<PAGE>
As filed with the Securities and Exchange Commission on March 18, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
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 R. Vidal, Esq. Cravath, Swaine & Moore
Morgan, Lewis & Bockius LLP Worldwide Plaza
101 Park Avenue 825 8th 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
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
Proposed
Maximum
Aggregate
Title of Each Class of Offering Amount of
Securities to be Registered Price(1)(2) Registration Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share............ $80,000,000 $22,240
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(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.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 [ ], 1999
PROSPECTUS
Shares
[LOGO]
Common Stock
------------
We are an Internet investment banking and brokerage firm. This is an initial
public offering of our common stock. We are selling all of the shares
offered under this prospectus. We anticipate that the initial public offering
price will be between $ and $ 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 [ ] to read about certain 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 shares of common stock
from us at the initial public offering price less the underwriting discount to
cover over-allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares of common stock against payment in
New York, New York on , 1999.
------------
Bear, Stearns & Co. Inc. Wit Capital Corporation
as e-Manager(TM)
Thomas Weisel Partners LLC
The date of this Prospectus is , 1999.
<PAGE>
[Image of pie chart describing the e-Dealer network's share of online
brokerage trades in the fourth quarter of 1998 and accompanying text.]
[Images of prospectus cover pages and accompanying text.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Dilution................................................................. 16
Capitalization........................................................... 17
Selected Historical Financial Data....................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 23
Management............................................................... 33
Certain Transactions..................................................... 44
Principal Stockholders................................................... 46
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 53
Underwriting............................................................. 55
Legal Matters............................................................ 57
Experts.................................................................. 57
Where You Can Find More Information...................................... 58
Index to Consolidated Financial Statements............................... F-1
Appendix A--Script of Audio/Video Presentation........................... A-1
</TABLE>
----------------
An electronic version of this prospectus, including the audio/video
presentation that is included as Appendix A of this prospectus, is available
on the regular Web site (http://www.witcapital.com) 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. An
electronic version of this prospectus is also available on a special Web site
(http://www.witcapitaloffering.com) being maintained by our broker-dealer
subsidiary. Other than the electronic version of this prospectus, the
information on our Web sites is not a part of this prospectus.
This prospectus contains registered service marks, trademarks and trade
names of Wit Capital including the Wit Capital name and logo.
(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. In this prospectus, "we" and "us"
refer to Wit Capital Group, Inc. and its subsidiaries unless the context
requires otherwise.
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 discount
brokerage firms, we are developing access to a substantial number of online
individual investors. We offer financial advisory and private capital raising
services to our corporate clients. Our investment banking activities focus on
the Internet sector 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.
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 the retail market and will have at hand
instantaneous information as to the level of retail interest for their equity
offerings. Information about individual investor interest in public offerings
will also provide valuable indications of secondary market demand for the
underwritten securities, which can be an important factor in pricing the equity
securities of first time issuers.
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.
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 also assist corporate clients in electronically marketing
their offerings to individuals who have affinity relationships with them, such
as their customers, suppliers or employees. Since commencing operations in
September 1997, we have participated in fifty public equity offerings,
including forty-one initial public offerings. In four 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 we have trademarked. We are currently acting as e-Manager
in an additional nine offerings in registration. In every transaction in which
we have participated or are participating, one or more established investment
banking firms acted or is acting as the lead manager.
1
<PAGE>
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 are developing access to a substantial number of online investors through
agreements ("e-Dealer agreements") with twenty other online discount brokerage
firms ("e-Dealers(TM)"). Under these 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. Because the e-Dealers have not
completed the required technical interfaces, up to now we have offered and sold
shares only to our direct customers and to issuer affinity groups.
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.
In addition to our equity underwriting business, we also provide to our
corporate clients financial advisory services, including in connection with the
development of Internet strategies and businesses and with mergers and
acquisitions. We also assist companies and funds in raising capital from
private sources.
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. As of February 28, 1999, we had
approximately 17,500 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 we executed during the two-
month period ended February 28, 1999 was 353, 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.
2
<PAGE>
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 of this and other innovations, we have benefited from
publicity and word of mouth exposure which we believe has established Wit
Capital as the leading provider of online investment banking services.
E-Dealer Agreements. We have e-Dealer agreements with Quick & Reilly,
SureTrade, Waterhouse Investor Services, National Discount Brokers, Datek
Online, Southwest Securities, Wall Street Access and thirteen other online
discount brokerage firms. Under these agreements, we have the exclusive right
for specified periods to offer the e-Dealers participation as selected dealers
in any public offering in which retail customer orders from more than one
broker-dealer are aggregated in a central electronic order book. These
arrangements will provide us a substantial capacity to raise capital for
corporate issuers. These relationships will also ensure a broad platform for
the dissemination of our investment research.
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. Our chairman and co-chief executive officer, Robert
H. Lessin, was previously 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, Mr. Lessin was vice 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. Venture capital funds that have invested in our
company, including Capital Z Partners, Draper Fisher Jurvetson, Highland
Capital Partners, Media One Interactive Services, Comcast Interactive
Investments and MC Capital (a subsidiary of Mitsubishi Corporation), also
provide valuable access to prospective corporate clients.
Experienced and Innovative Management. In addition to Mr. Lessin, our firm is
led by our co-chief executive officer and president, Ronald Readmond, who was
previously vice chairman of Charles Schwab. Our founder and chief strategist,
Andrew Klein, engineered the world's first Internet public offering for his
microbrewery, Spring Street Brewing Company. Our director of investment
banking, Mark Loehr, was previously head of equity capital markets at Salomon
Smith Barney and co-head of U.S. equity capital markets at CS First Boston.
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. 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 ability to
conduct activities today which would require others months or years of
technological development to reproduce.
Low Customer Acquisition Cost. We have experienced growth in our customer
base with limited marketing expenditures. We acquire brokerage customers
primarily through the process of 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 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 investors.
3
<PAGE>
OUR GOALS
We want to be the preeminent Internet investment banking firm. Specifically,
we want to be both the premier underwriter for offering and selling securities
to online individual investors and a leading financial advisor to companies
developing Internet strategies and businesses.
Our goals are as follows:
. We want to continue growing our access to individual investors. We intend
to build our access by obtaining more direct customers primarily through
making public offerings available to individuals. We also plan to attract
additional brokerage firms into our electronic network and thus increase
our access to e-Dealer customers.
. We want to increase the number of shares allocated for online
distribution to individual investors in the public offerings in which we
participate.
. We want to broaden our investment banking capabilities beyond our initial
Internet focus to include capabilities in other fast growing sectors of
the economy that are related to or dependent on Internet technology, such
as hardware, software, consumer goods, telecommunications, education and
healthcare.
. We want to explore opportunities to extend our investment banking
services to cover preferred stock, convertible securities and other debt
and debt-related securities that we believe will appeal to individual
investors.
. We want to cost effectively build our brand equity by distributing stock
offerings we underwrite and investment research through the Web sites of
the e-Dealers and through arrangements with Web content and portal
companies.
. We want to expand our brokerage services by extending the range of
products and services we provide.
. We want to successfully launch our Web-based after-hours digital trading
facility through which individual investors will be able to buy and sell
Nasdaq and exchange listed securities directly with each other.
. We want to create and manage proprietary Angel Funds primarily for high
net worth individuals.
. Since the opportunity to reengineer the capital raising process is not
limited to the U.S. marketplace, we want to leverage our technology and
intellectual capital by creating international joint ventures. We would
like to see Wit Capital 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.
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. 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>
<C> <S>
Common Stock Offered................................ shares
Common Stock to be Outstanding After this Offering.. shares(1)(2)
Use of Proceeds..................................... We intend to use the net
proceeds from this
offering for general
corporate purposes,
including expansion of
our investment banking
and research staff and
our sales and marketing
capabilities, possible
strategic acquisitions or
investments, funding the
launch of our digital
trading facility,
international expansion
and working capital
requirements, and, as
appropriate, making
investments in the Angel
Funds we plan to
establish. In addition, a
portion of the net
proceeds may be used for
proprietary trading in
support of issues we
underwrite. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol.............. WITC
</TABLE>
- --------
(1) Excludes a 30-day option granted to the underwriters to purchase up to
additional shares of common stock to cover over-allotments, if any.
(2) Based on the number of shares of common stock currently outstanding and the
shares of common stock issued as a result of the conversion of our
outstanding preferred stock immediately prior to this offering. Excludes
20,000,000 shares of common stock reserved for issuance under our Stock
Incentive Plan and 1,938,830 shares of common stock issuable upon exercise
of outstanding warrants. Options to purchase 17,388,412 shares were
outstanding at March 15, 1999. See "Management--Management Benefit Plans."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Period From
March 27, 1996
(Inception) Year Ended
through December 31,
December 31, ----------------------
1996 1997 1998
-------------- ---------- ----------
(In thousands, except per share
data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues................................ $ 41 $ 246 $ 2,038
Operating loss.......................... (1,758) (2,970) (8,760)
Net loss................................ (1,774) (2,993) (8,794)
Basic and diluted net loss per share.... $ (.23) $ (.29) $ (.86)
Weighted average shares outstanding used
in computing basic and diluted net loss
per share.............................. 7,683,096 10,432,876 10,200,176
Pro forma net loss per share from
continuing operations(1)............... $ (.23) $ (.21) $ (.41)
Shares used in computing pro forma basic
and diluted net loss per share(1)...... 7,789,995 14,186,252 21,601,240
</TABLE>
- --------
(1) Per share amounts are computed by using the weighted average number of
shares of common stock outstanding in the relevant year as adjusted to give
effect to the conversion of shares of preferred stock outstanding on each
date of issuance of preferred stock.
In the following table the Actual column reflects our financial condition as
of December 31, 1998. The Pro Forma column reflects the issuance and sale of
21.4 million shares of preferred stock subsequent to December 31, 1998 and the
receipt of $31.8 million in net cash proceeds. The Pro Forma As Adjusted column
reflects the sale of shares of common stock in this offering, after
deducting underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $18,110 $49,910
Working capital................................... 17,968 49,768
Total assets...................................... 22,296 54,096
Stockholders' equity.............................. 20,608 52,408
</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.
This prospectus also 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 below and elsewhere in this prospectus.
Risks Related to Our Business
We have a limited operating history upon which you may evaluate us, and we
anticipate that we will incur net losses for the foreseeable future.
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 and extend our online service brands, the
rejection of our services by Internet users or vendors, our inability to
maintain and increase traffic on our online services, increased competition
and the ability to attract, retain and motivate qualified personnel. We may
not be successful in addressing such risks, and our business and financial
condition could suffer. Our prospects are also subject to the risks
encountered by companies in the investment banking business.
As of December 31, 1998, we had an accumulated deficit of $13.6 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 for the
foreseeable future. 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 operational.
The e-Dealer system is not yet operational. No selling group of e-Dealers
has participated in any underwritten offering in which we have participated.
The principal reason for this has been that the 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 the individual e-Dealers will complete development of the
technical capacity and interfaces necessary to participate as e-Dealers in
offerings in which we act as e-Manager.
7
<PAGE>
Our investment banking business may be adversely affected if the e-Dealers
fail to participate in offerings in which we act as e-Manager.
The e-Dealer agreements do not require the e-Dealers to participate in
offerings in which we are the e-Manager. Their failure to participate could
adversely affect our ability to demand an adequate share of the management
fees or a sufficient allotment of shares in subsequent public offerings.
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. We have been paid only minimal 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 may present
substantial risks.
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, once our e-Dealer
system is operational, the e-Dealers and their customers 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.
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.
8
<PAGE>
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 development 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 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.
. If we are not the first to launch an after-hours digital trading
facility, our financial condition and business could suffer.
. 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.
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 expand our business internationally, and if we do, we
face risks relating to international operations and regulations.
A component of our strategy is our planned increase in efforts to attract
more international customers and business partners. We are currently exploring
business opportunities in Japan and Europe. To date, we have only limited
experience in providing financial services internationally. We cannot assure
you that we will be able to successfully market our services and products in
international markets. In addition, in doing business in international
markets, we face risks, such as unexpected changes in regulatory requirements,
tariffs and other trade barriers, difficulties in staffing and managing
foreign operations, political instability, fluctuations in currency exchange
rates, reduced protection for intellectual property rights in some countries,
seasonal reductions in business activity during the summer months in Europe
and certain other parts of the world and potentially adverse tax consequences,
any of which could adversely impact our international operations.
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.
9
<PAGE>
Periods of declining 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 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. 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.
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 service and maintain marketing relationships with portal
entities and Web content companies, which may adversely affect our business
growth.
Our strategy for expanding brand recognition and exposure depends to some
extent on the portal market and Web content companies. We plan to enter into
marketing agreements with portal entities and Web content companies which will
permit us to advertise our products and services on their Web pages. We plan
to access a larger and broader potential customer base by disseminating
proprietary information, such as our stock offerings, investment research and
the quote and execution streams for the digital trading facility, on others'
Web pages or on portals. If we cannot secure or maintain these marketing
agreements on favorable terms, our prospects could be harmed. Additionally,
other online brokers which advertise on portals 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.
10
<PAGE>
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.
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 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 may seek to 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, we face operational risks
due to difficulties with our telecommunications system's inability to handle
the high level of customer inquiries. The inability of our systems to
accommodate an increasing volume of transactions could also constrain our
ability to expand our businesses. We have experienced disruptions in our Web
site service due to failures in our telecommunications system and our Web
servers, which have resulted in customer frustration. 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.
11
<PAGE>
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.
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 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.
The independent business ventures 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.
12
<PAGE>
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 trading counterparties, financial intermediaries and 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 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
13
<PAGE>
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,
including expanding our investment banking and research staff and our sales
and marketing capabilities, launching our digital trading facility, making
strategic acquisitions, expanding internationally and meeting working capital
requirements and, as appropriate, to make investments in our Angel Funds.
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 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. We will apply to include our common stock 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.
A substantial amount of our common stock, including shares issued upon the
exercise of outstanding options and warrants, will be available for sale in
the public market following the offering. The future sale of these shares by
our current stockholders may adversely affect our stock price. See "Shares
Eligible for Future Sale."
This offering will cause immediate dilution.
Investors in this offering will experience immediate and substantial
dilution in the net tangible book value of $ per share based on the
assumed initial public offering price of $ .
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.
14
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the
shares of common stock offered through this prospectus (after deducting
underwriting discounts and commissions and estimated offering expenses) of
$ million ($ 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, including expanding our investment banking staff and our sales and
marketing capabilities, launching our digital trading facility, expanding our
investment research department, international expansion, possible strategic
acquisitions or investments and working capital requirements and, as
appropriate, to make investments in the Angel Funds we plan to establish. In
addition, a portion of the net proceeds may be used for proprietary trading in
support of issues we underwrite. We evaluate potential strategic acquisitions
or investments, but at the present time we have no understandings, commitments
or agreements with respect to any such acquisition or investment. Pending such
uses, we intend to invest the net proceeds from this offering in United States
government securities and investment-grade, interest-bearing instruments. We
have made no material commitments or allocations for the net proceeds, and the
use of the proceeds will depend upon developments and opportunities in our
business and the Internet industry in general.
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.
15
<PAGE>
DILUTION
The net tangible book value of our common stock, as of December 31, 1998,
after giving effect to the sale of 21.4 million shares of preferred stock
subsequent to December 31, 1998 and conversion of all outstanding preferred
stock immediately prior to this offering, was $52.4 million, or $0.81 per
share of common stock. Net tangible book value per share is equal to our total
tangible assets minus total liabilities divided by the number of shares of
common stock outstanding. After giving effect to our sale of shares of
common stock offered through this prospectus at the assumed initial public
offering price of $ per share (the mid-point of the filing range),
deducting underwriting discounts and commissions and estimated offering
expenses payable by us, our net tangible book value as adjusted as of December
31, 1998 would have been $ million, or $ per share of common stock.
This represents an immediate increase in net tangible book value as adjusted
of $ per share to existing stockholders, and an immediate dilution in net
tangible book value as adjusted of $ 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................................. $
Net tangible book value as of December 31, 1998 (after giving effect
to the sale of million shares of preferred stock subsequent to
December 31, 1998 and conversion of all outstanding preferred stock
immediately prior to this offering)..................................
Increase in net tangible book value attributable to new investors.....
Pro forma net tangible book value after this offering.................
----
Dilution per share to new investors................................... $
====
</TABLE>
The following table sets forth on an as adjusted basis, as of December 31,
1998, after giving effect to the sale of 21.4 million shares of preferred
stock subsequent to December 31, 1998 and conversion of all outstanding
preferred stock immediately prior to this offering, the number of shares of
common stock 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 $ 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......... % $ % $
New Investors.................
------- --------- ---
------- --------- --- -----
Total......................... 100.0% 100.0%
======= ========= === =====
</TABLE>
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 per share of common stock as of December 31,
1998, as adjusted, would have been $ per share, which would result in
dilution to the new investors of $ per share, and the number of shares held
by the new investors would increase to , or % of the total number of
shares to be outstanding after this offering, and the number of shares held by
the existing stockholders would be shares, or % of the total number of
shares to be outstanding after this offering. As of March 15, 1999, there were
outstanding options and warrants to purchase an aggregate of 19,327,242 shares
of common stock, 6,837,115 of which were then exercisable, and we had also
reserved up to an additional 2,611,588 shares of 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.
16
<PAGE>
CAPITALIZATION
The following table shows our capitalization as of December 31, 1998:
. on an Actual basis;
. on a Pro Forma basis to give effect to: (1) the issuance and sale of 21.4
million shares of preferred stock subsequent to December 31, 1998 and the
receipt of $31.8 million in net proceeds; (2) the increase in the number
of authorized shares of preferred stock; (3) the conversion of all
outstanding preferred stock into common stock upon consummation of this
offering and (4) the increase in the number of authorized shares of common
stock; and
. on a Pro Forma As Adjusted basis to reflect the sale of shares of
common stock in this offering after deducting underwriting discounts and
commissions and estimated offering expenses.
This table excludes 13,538,575 shares of common stock issuable upon exercise
of outstanding options and warrants. 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>
December 31, 1998
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Long-term debt (excluding current portion).. $ 28 $ 28 $ 28
------- ------- ----
Series A, B, C and D preferred stock, $.01
par value, 29,500,000 shares authorized;
27,139,018 issued and outstanding; none pro
forma and pro forma as adjusted............ 271 -- --
Preferred stock, $.01 par value, 30,000,000
authorized; none issued and outstanding,
pro forma and pro forma as adjusted........ -- -- --
Common stock, $.01 par value, 60,000,000
shares authorized; 16,092,286 shares issued
and outstanding; 120,000,000 shares
authorized, 64,631,304 issued and
outstanding, pro forma; 120,000,000 shares
authorized, shares issued and
outstanding, pro forma as adjusted......... 161 646
Additional paid-in capital.................. 39,486 71,072
Note receivable............................. (5,750) (5,750)
Accumulated deficit......................... (13,560) (13,560)
------- ------- ----
Total stockholders' equity................ 20,608 52,408
------- ------- ----
Total capitalization...................... $20,636 $52,436
======= ======= ====
</TABLE>
17
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
Arthur Andersen LLP, independent certified public accountants, audited our
historical financial statements for the period from March 27, 1996 (inception)
to December 31, 1996 and for the years ended December 31, 1997 and 1998 and
the balance sheet data as of December 31, 1996, 1997 and 1998. The Pro Forma
column reflects the issuance and sale of 21.4 million shares of preferred
stock subsequent to December 31, 1998 and the receipt of $31.8 million in net
cash proceeds. The Pro Forma As Adjusted column reflects the sale of
shares of common stock in this offering, after deducting underwriting
discounts and commissions and estimated offering expenses. The following
selected financial data is derived from our audited financial statements,
which are included elsewhere in this prospectus. 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 and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from
March 27,
1996 Year Ended December
(Inception) 31,
to December ----------------------
31, 1996 1997 1998
----------- ---------- ----------
(In thousands, except per share
data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Investment banking....................... $ -- $ 43 $ 1,515
Brokerage................................ -- 10 295
Interest................................. 31 54 183
Other.................................... 10 139 45
--------- ---------- ----------
Total revenues......................... 41 246 2,038
Expenses:
Compensation and benefits................ 378 1,550 4,444
Marketing................................ 326 503 934
Occupancy................................ 42 201 237
Data processing and communications....... 50 238 578
Technology development................... 532 511 1,212
Professional services.................... 283 330 870
Depreciation and amortization............ 9 229 897
Brokerage and clearance.................. 2 6 186
Other.................................... 177 (352) 1,440
--------- ---------- ----------
Total expenses......................... 1,799 3,216 10,798
--------- ---------- ----------
Loss before income tax provision......... (1,758) (2,970) (8,760)
Income tax provision..................... 16 23 34
--------- ---------- ----------
Net loss................................... $ (1,774) $ (2,993) $ (8,794)
========= ========== ==========
Basic and diluted net loss per share..... (0.23) (0.29) (0.86)
Weighted averaged shares outstanding used
in basic and diluted net loss per common
share calculation....................... 7,683,096 10,432,876 10,200,176
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------
December 31,
-------------------- Pro Forma
1996 1997 1998 Pro Forma As Adjusted
----- ------ ------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.......... $ 750 $1,111 $18,110 $49,910
Working capital.................... 490 2,471 17,968 49,768
Total assets....................... 2,655 5,837 22,296 54,096
Stockholders' equity............... 1,480 4,859 20,608 52,408
</TABLE>
18
<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, we conducted limited revenue generating activities. As a
result, comparisons of our results of operations for 1996, 1997 and 1998 are
not meaningful or indicative of our future operating results. We are engaged
in one operating segment.
Our operating strategy is predicated on the structure of the Internet and
its continued growth. We believe that Internet-based companies are frequently
characterized by a high ratio of fixed costs as a proportion of their total
cost structures. Additionally, it appears that the most significant variable
costs for these companies are their sales and marketing-related costs. Those
sales and marketing-related costs tend to decline sharply as a percentage of
revenues after reaching a level sufficient for an enterprise to gain some
level of market leadership. Internet companies that achieve market leadership
should incur proportionately lower variable costs over their operating
lifetimes, and should therefore produce consistently stronger operating
margins, compared with those companies that do not enjoy the benefit of market
leadership.
As an Internet company, we have made a significant investment in our fixed
cost structure, and in 1999 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.
Revenues
We derive investment banking revenue by underwriting equity offerings,
providing financial advisory services and arranging private equity placements.
Although we expect to generate revenues from underwriting management fees, we
are currently generating fees from underwriting and sales credits based on the
number of shares we underwrite or sell. 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.
No investment banking income was received in 1996. In 1997, our investment
banking income was $43,000. In 1998, investment banking income was $1.5
million, of which a substantial portion was from fees generated by one
financial advisory assignment.
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. No
brokerage income was received in 1996. Brokerage income for 1997 was $10,000;
in 1998 it was $295,000.
Interest income is derived from increased interest-earning cash balances
raised through private financing activities. Interest income for 1996, 1997
and 1998 was $31,000, $54,000 and $183,000, respectively.
19
<PAGE>
We had other revenue in 1996 of $10,000 relating to a consulting assignment.
In 1997 we had other revenue of $139,000 consisting of a one-time publishing
royalty payment assigned to us by Mr. Klein. In 1998 we had other revenue of
$45,000 which consisted of unrealized gain on investment.
Expenses
Compensation consists of salaries we pay to our employees. In addition to
their base salaries, our investment bankers and other personnel are entitled
to incentive compensation consisting of up to 50% of the revenues generated in
each investment banking transaction after deducting certain deal-related
expenses. Compensation expense for 1996 was $378,000, for 1997 it was $1.6
million and for 1998 it was $4.4 million. As of December 31, 1996, 1997 and
1998, we had 9, 25 and 66 employees, respectively. We expect compensation to
grow significantly as we hire new bankers and complete more deals.
Our marketing expenses are associated with promoting our investment banking
business and acquiring new brokerage customers. Marketing expense amounted to
$326,000 in 1996, $503,000 in 1997 and $934,000 in 1998. 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.
Our occupancy expense includes costs related to our leasing of office space
in New York and San Francisco. Occupancy expense in 1996 amounted to $42,000.
It amounted to $201,000 in 1997 as we moved to a larger space. In 1998, it was
$237,000 due to the opening of our San Francisco investment banking location.
We expect these costs to increase as we grow, including our recent leasing of
an additional floor in our New York office.
Our data processing and communications expense reflect the costs of our
communications equipment and our brokerage operations. In 1996, data
processing and communications expense amounted to $50,000 due primarily to the
purchase of a new telephone system. Data processing and communications expense
amounted to $238,000 in 1997. In 1998, data processing and communications
expense amounted to $578,000 due primarily to the increased volume and trading
activity at our brokerage operations.
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. In 1996, technology expense amounted to $532,000. In 1997 it
was $511,000 because we reduced our development expenditures as we focused on
launching investment banking operations. In 1998, our technology expense
amounted to $1.2 million due to the development of our enhanced 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.
Our professional services expenses encompass legal, accounting and
consulting fees associated with all aspects of our business. Professional
services expense amounted to $283,000 in 1996 and $330,000 in 1997. In 1998,
professional services increased to $870,000 due to the legal and accounting
fees associated with the expansion of our investment banking operations and
the development of our digital trading facility.
Depreciation and amortization consists primarily of depreciation of property
and equipment and amortization of intangible assets related to software
acquisitions. Depreciation and amortization amounted to $9,000 in 1996,
$229,000 in 1997 and $897,000 in 1998.
Brokerage and clearing expense consists mainly of fees paid to our clearing
agent. Brokerage and clearance expense amounted to $2,000 in 1996, $6,000 in
1997 and $186,000 in 1998 due to the growth of our brokerage operations.
20
<PAGE>
Other expenses include travel, entertainment and other administrative
expenses. Other expenses amounted to $177,000 in 1996, ($352,000) in 1997 and
$1.4 million in 1998. 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 3 to our consolidated financial statements). The
increase in other expenses in 1998 includes write-downs of prepaid expenses of
$782,000 related to media credits not expected to be used.
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 $ 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 $6.8 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 $720,000 and a net increase in operating assets of $1.1
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 1998 of $558,000 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 $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. Net cash provided
by financing activities after December 31, 1998 was $31.8 million and
consisted entirely of net 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.
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 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.
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 certain of our vendors with whom we have important financial or
operational relationships to determine the extent to which they are vulnerable
to the Year 2000 issue. All these parties have informed us that their systems
are Year 2000 compliant. In the event any of these counterparties,
21
<PAGE>
intermediaries or vendors prove not to be Year 2000 compliant, we believe that
we could find a replacement vendor who is Year 2000 compliant without
significant delay or expense. Contingency plans are being developed for all
critical vendors and third-party systems we use. Accordingly, we expect to
incur no significant costs in the future for Year 2000 problems. However, if
substantially all our vendors prove not to be Year 2000 compliant and if we
experience difficulties in finding replacement vendors, then our business
could be materially adversely affected. Additionally, any Year 2000 problems
experienced by our advertising customers could affect the placement of
advertisements on our online services.
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.
22
<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.
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 for
various reasons, including 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. Information about individual
investor interest in public offerings will also provide valuable indications
of secondary market demand for the underwritten securities, which can be an
important factor in pricing the equity securities of first time issuers.
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 thirty-five investment banking 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
23
<PAGE>
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 of this and other innovations, we have benefited
from publicity and word of mouth exposure which we believe has established Wit
Capital as the leading provider of online investment banking services. Since
commencing operations in September 1997, we have participated in fifty public
equity offerings, including forty-one 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. Currently, we are participating
in nine transactions that are in registration. 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 we have trademarked.
<TABLE>
<CAPTION>
Issuer Lead Manager Date
------ ------------ ----
<S> <C> <C>
EarthWeb Inc. J.P. Morgan & Co. November 10, 1998
MarketWatch.com, Inc. BT Alex. Brown and January 15, 1999
Donaldson, Lufkin & Jenrette
VerticalNet, Inc. Lehman Brothers February 10, 1999
Prodigy Communications Cor-
poration Bear, Stearns & Co. Inc. February 10, 1999
iVillage Inc. Goldman, Sachs & Co. In Registration
MiningCo.com, Inc. Bear, Stearns & Co. Inc. In Registration
OneMain.com, Inc. BT Alex. Brown In Registration
Globix Corporation Donaldson, Lufkin & Jenrette In Registration
PLX Technology, Inc. Merrill Lynch & Co. In Registration
Mpath Interactive, Inc. BancBoston Robertson Stephens In Registration
drkoop.com, Inc. Bear, Stearns & Co. Inc. In Registration
Mail.com, Inc. Salomon Smith Barney In Registration
XOOM.com, Inc. Bear, Stearns & Co. Inc. 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. 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 are
currently developing access to a substantial number of online investors
through exclusive e-Dealer agreements entered into with twenty 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 firms
handled approximately 29% of the total number of online brokerage trades in
the fourth quarter of 1998. The e-Dealer agreements, which expire at various
times during the next three years, 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 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.
24
<PAGE>
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, after 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 purchase
securities as well as automated procedures to test, prior to each sale, 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 we underwrite by tracking the holding and sale of
these securities. The system also includes a fully automated electronic order
book. Finally, the system includes the interfaces and database management
tools that 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. 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 confirm 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. 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 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.
25
<PAGE>
. 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.
. 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 nominal 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, we are considering
engaging in proprietary trading in support of issues we underwrite.
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 provide to our
corporate clients financial advisory services, including 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 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.
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.
26
<PAGE>
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.
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
February 28, 1999, we had approximately 17,500 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
we executed during the two-month period ending February 28, 1999 was 353,
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 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. Recently we have experienced disruptions in our Web site service
and telecommunications system which have resulted in customer dissatisfaction.
Clearing and Settlement. U.S. Clearing, a division of Fleet Securities,
Inc., 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.
27
<PAGE>
DIGITAL TRADING FACILITY
We are developing a 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. Our digital
trading facility will provide individual investors opportunities to reduce the
spreads imposed by traditional marketplace intermediaries. It will also permit
trading outside of regular market hours.
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 plan to deploy our digital trading facility by collaborating with
brokerage firms that already have access to retail investors, including many
of the e-Dealers. These 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.
We plan to launch our digital trading facility later in 1999 as an after-
hours market with trading through a public limit order book. 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. Subsequently, we
expect to extend operation of the digital trading facility during regular
trading hours.
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 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.
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.
Initially, we plan to launch a private venture capital fund. 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
To the degree it becomes desirable in connection with competing for
underwriting mandates and share allocations, we may engage in proprietary
trading in issues in which we participate as e-Manager. 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.
28
<PAGE>
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.
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. 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 with limited marketing
expenditures. 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.
29
<PAGE>
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 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 DLJ Direct.
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.
30
<PAGE>
Digital Trading Facility. There is currently no competitor offering
individual investors 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. It is also
possible that the traditional stock markets, including the New York Stock
Exchange and the Nasdaq-Amex Group, are developing 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. Additional legislation, changes in rules promulgated by self
regulatory organizations 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 profitability.
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 December 31, 1998, our
broker-dealer subsidiary was required to maintain minimum net capital of
$100,000 and had total net capital of approximately $8,446,190, or $8,346,190
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
31
<PAGE>
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 will expand 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 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 % of the equity of the company on a fully diluted
basis. As of March 15, 1999, we had 99 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 909-square foot office for our investment banking
group in San Francisco. This lease expires in May 1999.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
32
<PAGE>
MANAGEMENT
The following table lists our executive officers and key employees. Our
executive officers are Messrs. Lessin, Readmond, Klein, Siegel, Loehr,
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
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
Jonathan Cohen.......... 34 Director of research
David M. Blumberg....... 40 Managing director--investment banking
Matthew P. Carbone...... 32 Managing director--investment banking
Charles Hall............ 32 Managing director--investment banking
Christopher Mulligan.... 35 Managing director--investment banking
William F. Tkacs........ 32 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
James Fontanetta........ 30 Vice president--brokerage
Amy Cortese............. 37 Vice president--content
Maureen Brille.......... 37 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, Fingerhut, 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 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,
33
<PAGE>
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.
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.
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.
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.
34
<PAGE>
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.
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.
William F. Tkacs has served as director of private equity since June 1998.
Previously he spent three years at Cowen & Company where he founded and headed
the private transactions group. Mr. Tkacs was for three years a vice president
in the private finance group at Smith Barney's investment banking division.
Previously, he was a principal at Oxford Partners, a healthcare venture
capital fund, from 1989 to 1992.
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.
James Fontanetta joined us in August 1997 and has served as vice president--
brokerage since 1998. He was most recently an operations manager with
Tradewell Discount Investing from 1996 to 1997. Prior to that, he was employed
by National Discount Brokers from 1995 to 1996 and Waterhouse Securities from
1993 to 1994.
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
35
<PAGE>
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.
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.
36
<PAGE>
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.
Committees of the Board
The Board of Directors has established an Audit Committee, the members of
which are John H.N. Fisher, 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 Flom of Skadden, Arps, Slate, Meagher & Flom
and Edward Mathias of The Carlyle Group.
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.
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.
37
<PAGE>
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 offi-
cer 1998 0 $135,685 -- -- --
Ronald Readmond.......... 1999 $250,000 $250,000(1) -- -- --
Co-chief executive offi- 1998 $146,000 -- -- 2,500,000 $116,000(3)
cer and president
Andrew D. Klein.......... 1999 $250,000 (1) -- -- --
Founder and chief strat-
egist 1998 $120,000 -- -- -- --
Mark Loehr............... 1999 $200,000 (2) -- -- --
Director of investment
banking 1998 -- -- -- -- --
Everett Lang............. 1999 $200,000 $ 50,000(1) -- 525,000 $ 50,000(4)
President--digital trad-
ing facility 1998 -- -- -- -- --
George Lieberman......... 1999 $200,000 (1) -- 400,000 --
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, and Mr. Lang is guaranteed to receive at least $50,000 under
the Annual Bonus Plan for Executives.
(2) Participates in the Annual Bonus Pool for the Investment Banking Group.
(3) Represents expense reimbursement in connection with commencement of his
employment.
(4) Represents compensation in connection with commencement of his employment.
38
<PAGE>
Stock Options
Option Grants. The following table sets forth information regarding stock
options granted under our stock option plans since January 1, 1998 to the co-
chief executive officers and the other four most highly compensated executive
officers as of March 15, 1999. We have never granted stock appreciation
rights.
<TABLE>
<CAPTION>
Option Grants in Period beginning January 1, 1998 and ended March 15, 1999
---------------------------------------------------------------------------
Individual Grants
---------------------------------------------------------------------------
Percentage of Potential
Total Options Realizable Value at
Granted to Employees Assumed Annual
(net of forfeitures) Rates of
Number of in the period Stock Price
Securities beginning Exercise or Appreciation for
Underlying January 1, 1998 Base Option Terms(4)
Options and ended March 15, Price Per Expiration -------------------
Name Granted(1) 1999(2) ($/Share)(3) Date 5% 10%
---- ---------- -------------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Lessin........ -- -- -- -- -- --
Ronald Readmond......... 2,500,000 14.4% 1.00 9/17/08 3,927,955 6,048,940
Andrew D. Klein......... -- -- -- -- -- --
Mark Loehr.............. -- -- -- -- -- --
Everett Lang............ 525,000 3.0 1.50 2/12/09 814,595 1,238,783
George Lieberman........ 400,000 2.3 1.50 1/1/09 655,032 1,037,497
</TABLE>
- --------
(1) Such options were granted pursuant to and in accordance with our Stock
Incentive Plan.
(2) Based on an aggregate of 17,388,412 options granted (net of forfeitures)
to employees in the period beginning January 1, 1998 and ended March 15,
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 gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
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. The following table sets forth information concerning the
value at March 15, 1999 of exercisable and unexercisable options held by the
co-chief executive officers and the other four most highly compensated
executive officers. No options were exercised by these persons during the
period from January 1, 1998 to March 15, 1999. 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 $ per share.
<TABLE>
<CAPTION>
Option Values at March 15, 1999
---------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert H. Lessin............ -- --
Ronald Readmond............. 567,358 1,932,642
Andrew D. Klein............. -- --
Mark Loehr.................. -- --
Everett Lang................ -- 525,000
George Lieberman............ -- 400,000
</TABLE>
39
<PAGE>
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 5,750,000 shares of common stock at
$1.00 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 his unvested shares at the
lower of their fair market value or $1.00 per share. These shares vest as
follows: 1,916,667 shares on June 8, 1998 and the remainder quarterly
beginning July 1, 1998, at the rate of 319,445 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."
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
40
<PAGE>
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.
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 that during his employment 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 that during his employment and for
one year after his termination, he will not solicit any of our employees,
customers or suppliers.
Mark Loehr. Mr. Loehr has an employment agreement with us under which his
initial base salary is $200,000. If he is terminated other than for "cause" or
disability prior to the third anniversary of commencement of employment, we
are obligated to pay his base salary until the second anniversary, unless he
has violated other terms of his employment agreement. We have extended to Mr.
Loehr an interest-bearing loan in the amount of $1,875,000 with which he has
purchased 1,250,000 shares of common stock at $1.50 per share. The principal
portion of this loan is partial recourse and the interest portion is full
recourse. 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 $1.50 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 78,125
shares per quarter until March 31, 2003. Our rights 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.
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.
41
<PAGE>
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 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 20,000,000 shares of our common 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 common 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. A total of 120 employees and key consultants
currently holds options to purchase 17,388,412 shares of our common stock, of
which the options are vested with respect to 4,926,618 shares.
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 50% 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.
42
<PAGE>
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 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 year
ended December 31, 1997 and 1998, we did not contribute to the 401(k) Plan.
43
<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 with directors, officers or principal
security holders 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.
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.
<TABLE>
<CAPTION>
Price Share
Stockholder Capital Stock Per Share Amount Issuance Date
- ----------- ------------- --------- ------ -------------
<S> <C> <C> <C> <C>
Capital Z Partners(1)... Series D Preferred $1.50 16,666,667 February 23, 1999
Draper Fisher
Jurvetson(2)........... Series D Preferred 1.50 1,333,333 March 8, 1999
Series D Preferred 1.50 333,333 December 8, 1998
Series C Preferred 1.00 5,000,000 September 17, 1998
Robert H. Lessin........ Series D Preferred 1.50 130,000 December 8, 1998
Common Stock 1.00 50,000 April 13, 1998
Common Stock 1.00 5,750,000 August 3, 1998
Ronald Readmond......... Series A Preferred 1.00 100,000 April 30, 1997
Series A Preferred 1.00 30,000 January 29, 1998
Andrew D. Klein......... Common Stock 0.01 8,000,000 April 4, 1996
Edward H. Fleischman.... Series D Preferred 1.50 33,333 December 8, 1998
Joseph R. Hardiman...... Series A Preferred 1.00 50,000 December 9, 1997
</TABLE>
- --------
(1) Steven Gluckstern and Adam Mizel, two of our directors, are general
partners of Capital Z Partners.
(2) John H.N. Fisher, one of our directors, is a managing director of Draper
Fisher Jurvetson. Draper Fisher Jurvetson owns warrants to purchase
690,030 shares of Series C Preferred Stock.
Spring Street
We are a party with Spring Street Brewing Company to a license and
reciprocal marketing agreement, dated April 4, 1996, pursuant to which Spring
Street granted us a non-revocable, non-exclusive license to use in connection
with the operation of an investment bank and stock trading facility and
certain trademarks and trade names of Spring Street, including our name and
our related orange and red exclamation point. In exchange, we issued Spring
Street 1,000,000 shares of common stock for $10,000. We also agreed to use our
best efforts to preserve the quality and reputation of Spring Street's trade
names and trademarks and to make reasonable efforts to promote and publicize
the activities of Spring Street through our Internet materials and otherwise.
Mr. Klein is a director of Spring Street.
Agreement with Stockholders
Capital Z Partners and Draper Fisher Jurvetson, who are the beneficial
owners of 16,666,667 and 7,356,696 shares, respectively, of our common stock
that will be issued upon conversion of the preferred stock when this offering
is consummated, and Messrs. Readmond and Lessin, the holders of 130,000 and
6,630,000 shares,
44
<PAGE>
respectively, of our 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 total fully-diluted common stock, which includes
the aggregate ownership of our common stock by all affiliates of Capital
Z Partners. This restriction on total ownership will cease if, after
this offering, any other person or entity acquires or intends to acquire
at least 25% of our fully-diluted common stock. This restriction will
last for three years after this offering.
. 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.
45
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 15, 1999 (assuming the conversion of
all of our outstanding preferred stock) by:
. each person or entity that we know beneficially owns 5% or more of our
common stock;
. our co-chief executive officers and the other four most highly
compensated executive officers as of March 15, 1999;
. each of our directors; and
. all our current directors and executive officers as a group.
<TABLE>
<CAPTION>
Number of Percentage of Common
Shares Stock Beneficially
Beneficially Owned
Owned --------------------
Prior to Prior to After
Name of Beneficial Owner(1) Offering(2) Offering Offering(3)
- --------------------------- ------------ -------- -----------
<S> <C> <C> <C>
Capital Z Financial Services Fund II, L.P... 16,666,667 25.8%
One Chase Manhattan Plaza
44th Floor
New York, NY 10005
Draper Fisher Jurvetson(4).................. 7,356,696 11.4
400 Seaport Court
Redwood City, CA 94063
John H.N. Fisher(5)......................... -- *
400 Seaport Court
Redwood City, CA 94063
Edward H. Fleischman(6)..................... 36,458 *
1345 Avenue of the Americas
New York, NY 10105
Steven Gluckstern(7)........................ -- *
One Chase Manhattan Plaza
44th Floor
New York, NY 10005
Joseph R. Hardiman(6)....................... 53,125 *
1119 St. Paul Street
Baltimore, MD 21202
Andrew D. Klein(8).......................... 6,434,786 10.0
Everett Lang(9)............................. -- *
Robert H. Lessin(10)........................ 6,630,000 10.3
George Lieberman(11)........................ -- *
Mark Loehr.................................. 1,250,000 1.9
Gilbert C. Maurer(6)........................ 3,125 *
959 Eighth Avenue
Room 431
New York, NY 10019
Adam Mizel(7)............................... -- *
One Chase Manhattan Plaza
44th Floor
New York, NY 10005
Ronald Readmond(12)......................... 1,003,052 1.6
All executive officers and directors as a 15,523,046 24.0
group (14 persons)(13).....................
</TABLE>
- --------
* Less than 1%
(1) The address of each of the persons listed above is 826 Broadway, New York,
NY 10003, unless indicated otherwise.
46
<PAGE>
(2) 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.
Shares of common stock subject to options, warrants or rights currently
exercisable or exercisable within 60 days of the date of this prospectus
count 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 of common stock shown. The amounts and percentages
are based upon 64,631,304 shares of common stock outstanding as of March
15, 1999.
(3) Assumes no exercise of the underwriters' over-allotment option.
(4) Includes warrants to purchase 690,030 shares of Series C Preferred Stock.
(5) Mr. Fisher is a managing director of Draper Fisher Jurvetson and therefore
may be deemed to beneficially own shares held by Draper Fisher Jurvetson.
(6) Includes 3,125 shares issuable upon exercise of options exercisable within
60 days. Also has an additional 46,875 options exercisable after 60 days.
(7) 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.
(8) Includes 80,018 shares owned by Spring Street Brewing Company of which Mr.
Klein is a director.
(9) Has 525,000 options, none of which are exercisable within 60 days.
(10) In addition to his purchases from us, Mr. Lessin purchased shares from
two of our stockholders.
(11) Has 400,000 options, none of which are exercisable within 60 days.
(12) Includes 873,052 shares issuable upon exercise of options exercisable
within 60 days. Also has an additional 1,626,948 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 39,546,409, 61.2% and .
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.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock consists of 120,000,000 shares of common stock,
$.01 par value, and 30,000,000 shares of preferred stock, $.01 par value.
Immediately prior to the completion of this offering, (1) there will be
64,631,304 shares of common stock outstanding (assuming no exercise of
outstanding stock options and warrants and giving effect to the issuance of
48,539,018 shares of common stock upon the conversion of all outstanding
preferred stock), (2) there will be the conversion of all outstanding
preferred stock into common stock and (3) there will be outstanding options to
purchase 17,388,412 shares of common stock and outstanding warrants to
purchase 1,938,830 shares of 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 Amended and Restated Bylaws, and
to applicable law, for the complete description of the terms and provisions of
our capital stock.
Common Stock
The holders of 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 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 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 have no
preemptive rights to purchase shares of our stock. Shares of common stock are
not subject to any redemption provisions and are not convertible into any
other securities. All outstanding shares of 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.
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 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
After this offering, the holders of shares of our common stock issued
upon conversion of the preferred stock when this offering is consummated, and
the holders of shares of common stock issued
48
<PAGE>
upon exercise of warrants, 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 five 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 right ("Right") to
purchase from us a unit consisting of one one-hundredth of a share (a
"Fractional Share") of Series A Junior Participating Preferred Stock, par
value $.001 per share (the "Junior Participating Preferred Stock"), at a
purchase price of per Fractional Share, subject to adjustment in certain
events (the "Purchase Price").
Initially, the Rights will attach to all certificates representing
outstanding shares of our common stock, including the shares of common stock
being sold in this offering, and no separate certificates for the Rights
("Rights Certificates") will be distributed. The Rights will separate from the
common stock and a "Distribution Date" will, with certain exceptions, occur on
the earlier of (1) 10 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 (the date of the announcement
being the "Stock Acquisition Date") or (2) 10 business days following the
commencement of a tender or exchange offer that would result in a person's
becoming an Acquiring Person. Notwithstanding the foregoing, so long as Draper
Fisher Jurvetson (including, for purposes of the Rights Agreement, its wholly
owned subsidiaries), Mr. Andrew Klein or Mr. Robert Lessin together with all
their respective affiliates and associates, remain the beneficial owners of
15% or more of the outstanding shares of our common stock, neither Mr. Klein,
Mr. Lessin nor Draper Fisher Jurvetson shall 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 shares of our common stock. Until the Distribution Date, (1) the
Rights will be evidenced by the common stock certificates and will be
transferred with and only with those certificates, (2) common stock
certificates will contain a notation incorporating the Rights Agreement by
reference and (3) the surrender for transfer of any certificate for our common
stock also will constitute the transfer of the Rights associated with the
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 holder of record of our common stock as of the close of business
on the Distribution Date and, from and after the Distribution Date,
49
<PAGE>
the separate Rights Certificates alone will represent the Rights. All shares
of our common stock issued prior to the Distribution Date will be issued with
Rights. Shares of common stock issued after the Distribution Date in
connection with certain employee benefit plans or upon conversion of certain
securities will be issued with Rights. Except as otherwise determined by the
Board of Directors, no other shares of our 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 at a price and on terms that a majority of the independent
members of the Board of Directors determines to be fair to and otherwise in
our best interests and in the best interests of our stockholders (a "Permitted
Offer")), each holder of a Right will thereafter have the right to receive, on
exercise of that Right, a number of shares of common stock (or, in certain
circumstances, cash, property or other securities from us) having a Current
Market Price (as defined in the Rights Agreement) equal to two times the
exercise price of the Right. Notwithstanding the foregoing, following the
occurrence of any Triggering Event (as defined below), all Rights that are, or
(under certain circumstances specified in the Rights Agreement) were,
beneficially owned by an Acquiring Person (or by certain related parties) will
be null and void in the circumstances set forth in the Rights Agreement.
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.
In the Event (a "Flip-Over Event") that, at any time from and after the time
an Acquiring Person becomes such, (1) we are acquired in a merger or other
business combination transaction (other than certain mergers that follow a
Permitted Offer) or (2) 50% or more of our assets or earning power is sold or
transferred, each holder of a Right (except Rights that previously have been
voided as set forth above) shall thereafter have the right to receive, on
exercise of such Right, a number of shares of common stock of the acquiring
company having a Current Market Price equal to two time 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 our common
stock, or the number of Fractional Shares of Junior Participating 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, our common stock occurring prior to the Distribution
Date. The Purchase Price payable, and the number of Fractional Shares of
Junior Participating 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 Junior
Participating 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 Junior Participating Preferred Stock that are
not integral multiples of a Fractional Share are required to be issued and, in
lieu thereof, an adjustment in cash will be made based on the market price of
the Junior Participating Preferred Stock on the last trading date prior to the
date of exercise. Pursuant to the Rights Agreement, we reserve the right to
require prior to the occurrence of a Triggering Event that, on any exercise of
Rights, a number of Rights be exercised so that only whole shares of Junior
Participating Preferred Stock will be issued.
At any time until 10 days following the first date of 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 $.001 per Right, payable, at the option of us, in cash,
shares of our common stock or such other consideration as the Board of
Directors may determine. Immediately on 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
$.001 redemption price.
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
then outstanding or the occurrence of a Flip-Over Event, we may, at our
option, 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,
and/or other equity securities deemed to have the same value as one share of
common stock, per Right, subject to adjustment.
50
<PAGE>
Other than the redemption price, any of the provisions of the Rights
Agreement may be amended by the Board of Directors 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 only 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. Until a Right is exercised, the holder thereof, as such,
will have no rights to vote or receive dividends or any other rights as one of
our stockholders.
The Rights will have certain anti-takeover effects. They will cause
substantial dilution to any person or group that attempts to acquire us
without the approval of the Board. As a result, the overall effect of the
Rights may be to render more difficult or discourage any attempt to acquire
us, even if such acquisition may be favorable to the interests of our
stockholders. Because the Board of Directors can redeem the Rights or approve
a Permitted Offer, the Rights should not interfere with a merger or other
business combination approved by the Board. The Rights are being issued to
protect our stockholders from coercive or abusive takeover tactics and to
afford the Board of Directors more negotiating leverage in dealing with
prospective acquirers.
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 Amended and Restated 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 have entered into indemnification agreements with our
directors and executive officers.
51
<PAGE>
ANTI-TAKEOVER PROVISIONS
General
Certain provisions of the DGCL and our Amended and Restated Certificate of
Incorporation and Amended and Restated 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 Amended and Restated 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 Amended and Restated By-Laws provide that
special meetings of stockholders may be called only by the Chairman of the
Board of Directors, the President or the Board of Directors. The Amended and
Restated 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 Amended and Restated 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
52
<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
We have applied to have our common stock 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 closing of this offering, there will be an aggregate of shares
of common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options or warrants. Of the
outstanding shares, the shares being sold in this offering will be freely
tradable, except that any shares held by our "affiliates" may only be sold in
compliance with the limitations described below. Those shares of common
stock held by our affiliates will be deemed "restricted securities" that may
be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144 or 701 under the Securities Act.
These rules are summarized below.
Subject to the lock-up agreements described elsewhere in this prospectus and
the provisions of Rules 144 and 701, shares in addition to those being offered
by this prospectus will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number of Shares Date
---------------- ---------------------------------------------------------
<C> <S>
Immediately after the date of this prospectus
Upon the filing of a registration statement to register
shares of common stock issuable upon the exercise of
options granted under our Stock Incentive Plan
After 180 days from the date of this prospectus (subject,
in some cases, to limitations in volume and manner of
sale)
At various times after 180 days from the date of this
prospectus
</TABLE>
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
53
<PAGE>
greater of (1) 1% of the then outstanding shares of common stock
(approximately 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
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.
In addition, any of our employees, directors, consultants or officers who
purchased shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701 of the Securities Act,
which permits non-affiliates to sell their Rule 701 shares without having to
comply with the public information, holding period, volume limitation or
notice provisions of Rule 144 and permits affiliates to sell their Rule 701
shares without having to comply with the holding period restrictions of Rule
144, in each case, commencing 90 days after the date of this prospectus.
As of the date of this prospectus, options to purchase a total of
shares of common stock are outstanding, of which options to purchase
shares are currently exercisable. Upon the closing of this offering, we intend
to file a registration statement to register the 20,000,000 shares of common
stock reserved for issuance under our Stock Incentive Plan. That registration
statement will automatically become effective upon filing. Accordingly, shares
issued upon the exercise of stock options granted under our Stock Incentive
Plan will be eligible for resale in the public market from time to time,
subject to vesting restrictions and, in the case of some of the options, to
lock-up agreements. See "Underwriting." Upon the closing of this offering,
shares of common stock will be issuable upon the exercise of outstanding
warrants.
Following this offering, some holders of shares of common stock will have
rights to have their shares of common stock registered for resale under the
Securities Act. See "Description of Capital Stock--Registration Rights."
54
<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............................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain 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 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 its regular Web
site at http://www.witcapital.com and on a special Web site located at
http://www.witcapitaloffering.com. In addition, pursuant to our agreement with
the e-dealers, those e-dealers participating in this offering have also agreed
to make an electronic version of this prospectus available
55
<PAGE>
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.
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.
Lock-Up Agreements. Each of our directors, officers, existing stockholders
and option holders has entered into "lock-up" arrangements under which they
have agreed that they will not sell, directly or indirectly, any shares of our
common stock without the prior written consent of Bear, Stearns & Co. Inc. for
a period of 180 days after the date of this prospectus. In the underwriting
agreement, we have agreed to a similar "lock-up" arrangement. We have agreed
that for a period of 180 days after the date of this prospectus we will not,
without the prior written consent of Bear, Stearns & Co. Inc., offer, sell or
otherwise dispose of, directly or indirectly, any shares of our common stock
except for the shares of common stock offered by this prospectus, shares of
common stock issuable upon exercise of outstanding warrants and shares issued
and options granted pursuant to our Stock Incentive Plan.
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. Accordingly,
the public offering price of the shares of our common stock can be no lower
than that recommended by a "qualified independent underwriter" meeting certain
standards. Bear, Stearns & Co. Inc., as lead manager, will fulfill those
requirements.
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 co-
managed twelve public offerings of equity securities and has acted as an
underwriter in an additional four 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.
We have applied to have our common stock 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.
56
<PAGE>
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 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 MATTERS
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 statements of financial condition as of December 31, 1997 and 1998 and
the statements of operations, stockholders' equity and cash flows for each of
three years ended December 31, 1998, have been included in this registration
statement in reliance on the report of Arthur Andersen LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
57
<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, including our
audio/video roadshow presentation that is included as Appendix A of this
prospectus, is available on the regular Web site (http://www.witcapital.com)
and a special Web site (http://www.witcapitaloffering.com) being maintained by
our broker-dealer subsidiary. Other than the electronic version of this
prospectus, the information on our Web sites is not a part of this prospectus.
58
<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 December 31, 1998
and 1997............................................................... F-3
Consolidated 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...................................................... F-4
Consolidated 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....................................... F-5
Consolidated 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...................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Schedule to Consolidated Financial Statements........................... F-14
Note to Condensed Financial Statements.................................. F-18
</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 December 31, 1998 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for 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 December 31, 1998 and 1997, and the results of their
operations and their cash flows for 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 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 a whole.
/s/ Arthur Andersen LLP
- -------------------------------------
New York, New York
February 16, 1999
(except with respect to certain matters discussed
in Note 12, as to which the date is March 9, 1999)
F-2
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS........................... $ 18,110,146 $ 1,110,787
RECEIVABLE FROM CLEARING BROKER..................... 119,312 136,364
SECURITIES OWNED, at market or fair value........... 758,293 540,504
PREPAID EXPENSES.................................... 95,671 1,582,657
INVESTMENT BANKING FEES RECEIVABLE.................. 512,952 --
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net
of accumulated depreciation and amortization of
$243,527 and $98,757 at December 31, 1998 and 1997,
respectively....................................... 615,181 335,044
COMPUTER SOFTWARE, net of accumulated amortization
of $560,277 and $127,050 at December 31, 1998 and
1997, respectively................................. 1,614,735 1,926,420
OTHER ASSETS........................................ 470,116 204,870
------------ -----------
Total assets.................................... $ 22,296,406 $ 5,836,646
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses............. $ 1,032,463 $ 899,754
Deferred advisory fees............................ 595,486 --
Long-term portion of capital lease obligation..... 30,666 30,666
Long-term portion of term debt.................... 28,037 36,851
Other liabilities................................. 1,500 10,100
------------ -----------
Total liabilities............................... 1,688,152 977,371
------------ -----------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $.01 par value,
10,000,000 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,
6,500,000 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; 16,092,286 and
10,080,136 shares issued and outstanding at
December 31, 1998 and 1997, respectively......... 160,923 100,801
Additional paid-in capital........................ 39,486,381 9,755,825
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...... $ 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 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:
Investment banking................... $ 1,515,105 $ 42,567 $ --
Brokerage............................ 294,454 10,403 --
Interest............................. 182,880 53,821 31,172
Other................................ 45,370 138,750 10,000
----------- ----------- -----------
Total revenues..................... 2,037,809 245,541 41,172
----------- ----------- -----------
EXPENSES:
Compensation and benefits............ 4,444,271 1,549,958 378,337
Technology development............... 1,211,799 511,076 532,265
Marketing............................ 933,541 503,379 326,114
Depreciation and amortization........ 896,652 229,209 9,438
Professional services................ 870,322 329,334 282,806
Data processing and communications... 577,257 237,608 49,599
Occupancy............................ 237,334 200,673 41,889
Brokerage and clearance.............. 186,322 5,563 1,750
Other................................ 1,440,120 (351,729) 177,444
----------- ----------- -----------
Total expenses..................... 10,797,618 3,215,071 1,799,642
----------- ----------- -----------
Loss before income tax provision... (8,759,809) (2,969,530) (1,758,470)
INCOME TAX PROVISION................... 34,081 23,051 15,500
----------- ----------- -----------
Net loss........................... $(8,793,890) $(2,992,581) $(1,773,970)
=========== =========== ===========
NET LOSS PER SHARE:
Basic................................ $ (.86) $ (.29) $ (.23)
Diluted.............................. (.86) (.29) (.23)
WEIGHTED AVERAGE SHARES USED IN THE
COMPUTATION OF NET LOSS PER SHARE:
Basic................................ 10,200,176 10,432,876 7,683,096
Diluted.............................. 10,200,176 10,432,876 7,683,096
</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 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................. -- 113,301 3,140,573 -- -- -- 3,253,874
Issuance of Series A
Preferred Stock....... 2,500 -- 497,500 -- -- -- 500,000
Repurchase and
retirement of common
stock................. -- (5,000) (495,000) -- -- -- (500,000)
Net loss............... -- -- -- (1,773,970) -- -- (1,773,970)
-------- -------- ----------- ------------ ----------- -------- -----------
STOCKHOLDERS' EQUITY,
December 31, 1996..... 2,500 108,301 3,143,073 (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 (5,000) -- -- -- -- --
Repurchase and
retirement of common
stock................. -- (2,500) (247,500) -- -- -- (250,000)
Net loss............... -- -- -- (2,992,581) -- -- (2,992,581)
-------- -------- ----------- ------------ ----------- -------- -----------
STOCKHOLDERS' EQUITY,
December 31, 1997..... 77,200 100,801 9,755,825 (4,766,551) -- (308,000) 4,859,275
Issuance of common
stock................. -- 2,622 261,329 -- -- -- 263,951
Issuance of common
stock for Note
Receivable............ -- 57,500 5,692,500 -- (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 $160,923 $39,486,381 $(13,560,441) $(5,750,000) $ -- $20,608,254
======== ======== =========== ============ =========== ======== ===========
</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 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--
Noncash expenses.................... 1,522,901 -- --
Noncash expense reimbursement....... -- (750,000) --
Depreciation and amortization....... 896,652 229,209 9,438
(Increase) decrease in operating
assets--
Receivable from clearing broker..... 17,052 (35,753) (100,611)
Securities owned.................... (217,789) (540,504) --
Prepaid expenses.................... (139,584) (132,659) --
Investment banking fees receivable.. (512,952) -- --
Other assets........................ (265,246) 45,848 (185,127)
Increase (decrease) in operating
liabilities--
Accounts payable and accrued
expenses........................... 132,709 231,328 659,996
Deferred advisory fees.............. 595,486 -- --
Long-term portion of capital lease
obligation......................... -- 30,666 --
Other liabilities................... (8,600) (5,400) 15,500
----------- ----------- -----------
Net cash used in operating
activities....................... (6,773,261) (3,919,846) (1,374,774)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Computer software purchased........... (121,542) (588,470) --
Payments for purchases of furniture,
equipment and leasehold
improvements......................... (436,243) (239,568) (194,233)
----------- ----------- -----------
Cash used in investing
activities....................... (557,785) (828,038) (194,233)
----------- ----------- -----------
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
Proceeds from long-term debt.......... -- 36,851 --
Payments on long-term debt............ (8,814) -- --
----------- ----------- -----------
Net cash provided by financing
activities....................... 24,330,405 5,108,803 2,318,875
----------- ----------- -----------
Net increase in cash and cash
equivalents...................... 16,999,359 360,919 749,868
CASH AND CASH EQUIVALENTS, beginning of
period................................. 1,110,787 749,868 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
period................................. $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............................... 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
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>
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
DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM MARCH 27, 1996 (INCEPTION) TO DECEMBER 31, 1996
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 which has been approved by the
National Association of Securities Dealers, Inc. ("NASD") (Note 3).
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. 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.
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. Securities owned are valued at market or fair value and consist of
restricted securities of $430,560; United States Treasury bills of $218,865
and $436,985; and certificates of deposit with a major money center bank of
$108,868 and $103,519,
F-7
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
each having maturities of greater than three months when acquired, as of
December 31, 1998 and 1997, respectively.
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.
3. RELATED PARTY TRANSACTIONS
Spring Street Brewing Company, Inc. ("Spring Street") is controlled by Mr.
Andrew D. Klein, the founder of WCG. Spring Street owns 335,018 and 700,018
shares of common stock of WCG at December 31, 1998 and 1997, respectively.
Shares were originally issued in 1996 by WCG to Spring Street at par in
exchange for entering into a license agreement with WCG pursuant to which
Spring Street granted WCG, among other things, a nonrevocable, nonexclusive
license to use in connection with the operation of an investment bank and
brokerage firm tradenames of Spring Street, including the name Wit. Other
assets at December 31, 1997, include $10,000 related to the Spring Street
license.
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 750,000 shares of common stock. The software
was recorded at $1,125,000, representing management's estimate of the fair
value of the 750,000 shares of common stock at $1.50 per share. Effective
December 31, 1996, the founder of GTI agreed to exchange 500,000 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 to provide technology, general and administrative
support. In 1997, GTI's founder sought greater control over the development of
Brat and in September 1997, exchanged the remaining 250,000 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 750,000 shares of common stock of
WCG has been accounted for as a stock repurchase and corresponding reduction
of other expenses at $1.00 per share, which represents the fair value of the
common stock on the date of the exchange.
F-8
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. 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 a consolidated Federal and combined New York State and New York
City income tax returns with WCC and BidPlus. The income tax provision
included in the consolidated statement of operations are calculated based on
state and local minimum and alternative methods.
At December 31, 1998 and 1997, WCG had deferred tax assets of approximately
$5,200,000 and $2,300,000 which were generated by net operating losses of
approximately $13,000,000 and $5,300,000, respectively. The deferred tax
assets are fully offset by valuation allowances.
5. STOCKHOLDERS' EQUITY
Common Stock
In 1996, the Company issued 300,000 shares of common stock at $1.00 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. Prepaid expenses includes $300,000 of these credits as
of December 31, 1997. The remaining balance of these credits was expensed by
the Company in 1998.
The Chairman & CEO has been extended a partial recourse, interest bearing
loan in the amount of $5,750,000 with which 5,750,000 shares of common stock
at $1.00 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 $1.00 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.
Preferred Stock
As of December 31, 1998, the Company has authorized 30,000,000 shares of
preferred stock of which 29,500,000 shares have been designated to four
series. Series A Preferred Stock has a $0.01 par value, 10,000,000 shares are
authorized; Series B Preferred Stock has a $0.01 par value with 3,000,000
shares authorized; Series C Preferred Stock has a $0.01 par value, 6,500,000
shares authorized; and Series D Preferred Stock has a $0.01 par value with
10,000,000 shares authorized. 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 any series of preferred stock is entitled to convert such
share into a share of common stock at any time. In addition, each share of
preferred stock will automatically convert into a share 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 $3.00 per share for each Series A and B and $4.50 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 remaining balance of
these credits was expensed by the Company in 1998.
F-9
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $200,000. Prepaid
expenses include $718,000 of these credits as of December 31, 1997. During
1998, the Company expensed the remaining balance of these credits.
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.
6. 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 December 31,
-------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Shares used in computations:
Weighted average common shares used in
computation of basic net loss per share..... 10,200,176 10,432,876 7,683,096
Dilutive effect of common stock equivalents.. -- -- --
---------- ---------- ---------
Weighted average shares used in computation
of diluted net loss per share............. 10,200,176 10,432,876 7,683,096
========== ========== =========
</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 note
receivable from stockholder, 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 11,575,502, 3,865,877 and 185,513 shares as of
December 31, 1998, 1997 and 1996, respectively, included in the calculation of
diluted earnings per share.
7. EMPLOYEE BENEFIT PLANS
Health Care
WCG provides certain health care benefits for its full-time employees by
contract with a health care insurer.
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 13,000,000 shares of common stock has been reserved for issuance
under the Plan. 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-10
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," WCG
has accounted for options granted to employees using the intrinsic value
method prescribed by Accounting Pronouncements 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 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>
December 31,
---------------------------------------------------------
1998 1997 1996
------------------- ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of period.............. 4,658,246 $1.16 2,155,996 $1.15 -- $ --
Granted............... 8,345,000 1.04 2,711,000 1.11 2,155,996 $1.15
Exercised............. 8,500 1.20 -- -- -- --
Forfeited............. 1,345,001 1.09 208,750 2.48 -- --
Outstanding, end of
period................. 11,649,745 1.03 4,658,246 1.16 2,155,996 1.15
Options exercisable, end
of period.............. 4,910,764 1.00 2,570,204 1.15 527,766 1.29
</TABLE>
The range of exercisable prices for the options outstanding and the options
exercisable is $.25--$2.50. The weighted average contractual lives for
outstanding and exercisable options are 8.89 and 8.03 years, 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 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>
December 31,
----------------------------------------------------------------------------
1998 1997 1996
------------------------ ------------------------ ------------------------
As As As
Reported Pro Forma Reported Pro Forma Reported Pro Forma
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net loss................ $(8,793,890) $(9,445,443) $(2,992,581) $(3,296,431) $(1,773,970) $(1,870,758)
Net loss per common
share
Basic................. $ (.86) $ (.93) $ (.29) $ (.32) $ (.23) $ (.24)
Diluted............... $ (.86) $ (.93) $ (.29) $ (.32) $ (.23) $ (.24)
</TABLE>
F-11
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. WARRANTS OUTSTANDING
The Company has 1,888,830 outstanding warrants as of December 31, 1998.
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 December 31, 1998 and 1997 and for the period March 27, 1996 to December
31, 1996 and the changes during these periods:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1998 1997 1996
------------------ ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
period.................. 317,000 $1.29 212,000 $1.44 -- $ --
Granted................ 1,571,830 1.00 105,000 1.00 212,000 1.44
Exercised.............. -- -- -- -- -- --
Forfeited.............. -- -- -- -- -- --
Outstanding, end of
period.................. 1,888,830 1.05 317,000 1.29 212,000 1.44
Warrants exercisable, end
of period............... 1,860,497 1.05 256,336 1.34 204,000 1.40
</TABLE>
9. COMMITMENTS
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. This
lease expires in May 1999. Rent expense for the years ended December 31, 1998
and 1997 is $137,454 and $122,500, respectively. The effects of the free rent
and scheduled rent increase are being recognized in expense on a straight-line
basis over the lease terms, which expires in 2006. Future lease commitments
are as follows:
<TABLE>
<CAPTION>
Minimum Lease
Obligation
-------------
<S> <C>
Year ending December 31,:
1999..................................... $132,491
2000..................................... 129,938
2001..................................... 131,250
2002..................................... 140,438
2003..................................... 142,640
Thereafter............................... 457,829
</TABLE>
In addition, WCG has entered into a capital lease with a four-year term for
the purchase of telecommunications equipment, which was placed into service in
April 1997. The total remaining obligation of such capital lease, bearing
interest at 9.2%, is approximately $29,500 and matures in April 2001.
During 1997, WCG entered into a revolving credit agreement and a three-year
term loan with a major money center bank; both facilities are secured by
securities owned. No obligation exists under the revolving credit agreement,
that has an available line of $50,000. The term loan bears interest at a fixed
rate of 10.25%, matures in July 2000, and has a total balance remaining of
approximately $28,000 at December 31, 1998 and 1997.
10. 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
F-12
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of December 31, 1998, WCC's ratio of aggregate indebtedness to net capital was
.09 to 1 and its net capital was $8,446,190, which was $8,346,190 in excess of
the minimum net capital requirement of $100,000.
11. NEW 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"), which
provides guidance for accounting for costs incurred in connection with the
development of computer software for internal use. The Company does not expect
the adoption of this standard to have a material effect on their
capitalization policy.
12. SUBSEQUENT EVENTS
Subsequent to year end, the Company entered into employment contracts with
several employees which entitle the employees to a total of $5,450,000 in
upfront payments. In February 1999, the Company recognized compensation
expense of $2,550,000 related to these payments and recorded advances of
$2,900,000 which will either be expensed over the employment contract period
or applied against the employees' future earnings. Additionally, from January
1, 1999 to March 9, 1999, the Company granted options to employees to purchase
5,730,000 shares of common stock at an exercise price of $1.50 per share.
In January 1999, the Company authorized an additional 60,000,000 shares of
common stock and 30,000,000 shares of preferred stock increasing the number of
authorized shares to 120,000,000 shares of common stock and 60,000,000 of
preferred stock.
In February 1999, the Company entered into an agreement in principle to
issue 16,666,666 shares of Series D Preferred Stock to a third party at $1.50
per share. The share purchase is currently pending regulatory approval.
Additionally, on January 29, 1999 and March 8, 1999, the Company issued 66,666
and 4,666,666 shares of Series D Preferred Stock at $1.50 per share to third
parties.
On February 12, 1999, the Board of Directors, with stockholder approval,
voted to increase the number of shares of common stock reserved for issuance
under the Plan from 13,000,000 to 20,000,000.
On March 1, 1999, the Company entered into an agreement to lease additional
office space. Future lease commitments under this agreement are as follows:
<TABLE>
<CAPTION>
Minimum Lease
Obligation
-------------
<S> <C>
Year ending December 31,:
1999..................................... $105,000
2000..................................... 126,000
2001..................................... 126,000
2002..................................... 126,000
2003..................................... 126,000
Thereafter............................... 362,100
</TABLE>
F-13
<PAGE>
SCHEDULE TO CONSOLIDATED
FINANCIAL STATEMENTS
WIT CAPITAL GROUP, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
ASSETS
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
Long-term portion of capital lease obligation...... 30,666 30,666
Long-term portion of term debt..................... 28,037 36,851
Other liabilities.................................. 1,500 10,100
----------- ----------
Total liabilities................................ 394,126 762,302
----------- ----------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $.01 par value,
10,000,000 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, 6,500,000
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; 16,092,286 and
10,080,136 shares issued and outstanding at
December 31, 1998 and 1997, respectively.......... 160,923 100,801
Additional paid-in capital......................... 39,486,381 9,755,825
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-14
<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............................. 795,051 503,379 326,114
Depreciation and amortization......... 651,759 153,184 9,438
Data processing and communications.... 414,181 186,940 49,599
Professional services................. 407,943 86,478 255,574
Occupancy............................. 237,334 200,673 41,889
Other................................. 1,328,913 (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-15
<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................. -- 113,301 3,140,573 -- -- -- 3,253,874
Issuance of Series A
Preferred Stock....... 2,500 -- 497,500 -- -- -- 500,000
Repurchase and
retirement of Common
Stock................. -- (5,000) (495,000) -- -- -- (500,000)
Net loss............... -- -- -- (1,773,970) -- -- (1,773,970)
-------- -------- ----------- ------------ ----------- -------- -----------
STOCKHOLDERS' EQUITY,
December 31, 1996 ..... 2,500 108,301 3,143,073 (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 (5,000) -- -- -- -- --
Repurchase and
retirement of Common
Stock................. -- (2,500) (247,500) -- -- -- (250,000)
Net loss............... -- -- -- (2,992,581) -- -- (2,992,581)
-------- -------- ----------- ------------ ----------- -------- -----------
STOCKHOLDERS' EQUITY,
December 31, 1997 ..... 77,200 100,801 9,755,825 (4,766,551) -- (308,000) 4,859,275
Issuance of Common
Stock................. -- 2,622 261,329 -- -- -- 263,951
Issuance of Common
Stock for Note
Receivable............ -- 57,500 5,692,500 -- (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 $160,923 $39,486,381 $(13,560,441) $(5,750,000) $ -- $20,608,254
======== ======== =========== ============ =========== ======== ===========
</TABLE>
See Note to Condensed Financial Statements
F-16
<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
Noncash expenses.................... 1,522,901 -- --
Noncash expense reimbursement....... -- (750,000) --
Depreciation and amortization....... 651,759 153,184 9,438
(Increase) decrease in operating
assets--
Prepaid expenses.................... (139,584) (132,659) --
Other assets........................ (93,775) 30,141 (137,126)
Increase (decrease) in operating
liabilities--
Accounts payable and accrued
expenses........................... (350,762) (76,383) 761,068
Long-term portion of capital lease
obligation......................... -- 30,666 --
Other liabilities................... (8,600) (4,900) 15,000
----------- ----------- -----------
Net cash used in operating
activities....................... (7,094,846) (3,195,469) (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
Proceeds from long-term debt.......... -- 36,851 --
Payments on long-term debt............ (8,814) -- --
----------- ----------- -----------
Net cash provided by financing
activities....................... 24,330,405 5,108,803 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
investment in subsidiary............. $ -- $ -- $ 1,125,000
Issuance of Preferred 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-17
<PAGE>
WIT CAPITAL GROUP, INC.
(Parent Company Only)
NOTE TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM MARCH 27, 1996 (INCEPTION) TO DECEMBER 31, 1996
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-18
<PAGE>
Appendix A
SCRIPT OF AUDIO/VIDEO PRESENTATION OF WIT CAPITAL TO BE DISPLAYED AND
DELIVERED ONLINE
Upon receipt of a Rule 134 notice, users will be delivered to a special Web
site maintained by Wit Capital Corporation where they will be able to review
the prospectus including the related audio/video presentation. In addition,
the prospectus including the audio/video presentation will be available on Wit
Capital Corporation's regular Web site. On both Web sites, the audio/video
presentation will be directly linked to the other parts of the prospectus.
Thus, prospective investors will not be able to view the audio/video
presentation unless the entire prospectus has been delivered to them.
Visual:
Text on Screen: This audio/video presentation is part of our prospectus
dated May , 1999. This presentation is made in conjunction with such
prospectus and is qualified in its entirety by the written prospectus and
should be viewed in conjunction with the written prospectus. Prospective
investors should carefully consider the information set forth under the
heading of "Risk Factors" in the body of the prospectus.
Visual:
Left Frame: Image of Andrew D. Klein, Founder and Chief Strategist
Right Frame: Cover of the prospectus for this initial public offering
Accompanying Text:
Andrew Klein's presentation: Welcome to Wit Capital. I'm Andy Klein, founder
of the Company. This multi-media presentation is intended to supplement the
written prospectus that I hope you have carefully read. Internet investment
banking is our core business, and in what follows our main objective is to
demonstrate how we are using technology to open stock offerings and investment
research to individual investors.
Visual:
Left Frame: Image of Klein
Right Frame: Image of Robert H. Lessin, Ronald Readmond, Mark Loehr and
Jonathan Cohen
Andrew Klein's presentation (cont.): Our chairman and co-CEO Bob Lessin will
talk about how Wit Capital is using the Internet to change the way capital is
raised by aligning the interests of companies and individual shareholders.
Ronald Readmond, Wit Capital's co-CEO and President will discuss the three
important and distinct groups of customers to whom we market transactions.
Mark Loehr, our Director of Investment Banking, will explain our first-come,
first-served process for selling IPOs online. And finally, our research
director, Jonathan Cohen, will discuss further how Wit Capital is embracing
the Internet to facilitate our business.
Visual:
Left Frame: Image of Robert H. Lessin, Chairman and co-CEO
Right Frame: Slide showing Lessin's career path
Accompanying Text:
Robert Lessin's presentation: Hi. I am Bob Lessin, Chairman and co-CEO of
Wit Capital. I am a career investment banker and before joining Wit Capital, I
served as Vice Chairman of Salomon Smith Barney and ran the investment banking
operations at Smith Barney.
Visual:
Left Frame: Image of Lessin
Right Frame: Slide with Corporate Equities vs. Individual Assets
A number of years ago, I realized that there were inherent flaws in the
capital raising process, flaws which Wit Capital addresses. Individual
investors have been largely excluded from the capital raising process despite
A-1
<PAGE>
the fact that they account for a significant portion of the ownership of
equities in the secondary market. In addition, the distribution of shares has
been imbalanced. Major underwriters have reserved IPOs for a select population
of institutional purchasers and a limited number of high net worth
individuals. Moreover, the investors given access to IPOs have been selected
more for their value as good customers to the investment banking firms and
less because of the value they offer corporate issuers.
Visual:
Left frame: Image of Lessin
Right frame: Slide showing efficiencies as a result of Internet distribution
Because the internet provides an efficient distribution mechanism for
offering materials, it inherently changes the model for capital formation. The
costs associated with the mass distribution of offering materials and the
labor intensive nature of manual order taking has made individual investor
participation simply cost inefficient. By marketing offerings electronically,
Wit Capital is able to efficiently access the retail market both to market
deals and also to deliver research and other secondary market support once a
transaction has been sold to the public.
Visual:
Left frame: Image of Lessin
Right frame: Slide showing growth of Internet household penetration and e-
commerce
At Salomon Smith Barney, I also realized that the Internet was rapidly
becoming a critical medium for nearly all businesses. It is my belief that
companies will gravitate towards those investment banking firms that leverage
expertise in the Internet and in Internet business models. Wit Capital can
provide its clients with a valuable insight into the ways the Internet can
directly impact their businesses.
Visual:
Left frame: Image of Ronald Readmond, co-CEO and President
Right frame: Slide showing Readmond's career path
Accompanying Text:
Ronald Readmond's presentation: Hello, my name is Ron Readmond and I am the
co-CEO and President of Wit Capital. I joined Wit Capital in June 1998 after
having left Charles Schwab & Co. as Vice Chairman. Wit Capital is committed to
delivering high quality offerings to it base of members. Wit Capital has
access to three important groups of customers to whom we offer IPOs.
Visual:
Left frame: Image of Readmond
Right frame: Slide with the three groups defined
These groups include Wit Capital's direct customers, members of the affinity
groups of our issuers, and the customers of Wit Capital's e-Dealers.
Visual:
Left frame: Image of Readmond
Right frame: Slide with growth of the Wit Capital customer base over last 12-
month period.
Wit Capital's direct customer base has grown 750% from February 1998 to
February 1999, from 2,378 to 17,746 accounts. This is a result of two key
factors. First, our unique consumer proposition in terms of first come, first
serve access to IPOs, and, second, our ability to leverage issuer-related,
internet based affinity marketing programs.
Visual:
Left frame: Image of Readmond
Right frame: Slide with the affinity marketing program for Earthweb IPO
These affinity marketing programs allow Wit Capital to reach hundreds of
thousands - in some cases, millions - of prospective customers at little to no
cost as IPO alerts are distributed by email to lists provided by
A-2
<PAGE>
the issuer. The target audiences are typically the installed member bases of
the issuer. Respondents who submit their email address to review the online
offering documents are added to the Wit Capital database for future deal
marketing initiatives.
Visual:
Left frame: Image of Readmond
Right frame: Slide with pie chart representing market share of the e-
Dealer(TM) network relative to industry
The final group of individual investors to whom we are developing access is
the installed bases of the other online brokerage firms with whom we have e-
Dealer agreements. Through these agreements, Wit Capital will have the ability
to invite, on a first come first serve basis, the customers of our e-Dealers
to participate in our deals. We believe these firms in aggregate represented
approximately 29% of all online brokerage trades in the fourth quarter of
1999.
Through all of these outlets, Wit Capital, when it acts as e-Manager, will
be able to generate substantial retail demand for our public offerings.
Visual:
Left frame: Image of Mark Loehr, Head of Investment Banking
Right frame: Slide showing Loehr's career path
Accompanying Text:
Mark Loehr's presentation: Hello, my name is Mark Loehr and I am the
director of the investment banking activities at Wit Capital. I recently
joined Wit Capital after running a variety of investment banking activities at
both Salomon Smith Barney and CS First Boston. In contrast to the way
securities are offered by traditional underwriters, we offer and sell shares
in initial public offerings to individual investors on a first-come, first-
served basis.
Visual:
Left frame: Image of Loehr
Right frame: Slide with Rule 134 notice for MiningCo.com IPO
When Wit Capital is in an offering, we work with the issuer and the other
managing underwriters to structure the transaction and prepare the related
documents. Once the offering documents are finalized and the traditional road-
show commences, Wit Capital sends an IPO Alert which notifies online investors
that a new issue is available. This IPO Alert, which is sent by email,
contains a link to the digital version of the prospectus.
Visual:
Left frame: Image of Loehr
Right frame: Slide with Wit Capital Web page with online offering documents
for MiningCo.com IPO
Prospective investors must then submit their email address to gain access to
the prospectus.
Visual:
Left frame: Image of Loehr
Right frame: Slide with Wit Capital Web site with conditional offer page for
MiningCo.com IPO
Once they have received the documents, prospective purchasers may click to a
page where they may place a conditional offer assuming they are account
holders with Wit Capital or one of the e-Dealers where they are participating.
These orders are all time and date stamped to ensure the integrity of our
first-come, first-served process.
A-3
<PAGE>
Visual:
Left Frame: Image of Loehr
Right Frame: Slide with Wit Capital post-effective affirmation email and
order confirmation for MiningCo.com IPO
Then it comes time to price the deal and allocate shares. Once the SEC
declares the transaction effective, we send out another e-mail notice with a
hyperlink to a Web page. Investors must confirm their conditional offer if
they want to purchase. After pricing, the lead manager confirms the size of
our retention. We then allocate shares to investors having confirmed orders in
our order book. Our allocations are made on a first-come, first-served basis
with one important exception: if you have flipped shares in a prior deal, you
are generally precluded from participating in additional offerings.
Visual:
Left frame: Image of Jonathan Cohen, Director of Research
Right frame: Slide showing Cohen's career path
Accompanying Text:
Jonathan Cohen's presentation: Hi. I'm Jonathan Cohen, Director of Research.
I recently joined Wit Capital from Merrill Lynch where I was in charge of
Internet-related research. Our research effort at Wit Capital is built on the
premise that the Internet is profoundly changing the way all business is being
conducted. Wit Capital is no exception. We are aggressively utilizing the
Internet to distribute our products and services to our clients.
Visual:
Left frame: Image of Cohen
Right frame: Slide with Research Graphic
One of the critical products which we will be distributing is research. In
contrast to established research practices where high quality research is
closely held and shared principally with institutional clients, we intend to
distribute our research for free on our Web site to our direct customers as
well as to the customers of our partner companies including portals and our e-
Dealer network.
Distributing research is only one of the ways Wit Capital is embracing the
Internet economy.
Visual:
Left frame: Image of Cohen
Right frame: Slide showing fixed and variable cost
Wit Capital's business model has been explicitly built around the structure
of the Internet. In fact, every aspect of the Company's operating strategy is
predicated on the continued growth of the medium. The management of Wit
Capital has designed the company's business in accordance with those
principals that we believe characterize successful Internet-based businesses.
We believe that Internet-based companies are frequently characterized by a
high ratio of fixed costs as a proportion of their total cost structures. We
further believe that the most capital-intensive part of many Internet
businesses variable costs are related to sales and marketing. Those expenses
tend to decline sharply (as a percentage of revenues) after reaching a level
sufficient for an enterprise to gain some level of market prominence or
leadership.
A-4
<PAGE>
As an Internet company, we have made a significant investment in our fixed
cost structure and, in 1999 and thereafter, we will continue to expend
substantial resources for our infrastructure. As a result of our investment in
technology, and given that our customer acquisition model does not depend on
substantial sales and marketing costs, we expect our variable costs in
important aspects of our business will be lower than the variable costs of
traditional firms which rely on human brokers and physical branch offices.
A-5
<PAGE>
[Image of Wit Capital Web sites and accompanying text.]
<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
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Dilution................................................................. 16
Capitalization........................................................... 17
Selected Historical Financial Data....................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 23
Management............................................................... 33
Certain Transactions..................................................... 44
Principal Stockholders................................................... 46
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 53
Underwriting............................................................. 55
Legal Matters............................................................ 57
Experts.................................................................. 57
Where You Can Find More Information...................................... 58
Index to Consolidated Financial Statements............................... F-1
Appendix A--Script of Audio/Video Presentation........................... A-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Wit Capital Group, Inc.
[ ] Shares
Common Stock
-----------------
PROSPECTUS
-----------------
Bear, Stearns & Co. Inc.
Wit Capital Corporation
as e-Manager(TM)
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.................................................. *
NASD filing fee..................................................... 8,500
Blue Sky fees and expenses.......................................... *
Printing and Engraving Costs........................................ *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Transfer Agent and Registrar fees and expenses...................... *
Miscellaneous....................................................... 0
-------
Total............................................................. $ *
=======
</TABLE>
- --------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers.
Our Amended and Restated 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.
Section of the Underwriting Agreement, to be 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. Section
of 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 8,000,000 shares of 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.
1,000,000 shares of common stock for a purchase price of $10,000.
(3) On September 30, 1996, we issued 750,000 shares of our 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 1,334,377 shares of common
stock to accredited investors, including one of our directors, for $1.00
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 500,000 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 250,000 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 $1.00 per share. These
shares will be converted into 7,447,952 shares of 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 400,000 shares of 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 650,000 shares of 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 300,000
shares of our 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 500,000 shares of 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 5,750,000 shares of common stock at
$1.00 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 $1.00 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 50,000 shares of common stock for $1.00 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
2,304,982 shares of common stock upon consummation of this offering.
(12) From April 1998 to September 1998, we issued 203,650 shares of
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 5,902,750 shares of common stock upon consummation of this
offering.
(14) From December 8, 1998 through March 8, 1999, we issued 14,666,667
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 14,666,667 shares of common stock upon the consummation of
this offering.
(15) 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 may
use to purchase 1,250,000 shares of common stock subject to incremental
vesting. The shares will vest as follows: 78,125 shares will vest on June
30, 1999, 78,125 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 $1.50 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.
(16) On October 15, 1998, we issued warrants to purchase 125,000 shares
of common stock at $1.00 per share to a former employee in exchange for
125,000 options to purchase common stock previously granted to the
employee.
(17) From April 1996 to March 1999, we issued 1,123,800 warrants to
purchase common stock to nine investors for prices between $1.00-$2.50 per
share for providing consulting services.
II-2
<PAGE>
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.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 --Underwriting Agreement*
3.1 --Certificate of Incorporation of Wit Capital Group, Inc.
3.2 --Amended and Restated Certificate of Incorporation of Wit Capital
Group, Inc.*
3.3 --Bylaws of Wit Capital Group, Inc.
3.4 --Amended and Restated Bylaws of Wit Capital Group, Inc.*
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+
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.
+Confidential treatment will be requested with respect to this document.
(b) Financial Statement Schedules
II-3
<PAGE>
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 17th day of March, 1999.
Wit Capital Group, Inc.
By: /s/ Robert H. Lessin
_________________________________
Name:Robert H. Lessin
Title: Chairman of the Board and
Co-Chief Executive Officer
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert H. Lessin and Ronald Readmond, and each
of them, with full power to act without the other, such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement, any and all amendments
thereto (including post-effective amendments), any subsequent Registration
Statements pursuant to Rule 462 of the Securities Act of 1933, as amended, and
any amendments thereto and to file the same, with exhibits and schedules
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing necessary or desirable to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
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
Co-Chief Executive
/s/ Robert H. Lessin Officer and Director March 17, 1999
- ---------------------------------
Robert H. Lessin
Co-Chief Executive
/s/ Ronald Readmond Officer and Director March 17, 1999
- ---------------------------------
Ronald Readmond
/s/ Andrew D. Klein Director March 17, 1999
- ---------------------------------
Andrew D. Klein
/s/ John Fisher Director March 17, 1999
- ---------------------------------
John Fisher
/s/ Edward H. Fleischman Director March 17, 1999
- ---------------------------------
Edward H. Fleischman
II-5
<PAGE>
/s/ Steven M. Gluckstern Director March 17, 1999
- --------------------------------
Steven M. Gluckstern
/s/ Joseph R. Hardiman Director March 17, 1999
- --------------------------------
Joseph R. Hardiman
Director March 17, 1999
- --------------------------------
Gilbert C. Maurer
/s/ Adam Mizel Director March 17, 1999
- --------------------------------
Adam Mizel
/s/ M. Bernard Siegel Chief Financial Officer March 17, 1999
- --------------------------------
M. Bernard Siegel
II-6
<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>
EXHIBIT 3.3
-----------
================================================================================
BY-LAWS
OF
WIT CAPITAL GROUP, INC.
---------------
Incorporated under the Laws of the
State of Delaware
--------------
Adopted as of
July 2, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I Offices 1
ARTICLE II Meetings of Stockholders 1
Section 1 Place of Meetings 1
Section 2 Annual Meeting 1
Section 3 Special Meetings 1
Section 4 Notice of Meetings 2
Section 5 List of Stockholders 2
Section 6 Quorum 2
Section 7 Voting 2
Section 8 Proxies 3
Section 9 Action Without a Meeting 3
ARTICLE III Board of Directors 3
Section 1 Powers 3
Section 2 Election and Term 3
Section 3 Number 4
Section 4 Quorum and Manner of Acting 4
Section 5 Organization Meeting 4
Section 6 Regular Meetings 4
Section 7 Special Meetings; Notice 5
Section 8 Removal of Directors 5
Section 9 Resignations 5
Section 10 Vacancies 5
Section 11 Committees 5
Section 11A Executive Committee 5
Section 12 Compensation of Directors 6
Section 13 Action Without a Meeting 6
Section 14 Telephonic Participation in Meetings 7
ARTICLE IV Officers 7
Section 1 Principal Officers 7
Section 2 Election and Term of Office 7
Section 3 Other Officers 7
Section 4 Removal 7
i
<PAGE>
Section 5 Resignations 7
Section 6 Vacancies 8
Section 7 Chairman of the Board 8
Section 8 President and Chief Executive Officer 8
Section 9 Vice President 8
Section 10 Treasurer 8
Section 11 Secretary 8
Section 12 Salaries 9
ARTICLE V Indemnification of Officers and Directors 9
Section 1 Right of Indemnification 9
Section 2 Expenses 9
Section 3 Other Rights of Indemnification 9
ARTICLE VI Shares and Their Transfer 9
Section 1 Certificate for Stock 9
Section 2 Stock Certificate Signature 10
Section 3 Stock Ledger 10
Section 4 Cancellation 10
Section 5 Registrations of Transfers of Stock 10
Section 6 Regulations 10
Section 7 Lost, Stolen, Destroyed or Mutilated Certificates 11
Section 8 Record Dates 11
ARTICLE VII Miscellaneous Provisions 11
Section 1 Corporate Seal 11
Section 2 Voting of Stocks Owned by the Corporation 11
Section 3 Dividends 11
ARTICLE VIII Amendments 12
ii
<PAGE>
By-Laws
of
Wit Capital Group, Inc.
(a Delaware corporation)
__________
ARTICLE I
OFFICES
-------
The registered office of the Corporation in the State of Delaware
shall be located in the City of Wilmington, County of New Castle. The
Corporation may establish or discontinue, from time to time, such other offices
within or without the State of Delaware as may be deemed proper for the conduct
of the Corporation's business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. All meetings of stockholders shall be
--------- -----------------
held at such place or places, within or without the State of Delaware, as may
from time to time be fixed by the Board of Directors, or as shall be specified
in the respective notices, or waivers of notice, thereof.
Section 2. Annual Meeting. The annual meeting of stockholders for
--------- --------------
the election of Directors and the transaction of other business shall be held on
such date and at such place as may be designated by the Board of Directors. At
each annual meeting the stockholders entitled to vote shall elect a Board of
Directors and may transact such other proper business as may come before the
meeting.
Section 3. Special Meetings. A special meeting of the stockholders,
--------- ----------------
or of any class thereof entitled to vote, for any purpose or purposes, may be
called at any time by the Chairman of the Board, if any, the President, the
Chief Executive Officer, if any, or by order of the Board of Directors or the
Executive Committee thereof and shall be called by the Secretary upon the
written request of stockholders holding of record at least 50% of the
outstanding shares
<PAGE>
of stock of the Corporation entitled to vote at such meeting. Such written
request shall state the purpose or purposes for which such meeting is to be
called.
Section 4. Notice of Meetings. Except as otherwise provided by law,
--------- ------------------
written notice of each meeting of stockholders, whether annual or special,
stating the place, date and hour of the meeting shall be given not less than ten
days or more than sixty days before the date on which the meeting is to be held
to each stockholder of record entitled to vote thereat by delivering a notice
thereof to him personally or by mailing such notice in a postage prepaid
envelope directed to him at his address as it appears on the records of the
Corporation, unless he shall have filed with the Secretary of the Corporation a
written request that notices intended for him be directed to another address, in
which case such notice shall be directed to him at the address designated in
such request. Notice shall not be required to be given to any stockholder who
shall waive such notice in writing, whether prior to or after such meeting, or
who shall attend such meeting in person or by proxy unless such attendance is
for the express purpose of objecting, at the beginning of such meeting, to the
transactions of any business because the meeting is not lawfully called or
convened. Every notice of a special meeting of the stockholders, besides the
time and place of the meeting, shall state briefly the objects or purposes
thereof.
Section 5. List of Stockholders. It shall be the duty of the
--------- --------------------
Secretary or other officer of the Corporation who shall have charge of the stock
ledger to prepare and make, at least ten days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in his name. Such list shall be open to the
examination of any stock holder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
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. The list shall be kept and produced at
the time and place of the meeting during the whole time thereof and subject to
the inspection of any stockholder who may be present. The original or duplicate
ledger shall be the only evidence as to who are the stockholders entitled to
examine such list or the books of the Corporation or to vote in person or by
proxy at such meeting.
Section 6. Quorum. At each meeting of the stockholders, the holders
--------- ------
of record of a majority of the issued and outstanding stock of the Corporation
entitled to vote at such meeting, present in person or by proxy, shall
constitute a quorum for the transaction of business, except where otherwise
provided by law, the Certificate of Incorporation or these By-laws. In the
absence of a quorum, any officer entitled to preside at, or act as Secretary of,
such meeting shall have the power to adjourn the meeting from time to time until
a quorum shall be constituted.
Section 7. Voting. Every stockholder of record who is entitled to
--------- ------
vote shall at every meeting of the stockholders be entitled to one vote for each
share of stock held by him on the record date; except, however, that shares of
------ -------
its own stock belonging to the Corporation or to
2
<PAGE>
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held by the Corporation,
shall neither be entitled to vote nor counted for quorum purposes. Nothing in
this Section shall be construed as limiting the right of the Corporation to vote
its own stock held by it in a fiduciary capacity. At all meetings of the
stockholders, a quorum being present, all matters shall be decided by majority
vote of the shares of stock entitled to vote held by stockholders present in
person or by proxy, except as otherwise required by law or the Certificate of
Incorporation. Unless demanded by a stockholder of the Corporation present in
person or by proxy at any meeting of the stockholders and entitled to vote
thereat or so directed by the chairman of the meeting or required by law, the
vote thereat on any question need not be by written ballot. On a vote by written
ballot, each ballot shall be signed by the stockholder voting, or in his name by
his proxy, if there be such proxy, and shall state the number of shares voted by
him and the number of votes to which each share is entitled.
Section 8. Proxies. Each stockholder entitled to vote at a meeting
--------- -------
of stockholders or to express consent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy. A
proxy acting for any stockholder shall be duly appointed by an instrument in
writing subscribed by such stockholder. No proxy shall be valid after the
expiration of three years from the date thereof unless the proxy provides for a
longer period.
Section 9. Action Without a Meeting. Any action required to be taken
--------- ------------------------
at any annual or special meeting of stockholders or any action which may be
taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing
setting forth the action so taken shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. Powers. The business and affairs of the Corporation shall
--------- ------
be managed under the direction of the Board of Directors.
Section 2. Election and Term. Except as otherwise provided by law,
--------- -----------------
Directors shall be elected at the annual meeting of stockholders and shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualify, or until they sooner die, resign or are removed. At
each annual meeting of stockholders, at which a quorum is present, the persons
receiving a plurality of the votes cast shall be the Directors. Acceptance of
3
<PAGE>
the office of Director may be expressed orally or in writing, and attendance at
the organization meeting shall constitute such acceptance.
Section 3. Number. The number of Directors shall be such number as
--------- ------
determined from time to time by the Board of Directors, but shall be not less
than one (1) nor more than twelve (12), and initially shall be eleven (11).
Section 4. Quorum and Manner of Acting. Unless otherwise provided by
--------- ---------------------------
law, the presence of 50% of the whole Board of Directors shall be necessary to
constitute a quorum for the transaction of business. In the absence of a
quorum, a majority of the Directors present may adjourn the meeting from time to
time until a quorum shall be present. Notice of any adjourned meeting need not
be given. At all meetings of Directors, a quorum being present, all matters
shall be decided by the affirmative vote of a majority of the Directors present,
except as otherwise required by law. The Board of Directors may hold its
meetings at such place or places within or without the State of Delaware as the
Board of Directors may from time to time determine or as shall be specified in
the respective notices, or waivers of notice, thereof.
Section 5. Organization Meeting. Immediately after each annual
--------- --------------------
meeting of stockholders for the election of Directors the Board of Directors
shall meet at the place of the annual meeting of stockholders for the purpose of
organization, the election of officers and the transaction of other business.
Notice of such meeting need not be given. If such meeting is held at any other
time or place, notice thereof must be given as hereinafter provided for special
meetings of the Board of Directors, subject to the execution of a waiver of the
notice thereof signed by, or the attendance at such meeting of, all Directors
who may not have received such notice.
Section 6. Regular Meetings. Regular meetings of the Board of
--------- ----------------
Directors may be held at such place, within or without the State of Delaware, as
shall from time to time be determined by the Board of Directors. After there
has been such determination, and notice thereof has been once given to each
member of the Board of Directors as hereinafter provided for special meetings,
regular meetings may be held without further notice being given.
Section 7. Special Meetings; Notice. Special meetings of the Board
--------- ------------------------
of Directors shall be held whenever called by the Chairman of the Board, if any,
the President, the Chief Executive Officer, if any, or by any two Directors.
Notice of each such meeting shall be mailed to each Director, addressed to him
at his residence or usual place of business, at least three days before the date
on which the meeting is to be held, or shall be sent to him at such place by
telex or facsimile, or be delivered personally or by telephone, not later than
the day before the day on which such meeting is to be held. Each such notice
shall state the time and place of the meeting and, as may be required, the
purposes thereof. Notice of any meeting of the Board of Directors need not be
given to any Director if he shall sign a written waiver thereof either before or
after the time stated therein for such meeting, or if he shall be present at the
meeting. Unless limited by law, the Certificate of Incorporation, these By-laws
or the terms of the notice thereof, any and
4
<PAGE>
all business may be transacted at any meeting without the notice thereof having
specifically identified the matters to be acted upon.
Section 8. Removal of Directors. Any Director or the entire Board of
--------- --------------------
Directors may be removed, with or without cause, at any time, by action of the
holders of record of the majority of the issued and outstanding stock of the
Corporation (a) present in person or by proxy at a meeting of holders of such
stock and entitled to vote thereon or (b) by a consent in writing in the manner
contemplated in Section 9 of Article II, and the vacancy or vacancies in the
Board of Directors caused by any such removal may be filled by action of such a
majority at such meeting or at any subsequent meeting or by consent.
Section 9. Resignations. Any Director of the Corporation may resign
--------- ------------
at any time by giving written notice to the Chairman of the Board, if any, the
President, the Chief Executive Officer, if any, or the Secretary of the
Corporation. The resignation of any Director shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 10. Vacancies. Any newly created directorships and vacancies
---------- ---------
occurring in the Board by reason of death, resignation, retirement,
disqualification or removal, with or without cause, may be filled by a majority
of the directors then in office, although less than a quorum, and such Director
shall hold office until the next meeting of stockholders at which the election
of Directors is in the regular order of business, and until his successor has
been elected and qualifies, or until he sooner dies, resigns or is removed.
Section 11. Committees. The Board of Directors may, by resolution
---------- ----------
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
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 such committee. In the absence or disqualification of
a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting 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 absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, 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. Each committee shall
keep regular minutes and report to the Board of Directors when required.
Section 11A. Executive Committee.
----------- -------------------
5
<PAGE>
(a) Designation and Membership. The Board of Directors may, by
--------------------------
resolution passed by a majority of the whole Board of Directors, designate an
Executive Committee consisting of the President and such number of other
directors, not less than one, as the Board of Directors 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.
(b) Functions and Powers. 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 may 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 a majority of the
whole Board of Directors. At each meeting of the Board of Directors, the
Executive Committee shall make a report of all action taken by it since its last
report to the Board of Directors.
(c) Meetings, Quorum and Manner of Acting. The Executive Committee
-------------------------------------
shall meet annually immediately after the annual meeting of the Board of
Directors if necessary to elect officers not elected by the Board of Directors
and shall meet at such other times and as often as may be deemed necessary and
expedient and at such places as shall be determined by the Executive Committee.
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 12. 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
6
<PAGE>
from serving the Corporation or any parent or subsidiary corporation thereof in
any other capacity and receiving compensation therefor.
Section 13. Action Without a Meeting. Any action required or
---------- ------------------------
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if a written consent thereto is signed by all members of the
Board, and such written consent is filed with the minutes or proceedings of the
Board.
Section 14. Telephonic Participation in Meetings. Members of the
---------- ------------------------------------
Board of Directors may participate in a meeting of the Board 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.
ARTICLE IV
OFFICERS
--------
Section 1. Principal Officers. The Board of Directors shall elect a
--------- ------------------
President, a Secretary and a Treasurer, and may in addition elect a Chairman of
the Board, a Chief Executive Officer, one or more Vice Presidents and such other
officers as it deems fit; the President, the Secretary, the Treasurer, the
Chairman of the Board (if any), the Chief Executive Officer (if any) and the
Vice Presidents (if any) being the principal officers of the Corporation. One
person may hold, and perform the duties of, any two or more of said offices.
Section 2. Election and Term of Office. The principal officers of
--------- ---------------------------
the Corporation shall be elected annually by the Board of Directors at the
organization meeting thereof. Each such officer shall hold office until his
successor shall have been elected and shall qualify, or until his earlier death,
resignation or removal.
Section 3. Other Officers. In addition, the Board of Directors may
--------- --------------
elect such other officers as they deem fit. Any such other officers chosen by
the Board of Directors shall be subordinate officers and shall hold office for
such period, have such authority and perform such duties as the Board of
Directors or the Executive Committee, the Chairman of the Board, if any, or the
President or the Chief Executive Officer, if any, may from time to time
determine.
Section 4. Removal. Any officer may be removed, either with or
--------- -------
without cause, at any time, by resolution adopted by the Board of Directors at
any regular meeting of the Board, or at any special meeting of the Board or the
Executive Committee called for that purpose, at which a quorum is present.
Section 5. Resignations. Any officer may resign at any time by
--------- ------------
giving written notice to the Chairman of the Board, if any, the President, the
Chief Executive Officer, if any, the
7
<PAGE>
Secretary or the Board of Directors. Any such resignation shall take effect upon
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 6. Vacancies. A vacancy in any office may be filled for the
--------- ---------
unexpired portion of the term in the manner prescribed in these By-laws for
election or appointment to such office for such term.
Section 7. Chairman of the Board. The Chairman of the Board of
--------- ---------------------
Directors, if one has been elected, shall preside if present at all meetings of
the Board of Directors, and he shall have and perform such other duties as from
time to time may be assigned to him by the Board of Directors or the Executive
Committee.
Section 8. President and Chief Executive Officer. The President and
--------- -------------------------------------
the Chief Executive Officer, if any, shall be the president and chief executive
officer, respectively, of the Corporation and shall each have the general powers
and duties of supervision and management usually vested in such offices of a
corporation. The President shall preside at all meetings of the stockholders if
present thereat, and in the absence or non-election of the Chairman of the Board
of Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the Corporation. Except
as the Board of Directors shall authorize the execution thereof in some other
manner, the President or the Chief Executive Officer shall execute bonds,
mortgages, and other contracts on behalf of the Corporation, and shall cause the
seal to be affixed to any instrument requiring it.
Section 9. Vice President. Each Vice President, if any have been
--------- --------------
elected, shall have such powers and shall perform such duties as shall be
assigned to him by the President or the Chief Executive Officer, if any, or the
Board of Directors or the Executive Committee.
Section 10. Treasurer. The Treasurer shall have charge and custody
---------- ---------
of, and be responsible for, all funds and securities of the Corporation. He
shall exhibit at all reasonable times his books of account and records to any of
the Directors of the Corporation upon application during business hours at the
office of the Corporation where such books and records shall be kept; when
requested by the Board of Directors, he shall render a statement of the
condition of the finances of the Corporation at any meeting of the Board or at
the annual meeting of stockholders; he shall receive, and give receipt for,
moneys due and payable to the Corporation from any source whatsoever; in
general, he shall perform all the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the President,
the Chief Executive Officer, if any, or the Board of Directors or the Executive
Committee. The Treasurer shall give such bond, if any, for the faithful
discharge of his duties as the Board of Directors may require.
Section 11. Secretary. The Secretary, if present, shall act as
---------- ---------
secretary at all meetings of the Board of Directors and of the stockholders and
keep the minutes thereof in a
8
<PAGE>
book or books to be provided for that purpose; he shall see that all notices
required to be given by the Corporation are duly given and served; he shall have
charge of the stock records of the Corporation; he shall see that all reports,
statements and other documents required by law are properly kept and filed; and
in general he shall perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the
President, the Chief Executive Officer, if any, or the Board of Directors.
Section 12. Salaries. The salaries of the principal officers shall
---------- --------
be fixed from time to time by the Board of Directors or, if one has been
established, the Compensation Committee of the Board of Directors, and the
salaries of any other officers may be fixed by the President or the Chief
Executive Officer, if any.
ARTICLE V
INDEMNIFICATION OF OFFICERS AND DIRECTORS
-----------------------------------------
Section 1. Right of Indemnification. Every person now or hereafter
--------- ------------------------
serving as a Director or officer of the Corporation and every such Director or
officer serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, shall be indemnified by the Corporation in accordance with and
to the fullest extent permitted by law for the defense of, or in connection
with, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
Section 2. Expenses. Expenses (including attorneys' fees) incurred
--------- --------
in defending a civil, criminal, administrative, or investigative 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 such Director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article V.
Section 3. Other Rights of Indemnification. The right of
--------- -------------------------------
indemnification herein provided shall not be deemed exclusive of any other
rights to which any such Director or officer may now or hereafter be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his 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 or officer and shall inure to the benefit of the
heirs, executors and administrators of such person.
9
<PAGE>
ARTICLE VI
SHARES AND THEIR TRANSFER
-------------------------
Section 1. Certificate for Stock. Every stockholder of the
--------- ---------------------
Corporation shall be entitled to a certificate or certificates, to be in such
form as the Board of Directors shall prescribe, certifying the number of shares
of the capital stock of the Corporation owned by him. No certificate shall be
issued for partly paid shares.
Section 2. Stock Certificate Signature. The certificates for such
--------- ---------------------------
stock shall be numbered in the order in which they shall be issued and shall be
signed by the Chairman of the Board, if any, or the President or the Chief
Executive Officer, if any, or any Vice President and by the Secretary or an
Assistant Secretary or the Treasurer of the Corporation, and its seal shall be
affixed thereto. If such certificate is countersigned (1) by a transfer agent
other than the Corpora tion or its employee, or, (2) by a registrar other than
the Corporation or its employee, the signatures of such officers of the
Corporation may be facsimiles. In case any officer of the Corporation who has
signed, or whose facsimile signature has been placed upon, any such certifi
cate shall have ceased to be such officer before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such officer
at the date of issue.
Section 3. Stock Ledger. A record shall be kept by the Secretary or
--------- ------------
by any other officer, employee or agent designated by the Board of Directors of
the name of each person, firm or corporation holding capital stock of the
Corporation, the number of shares represented by, and the respective dates of,
each certificate for such capital stock, and in case of cancellation of any such
certificate, the respective dates of cancellation.
Section 4. Cancellation. Every certificate surrendered to the
--------- ------------
Corporation for exchange or registration of transfer shall be canceled, and no
new certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so canceled, except,
subject to Section 7 of this Article VI, in cases provided for by applicable
law.
Section 5. Registrations of Transfers of Stock. Registrations of
--------- -----------------------------------
transfers of shares of the capital stock of the Corporation shall be made on the
books of the Corporation by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the Corporation or with a transfer clerk or a transfer agent
appointed as in Section 6 of this Article VI provided, and on surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation, provided, however, that whenever any transfer of shares shall
-------- -------
be made for collateral security, and not absolutely, it shall be so expressed in
the entry of the transfer if, when the certificates are presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
10
<PAGE>
Section 6. Regulations. The Board of Directors may make such rules
--------- -----------
and regulations as it may deem expedient, not inconsistent with the Certificate
of Incorporation or these By- laws, concerning the issue, transfer and
registration of certificates for shares of the stock of the Corporation. It may
appoint, or authorize any principal officer or officers to appoint, one or more
transfer clerks or one or more transfer agents and one or more registrars, and
may require all certificates of stock to bear the signature or signatures of any
of them.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates. Before
--------- -------------------------------------------------
any certificates for stock of the Corporation shall be issued in exchange for
certificates which shall become mutilated or shall be lost, stolen or destroyed,
proper evidence of such loss, theft, mutilation or destruction shall be procured
for the Board of Directors, if it so requires.
Section 8. Record Dates. For the purpose of determining the
--------- ------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a date as a
record date for any such determination of stockholders. Such record date shall
not be more than sixty or less than ten days before the date of such meeting, or
more than sixty days prior to any other action.
ARTICLE VII
MISCELLANEOUS PROVISIONS
------------------------
Section 1. Corporate Seal. The Board of Directors shall provide a
--------- --------------
corporate seal, which shall be in such form as the Board of Directors may
decide. The Secretary shall be the custodian of the seal. The Board of
Directors may authorize a duplicate seal to be kept and used by any other
officer.
Section 2. Voting of Stocks Owned by the Corporation. The Board of
--------- -----------------------------------------
Directors may authorize any person on behalf of the Corporation to attend, vote
and grant proxies to be used at any meeting of stockholders of any corporation
(except the Corporation) in which the Corporation may hold stock.
Section 3. Dividends. Subject to the provisions of the Certificate
--------- ---------
of Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting declare dividends upon the capital
stock of the Corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the Corporation available
for dividends such sum or sums as the Directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for
11
<PAGE>
equalizing dividends or for such other purposes as the Board of Directors shall
deem conducive to the interests of the Corporation.
ARTICLE VIII
AMENDMENTS
----------
These By-laws of the Corporation may be altered, amended or repealed
by the Board of Directors at any regular or special meeting of the Board of
Directors or by the affirmative vote of the holders of record of a majority of
the issued and outstanding stock of the Corporation (i) present in person or by
proxy at a meeting of holders of such stock and entitled to vote thereon or (ii)
by a consent in writing in the manner contemplated in Section 9 of Article II,
provided, however, that notice of the proposed alteration, amendment or repeal
- -------- -------
is contained in the notice of such meeting. By-laws, whether made or altered by
the stockholders or by the Board of Directors, shall be subject to alteration or
repeal by the stockholders as in this Article VIII above provided.
* * *
12
<PAGE>
Exhibit 10.1
DRAFT 3/3/99
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 has been
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 on a particular date shall mean the last reported sale price per
share of Common Stock, regular way, on such date or, in case no such sale takes
place on such date, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed
<PAGE>
or admitted to trading on a national securities exchange or included for
quotation on the Nasdaq-National Market, or if the Common Stock is not so listed
or admitted to trading or included for quotation, the last quoted price, or if
the Common Stock is not so quoted, the average of the high bid and low asked
prices, regular way, in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or, if such
system is no longer in use, the principal other automated quotations system that
may then be in use or, if the Common Stock is not quoted by any such
organization, the average of the closing bid and asked prices, regular way, as
furnished by a professional market maker making a market in the Common Stock as
selected in good faith by the Administrator or by such other source or sources
as shall be selected in good faith by the Administrator. If, as the case may be,
the relevant date is not a trading day, the determination shall be made as of
the next preceding trading day. As used herein, the term "trading day" shall
mean a day on which public trading of securities occurs and is reported in the
principal consolidated reporting system referred to above, or if the Common
Stock is not listed or admitted to trading on a national securities exchange or
included for quotation on the Nasdaq-National Market, any business day.
(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.
-2-
<PAGE>
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.
(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 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 otherwise 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.
-3-
<PAGE>
(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 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
-4-
<PAGE>
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 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
-5-
<PAGE>
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.
(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:
---------------------
-6-
<PAGE>
Exhibit 10.2
DRAFT 3/9/99
WIT CAPITAL GROUP, INC.
ANNUAL BONUS PLAN FOR EXECUTIVES
1. Purpose; Effective Date. The purpose of this Wit Capital Group, Inc.
Annual Bonus Plan for Executives (this "Plan") is to provide incentive to the
Participants (as defined in Section 2(g)) to contribute to the profitability of
the Corporation (as defined in Section 2(e)) by offering variable incentive
compensation payable based on certain performance factors. The Plan is
effective as of March 1, 1999.
2. Definitions. For purposes of the Plan, the following definitions shall
apply:
(a) "Administrator" shall mean the committee as may be appointed by
the Board from time to time to administer the Plan or, if no such committee has
been appointed, the Board.
(b) "Award" shall mean a portion of the Award Pool allocated to a
Participant by the Administrator in accordance with Section 5.
(c) "Award Pool" shall mean the aggregate amount available for Awards
under the Plan with respect to a Performance Period, as determined by the
Administrator in accordance with Section 5.
(d) "Board" shall mean Board of Directors of Wit Capital Group, Inc.
(e) "Corporation" shall mean Wit Capital Group, Inc., and those
subsidiaries and affiliates thereof which elect to participate in the Plan with
the written approval of the Administrator.
(f) "Deferred Compensation Plan" shall mean the Wit Capital Group,
Inc. Deferred Compensation Plan, as amended from time to time, or any successor
plan.
(g) "Participant" shall mean an individual who participates in the
Plan pursuant to Section 4.
(h) "Performance Period" shall mean the fiscal year of Wit Capital
Group, Inc., or any other period as may be designated by the Administrator from
time to time.
(i) "Plan" shall mean this Wit Capital Group, Inc. Annual Bonus Plan
for Executives, as may be amended from time to time.
(j) "Stock Incentive Plan" shall mean the Wit Capital Group, Inc.
Stock Incentive Plan, as amended from time to time, or any successor plan.
3. Administration. The Administrator shall have the authority in its sole
and absolute discretion, subject to and not inconsistent with the express
provisions of this Plan, to administer this Plan and to exercise all the powers
and authorities which are specifically granted to it under this Plan or are
necessary or advisable in the administration of this Plan, including, without
limitation, the authority to: (a) grant Awards; (b) establish the terms,
conditions and restrictions relating to any Award; (c) construe and interpret
this Plan; (d) prescribe, amend and rescind rules and regulations relating to
this Plan; and (e) make all other determinations necessary or advisable, as
determined by the Administrator at its sole and absolute discretion, for the
administration of this Plan. The Administrator's determinations under the Plan
need not be uniform among similarly situated employees of the Corporation. All
actions taken,
<PAGE>
and all decisions and determinations made, by the Administrator on all matters
relating to the Plan pursuant to the powers vested in it under the Plan 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,
the Participants and persons claiming rights under this Plan from or through the
Participants.
4. Participation. Participation in the Plan with respect to a Performance
Period shall be open to (a) executive officers of Wit Capital Group, Inc., and
(b) such other key employees of the Corporation as selected by the
Administrator, in its sole and absolute discretion.
5. Determination of Award Pool and Awards.
(a) Award Pool Formula. The Administrator shall determine, in its
sole and absolute discretion, the formula for determining the Award Pool for
each Performance Period. Such formula shall be based upon one or more of the
following measures of the Corporation's financial performance, adjusted in such
manner as the Administrator shall determine in its sole and absolute discretion:
(i) pre-tax or after-tax return on equity; (ii) earnings per share; (iii) pre-
tax or after-tax net income; (iv) pre-tax operating income; (v) net revenues;
(vi) profits before taxes; (vii) book value per share; (viii) market price per
share; (ix) earnings available to common stockholders; and (x) net cash and
securities generated during the Performance Period by the Company's Investment
Banking Group to the extent allocated for distribution under this Plan as
provided in the Wit Capital Group, Inc. Investment Banking Bonus Pool.
(b) Award Pool Percentages. The Administrator shall determine, in its
sole and absolute discretion, the percentage of the Award Pool allocable to each
Participant for any Performance Period. The Administrator may, in its sole and
absolute discretion, make such formula subject to adjustment based on
achievement of performance goals for the Corporation, the Participants and/or
their teams, groups or departments.
(c) Determination of Amounts of Award Pool and Awards. As soon as
practicable after the Performance Period, the Administrator shall determined the
total amount of the Award Pool for the Performance Period and the amount of the
Award payable to each Participant for the Performance Period.
6. Payment; Deferral; Forfeiture.
(a) Payment of Awards. Awards shall be paid as soon as practicable
after the Administrator makes the determinations pursuant to Section 5(c) of
this Plan. Each Award shall be paid in cash provided, however, that, subject to
the terms of the Stock Incentive Plan and the approval of the administrator
thereof, the Administrator may determine, either before or after the last day of
any Performance Period, that all or a portion of any Award shall be paid by
awards under the Stock Incentive Plan which shall have a fair market value (as
determined by the Administrator at its sole and absolute discretion) on the date
of grant equal to the cash value of the Award. Such awards shall be subject to
such terms and conditions as shall be specified by the Administrator in
accordance with the Stock Incentive Plan.
(b) Deferral of Payment. Subject to the terms of the Deferred
Compensation Plan, a Participant may elect to defer receipt of part or all of
any payment due with respect to an Award. The terms and conditions for such
deferral (including but not limited to the eligibility to defer, the
requirements with respect to the election to defer, and the payment of the
deferred amounts and earnings thereon, if any) shall be as provided in the
Deferred Compensation Plan.
-2-
<PAGE>
(c) Forfeiture upon Termination of Employment. In the event a
Participant's employment with the Corporation is terminated for any reason
before the last day of the Performance Period, the Participant (and his estate
and other beneficiaries in the case of death) shall not be entitled to receive
payment of the Award with respect to such Performance Period.
7. General Provisions
(a) Withholding Taxes. The Corporation shall have the right, to the
extent permitted by law, to withhold from any payment of any kind due to a
Participant under the Plan to satisfy the tax-withholding obligations of the
Corporation under applicable law.
(b) Non-Guarantee of Employment. Nothing in the Plan shall confer any
right on any Participant or any other individual to continue in the employ of
the Corporation or shall interfere in any way with the right of the Corporation
to terminate such employment at any time with or without cause or notice.
(c) Non-Transferability. No benefit payable under, or interest in,
this Plan shall be transferable by a Participant, except by will or the laws of
descent and distribution, or otherwise be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge.
(d) Amendment and Termination of the Plan. Notwithstanding anything
herein to the contrary, the Board may terminate this Plan at any time or, from
time to time, amend, modify or suspend the Plan.
(e) Unfunded Status of Awards. The Plan is intended to constitute an
unfunded plan for incentive compensation. No Participant (or any other person)
shall have any right to any payment or any assets of the Corporation until such
time as the Participant receives payment of an Award hereunder.
(f) Governing Law. The validity, construction, and effect of the
Plan, any rules and regulations relating to the Plan, and any Award shall be
determined in accordance with the laws of the State of New York (without giving
effect to choice of law principles or rules thereof that would cause the
application of the laws of any jurisdiction other than the State of New York).
-3-
<PAGE>
EXHIBIT 10.3
DRAFT 3/9/99
WIT CAPITAL GROUP, INC.
INVESTMENT BANKING BONUS POOL
1. Purpose; Effective Date. The purpose of this Wit Capital Group, Inc.
Investment Banking Bonus Pool (this "Plan") is to provide incentive to the
Participants (as defined in Section 2(g)) to contribute to the profitability of
the Corporation (as defined in Section 2(e)) by offering variable incentive
compensation payable based on certain performance factors. The Plan is
effective as of March 1, 1999.
2. Definitions. For purposes of the Plan, the following definitions shall
apply:
(a) "Administrator" shall mean the committee as may be appointed by
the Board from time to time to administer the Plan or, if no such committee has
been appointed, the Board.
(b) "Award" shall mean a portion of the Award Pool allocated to a
Participant by the Administrator in accordance with Section 5.
(c) "Award Pool" shall mean the aggregate amount available for Awards
as determined by the Administrator in accordance with Section 5.
(d) "Board" shall mean Board of Directors of Wit Capital Group, Inc.
(e) "Corporation" shall mean Wit Capital Group, Inc., and those
subsidiaries and affiliates thereof which elect to participate in the Plan with
the written approval of the Administrator.
(f) "Deferred Compensation Plan" shall mean the Wit Capital Group,
Inc. Deferred Compensation Plan, as amended from time to time, or any successor
plan.
(g) "Participant" shall mean an individual eligible to participate in
the Plan pursuant to Section 4.
(h) "Investment Banking Group" shall mean, collectively, the
investment bankers, analysts and capital markets, institutional and other
traders of the Corporation.
(i) "Performance Period" shall mean the fiscal year of Wit Capital
Group, Inc., or any other 12-month period as may be designated by the
Administrator from time to time.
(j) "Plan" shall mean this Wit Capital Group, Inc. Investment Banking
Bonus Pool, as may be amended from time to time.
(k) "Stock Incentive Plan" shall mean the Wit Capital Group, Inc.
Stock Incentive Plan, as amended from time to time, or any successor plan.
3. Administration. The Administrator shall have the authority in its sole
and absolute discretion, subject to and not inconsistent with the express
provisions of this Plan, to administer this Plan and to exercise all the powers
and authorities which are specifically granted to it under this Plan or are
necessary or advisable in the administration of this Plan, including, without
limitation, the authority to: (a) grant Awards; (b) establish the terms,
conditions and restrictions relating to any Award; (c) construe and interpret
this Plan; (d) prescribe, amend and rescind rules and regulations relating to
this Plan; (e) determine the amount of the net cash and securities generated by
the Investment Banking Group for any
<PAGE>
Performance Period; and (f) make all other determinations necessary or
advisable, as determined by the Administrator, at its sole and absolute
discretion, for the administration of this Plan. The Administrator's
determinations under the Plan need not be uniform among similarly situated
employees of the Corporation. All actions taken, and all decisions and
determinations made, by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it under the Plan 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,
the Participants and persons claiming rights under this Plan from or through the
Participants.
4. Eligibility. Participation in the Plan with respect to a Performance
Period shall be open to any individual who has been selected by the
Administrator, at its sole and absolute discretion, to receive Awards for such
Performance Period.
5. Determination of Allocation Formula, Award Pool and Awards.
(a) Allocation Formula. The Administrator shall from time to time, at
its sole and absolute discretion, determine the formula for allocating a
percentage of the Award Pool to each Participant, subject to adjustment under
Section 5(c). As determined by the Administrator, a portion of the Award Pool
may be allocated to the Wit Capital Group, Inc. Annual Bonus Plan for Executives
for distribution to participants thereunder.
(b) Award Pool. Subject to adjustment under this Section 5(b), below,
the Award Pool shall be equal to 50% of the Corporation's net cash and
securities as generated during the Performance Period by the Investment Banking
Group. Such cash and securities shall be credited to the Award Pool on a
quarterly basis (each three-month period beginning on the first day of the
first, fourth, seventh and tenth month of the Performance Period).
Notwithstanding the foregoing, the Administrator may, in its sole and absolute
discretion, adjust or modify the calculation or determination of the Award Pool
at any time, in order to prevent dilution or enlargement of the rights of the
Participants, in recognition of any unusual or nonrecurring events affecting the
Corporation or the financial statements of the Corporation, or in response to
changes in applicable law, regulations, tax rates or accounting principles.
(c) Awards. As soon as practicable after each quarterly credit of
cash and securities to the Award Pool as provided in Section 5(b), the
Administrator shall allocate the Award Pool among the Participants in accordance
with the formula established by the Administrator under Section 5(a).
Notwithstanding anything in this Plan to the contrary, the Administrator may, at
its sole and absolute discretion, increase or decrease the allocation to any
Participant, by up to 20% of the pre-adjustment allocation, based on such
Participant's performance or any other factor or factors, whether subjective or
quantifiable, as determined by the Administrator at its sole and absolute
discretion; provided, however, that in no event shall the total cash and
securities allocated to the Participants with respect to any quarter exceeds
100% of the cash and securities credited to the Award Pool for that quarter.
6. Payment; Deferral; Forfeiture.
(a) Payment of Awards. Awards shall be paid as soon as practicable
after the Administrator makes the determinations pursuant to Section 5(c) of
this Plan. Each Award shall be paid in cash, in the securities credited to the
Award Pool, or in any combination of cash and such securities as determined by
the Administrator at its sole and absolute discretion, subject to the provisions
of this Section 6(a), below. If the portion of the Award Pool representing the
securities is paid, in whole or in part, in cash, the amount of any such payment
shall be equal to the fair market value of the securities represented by the
payment, as determined by the Administrator at its sole and absolute discretion.
-2-
<PAGE>
Subject to the terms of the Stock Incentive Plan and the approval of the
administrator thereof, the Administrator may determine at any time before the
payment of an Award that all or a portion of the Award shall be paid by awards
under the Stock Incentive Plan which shall have a fair market value (as
determined by the Administrator at its sole and absolute discretion) on the date
of grant equal to the cash value of the Award. Such awards shall be subject to
such terms and conditions as shall be specified by the Administrator in
accordance with the Stock Incentive Plan.
(b) Deferral of Payment. Subject to the terms of the Deferred
Compensation Plan, a Participant may elect to defer receipt of part or all of
any payment due with respect to an Award. The terms and conditions for such
deferral (including but not limited to the eligibility to defer, the
requirements with respect to the election to defer, and the payment of the
deferred amounts and earnings thereon, if any) shall be as provided in the
Deferred Compensation Plan.
(c) Forfeiture upon Termination of Employment. In the event a
Participant's employment with the Corporation is terminated for any reason
before the payment of an Award, the Participant (and his estate and other
beneficiaries in the case of death) shall not be entitled to receive payment of
the Award.
7. General Provisions.
(a) Withholding Taxes. The Corporation shall have the right, to the
extent permitted by law, to withhold from any payment of any kind due to a
Participant under the Plan to satisfy the tax-withholding obligations of the
Corporation under applicable law.
(b) Non-Guarantee of Employment. Nothing in the Plan shall confer any
right on any Participant or any other individual to continue in the employ of
the Corporation or shall interfere in any way with the right of the Corporation
to terminate such employment at any time with or without cause or notice.
(c) Non-Transferability. No benefit payable under, or interest in,
this Plan shall be transferable by a Participant, except by will or the laws of
descent and distribution, or otherwise be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge.
(d) Amendment and Termination of the Plan. Notwithstanding anything
herein to the contrary, the Board may terminate this Plan at any time or, from
time to time, amend, modify or suspend the Plan.
(e) Unfunded Status of Awards. The Plan is intended to constitute an
unfunded plan for incentive compensation. No Participant (or any other person)
shall have any right to any payment or any assets of the Corporation until such
time as the Participant receives payment of an Award hereunder.
(f) Governing Law. The validity, construction, and effect of the
Plan, any rules and regulations relating to the Plan, and any Award shall be
determined in accordance with the laws of the State of New York (without giving
effect to choice of law principles or rules thereof that would cause the
application of the laws of any jurisdiction other than the State of New York).
-3-
<PAGE>
Exhibit 10.4
DRAFT 3/3/99
WIT CAPITAL GROUP, INC.
LONG-TERM INCENTIVE PLAN
1. Purpose and Type of Awards. This long-term Incentive Plan (the "Plan")
has been established by Wit Capital Group, Inc. (the "Corporation"), effective
March 1, 1999, to attract and retain employees who contribute to the continued
growth, development and financial success of the Corporation. The Plan provides
for "Performance Awards" pursuant to Section 6(e) of the Wit Capital Group, Inc.
Stock Incentive Plan (the "Stock Incentive Plan").
2. Definitions.
(a) "Administrator" shall mean the committee appointed by the Board
from time to time to administer the Plan or, if no such committee has been
appointed, the Board.
(b) "Award" shall mean a Performance Award granted to a Participant as
set forth herein and in the Stock Incentive Plan.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and all regulations thereto.
(e) "Deferred Compensation Plan" shall mean the Wit Capital, Inc.
Deferred Compensation Plan, as amended from time to time, or any successor plan.
(f) "Participant" shall mean any employee of the Corporation or any
subsidiary of the Corporation selected by the Administrator to participate in
this Plan for a stipulated Performance Period.
(g) "Performance Award" shall mean a monetary award, award of a
specified number of Stock Units or shares of Stock, or combination thereof,
which the Administrator has determined has been earned and is payable for a
particular Performance Period.
(h) "Performance Goal" shall mean a goal established by the
Administrator for a Performance Period, based upon one or more of the
Performance Goal Factors and as otherwise specified and determined by the
Administrator.
(i) "Performance Goal Factors" shall mean, with respect to the
Corporation,: (i) net revenue or income, (ii) Stock price, (iii) return on
equity, (iv) earnings per share, (v) profits before taxes, (vi) operating
income, or (vii) any other factors as determined by the Administrator.
(j) "Performance Period" shall mean a period of time covering three
(3) fiscal years of the Corporation, as specified and determined by the
Administrator.
(k) "Stock" shall mean common stock of the Corporation, $.01 par value
per share.
<PAGE>
(l) "Stock Unit" shall mean a unit which represents one share of Stock
and which is valued by reference to, and is otherwise based upon, one share of
Stock. Stock Units shall not represent an actual ownership interest in Stock
and the Participant shall have no voting or other rights as a shareholder in
respect of the Stock Units, or any right to payment on account of cash dividends
or cash distributions in respect of the Stock.
(m) "Target Performance Award" shall mean a targeted award of a
specified amount of cash, a specified number of Stock Units or shares of Stock,
or any combination thereof, which may be earned and payable based upon the
Performance Goal for a particular Performance Period, all as determined by the
Administrator.
3. Administration. The Administrator shall have the authority in its sole
and absolute discretion, subject to and not inconsistent with the express
provisions of this Plan, to administer this Plan and to exercise all the powers
and authorities which are specifically granted to it under this Plan or are
necessary or advisable in the administration of this Plan, including, without
limitation, the authority to: (a) grant Awards; (b) establish the terms,
conditions and restrictions relating to any Award; (c) construe and interpret
this Plan; (d) prescribe, amend and rescind rules and regulations relating to
this Plan; and (e) make all other determinations necessary or advisable, as
determined by the Administrator, at its sole and absolute discretion, for the
administration of this Plan. The Administrator's determinations under the Plan
need not be uniform among similarly situated employees of the Corporation. All
actions taken, and all decisions and determinations made, by the Administrator
on all matters relating to the Plan pursuant to the powers vested in it under
the Plan 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, the Participants and persons claiming rights under this Plan
from or through the Participants.
4. Awards; Payment of Awards.
(a) As soon as reasonably practicable and with respect to each
Performance Period, the Administrator shall determine (i) the Participants in
the Plan for such Performance Period, (ii) the Performance Goal to be used for
the Target Performance Awards, (iii) the amount of cash and/or number of shares
of Stock or Stock Units subject to each Target Performance Award, and (iv) any
other material terms relating to Target Performance Awards.
(b) As soon as practicable after the end of each Performance Period,
the Administrator will determine whether the Performance Goal for the
Performance Period was met. The Administrator shall certify, in writing, that
the Performance Goal was satisfied.
(c) At the same time as the Administrator makes the certification
required by Section 4(b) or as soon thereafter as practicable, the Administrator
shall determine the Performance Award for each Participant. Such determination
may result in an increase or decrease in the amount payable based upon such
Participant's Target Performance Award, and shall be based upon such factors as
the Administrator shall determine in its sole discretion, including but not
limited to the Target Performance Award and the extent to which the Performance
Goal is achieved or exceeded, the level of responsibility a Participant has
within the Corporation, and the potential impact the Participant's actions have
on the long-term financial results of the Corporation. Participants who are not
employed with the Corporation at the end of the Performance Period shall not be
entitled to any Performance Award for that Performance Period.
-2-
<PAGE>
(d) Performance Awards shall be paid as soon as practicable after the
Administrator makes the determination described in Section 4(c). Stock Units
earned by a Participant as determined by the Administrator shall be paid in an
equal number of shares of Stock.
(e) Subject to the terms of the Deferred Compensation Plan, a
Participant may elect to defer receipt of part or all of any payment due with
respect to an Award. The terms and conditions for such deferral (including but
not limited to the eligibility to defer, the requirements with respect to the
election to defer, and the payment of the deferred amounts and earnings thereon,
if any) shall be as provided in the Deferred Compensation Plan.
(f) The Administrator shall have the authority to make such further
changes to a Participant's Target Performance Award, the Performance Goal or
other matters as it deems appropriate, as the result of unforeseen events or
otherwise, in the manner and to the extent determined by the Administrator in
its sole discretion.
5. General Provisions.
(a) Withholding Taxes. The Corporation shall have the right, to the
extent permitted by law, to withhold from any payment of any kind due to a
Participant under the Plan to satisfy the tax-withholding obligations of the
Corporation under applicable law.
(b) Non-Guarantee of Employment. Nothing in the Plan shall confer any
right on any Participant or any other individual to continue in the employ of
the Corporation or shall interfere in any way with the right of the Corporation
to terminate such employment at any time with or without cause or notice.
(c) Non-Transferability. No benefit payable under, or interest in,
this Plan shall be transferable by a Participant, except by will or the laws of
descent and distribution, or otherwise be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge.
(d) Amendment and Termination of the Plan. Notwithstanding anything
herein to the contrary, the Board may terminate this Plan at any time or, from
time to time, amend, modify or suspend the Plan.
(e) Unfunded Status of Awards. The Plan is intended to constitute an
unfunded plan for incentive compensation. No Participant (or any other person)
shall have any right to any payment or any assets of the Corporation until such
time as the Participant receives payment of an Award hereunder.
(f) Governing Law. The validity, construction, and effect of the
Plan, any rules and regulations relating to the Plan, and any Award shall be
determined in accordance with the laws of the State of New York (without giving
effect to choice of law principles or rules thereof that would cause the
application of the laws of any jurisdiction other than the State of New York).
-3-
<PAGE>
Exhibit 10.5
WIT CAPITAL GROUP, INC.
DEFERRED COMPENSATION PLAN
1. Purpose.
-------
This Plan is established by Wit Capital Group, Inc. to provide deferred
compensation for a select group of management and key employees. The Plan is an
unfunded plan that is not intended to be (i) subject to Parts 2, 3, or 4 of
Title I, Subtitle B of Employee Retirement Income Security Act of 1974
("ERISA"), or (ii) qualified under Section 401(a) of the Internal Revenue Code
("Code").
2. Definitions.
-----------
Unless a different meaning is plainly implied by the context, the following
terms as used in this Plan shall have the following meanings:
(a) "Account" or "Accounts" shall mean the bookkeeping reserve accounts
maintained by the Corporation pursuant to Section 4 with respect to each
Participant.
(b) "Administrator" shall mean the Board or by such committee or committees
as may be appointed by the Board from time to time to administer the Wit Capital
Group, Inc. Stock Incentive Plan (the Board, committee or committees hereinafter
referred to as the "Administrator").
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Bonus Plans" shall mean the Wit Capital Group, Inc. Long Term
Incentive Plan, the Wit Capital Group, Inc. Investment Banking Bonus Pool, or
the Wit Capital Group, Inc. Annual Bonus Plan for Executives.
(e) "Corporation" shall mean Wit Capital Group, Inc., a Delaware
corporation, or any successor corporation and any other company which adopts the
Plan subject to the approval of the Board.
(f) "Deferred Compensation" shall mean any amounts in cash or Stock Units
otherwise payable to a Participant under the Wit Capital Group, Inc. Long Term
Incentive Plan, the Wit Capital Group, Inc. Investment Banking Bonus Pool, or
the Wit Capital Group, Inc. Annual Bonus Plan for Executives which the
Participant elects to defer under this Plan in accordance with Section 3.
(g) "Effective Date" shall mean the effective date of this Plan, which
shall be March 1, 1999.
<PAGE>
(h) "Participant" shall mean an Eligible Employee (as defined in Section
3.1) who elects to participate in the Plan as provided in Section 3.2.
(i) "Plan" shall mean the Wit Capital Group, Inc. Deferred Compensation
Plan.
(j) "Stock" shall mean common stock of the Corporation, $.01 par value per
share.
(k) "Stock Units" shall mean a unit which represents one share of Stock and
which is valued by reference to, and is otherwise based upon, one share of
Stock. Participants shall have no voting or other rights as a shareholder in
respect of the Stock Units.
3. Eligibility and Participation.
-----------------------------
3.1 Eligibility. Eligibility for participation in the Plan shall be
-----------
limited to Eligible Employees. An employee is an Eligible Employee if the
following requirements are met:
(a) The employee is a participant in one or more of the Bonus Plans;
and
(b) The employee is determined by the Administrator, in its sole and
absolute discretion, to be a member of "a select group of
management or highly compensated employees" as those terms are
used in ERISA.
3.2 Participation. An Eligible Employee may elect to become a Participant
-------------
by obtaining, completing and delivering the appropriate deferral election form
to the Administrator. Participation in the Plan shall be effective as of the
date specified on the deferral election form.
3.3 Deferral Elections A Participant may make an election to defer
------------------
receipt of all or a portion of any payments he might earn or be awarded under
the Bonus Plans during a calendar year in an amount permitted by the deferral
election form. A Participant may make a new deferral election for any
subsequent calendar year by submitting a new election form in accordance with
the administrative rules of deferral elections established by the Administrator.
4. Deferred Compensation Accounts.
------------------------------
Deferred Compensation and investment credits shall be credited (or debited)
to a bookkeeping reserve account. Deferred Compensation shall be credited to
such accounts at the time payments are made under the Bonus Plans. Participants
shall be One Hundred Percent (100%) vested in their Accounts. A Participant's
Account may consist of the following sub-accounts:
(a) Cash Account - A sub-account which may be credited with cash payments
------------
earned pursuant to one or more of the Bonus Plans and deferred pursuant to a
deferral election form in accordance with Section 3. A Participant may invest
his Cash Account amongst the investment alternatives made available to
Participants from time to time by the Administrator. The
<PAGE>
Participant's Cash Account will be credited with investment credits equal to the
percentage return received on the Participant's investments.
(b) Stock Unit Account - A sub-account which may be credited with Stock
------------------
Units payable or earned pursuant to one or more of the Bonus Plans and deferred
pursuant to a deferral election form in accordance with Section 3. Any cash
dividends or cash distributions paid on Stock Units credited to a Participant's
Stock Unit Account shall be (i) credited to the Participant's Stock Unit
Account, (ii) credited with interest at such rate as may be determined from time
to time by the Administrator in its discretion until such time as the cash
amounts are deemed to be converted to Stock Units, and (iii) converted to Stock
Units via such methodology and at such time or times as the Administrator shall
determine in its discretion. Any in-kind dividends shall be credited to the
Participant's Stock Unit Account.
5. Distributions.
-------------
5.1 Amount of Distributions. A Participant or his beneficiary shall be
-----------------------
entitled to payment of the balance of the Participant's Account at the time
previously elected by the Participant under Section 5.2. Stock Units allocated
to the Participant's Stock Unit Account shall be paid in an equal number of
shares of Stock.
5.2 Timing and Form of Distributions. At the time the Eligible Employee
--------------------------------
elects to participate in the Plan, the Eligible Employee shall elect the timing
of distributions of Deferred Compensation and interest earned on cash and
dividend deferrals as listed on the deferral election form. A Participant may
elect to receive distributions in one of the available forms listed on the
deferral election form.
5.3 Distributions after Participant's Death. If a Participant dies before
---------------------------------------
full payment is made of amounts of Deferred Compensation and interest earned on
cash and dividend deferrals, the unpaid balance of Deferred Compensation and
interest earnings shall be paid, in the form previously elected by the
Participant, to the beneficiary or beneficiaries designated in writing by the
Participant on such forms as designated by the Administrator, or if no
designation shall have been made, to the estate of the Participant.
6. Administration.
--------------
6.1 Administrator. The Administrator shall administer, construe and
-------------
interpret this Plan and shall determine, subject to the provisions of this Plan,
the Eligible Employees who shall participate in the Plan from time to time and
the amount, if any, due a Participant (or the Participant's beneficiary) under
this Plan. The Administrator has full and sole power to establish, amend, or
waive rules and regulations for the Plan's administration. The Administrator
shall not be liable for any act done or determination made in good faith. In
carrying out its duties herein, the Administrator shall have discretionary
authority to exercise all powers and to make all determinations, consistent with
the terms of the Plan, in all matters entrusted to it, and its determinations
shall be given deference and shall be final and binding on all interested
parties.
<PAGE>
6.2 Delegation of Duties. The Administrator may, in its discretion,
--------------------
delegate its duties to an officer or employee, or a committee composed of
officers or employees, of the Corporation.
6.3 Adjustments to Stock Units, Accounts and the Plan. In the event of
-------------------------------------------------
changes in the 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 number, kind and price of shares represented
by the Stock Units allocated to Accounts under this Plan, and shall, in its
discretion and without the consent of the Participants, make any other
adjustments in the Accounts, including but not limited to reducing the number of
shares represented by the Stock Units or providing or mandating alternative
payment methods such as payment of the Accounts in cash or in shares of Stock or
other securities of the Corporation or of any other entity, or in any other
matters which relate to the Accounts 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 the Participants, the Administrator, in its sole discretion, may make any
modifications to any Accounts, including but not limited to cancellation,
forfeiture, surrender or other settlement of the Accounts in whole or in part,
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 Participants, adjustments in the terms and conditions of this Plan 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.
6.4 Claims Procedure.
----------------
(a) The Administrator shall be responsible for determining all claims
for payments under this Plan by Participants or their beneficiaries. Within 90
days after receiving a claim (or within up to 180 days, if special circumstances
require an extension of time and the claimant is so notified, including the
reason for the delay), the Administrator shall notify the Participant or
beneficiary of its decision if adverse to the claim. The Administrator shall
have full discretion to deny or grant a claim in whole or in part in accordance
with the terms of the Plan. If the decision is adverse to the claimant, the
Administrator shall advise him of the Plan provision involved, of any additional
information which he must provide to perfect his claim and why, and of his right
to request a review of the decision.
(b) A claimant may request a review of an adverse decision by written
request to the Administrator made within 60 days after receipt of the decision.
The claimant, or his attorney, may review pertinent documents and submit written
issues and comments.
<PAGE>
(c) Within 60 days after receiving a request for review (or within up
to 120 days, if special circumstances require an extension of time and the
claimant is so notified), the Administrator shall notify the claimant in writing
of (i) its decision, (ii) the reasons therefor, and (iii) the Plan provisions
upon which it is based.
(d) The Board may at any time alter the claims procedure set forth
above, so long as the revised claims procedure complies with the Employee
Retirement Income Security Act of 1974 and regulations issued thereunder.
7. Amendment or Termination of the Plan.
------------------------------------
The Board may amend this Plan from time to time in any respect, and may at
any time terminate the Plan in its entirety or as it applies to any Corporation;
provided, however, that a Participant's entitlement to benefits under this Plan
may not be terminated or reduced.
8. Miscellaneous.
-------------
8.1 Nonassignment. No amounts payable hereunder may be assigned, pledged,
-------------
mortgaged or hypothecated and, to the extent permitted by law, no such amounts
shall be subject to legal process or attachment for the payment of claims
against any person entitled to receive the same.
8.2. Unfunded Plan. This Plan is unfunded. The obligations of the
-------------
Corporation with respect to the compensation and amounts payable hereunder shall
be paid out of the Corporation's general assets and shall not be secured by any
form of trust, escrow or otherwise. The rights of a Participant, or
Participant's beneficiary, or estate, to benefits under the Plan shall be solely
those of an unsecured creditor of the Corporation. Any insurance policy or
other assets acquired by or held by the Corporation in connection with the
liabilities assumed by it pursuant to the Plan shall not be deemed to be held
under any trust for the benefit of a Participant, his beneficiary, or his
estate, or to be security for the performance of the obligations of the
Corporation but shall be, and remain, a general, unpledged, and unrestricted
asset of the Corporation.
8.3. Tax Treatment; Withholding. Nothing contained in this Plan, and no
--------------------------
action taken pursuant to its provisions, shall create or be construed to create
any right or expectation of any employee, Eligible Employee, Participant,
Participant's beneficiary or any other person entitled to any payment under this
Plan to any particular tax consequences with respect to any amounts deferred,
credited to Accounts or paid under this Plan. The Corporation may withhold from
any amounts payable under this Plan all income or employment taxes required to
be withheld therefrom pursuant to any law, governmental regulation or ruling.
In addition, the Corporation may, in its sole and absolute discretion, withhold
from a Participant's compensation any income or employment taxes required to be
withheld pursuant to any law governmental regulation or ruling with respect to
any benefit to which the Participant may be entitled under this Plan.
<PAGE>
8.4 Limitation of Rights. Nothing contained in this Plan shall be
--------------------
construed to:
(a) limit in any way the right of the Corporation to terminate an
Eligible Employee's employment at any time; or
(b) be evidence of any agreement or understanding, express or implied,
that the Corporation will employ an Eligible Employee in any particular position
or at any particular rate of remuneration.
8.5 Gender and Number. Wherever used herein the masculine shall be deemed
-----------------
to include the feminine and the singular shall be deemed to include the plural,
unless the context clearly indicates otherwise.
8.6 Severability. If any provision of this Plan is held invalid or
------------
unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof and this Plan shall be construed and enforced as if such
provision had not been included.
8.7 Corporation Obligations. Each Corporation shall be obligated to
-----------------------
pay benefits under this Plan to its Eligible Employees who are Participants and
no Corporation shall be obligated to fulfill the obligations of any other
Corporation under this Plan.
8.8 Governing Law. This Plan shall be construed, administered and
-------------
governed in all respects under and by the laws of the State of New York, except
to the extent New York law shall have been pre-empted by ERISA.
IN WITNESS WHEREOF, this Plan is executed this _ _ _ _ _ day of
_ _ _ _ _ _ _ 1999.
ATTEST: WIT CAPITAL GROUP, INC.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ By: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Date:_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into on
, 1999, between Wit Capital Group, Inc., a Delaware corporation
(the "Corporation"), and Ronald W. Readmond (the "Executive").
W I T N E S S E T H:
-------------------
The Corporation desires to continue to employ the Executive to have the
benefits of his expertise and knowledge. The Executive, in turn, desires to
continue employment with the Corporation. The parties, therefore, enter into
this Agreement to establish the terms and conditions of the Executive's
employment with the Corporation.
In consideration of the mutual covenants and representations contained in
this Agreement, the Corporation and the Executive agree as follows:
1. Employment of Executive; Duties. The Corporation agrees to employ the
-------------------------------
Executive, and the Executive agrees to be employed by the Corporation, as Co-
Chief Executive Officer for the period specified in Section 2 (the "Employment
Period"), subject to the terms and conditions of this Agreement. During the
Employment Period, the Executive shall have such duties and responsibilities
generally consistent with his position and such other duties not inconsistent
with his title and position as may be properly assigned to him by the
Corporation.
2. Employment Period. The Employment Period shall begin on the date first
-----------------
written above and shall continue for two (2) years and, unless terminated
earlier as provided in Section 6, shall be automatically renewed for one
additional twelve (12) month period.
3. Base Salary. During the Employment Period, the Corporation shall pay
-----------
the Executive a base salary which, as of the commencement of the Employment
Period, shall be at an annual rate of Two Hundred Fifty Thousand Dollars
($250,000). The base salary shall be payable in equal periodic installments
which are not less frequent than the periodic installments in effect for
salaries of other senior executives of the Corporation. The base salary shall
be subject to annual review for adjustments based on the policies of the
Corporation and the Executive's contributions to the business of the
Corporation.
4. Annual Bonus Plan, Long-Term Incentive Plan and other Bonus.
-----------------------------------------------------------
(a) During the Employment Period, the Executive shall be entitled to
participation in the Annual Bonus Plan for Executives at the senior executive
level.
(b) During the Employment Period, the Executive shall be entitled to
participation in the Long-Term Incentive Plan at the senior executive level.
(c) During the Employment Period, the Executive shall be entitled to a
Two Hundred Fifty Thousand Dollars ($250,000) guaranteed annual bonus
("Guaranteed Bonus").
<PAGE>
5. Benefits. In addition to and except for the matters governed by this
--------
Agreement, the Executive shall be entitled to: (i) employee benefits and
perquisites, including but not limited to pension, deferred compensation plans,
stock options, group life insurance, disability, sickness and accident insurance
and health benefits under such plans and programs as provided to other senior
executives of the Corporation from time to time; and (ii) paid vacation,
holidays, leave of absence and leave for illness and temporary disability in
accordance with the policies of the Corporation.
6. Termination.
-----------
6.1 Termination by the Corporation.
------------------------------
(a) The Corporation, by action of its Board of Directors ("Board"),
may terminate the Executive's employment under this Agreement without Cause (as
defined in Section 6.1(b)), at any time by giving notice thereof to the
Executive at least ninety (90) days before the effective date of such
termination. The Employment Period shall terminate as of the date of such
termination of employment.
(b) The Corporation, by action of its Board, may terminate the
Executive's employment under this Agreement for Cause at any time by notifying
the Executive of such termination. For all purposes of this Agreement, the
Employment Period shall end as of the date of such termination of employment.
"Cause" means the Executive's: (i) persistent and repeated refusal, failure or
neglect to perform the material duties of his employment under this Agreement
(other by reason of the Executive's physical or mental illness or impairment),
provided that such Cause shall be deemed to occur only after the Corporation
gave notice thereof to the Executive specifying in reasonable detail the conduct
constituting Cause, and the Executive failed to cure and correct his conduct
within thirty (30) days after such notice; (ii) committing any act of fraud or
embezzlement, provided that such Cause shall be deemed to occur only after the
Corporation gave notice thereof to the Executive specifying in reasonable detail
the instances of such conduct, and the Executive had the opportunity to be heard
at a meeting of the Board; (iii) breach of the Employee Non-Disclosure, Non-
Competition and Assignment of Inventions Agreement or of such other subsequent
agreements entered into during the Employment Period that results in a material
detriment to the Corporation; (iv) conviction of a felony (including pleading
guilty to a felony) or commitment of other acts causing or likely to cause a
material detriment to the reputation of the Corporation; or (v) habitual abuse
of alcohol or drugs.
6.2 Termination by the Executive. The Executive may terminate this
----------------------------
Agreement at any time, for any reason or for no reason at all, by giving notice
thereof to the Corporation at least ninety (90) days before the effective date
of such termination. The Employment Period shall terminate as of the date of
such termination of employment.
6.3 Severance Benefits.
------------------
(a) If the Executive's employment under this Agreement is terminated
before the end of the Employment Period by the Corporation without Cause or by
the Executive for Good Reason (as defined in Section 6.3(c)), the Corporation
shall pay the Executive a lump sum
<PAGE>
cash payment, within thirty (30) days of the date of such termination, equal to
the sum of: (i) the aggregate amount of the Executive's unpaid Base Salary,
payable at the annual rate in effect on the termination date, through the end of
the three (3) year Employment Period; (ii) an amount representing the
Executive's unpaid Annual Bonus amounts accrued through the date of termination;
and (iii) an amount representing the Executive's unpaid Guaranteed Bonus
prorated through date of termination.
(b) If the Executive's employment under this Agreement is terminated
by the Corporation for Cause, by the Executive without Good Reason or if the
Executive dies or becomes totally disabled (as defined in Section 6.4), the
Corporation shall only pay the Executive a lump sum cash payment within thirty
(30) days of the date of such termination, equal to the sum of: (i) Executive's
unpaid Base Salary earned to the termination date; (ii) an amount representing
the Executive's unpaid Annual Bonus amounts accrued through the date of
termination; and (iii) an amount representing the Executive's unpaid Guaranteed
Bonus prorated to date of termination.
(c) "Good Reason" means: (i) any material reduction in the Executive's
authority, duties or responsibilities; (ii) any material change in the
Executive's reporting lines or removal of the Executive from his principal
positions as of the beginning of the Employment Period (other than a promotion);
(iii) any material failure by the Corporation to pay or provide the compensation
and benefits under this Agreement; provided that, in each such event, the
Executive shall give the Corporation notice thereof which shall specify in
reasonable detail the circumstances constituting Good Reason, and there shall be
no Good Reason with respect to any such circumstances cured by the Corporation
within thirty (30) days after such notice.
(d) If the Executive is entitled to receive payments or other benefits
under this Agreement upon the termination of his employment with the
Corporation, the Executive hereby irrevocably waives the right to receive any
payments or other benefits under any other severance or similar plan maintained
by the Corporation ("Other Severance Plan"), provided, however, that if the
payments and other benefits provided under such Other Severance Plan exceed the
payments and other benefits under this Agreement, the Executive, in his sole
discretion, may elect to receive the payments and benefits under such Other
Severance Plan in lieu of the payments and benefits under this Agreement upon
his termination of employment.
6.4 Termination by Death or Disability. This Agreement shall terminate
----------------------------------
automatically upon the Executive's death. If the Corporation determines in good
faith that the Executive has a "total disability" (within the meaning of such
term or of a similar term as defined in the Corporation's long-term disability
plan as in effect from time to time), the Corporation may terminate his
employment under this Agreement by notifying the Executive thereof at least
thirty (30) days before the effective date of such termination.
7. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Corporation or, in the case of the Corporation, to the
Corporation's principal executive offices.
<PAGE>
8. Withholding Taxes. The Corporation shall have the right, to the extent
-----------------
permitted by law, to withhold from any payment of any kind due to the Executive
under this Agreement to satisfy the tax withholding obligations of the
Corporation under applicable law.
9. Binding Agreement. This Agreement shall be binding upon the Executive
-----------------
and the Corporation on and after the date of this Agreement. The rights and
obligations of the Corporation under this agreement shall inure to the benefit
of and shall be binding upon the Corporation and any successor of the
Corporation, and the benefits of this Agreement shall inure to the benefit of
the Executive's estate and beneficiaries in the event of the Executive's death.
The Corporation may assign this Agreement to any subsidiary, parent or
affiliate, without the consent of the Executive, and such assignment shall not,
in and of itself, constitute, a termination of employment under this Agreement.
10. Entire Agreement. This Agreement constitutes the entire understanding
----------------
of the Executive and the Corporation with respect to the subject matter hereof
and supersedes and voids any and all prior agreements or understandings, written
or oral, regarding the subject matter hereof. This Agreement may not be
changed, modified, or discharged orally, but only by an instrument in writing
signed by the parties.
11. Governing Law and Severability. This Agreement shall be governed by
------------------------------
the laws of the State of New York (without giving effect to choice of law
principles or rules thereof that would cause the application of the laws of any
jurisdiction other than the State of New York) and the invalidity or
unenforceability of any provisions hereof shall in no way affect the validity or
enforceability of any other provision. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability
without invalidating or affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
12. Arbitration. DISPUTES REGARDING THE EXECUTIVE'S EMPLOYMENT WITH THE
-----------
CORPORATION, INCLUDING, WITHOUT LIMITATION, ANY DISPUTE UNDER THIS AGREEMENT
WHICH CANNOT BE RESOLVED BY NEGOTIATIONS BETWEEN THE CORPORATION AND THE
EXECUTIVE, BUT EXCLUDING ANY DISPUTES REGARDING THE EXECUTIVE'S COMPLIANCE WITH
THE RESTRICTIONS OF THE EMPLOYEE NON-DISCLOSURE, NON-COMPETITION AND ASSIGNMENT
OF INVENTIONS AGREEMENT REFERRED TO IN SECTION 6.1 OF THIS AGREEMENT, SHALL BE
SUBMITTED TO, AND SOLELY DETERMINED BY, FINAL AND BINDING ARBITRATION CONDUCTED
BY JAMS/ENDISPUTE, INC.'S ARBITRATION RULES APPLICABLE TO EMPLOYMENT DISPUTES,
AND THE PARTIES AGREE TO BE BOUND BY THE FINAL AWARD OF THE ARBITRATOR IN ANY
SUCH PROCEEDING. THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE OF NEW YORK
WITH RESPECT TO THE INTERPRETATION OR ENFORCEMENT OF ANY MATTER RELATING TO THIS
AGREEMENT; IN ALL OTHER CASES THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE
SPECIFIED IN THE CORPORATION'S ALTERNATIVE DISPUTE RESOLUTION POLICY AS IN
EFFECT FROM TIME TO TIME
<PAGE>
(IF ANY). ARBITRATION MAY BE HELD IN NEW YORK, NEW YORK, OR SUCH OTHER PLACE AS
THE PARTIES HERETO MAY MUTUALLY AGREE, AND SHALL BE CONDUCTED SOLELY BY A FORMER
JUDGE. JUDGMENT UPON THE AWARD BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION THEREOF.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
WITNESS/ATTEST WIT CAPITAL GROUP, INC.
By:
- ------------------------------ -----------------------------
Title:
--------------------------
EXECUTIVE
- ----------------------------- ---------------------------------
Ronald W. Readmond
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into on
, 1999, between Wit Capital Group, Inc., a Delaware corporation
(the "Corporation"), and Andrew D. Klein (the "Executive").
W I T N E S S E T H:
-------------------
The Corporation desires to continue to employ the Executive to have the
benefits of his expertise and knowledge. The Executive, in turn, desires to
continue employment with the Corporation. The parties, therefore, enter into
this Agreement to establish the terms and conditions of the Executive's
employment with the Corporation.
In consideration of the mutual covenants and representations contained in
this Agreement, the Corporation and the Executive agree as follows:
1. Employment of Executive; Duties. The Corporation agrees to employ the
-------------------------------
Executive, and the Executive agrees to be employed by the Corporation, as Chief
Strategist for the period specified in Section 2 (the "Employment Period"),
subject to the terms and conditions of this Agreement. During the Employment
Period, the Executive shall have such duties and responsibilities generally
consistent with his position and such other duties not inconsistent with his
title and position as may be properly assigned to him by the Corporation.
2. Employment Period. The Employment Period shall begin on the date first
-----------------
written above and shall continue for two (2) years and, unless terminated
earlier as provided in Section 6, shall be automatically renewed for one
additional twelve (12) month period.
3. Base Salary. During the Employment Period, the Corporation shall pay
-----------
the Executive a base salary which, as of the commencement of the Employment
Period, shall be at an annual rate of Two Hundred Fifty Thousand Dollars
($250,000). The base salary shall be payable in equal periodic installments
which are not less frequent than the periodic installments in effect for
salaries of other senior executives of the Corporation. The base salary shall
be subject to annual review for adjustments based on the policies of the
Corporation and the Executive's contributions to the business of the
Corporation.
4. Annual Bonus and Long-Term Incentive Plans. During the Employment
------------------------------------------
Period, the Executive shall be entitled to participation in both the Annual
Bonus Plan for Executives and the Long-Term Incentive Plan at the senior
executive level.
5. Benefits. In addition to and except for the matters governed by this
--------
Agreement, the Executive shall be entitled to: (i) employee benefits and
perquisites, including but not limited to pension, deferred compensation plans,
stock options, group life insurance, disability, sickness and accident insurance
and health benefits under such plans and programs as provided to other senior
executives of the Corporation from time to time; and (ii) paid vacation,
holidays, leave of
<PAGE>
absence and leave for illness and temporary disability in accordance with the
policies of the Corporation.
6. Termination.
-----------
6.1 Termination by the Corporation.
------------------------------
(a) The Corporation, by action of its Board of Directors ("Board"),
may terminate the Executive's employment under this Agreement without Cause (as
defined in Section 6.1(b)), at any time by giving notice thereof to the
Executive at least ninety (90) days before the effective date of such
termination. The Employment Period shall terminate as of the date of such
termination of employment.
(b) The Corporation, by action of its Board, may terminate the
Executive's employment under this Agreement for Cause at any time by notifying
the Executive of such termination. For all purposes of this Agreement, the
Employment Period shall end as of the date of such termination of employment.
"Cause" means the Executive's: (i) persistent and repeated refusal, failure or
neglect to perform the material duties of his employment under this Agreement
(other by reason of the Executive's physical or mental illness or impairment),
provided that such Cause shall be deemed to occur only after the Corporation
gave notice thereof to the Executive specifying in reasonable detail the conduct
constituting Cause, and the Executive failed to cure and correct his conduct
within thirty (30) days after such notice; (ii) committing any act of fraud or
embezzlement, provided that such Cause shall be deemed to occur only after the
Corporation gave notice thereof to the Executive specifying in reasonable detail
the instances of such conduct, and the Executive had the opportunity to be heard
at a meeting of the Board; (iii) breach of the Employee Non-Disclosure, Non-
Competition and Assignment of Inventions Agreement or of such other subsequent
agreements entered into during the Employment Period that results in a material
detriment to the Corporation; (iv) conviction of a felony (including pleading
guilty to a felony) or commitment of other acts causing or likely to cause a
material detriment to the reputation of the Corporation; or (v) habitual abuse
of alcohol or drugs.
6.2 Termination by the Executive. The Executive may terminate this
----------------------------
Agreement at any time, for any reason or for no reason at all, by giving notice
thereof to the Corporation at least ninety (90) days before the effective date
of such termination. The Employment Period shall terminate as of the date of
such termination of employment.
6.3 Severance Benefits.
------------------
(a) If the Executive's employment under this Agreement is terminated
before the end of the Employment Period by the Corporation without Cause or by
the Executive for Good Reason (as defined in Section 6.3(c)), the Corporation
shall pay the Executive a lump sum cash payment, within thirty (30) days of the
date of such termination, equal to the sum of: (i) the aggregate amount of the
Executive's unpaid Base Salary, payable at the annual rate in effect on the
termination date, through the end of the three (3) year Employment Period; and
(ii) an amount representing the Executive's unpaid Annual Bonus amounts accrued
through the date of termination.
<PAGE>
(b) If the Executive's employment under this Agreement is terminated
by the Corporation for Cause, by the Executive without Good Reason or if the
Executive dies or becomes totally disabled (as defined in Section 6.4), the
Corporation shall only pay the Executive a lump sum cash payment within thirty
(30) days of the date of such termination, equal to the sum of: (i) Executive's
unpaid Base Salary earned to the termination date; and (ii) the Executive's
unpaid Annual Bonus amounts accrued to the date of termination.
(c) "Good Reason" means: (i) any material reduction in the Executive's
authority, duties or responsibilities; (ii) any material change in the
Executive's reporting lines or removal of the Executive from his principal
positions as of the beginning of the Employment Period (other than a promotion);
(iii) any material failure by the Corporation to pay or provide the compensation
and benefits under this Agreement; provided that, in each such event, the
Executive shall give the Corporation notice thereof which shall specify in
reasonable detail the circumstances constituting Good Reason, and there shall be
no Good Reason with respect to any such circumstances cured by the Corporation
within thirty (30) days after such notice.
(d) If the Executive is entitled to receive payments or other benefits
under this Agreement upon the termination of his employment with the
Corporation, the Executive hereby irrevocably waives the right to receive any
payments or other benefits under any other severance or similar plan maintained
by the Corporation ("Other Severance Plan"), provided, however, that if the
payments and other benefits provided under such Other Severance Plan exceed the
payments and other benefits under this Agreement, the Executive, in his sole
discretion, may elect to receive the payments and benefits under such Other
Severance Plan in lieu of the payments and benefits under this Agreement upon
his termination of employment.
6.4 Termination by Death or Disability. This Agreement shall terminate
----------------------------------
automatically upon the Executive's death. If the Corporation determines in good
faith that the Executive has a "total disability" (within the meaning of such
term or of a similar term as defined in the Corporation's long-term disability
plan as in effect from time to time), the Corporation may terminate his
employment under this Agreement by notifying the Executive thereof at least
thirty (30) days before the effective date of such termination.
7. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Corporation or, in the case of the Corporation, to the
Corporation's principal executive offices.
8. Withholding Taxes. The Corporation shall have the right, to the extent
-----------------
permitted by law, to withhold from any payment of any kind due to the Executive
under this Agreement to satisfy the tax withholding obligations of the
Corporation under applicable law.
9. Binding Agreement. This Agreement shall be binding upon the Executive
-----------------
and the Corporation on and after the date of this Agreement. The rights and
obligations of the Corporation under this agreement shall inure to the benefit
of and shall be binding upon the Corporation and any successor of the
Corporation, and the benefits of this Agreement shall inure to the benefit of
the Executive's estate and beneficiaries in the event of the Executive's death.
<PAGE>
The Corporation may assign this Agreement to any subsidiary, parent or
affiliate, without the consent of the Executive, and such assignment shall not,
in and of itself, constitute, a termination of employment under this Agreement.
10. Entire Agreement. This Agreement constitutes the entire understanding
----------------
of the Executive and the Corporation with respect to the subject matter hereof
and supersedes and voids any and all prior agreements or understandings, written
or oral, regarding the subject matter hereof. This Agreement may not be
changed, modified, or discharged orally, but only by an instrument in writing
signed by the parties.
11. Governing Law and Severability. This Agreement shall be governed by
------------------------------
the laws of the State of New York (without giving effect to choice of law
principles or rules thereof that would cause the application of the laws of any
jurisdiction other than the State of New York) and the invalidity or
unenforceability of any provisions hereof shall in no way affect the validity or
enforceability of any other provision. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability
without invalidating or affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
12. Arbitration. DISPUTES REGARDING THE EXECUTIVE'S EMPLOYMENT WITH THE
-----------
CORPORATION, INCLUDING, WITHOUT LIMITATION, ANY DISPUTE UNDER THIS AGREEMENT
WHICH CANNOT BE RESOLVED BY NEGOTIATIONS BETWEEN THE CORPORATION AND THE
EXECUTIVE, BUT EXCLUDING ANY DISPUTES REGARDING THE EXECUTIVE'S COMPLIANCE WITH
THE RESTRICTIONS OF THE EMPLOYEE NON-DISCLOSURE, NON-COMPETITION AND ASSIGNMENT
OF INVENTIONS AGREEMENT REFERRED TO IN SECTION 6.1 OF THIS AGREEMENT, SHALL BE
SUBMITTED TO, AND SOLELY DETERMINED BY, FINAL AND BINDING ARBITRATION CONDUCTED
BY JAMS/ENDISPUTE, INC.'S ARBITRATION RULES APPLICABLE TO EMPLOYMENT DISPUTES,
AND THE PARTIES AGREE TO BE BOUND BY THE FINAL AWARD OF THE ARBITRATOR IN ANY
SUCH PROCEEDING. THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE OF NEW YORK
WITH RESPECT TO THE INTERPRETATION OR ENFORCEMENT OF ANY MATTER RELATING TO THIS
AGREEMENT; IN ALL OTHER CASES THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE
SPECIFIED IN THE CORPORATION'S ALTERNATIVE DISPUTE RESOLUTION POLICY AS IN
EFFECT FROM TIME TO TIME (IF ANY). ARBITRATION MAY BE HELD IN NEW YORK, NEW
YORK, OR SUCH OTHER PLACE AS THE PARTIES HERETO MAY MUTUALLY AGREE, AND SHALL BE
CONDUCTED SOLELY BY A FORMER JUDGE. JUDGMENT UPON THE AWARD BY THE ARBITRATOR
MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
WITNESS/ATTEST WIT CAPITAL GROUP, INC.
By:
- --------------------------- ---------------------------
Title:
------------------------
EXECUTIVE
- --------------------------- -------------------------------
Andrew D. Klein
<PAGE>
Exhibit 10.9
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into effective as of
March 8, 1999, between Wit Capital Group, Inc., a Delaware corporation (the
"Corporation"), and Mark F. Loehr (the "Executive").
W I T N E S S E T H:
-------------------
The Corporation and the Executive entered into a Letter Agreement dated
March 5, 1999 which set forth the terms and conditions of the Executive's
employment by the Corporation commencing on March 8, 1999. The parties desire
to amend and restate the employment arrangement so that the format is consistent
with Employment Agreements currently being used by the Corporation in connection
with the employment of other executives.
The Corporation desires to employ the Executive to have the benefits of his
expertise and knowledge. The Executive, in turn, desires employment with the
Corporation. The parties, therefore, enter into this Agreement to establish the
terms and conditions of the Executive's employment with the Corporation.
In consideration of the mutual covenants and representations contained in
this Agreement, the Corporation and the Executive agree as follows:
1. Employment of Executive; Duties.
-------------------------------
The Corporation agrees to employ the Executive, and the Executive
agrees to be employed by the Corporation, as Managing Director, Investment
Banking Capital Markets and Trading, for the period specified in Section 2 (the
"Employment Period"), subject to the terms and conditions of this Agreement.
During the Employment Period, the Executive shall have such duties and
responsibilities generally consistent with his position and such other duties
not inconsistent with his title and position as may be properly assigned to him
by the Corporation. In particular, the Executive will be responsible for all
capital market activities, including investment banking syndicate, institutional
sales and trading and the coordination of the investment banking and research.
2. Employment Period. The Employment Period shall begin on the date
-----------------
first written above and shall continue for three (3) years.
3. Base Salary. During the Employment Period, the Corporation shall pay
-----------
the Executive a minimum annual base salary of Two Hundred Thousand Dollars
($200,000). The base salary shall be payable in equal periodic installments
which are not less frequent than the periodic installments in effect for
salaries of other senior executives of the Corporation. The base salary shall
be subject to annual review by the Board of Directors ("Board") (or a committee
appointed by the Board) for upward adjustments based on the policies of the
Corporation and the Executive's contributions to the business of the
Corporation.
<PAGE>
4. Investment Banking Bonus Pool; Long-Term Incentive Plan. During the
-------------------------------------------------------
Employment Period, the Executive shall be entitled to participation at the
senior executive level in both the Investment Banking Bonus Pool and the Long-
Term Incentive Plan.
5. Benefits. In addition to and except for the matters governed by this
--------
Agreement, the Executive shall be entitled to: (i) employee benefits and
perquisites, including but not limited to pension, deferred compensation plans,
stock options, group life insurance, disability, sickness and accident insurance
and health benefits under such plans and programs as provided to other senior
executives of the Corporation from time to time; and (ii) paid vacation as well
as holidays, leave of absence and leave for illness and temporary disability in
accordance with the policies of the Corporation.
6. Stock Purchase.
--------------
The Executive shall have the right to purchase One Million Two Hundred
Fifty Thousand (1,250,000) shares of the Common Stock of the Corporation in
accordance with the Stock Purchase Agreement attached hereto as Exhibit I.
7. Non-Disclosure; Non-Competition.
-------------------------------
As a condition to the employment arrangement, Executive agrees to
execute and comply with the terms and conditions of the "Wit Capital Group, Inc.
Employee Non-Disclosure, Non-Competition and Assignment of Inventions Agreement"
attached hereto as Exhibit II.
8. Termination by the Corporation.
------------------------------
(a) The Corporation, by action of its Board, may terminate the
Executive's employment under this Agreement without Cause (as defined in Section
8.1(b)), at any time by giving notice thereof to the Executive at least ninety
(90) days before the effective date of such termination. The Employment Period
shall terminate as of the date of such termination of employment.
(b) The Corporation, by action of its Board, may terminate the
Executive's employment under this Agreement for Cause at any time by notifying
the Executive of such termination. For all purposes of this Agreement, the
Employment Period shall end as of the date of such termination of employment.
"Cause" means the Executive's: (i) persistent and repeated refusal, failure or
neglect to perform the material duties of his employment under this Agreement
(other than by reason of the Executive's physical or mental illness or
impairment), provided that such Cause shall be deemed to occur only after the
Corporation gave notice thereof to the Executive specifying in reasonable detail
the conduct constituting Cause, and the Executive failed to cure and correct his
conduct within thirty (30) days after such notice; (ii) committing any act of
fraud or embezzlement, provided that such Cause shall be deemed to occur only
after the Corporation gave notice thereof to the Executive specifying in
reasonable detail the instances of such conduct, and the Executive had the
opportunity to be heard at a meeting of the Board; (iii) breach of the Employee
Non-Disclosure, Non-Competition and Assignment of Inventions Agreement or of
such other subsequent agreements entered into during the Employment Period that
results in a material detriment to the Corporation; (iv) conviction of a felony
(including pleading guilty to a felony); or (v) habitual abuse of alcohol or
drugs.
2
<PAGE>
8.1 Termination by the Executive. The Executive may terminate this
----------------------------
Agreement at any time, for any reason or for no reason at all, by giving notice
thereof to the Corporation at least ninety (90) days before the effective date
of such termination. The Employment Period shall terminate as of the date of
such termination of employment.
8.2 Severance Benefits.
------------------
(a) If the Executive's employment under this Agreement is terminated
before the end of the Employment Period by the Corporation without Cause or by
the Executive for Good Reason (as defined in Section 8.3(c)), the Corporation
shall continue to pay to the Executive his unpaid Base Salary through the end of
the three (3) year Employment Period. Additionally, the Executive shall be
entitled to his share of the unpaid Investment Banking Bonus Pool accrued
through the date of termination which shall be paid to him at such time as the
next payment is made to the other participants of the Investment Banking Bonus
Pool.
(b) If the Executive's employment under this Agreement is terminated
by the Corporation for Cause, by the Executive without Good Reason or if the
Executive dies or becomes totally disabled (as defined in Section 8.4), the
Corporation shall only pay the Executive a lump sum cash payment within thirty
(30) days of the date of such termination, equal to the sum of: (i) Executive's
unpaid Base Salary earned to the termination date; (ii) an amount representing
the Executive's unpaid Annual Bonus amounts accrued through the date of
termination; and (iii) an amount representing the Executive's unpaid Guaranteed
Bonus prorated to date of termination.
(c) "Good Reason" means: (i) any material reduction in the Executive's
authority, duties or responsibilities; (ii) any material change in the
Executive's reporting lines or removal of the Executive from his principal
positions as of the beginning of the Employment Period (other than a promotion);
or (iii) any material failure by the Corporation to pay or provide the
compensation and benefits under this Agreement; provided that, in each such
event, the Executive shall give the Corporation notice thereof which shall
specify in reasonable detail the circumstances constituting Good Reason, and
there shall be no Good Reason with respect to any such circumstances cured by
the Corporation within thirty (30) days after such notice.
(d) If the Executive is entitled to receive payments or other benefits
under this Agreement upon the termination of his employment with the
Corporation, the Executive hereby irrevocably waives the right to receive any
payments or other benefits under any other severance or similar plan maintained
by the Corporation ("Other Severance Plan"), provided, however, that if the
payments and other benefits provided under such Other Severance Plan exceed the
payments and other benefits under this Agreement, the Executive, in his sole
discretion, may elect to receive the payments and benefits under such Other
Severance Plan in lieu of the payments and benefits under this Agreement upon
his termination of employment.
8.3 Termination by Death or Disability. This Agreement shall terminate
----------------------------------
automatically upon the Executive's death. If the Corporation determines in good
faith that the Executive has a "total disability" (within the meaning of such
term or of a similar term as defined in the Corporation's long-term disability
plan as in effect from time to time), the Corporation
3
<PAGE>
may terminate his employment under this Agreement by notifying the Executive
thereof at least thirty (30) days before the effective date of such termination.
9. Representation by Executive. The Executive represents and warrants to
---------------------------
the Company that his employment hereunder will not conflict with or result in a
violation or breach of, or constitute a default under any contract, agreement or
understanding to which he is or was a party.
10. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Corporation or, in the case of the Corporation, to the
Corporation's principal executive offices.
11. Withholding Taxes. The Corporation shall have the right, to the
-----------------
extent permitted by law, to withhold from any payment of any kind due to the
Executive under this Agreement to satisfy the tax withholding obligations of the
Corporation under applicable law.
12. Binding Agreement. This Agreement shall be binding upon the Executive
-----------------
and the Corporation on and after the date of this Agreement. The rights and
obligations of the Corporation under this agreement shall inure to the benefit
of and shall be binding upon the Corporation and any successor of the
Corporation, and the benefits of this Agreement shall inure to the benefit of
the Executive's estate and beneficiaries in the event of the Executive's death.
The Corporation may assign this Agreement to any subsidiary, parent or
affiliate, without the consent of the Executive, and such assignment shall not,
in and of itself, constitute a termination of employment under this Agreement.
13. Entire Agreement. This Agreement constitutes the entire understanding
----------------
of the Executive and the Corporation with respect to the subject matter hereof
and supersedes and voids any and all prior agreements or understandings, written
or oral, regarding the subject matter hereof. This Agreement may not be
changed, modified, or discharged orally, but only by an instrument in writing
signed by the parties.
14. Governing Law and Severability. This Agreement shall be governed by
------------------------------
the laws of the State of New York (without giving effect to choice of law
principles or rules thereof that would cause the application of the laws of any
jurisdiction other than the State of New York) and the invalidity or
unenforceability of any provisions hereof shall in no way affect the validity or
enforceability of any other provision. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability
without invalidating or affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
15. Arbitration. DISPUTES REGARDING THE EXECUTIVE'S EMPLOYMENT WITH THE
-----------
CORPORATION, INCLUDING, WITHOUT LIMITATION, ANY DISPUTE UNDER THIS AGREEMENT
WHICH CANNOT BE RESOLVED BY NEGOTIATIONS BETWEEN THE CORPORATION AND THE
EXECUTIVE, BUT EXCLUDING ANY DISPUTES REGARDING THE EXECUTIVE'S COMPLIANCE WITH
THE RESTRICTIONS
4
<PAGE>
OF THE EMPLOYEE NON-DISCLOSURE, NON-COMPETITION AND ASSIGNMENT OF INVENTIONS
AGREEMENT REFERRED TO IN SECTION 7 OF THIS AGREEMENT, SHALL BE SUBMITTED TO, AND
SOLELY DETERMINED BY, FINAL AND BINDING ARBITRATION CONDUCTED BY JAMS/ENDISPUTE,
INC.'S ARBITRATION RULES APPLICABLE TO EMPLOYMENT DISPUTES, AND THE PARTIES
AGREE TO BE BOUND BY THE FINAL AWARD OF THE ARBITRATOR IN ANY SUCH PROCEEDING.
THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE OF NEW YORK WITH RESPECT TO THE
INTERPRETATION OR ENFORCEMENT OF ANY MATTER RELATING TO THIS AGREEMENT; IN ALL
OTHER CASES THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE SPECIFIED IN THE
CORPORATION'S ALTERNATIVE DISPUTE RESOLUTION POLICY AS IN EFFECT FROM TIME TO
TIME (IF ANY). ARBITRATION MAY BE HELD IN NEW YORK, NEW YORK, OR SUCH OTHER
PLACE AS THE PARTIES HERETO MAY MUTUALLY AGREE, AND SHALL BE CONDUCTED SOLELY BY
A FORMER JUDGE. JUDGMENT UPON THE AWARD BY THE ARBITRATOR MAY BE ENTERED IN ANY
COURT HAVING JURISDICTION THEREOF.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
WITNESS/ATTEST WIT CAPITAL GROUP, INC.
By:
- ------------------------- ---------------------------
Ronald W. Readmond,
Co-Chief Executive Officer
EXECUTIVE
- ------------------------- ------------------------------
Mark F. Loehr
5
<PAGE>
Exhibit I
---------
STOCK PURCHASE AGREEMENT
with Schedule A (Partial Recourse Note)
and Schedule B (Pledge Agreement)
6
<PAGE>
Exhibit II
----------
WIT CAPITAL GROUP, INC.
EMPLOYEE NON-DISCLOSURE, NON-COMPETITION
AND ASSIGNMENT OF INVENTIONS AGREEMENT
7
<PAGE>
EXHIBIT 10.10
Dr. Everett F. Lang
5 Michele Court
Allendale, NJ 07401
EMPLOYMENT TERMS
----------------
February 12, 1999
Dear Everett:
Set forth below are the terms of employment we are willing to offer.
These terms contemplate that the digital stock market (the "DSM") will be
contributed to a subsidiary company ("Newco") which will have its own capital
and capital structure and which, in all likelihood, will take on additional
shareholders. These terms are being offered by Wit Capital Group, Inc. ("Wit
Capital") with the covenants that (i) all consideration payable hereunder is and
shall be guaranteed by Wit Capital, and (ii) in the event Newco ceases to exist,
or the activities of the DSM fail to commence operations within one year or
ceases to continue thereafter, then your employment with Wit Capital shall
continue on the same terms as set forth herein except that your responsibilities
and title shall be those responsibilities taking into consideration your
previous experience and expertise and title mutually agreed upon in writing
between Wit Capital and you. In the event we can not agree then Wit Capital
shall continue to compensate you in accordance with section (iii) hereof until
Dec. 31, 2002. Said compensation shall be terminable only in the event you
commit any acts set forth in (i) Term subsections (i), (ii), (iii), (iv), (v) of
said (i) Term section.
(i) Term: You shall have the right to employment on the terms specified
herein for a period commencing on February 12, 1999 and running for
a period through December 31, 2002 (the "Term"), subject to
termination for "Cause" as defined below. "Cause" means (i) your
willful failure to perform the material duties as President of
Newco or as an executive of Wit Capital (other than by reason of
physical or mental illness or impairment) after receipt of written
notice thereof from the President and COO, currently Ronald W.
Readmond, specifying in reasonable detail such failure of
performance and a thirty (30) days opportunity to cure, (ii) any
act of fraud or embezzlement after written notice thereof from the
company specifying in reasonable detail instances of such conduct,
(iii) unauthorized disclosure of material confidential information
belonging to Wit Capital and/or Newco; (iv) your conviction of a
felony (including pleading guilty to a felony) or commitment of
other acts that cause a material detriment to the reputation of the
company; or (v) habitual abuse of alcohol or drugs.
(ii) Title and Positions: President and Chief Executive Officer of Newco
(or, if the DSM is operated as a division of Wit Capital (as
opposed to as a separate company), then Director of the DSM or such
other similar title as the Company shall reasonably determine,)
with responsibility for the overall operation and management of the
DSM. You shall be appointed a Director of Newco (if it
<PAGE>
exists). In addition, Wit Capital shall agree to use its best
efforts to nominate you to serve as Director of Newco and shall
use their best efforts to cause you to be elected Director, such
best efforts to include voting its shares of capital stock in
favor of your election.
(iii) Salary: $200,000 per annum plus health benefits as per other
senior employees.
(iv) Bonus: $50,000 in respect of the period ending December 31, 1999.
In respect of the year ending December 31, 2000, one percent of
the cash revenue of the DSM during such year or $50,000, whichever
is greater. In respect of the year ending December 31, 2001, one
percent of the pre-tax profits of the DSM for such year. Bonuses
shall be payable quarterly per annum commencing April 1, 1999 and
on the first day of each quarter month thereafter until December
31, 2000. Bonus for 2001 shall be payable within sixty (60) days
following December 31, 2001. In addition, Wit Capital shall pay a
signing bonus of $50,000 on or before April 15, 1999.
(v) Options. Options under Wit Capital option plan to purchase 525,000
shares of common stock of Wit Capital at an exercise price of
$1.50 per share. These options shall be governed by the terms set
forth in an option agreement executed between you and Wit Capital
(a form of agreement is attached hereto and made a part hereof).
These options shall vest quarterly over four years. These options
expire in ten years from the date of grant. At the option of Wit
Capital, the options are convertible to options to purchase shares
in Newco; provided, however, that as an "insurance" such options
would convert back to options in Wit Capital in the event Newco
ceased to operate within the Term of this Agreement. The
conversion ratio by which options in Wit Capital shall be
converted into options in Newco shall be determined by Wit Capital
in its reasonable discretion.
(vi) Staff: You shall hire immediately a team of senior and junior
managers to build Newco in order to launch and operate the DSM. It
is expected that the senior and junior management, taken in the
aggregate and including you, shall hold stock options in Newco
equal to ten to fifteen percent of the outstanding equity of
Newco.
Very truly yours,
Ronald W. Readmond
President and Chief Operating Officer
AGREED AND ACCEPTED AS OF THE DATE WRITTEN ABOVE:
By: ________________________
Everett F. Lang
<PAGE>
February 12, 1999
Dr. Everett F. Lang
5 Michele Court
Allendale, NJ 07401
Dear Everett:
Per our conversation, Wit Capital agrees to the following:
1. Payment of $2500.00 flat fee to Robert Mulligan, for legal counsel
during your employment negotiations.
2. Reimbursement on a temporary basis for parking convenient to the
office.
3. Wit Capital agrees to pay your Cobra premiums during the period prior
to commencement of your radiation treatments through the date of your
last radiation treatment.
4. The above items 1-3 are hereby incorporated into and made a part of
the Wit Capital Group, Inc. Employment Terms letter with you dated
even date herewith.
Very truly yours,
Ronald W. Readmond
President and Chief Operating Officer
<PAGE>
EXHIBIT 10.11
SECOND AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
BY AND AMONG
WIT CAPITAL GROUP, INC.
AND
SIGNATORIES LISTED HEREIN
___________________________________
Dated as of February 23, 1999
______________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
ARTICLE 1 DEFINITIONS ............................................. 1
Section 1.1 Definitions ..................................... 1
ARTICLE 2 MANAGEMENT OF THE COMPANY AND CERTAIN ACTIVITIES ........ 6
Section 2.1 Board of Directors .............................. 6
2.1.1 Board Representation ............................ 6
2.1.2 Vacancies ....................................... 7
2.1.3 Termination of Rights ........................... 7
2.1.4 Committee Representation ........................ 8
2.1.5 Costs and Expenses .............................. 8
2.1.6 Other Activities of the Holders;
Fiduciary Duties................................ 8
ARTICLE 3 CAPITAL Z STANDSTILL .................................... 8
Section 3.1 Capital Z Standstill ............................ 8
ARTICLE 4 CERTAIN TRANSFER PROVISIONS ............................. 10
Section 4.1 Preemptive Rights ............................... 10
4.1.1 Right to Participate in Future Issuances ........ 10
4.1.2 Exceptions to Preemptive Rights ................. 10
Section 4.2 Right of First Refusal .......................... 11
Section 4.3 Tag-Along Rights ................................ 13
Section 4.4 Transfers by Key Employees ...................... 13
Section 4.5 Exceptions ...................................... 14
ARTICLE 5 DRAG ALONG RIGHTS ....................................... 14
Section 5.1 Applicability ................................... 14
Section 5.2 Notice of Significant Sale ...................... 15
ARTICLE 6 CERTIFICATE LEGEND ...................................... 15
Section 6.1 Certificate Legend .............................. 15
ARTICLE 7 TERMINATION ............................................. 15
Section 7.1 Termination ..................................... 15
ARTICLE 8 MISCELLANEOUS ........................................... 16
Section 8.1 Notices.......................................... 16
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
Section 8.2 Issuance of Additional Stock .................... 17
Section 8.3 Information Rights; Budgets ..................... 17
Section 8.4 Confidentiality ................................. 18
Section 8.5 Effectiveness ................................... 18
Section 8.6 Governing Law ................................... 18
Section 8.7 Successors and Assigns .......................... 18
Section 8.8 Duplicate Originals ............................. 19
Section 8.9 Severability .................................... 19
Section 8.10 No Waivers; Amendments .......................... 19
Section 8.11 Entire Agreement ................................ 19
</TABLE>
ii
<PAGE>
SECOND AMENDED AND RESTATED
----------------------------
STOCKHOLDERS AGREEMENT
----------------------
THIS SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Stockholders
------------
Agreement") dated as of February 23, 1999 (and to become effective at the time
- ---------
hereinafter described), is entered into by and among WIT Capital Group, Inc., a
Delaware corporation (including its successors, the "Company"), and the
-------
securityholders (or persons who have entered into agreements to acquire
securities of the Company) listed on the signature pages hereof or who may
execute counterpart signature pages hereto following the date hereof, in
accordance with Section 6.1 hereto.
-----------
WHEREAS, the Company and certain securityholders of the Company are parties
to that certain First Amended and Restated Stockholders Agreement dated as of
November __, 1998 (the "Existing Stockholders Agreement");
WHEREAS, the parties hereto desire to enter into this Stockholders Agreement
in order to, upon the effectiveness of this Agreement, amend, restate and
replace the Existing Stockholders Agreement in its entirety; and
WHEREAS, this Stockholders Agreement will automatically become effective
upon the Closing (as hereinafter defined);
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements hereinafter contained and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
Article 1
DEFINITIONS
-----------
Section 1.1 Definitions.
-----------
"Accredited Investor" means an "Accredited Investor," as defined in
Regulation D, or any successor rule then in effect.
"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.
"Budget" shall have the meaning provided in Section 8.3.
-----------
<PAGE>
"Capital Z" means, collectively, Capital Z Financial Services Fund
II, L.P. and Capital Z Financial Services Private Fund II, L.P.
"Capital Z Holders" means, collectively, Capital Z and any Affiliate
or partner of Capital Z who is directly or indirectly transferred Common
Stock or Common Stock Equivalents or any interest therein by any Capital
Z Holder.
"Closing" means the closing of the purchase of shares of Series D
Preferred Stock by the New Investors (as defined in the Stock Purchase
Agreement) pursuant to the Stock Purchase Agreement.
"Common Stock" means shares of the Common Stock, $.01 par value per
share, of the Company, and any capital stock into which such Common Stock
thereafter may be changed.
"Common Stock Equivalents" means, without duplication with any other
Common Stock or Common Stock Equivalents, any security of the Company
which is convertible into, exercisable for or exchangeable for, directly
or indirectly, Common Stock of the Company, whether at the time of
issuance or upon the passage of time or the occurrence of some future
event.
"Company" shall have the meaning provided in the introductory
paragraph hereof.
"Controlled Affiliate" means, with respect to any Person, any
Affiliate of such Person who, directly or indirectly, is controlled by
such Person; provided, however, that the term "Controlled Affiliate" with
-------- -------
respect to the Ultimate General Partner shall not include any entity with
respect to which, as of the time of such determination, the Ultimate
General Partner does not have the direct or indirect power (whether
through ownership of a majority of the voting securities of such entity
or by contract or otherwise) to elect a majority of the members of the
board of directors (or equivalent governing body) of such entity.
"Co-Seller" shall have the meaning set forth in Section 5.1 hereof.
-----------
"DFJ Holders" means, collectively, Draper Fisher Jurvetson Fund V,
L.P. and Draper Fisher Jurvetson Partners, LLC and any Affiliate or
partner of such entities who is directly or indirectly transferred Common
Stock or Common Stock Equivalents or any interest therein by any DFJ
Holder.
"Dragging Holders" shall have the meaning provided in Section 5.1.
-----------
"Drag Sale" shall have the meaning provided in Section 4.2 hereof.
-----------
"Effective Time" means the time of the consummation of the Closing.
2
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Existing Stockholders Agreement" shall have the meaning set forth
in the recitals hereto.
"First Option" shall have the meaning provided in Section 4.2
-----------
hereof.
"Fully-Diluted Common Stock" means, at any time, the then
outstanding Common Stock of the Company plus (without duplication) all
shares of Common Stock issuable, whether at such time or upon the passage
of time or the occurrence of future events, upon the conversion or
exchange of all then outstanding Voting Stock which constitutes Common
Stock Equivalents; provided, however, that solely for purposes of Article
-------- ------- -------
3, "Fully-Diluted Common Stock" means, at any time, the then outstanding
-
Common Stock of the Company plus (without duplication) all shares of
Common Stock issuable, whether at such time or upon the passage of time
or the occurrence of future events, upon the exercise, conversion, or
exchange of all then outstanding Common Stock Equivalents (regardless of
whether or not such Common Stock Equivalents constitute Voting Stock).
"Group" means, in the case of any Holder, such Holder and (i) all
Affiliates of such Holder, (ii) all partners of such Holder if such
Holder is a partnership, (iii) any Person to which such Holder transfers
all or substantially all of its assets and (iv) in the case of a Holder
that is an individual, the spouse and lineal descendants of such Holder,
any trust for the benefit of such spouse or any such lineal descendant,
or any other family member of such Holder.
"Holder" means (i) a securityholder that, immediately prior to the
execution and delivery of this Stockholders Agreement, was a party to the
Existing Stockholders Agreement (which is being amended and restated
pursuant to this Stockholders Agreement), (ii) any other securityholder
(or person who has entered into an agreement to acquire securities of the
Company) listed on the signature pages hereof (including but not limited
to any securityholder who, after the date of this Stockholders Agreement
but at or prior to the Closing, executes a counterpart signature page
hereto as contemplated by the Stock Purchase Agreement), and (iii) any
direct or indirect transferee of any such Person who shall become a party
to this Stockholders Agreement.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Key Employees" means each of Robert H. Lessin and Ronald W.
Readmond.
3
<PAGE>
"Majority Capital Z Holders" means Capital Z Holders holding Common
Stock and/or Common Stock Equivalents representing a majority of the
Fully-Diluted Common Stock then held by all Capital Z Holders.
"Majority DFJ Holders" means DFJ Holders holding Common Stock and/or
Common Stock Equivalents representing a majority of the Fully-Diluted
Common Stock then held by all DFJ Holders.
"Non-Responding Holder" shall have the meaning provided in Section
-------
4.1 hereof.
---
"Offer Notice" shall have the meaning provided in Section 4.1
-----------
hereof.
"Offered Securities" shall have the meaning provided in Section 4.1
-----------
hereof.
"Option Holders" shall have the meaning provided in Section 4.2
----------
hereof.
"Participation Offer" shall have the meaning provided in Section 4.3
-----------
hereof.
"Person" or "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.
"Preemptive Rights Offer" shall have the meaning set forth in
Section 4.1 hereof.
-----------
"Preemptive Rights Offer Notice" shall have the meaning set forth in
Section 4.1 hereof.
-----------
"Preemptive Rights Transaction" shall have the meaning set forth in
Section 4.1 hereof.
"Qualified IPO" means an underwritten public offering of Common
Stock pursuant to a registration statement under the Securities Act where
both (i) the proceeds to the Company (prior to deducting any
underwriters' discounts and commissions) equal or exceed Twenty-Five
Million Dollars ($25,000,000) and (ii) the initial price per share at
which such 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).
"Regulation D" means Regulation D promulgated under the Securities
Act by the SEC.
4
<PAGE>
"SEC" means the U. S. Securities and Exchange Commission.
"Second Option" shall have the meaning provided in Section 4.2
-----------
hereof.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Series D Preferred Stock" means the Series D Preferred Stock, $.01
par value, of the Company.
"Standstill Limit" shall have the meaning provided in Section 3.1.
-----------
"Stockholders Agreement" means this Second Amended and Restated
Stockholders Agreement, as such from time to time may be amended.
"Stock Purchase Agreement" means the Amended and Restated Series D
Preferred Stock Purchase Agreement of even date herewith, among the
Company and Persons acquiring Series D Preferred Stock thereunder.
"Subsidiary" of any Person means (i) 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 (ii) 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 (x) at least a
majority ownership interest or (y) the power to elect or direct the
election of the directors or other governing body of such Person.
"Transfer" means any sale or other disposition, whether voluntary or
involuntary, of any Common Stock and/or Common Stock Equivalent or any
interest therein.
"Transferor" shall have the meaning provided in Section 4.2 hereof.
-----------
"Transferor Notice" shall have the meaning provided in Section 4.2
-----------
hereof.
"Voting Stock" means capital stock of the Company which possesses
the right to vote generally in the election of directors.
Section 1.2 Rules of Construction. Unless the context otherwise requires
---------------------
(1) a term has the meaning assigned to it;
(2) "or" is not exclusive;
5
<PAGE>
(3) words in the singular include the plural, and words in the
plural include the singular;
(4) provisions apply to successive events and transactions; and
(5) "herein," "thereof" and other words of similar import refer
to this Stockholders Agreement as a whole and not to any particular
Article, Section or other subdivision.
Article 2
MANAGEMENT OF THE COMPANY AND CERTAIN ACTIVITIES
------------------------------------------------
Section 2.1 Board of Directors.
------------------
2.1.1 Board Representation.
--------------------
(a) From and following the Effective Time, the Board of Directors
of the Company initially shall consist of nine (9) individuals. Subject to
Section 2.1.3, (i) the Majority DFJ Holders will be entitled to designate
-------------
one (1) director, and (ii) the Majority Capital Z Holders will be entitled
to designate two (2) directors; provided, however, that if the size of the
-------- -------
Board of Directors of the Company is increased, then the Majority Capital Z
Holders will be entitled to designate such additional number of directors,
if any, such that the total number of directors designated by the Majority
Capital Z Holders pursuant to this sentence shall not represent (as a
percentage of the total number of directors) less than the total percentage
of all shares of Fully-Diluted Common Stock represented by the shares of
Fully-Diluted Common Stock owned by the Capital Z Holders (in the event
such percentage would result in the Majority Capital Z Holders being
entitled to any fractional director, rounding down to the nearest whole
number of directors). The existence of the right, pursuant to this Section
-------
2.1.1(a), on the part of the Majority DFJ Holders and the Majority Capital
--------
Z Holders to designate certain directors will in no way limit or impair the
right of the Majority DFJ Holders and the Majority Capital Z Holders to
vote their shares of capital stock of the Company as they see fit with
respect to the election of persons to fill seats on the Board of Directors
other than the seats filled as a result of the designation rights under
this Section 2.2.1(a).
----------------
(b) Each Holder shall vote his or its shares of Common Stock at any
regular or special meeting of stockholders of the Company or in any written
consent executed in lieu of such a meeting of stockholders and shall take
all other actions necessary to give effect to the agreements contained in
this Stockholders Agreement (including without limitation the election of
persons designated by the Majority DFJ Holders and/or the Majority Capital
Z Holders to be elected as directors as described in the preceding
paragraph) and to ensure that the certificate of incorporation and bylaws
of the Company do not, at any time hereafter, conflict in any respect with
the provisions of this Stockholders Agreement. In order to effectuate the
provisions of this Section 2, each Holder hereby agrees that when any
---------
action or vote is required to be taken by such Holder pursuant to this
Stockholders Agreement, such Holder shall use his or its best efforts to
6
<PAGE>
call, or cause the appropriate officers and directors of the Company to
call, a special or annual meeting of stockholders of the Company, as the
case may be, or execute or cause to be executed a consent in writing in
lieu of any such meetings pursuant to Section 228(a) of the General
Corporation Law of the State of Delaware.
2.1.2 Vacancies. If, prior to his election to the Board of Directors of
---------
the Company pursuant to Section 2.1.1 hereof, any designee of the Majority DFJ
-------------
Holders or the Majority Capital Z Holders shall be unable or unwilling to serve
as a director of the Company, then the Majority DFJ Holders or the Majority
Capital z Holders, as applicable, shall be entitled to designate a replacement
designee. If, following an election to the Board of Directors of the Company
pursuant to Section 2.1.1 hereof, any designee of the Majority DFJ Holders or
-------------
the Majority Capital Z Holders shall resign or be removed or be unable to serve
for any reason prior to the expiration of his term as a director of the Company,
then the Majority DFJ Holders or the Majority Capital Z Holders, as applicable,
shall, within thirty (30) days of such event, notify the Board of Directors of
the Company in writing of a replacement designee, and either (i) the Holders
shall vote their shares of Common Stock, at any regular or special meeting
called for the purpose of filling positions on the Board of Directors of the
Company or in any written consent executed in lieu of such a meeting of
stockholders, and shall take all such other actions necessary to ensure the
election to the Board of Directors of the Company of such replacement designee
to fill the unexpired term of the designee who such new designee is replacing or
(ii) the Board of Directors shall elect such replacement designee to fill the
unexpired term of the designee who such new designee is replacing. If the
Majority DFJ Holders or the Majority Capital Z Holders request that any of their
respective designees be removed as a director (with or without cause) by written
notice thereof to the Company, then each of the Holders shall vote all of its or
his capital stock in favor of, such removal upon such request.
2.1.3 Termination of Rights.
---------------------
(a) The right of the DFJ Holders to designate directors under
Section 2.1.1, and the obligation of the Holders to vote their shares as
-------------
provided herein with respect to such designees, shall terminate upon the
first to occur of (i) the termination or expiration of this Stockholders
Agreement or this Article 2, (ii) such time as the Majority DFJ Holders
---------
elect in writing to terminate their rights under this Article 2, or (iii)
---------
such time as the DFJ Holders collectively cease to own at least five
percent (5%) of the Fully-Diluted Common Stock.
(b) The right of the Capital Z Holders to designate directors under
Section 2.1.1, and the obligation of the Holders to vote their shares as
-------------
provided herein with respect to such designees, shall terminate upon the
first to occur of (i) the termination or expiration of this Stockholders
Agreement or this Article 2, (ii) such time as the Majority Capital Z
---------
Holders elect in writing to terminate their rights under this Article 2, or
---------
(iii) such time as the Capital Z Holders collectively cease to own at least
five percent (5%) of the Fully-Diluted Common Stock. In addition, prior to
the time that the right of the Majority Capital Z Holders to designate
directors is terminated in accordance with the provisions of the
immediately preceding sentence, the number of directors that
7
<PAGE>
the Majority Capital Z Holders are entitled to designate will be decreased
from two (2) directors to one (1) director from and following the time that
the Capital Z Holders collectively cease to own at least fifteen percent
(15%) of the Fully-Diluted Common Stock.
2.1.4 Committee Representation. So long as the Capital Z Holders are
------------------------
entitled to designate any directors under Section 2.1.1, at least one (1) of the
-------------
directors designated by the Majority Capital Z Holders shall be permitted to
serve on each committee of the Board of Directors of the Company. So long as
the DFJ Holders are entitled to designate any director under Section 2.1.1, the
-------------
director designated by the Majority DFJ Holders shall be permitted to serve on
the Compensation Committee and the Audit Committee of the Board of Directors of
the Company.
2.1.5 Costs and Expenses. The Company will pay all reasonable out-of-
------------------
pocket expenses incurred by in connection with the participation by directors in
meetings of the Board of Directors (and committees thereof) of the Company and
the Boards of Directors (and committees thereof) of any Subsidiaries of the
Company.
2.1.6 Other Activities of the Holders; Fiduciary Duties. It is understood
-------------------------------------------------
and accepted that the Holders and their Affiliates have interests in other
business ventures which may be in conflict with the activities of the Company
and its Subsidiaries and that, subject to applicable law, nothing in this
Stockholders Agreement shall limit the current or future business activities of
the Holders whether or not such activities are competitive with those of the
Company and its Subsidiaries. Nothing in this Stockholders Agreement, express
or implied, shall relieve any officer or director of the Company or any of its
Subsidiaries, or any Holder, of any fiduciary or other duties or obligations
they may have to the Company's stockholders.
Article 3
CAPITAL Z STANDSTILL
--------------------
Section 3.1 Capital Z Standstill.
--------------------
(a) For a period commencing upon the Closing and ending on the
later of (i) three (3) years after the Closing or (ii) if a Qualified IPO
is consummated within two years after the Closing, three years after the
consummation of such Qualified IPO, neither Capital Z nor Capital Z
Partners, Ltd., the ultimate general partner of Capital Z (the "Ultimate
General Partner") shall (nor shall the Ultimate General Partner permit any
of its Controlled Affiliates to), without the prior affirmative vote or
written consent of a majority of the directors of the Company (without
counting as a director for such purpose any director designated by the
Capital Z Holders or the proposed transferor or any Affiliate of either)
directly or indirectly, authorize or make a tender, exchange or other offer
for, or purchase or otherwise acquire, or agree to acquire, or obtain,
directly or indirectly, beneficial ownership (as defined in Rule 13d-3
promulgated under the Exchange Act) of any Voting Stock (except, in any
case, by way of stock dividends or other distributions or rights offerings
made available to holders of any Voting Stock
8
<PAGE>
generally), if the effect of such acquisition would be to increase the
aggregate number of shares of Voting Stock then beneficially owned by
Capital Z and the Ultimate General Partner and its Controlled Affiliates to
an amount in excess of 25% of the total Fully-Diluted Common Stock (the
"Standstill Limit"). Notwithstanding the foregoing, for the purposes of
calculating the number of shares of Voting Stock beneficially owned by
Capital Z and the Ultimate General Partner and its Controlled Affiliates,
there shall be excluded from such calculation any shares owned by any
insurance company or financial institution which is a Controlled Affiliate
of the Ultimate General Partner as part of such Controlled Affiliate's
investment portfolio (and not owned for the purpose of affecting control of
the Company). Capital Z represents and warrants to the Company that no
single Person owns, together with its Affiliates, in excess of 10% of the
voting power of the Ultimate General Partner.
(b) The provisions of this Section 3.1 shall terminate prior to
-----------
expiration, and Capital Z or the Ultimate General Partner and its
Controlled Affiliates shall be free to acquire Voting Stock without regard
to the Standstill Limit, at such earlier time as (A) prior to the Qualified
IPO, any Person other than Capital Z and the Ultimate General Partner or
any of its Controlled Affiliates (and other than any Person acting in
concert with Capital Z or the Ultimate General Partner or any of its
Controlled Affiliates) acquires beneficial ownership (as defined in Rule
13d-3 promulgated under the Exchange Act ("Beneficial Ownership" or
"Beneficially Owned")) of Voting Stock representing, together with any
Voting Stock already Beneficially Owned by such Person and its Affiliates,
at least 25% of the total Fully-Diluted Common Stock or (B) following the
Qualified IPO, the earlier of (i) any Person other than Capital Z or the
Ultimate General Partner or any of its Controlled Affiliates (and other
than any Person acting in concert with Capital Z or the Ultimate General
Partner or any of its Controlled Affiliates) acquires Beneficial Ownership
of Voting Stock representing, together with any Voting Stock already
Beneficially Owned by such Person and its Affiliates, at least 25% of the
total Fully-Diluted Common Stock or (ii) any Person other than Capital Z or
the Ultimate General Partner or any of its Controlled Affiliates (and other
than any Person acting in concert with Capital Z or the Ultimate General
Partner or any of its Controlled Affiliates) notifies in writing the
Company or its Board of Directors of, or publicly announces, that it has
acquired or that it intends to acquire or offer to acquire (including but
not limited to any offer to acquire by means of a tender offer) (and in
connection therewith discloses, in a Schedule 13D or 14D-1 (or any other
successor schedule or form promulgated or adopted for such purpose by the
Securities and Exchange Commission) filed under the Securities Exchange Act
of 1934, as amended), or otherwise, an intention to acquire) Beneficial
Ownership of Voting Stock representing, together with any Voting Stock
already Beneficially Owned by such Person and its Affiliates, at least 25%
of the total Fully-Diluted Common Stock (and does not, prior to any
acquisition by Capital Z or the Ultimate General Partner or any of its
Controlled Affiliates of any Voting Stock that would otherwise be
prohibited by this Section 3.1, disclose in any statement of which Capital
-----------
Z has or could reasonably be expected to have knowledge of an intention not
to proceed with such acquisition); provided, that the Company reasonably
--------
believes that (i) such Person is financially capable of consummating such
acquisition and (ii) such Person has a serious and bona fide intention to
consummate such acquisition.
9
<PAGE>
(c) The Capital Z Holders agree that it or they shall not exercise
any preemptive right otherwise provided under Section 4.1 or any right of
first refusal otherwise provided under Section 4.2 if such exercise would
-----------
violate the provisions of Section 3.1(a) and cause Capital Z's and the
--------------
Ultimate General Partner's and its Controlled Affiliates' aggregate
Beneficial Ownership of Voting Stock of the Company to exceed the
Standstill Limit; provided, however, that any exercise (or indication of
-------- -------
intention to exercise) by another Holder of any preemptive right under
Section 4.1 or any right of first refusal under Section 4.2 which would
-----------
result in such Holder and its Affiliates collectively Beneficially Owning
at least 25% of the total Fully-Diluted Common Stock will be deemed to
constitute an action which, pursuant to Section 3.1(b), will terminate the
--------------
provisions of this Section 3.1.
-----------
Article 4
CERTAIN TRANSFER PROVISIONS
---------------------------
Section 4.1 Preemptive Rights.
-----------------
4.1.1 Right to Participate in Future Issuances. In case the Company
----------------------------------------
proposes at any time following the Effective Time to issue or sell any Common
Stock or Common Stock Equivalents (the "Offered Securities"), the Company shall,
no later than twenty (20) days prior to the consummation of such transaction (a
"Preemptive Rights Transaction"), give notice in writing (the "Preemptive Rights
Offer Notice") to each Holder of such Preemptive Rights Transaction. The
Preemptive Rights Offer Notice shall describe the proposed Preemptive Rights
Transaction, identify the proposed purchaser, and contain an offer (the
"Preemptive Rights Offer") to sell to each Holder, at the same price and for the
same consideration to be paid by the proposed purchaser (provided that, in the
event any of such consideration is non-cash consideration, at the election of
such Holder to whom the Preemptive Rights Offer is made, such Holder may pay
cash equal to the value of such non-cash consideration), all or any part of such
Holder's pro rata portion of the Offered Securities (which shall be a percentage
of the Offered Securities equal to the percentage of all Fully-Diluted Common
Stock then outstanding (or deemed outstanding) that is represented by the Fully-
Diluted Common Stock held by such Holder). If any Holder to whom a Preemptive
Rights Offer is made fails to accept (a "Non-Responding Holder") in writing the
Preemptive Rights Offer by the fifteenth (15th) day after the Company's delivery
of the Preemptive Rights Offer Notice, the Company may proceed with the proposed
Preemptive Rights Transaction, free of any right on the part of any Non-
Responding Holders under this Section 4.1.1 in respect thereof.
-------------
4.1.2 Exceptions to Preemptive Rights. Section 4.1.1 shall not apply
------------------------------- -------------
to (i) issuances or sales of Common Stock or Common Stock Equivalents upon
exercise, conversion or exchange of any Common Stock Equivalent which, when
issued, was subject to or exempt from the preemptive rights provided under this
Section 4.1, (ii) shares of capital stock issued in a stock split or stock
- -----------
dividend or shares of capital stock or other securities distributed ratably or
sold to all holders of Common Stock on a per share equivalent basis, (iii)
issuances of Common Stock or Common Stock
10
<PAGE>
Equivalents pursuant to any exercise, conversion or exchange of any Common Stock
Equivalent that was outstanding as of the date of this Stockholders Agreement,
(iv) issuances of Common Stock Equivalents pursuant to the Stock Purchase
Agreement, (v) issuances or sales of Common Stock or Common Stock Equivalents
pursuant to acquisitions or strategic investments or corporate partnering
transactions or relationships, (vi) issuances of Common Stock or Common Stock
Equivalents pursuant to a merger of the Company or a Subsidiary of the Company
into or with another entity or pursuant to an acquisition by the Company or a
Subsidiary of the Company of the capital stock or assets of another business,
(vii) compensatory issuances of options, restricted stock or other equity rights
to officers, employees, directors or consultants of the Company with approval of
the Board of Directors of the Company, (viii) issuances or sales of Common Stock
in a Qualified IPO, (ix) issuances of Common Stock or Common Stock Equivalents
pursuant to commercial transactions approved by the Board of Directors of the
Company (including but not limited to equipment leases or bank lines of credit),
or (x) issuances of Common Stock or Common Stock Equivalents approved in advance
by holders of a majority of the Fully-Diluted Common Stock held by all Holders.
Section 4.2 Right of First Refusal. If at any time following the
----------------------
Effective Time a Holder other than a Key Employee (a "Transferor") has received
a bona fide offer to purchase any or all of the shares of Common Stock and/or
Common Stock Equivalents beneficially owned by the Transferor and such
Transferor desires to accept such offer to purchase, or if a Transferor
otherwise proposes to Transfer for value any shares of Common Stock and/or
Common Stock Equivalents (for purposes of this Section 4.2, "shares") to any
-----------
Person, the Transferor shall, not less than thirty (30) days prior to the
anticipated closing of such Transfer, give written notice (the "Transferor's
Notice") to the Company and the other Holders of such proposed Transfer. The
Transferor's Notice shall (i) specify the proposed transferee thereof, the
number of shares to be transferred, the amount and type of consideration to be
received therefor, and the other material terms on which the Transferor proposes
to Transfer the Common Stock and/or Common Stock Equivalents and (ii) contain an
undertaking by the proposed transferee, if applicable, to honor any
Participation Offer which is made in accordance with the terms of Section 4.3
-----------
hereof, and (iii) contain the following offer:
- ------
The Transferor shall offer to sell (the "First Option") all such
shares to the Company at the same price per share and for
consideration consisting of (x) cash equal to the amount of cash
proposed to be paid by the proposed transferee and (y) if any of the
consideration to be paid by the proposed transferee is non-cash
consideration, either the same non-cash consideration or, at the
election of the Company, cash having an equivalent value to the non-
cash consideration proposed to be paid by the proposed transferee.
The determination of equivalent value required by the preceding
sentence, as well as the decision whether or not the Company will
accept the First Option, in any particular instance shall be made by a
committee of the Board of Directors of the Company, excluding
therefrom any directors designated by the Transferor or proposed
transferee (or any Affiliate thereof) utilizing any method and/or
advisory assistance it deems appropriate, and the Company shall give
11
<PAGE>
the Transferor and the other Holders written notice of such
determination within fifteen (15) days after receipt of the
Transferor's Notice. Notwithstanding the foregoing, in the event the
Transferor disputes the determination of equivalent value made
pursuant to the immediately preceding sentence, the Company shall
engage a nationally recognized investment banking firm to recompute
the equivalent value of the non-cash consideration offered by the
Company pursuant to the First Option, it being understood that the
fees and expenses of such investment banking firm shall be paid one-
half by the Company and one-half by the Transferor, and the investment
banking firm's method of calculation of equivalent value shall be used
in determining the amount of non-cash consideration permitted to be
paid by the Company pursuant to the First Option or by the Option
Holders pursuant to the Second Option (in each case, as defined
below). If the Company (A) fails to notify the Transferor in writing
within fifteen (15) days after receipt of the Transferor's Notice that
it elects to accept the First Option or (B) by written notice within
such 15-day period rejects the First Option in whole or in part, the
Transferor shall offer to sell (the "Second Option") the shares not to
be so purchased to the other Holders (the "Option Holders") at the
same price per share and for consideration consisting of (x) cash in
an amount equal to the amount of cash proposed to be paid by the
proposed transferee and (y) cash or non-cash consideration, if any,
having an equivalent value (determined as provided above) with the
non-cash consideration proposed to be paid by the proposed transferee.
The Option Holders may purchase the shares so offered in the
proportions upon which they mutually agree, or, if they are unable to
agree upon an allocation of such shares among themselves, then in
proportion to the number of shares of Fully-Diluted Common Stock owned
by each such Option Holder who wishes to participate in the purchase
of such shares pursuant to the Second Option. The Second Option may
be accepted by one or more of such Option Holders by written notice
delivered to the Transferor within thirty (30) days after receipt of
the Transferor's Notice. Unless, through exercise of the First Option
and/or the Second Option, all the securities proposed to be
transferred in the Transferor's Notice are to be acquired by the
Company and/or the Option Holders, the Transferor may transfer,
subject to Section 4.3 hereof, all shares covered by the Transferor's
-----------
Notice to the proposed transferee in accordance with the terms of such
transfer set forth in the Transferor's Notice; provided, however, that
-------- -------
such transfer must occur no later than seventy-five (75) days after
the date the Transferor's Notice was received by the Company or five
(5) days after the expiration or termination of any waiting period
applicable to such transfer pursuant to the HSR Act, whichever is
later. If the First Option and/or the Second Option, as the case may
be, is accepted in a manner such that all shares covered by the
Transferor's Notice are to be purchased, the Transferor shall transfer
all such shares (free of all liens and encumbrances except this
Agreement, all as reasonably determined by the Company) to the
12
<PAGE>
respective purchasers thereof within twenty (20) days after the date
such offer is accepted by the Company and/or Option Holders, whichever
is later, against delivery by the purchaser of the consideration
payable to the Transferor as set forth in the Transferor's Notice;
provided that, if the HSR Act is applicable to the First Option or the
--------
Second Option, such date shall be extended to the date which is five
(5) days after the date the applicable waiting period expires or is
terminated.
Section 4.3 Tag-Along Rights. In the event that a Transferor proposes,
----------------
in a single transaction or series of related transactions, to Transfer for value
Common Stock and/or Common Stock Equivalents representing (alone or together
with Common Stock and/or Common Stock Equivalents to be Transferred by other
Transferors in such transaction or series of related transactions) at least five
percent (5%) of the Fully-Diluted Common Stock, then the Transferor's Notice
delivered pursuant to Section 4.2 hereof shall also state (the "Participation
-----------
Offer") that, in lieu of exercising the Second Option, each Option Holder may
request to have included in the proposed Transfer such Option Holder's pro rata
portion of the Common Stock and/or Common Stock Equivalents to be Transferred
(which shall be the percentage of the Common Stock and/or Common Stock
Equivalents to be Transferred that is equal to the percentage of Fully-Diluted
Common Stock held by the Transferor and any Option Holders exercising tag-along
rights under this Section 4.3 that is represented by the Fully-Diluted Common
-----------
Stock held by such Option Holder). The Participation Offer shall be conditioned
upon the execution and delivery by each Option Holder that accepts the
Participation Offer of all agreements and other documents as the Transferor is
required to execute and deliver in connection with such proposed Transfer. If
the First Option and/or Second Option is not exercised with respect to all the
securities proposed to be transferred by the Transferor and any Option Holder
shall accept the Participation Offer, the Transferor shall reduce, to the extent
necessary, the number of shares of Common Stock or Common Stock Equivalents it
otherwise would have sold in the proposed Transfer so as to permit those Option
Holders who have accepted the Participation Offer to sell the number of shares
of Common Stock and/or Common Stock Equivalents, if applicable, that they are
entitled to sell under this Section 4.3, and the Transferor and such Option
-----------
Holders shall transfer the number of shares of Common Stock and/or, if
applicable, Common Stock Equivalents specified in the Participation Offer to the
proposed transferee in accordance with the terms of such Participation Offer.
Notwithstanding the foregoing, if the transferee refuses to purchase any Common
Stock and/or Common Stock Equivalents, if applicable, proposed to be sold by
each Option Holder that accepts the Participation Offer, the Transferor shall be
prohibited from consummating the Transfer in respect of which the Participation
Offer was made.
Section 4.4 Transfers by Key Employees.
--------------------------
(a) Subject to Section 4.4(b), no Key Employee shall Transfer any
--------------
Common Stock and/or Common Stock Equivalents unless all of the Common Stock
and Common Stock Equivalents of the Company are being Transferred as part
of the same transaction.
13
<PAGE>
(b) Notwithstanding the provisions of paragraph (a) of this
Section 4.4, following the consummation of a Qualified IPO, each of the two
-----------
Key Employees may Transfer in any given calendar year, the sum of (i) one
half of the number of securities he could sell into the public market
during each calendar quarter of such year under Rule 144 promulgated under
the Securities Act without registration under the Securities Act (prorated
for the partial year in which the Qualified IPO is consummated, and
calculated assuming that such Key Employee at all times is an "affiliate"
of the Company for purposes of such rule), plus (ii) if any Capital Z
Holder Transfers any of its shares (including any disposition or
distribution to any partner of such Capital Z Holder, but excluding any
Transfers between Capital Z Financial Services Fund II, L.P. and Capital Z
Financial Services Private Fund II, L.P.), that number of his securities as
represents the same percentage of his total securities as the percentage of
all Capital Z Holders' total securities represented by the securities so
Transferred by such Capital Z Holder, plus, (iii) any amount of securities
permitted to be Transferred under this provision in a prior calendar year
or years that he did not so Transfer.
Section 4.5 Exceptions. In no event shall any exchange,
----------
reclassification, or other conversion of shares of Common Stock or Common Stock
Equivalents into any cash, securities, or other property pursuant to a
recapitalization or a merger or consolidation of the Company or any Subsidiary
of the Company with, any sale of all of the outstanding Common Stock and Common
Stock Equivalents to, or any sale or Transfer by the Company or any Subsidiary
of the Company of all or substantially all its assets to, any Person (a
"Corporate Transaction") constitute a Transfer of shares of Common Stock or
Common Stock Equivalents for purposes of Section 4.2, Section 4.3, or Section
----------- ----------- -------
4.4 hereof. In addition, Section 4.2, Section 4.3 and Section 4.4 hereof shall
- --- ----------- ----------- -----------
not apply to any Transfer of Common Stock or Common Stock Equivalents by a
Holder to a member of such Holder's Group; provided, however, that, for purposes
-------- -------
of Section 4.4, any member of a Key Employee's Group who acquires securities of
-----------
any Key Employee will itself be deemed (together with such Key Employee
transferor) to constitute a single Key Employee for purposes of Section 4.4.
-----------
Article 5
DRAG ALONG RIGHTS
-----------------
Section 5.1 Applicability. In the event Holders who collectively own more
-------------
than fifty percent (50%) of the Fully-Diluted Common Stock propose to Transfer
for value, in a single transaction or series of related transactions, Common
Stock and/or Common Stock Equivalents representing a majority of the Fully-
Diluted Common Stock in a case in which the right of first refusal provided for
in Section 4.2 hereof has not been exercised with respect to all such Common
-----------
Stock and/or Common Stock Equivalents proposed to be Transferred (a "Drag
Sale"), such Holders (the "Dragging Holders") shall have the right to require
each non-selling Holder (each, a "Co-Seller") to Transfer a portion of its
Common Stock and/or Common Stock Equivalents which represents the same
percentage of the Fully-Diluted Common Stock held by such Co-Seller as the
shares being disposed of by the Dragging Holders represent of the Fully-Diluted
Common Stock held collectively by the Dragging Holders. (For example, if the
14
<PAGE>
Dragging Holders collectively are selling fifty percent (50%) of their Fully-
Diluted Common Stock position, each Co-Seller shall be required to sell fifty
percent (50%) of its Fully-Diluted Common Stock position.) All Common Stock
Transferred by Holders pursuant to this Section 5.1 shall be sold at the same
-----------
price and otherwise treated identically with the Common Stock being sold by the
Dragging Holders in all respects; provided, that the Co-Seller shall not be
required to make any representations or warranties in connection with such
Transfer other than representations and warranties as to (i) such Co-Seller's
ownership of his or its Common Stock and/or Common Stock Equivalents to be
Transferred free and clear of all liens, claims and encumbrances, (ii) such Co-
Seller's power and authority to effect such transfer, and (iii) such matters
pertaining to compliance with securities laws as the transferee may reasonably
require except that the transferee may not require that each Co-Seller be an
Accredited Investor.
Section 5.2 Notice of Significant Sale. The Dragging Holders shall give
--------------------------
each Co-Seller at least thirty (30) days' prior written notice of any Drag Sale
as to which the Dragging Holders intend to exercise their rights under this
Section 5.2. If the Dragging Holders elect to exercise their rights under this
- -----------
Section 5.2, the Co-Sellers shall take such actions as may be reasonably
- -----------
required and otherwise cooperate in good faith with the Dragging Holders in
connection with consummating the Drag Sale (including, without limitation, the
voting of any Common Stock or other voting capital stock of the Company to
approve such Drag Sale). At the closing of such Drag Sale, each Co-Seller shall
deliver certificates for all shares of Common Stock and/or Common Stock
Equivalents to be sold by such Co-Seller, duly endorsed for transfer, with the
signature guaranteed, to the purchaser against payment of the appropriate
purchase price.
Article 6
CERTIFICATE LEGEND
------------------
Section 6.1 Certificate Legend. Each share of Common Stock and/or Common
------------------
Stock Equivalent issued to each Holder or a subsequent transferee that is
required to be bound by this Stockholders Agreement shall include a legend in
the following form or a substantially similar form:
THIS SECURITY IS SUBJECT TO RESTRICTIONS ON TRANSFER, VOTING AND OTHER TERMS
AND CONDITIONS SET FORTH IN THE SECOND AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT DATED AS OF FEBRUARY 23, 1999, A COPY OF WHICH MAY BE OBTAINED FROM
WIT CAPITAL GROUP, INC. AT ITS PRINCIPAL EXECUTIVE OFFICES.
Article 7
TERMINATION
-----------
Section 7.1 Termination. The provisions of this Stockholders Agreement
-----------
shall terminate on the date that is 10 years following the Effective Time;
provided, however, that (i) Article 2, Article 4 (other than Section 4.4),
- -------- ------- --------- --------- -----------
Article 5, Section 8.2 and
- --------- -----------
15
<PAGE>
Section 8.3 of this Stockholders Agreement shall terminate upon the consummation
- -----------
prior to the expiration of such ten (10) year period of a Qualified IPO, and
(ii) Article 3 of this Stockholders Agreement will terminate at the time
----------
indicated therein, if applicable, prior to the expiration of such
ten (10) year period, and (iii) Section 4.4 of this Stockholders Agreement shall
-----------
terminate at the earlier of (x) the date on which the Capital Z Holders cease to
own, in the aggregate, at least 50% of the number of shares of Fully-Diluted
Common Stock owned by the Capital Z Holders immediately following consummation
of the Closing, or (y) the date on which the Capital Z Holders cease to own, in
the aggregate, at least 10% of the total Fully-Diluted Common Stock.
Article 8
MISCELLANEOUS
-------------
Section 8.1 Notices. Any notices or other communications required or
-------
permitted hereunder shall be in writing, and shall be sufficiently given if made
by hand delivery, by telex, by telecopier or registered or certified mail,
postage prepaid, return receipt requested, addressed as follows (or at such
other address as may be substituted by notice given as herein provided):
If to the Company:
Wit Capital Group, Inc.
826 Broadway
Sixth Floor
New York, New York 10003
Attention: Ronald Readmond
Fax: (212) 253-4650
e-mail address: [email protected]
with copies to (which shall not constitute notice):
Orrick, Herrington & Sutcliffe LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Martin H. Levenglick, Esq.
Fax: (212) 506-3730
e-mail address: [email protected]
If to any Holder, at its address listed on the signature pages hereof.
Any notice or communication hereunder shall be deemed to have been given or
made as of the date so delivered if personally delivered; when answered back, if
telexed; when receipt is acknowledged, if telecopied; and five (5) calendar days
after mailing if sent by registered or certified mail (except that a notice of
change of address shall not be deemed to have been given until actually received
by the addressee).
16
<PAGE>
Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders. If a notice or
communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.
Section 8.2 Issuance of Additional Stock. The Company will not issue
----------------------------
any additional Common Stock or Common Stock Equivalents (other than Common Stock
issuable upon the exercise, conversion or exchange of Common Stock Equivalents
that are outstanding as of the date hereof) if such issuance would result in the
acquiror thereof owning (immediately or following the exercise, exchange or
conversion of any security convertible into exchangeable for or exercisable for
any Common Stock or Common Stock Equivalents) at least one percent (1%) of the
Fully-Diluted Common Stock, unless such acquiror is a party to this Stockholders
Agreement or becomes a party to this Stockholders Agreement at or prior to the
time of such issuance by the Company.
Section 8.3 Information Rights; Budgets.
---------------------------
(a) Information. The Company shall provide each Holder the
-----------
following:
(i) General. The Company will permit each such Holder on
-------
reasonable notice to visit and inspect during normal business hours any of
the properties of the Company and to examine its books and records, and to
discuss with its officers the business and affairs of the Company, at such
reasonable times as such persons may desire without disruption of the
Company's normal business and affairs for any reasonable purpose relating
to its investment in the Company.
(ii) Quarterly Reports. As soon as available, but no later than
-----------------
45 days after the end of each fiscal quarter of the Company, the Company
will provide to each Holder unaudited financial statements of the Company,
which shall include a statement of operations for such quarter and a
balance sheet as of the last day thereof, prepared in accordance with
generally accepted accounting principles, consistently applied.
(iii) Annual Reports. As soon as available, but not later than
--------------
90 days after the end of each fiscal year of the Company, the Company will
provide to each Holder audited financial statements of the Company, which
shall include a statement of cash flows and statement of operations for
such fiscal year and a balance sheet as at the last day thereof, each
prepared in accordance with generally accepted accounting principles,
consistently applied, and accompanied by the report of a "Big Five"
accounting firm selected by the Board of Directors of the Company, subject
to the approval of the holders of at least a majority of the Fully-Diluted
Common Stock (which approval shall not be unreasonably withheld or
delayed).
(b) Budget. With respect to each calendar year, the Company shall,
------
prior to the commencement of each such calendar year, prepare a proposed
budget (the "Budget") of the Company (containing monthly and quarterly
breakdowns of income
17
<PAGE>
(loss), balance sheet items and cash flow) and an updated five year
strategic plan of the company. The Budget shall be accepted as the Budget
for such fiscal year when it has been approved by the Board of Directors of
the Company. The Budget shall be reviewed by the Company periodically and
all changes therein and all material deviations therefrom shall be
resubmitted to the Board of Directors of the Company in advance and shall
be accepted when approved by the Board of Directors of the Company.
Section 8.4 Confidentiality. Each Holder agrees to and shall keep
---------------
strictly confidential and will not disclose or divulge any confidential,
proprietary or secret information which such Holder has obtained in the course
of the negotiation and consummation of the transactions contemplated hereby or
may obtain from the Company, including, by way of example and not in limitation
thereof, financial statements, reports and other information and materials
submitted by the Company as required hereunder, unless required to be disclosed
by law or pursuant to any judgment, order, subpoena or decree of any court
having competent jurisdiction, or unless such information is already known to
the Holder or is or becomes publicly known, or unless the Company gives its
written consent to the Holder's release of such information, except that no such
written consent shall be required (and Holder shall be free to release such
information) if such information is to be provided to Holder's lawyers,
accountants or other advisors; provided, such recipient is advised of the
--------
confidential nature of such information. Each Holder acknowledges that such
information is for its use solely in connection with evaluating its investment
in the Company.
Section 8.5 Effectiveness. This Stockholders Agreement will become
-------------
effective on the Effective Date.
Section 8.6 Governing Law. THIS STOCKHOLDERS AGREEMENT SHALL BE GOVERNED
-------------
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
Section 8.7 Successors and Assigns. This Stockholders Agreement shall be
----------------------
binding upon the Company, each Holder, and their respective successors and
permitted assigns. Notwithstanding anything to the contrary set forth in this
Stockholders Agreement, no Person who becomes a Holder as a result of the
Transfer to such Person by another Holder of securities subject to this
Agreement shall be entitled to any rights of a Holder under Article 4, unless
---------
the Company has consented in writing to such Transfer, which consent shall not
be unreasonably withheld; provided, however, that no such written consent shall
-------- -------
be required if the Transfer is to any member of such Holder's Group or if such
Transfer includes at least a majority of the Fully-Diluted Common Stock owned by
such Holder and its Affiliates and the Company is given written notice of such
Transfer identifying the name and address of such transferee and the securities
being Transferred; provided, further, that the Company may refuse such written
-------- -------
consent (in a case where such written consent is required) if the Board of
Directors of the Company determines, in its reasonable discretion, that the
transferee is a direct competitor of the Company or has indicated an intention
to compete directly with the Company; provided, further, that under all
-------- -------
circumstances any permitted transferee shall have agreed in
18
<PAGE>
advance in writing to be bound by and comply with this Agreement to the same
extent as the transferor.
Section 8.8 Duplicate Originals. All parties may sign any number of
-------------------
copies of this Stockholders Agreement. Each signed copy shall be an original,
but all of them together shall represent the same agreement.
Section 8.9 Severability. In case any provision in this Stockholders
------------
Agreement shall be held invalid, illegal or unenforceable in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and the remaining provisions shall not in any way be affected or
impaired thereby
Section 8.10 No Waivers; Amendments.
-----------------------
8.10.1 No failure or delay on the part of the Company or any Holder in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
any Holder at law or in equity or otherwise.
8.10.2 Any provision of this Stockholders Agreement may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by the
Company and the Holders holding at least 66-2/3% of the Fully-Diluted Common
Stock; provided that no such amendment or waiver shall, (i) unless signed by the
Majority DFJ Holders or the Majority Capital Z Holders, as applicable, amend the
provisions of Section 2.1 applicable to such Majority DFJ Holders or Majority
-----------
Capital Z Holders, (ii) unless signed by the Majority Capital Z Holders, amend
the provisions of Article 3, (iii) unless signed by Holders holding at least 66-
---------
2/3% of the Fully-Diluted Common Stock held by all Holders, amend the provisions
of Section 4.1, Section 4.2 or Section 4.3 (or Section 4.5 insofar as it relates
----------- ----------- ----------- -----------
to Section 4.1, Section 4.2 or Section 4.3), (iv) unless signed by the Key
----------- ----------- -----------
Employees, amend the provisions of Section 4.4 (or Section 4.5 insofar as it
----------- -----------
relates to Section 4.4), or (iv) unless signed by all of the Holders affected,
-----------
(A) amend the provisions of this Section 8.10.2 or (B) change the number of
--------------
Holders which shall be required for the Holders or any of them to take any
action under this Section 8.10.2 or any other provision of this Stockholders
--------------
Agreement. Any such transferee who obtains such rights must agree to be bound
by the provisions of this Agreement.
Section 8.11 Entire Agreement. This Stockholders Agreement, which shall be
----------------
effective upon the Closing, contains the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings with respect to such subject matter, including, without
limitation, the Existing Stockholders Agreement, which, effective upon the
Closing, shall cease and terminate in its entirety and be of no further force or
effect; provided, however, that in the event that the Closing shall not occur,
-------- -------
then this Stockholders Agreement shall cease and terminate and be of no force or
effect and the Existing Stockholders Agreement shall continue in full force and
effect.
19
<PAGE>
WIT CAPITAL GROUP, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
CAPITAL Z FINANCIAL SERVICES FUND II, L.P.
By: Capital Z Partners, L.P., its sole general
partner
By: Capital Z Partners, Ltd., its sole
general partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
CAPITAL Z FINANCIAL SERVICES PRIVATE FUND II, L.P.
By: Capital Z Partners, L.P., its sole general
partner
By: Capital Z Partners, Ltd., its sole
general partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
INVESTOR:
By:
--------------------------------
Name:
-----------------------------
Title:
-----------------------------
<PAGE>
---------------------------------------
Robert H. Lessin
---------------------------------------
Ronald W. Readmond
<PAGE>
Exhibit 21.1
List of subsidiaries of Wit Capital
Name Jurisdiction of Incorporation
---- -----------------------------
Wit Capital Corporation New York
<PAGE>
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
March 17, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 18,110,146 1,110,787
<RECEIVABLES> 632,264 136,364
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 758,293 540,504
<PP&E> 2,229,916 2,261,464
<TOTAL-ASSETS> 22,296,406 5,836,646
<SHORT-TERM> 0 0
<PAYABLES> 0 0
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 58,703 67,517
0 0
271,391 77,200
<COMMON> 160,923 100,801
<OTHER-SE> 20,175,940 4,681,274
<TOTAL-LIABILITY-AND-EQUITY> 22,296,406 5,836,646
<TRADING-REVENUE> 0 0
<INTEREST-DIVIDENDS> 182,880 53,644
<COMMISSIONS> 294,454 10,403
<INVESTMENT-BANKING-REVENUES> 1,515,105 42,744
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> 4,444,271 1,549,958
<INCOME-PRETAX> (8,759,809) (2,969,530)
<INCOME-PRE-EXTRAORDINARY> (8,759,809) (2,969,530)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,793,890) (2,992,581)
<EPS-PRIMARY> (.86) (.29)
<EPS-DILUTED> (.86) (.29)
</TABLE>
