
such merger or consolidation, or, if there is more than one such issuer,
the issuer the Common Stock of which has the greatest aggregate market
value, or (B) if no securities are so issued, (x) the Person that survives
such consolidation or is the other party to the merger and survives such
merger, or, if there is more than one such Person, the Person the Common
Stock of which has the greatest aggregate market value or (y) if the Person
that is the other party to the merger does not survive the merger, the
Person that does survive the merger (including the Company if it survives);
and
(2) in the case of any transaction described in clause (z) of the
first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to
such transaction or transactions, or, if each Person that is a party to
such transaction or transactions receives the same portion of the assets or
earning power so transferred, or if the Person receiving the greatest
portion of the assets
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<PAGE>
or earning power cannot be determined, the Person the Common Stock of which
has the greatest aggregate market value;
provided, however, that in any such case, if the Common Stock of such Person is
- -------- -------
not at such time and has not been continuously over the preceding twelve-month
period registered under Section 12 of the Exchange Act, and if (1) such Person
is a direct or indirect Subsidiary of another Person the Common Stock of which
is and has been so registered, "Principal Party" shall refer to such other
Person; (2) such Person is a Subsidiary, directly or indirectly, of more than
one Person, the Common Stocks of all of which are and have been so
registered,"Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value; and (3)
such Person is owned, directly or indirectly, by a joint venture formed by two
or more Persons that are not owned, directly or indirectly, by the same Person,
the rules set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party were a
"Subsidiary" of both or all of such joint venturers and the Principal Parties in
each such chain shall bear the obligations set forth in this Section 13 in the
same ratio as their direct or indirect interests in such Person bear to the
total of such interests.
(3) The Company shall not consummate any Flip-Over Event unless each
Principal Party (or Person that may become a Principal Party as a result of such
Flip-Over Event) shall have a sufficient number of authorized shares of its
Common Stock that have not been issued or reserved for issuance to permit the
exercise in full of the Rights in accordance with this Section 13 and unless
prior thereto the Company and each such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing for the terms
set forth in paragraphs (a) and (b) of this Section 13 and further providing
that, as soon as practicable after the date of such Flip-Over Event, the
Principal Party at its own expense will
(1) prepare and file a registration statement under the Securities
Act with respect to the Rights and the securities purchasable upon exercise
of the Rights on an appropriate form, and will use its best efforts to
cause such registration statement to (A) become effective as soon as
practicable after such filing and (B) remain effective (with a prospectus
at all times meeting the requirements of the Securities Act) until the
Expiration Date;
(2) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the "blue sky" laws of
such jurisdictions as may be necessary or appropriate;
(3) use its best efforts, if the Common Stock of the Principal Party
is or shall become listed on a national securities exchange, to list (or
continue the listing of) the Rights and the securities purchasable upon
exercise of the Rights on such securities exchange and, if the Common Stock
of the Principal Party shall not be listed on a national securities
exchange, to cause the Rights and the securities purchasable upon exercise
of
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<PAGE>
the Rights to be reported by NASDAQ or such other transaction reporting
system then in use; and
(4) deliver to holders of the Rights historical financial statements
for the Principal Party and each of its Affiliates that comply in all
respects with the requirements for registration on Form 10 under the
Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Flip-Over Event
shall occur at any time after the occurrence of a Flip-In Event, the Rights that
have not theretofore been exercised shall thereafter become exercisable in the
manner described in Section 13(a).
(5) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons who acquired Common Shares pursuant to a Permitted Offer (or a
wholly owned subsidiary of any such Person or Persons), (ii) the price per share
of Common Shares offered in such transaction is not less than the price per
share of Common Shares paid to all holders of Common Shares whose shares were
purchased pursuant to such Permitted Offer, and (iii) the form of consideration
being offered to the remaining holders of Common Shares pursuant to such
transaction is the same as the form of consideration paid pursuant to such
Permitted Offer. Upon consummation of any such transaction contemplated by this
Section 13(d), all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(1) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(p) hereof, or to
distribute Rights Certificates or scrip evidencing fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the Closing Price
of one Right for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable.
(2) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than, except as provided in Section 7(c) hereof,
fractions that are integral multiples of a Fractional Share of Preferred Stock)
upon exercise of the Rights or to distribute certificates or scrip evidencing
fractional shares of Preferred Stock (other than, except as provided in Section
7(c) hereof, fractions that are integral multiples of a Fractional Share of
Preferred Stock). Interests in fractions of shares of Preferred Stock in
integral multiples of a Fractional Share of Preferred Stock may, at the election
of the Company in its sole discretion, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it, provided that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as
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<PAGE>
beneficial owners of the shares of Preferred Stock represented by such
depositary receipts. In lieu of fractional shares of Preferred Stock that are
not integral multiples of a Fractional Share of Preferred Stock, the Company may
pay to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of one
one-hundredth of the Closing Price of one share of Class 1 Series A Junior
Participating Preferred Stock or Class 2 Series A Junior Participating Preferred
Stock, as applicable, for the Trading Day immediately prior to the date of such
exercise.
(3) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Shares upon exercise of
the Rights or to distribute certificates or scrip evidencing fractional shares
of Common Shares. In lieu of fractional shares of Common Shares, the Company may
pay to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
Closing Price of one share of Common Stock or Class B Common Stock, as
applicable, for the Trading Day immediately prior to the date of such exercise.
(4) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
----------------
Agreement, other than rights of action vested in the Rights Agent pursuant to
Section 18 hereof, are vested in the respective registered holders of the Rights
and, where applicable, the Company; and any registered holder of any Voting
Class Rights or Class B Common Rights, as the case may be, without the consent
of the Rights Agent or of the holders of any other Voting Class Rights or Class
B Common Rights, as the case may be, may, in such holder's own behalf and for
such holder's own benefit and the benefit of other holders of Voting Class
Rights or Class B Common Rights, as the case may be, enforce, and may institute
and maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, his right to exercise such holder's Rights
evidenced by such Rights Certificate in the manner provided in such Rights
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
After a Triggering Event, holders of Rights shall be entitled to recover the
reasonable costs and expenses, including attorneys' fees, incurred by them in
any action to enforce the provisions of this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
---------------------------
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
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<PAGE>
(1) prior to the Distribution Date, the Rights will not be evidenced
by Rights Certificates and will be transferable only in connection with the
transfer of Common Shares;
(2) after the Distribution Date, the Rights Certificates will be
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the form of assignment set forth on the reverse side thereof and the
certificate contained therein duly completed and fully executed;
(3) subject to Section 6(a) and Section 7(f) hereof, the Company and
the Rights Agent may deem and treat the Person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common Share
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Share certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary; and
(4) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
-------- -------
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
--------------------------------------------------
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of Fractional
Shares of Preferred Stock or any other securities of the Company that may at any
time be issuable upon the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Rights Certificate be construed to confer
upon the holder of any Rights Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in Section 25 hereof),
or to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
---------------------------
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<PAGE>
(1) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other reasonable disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
(2) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Shares or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement or other
paper or document believed by it, after proper inquiry or examination, to be
genuine and to be signed, executed and, where necessary, guaranteed, verified or
acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
---------------------------------------------------
Agent.
- -----
(1) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, however, that such corporation
-------- -------
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(2) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
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or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
----------------------
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(1) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(2) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and the
determination of "Current Market Price") be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by the
Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer,
the President, the Chief Financial Officer, any Vice President, the Treasurer,
any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company
and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Agreement in reliance upon such certificate.
(3) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct. In no event shall the Rights Agent
be liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Rights Agent
has been advised of the likelihood of such loss or damage and regardless of the
form of action.
(4) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(5) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Rights Certificate (except its counter signature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall it
be responsible for any adjustment required under the provisions of Section 11 or
Section 13 hereof or responsible for the manner, method or amount of any such
adjustment or the ascertaining of
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<PAGE>
the existence of facts that would require any such adjustment (except with
respect to the exercise of Rights evidenced by Rights Certificates after receipt
of actual knowledge of any such adjustment); nor shall it by any act hereunder
be deemed to make any representation or warranty as to the authorization or
reservation of any shares of Preferred Stock or Common Shares or other
securities to be issued pursuant to this Agreement or any Rights Certificate or
as to whether any shares of Preferred Stock or Common Stock or other securities
will, when so issued, be validly authorized and issued, fully paid and
nonassessable.
(6) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(7) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer,
the President, the Chief Financial Officer, any Vice President, the Secretary,
any Assistant Secretary, the Treasurer or any Assistant Treasurer of the
Company, and to apply to such officers for advice or instructions in connection
with its duties, and it shall not be liable for any action taken or suffered to
be taken by it in good faith in accordance with instructions of any such
officer.
(8) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(9) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, omission, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting from any such act,
omission, default, neglect or misconduct; provided, however, that reasonable
care was exercised in the selection and continued employment thereof.
(10) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(11) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to
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<PAGE>
purchase, as the case may be, has either not been completed or indicates an
affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not
take any further action with respect to such requested exercise or transfer
without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
----------------------
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company, and to each transfer
agent of the Common Shares and the Preferred Stock, by registered or certified
mail, and to the registered holders, if any, of the Rights Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent (with or without cause) upon 30 days' notice in writing, mailed to
the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Shares and the Preferred Stock, by registered or
certified mail, and to the registered holders of the Rights Certificates, if
any, by first-class mail. If the Rights Agent shall resign or be removed or
shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. Notwithstanding the foregoing provisions of this
Section 21, in no event shall the resignation or removal of a Rights Agent be
effective until a successor Rights Agent shall have been appointed and have
accepted such appointment. If the Company shall fail to make such appointment
within a period of 30 days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the registered holder of a Rights Certificate
(who shall, with such notice, submit his Rights Certificate for inspection by
the Company), then the Rights Agent or the registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be (a) a corporation organized and doing
business under the laws of the United States or of the State of New York (or of
any other state of the United States so long as such corporation is authorized
to conduct a stock transfer or corporate trust business in the State of New
York), in good standing, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$100,000,000 or (b) an affiliate of a corporation described in clause (a) of
this sentence. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares and the Preferred Stock, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
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<PAGE>
Section 22. Issuance of New Rights Certificates. Notwithstanding any
-----------------------------------
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by its Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Common Stock or Class B Common Stock, as
the case may be, following the Distribution Date and prior to the Expiration
Date, the Company (a) shall, with respect to shares of Common Stock or Class B
Common Stock, as the case may be, so issued or sold pursuant to the exercise of
stock options or under any employee plan or arrangement granted or awarded on or
prior to the Distribution Date, or upon the exercise, conversion or exchange of
securities issued by the Company on or prior to the Distribution Date, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Rights Certificates representing the appropriate
number of Voting Class Rights or Class B Common Rights, as the case may be, in
connection with such issuance or sale; provided, however, that (i) no such
Rights Certificate shall be issued if, and to the extent that, the Company shall
be advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued, and (ii) no such Rights Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
Section 23. Redemption and Termination.
--------------------------
(1) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the close of business on the date of the first
public announcement of the occurrence of a Flip-In Event (or, if such date shall
have occurred prior to the Record Date, the close of business on the tenth day
following the Record Date) and (ii) the Expiration Date, cause the Company to
redeem all but not less than all the then outstanding Rights at a redemption
price of $.01 per Right, as such amount may be appropriately adjusted, if
necessary, to reflect any stock split, stock dividend or similar transaction
occurring after the Rights Dividend Declaration Date (such redemption price
being hereinafter referred to as the "Redemption Price"). Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not be
exercisable after the first occurrence of a Flip-In Event until such time as the
Company's right of redemption hereunder has expired. The Company may, at its
option, pay the Redemption Price in cash, shares of Voting Common Stock, in the
case of holders of Voting Class Rights, or shares of Class B Common Stock, in
the case of holders of Class B Common Rights (based on the Current Market Price
of the Voting Common Stock or the Class B Common Stock, as the case may be, at
the time of redemption), or any other form of consideration deemed appropriate
by the Board of Directors.
(2) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the redemption of the Rights (the
effectiveness of which action may be conditioned on the occurrence of one or
more events or on the existence of one or more facts or
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<PAGE>
may be effective at some future time), evidence of which shall be filed with the
Rights Agent and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price for each Right so held.
Promptly after the effectiveness of the action of the Board of Directors
ordering the redemption of the Rights, the Company shall give notice of such
redemption to the Rights Agent and the registered holders of the then
outstanding Rights by mailing such notice to all such holders at each holder's
last address as it appears upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the Company for the Common
Shares. Any notice that is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such notice of
redemption shall state the method by which the payment of the Redemption Price
will be made.
(3) In the event that prior to the Distribution Date, the Class B
Common Stock is converted, in whole or in part, into Common Stock or Class C
Common Stock, as the case may be, in accordance with the applicable provisions
of the Amended and Restated Certificate of Incorporation of the Company, the
Class B Common Rights attached to the shares of Class B Common Stock so
converted shall be converted to Voting Class Rights pursuant to a conversion
ratio equivalent to the conversion ratio used for converting the Class B Common
Stock to Common Stock. In the event that on or after the Distribution Date, all
outstanding shares of Class B Common Stock are converted into shares of Common
Stock or Class C Common Stock, as the case may be, in accordance with the
applicable provisions of the Amended and Restated Certificate of Incorporation
of the Company, all Class B Common Rights then outstanding shall be converted to
Voting Class Rights pursuant to a conversion ratio equivalent to the conversion
ratio used for converting the Class B Common Stock to Common Stock or Class C
Common Stock, as the case may be.
Section 24. Exchange.
--------
(1) The Board of Directors of the Company may, at its option, at any
time and from time to time after the occurrence of a Flip-In Event, exchange all
or part of the then outstanding and exercisable Voting Class Rights or Class B
Common Rights (which shall not, in either case, include Rights that have become
void pursuant to the provisions of Section 7(e) hereof) (i) for shares of Common
Stock or Common Share Equivalents (which Common Share Equivalents shall not
include any security convertible into, exercisable for or exchangeable for
shares of Class B Common Stock) or any combination thereof, in the case of an
exchange for Voting Class Rights, or (ii) for shares of Class B Common Stock or
Common Share Equivalents (which Common Share Equivalents shall not include
securities convertible into, exercisable for or exchangeable for shares of
Common Stock) or any combination thereof, in the case of an exchange for Class B
Common Rights, at an exchange ratio of one share of Common Stock or Class B
Common Stock, as the case may be, or such number of Common Share Equivalents or
units representing fractions thereof as would be deemed to have the same value
as one share of Common Stock, per Voting Class Right, or one share of Class B
Common Stock, per Class B Common Right, appropriately adjusted, if necessary, to
reflect any stock split, stock dividend or
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<PAGE>
similar transaction occurring after the Rights Dividend Declaration Date (such
exchange ratio being hereinafter referred to as the "Exchange Ratio").
(2) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to and in
accordance with subsection (a) of this Section 24 (the effectiveness of which
action may be conditioned on the occurrence of one or more events or on the
existence of one or more facts or may be effective at some future time) and
without any further action and without any notice, the right to exercise such
Rights shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of shares of Common Stock and/or Common Share
Equivalents or Class B Common Stock, and/or Common Share Equivalents, as the
case may be, equal to the number of such Voting Class Rights or Class B Common
Rights, as the case may be, held by such holder multiplied by the applicable
Exchange Ratio. The Company shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in, such
-------- -------
notice shall not affect the validity of such exchange. The Company promptly
shall mail a notice of any such exchange to all of the registered holders of
such Rights at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the shares of Common
Stock and/or Common Share Equivalents or Class B Common Stock, and/or Common
Share Equivalents, as the case may be, for Voting Class Rights or Class B Common
Rights, as the case may be, will be effected and, in the event of any partial
exchange, the number of Rights that will be exchanged. Any partial exchange
shall be effected as nearly pro rata as possible based on the number of Rights
(other than Rights that have become void pursuant to the provisions of Section
7(e) hereof) held by each holder of Rights.
(3) In the event that the number of shares of Common Shares that
are authorized by the Company's certificate of incorporation but not outstanding
or reserved for issuance for purposes other than upon exercise of the Rights is
not sufficient to permit an exchange of Rights as contemplated in accordance
with this Section 24, the Company may, at its option, take all such action as
may be necessary to authorize additional shares of Common Shares for issuance
upon exchange of the Rights.
(4) The Company shall not be required to issue fractions of
shares of Common Shares. In lieu of such fractional shares of Common Shares, the
Company shall, in the sole discretion of the Board of Directors, either (i) pay
to the registered holders of Rights with regard to which such fractional shares
of Common Shares would otherwise be issuable an amount in cash equal to the same
fraction of the value of a whole share of (x) Voting Common Stock for holders of
Voting Class Rights or (y) Class B Common Stock for holders of Class B Common
Rights or (ii) issue scrip or warrants in registered form (either represented by
a certificate or uncertificated) or in bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. For purposes of
this Section 24, the value of a whole share of Voting Common Stock and
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<PAGE>
the value of a whole share of Class B Common Stock shall be the Closing Price
per share of Voting Common Stock for the Trading Day immediately prior to the
date of exchange pursuant to this Section 24, and the value of any Common Share
Equivalent shall be deemed to have the same value as the Voting Common Stock on
such date.
Section 25. Notice of Certain Events.
------------------------
(1) In case the Company shall propose, at any time after the
Distribution Date, 7(i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a wholly owned Subsidiary of
the Company in a transaction that complies with Section 11(o) hereof), or to
effect any sale, lease or other transfer of all or substantially all the
Company's assets to any other Person or Persons (other than a wholly owned
Subsidiary of the Company in a transaction that complies with Section 11(o)
hereof), or (v) to effect the liquidation, dissolution or winding up of the
Company, then, in each such case, the Company shall give to each holder of
record of a Rights Certificate, to the extent feasible and in accordance with
Section 26 hereof, a notice of such proposed action, which shall specify the
record date for the purposes of such stock dividend, distribution of rights or
warrants, or the date on which such reclassification, consolidation, merger,
sale, lease, transfer, liquidation, dissolution or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least 20 days prior to
the record date for determining holders of the shares of Preferred Stock for
purposes of such action, and in the case of any such other action, at least 20
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Preferred Stock, whichever
shall be the earlier. The failure to give notice required by this Section 25 or
any defect therein shall not affect the legality or validity of the action taken
by the Company or the vote upon any such action.
(2) In case any Flip-In Event or Flip-Over Event shall occur, then
(i) the Company shall as soon as practicable thereafter give to each registered
holder of a Rights Certificate (or if occurring prior to the Distribution Date,
the registered holders of Common Shares), in accordance with Section 26 hereof,
a notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Section 11(a)(ii) or
Section 13(a) hereof, and (ii) all references in the preceding paragraph to
Preferred Stock shall be deemed thereafter to refer to Common Stock and Class B
Common Stock and/or, if appropriate, other securities.
-40-
<PAGE>
Section 26. Notices. Notices or demands authorized by this Agreement
-------
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Wit Capital Group, Inc.
826 Broadway, Sixth Floor
New York, NY 10003
Attention: Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Attention: Corporate Trust Department
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Except as provided in the
--------------------------
last sentence of this Section 27, at any time when the Rights are then
redeemable, the Company may in its sole and absolute discretion and the Rights
Agent shall, if the Company so directs, supplement or amend any provision of
this Agreement in any respect without the approval of any holders of Rights or
holders of Common Shares. At any time when the Rights are not redeemable, except
as provided in the last sentence of this Section 27, the Company may and the
Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein that may
be defective or inconsistent with any other provisions herein, (iii) to shorten
or lengthen any time period hereunder or (iv) to change or supplement the
provisions hereunder in any manner that the Company may deem necessary or
desirable; provided that no such amendment or supplement shall materially
--------
adversely affect the interests of the holders of Rights (other than an Acquiring
Person or an Affiliate or Associate of an Acquiring Person); and further
-------
provided that this Agreement may not be supplemented or amended pursuant to this
- --------
sentence to lengthen (A) a time period relating to when the Rights may be
redeemed or (B) any other time period unless the lengthening of such other time
period is for the purpose of protecting, enhancing or clarifying the rights of,
and/or the benefits to, the holders
-41-
<PAGE>
of Rights (other than any Acquiring Person and its Affiliates and Associates).
Upon the delivery of a certificate from an appropriate officer of the Company
which states that the proposed supplement or amendment is in compliance with the
terms of this Section 27, the Rights Agent shall execute such supplement or
amendment; provided, however, that the Rights Agent may, but shall not be
-------- -------
obligated to, enter into any such supplement or amendment that affects the
Rights Agent's own rights, duties or immunities under this Agreement.
Notwithstanding anything contained in this Agreement to the contrary, no
supplement or amendment shall be made that decreases the Redemption Price.
Section 28. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors,
----------------------------------------------------
Etc. For all purposes of this Agreement, any calculation of the number of Common
- ---
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares of which any Person
is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) under the Exchange Act as in effect on the date of this
Agreement. The Board of Directors of the Company (or, as set forth herein,
certain specified members thereof) shall have the exclusive power and authority
to administer this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors of the Company or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including, without limitation, a determination
to redeem or not redeem the Rights or to amend this Agreement). All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) that
are done or made by the Board of Directors of the Company in good faith, shall
(x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights, as such, and all other parties, and (y) not subject the
Board of Directors to any liability to the holders of the Rights.
Section 30. Benefits of This Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Shares).
Section 31. Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this
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<PAGE>
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated; provided, however, that notwithstanding anything in
-------- -------
this Agreement to the contrary, if any such term, provision, covenant or
restriction is held by such court or authority to be invalid, void or
unenforceable and the Board of Directors of the Company determines in its good
faith judgment that severing the invalid language from this Agreement would
adversely affect the purpose or effect of this Agreement, then the right of
redemption set forth in Section 23 hereof shall be reinstated and shall not
expire until the close of business on the tenth day following the date of such
determination by the Board of Directors of the Company or, if earlier,
immediately prior to any such merger. Without limiting the foregoing, if any
provision requiring that a determination be made by less than the entire Board
of Directors of the Company, or by the Board of Directors of the Company with
the concurrence of a majority of certain members of the Board of Directors, is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, such determination shall then be made by the entire Board of
Directors of the Company.
Section 32. Governing Law. This Agreement, each Right and each
-------------
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the
--------------------
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
-43-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
WIT CAPITAL GROUP, INC.
By:______________________________________
Name:
Title:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:______________________________________
Name:
Title:
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<PAGE>
EXHIBIT A-1
FORM OF
CERTIFICATE OF DESIGNATIONS
of
CLASS 1 SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
WIT CAPITAL GROUP, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
WIT CAPITAL GROUP, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on ____________, 1999 adopted the
following resolution creating a series of [___________] shares of Preferred
Stock designated as "Class 1 Series A Junior Participating Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of the
Certificate of Incorporation, a series of Preferred Stock, par value $.001
per share, of the Corporation be and hereby is created, and that the
designation and number of shares thereof and the voting and other powers,
preferences and relative, participating, optional or other rights of the
shares of such series and the qualifications, limitations and restrictions
thereof are as follows:
CLASS 1 SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
1. Designation and Amount. There shall be a series of Preferred
----------------------
Stock that shall be designated as "Class 1 Series A Junior Participating
Preferred Stock," and the number of shares constituting such series shall be
[___________]. Such number of shares may be increased or decreased by resolution
of the Board of Directors; provided, however, that no decrease shall reduce the
-------- -------
number of shares of Class 1 Series A Junior Participating Preferred Stock to
less than the number of shares then issued and outstanding plus the number of
shares issuable upon exercise of outstanding rights, options or warrants or upon
conversion of outstanding securities issued by the Corporation.
A-1
<PAGE>
2. Dividends and Distributions.
---------------------------
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Class 1 Series A Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Class 1 Series A Junior Participating
Preferred Stock, in preference to the holders of shares of any class or series
of stock of the Corporation ranking junior to the Class 1 Series A Junior
Participating Preferred Stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of Class
1 Series A Junior Participating Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $10 or (b) the Adjustment
Number (as defined below) times the aggregate per share amount of all cash
dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $.01 per share, of the Corporation (the "Common Stock"),
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Class 1 Series A Junior Participating
Preferred Stock. The "Adjustment Number" shall initially be 100. In the event
the Corporation shall at any time after ____________, 1999 (the"Rights
Declaration Date") (i) declare any dividend on Common Stock, Class C Common
Stock, par value $.01 per share, of the Corporation (the "Class C Common Stock")
or Class B Common Stock, par value $.01 per share, of the Corporation (the
"Class B Common Stock"), payable in shares of Common Stock or Class B Common
Stock, as the case may be, (ii) subdivide the outstanding Common Stock, Class C
Common Stock or Class B Common Stock or (iii) combine the outstanding Common
Stock, Class C Common Stock or Class B Common Stock into a smaller number of
shares, then in each such case the Adjustment Number in effect immediately prior
to such event shall be adjusted by multiplying such Adjustment Number by a
fraction the numerator of which is the sum of the number of shares of Common
Stock outstanding immediately after such event plus the number of shares of
Class C Common Stock outstanding immediately after such event plus the number of
shares of Class B Common Stock outstanding immediately after such event and the
denominator of which is the sum of the number of shares of Common Stock that
were outstanding immediately prior to such event plus the number of shares of
Class C Common Stock that were outstanding immediately prior to such event plus
the number of shares of Class B Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Class 1 Series A Junior Participating Preferred Stock as provided in paragraph
(A) above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock, Class C Common
Stock or Class B Common Stock, as the case may
A-2
<PAGE>
be); provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend
of $10 per share on the Class 1 Series A Junior Participating Preferred Stock
shall nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Class 1 Series A Junior Participating Preferred Stock from
the Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Class 1 Series A Junior Participating Preferred Stock, unless the date
of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Class 1 Series A Junior Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Class 1 Series A Junior Participating Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Class 1 Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than thirty (30) days prior
to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Class 1 Series A Junior
-------------
Participating Preferred Stock shall have the following voting rights:
(A) Each share of Class 1 Series A Junior Participating Preferred
Stock shall entitle the holder thereof to a number of votes equal to the
Adjustment Number on all matters submitted to a vote of the stockholders of the
Corporation entitled to vote thereon.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or by law, the holders of shares of Class 1 Series A Junior
Participating Preferred Stock, the holders of shares of any other class or
series entitled to vote with the Common Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C)(i) If at any time dividends on any Class 1 Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to six (6)
quarterly dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") that shall extend until
such time when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period on all shares of
Class 1 Series A Junior Participating Preferred Stock then outstanding shall
have been declared and paid
A-3
<PAGE>
or set apart for payment. During each default period, (1) the number of
directors shall be increased by two (2), effective as of the time of election of
such directors as herein provided, and (2) the holders of Preferred Stock
(including holders of the Class 1 Series A Junior Participating Preferred Stock)
upon which these or like voting rights have been conferred and are exercisable
(the "Voting Preferred Stock") with dividends in arrears in an amount equal to
six (6) quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect such two (2) directors.
(ii) During any default period, such voting right of the holders of
Class 1 Series A Junior Participating Preferred Stock may be exercised initially
at a special meeting called pursuant to subparagraph (iii) of this Section 3(C)
or at any annual meeting of stockholders, and thereafter at annual meetings of
stockholders, provided that such voting right shall not be exercised unless the
holders of at least one-third in number of the shares of Voting Preferred Stock
outstanding shall be present in person or by proxy. The absence of a quorum of
the holders of Common Stock and Class C Common Stock shall not affect the
exercise by the holders of Voting Preferred Stock of such voting right.
(iii) Unless the holders of Voting Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
directors, the Board of Directors may order, or any stockholder or stockholders
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Voting Preferred Stock outstanding, irrespective of series, may
request, the calling of a special meeting of the holders of Voting Preferred
Stock, which meeting shall thereupon be called by the Chairman of the Board or
the President of the Corporation. Notice of such meeting and of any annual
meeting at which holders of Voting Preferred Stock are entitled to vote pursuant
to this paragraph (C)(iii) shall be given to each holder of record of Voting
Preferred Stock by mailing a copy of such notice to him at his last address as
the same appears on the books of the Corporation. Such meeting shall be called
for a time not earlier than twenty (20) days and not later than sixty (60) days
after such order or request or, in default of the calling of such meeting within
sixty (60) days after such order or request, such meeting may be called on
similar notice by any stockholder or stockholders owning in the aggregate not
less than ten percent (10%) of the total number of shares of Voting Preferred
Stock outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no
such special meeting shall be called during the period within sixty (60) days
immediately preceding the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, after the holders of Voting Preferred
Stock shall have exercised their right to elect directors voting as a class, (x)
the directors so elected by the holders of Voting Preferred Stock shall continue
in office until their successors shall have been elected by such holders or
until the expiration of the default period, and (y) any vacancy in the Board of
Directors may be filled by vote of a majority of the remaining directors
theretofore elected by the holders of the class or classes of stock which
elected the director whose office shall have become vacant. References in this
paragraph (C) to directors elected by the holders of
A-4
<PAGE>
a particular class or classes of stock shall include directors elected by such
directors to fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Voting Preferred Stock as a class to elect directors
shall cease, (y) the term of any directors elected by the holders of Voting
Preferred Stock as a class shall terminate and (z) the number of directors shall
be such number as may be provided for in the Certificate of Incorporation or By-
Laws irrespective of any increase made pursuant to the provisions of paragraph
(C) of this Section 3 (such number being subject, however, to change thereafter
in any manner provided by law or in the Certificate of Incorporation or By-
Laws). Any vacancies in the Board of Directors effected by the provisions of
clauses (y) and (z) in the preceding sentence may be filled by a majority of the
remaining directors.
(D) Except as set forth herein, holders of Class 1 Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Class 1 Series A Junior Participating Preferred
Stock as provided in Section 2 are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on shares of
Class 1 Series A Junior Participating Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Class 1 Series A Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Class 1
Series A Junior Participating Preferred Stock, except dividends paid
ratably on the Class 1 Series A Junior Participating Preferred Stock and
all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are
then entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration any shares of Class 1 Series A Junior Participating Preferred
Stock, or any shares of stock ranking on a parity with the Class 1 Series A
Junior Participating Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of Class 1 Series A Junior Participating
Preferred
A-5
<PAGE>
Stock, or to all such holders and the holders of any such shares ranking on
a parity therewith, upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series and classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Class 1 Series A Junior
-----------------
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to any conditions and restrictions on issuance
set forth herein.
6. Liquidation, Dissolution or Winding up. (A) Upon any
--------------------------------------
liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Class 1 Series A Junior Participating Preferred Stock unless,
prior thereto, the holders of shares of Class 1 Series A Junior Participating
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Class 1 Series A Liquidation Preference").
Following the payment of the full amount of the Class 1 Series A Liquidation
Preference, no additional distributions shall be made to the holders of shares
of Class 1 Series A Junior Participating Preferred Stock unless, prior thereto,
the holders of shares of Common Stock shall have received an amount per share
(the "Common Adjustment") equal to the quotient obtained by dividing (i) the
Class 1 Series A Liquidation Preference by (ii) the Adjustment Number. Following
the payment of the full amount of the Class 1 Series A Liquidation Preference
and the Common Adjustment in respect of all outstanding shares of Class 1 Series
A Junior Participating Preferred Stock and Common Stock, respectively, holders
of Class 1 Series A Junior Participating Preferred Stock and holders of shares
of Common Stock shall, subject to the prior rights of all other series of
Preferred Stock, if any, ranking prior thereto, receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to one (1) with respect to such Class 1 Series A Junior
Participating Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Class 1 Series A Liquidation
Preference and the liquidation preferences of all other series of Preferred
Stock, if any, that rank on a parity with the Class 1 Series A Junior
Participating Preferred Stock, then such remaining assets shall be distributed
A-6
<PAGE>
ratably to the holders of such parity shares in proportion to their respective
liquidation preferences. In the event, however, that there are not sufficient
assets available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(C) Neither the merger or consolidation of the Corporation into or
with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6, but the sale, lease or conveyance of all or substantially all the
Corporation's assets shall be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this Section 6.
7. Consolidation, Merger, Etc. In case the Corporation shall enter
--------------------------
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock and/or shares of Class C Common Stock are exchanged for
or changed into other stock or securities, cash and/or any other property, then
in any such case each share of Class 1 Series A Junior Participating Preferred
Stock shall at the same time be similarly exchanged or changed in an amount per
share equal to the Adjustment Number times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock and/or Class C Common
Stock is changed or exchanged.
8. Redemption. (A) The Corporation, at its option, may redeem
----------
shares of the Class 1 Series A Junior Participating Preferred Stock in whole at
any time and in part from time to time, at a redemption price equal to the
Adjustment Number times the current per share market price (as such term is
hereinafter defined) of the Common Stock on the date of the mailing of the
notice of redemption, together with unpaid accumulated dividends to the date of
such redemption. The "current per share market price" on any date shall be
deemed to be the average of the closing price per share of such Common Stock for
the ten (10) consecutive Trading Days (as such term is hereinafter
defined)immediately prior to such date; provided, however, that in the event
that the current per share market price of the Common Stock is determined during
a period following the announcement of (A) a dividend or distribution on the
Common Stock other than a regular quarterly cash dividend or (B) any
subdivision, combination or reclassification of such Common Stock and the
ex-dividend date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, shall not have occurred prior to
the commencement of such ten Trading Day period, then, and in each such case,
the current per share market price shall be properly adjusted to take into
account ex-dividend trading. The closing price for each day shall be the last
sales price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange, or, if
the Common Stock is not listed or admitted to trading on the New York Stock
Exchange, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange but
A-7
<PAGE>
sales price information is reported for such security, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other self-regulatory organization or registered securities
information processor (as such terms are used under the Securities Exchange Act
of 1934, as amended) that then reports information concerning the Common Stock,
or, if sales price information is not so reported, the average of the high bid
and low asked prices in the over-the-counter market on such day, as reported by
NASDAQ or such other entity, or, if on any such date the Common Stock is not
quoted by any such entity, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors of the Corporation. If on any such date no
such market maker is making a market in the Common Stock, the fair value of the
Common Stock on such date as determined in good faith by the Board of Directors
of the Corporation shall be used. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Common Stock is
listed or admitted to trading is open for the transaction of business, or, if
the Common Stock is not listed or admitted to trading on any national securities
exchange but is quoted by NASDAQ, a day on which NASDAQ reports trades, or, if
the Common Stock is not so quoted, a Monday, Tuesday, Wednesday, Thursday or
Friday on which banking institutions in the State of New York are not authorized
or obligated by law or executive order to close.
(B) In the event that fewer than all the outstanding shares of the
Class 1 Series A Junior Participating Preferred Stock are to be redeemed, the
number of shares to be redeemed shall be determined by the Board of Directors
and the shares to be redeemed shall be determined by lot or pro rata as may be
determined by the Board of Directors or by any other method that may be
determined by the Board of Directors in its sole discretion to be equitable.
(C) Notice of any such redemption shall be given by mailing to the
holders of the shares of Class 1 Series A Junior Participating Preferred Stock
to be redeemed a notice of such redemption, first class postage prepaid, not
later than the fifteenth (15th) day and not earlier than the (60th) sixtieth day
before the date fixed for redemption, at their last address as the same shall
appear upon the books of the Corporation. Each such notice shall state: (i) the
redemption date; (ii) the number of shares to be redeemed and, if fewer than all
the shares held by such holder are to be redeemed, the number of such shares to
be redeemed from such holder; (iii) the redemption price; (iv) the place or
places where certificates for such shares are to be surrendered for payment of
the redemption price; and (v) that dividends on the shares to be redeemed will
cease to accrue on the close of business on such redemption date. Any notice
that is mailed in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the stockholder received such notice, and
failure duly to give such notice by mail, or any defect in such notice, to any
holder of Class 1 Series A Junior Participating Preferred Stock shall not affect
the validity of the proceedings for the redemption of any other shares of Class
1 Series A Junior Participating Preferred Stock that are to be redeemed. On or
after the date fixed for redemption as stated in such notice, each holder of the
shares called for redemption shall surrender the certificate evidencing such
shares to the Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the redemption price. If fewer than
A-8
<PAGE>
all the shares represented by any such surrendered certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares.
(D) The shares of Class 1 Series A Junior Participating Preferred
Stock shall not be subject to the operation of any purchase, retirement or
sinking fund.
9. Ranking. The Class 1 Series A Junior Participating Preferred
-------
Stock shall rank pari passu with the Class 2 Series A Junior Participating
Preferred Stock as to any reclassification, recapitalization, stock split or
similar transaction, and as to any payment of dividends and distribution of
assets, and in any merger, consolidation or share exchange, except as otherwise
required by law. The Class 1 Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock, excluding
the Class 2 Series A Junior Participating Preferred Stock, as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise, and shall rank senior to the Common Stock, the Class C
Common Stock and the Class B Common Stock as to such matters.
10. Amendment. At any time that any shares of Class 1 Series A
---------
Junior Participating Preferred Stock are outstanding, the Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Class 1 Series A Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of two-thirds or more of
the outstanding shares of Class 1 Series A Junior Participating Preferred Stock,
voting separately as a class.
11. Fractional Shares. Class 1 Series A Junior Participating
-----------------
Preferred Stock may be issued in fractions of a share that shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Class 1 Series A Junior Participating
Preferred Stock.
IN WITNESS WHEREOF, the undersigned has executed this Certificate and
does affirm the foregoing as true this ___ day of ____________, 1999.
--------------------------------------
Name:
Title:
Attest:_________________________
Name:
Title:
A-9
<PAGE>
EXHIBIT A-2
FORM OF
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
CLASS 2 SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
WIT CAPITAL GROUP, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
WIT CAPITAL GROUP, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on ____________, 1999 adopted the
following resolution creating a series of [_____________] shares of Preferred
Stock designated as "Class 2 Series A Junior Participating Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of the
Certificate of Incorporation, a series of Preferred Stock, par value $.001
per share, of the Corporation be and hereby is created, and that the
designation and number of shares thereof and the voting and other powers,
preferences and relative, participating, optional or other rights of the
shares of such series and the qualifications, limitations and restrictions
thereof are as follows:
CLASS 2 SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
1. Designation and Amount. There shall be a series of Preferred
----------------------
Stock that shall be designated as "Class 2 Series A Junior Participating
Preferred Stock," and the number of shares constituting such series shall be
[___________]. Such number of shares may be increased or decreased by resolution
of the Board of Directors; provided, however, that no decrease shall reduce the
number of shares of Class 2 Series A Junior Participating Preferred Stock to
less than the number of shares then issued and outstanding plus the number of
shares issuable upon
A-10
<PAGE>
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.
2. Dividends and Distributions.
---------------------------
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Class 2 Series A Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Class 2 Series A Junior Participating
Preferred Stock, in preference to the holders of shares of any class or series
of stock of the Corporation ranking junior to the Class 2 Series A Junior
Participating Preferred Stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of Class
2 Series A Junior Participating Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $10 or (b) the Adjustment
Number (as defined below) times the aggregate per share amount of all cash
dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Class B Common Stock or a subdivision of the
outstanding shares of Class B Common Stock (by reclassification or otherwise),
declared on the Class B Common Stock, par value $.01 per share, of the
Corporation (the "Class B Common Stock"), since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Class 2 Series A Junior Participating Preferred Stock. The "Adjustment
Number" shall initially be 100. In the event the Corporation shall at any time
after ____________, 1999 (the"Rights Declaration Date") (i) declare any dividend
on Common Stock, par value $.01 per share, of the Corporation (the "Common
Stock"), the Class C Common Stock, par value $.01 per share, of the Corporation
(the "Class C Common Stock") or Class B Common Stock, payable in shares of
Common Stock or Class B Common Stock, as the case may be, (ii) subdivide the
outstanding Common Stock, the Class C Common Stock or Class B Common Stock or
(iii) combine the outstanding Common Stock, the Class C Common Stock or Class B
Common Stock into a smaller number of shares, then in each such case the
Adjustment Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of which is the
sum of the number of shares of Common Stock outstanding immediately after such
event plus the number of shares of Class B Common Stock outstanding immediately
after such event plus the number of shares of Class C Common Stock outstanding
immediately after such event and the denominator of which is the sum of the
number of shares of Common Stock that were outstanding immediately prior to such
event plus the number of shares of Class C Common Stock that were outstanding
immediately prior to such event plus the number of shares of Class B Common
Stock that were outstanding immediately prior to such event.
A-11
<PAGE>
(B) The Corporation shall declare a dividend or distribution on the
Class 2 Series A Junior Participating Preferred Stock as provided in paragraph
(A) above immediately after it declares a dividend or distribution on the Class
B Common Stock (other than a dividend payable in shares of Class B Common
Stock); provided that, in the event no dividend or distribution shall have been
declared on the Class B Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $10 per share on the Class 2 Series A Junior Participating Preferred
Stock shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Class 2 Series A Junior Participating Preferred Stock from
the Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Class 2 Series A Junior Participating Preferred Stock, unless the date
of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Class 2 Series A Junior Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Class 2 Series A Junior Participating Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Class 2 Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than thirty (30) days prior
to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Class 2 Series A Junior
-------------
Participating Preferred Stock shall have the following voting rights:
(A) Each share of Class 2 Series A Junior Participating Preferred
Stock shall entitle the holder thereof to a number of votes equal to the
Adjustment Number on all matters submitted to a vote of the holders of the Class
B Common Stock.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or by law, shares of Class 2 Series A Junior Participating
Preferred Stock shall have identical voting rights as shares of Class B Common
Stock.
(C) Except as set forth herein, holders of Class 2 Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Class B Common Stock as set forth herein) for taking any
corporate action.
A-12
<PAGE>
4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Class 2 Series A Junior Participating Preferred
Stock as provided in Section 2 are in arrears, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on shares of
Class 2 Series A Junior Participating Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Class 2 Series A Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Class 2
Series A Junior Participating Preferred Stock, except dividends paid
ratably on the Class 2 Series A Junior Participating Preferred Stock and
all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are
then entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration any shares of Class 2 Series A Junior Participating Preferred
Stock, or any shares of stock ranking on a parity with the Class 2 Series A
Junior Participating Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of Class 2 Series A Junior Participating
Preferred Stock, or to all such holders and the holders of any such shares
ranking on a parity therewith, upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series and classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
5. Reacquired Shares. Any shares of Class 2 Series A Junior
-----------------
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to any conditions and restrictions on issuance
set forth herein.
A-13
<PAGE>
6. Liquidation, Dissolution or Winding up. (A) Upon any liquidation
--------------------------------------
(voluntary or otherwise), dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Class 1 Series A Junior Participating Preferred Stock unless, prior thereto, the
holders of shares of Class 1 Series A Junior Participating Preferred Stock shall
have received $100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Class 1 Series A Liquidation Preference"). Following the
payment of the full amount of the Class 1 Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Class 1
Series A Junior Participating Preferred Stock unless, prior thereto, the holders
of shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Class 1 Series A
Liquidation Preference by (ii) the Adjustment Number. Following the payment of
the full amount of the Class 1 Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Class 1 Series A Junior
Participating Preferred Stock and Common Stock, respectively, holders of Class 1
Series A Junior Participating Preferred Stock and holders of shares of Common
Stock shall, subject to the prior rights of all other series of Preferred Stock,
if any, ranking prior thereto, receive their ratable and proportionate share of
the remaining assets to be distributed in the ratio of the Adjustment Number to
one (1) with respect to such Class 1 Series A Junior Participating Preferred
Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Class 1 Series A Liquidation
Preference and the liquidation preferences of all other series of Preferred
Stock, if any, that rank on a parity with the Class 1 Series A Junior
Participating Preferred Stock, then such remaining assets shall be distributed
ratably to the holders of such parity shares in proportion to their respective
liquidation preferences. In the event, however, that there are not sufficient
assets available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(C) Neither the merger or consolidation of the Corporation into or
with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6, but the sale, lease or conveyance of all or substantially all the
Corporation's assets shall be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this Section 6.
7. Consolidation, Merger, Etc. In case the Corporation shall enter
--------------------------
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock and/or shares of Class C Common Stock are exchanged for
or changed into other stock or securities, cash and/or any other property, then
in any such case each share of Class 1 Series A Junior Participating Preferred
Stock shall at the same time be similarly exchanged or changed in an amount per
share equal to the Adjustment
A-14
<PAGE>
Number times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock and/or Class C Common Stock is changed or exchanged.
8. Redemption. (A) The Corporation, at its option, may redeem shares
----------
of the Class 1 Series A Junior Participating Preferred Stock in whole at any
time and in part from time to time, at a redemption price equal to the
Adjustment Number times the current per share market price (as such term is
hereinafter defined) of the Common Stock on the date of the mailing of the
notice of redemption, together with unpaid accumulated dividends to the date of
such redemption. The "current per share market price" on any date shall be
deemed to be the average of the closing price per share of such Common Stock for
the ten (10) consecutive Trading Days (as such term is hereinafter
defined)immediately prior to such date; provided, however, that in the event
-------- -------
that the current per share market price of the Common Stock is determined during
a period following the announcement of (A) a dividend or distribution on the
Common Stock other than a regular quarterly cash dividend or (B) any
subdivision, combination or reclassification of such Common Stock and the
ex-dividend date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, shall not have occurred prior to
the commencement of such ten Trading Day period, then, and in each such case,
the current per share market price shall be properly adjusted to take into
account ex-dividend trading. The closing price for each day shall be the last
sales price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange, or, if
the Common Stock is not listed or admitted to trading on the New York Stock
Exchange, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange but sales price
information is reported for such security, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ")
or such other self-regulatory organization or registered securities information
processor (as such terms are used under the Securities Exchange Act of 1934, as
amended) that then reports information concerning the Common Stock, or, if sales
price information is not so reported, the average of the high bid and low asked
prices in the over-the-counter market on such day, as reported by NASDAQ or such
other entity, or, if on any such date the Common Stock is not quoted by any such
entity, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock selected by the
Board of Directors of the Corporation. If on any such date no such market maker
is making a market in the Common Stock, the fair value of the Common Stock on
such date as determined in good faith by the Board of Directors of the
Corporation shall be used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Common Stock is listed or
admitted to trading is open for the transaction of business, or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
but is quoted by NASDAQ, a day on which NASDAQ reports trades, or, if the Common
Stock is not so quoted, a Monday, Tuesday,
A-15
<PAGE>
Wednesday, Thursday or Friday on which banking institutions in the State of New
York are not authorized or obligated by law or executive order to close.
(B) In the event that fewer than all the outstanding shares of the
Class 1 Series A Junior Participating Preferred Stock are to be redeemed, the
number of shares to be redeemed shall be determined by the Board of Directors
and the shares to be redeemed shall be determined by lot or pro rata as may be
determined by the Board of Directors or by any other method that may be
determined by the Board of Directors in its sole discretion to be equitable.
(C) Notice of any such redemption shall be given by mailing to the
holders of the shares of Class 1 Series A Junior Participating Preferred Stock
to be redeemed a notice of such redemption, first class postage prepaid, not
later than the fifteenth (15th) day and not earlier than the (60th) sixtieth day
before the date fixed for redemption, at their last address as the same shall
appear upon the books of the Corporation. Each such notice shall state: (i) the
redemption date; (ii) the number of shares to be redeemed and, if fewer than all
the shares held by such holder are to be redeemed, the number of such shares to
be redeemed from such holder; (iii) the redemption price; (iv) the place or
places where certificates for such shares are to be surrendered for payment of
the redemption price; and (v) that dividends on the shares to be redeemed will
cease to accrue on the close of business on such redemption date. Any notice
that is mailed in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the stockholder received such notice, and
failure duly to give such notice by mail, or any defect in such notice, to any
holder of Class 1 Series A Junior Participating Preferred Stock shall not affect
the validity of the proceedings for the redemption of any other shares of Class
1 Series A Junior Participating Preferred Stock that are to be redeemed. On or
after the date fixed for redemption as stated in such notice, each holder of the
shares called for redemption shall surrender the certificate evidencing such
shares to the Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the redemption price. If fewer than
all the shares represented by any such surrendered certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares.
(D) The shares of Class 1 Series A Junior Participating Preferred
Stock shall not be subject to the operation of any purchase, retirement or
sinking fund.
9. Ranking. The Class 1 Series A Junior Participating Preferred
-------
Stock shall rank pari passu with the Class 2 Series A Junior Participating
Preferred Stock as to any reclassification, recapitalization, stock split or
similar transaction, and as to any payment of dividends and distribution of
assets, and in any merger, consolidation or share exchange, except as otherwise
required by law. The Class 1 Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock, excluding
the Class 2 Series A Junior Participating Preferred Stock, as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise, and shall rank senior to the Common Stock, the Class C
Common Stock and the Class B Common Stock as to such matters.
A-16
<PAGE>
10. Amendment. At any time that any shares of Class 1 Series A
---------
Junior Participating Preferred Stock are outstanding, the Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Class 1 Series A Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of two-thirds or more of
the outstanding shares of Class 1 Series A Junior Participating Preferred Stock,
voting separately as a class.
11. Fractional Shares. Class 1 Series A Junior Participating
-----------------
Preferred Stock may be issued in fractions of a share that shall entitle the
holder, in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Class 1 Series A Junior Participating
Preferred Stock.
12. Conversion. Upon any Transfer of shares of Class 2 Series A
----------
Junior Participating Preferred Stock to any Person other than a GS Holder, such
transferred shares of Class 2 Series A Junior Participating Preferred Stock
shall be automatically and irrevocably converted into an equal number of shares
of Class 1 Series A Junior Participating Preferred Stock, and thereafter, all
rights of the holder of such transferred shares of Class 2 Series A Junior
Participating Preferred Stock as a holder of Class 2 Series A Junior
Participating Preferred Stock shall cease and the Person or Persons in whose
name or names the certificate or certificates of Class 1 Series A Junior
Participating Preferred Stock are to be issued shall be treated for all purposes
as having become the holder or holders of such shares of Class 1 Series A Junior
Participating Preferred Stock. "GS Holder" means The Goldman Sachs Group, L.P.
and any Affiliate of such Person to which The Goldman Sachs Group, L.P.,
directly or indirectly, transfers beneficial ownership in the capital stock of
the Corporation and any successive transferees thereafter that are Affiliates of
The Goldman Sachs Groups, L.P. "Transfer" means any sale or other disposition,
whether voluntary or involuntary, of beneficial ownership of any capital stock
of the Corporation. "Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization or government or other agency or political
subdivision thereof. "Affiliate" means, with respect to any Person, any Person
who, directly or indirectly, controls, is controlled by or is under common
control with that Person. For purposes of this definition, "control" when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise.
A-17
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate and
does affirm the foregoing as true this ___ day of ____________, 1999.
________________________________________
Name:
Title:
Attest:_________________________
Name:
Title:
A-18
<PAGE>
EXHIBIT B-1
Form of Voting Class Rights Certificates
Certificate No. VCR- _____________ Rights
NOT EXERCISABLE AFTER SEPTEMBER 30, 2009 OR EARLIER IF REDEEMED OR EXCHANGED BY
THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY,
AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY OR
TRANSFERRED TO ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO
LONGER BE TRANSFERABLE.
VOTING CLASS RIGHTS CERTIFICATE
WIT CAPITAL GROUP, INC.
This certifies that , or registered assigns, is the registered owner
of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of ________, 1999 as it may from time to time be
supplemented or amended (the "Rights Agreement"), between Wit Capital Group,
Inc., a Delaware corporation (the "Company"), and American Stock Transfer &Trust
Company (the "Rights Agent"), to purchase from the Company at any time prior to
5:00 p.m. (New York time) on _________, 1999 at the principal office or offices
of the Rights Agent designated for such purpose, or its successors as Rights
Agent, one one-hundredth of a fully paid, nonassessable share (a "Fractional
Share") of Class 1 Series A Junior Participating Preferred Stock (the "Class 1
Series A Junior Participating Preferred Stock") of the Company, at a purchase
price of $__.00 per one one-hundredth of a share (the "Purchase Price"), upon
presentation and surrender of this Rights Certificate with the Form of Election
to Purchase and related Certificate set forth on the reverse hereof duly
executed. The Purchase Price may be paid in cash or by certified check,
cashier's or official bank check or bank draft payable to the order of the
Company or the Rights Agent. The number of Rights evidenced by this Rights
Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Purchase Price per Fractional Share set forth
above, are the number and Purchase Price as of ________, 1999, based on the
Class 1 Series A Junior Participating Preferred Stock as constituted at such
date. The Company reserves the right to require prior to the occurrence of a
Triggering Event (as such term is defined in the Rights Agreement) that a number
of Rights be exercised so that only whole shares of Class 1 Series A Junior
Participating Preferred Stock will be issued.
B-1
<PAGE>
From and after the first occurrence of a Triggering Event (as such
term is defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by or transferred to (i) an Acquiring Person
or an Associate or Affiliate of an Acquiring Person (as such terms are defined
in the Rights Agreement), (ii) a transferee of any such Acquiring Person,
Associate or Affiliate, or (iii) under certain circumstances specified in the
Rights Agreement, a transferee of a person who, concurrently with or after such
transfer, became an Acquiring Person or an Affiliate or Associate of an
Acquiring Person, such Rights shall, with certain exceptions, become null and
void in the circumstances set forth in the Rights Agreement, and no holder
hereof shall have any rights whatsoever with respect to such Rights from and
after the occurrence of such Triggering Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Class 1 Series A Junior Participating Preferred Stock or
other securities or assets that may be purchased upon the exercise of the Rights
evidenced by this Rights Certificate are subject to modification and adjustment
upon the happening of certain events, including Triggering Events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Fractional Shares of Class 1 Series A Junior
Participating Preferred Stock as the Rights evidenced by the Rights Certificate
or Rights Certificates surrendered shall have entitled such holder to purchase.
If this Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at its option
at a redemption price of $.01 per Right, payable, at the election of the
Company, in cash or shares of Common Stock, par value $.01 per share, of the
Company ("Common Stock") or such other consideration as the Board of Directors
may determine, at any time prior to the earlier of the close of business on (a)
the date of the first public announcement of the occurrence of a Flip- In Event
(as such time period may be extended or shortened pursuant to the Rights
Agreement) and (b) the Expiration Date (as such
B-2
<PAGE>
term is defined in the Rights Agreement) or (ii) may be exchanged in whole or in
part for shares of the Common Stock and/or other equity securities of the
Company deemed to have the same value as shares of Common Stock, at any time
prior to a person's becoming the beneficial owner of 50% or more of the
aggregate of the shares of Common Stock and the shares of Class C Common Stock
outstanding or the occurrence of a Flip-Over Event.
No fractional shares of Class 1 Series A Junior Participating
Preferred Stock are required to be issued upon the exercise of any Right or
Rights evidenced hereby (other than, except asset forth above, fractions that
are integral multiples of a Fractional Share of Class 1 Series A Junior
Participating Preferred Stock, which may, at the election of the Company, be
evidenced by depositary receipts), but in lieu thereof a cash payment may be
made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of shares of
Class 1 Series A Junior Participating Preferred Stock or of any other securities
of the Company that may at any time be issuable on the exercise hereof, nor
shall anything contained in the Rights Agreement or herein be construed to
confer upon the holder hereof, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in the Rights Agreement), or
to receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by this Rights Certificate shall have been exercised as
provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
B-3
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Dated as of ___________, ____
ATTEST: WIT CAPITAL GROUP, INC.
By _______________________________
Secretary Title:
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By _______________________
Authorized Signature
B-4
<PAGE>
Form of Reverse Side of Voting Class Rights Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer any Rights evidenced by the Rights Certificate.)
FOR VALUE RECEIVED ______________________________________ hereby sells, assigns
and transfers unto _____________________________________________________________
(Please print name and address of transferee)
______ Rights evidenced by this Rights Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
____________________________ Attorney, to transfer the said Rights on the books
of the within-named Company, with full power of substitution.
Dated: _____________, ____
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
B-5
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate are not
being sold, assigned and transferred by or on behalf of a Person who is or was
an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such
terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or who is a direct or indirect
transferee of an Acquiring Person or of an Affiliate or Associate of an
Acquiring Person.
Dated: ___________, ____ _________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
NOTICE
The signatures to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
B-6
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate.)
To: WIT CAPITAL GROUP, INC.
The undersigned hereby irrevocably elects to exercise Rights
represented by this Rights Certificate to purchase the shares of Class 1 Series
A Junior Participating Preferred Stock issuable upon the exercise of the Rights
(or such other securities of the Company or of any other person that may be
issuable upon the exercise of the Rights) and requests that certificates for
such shares (or other securities) be issued in the name of and delivered to:
Please insert social security
or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced
by this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
(Please print name and address)
Dated: _____________, ____
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
B-7
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of an Acquiring Person (as such terms are defined
pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person or who is a direct or indirect transferee of an
Acquiring Person or of an Affiliate or Associate of an Acquiring Person.
Dated: _____________, ____ ____________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
NOTICE
The signatures to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
B-8
<PAGE>
EXHIBIT B-2
Form of Class B Common Rights Certificates
Certificate No. CBCR- _________ Rights
NOT EXERCISABLE AFTER SEPTEMBER 30, 2009 OR EARLIER IF REDEEMED OR EXCHANGED BY
THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY,
AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED BY OR
TRANSFERRED TO ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND VOID AND WILL NO
LONGER BE TRANSFERABLE.
CLASS B COMMON RIGHTS CERTIFICATE
WIT CAPITAL GROUP, INC.
This certifies that , or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of ________, 1999 as it may from time to time be
supplemented or amended (the "Rights Agreement"), between Wit Capital Group,
Inc., a Delaware corporation (the "Company"), and American Stock Transfer &Trust
Company (the "Rights Agent"), to purchase from the Company at any time prior to
5:00 p.m. (New York time) on _________, 1999 at the principal office or offices
of the Rights Agent designated for such purpose, or its successors as Rights
Agent, one one-hundredth of a fully paid, nonassessable share (a "Fractional
Share") of Class 2 Series A Junior Participating Preferred Stock (the "Class 2
Series A Junior Participating Preferred Stock") of the Company, at a purchase
price of $__.00 per one one-hundredth of a share (the "Purchase Price"), upon
presentation and surrender of this Rights Certificate with the Form of Election
to Purchase and related Certificate set forth on the reverse hereof duly
executed. The Purchase Price may be paid in cash or by certified check,
cashier's or official bank check or bank draft payable to the order of the
Company or the Rights Agent. The number of Rights evidenced by this Rights
Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Purchase Price per Fractional Share set forth
above, are the number and Purchase Price as of ________, 1999, based on the
Class 2 Series A Junior Participating Preferred Stock as constituted at such
date. The Company reserves the right to require prior to the occurrence of a
Triggering Event (as such term is defined in the Rights Agreement) that a number
of Rights be exercised so that only whole shares of Class 2 Series A Junior
Participating Preferred Stock will be issued.
B-9
<PAGE>
From and after the first occurrence of a Triggering Event (as
such term is defined in the Rights Agreement), if the Rights evidenced by this
Rights Certificate are beneficially owned by or transferred to (i) an Acquiring
Person or an Associate or Affiliate of an Acquiring Person (as such terms are
defined in the Rights Agreement), (ii) a transferee of any such Acquiring
Person, Associate or Affiliate, or (iii) under certain circumstances specified
in the Rights Agreement, a transferee of a person who, concurrently with or
after such transfer, became an Acquiring Person or an Affiliate or Associate of
an Acquiring Person, such Rights shall, with certain exceptions, become null and
void in the circumstances set forth in the Rights Agreement, and no holder
hereof shall have any rights whatsoever with respect to such Rights from and
after the occurrence of such Triggering Event.
As provided in the Rights Agreement, the Purchase Price and
the number and kind of shares of Class 2 Series A Junior Participating Preferred
Stock or other securities or assets that may be purchased upon the exercise of
the Rights evidenced by this Rights Certificate are subject to modification and
adjustment upon the happening of certain events, including Triggering Events.
This Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Rights Certificates,
which limitations of rights include the temporary suspension of the
exercisability of such Rights under the specific circumstances set forth in the
Rights Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and are also available upon written
request to the Company.
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the principal office or offices of the Rights
Agent designated for such purpose, may be exchanged for another Rights
Certificate or Rights Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number of Fractional Shares of
Class 2 Series A Junior Participating Preferred Stock as the Rights evidenced by
the Rights Certificate or Rights Certificates surrendered shall have entitled
such holder to purchase. If this Rights Certificate shall be exercised in part,
the holder shall be entitled to receive upon surrender hereof another Rights
Certificate or Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at its option
at a redemption price of $.01 per Right, payable, at the election of the
Company, in cash or shares of Class B Common Stock, par value $.01 per share, of
the Company ("Class B Common Stock") or such other consideration as the Board of
Directors may determine, at any time prior to the earlier of the close of
business on (a) the date of the first public announcement of the occurrence of a
Flip- In Event (as such time period may be extended or shortened pursuant to the
Rights Agreement) and (b) the Expiration
B-10
<PAGE>
Date (as such term is defined in the Rights Agreement) or (ii) may be exchanged
in whole or in part for shares of the Class B Common Stock and/or other equity
securities of the Company deemed to have the same value as shares of Class B
Common Stock, at any time prior to a person's becoming the beneficial owner of
50% or more of the aggregate of the shares of Common Stock and the shares of
Class C Common Stock outstanding or the occurrence of a Flip-Over Event.
In the event that prior to the Distribution Date (as such term
is defined in the Rights Agreement), the Class B Common Stock is converted, in
whole or in part, into Common Stock or Class C Common Stock, as the case may be,
in accordance with the applicable provisions of the Amended and Restated
Certificate of Incorporation of the Company, the Class B Common Rights attached
to the shares of Class B Common Stock so converted shall be converted to Voting
Class Rights pursuant to a conversion ratio equivalent to the conversion ratio
used for converting the Class B Common Stock to Common Stock. In the event that
on or after the Distribution Date, all outstanding shares of Class B Common
Stock are converted into shares of Common Stock or Class C Common Stock, as the
case may be, in accordance with the applicable provisions of the Amended and
Restated Certificate of Incorporation of the Company, all Class B Common Rights
then outstanding shall be converted to Voting Class Rights pursuant to a
conversion ratio equivalent to the conversion ratio used for converting the
Class B Common Stock to Common Stock or Class C Common Stock, as the case may
be.
No fractional shares of Class 2 Series A Junior Participating
Preferred Stock are required to be issued upon the exercise of any Right or
Rights evidenced hereby (other than, except asset forth above, fractions that
are integral multiples of a Fractional Share of Class 2 Series A Junior
Participating Preferred Stock, which may, at the election of the Company, be
evidenced by depositary receipts), but in lieu thereof a cash payment may be
made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder of
shares of Class 2 Series A Junior Participating Preferred Stock or of any other
securities of the Company that may at any time be issuable on the exercise
hereof, nor shall anything contained in the Rights Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
B-11
<PAGE>
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of ___________, ____
ATTEST: WIT CAPITAL GROUP, INC.
By______________________
Secretary Title:
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By
----------------------------------
Authorized Signature
B-12
<PAGE>
Form of Reverse Side of Class B Common Rights Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer any Rights evidenced by
the Rights Certificate.)
FOR VALUE RECEIVED ______________________________________ hereby sells, assigns
and transfers unto ____________________________________________________________
(Please print name and address of transferee)
______ Rights evidenced by this Rights Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
____________________________ Attorney, to transfer the said Rights on the books
of the within-named Company, with full power of substitution.
Dated: _____________, ____
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
B-13
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate are not
being sold, assigned and transferred by or on behalf of a Person who is or was
an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such
terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or who is a direct or indirect
transferee of an Acquiring Person or of an Affiliate or Associate of an
Acquiring Person.
Dated: ___________, ____ ____________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
NOTICE
The signatures to the foregoing Assignment and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
B-14
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate.)
To: WIT CAPITAL GROUP, INC.
The undersigned hereby irrevocably elects to exercise Rights
represented by this Rights Certificate to purchase the shares of Class 2 Series
A Junior Participating Preferred Stock issuable upon the exercise of the Rights
(or such other securities of the Company or of any other person that may be
issuable upon the exercise of the Rights) and requests that certificates for
such shares (or other securities) be issued in the name of and delivered to:
Please insert social security
or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced
by this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
(Please print name and address)
Dated: _____________, 199_
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
B-15
<PAGE>
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of an Acquiring Person (as such terms are defined
pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person or who is a direct or indirect transferee of an
Acquiring Person or of an Affiliate or Associate of an Acquiring Person.
Dated: _____________, ____ ______________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another eligible guarantor institution (as defined pursuant to Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended).
NOTICE
The signatures to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
B-16
<PAGE>
EXHIBIT C
UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY OR TRANSFERRED TO ANY PERSON WHO IS, WAS OR BECOMES AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED
IN THE RIGHTS AGREEMENT), AND CERTAIN TRANSFEREES THEREOF, WILL BECOME NULL AND
VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
On May 17, 1999, the Board of Directors of Wit Capital Group,
Inc. (the "Company") authorized the issuance of one voting class right ("Voting
Class Right") for each outstanding share of the Company's Common Stock, par
value $.01 per share ("Common Stock"), authorized the issuance of one Voting
Class Right for each outstanding share of the Company's Class C Common Stock,
par value $.01 per share ("Class C Common Stock"), and also authorized the
issuance of one nonvoting class right ("Class B Right") for each outstanding
share of the Company's Class B Common Stock, par value $.01 per share ("Class B
Common Stock") to the stockholders of record at the close of business on May 18,
1999. The Voting Class Rights and the Class B Common Rights are referred to
collectively herein as the "Rights". Each Voting Class Right entitles the
registered holder to purchase from the Company a unit consisting of one
one-hundredth of a share (a "Fractional Share") of Class 1 Series A Junior
Participating Preferred Stock, par value $.001 per share, and each Class B
Common Right entitles the registered holder to purchase from the Company a unit
consisting of a Fractional Share of Class 2 Series A Junior Participating
Preferred Stock, par value $.001 per share (the Class 1 Series A Junior
Participating Preferred Stock and the Class 2 Series A Junior Participating
Preferred Stock collectively referred to as the "Preferred Stock"), at a
purchase price of $__.00 per Fractional Share, subject to adjustment
(the"Purchase Price"). The description and terms of the Rights are set forth in
a Rights Agreement dated as of _________, 1999 as it may from time to time be
supplemented or amended (the "Rights Agreement") between the Company and
American Stock Transfer & Trust Company, as Rights Agent.
Initially, the Voting Class Rights will be attached to all
certificates representing outstanding shares of Common Stock and Class C Common
Stock, and the Class B Common Rights will be attached to all certificates
representing outstanding shares of Class B Common Stock, and no separate
certificates for the Rights ("Rights Certificates") will be distributed. The
Voting Rights will separate from the Common Stock and Class C Common Stock and
the Class B Common Rights will separate from the Class B Common Stock and a
"Distribution Date" will occur, with certain exceptions, upon the earlier of (i)
ten days following a public announcement that a person or group of affiliated or
associated persons (an"Acquiring Person") has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the aggregate of outstanding
shares of Common Stock and Class C Common Stock (the date of the announcement
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<PAGE>
being the "Stock Acquisition Date"), or (ii) ten business days following the
commencement of a tender offer or exchange offer that would result in a person's
becoming an Acquiring Person.
Notwithstanding the foregoing, so long as Capital Z Financial
Services Fund II, L.P. ("Capital Z"), together with all its affiliates and
associates, does not become the beneficial owner of 25% or more of the aggregate
of the fully-diluted Common Stock and the fully-diluted Class C Common Stock,
Capital Z, together with its affiliates and associates, shall not be or become
an Acquiring Person. Furthermore, so long as The Goldman Sachs Group, L.P.
("Goldman Sachs"), together with all its affiliates and associates, does not
become the beneficial owner of 25% or more of the aggregate of the fully-diluted
Common Stock and the fully-diluted Class C Common Stock, Goldman Sachs, together
with its affiliates and associates, shall not be or become an Acquiring Person.
In certain circumstances, the Distribution Date may be deferred by the Board of
Directors. Certain inadvertent acquisitions will not result in a person's
becoming an Acquiring Person if the person promptly divests itself of sufficient
Common Stock and/or Class C Common Stock.
Until the Distribution Date, (a) the Voting Class Rights will
be evidenced by the Common Stock certificates and the Class C Common Stock
certificates and the Class B Common Rights will be evidenced by the Class B
Common Stock certificates and both will be transferred with and only with such
Common Stock certificates and such Class C Common Stock certificates or Class B
Common Stock certificates, as the case may be, (b) Common Stock certificates,
Class C Common Stock certificates and Class B Common Stock certificates will
contain a notation incorporating the Rights Agreement by reference and (c) the
surrender for transfer of any certificate for Common Stock will also constitute
the transfer of the Rights associated with either the Common Stock or the Class
B Common Stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and
will expire at the close of business on September 30, 2009, unless earlier
redeemed or exchanged by the Company as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of Common Stock, Class C Common
Stock and Class B Common Stock as of the close of business on the Distribution
Date and, from and after the Distribution Date, the separate Rights Certificates
alone will represent the Rights. All shares of Common Stock, Class C Common
Stock and Class B Common Stock issued prior to the Distribution Date will be
issued with the appropriate Rights. Shares of Common Stock, Class C Common Stock
and Class B Common Stock issued after the Distribution Date in connection with
certain employee benefit plans or upon conversion of certain securities will be
issued with appropriate Rights. Except as otherwise determined by the Board of
Directors, no other shares of Common Stock, Class C Common Stock or Class B
Common Stock issued after the Distribution Date will be issued with Rights.
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<PAGE>
In the event (a "Flip-In Event") that a person becomes an
Acquiring Person (except pursuant to a tender or exchange offer for all
outstanding shares of Common Stock and Class C Common Stock at a price and on
terms that a majority of the independent directors of the Company determines to
be fair to and otherwise in the best interests of the Company and its
stockholders (a "Permitted Offer")), each holder of a Voting Class Right will
thereafter have the right to receive, upon exercise of such Right, a number of
shares of Common Stock and each holder of a Class B Common Right will thereafter
have the right to receive, upon exercise of such Right, a number of shares of
Class B Common Stock (or, in certain circumstances, cash, property or other
securities of the Company) having a Current Market Price (as defined in the
Rights Agreement) equal to approximately two times the exercise price of the
Right. Notwithstanding the foregoing, following the occurrence of any Triggering
Event, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by or transferred to an Acquiring
Person (or by certain related parties) will be null and void in the
circumstances set forth in the Rights Agreement. However, Rights are not
exercisable following the occurrence of any Flip-In Event until such time as the
Rights are no longer redeemable by the Company as set forth below.
In the event (a "Flip-Over Event") that, at any time from and
after the time an Acquiring Person becomes such, (i) the Company is acquired in
a merger or other business combination transaction (other than certain mergers
that follow a Permitted Offer), or (ii) 50% or more of the Company's assets or
earning power is sold or transferred, each holder of a Right (except Rights that
are voided as set forth above) shall thereafter have the right to receive, upon
exercise, a number of shares of common stock of the acquiring company having a
Current Market Price equal to two times the exercise price of the Right. Flip-In
Events and Flip-Over Events are collectively referred to as "Triggering Events."
The number of outstanding Rights associated with a share of
Common Stock, Class C Common Stock or Class B Common Stock, or the number of
Fractional Shares of Preferred Stock issuable upon exercise of a Right and the
Purchase Price, are subject to adjustment in the event of a stock dividend on,
or a subdivision, combination or reclassification of, the Common Stock, Class C
Common Stock or Class B Common Stock occurring prior to the Distribution Date.
The Purchase Price payable, and the number of Fractional Shares of Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution in the event of
certain transactions affecting the Preferred Stock.
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments amount to at least 1% of the
Purchase Price. No fractional shares of Preferred Stock that are not integral
multiples of a Fractional Share are required to be issued and, in lieu thereof,
an adjustment in cash may be made based on the market price of the Preferred
Stock on the last trading date prior to the date of exercise or certificates of
scrip or warrants maybe issued entitling the holders thereof to receive a full
share in return for such scrip or warrants aggregating a full share. Pursuant to
the Rights Agreement, the Company reserves the
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<PAGE>
right to require prior to the occurrence of a Triggering Event that, upon any
exercise of Rights, a number of Rights be exercised so that only whole shares of
Preferred Stock will be issued.
At any time until the date of the first date of public
announcement of the occurrence of a Flip-In Event, the Company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right, payable, at the
option of the Company, in cash, shares of Common Stock, in the case of holders
of Voting Class Rights, or Class B Common Stock, in the case of holders of Class
B Common Rights, or such other consideration as the Board of Directors may
determine. Immediately upon the effectiveness of the action of the Board of
Directors ordering redemption of the Rights, the Rights will terminate and the
only right of the holders of Rights will be to receive the $.01 redemption
price.
In the event that prior to the Distribution Date, the Class B
Common Stock is converted, in whole or in part, into Common Stock or Class C
Common Stock, as the case may be, the Class B Common Rights attached to the
shares of Class B Common Stock will be converted to Voting Class Rights pursuant
to a conversion ratio equivalent to the conversion ratio used for converting the
Class B Common Stock to Common Stock. In the event that on or after the
Distribution Date, all outstanding shares of Class B Common Stock are converted
into shares of Common Stock or Class C Common Stock, as the case may be, all
Class B Common Rights then outstanding will be converted to Voting Class Rights
pursuant to a conversion ratio equivalent to the conversion ratio used for
converting the Class B Common Stock to Common Stock or Class C Common Stock, as
the case may be.
At any time after the occurrence of a Flip-In Event and prior
to a person's becoming the beneficial owner of 50% or more of the aggregate of
the shares of Common Stock and Class C Common Stock then outstanding or the
occurrence of a Flip-Over Event, the Company may exchange the Rights (other than
Rights owned by an Acquiring Person or an Affiliate or an associate of an
Acquiring Person, which will have become void),in whole or in part, at an
exchange ratio of one share of Common Stock, in the case of holders of Voting
Class Rights, or Class B Common Stock, in the case of holders of Class B Common
Rights, and/or other equity securities deemed to have the same value as one
share of Common Stock, per Voting Class Right, or one share of Class B Common
Stock, per Class B Common Right, subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends. While the distribution of the Rights
should not be taxable to stockholders or to the Company, stockholders may,
depending upon the circumstances, recognize taxable income in the event that the
Rights become exercisable for Common Stock or Class B Common Stock (or other
consideration) of the Company or for the common stock of the acquiring company
as set forth above or are exchanged as provided in the preceding paragraph.
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<PAGE>
Other than the redemption price, any of the provisions of the
Rights Agreement may be amended by the Board of Directors of the Company as long
as the Rights are redeemable. Thereafter, the provisions of the Rights Agreement
other than the redemption price may be amended by the Board of Directors in
order to cure any ambiguity, defect or inconsistency, to make changes that do
not materially adversely affect the interests of holders of Rights (excluding
the interests of any Acquiring Person), or to shorten or lengthen any time
period under the Rights Agreement; provided, however, that no amendment to
-------- -------
lengthen the time period governing redemption shall be made at such time as the
Rights are not redeemable.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an exhibit to the Company's Registration
Statement on Form S-1. A copy of the Rights Agreement is available free of
charge from the Company. This summary description of the Rights does not purport
to be complete and is qualified in its entirety by references to the Rights
Agreement, which is incorporated herein by reference.
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<PAGE>
Exhibit 5.1
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
June 1, 1999
Wit Capital Group, Inc.
826 Broadway
New York, New York 10003
Re: Wit Capital Group, Inc. -- Registration Statement on Form S-1
-------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Wit Capital Group, Inc., a Delaware corporation, in
connection with the preparation of the Registration Statement on Form S-1,
including the amendments thereto, that it filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended. The Registration
Statement relates to the Company's offering of up to 8,740,000 shares (the
"Shares") of its Common Stock, par value $.01 per share, including 1,140,000
shares which may be purchased by the underwriters upon exercise of their over-
allotment option.
In rendering the opinion set forth below, we have reviewed (a) the Registration
Statement and the exhibits thereto; (b) the Company's Certificate of
Incorporation, including the amendments thereto, filed with the Secretary of
State of Delaware; (c) the proposed form of the Company's Amended and Restated
Certificate of Incorporation to be filed with the Secretary of State of Delaware
prior to the issuance and sale of the Shares; (d) the Company's Bylaws; (e)
certain records of the Company's corporate proceedings as reflected in its
minute books; and (f) such statutes, other records and documents as we have
deemed relevant. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
conformity with the originals of all documents submitted to us as copies. In
addition, we have made such other examinations of law and fact as we have deemed
relevant in order to form a basis for the opinion we express herein.
<PAGE>
Wit Capital Group, Inc.
June 1, 1999
Page 2
Based upon the foregoing, we are of the opinion that the Shares, upon their
issuance and sale by the Company in the manner contemplated in the Registration
Statement and for a consideration, approved by the Company's board of directors,
that is no less than the par value thereof, will be validly issued, fully paid
and nonassessable.
We hereby consent to the use of this opinion as an Exhibit to the Registration
Statement and to the references to this Firm under the caption "Legal Opinions"
in the Registration Statement. In giving such consent, we do not thereby admit
that we are acting within the category of persons whose consent is required
under Section 7 of the Act and the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
EXHIBIT 10.1
WIT CAPITAL GROUP, INC.
STOCK INCENTIVE PLAN
1. Restatement, Purpose and Types of Awards
Wit Capital Group, Inc., a Delaware corporation (the "Corporation"),
maintained the Wit Capital Group, Inc. and Its Subsidiaries Stock Option and
Restricted Stock Purchase Plan (the "Prior Plan"). The Prior Plan is hereby
amended and restated, as set forth herein (the "Plan"), effective March 1, 1999,
subject to the approval of the shareholders of the Corporation within twelve
months of such effective date. Notwithstanding anything herein to the contrary,
nothing in this Plan shall adversely affect the rights or obligations, under any
Award granted under the Prior Plan, of any grantee or holder of the Award
without such person's approval.
The purpose of the Plan is to promote the long-term growth and
profitability of the Corporation by: (i) providing key people with incentives to
improve stockholder value and to contribute to the growth and financial success
of the Corporation; and (ii) enabling the Corporation to attract, retain and
reward the best-available persons.
The Plan permits the granting of stock options (including incentive stock
options qualifying under Code section 422 and nonqualified stock options), stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance and other awards, or any combination of the foregoing.
2. Definitions
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate" shall mean any entity, whether now or hereafter existing,
which controls, is controlled by, or is under common control with, the
Corporation (including, but not limited to, joint ventures, limited liability
companies, and partnerships). For this purpose, "control" shall mean ownership
of 50% or more of the total combined voting power or value of all classes of
stock or interests of the entity.
(b) "Award" shall mean any stock option, stock appreciation right, stock
award, phantom stock award, or performance award.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder.
(e) "Common Stock" shall mean shares of common stock of the Corporation,
$.01 par value.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Fair Market Value" of a share of the Corporation's Common Stock for
any purpose at particular date shall be determined by the Administrator using
such methods and procedures as it shall from time to time determine in good
faith; provided, however, that (i) if the shares of the Common Stock are traded
on a registered national securities exchange or through a market operated by the
Nasdaq Stock Market, Inc., (including the OTC Bulletin Board), the last regular
way sales price for the primary trading session reported through any applicable
consolidated or other transaction reporting plan approved by the SEC pursuant to
the
Final June 2, 1999--post split
<PAGE>
Exchange Act or (ii) if there was no such sale on a given day, the average
of the closing bid and asked prices reported through any applicable quotation
reporting plan approved by the SEC.
(h) "Grant Agreement" shall mean a written document memorializing the terms
and conditions of an Award granted pursuant to the Plan and shall incorporate
the terms of the Plan.
(i) "Parent" shall mean a corporation, whether now or hereafter existing,
within the meaning of the definition of "parent corporation" provided in Code
section 424(e), or any successor thereto.
(j) "Subsidiary" and "subsidiaries" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section 424(f) of the Code,
or any successor thereto.
3. Administration
(a) Administration of the Plan. The Plan shall be administered by the
Board or by such committee or committees as may be appointed by the Board from
time to time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) Powers of the Administrator. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include authority,
in its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards.
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine the
types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and substitute
new Awards (provided however, that, except as provided in Section 7(d) of the
Plan, any modification that would materially adversely affect any outstanding
Award shall not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an
Award following termination of any grantee's employment or other relationship
with the Corporation; and (vii) establish objectives and conditions, if any, for
earning Awards and determining whether Awards will be paid after the end of a
performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) Non-Uniform Determinations. The Administrator's determinations under
the Plan (including without limitation, determinations of the persons to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the Grant Agreements evidencing such Awards) need not be uniform
and may be made by the Administrator selectively among persons who receive, or
are eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
Final June 2, 1999--post split
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<PAGE>
(d) Limited Liability. To the maximum extent permitted by law, no member
of the Administrator shall be liable for any action taken or decision made in
good faith relating to the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent permitted by law and by the
Corporation's charter and by-laws, the members of the Administrator shall be
indemnified by the Corporation in respect of all their activities under the
Plan.
(f) Effect of Administrator's Decision. All actions taken and decisions
and determinations made by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrator's
sole and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Corporation, its stockholders, any participants in the
Plan and any other employee, consultant, or director of the Corporation, and
their respective successors in interest.
4. Shares Available for the Plan; Maximum Awards
Subject to adjustments as provided in Section 7(d), the shares of Common
Stock that may be issued with respect to Awards granted under the Plan
(including, for purposes of this Section 4, the Prior Plan) shall not exceed an
aggregate of 17,500,000 shares of Common Stock. The Corporation shall reserve
such number of shares for Awards under the Plan, subject to adjustments as
provided in Section 7(d). If any Award, or portion of an Award, under the Plan
expires or terminates unexercised, becomes unexercisable or is forfeited or
otherwise terminated, surrendered or canceled as to any shares, or if any shares
of Common Stock are surrendered to the Corporation in connection with any Award
(whether or not such surrendered shares were acquired pursuant to any Award),
the shares subject to such Award and the surrendered shares shall thereafter be
available for further Awards under the Plan; provided, however, that any such
shares that are surrendered to the Corporation in connection with any Award or
that are forfeited after issuance shall not be available for purchase pursuant
to incentive stock options intended to qualify under Code section 422.
5. Participation
Participation in the Plan shall be open to all employees, officers,
directors, and consultants of the Corporation, or of any Affiliate of the
Corporation, as may be selected by the Administrator from time to time.
6. Awards
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement.
(a) Stock Options. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is defined
in Code section 422 or nonqualified stock options; provided, however, that
Awards of incentive stock options shall be limited to employees of the
Corporation or of any Parent or Subsidiary of the Corporation. Options intended
to qualify as incentive stock options under Code section 422 must have an
exercise price at least equal to Fair Market Value on the date of grant, but
nonqualified stock options may be granted with an exercise price less than Fair
Market Value. No stock option shall be an incentive stock option unless so
designated by the Administrator at the time of grant or in the Grant Agreement
evidencing such stock option.
(b) Stock Appreciation Rights. The Administrator may from time to time
grant to eligible participants Awards of Stock Appreciation Rights ("SAR"). An
SAR entitles the grantee to receive, subject to
Final June 2, 1999--post split
-3-
<PAGE>
the provisions of the Plan and the Grant Agreement, a payment having an
aggregate value equal to the product of (i) the excess of (A) the Fair Market
Value on the exercise date of one share of Common Stock over (B) the base price
per share specified in the Grant Agreement, times (ii) the number of shares
specified by the SAR, or portion thereof, which is exercised. Payment by the
Corporation of the amount receivable upon any exercise of an SAR may be made by
the delivery of Common Stock or cash, or any combination of Common Stock and
cash, as determined in the sole discretion of the Administrator. If upon
settlement of the exercise of an SAR a grantee is to receive a portion of such
payment in shares of Common Stock, the number of shares shall be determined by
dividing such portion by the Fair Market Value of a share of Common Stock on the
exercise date. No fractional shares shall be used for such payment and the
Administrator shall determine whether cash shall be given in lieu of such
fractional shares or whether such fractional shares shall be eliminated.
(c) Stock Awards. The Administrator may from time to time grant restricted
or unrestricted stock Awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine. A
stock Award may be paid in Common Stock, in cash, or in a combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
(d) Phantom Stock. The Administrator may from time to time grant Awards to
eligible participants denominated in stock-equivalent units ("phantom stock") in
such amounts and on such terms and conditions as it shall determine. Phantom
stock units granted to a participant shall be credited to a bookkeeping reserve
account solely for accounting purposes and shall not require a segregation of
any of the Corporation's assets. An Award of phantom stock may be settled in
Common Stock, in cash, or in a combination of Common Stock and cash, as
determined in the sole discretion of the Administrator. Except as otherwise
provided in the applicable Grant Agreement, the grantee shall not have the
rights of a stockholder with respect to any shares of Common Stock represented
by a phantom stock unit solely as a result of the grant of a phantom stock unit
to the grantee.
(e) Performance Awards. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance awards may be
paid by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole discretion of the Administrator.
Performance goals established by the Administrator may be based on the
Corporation's or an Affiliate's operating income or one or more other business
criteria selected by the Administrator that apply to an individual or group of
individuals, a business unit, or the Corporation or an Affiliate as a whole,
over such performance period as the Administrator may designate.
(f) Other Awards. The Administrator may, in its discretion, grant other
awards in such number, and upon such terms, and at any time and from time to
time, as shall be determined by the Administrator. Such awards may be
denominated in cash, in shares of Common Stock, in share-equivalent units, in
share appreciation units, in securities or debentures convertible into Common
Stock or in a combination of the foregoing and may be paid in cash or in shares
of Common Stock, all as determined by the Administrator. Such awards may be
issued alone or in tandem with other awards as described above, may be granted
based on or subject to performance measures, and may relate to annual bonus or
long-term performance awards.
7. Miscellaneous
(a) Withholding of Taxes. Grantees and holders of Awards shall pay to the
Corporation or its Affiliate, or make provision satisfactory to the
Administrator for payment of, any taxes required to be withheld in respect of
Awards under the Plan no later than the date of the event creating the tax
liability. The
Final June 2, 1999--post split
-4-
<PAGE>
Corporation or its Affiliate may, to the extent permitted by law, deduct any
such tax obligations from any payment of any kind otherwise due to the grantee
or holder of an Award. In the event that payment to the Corporation or its
Affiliate of such tax obligations is made in shares of Common Stock, such shares
shall be valued at Fair Market Value on the applicable date for such purposes.
(b) Loans. The Corporation or its Affiliate may make or guarantee loans to
grantees to assist grantees in exercising Awards and satisfying any withholding
tax obligations.
(c) Transferability. Except as otherwise determined by the Administrator,
and in any event in the case of an incentive stock option or a stock
appreciation right granted with respect to an incentive stock option, no Award
granted under the Plan shall be transferable by a grantee otherwise than by will
or the laws of descent and distribution. Unless otherwise determined by the
Administrator in accord with the provisions of the immediately preceding
sentence, an Award may be exercised during the lifetime of the grantee, only by
the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.
(d) Adjustments; Business Combinations. In the event of changes in the
Common Stock of the Corporation by reason of any stock dividend, spin-off,
split-up, recapitalization, merger, consolidation, business combination or
exchange of shares and the like, the Administrator shall, in its discretion,
make appropriate adjustments to the maximum number and kind of shares reserved
for issuance or with respect to which Awards may be granted under the Plan as
provided in Section 4 of the Plan and to the number, kind and price of shares
covered by outstanding Awards, and shall, in its discretion and without the
consent of holders of Awards, make any other adjustments in outstanding Awards,
including but not limited to reducing the number of shares subject to Awards or
providing or mandating alternative settlement methods such as settlement of the
Awards in cash or in shares of Common Stock or other securities of the
Corporation or of any other entity, or in any other matters which relate to
Awards as the Administrator shall, in its sole discretion, determine to be
necessary or appropriate.
Notwithstanding anything in the Plan to the contrary and without the
consent of holders of Awards, the Administrator, in its sole discretion, may
make any modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards in whole or in part
regardless of the vested status of the Award, in order to facilitate any
business combination that is authorized by the Board to comply with requirements
for treatment as a pooling of interests transaction for accounting purposes
under generally accepted accounting principles.
The Administrator is authorized to make, in its discretion and without the
consent of holders of Awards, adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Corporation, or the financial statements of the Corporation
or any Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Administrator determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
(e) Substitution of Awards in Mergers and Acquisitions. Awards may be
granted under the Plan from time to time in substitution for Awards held by
employees or directors of entities who become or are about to become employees
or directors of the Corporation or an Affiliate as the result of a merger or
consolidation of the employing entity with the Corporation or an Affiliate, or
the acquisition by the Corporation or an Affiliate of the assets or stock of the
employing entity. The terms and conditions of any substitute Awards so granted
may vary from the terms and conditions set forth herein to the extent that the
Administrator deems appropriate at the time of grant to conform the substitute
Awards to the provisions of the awards for which they are substituted.
Final June 2, 1999--post split
-5-
<PAGE>
(f) Termination, Amendment and Modification of the Plan. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.
(g) Non-Guarantee of Employment or Service. Nothing in the Plan or in any
Grant Agreement thereunder shall confer any right on an individual to continue
in the service of the Corporation or shall interfere in any way with the right
of the Corporation to terminate such service at any time with or without cause
or notice.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Corporation and a grantee or any other person. To the
extent that any grantee or other person acquires a right to receive payments
from the Corporation pursuant to an Award, such right shall be no greater than
the right of any unsecured general creditor of the Corporation.
(i) Governing Law. The validity, construction and effect of the Plan, of
Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating to
the Plan or such Grant Agreements, and the rights of any and all persons having
or claiming to have any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the laws of the State
of New York without regard to its conflict of laws principles.
(j) Effective Date; Termination Date. The Plan is effective as of March 1,
1999, the date on which the Plan, as an amendment and restatement of the Prior
Plan, was approved by the Board, subject to the approval of the stockholders of
the Corporation within twelve months of such effective date. No Award shall be
granted under the Plan after the close of business March 1 2009. Subject to
other applicable provisions of the Plan, all Awards made under the Plan prior to
such termination of the Plan shall remain in effect until such Awards have been
satisfied or terminated in accordance with the Plan and the terms of such
Awards.
Date Approved by the Stockholders: April 6, 1999
Final June 2, 1999--post split
-6-
<PAGE>
EXHIBIT 10.12
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT.
SUCH OMITTED PORTIONS HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
WIT CAPITAL CORPORATION
826 Broadway
New York, New York 10003
FORM OF E-DEALER AGREEMENT
[Date]
Ladies and Gentlemen:
From time to time we may invite you (and others) to participate on the
terms set forth herein as dealer in connection with certain public offerings of
securities by one or more underwriters ("Underwriters") in which we are the
manager or a co-manager. If we invite you to participate in a specific offering
(an "Offering") to which this Agreement shall apply, we will give you an express
notice (an "Advice") by e-mail, telecopy or otherwise in writing which will
specify (i) the securities to be offered (the "Securities") and the issuer
thereof, (ii) the offering terms, including, if applicable, the public offering
price, concession and reallowance with respect to such securities, (iii) the Web
site location at which will be posted the current Preliminary Prospectus and
Prospectus (as such terms are hereinafter defined) and any notice of the
Offering (a "Notice") complying with Rule 134 or Rule 135 under the Securities
Act of 1933, (iv) any limit on the amount of Securities which may be sold to you
and your customers, based upon our credit analysis, and (v) the extent to which
the general provisions of the Agreement shall be applicable. In addition to the
terms of this Agreement, in any public offering in which we are not the lead
manager, but in which you participate as a dealer at our invitation, you agree
to comply with the terms and conditions, and to make the representations and
warranties, applicable to participating dealers, as established by the
respective lead manager in its standard agreement with dealers and, if
applicable, in any advice or notice it issues to dealers participating in such
offerings (copies of which will be furnished to you upon request).
Except to the extent that the applicable Advice provides otherwise, you
hereby agree as follows with respect to each Offering to which we invite you to
and in which you participate as a dealer. For purposes of the following
provisions, with respect to any Offering, the term Preliminary Prospectus means
any preliminary prospectus relating to the offering of the Securities or any
preliminary prospectus supplement together with a prospectus relating to the
offering of the Securities; the term Prospectus means the prospectus, together
with the final prospectus supplement, if any, relating to the offering of the
Securities, filed pursuant to Rule
<PAGE>
424 under the Securities Act of 1933; and the terms Public Offering Price and
Reallowance shall mean, respectively, the public offering price and reallowance,
if any, then in effect with respect to the Securities.
Article 1
1.1 All offers of Securities are made subject to prior sale of the
Securities, when, as and if such Securities are delivered to and accepted by the
Underwriters and subject to the approval of legal matters by their counsel. Any
order from you or any customer of yours for Securities will be strictly subject
to confirmation and we reserve the right in our sole discretion to reject any
order in whole or in part.
1.2 You shall promptly offer the Securities to retail purchasers only, who
are existing customers of yours, upon the terms set forth in the Prospectus and
the Advice. Orders for Securities must be posted with our electronic order book
by you or directly by your customers, as you may elect. Such orders will
generally be accepted by us on a first-come, first-served basis, subject to our
right to specify minimum and maximum numbers of shares to be purchased in any
order and to establish such other terms, conditions and priorities as we believe
are reasonable and appropriate for an Offering.
1.3 If the Securities are shares of common stock ("Common Stock") of the
issuer thereof (the "Issuer") or securities of the Issuer that may be exchanged
for or converted into Common Stock, you agree that you will not, without our
approval in advance, at any time prior to the completion of the Offering, buy,
sell, deal or trade in (i) any Common Stock, (ii) any securities of the Issuer
convertible into Common Stock or (iii) any right or option to acquire or sell
Common Stock or any security of the Issuer convertible into Common Stock, for
your own account or for the account of a customer, except:
(1) as provided for in this Agreement, the applicable Advice, the
agreement among underwriters, if any, or the underwriting agreement
relating to the Securities;
(2) that you may convert any security of the Issuer convertible into
Common Stock owned by you and sell the Common Stock acquired upon such
conversion and that you may deliver Common Stock owned by you upon the
exercise of any option written by you as permitted by the provisions set
forth herein; and
(3) in brokerage transactions on unsolicited orders which have not
resulted from activities on your part in connection with the solicitation
of purchases and which are executed by you in the ordinary course of your
brokerage business.
2
<PAGE>
In addition, you will***********************************************************
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*************************************** prior to the sixtieth (60th) day
following the date of the Prospectus relating thereto (or such earlier date as
we may stipulate to you).
1.4 If the Securities are not shares of Common Stock or securities of the
Issuer that may be exchanged for or converted into Common Stock, you agree that
you will not bid for or purchase, or attempt to induce any other person to
purchase, any Securities or any other securities of the Issuer designated in the
Advice other than (i) as provided in this Agreement, the agreement among
underwriters, if any, or the underwriting agreement relating to the Securities
or (ii) as a broker in executing unsolicited orders.
1.5 You represent that you have not participated, since the date you were
invited to participate in the Offering of the Securities, in any transaction
prohibited by Section 1.3 and that you have at all times complied with the
provisions of Regulation M of the Securities and Exchange Commission applicable
to such Offering.
1.6 You agree to provide us from time to time upon request information as
to the distribution of Securities sold by or through you including, without
limitation, the number of retail customers to whom you have sold Securities and
those customers, if any, who have resold or transferred from their accounts with
you any or all of the Securities they purchased prior to the sixtieth (60th) day
following the date of the Prospectus (or such earlier date as we may have
specified)**********************************************************************
******************************************************************************
******************************************************************************
******************.
1.7 If prior to the termination of this Agreement as it applies to the
offering of the Securities (or prior to such earlier date as we have determined)
we (or any manager or co-manager of the Offering) purchase or contract to
purchase in the open market or otherwise any Securities which were purchased by
you or your customers (including any Securities which may have been issued on
transfer or in exchange for such Securities), and which Securities were
therefore not effectively placed for investment by you, you authorize us (or
such manager or co-manager) either to charge your account with an amount equal
to the concession from the Public Offering Price at which you purchased such
Securities, which shall be credited against the cost of
______________________________________
*CONFIDENTIAL INFORMATION REQUESTED
3
<PAGE>
such Securities, or to require you to repurchase such Securities at a price
equal to the total cost of such purchase, including any commissions and transfer
taxes on redelivery.
Article 2
2.1 If you or your customers purchase any Securities from us in connection
with your participation as dealer in an Offering, you agree that such purchases
will be evidenced by an e-mail or written confirmation and will be subject to
the terms and conditions set forth in the confirmation and in the Prospectus.
2.2 As soon as practical, we will notify you of the number of Securities
to be sold to you and to your customers (including, in the case of sales to your
customers, the identification of each order to be filled and the time and date
of receipt thereof). Securities purchased from us by you or your customers in
connection with your participation as dealer in such Offering shall be paid for
in full by you at (i) the Public Offering Price, (ii) such price less the
applicable concession or (iii) the price set forth or indicated in the Advice,
as we shall advise, at the office of Wit Capital Corporation, 826 Broadway, New
York, New York 10003, at such time and on such day as we may advise you, by
certified or official bank check payable in New York Clearing House funds (or
such other funds as we may specify) to the order of Wit Capital Corporation, 826
Broadway, New York, New York 10003, against delivery of the Securities. If you
are called upon to pay the Public Offering Price for the Securities purchased by
you, the applicable concession will be paid to you, less any amounts charged to
your account pursuant to Article 1 above, after termination of this Agreement as
it applies to the offering of the Securities. Unless you promptly give us
written instructions otherwise, if transactions in the Securities may be settled
through the facilities of The Depository Trust Company, payment for and delivery
of Securities purchased by you will be made through such facilities, if you are
a member, or, if you are not a member, settlement may be made through your
ordinary correspondent who is a member.
Article 3
3.1 We will advise you of the date and time of termination of this
Agreement as it applies to the offering of the Securities or of any designated
provisions hereof. This Agreement shall, in any event, terminate with respect
to the offering of the Securities 30 days after the date of the initial public
offering of the Securities unless sooner terminated by us. This Agreement shall,
in any event, terminate with respect to the offering of the Securities unless
sooner terminated by us in writing delivered to you as soon as practical. This
Agreement may be terminated by either party for any or no reason upon six months
prior written notice or upon 30 days prior written notice, in the event the
other party has breached the terms of this Agreement (or any Advice) and such
breach has not promptly cured to the satisfaction of the non-breaching party.
______________________________________
*CONFIDENTIAL INFORMATION REQUESTED
4
<PAGE>
Article 4
4.1 In purchasing Securities, you will rely only on the Prospectus and on
no other statements whatsoever, written or oral. Unless you otherwise
specifically request and we agree thereto, delivery of each Preliminary
Prospectus and each Prospectus shall be made by our posting of the same at the
Web site location identified in the Advice and you will not offer or sell any
Securities to any customer of yours who has not consented, prior to such offer
or sale, to such delivery by e-mail containing a hyperlink to the appropriate
Web site locations. You will promptly notify, by e-mailing the Notice relating
to the Offering, each customer to whom you wish to offer or sell any Securities;
such notice will contain a hyperlink to the Web site location of the current
preliminary Prospectus and the Prospectus. You will not provide by electronic
mail or otherwise to any customer of yours any information relating to any
Securities or the issuer thereof other than the Web site location of the current
Preliminary Prospectus, the Prospectus and any information we may post on a Web
site location for distribution to prospective purchasers of the Securities. Any
contacts with the issuer of any Securities in an Offering for due diligence or
other purposes will be coordinated through us.
4.2 You represent that you are a member in good standing of the NASD or
that you are a foreign bank or dealer, not eligible for membership in the NASD,
which agrees not to offer or sell any Securities in, or to persons who are
nationals or residents of, the United States. In making sales of Securities, if
you are such a member, you agree to comply with all applicable rules of the
NASD, including, without limitation, the NASD's Interpretation with Respect to
Free-Riding and Withholding and Section 24 of Article III of the NASD's Rules of
Fair Practice, or, if you are such a foreign bank or dealer, you agree to comply
with such Interpretation and Sections 8 and 36 of such Article as though you
were such a member and Section 25 of such Article as it applies to a nonmember
broker or dealer in a foreign country.
4.3 If you are a foreign bank or dealer, you represent that in connection
with sales and offers to sell Securities made by you outside the United States
you will advise each person to whom any such sale or offer is made of the Web
site location of the then current preliminary prospectus, if any, or of the
Prospectus (as then amended or supplemented). Any offering material in addition
to the then current preliminary prospectus or the Prospectus furnished by you to
any person in connection with any offers or sales referred to in the preceding
sentence (i) shall be prepared and so furnished at your sole risk and expense
and (ii) shall not contain information relating to the Securities or the Issuer
which is inconsistent in any respect with the information contained in the then
current preliminary prospectus, if any, or in the Prospectus (as then amended or
supplemented), as the case may be. It is understood that no action has been
taken by us or the Issuer to permit a public offering in any jurisdiction other
than the United States where action would be required for such purpose.
4.4 You will not give any information or make any representations other
than those contained in the Prospectus, or act as agent for the Issuer, any
Underwriter or us. You will not
5
<PAGE>
offer or sell any Securities in any jurisdiction except in compliance with
applicable laws and subject to such customer screening processes as we may
specify.
4.5 You agree that we, as manager or co-manager of the offering of the
Securities, have full authority to take such action as may seem advisable to us
in respect of all matters pertaining to such offering.
4.6 Neither we, as manager, nor any Underwriter shall be under any
liability to you for any act or omission, except for obligations expressly
assumed by us in this Agreement.
4.7 All communications to us relating to the offering of the Securities
shall be e-mailed to the Syndicate Department, Wit Capital Corporation at
[email protected]. Unless you have otherwise notified us in writing, any
notices to your shall be deemed to have been duly given if e-mailed, postal
mailed, telecopied or delivered to you at the address shown below.
Article 5
5.1 Neither we, as manager, nor any Underwriter will have any
responsibility with respect to the right of any dealer to sell Securities in any
jurisdiction, notwithstanding any information we may furnish in that connection.
Article 6
6.1 You agree that, for a period of ************* years following the date
of this Agreement, other than at our invitation, you will not participate as
manager or a co-manager of, nor as an underwriter or dealer in, any public
offering syndicate or dealer group, or sub-syndicate or sub-dealer group, which
aggregates, or plans to aggregate, retail customer orders from more than one
member firm of the NASD in a central electronic order book in a manner similar
to the manner contemplated by this Agreement (an "e-syndicate"). The provisions
of this Section 6.1 shall not prohibit or restrict your participation in
traditional underwriting syndicates or selling groups where allocations or
retentions are made to each dealer on an individual or stand alone basis as
opposed to some other basis such as a first-come, first-served basis or an
affinity group basis. The restrictive covenant set forth in the first sentence
of this paragraph (the "Exclusivity Provision") shall become null and void as of
any [Month] 1 commencing ___________ (each such date a "Termination Date") if as
of such date any of the triggering events as defined below is satisfied:
Termination Date Triggering Events
---------------- -----------------
[_____________] (i) in respect of the twelve months ended
____________ ("Year One"), we have failed
to
______________________________________
*CONFIDENTIAL INFORMATION REQUESTED
6
<PAGE>
offer you participation in at least "x"
qualified public offerings ("QPOs") in which
we have commanded an allocation of 250,000
shares or more, where "x" equals the number
of QPOs completed during such year period
times **** percent
***********************************
***********************************, and
where a QPO is defined as a domestic public
offering of not less than $35 million lead
managed by a nationally recognized major or
bulge bracket investment bank (whether or
not we participate in the transaction); or
(ii) in respect of Year One, both (a) "Your
Average Demand" (as defined) exceeded *****
percent of the "Average Wit Capital
Allocation" and (b) "Your Average
Allocation" (as defined) as a percentage of
the Wit Capital Allocation was less than
***** percent. "Your Average Demand" means
the average of the number of shares covered
by conditional orders submitted to us by you
on behalf of your customers in QPOs offered
through us. The "Average Wit Capital
Allocation" means the average number of
shares allocated to us by the lead managers
in QPOs in which we have acted as manager.
"Your Average Allocation" means the average
number of shares allocated to customers of
you in QPOs offered through us.
[_____________] (i) in respect of the twelve months ended
__________ ("Year Two"), we have failed to
offer you participation in at least "x" QPOs
in which we have commanded an allocation of
500,000 shares or more, where "x" equals the
number of QPOs completed during such year
period times ** percent
*******************************************
********************************; or (ii) in
respect of Year Two, both (a) Your Average
Demand exceeded **** percent of the Average
Wit Capital Allocation and (b) Your Average
Allocation as a percentage of the Wit
Capital Allocation was less than ****
percent.
_____________________________________
*CONFIDENTIAL INFORMATION REQUESTED
7
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Notwithstanding the satisfaction of the triggering event described in sub-
paragraph (i) above as of any Termination Date, the restrictive covenants shall
not become null and void if, as of such Termination Date, in respect of the
twelve months ending on such Termination Date, we have been the leading manager
of e-syndicates in the domestic underwriting market in terms of both the numbers
of deals managed and the total number of shares allocated. Notwithstanding the
satisfaction of the triggering event described in sub-paragraph (ii) above as of
any Termination Date, the restrictive covenants shall not become null and void
if, as of such Termination Date, you shall have failed to make efforts on your
part as have been reasonably recommended by us for the purposes of facilitating
the dissemination of offering materials to your customers and the expeditious
filtering and transmittal of such orders to us. ********************************
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********************.
6.2 We agree, for a period of two/three years, provided we have obtained
the consent of the lead manager to invite you, and provided you are in
compliance with the terms and conditions of this Agreement, to invite you to
participate as a dealer in connection with each and every public offering of
securities in which we are the lead manager or a co-manager. For such
******** year period, we also agree to use our best efforts to obtain such lead
manager consent. We further agree that the selling concession offered by us to
you in any transaction shall not be (i) less than *** of the selling concession
in total or (ii) less than the selling concession offered by us to any other
member of our electronic syndicate.
6.3 **********************************************************************
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*************************.
6.4 **********************************************************************
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***.
6.5 You shall not be liable to pay for any Security to the extent that, in
response to an order from you or your customers, we (or any manager or
co-manager) fill such order with less than *** shares of such Security,
notwithstanding anything to the contrary herein.
_____________________________________
*CONFIDENTIAL INFORMATION REQUESTED
8
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6.6 This Agreement and each Advice shall be governed by and construed in
accordance with the laws of the State of New York.
Please confirm your acceptance of this Agreement by signing and returning
to us the enclosed duplicate copy hereof.
Very truly yours,
WIT CAPITAL CORPORATION
Confirmed and accepted
as of the date first written above
E-Mail Address:
Telephone:
Telecopy:
By:_____________________________
Title:
_____________________________________
*CONFIDENTIAL INFORMATION REQUESTED
9
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
- -------------------------------
New York, New York
June 3, 1999
