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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ________________ TO ________________
COMMISSION FILE NUMBER 0-26225
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WIT CAPITAL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 13-3900397
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
826 BROADWAY, NEW YORK, NEW YORK 10003
(Address of Principal Executive (Zip Code)
Offices)
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Registrant's telephone number, including area code (212) 253-4400
Securities Registered Pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
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Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes /X/
The market value of the Common Stock held by non-affiliates of the
registrant was $751,287,233 based on the last reported sale price of the
Registrant's Common Stock on the NASDAQ National Market as of the close of
business on February 29, 2000. For purposes of this response, the registrant has
assumed that its directors, executive officers and beneficial owners of 5% or
more of its common equity are affiliates of the registrant.
As of February 29, 2000, there were 75,964,719 shares of the Registrant's
Common Stock outstanding and 11,666,666 shares of the Registrant's Class B
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission not later than 120 days
after the end of the Company's fiscal year ended December 31, 1999 are
incorporated by reference into Part III of this Form 10-K.
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WIT CAPITAL GROUP, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 12
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 14
Item 6. Selected Financial Data..................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 22
Item 8. Financial Statements and Supplementary Data................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting 23
and Financial Disclosure....................................
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 23
Item 11. Executive Compensation...................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 23
Item 13. Certain Relationships and Related Transactions.............. 23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 24
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Certain statements in this report on Form 10-K constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements, which include all of the statements
relating to our merger with SoundView Technology Group, Inc., that include the
words "expect," "expected," "believe," and "should", involve known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements, or those of the industry in which we operate, to be
materially different from any expected future results, performance or
achievements expressed or implied in these forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those economic factors that affect the market for capital raising, including
initial public offerings and those factors discussed in the Registration
Statement of our initial public offering of common stock, the Proxy and
Registration Statement relating to the merger with SoundView and periodic
reports filed from time to time with the Securities & Exchange Commission.
Unless otherwise indicated, the terms "We" and the "Company" refer to the
combined company of Wit Capital Group, Inc. and subsidiaries including and after
its merger with SoundView Technology Group, Inc. References to "Wit Capital"
refer to Wit Capital Group, Inc. and its subsidiaries, prior to the merger with
SoundView Technology Group, Inc. and references to "SoundView" refer to
SoundView Technology Group, Inc. and its subsidiaries. In March 2000, SoundView
Technology Group, Inc. changed its name to Wit SoundView Corporation.
The financial information presented and discussed in this document
represents the historical financial performance of Wit Capital Group, Inc. and
does not include the results of operations or financial condition of SoundView
for any of the periods discussed or presented.
PART I
ITEM 1. BUSINESS
Our business is comprised of investment banking and brokerage. We have also
established private equity funds for venture capital investing in Internet and
technology companies. On January 31, 2000 we completed our merger with SoundView
Technology Group, Inc., an investment banking firm focused exclusively on
technology. The merger positions us to be a market leader in Internet and
technology investment banking with one of the largest banking and research
groups focused exclusively on these sectors. It also enables us to significantly
expand our Internet-based product offerings both in numbers of shares
distributed to our customers and in breath of timely research coverage which
will be broadly accessible through the Internet.
Our business was started as an Internet investment banking and brokerage
firm that uses electronic mail and the Internet to offer and sell shares in
public offerings, primarily of companies in Internet related business, to
individuals. With the addition of SoundView, we added a focus on the technology
sector and acquired an active base of corporate and institutional customers.
SoundView's core strength has been its research coverage of the information
technology sector. Their business builds upon its in-depth research to provide
investment banking services and institutionally focused sales and trading in
information technology stocks. Following the merger with SoundView, we are
combining our business under the name Wit SoundView. SoundView Technology
Group, Inc. has changed its name to Wit SoundView Corporation as part of this
process. By combining the Wit Capital and SoundView research coverage and
distribution capabilities, we have significantly expanded our investment banking
activities.
INVESTMENT BANKING
As the Internet and other technological means rapidly become a critical
medium for collecting and exchanging information and conducting commerce for
nearly all businesses, we believe that corporate
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clients will gravitate towards those investment banking firms that leverage
their knowledge and expertise about the Internet and technology. The speed of
this development is driven by the Internet's and other technologies' 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.
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, which,
as a result, have played a dominant role in pricing new issues. Individual
investors, who account for approximately 43% of direct ownership of publicly
traded equity securities, have been largely excluded from these offerings. We
believe that a primary reason for this is the extensive human effort and cost
required to market equity offerings with printed prospectuses and to monitor and
confirm the interest of numerous individuals by person-to-person communication.
By marketing public offerings to individual investors electronically, we believe
underwriters and corporate issuers will be able to access efficiently the retail
market and will have at hand instantaneous information as to the level of retail
interest for their equity offerings. This information about individual investor
interest in public offerings should lead to more accurate pricing.
We have a team of 112 investment banking and research professionals with
broad abilities to perform traditional investment banking functions such as deal
selection and origination, due diligence, valuation, deal structuring and
prospectus preparation. Our investment bankers, research personnel, 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 and technology companies and
developing Internet and technology strategies and businesses.
Our investment banking services are divided into four principal categories:
public underwriting, research, financial advisory services and private equity.
PUBLIC UNDERWRITING
Wit Capital pioneered the business of online retail distribution of shares
in public offerings. As a result, we have benefited from publicity and word of
mouth exposure, which we believe has established us as a leading provider of
online investment banking services. With the addition of SoundView, we added a
broader focus to our public underwriting capabilities in the technology sector.
We are capitalizing on SoundView's competitive advantages arising from its
relationships, research, trading and distribution capabilities in the technology
industries for our underwriting efforts. In 1999, Wit Capital participated in
128 public equity offerings, including 103 initial public offerings; SoundView
participated in an additional 143 equity offerings, including 105 initial public
offerings. In that year, Wit Capital retained for sale to their customers a
total of 24.1 million shares, including directed shares, in these public
offerings.
As a result of our merger with SoundView, we believe our customers will see
more offerings available through our combined distribution channels. By melding
our Internet retail distribution strengths with SoundView's well-established
access to the largest institutional Internet and technology investors, our
client issuers will enjoy a stronger platform for their capital raising needs,
and both individual and institutional investors will enjoy access to an
increased number of shares from a broader selection of companies and a more
comprehensive body of easily accessible online research.
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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 modified first-come, first-served basis. By modified first-come,
first-served, we mean that we treat all conditional offers to purchase shares in
an initial public offering received before a specified time--typically
11:59 P.M. (ET) on the day we send e-mail notices of the offering--as if they
had been submitted at the same time. Thereafter, conditional offers are accepted
on a first-come, first-served basis, subject to exceptions set forth in our
rules. If we have more demand for shares from the customers that are treated as
having submitted their offers at the same time than we have to distribute, we
use a random number generator to select those customers to receive an
allocation. While we reserve the right to set minimum and maximum limits for
allocations, we try to allocate the shares we retain for distribution in 100
share increments in order to achieve a broad distribution. For certain issuers,
we also facilitate special or affinity distributions to online investors having
some existing relationship with the issuer, such as their customers,
shareholders, suppliers and employees.
We have developed an automated Web-based system to handle securities
offerings to our individual customers. This automated system includes basic
brokerage functions through which these investors can view offering documents
and enter orders to purchase securities. The system assists our policy of
discouraging "flipping" of securities. Flipping generally refers to buying
shares in an initial public offering and selling them immediately for a profit.
By tracking these customers' holding and sale of the underwritten securities
they purchase from us, our system assists our policy of discouraging our
customers' selling of these securities before 60 days have elapsed. Customers
who flip lose priority for a period of time to customers who have not flipped in
our modified first-come, first-served selling process. The system also includes
a fully automated electronic order book.
We offer issuers contemplating public offerings several capabilities:
- We provide broad dissemination of offerings to online individual
investors, which should result in more demand for shares once they are
publicly traded. For retail-oriented issuers, such broad dissemination
should also result in increased customer awareness for the issuer's
products or services.
- We broaden the investor demand for the issuer's shares by providing a
timely and cost-effective way to access groups having an affinity
relationship with the issuer, such as customers, shareholders, 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.
We also operate, with the addition of SoundView, an extensive market-making
operation to support our investment banking and institutional brokerage
services. As of March 15, 2000, we were market-makers in over 200 technology and
Internet companies. Our trading team currently comprises nine Nasdaq position
traders, four listed traders and 14 sales traders. Our market-makers are a
source of liquidity to some of the world's largest institutional traders. We
believe that the addition of SoundView's market-making activities will allow us
to garner sizable share allotments in initial public stock offerings.
Additionally, we believe this trading team will satisfy the after-market support
that most issuers require from an underwriter.
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Historically, Wit Capital and SoundView focused on 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 our
individual and institutional customers.
RESEARCH
We believe that our focus on the Internet and information technology sector
is crucial to success in meeting the needs of our corporate clients for
investment and strategic advice. SoundView's research universe historically has
been segmented in a manner which provides in-depth analysis of the secular and
cyclical trends within each individual sector. In addition to gaining an
in-depth understanding of the secular and cyclical trends within individual
industry sectors, the research professionals maintain close relationships with
key industry participants in each of those sectors. These key participants
include public and private technology companies, venture capital and
institutional investors, technical experts and professional service providers.
Through these relationships, we expect to gain opportunities to participate
actively in the capital raising and other corporate activity of these technology
companies. SoundView has a continuing strategic partnership with the Gartner
Group that provides access to over 750 Gartner Group research analysts worldwide
as well as unique insight into end-user demand through the numerous surveys
which are conducted at conferences organized by the Gartner Group. In addition,
we have entered into a strategic relationship with the Giga Group that provides
access to their analysts, their customers for survey purposes, and participation
in their research meetings on an exclusive basis.
As of March 15, 2000, we provided research coverage for over 235 companies.
Our research universe is comprised of the following Internet and technology
industry groups and segments:
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SOFTWARE COMPONENTS COMMUNICATIONS SYSTEMS INTERNET
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Internet Semiconductors telecom/datacom/ design automation e-commerce/other
Infrastructure/ semiconductor software photonics enterprise marketplaces
e-commerce software/ capital equipment wireless services systems online healthcare
service/security wireless equipment PC/peripherals e-finance
enterprise software channels/contract media/new media
enterprise manufacturing web hosting
applications internet service
providers
application service
providers
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We currently employ 47 research professionals. In order to achieve the depth
of coverage required to maintain a leading technology research product, we must
often recruit specific industry and technical experience and train the analysts
in financial analysis disciplines. This specialization enables our analysts to
produce sophisticated research which is valued by our institutional clients and
also allows them to publish industry and thematic pieces which distinguish them
as experts in their respective fields. Our analysts work closely with our
investment banking professionals to identify those companies that will evolve as
leaders in their industries. It is with these companies that we seek to develop
long-term relationships helping to manage their capital raising activities and
offering strategic advice.
In contrast to established research practices--where high quality research
is closely held and shared only with a brokerage firm's favored clients--we
disseminate our research for free on our Web site to our customers. We do not
charge customers, brokerage firms or Web content or portal sites for our
research. We believe that this strategy helps us to build brand recognition,
without the cost of advertising or marketing.
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We will continue to hold SoundView's annual Technology Outlook Conference
which has become a leading venue for the top technology companies to present
their stories to hundreds of technology focused institutional investors in their
industries. In 1999, a total of 99 public and private companies made
presentations to 320 of the senior investment professionals at 253 institutions.
In addition to this major conference, we will sponsor industry specific
conferences in the photonics, semiconductor, software and other areas.
STRATEGIC ADVISORY SERVICES
In addition to our capital raising services, we also offer corporate clients
a broad range of advisory services, including those related to developing
Internet strategies and businesses, mergers and acquisitions, divestitures and
valuations. These activities compliment 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. Our expertise in the technology sector coupled
with our senior management's advisory relationships with a number of
corporations position us to receive advisory service assignments that, in turn,
enhance our reputation and lead to capital raising and other investment banking
engagements.
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 the future, we plan to
offer private equity to high net worth individual investors online.
BROKERAGE
We offer our institutional customers a variety of sales and trading
services. We are able to leverage our expertise in technology entities through a
sales force with a comprehensive understanding of the complex and diverse
technologies at the heart of technology-focused investments. The extensive
market-making operations we acquired in the merger with SoundView are a trusted
source of liquidity to some of the world's largest institutional lenders. At
March 15, 2000, we employed 68 institutional sales and trading professionals
operating out of our offices in Stamford and San Francisco.
We offer to our retail customers online brokerage services such as stock and
option trading, access to more than 3,800 mutual funds, 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
retail commission rates are $14.95 for market orders and $19.95 for limit
orders. As part of our online brokerage services, we provide news and other
information services through arrangements with third-party vendors, including
CBS Marketwatch, Free Edgar, IPO Central, Smartmoney.com, Stockpoint, Reuters
and Red Herring.
The following table shows the growth in (1) the number of retail customers
who have opened accounts and have active accounts with us and (2) the daily
average number of secondary market trades
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these customers have executed through us. Secondary market trades, which involve
the buying and selling of publicly traded securities, do not include shares
purchased in public offerings.
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APPROXIMATE NUMBER OF APPROXIMATE NUMBER OF DAILY AVERAGE NUMBER OF
CUSTOMER ACCOUNTS AT ACTIVE CUSTOMER ACCOUNTS SECONDARY MARKET TRADES
PERIOD END AT PERIOD END DURING THREE-MONTH PERIOD
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March 31, 1998............... 3,100 (A) 12
June 30, 1998................ 5,300 (A) 25
September 30, 1998........... 7,800 (A) 45
December 31, 1998............ 10,800 2,900 106
March 31, 1999............... 26,000 9,600 405
June 30, 1999................ 66,800 27,100 1,377
September 30, 1999........... 85,100 52,900 1,833
December 31, 1999............ 99,800 62,800 2,385
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(A) Estimated to be less than 2,100 active customer accounts.
CUSTOMER SERVICE. We have made and continue to make a substantial
commitment to provide a high quality of retail customer service through our call
center. We continue to expand our telephone system capacity and additional
aspects of our infrastructure. We will need to increase the number of customer
care representatives in our call center as our retail customers' activity
increases. We have expanded the hours of operation of our call center in order
to better meet the requirements of our customers. In addition, we have made a
substantial investment to ensure that our operations are adequately structured
and supervised to be in compliance with applicable regulations. The rapidly
increasing level of telephone and e-mail inquiries at times has strained the
capacity of our telecommunications system and our customer service staff. In
addition, on occasion we have experienced temporary disruptions in our Web site
service. As a result, our customers have sometimes been unable to contact us in
a timely manner.
CLEARING AND SETTLEMENT. Bear Stearns & Co. clears our institutional
customer transactions on a fully disclosed basis. U.S. Clearing, a division of
Fleet Securities, clears our retail customer transactions on a fully-disclosed
basis. Clearing 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
continue to increase our trade processing capabilities to better facilitate the
clearing of trades we execute for our customers.
Under our separate agreements with Bear Stearns and U.S. Clearing, we pay
clearing and execution fees according to a schedule. In addition, the agreements
require Bear Stearns and 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 fees on balances maintained by these
customers with selected money market funds. We must indemnify the two firms for,
among other things, any loss or expense due to the failure of customers to:
(1) pay for securities purchased by them, (2) promptly deliver securities sold
by them, (3) deposit sufficient collateral to support their borrowing when
requested by the clearing firm, and (4) remit excessive disbursements of funds
or any other valid charges imposed by the clearing firm.
VENTURE CAPITAL FUND GROUP
The Venture Capital Fund Group emphasizes investments in Internet and
technology businesses and maintains a particular focus on e-commerce companies,
Internet enabling technologies, Internet infrastructure and products and
services that enhance digital businesses. Our venture capital funds
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allow investors to pool their resources and gain access to a quality of deal
flow traditionally available to proprietary funds backed by large institutions.
We established our Venture Capital Fund Group in October 1999 when several
of the members of the management team of Dawntreader Fund I LP, an early stage
internet fund established in 1998 by our co-chief executive officer Robert H.
Lessin, joined our company. The Venture Capital Fund Group currently manages Wit
VC Fund I LP (formerly called Arista Capital Partners, LP) and a series of four
funds collectively known as Dawntreader Fund II, LP. Wit VC Fund I LP raised
approximately $39.5 million in August 1999 from high net worth individuals. This
fund, which invests in second and later stage companies, has already invested or
committed to invest over 75% of its initial capital. Dawntreader Fund II raised
approximately $270 million in February and March 2000. It intends to invest in
early stage, second stage, and later stage companies. The investors in
Dawntreader Fund II include publicly traded corporations, institutional
investors, and high net worth individuals. We intend to offer other Venture
Capital funds that are intended to invest on a global basis. We intend in the
future to offer additional Venture funds intended to invest in the U.S. We
derive revenue from our Venture Capital Fund Group activity through management
fees and sharing in profits realized by the funds.
Our venture capital funds enable us to further take advantage of our
expertise in the Internet, e-commerce and technology. The development of these
funds will create new investment opportunities for our high net worth
individual, corporate and institutional clients and will create a wider range of
capital raising opportunities for corporate issuers. The management of current
and creation of additional venture capital funds should foster long term
partnerships with our corporate clients while providing significant returns to
the investors in our funds.
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 would like to
emerge as a global brand representing preeminence in Internet and technology
investment banking and brokerage activities. While we hope to develop a global
network of Wit Capital branded companies linked by license and contractual
agreements, our first two investments are in the developmental stage and we can
provide no assurance that either will be successful in developing their
businesses.
WIT CAPITAL JAPAN. In July 1999, we entered into a joint venture agreement
with Trans Cosmos, Inc. and an investment agreement with Mitsubishi Corporation
to establish a Japanese Internet and technology investment banking firm, known
as Wit Capital Japan Inc. Wit Capital Japan was incorporated in August, 1999 and
is based in Tokyo. Wit Capital Japan plans to commence operations in May 2000.
Wit Capital Japan recently closed a second round of financing from private
investors, bringing the aggregate amount of funds it has received since
August 1999 to over $40 million. A group of Japanese financial institutions and
venture capital investors joined Trans Cosmos and Mitsubishi Corporation in this
latest round of financing. Wit Capital Japan has hired Katsuya Takanashi to
serve as president and chief executive officer and to build a team of investment
banking professionals, research analysts and technical experts. Mr. Takanashi
has over 30 years of investment banking experience, with the most recent
15 years being spent at various executive and leadership positions within Nomura
Securities. Mr. Takanashi served as executive vice president of Nomura Asset
Management and has also been a member of the board of directors of Nomura
Securities Co., Ltd. Our role in the venture is to provide know-how to the
management of Wit Capital Japan. We own 30% of the outstanding equity in Wit
Capital Japan, and we have an option terminating in May 2000 to purchase an
additional 10%.
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Wit Capital Japan will extend to the Japanese markets our philosophy and
practice of opening the equity markets to individual investors. Using the
Internet and other more traditional means, Wit Capital Japan will offer
individual and institutional investors in Japan opportunities to invest in
public offerings and venture capital funds of Japanese companies. In addition,
Wit Capital Japan will provide access to proprietary, institutional-quality
investment research at no charge. It also intends to provide financial advisory
services to Japanese companies developing Internet and technology businesses,
including U.S. companies seeking to create joint ventures with companies in
Japan. Wit Capital Japan will also offer online brokerage services to individual
investors in Japan. In addition, five of its investors have agreed to
participate in electronic underwriting syndicates in public offerings in which
Wit Capital Japan participates as a lead manager or co-manager.
Although the Japanese government has recently suggested that there will be
support for efforts to develop new capital raising opportunities for Japanese
growth companies, Wit Capital Japan will face challenges presented by
traditional capital raising conventions and by the dominance of large Japanese
securities firms. Wit Capital Japan hopes to benefit from our experience and
relationships with the U.S. Internet and technology community and our successful
track record in gaining regulatory and industry acceptance of online capital
raising. Wit Capital Japan anticipates a significant increase in the Japanese
e-commerce market as Japanese consumers and investors gain confidence in the
Internet as a medium of commerce.
WIT CAPITAL EUROPE. In October 1999, we and enba plc, a European provider
of Internet-only financial services, announced a plan to combine our efforts to
establish a Pan-European investment banking firm, to be known as Wit Capital
Europe Group plc. Subsequently, Cazenove & Co., a London-based investment bank
and brokerage company, made a $16.4 million investment in Wit Capital Europe.
Wit Capital Europe plans to commence operations in July 2000, subject to
obtaining the required regulatory approvals. We currently have a 49% interest in
Wit Capital Europe.
In March 2000, Wit Capital Europe hired Edward Annunziato to serve as its
chairman and chief executive officer and to build a team of investment bankers
and research analysts. Prior to joining Wit Capital Europe, Mr. Annunziato
served as co-head of Merrill Lynch's Europe, Middle East and Africa investment
banking operations.
Wit Capital Europe will use the Internet and more traditional means to offer
individual and institutional investors in Europe the opportunities to invest in
public offerings and venture capital funds of European companies. It also
intends to provide financial advisory services to companies developing Internet
and technology businesses in Europe, including U.S. companies seeking to create
joint ventures with companies in Europe. Wit Capital Europe will also provide
online brokerage services to individual investors in Europe. In addition, Wit
Capital Europe will provide access to proprietary, institutional-quality
investment research at no charge. Wit Capital Europe intends to work closely
with enba to offer an integrated consumer banking and brokerage service to
individual investors throughout Europe, initially focusing on the United
Kingdom, France and Germany. The joint venture will thus be able to take
advantage of enba's developing technology platform designed to facilitate the
provision of online consumer banking and brokerage on a Pan-European basis.
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.
In addition, we have completed a general redesign of our Web site to improve
reliability, capacity and overall functionality, specifically with regard to the
public offering process, access to research and
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online brokerage services. In connection with this redesign, we need to
stabilize the performance of and continually monitor and enhance our technology
in order to meet our customer expectations.
MARKETING
We have experienced growth in our retail customer base with limited
marketing expenditures. We acquire retail brokerage customers primarily by
making available public securities offerings to individuals on a modified
first-come, first-served basis. In addition, we acquire retail 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 our Web site and through other
distribution channels such as portals.
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 investment banking and 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. In addition, we expect that investment banking
firms will create or acquire captive online brokerage distribution, such as
Morgan Stanley has accomplished through its ownership of Discover Direct and
Donaldson, Lufkin & Jenrette has accomplished through the development of
DLJdirect.
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<PAGE>
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 over one hundred discount brokerage
firms already operating on the Internet. 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. Many of these brokerage firms
have also begun conducting business online.
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
Securities and Exchange Commission, or SEC, is the federal agency responsible
for the administration of the federal securities laws. We are registered as a
broker-dealer with the SEC and in all 50 states, the District of Columbia and
Puerto Rico. We are also a member of the NASD, a self regulatory body to which
all broker-dealers belong. Certain self-regulatory organizations, such as the
NASD, adopt rules and examine broker-dealers and require strict compliance with
their rules and regulations. The SEC, self-regulatory organizations and state
securities commissions may conduct administrative proceedings which can result
in censure, fine, the issuance of cease-and-desist orders or the suspension or
expulsion of a broker-dealer, its officers or employees. The SEC and
self-regulatory organization rules cover many aspects of a broker-dealer's
business, including capital structure and withdrawals, sales methods, trade
practices among broker-dealers, use and safekeeping of customers' funds and
securities, record-keeping, the financing of customers' purchases, broker-dealer
and employee registration and the conduct of directors, officers and employees.
EFFECT OF NET CAPITAL REQUIREMENTS. As a registered broker-dealer and
member of the NASD, we are subject to the Uniform Net Capital Rule under the
Exchange Act. The Uniform Net Capital Rule specifies the minimum level of net
capital a broker-dealer must maintain and also requires that at least a minimum
part of its assets be kept in relatively liquid form. As of December 31, 1999,
our broker-dealer subsidiary Wit Capital Corporation was required to maintain
minimum net capital of $819,190 and had total net capital of $23,914,930, or
$23,095,740 in excess of the minimum amount required. Our other broker-dealer
subsidiary, SoundView, as of December 31, 1999, was required to maintain minimum
net capital of $467,500 and had total net capital of $12,833,300 or $12,365,800
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
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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 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 have entered into joint ventures to
establish 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.
CHANGES IN EXISTING LAWS AND RULES. Additional legislation or regulation,
changes in existing laws and rules or changes in the interpretation or
enforcement of existing laws and rules, either in the United States or
elsewhere, may directly affect our mode of operation and our profitability.
EMPLOYEES
We believe that one of our strengths is the quality and dedication of our
people and the shared sense of being part of a team. We strive to maintain a
work environment that fosters professionalism, excellence, diversity and
cooperation among our employees. We also believe that our employees should have
an equity stake in the firm. As of March 15, 2000, we had 437 employees who, as
a group, own roughly 40% of the equity of our company on a fully-diluted basis.
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<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning each of the
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- -------- ------------------------------------------
<S> <C> <C>
Robert H. Lessin.......................... 45 Chairman and co-chief executive officer
Ronald Readmond........................... 57 Vice chairman and co-chief executive
officer
Andrew D. Klein........................... 40 Vice chairman, founder and chief
strategist
Russell D. Crabs.......................... 42 Co-head of Wit SoundView
Mark Loehr................................ 43 Co-head of Wit SoundView
Harry Silver.............................. 44 Senior vice president and chief
administrative officer
Curtis L. Snyder.......................... 38 Senior vice president and chief financial
officer
John W. Palmer............................ 47 Senior vice president and chief
information officer
Elizabeth Schimel......................... 40 Senior vice president and director of
business development
Everett F. Lang........................... 57 Senior vice president and director of
brokerage
Daniel DeWolf............................. 42 Senior vice president and director of
venture capital fund group
Lloyd H. Feller........................... 57 Senior vice president and co-general
counsel
Robert C. Mendelson....................... 49 Senior vice president and co-general
counsel
</TABLE>
ITEM 2. PROPERTIES
Our principal executive offices are located in New York City where we lease
31,500 square feet of loft space and in Stamford, Connecticut where we lease
24,000 square feet of office space. The term of the lease in New York City
expires in November 2006 and the term of the lease in Stamford expires in
March 2003. We also lease 6,500 square feet of additional office space in New
York City. The term of that lease expires in September 2001. We operate a
1,000-square foot office for our investment banking group in San Francisco which
expires in May 2000 and a 14,000 square foot office in San Francisco which
expires in November 2009. We also lease smaller office suites in Menlo Park,
California and New York City.
ITEM 3. LEGAL PROCEEDINGS
We are currently subject to claims and legal proceedings arising in the
normal course of our business. We do not believe that the resolution of such
legal proceedings should have a material adverse effect on us.
On June 28, 1999, certain of Wit Capital's customers filed a purported class
action lawsuit in the Superior Court of the State of Delaware in and for New
Castle County styled ARTHUR E. BENNING, SR., ET AL. V. WIT CAPITAL GROUP, INC.
AND WIT CAPITAL CORPORATION. The seven count complaint charges Wit Capital with
(1) breach of contract for alleged failure to comply with the "anti-flipping
policy" contained in the account agreement with Wit Capital customers;
(2) breach of the implied covenant of good faith and fair dealing by allegedly
violating the anti-flipping policy and alleged failure to "maintain adequate
computer, communications, personnel, accounting, bookkeeping, and/or other
support systems and facilities"; (3) fraud by reason of the fact that Wit
Capital allegedly violated its own anti-flipping policy and our alleged
first-come/first-served policy in connection with IPOs; (4) negligent
misrepresentation in its method of allocation of participation in IPOs;
(5) breach of fiduciary duty as a broker; (6) negligence in handling accounts;
and (7) violation of Delaware's
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Consumer Fraud Act. We intend to defend the lawsuit vigorously. We do not
believe that this lawsuit should have a material adverse effect on us.
In September of 1996, Arnold Owen, a former officer, director and employee
of SoundView and a former trustee of SoundView's 401K and Profit Sharing Plan,
filed a complaint in the United States District Court for the Southern District
of New York naming SoundView and the Profit Sharing Plan as defendants. The
action, among other things, challenged the valuation methodology applied by the
Profit Sharing Plan trustees to value SoundView stock held in the Profit Sharing
Plan and the amount offered by the Profit Sharing Plan trustees to repurchase
the SoundView stock held by the Profit Sharing Plan on Mr. Owen's behalf. On
July 28, 1999, judgment was rendered by the District Court in favor of SoundView
and the Profit Sharing Plan on all counts, dismissing on the merits all claims
asserted by Mr. Owen and awarding SoundView in excess of $226,000 in attorney's
fees, costs and disbursements from Mr. Owen. Subsequently, Mr. Owen filed an
appeal, which was heard by the United States Court of Appeals for the Second
Circuit and in March 2000, the Second Circuit affirmed the lower court's
judgement.
The United States Department of Labor has initiated an investigation with
regard to SoundView's Profit Sharing Plan focusing on, among other things, stock
valuation issues relating to SoundView stock held in the Profit Sharing Plan.
The Department of Labor has outlined five reasons why it believes the Profit
Sharing Plan and/or the Profit Sharing Plan trustees have violated ERISA.
SoundView and the Profit Sharing Plan have issued a preliminary response to the
Department of Labor and SoundView believes that the Department of Labor's
position is faulty and erroneous in many respects. SoundView intends to
vigorously contest any charges the Department of Labor may bring. However,
SoundView and the Profit Sharing Plan trustees are unable at this time to
express any opinion as to the likelihood of the Department of Labor becoming a
party to the Owen appeal, filing a formal administrative or judicial complaint,
or the outcome of any such action if initiated.
Additionally, a person formerly associated with Wit Capital has asserted a
right to purchase 560,000 shares of common stock at $1.43 per share. We believe
the assertion is without merit, and we intend to contest any lawsuit filed
against us. These 560,000 shares of common stock were reported as forfeited
stock options in 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Wit Capital's common stock has traded on the Nasdaq National Market under
the symbol "WITC" since June 4, 1999. The following table sets forth the range
of high and low sales prices reported on the Nasdaq National Market for Wit
Capital common stock for the periods indicated.
<TABLE>
<CAPTION>
1999: HIGH LOW
- ----- -------- --------
<S> <C> <C>
Second quarter (beginning June 4).......................... $38.00 $ 9.00
Third quarter.............................................. 37.50 15.50
Fourth quarter............................................. 24.75 15.375
</TABLE>
The closing sale price of the Company's common stock on February 29, 2000
was $16.188. The number of holders of record of the Company's common stock as of
that date was 767. The number of stockholders of record does not reflect the
actual number of individual or institutional stockholders of the Company as
certain shares are held in the name of nominees. There was one holder of record
of the Company's Class B Common Stock as of February 29, 2000.
We have never declared or paid dividends cash on our common stock. We do not
anticipate paying cash dividends on our common stock or Class B Common Stock in
the foreseeable future.
The Company continues to use the net proceeds from its IPO for working
capital purposes. In December 1999, Wit Capital invested $5.6 million in a joint
venture to form Wit Capital Europe. In January 2000, Wit Capital paid
approximately $22.5 million to shareholders of SoundView in connection with its
merger with SoundView. The Company expects to continue to use the proceeds for
working capital purposes and for strategic acquisitions or investments.
RECENT SALES OF UNREGISTERED SECURITIES
(1) From January 1, 1999 through March 25, 1999, we issued 21,400,033 shares
of Series D Convertible Preferred Stock to accredited investors, including two
of our directors, for $1.50 per share. These shares were converted into
14,980,023 shares of common stock.
(2) On April 8, 1999, we issued 11,666,666 shares of Series E Convertible
Preferred Stock (now Class B common stock) and 5,637,295 warrants to The Goldman
Sachs Group, L.P. for $2.14 per share. Goldman Sachs has the right to receive up
to an additional 153,247 similar warrants in certain circumstances after
September 25, 1999.
(3) On March 5, 1999, we signed an employment agreement with Mark Loehr. We
have extended to Mr. Loehr a 50% recourse promissory note which he purchased
875,000 shares of common stock subject to incremental vesting. The shares will
vest as follows: 54,688 shares will vest on June 30, 1999, 54,688 shares will
vest on the last day of each fiscal quarter until March 31, 2003, upon which day
the remainder will vest. We may purchase the shares at the lower of $2.14 per
share or the fair market value for the shares (as determined by our Board of
Directors) before the final vesting date if Mr. Loehr violates the
non-competition restrictions contained in his employment agreement or if he is
no longer employed by us. If he is terminated other than for cause, or for death
or disability, or if he leaves his position for good reason, he will still be
entitled to these shares.
(4) On April 15, 1999, we extended Robert Mendelson and Lloyd Feller
interest-bearing loans totaling $1,950,000 with which they purchased 910,000
shares of common stock at $2.14 per share. The principal portion of these loans
is partial recourse and the interest portion is full recourse. In the event that
Mr. Mendelson or Mr. Feller ceases to be employed by us, we have the right to
purchase the unvested portion of their respective shares at the lower of their
fair market value or $2.14 per share. These repurchase rights terminate on
March 31, 2003. In addition, the loans may be repaid at any time
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<PAGE>
by Mr. Mendelson and Mr. Feller and become due and payable in the event of
termination of employment.
(5) On April 30, 1999, we issued a total of 2,974,488 shares of common stock
to four of our executive officers and five of our key employees for exercise of
their stock options for $1.43 and $2.14 per share. The exercise prices were paid
with the proceeds of loans we made to these executive officers and key
employees.
(6) From January 1, 1999 to May 30, 1999, we issued a total of 1,293,947
shares of common stock to our employees and former employees for exercise of
their stock options for $1.43--$3.57 per share.
(7) From January 1999 to May 30, 1999, we issued a total of 131,250 shares
of common stock to investors for exercise of their warrants to purchase common
stock for $1.43 to $3.57 per share.
(8) From October 1, 1999 to December 6, 1999, we issued a total of 19,116
shares of Class C common stock (now common stock) to our employees and former
employees for exercise of their stock options for $1.43--$3.57 per share.
(9) From October 1, 1999 to December 6, 1999, we issued a total of 483,021
shares of Class C common stock (now common stock) to investors for exercise of
their warrants to purchase common stock for $1.43.
(10) From December 7, 1999 to December 31, 1999 we issued a total of 412,289
of common stock to our employees and former employees for exercise of their
stock options for $1.43--$2.14 per share.
(11) From December 7, 1999 to December 31, 1999, we issued a total of 59,500
shares of common stock to an investor for exercise of their warrant to purchase
common stock for $1.43 per share.
The sale of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or, with respect to issuances to employees,
directors and consultants, Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients of securities in each
such transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the instruments
representing such securities issued in such transactions. All recipients either
received adequate information about us or had adequate access, through their
relationships with us, to such information.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following summary selected financial data of Wit Capital for the years
ended December 31, 1999, 1998, 1997 and 1996 has been derived from Wit Capital's
consolidated financial statements, which have been audited by Arthur Andersen
LLP, independent public accountants, and are included elsewhere in this Annual
Report on Form 10-K. All per share and weighted average share information has
been adjusted to reflect the Wit Capital 7 for 10 reverse stock split effected
June 2, 1999. The selected financial data should be read in conjunction with the
consolidated financial statements and related notes thereto and with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Wit Capital," which are included elsewhere in this Annual Report
on Form 10-K.
WIT CAPITAL GROUP, INC.
STATEMENT OF OPERATIONS DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FROM INCEPTION
THROUGH
YEARS ENDED DECEMBER 31, DECEMBER 31,
--------------------------------------- ----------------
1999 1998 1997 1996
------------ ---------- ----------- ----------------
<S> <C> <C> <C> <C>
REVENUES:
Investment banking................. $ 30,270 $ 1,515 $ 43 $ --
Brokerage.......................... 7,088 295 10 --
Unrealized gain on investment...... 5,509 -- -- --
Interest and other................. 5,751 228 193 41
------------ ---------- ----------- -----------
Total revenues................... 48,618 2,038 246 41
------------ ---------- ----------- -----------
EXPENSES:
Compensation and benefits.......... 39,014 4,444 1,550 378
Professional services.............. 4,953 878 330 283
Brokerage and clearance............ 5,347 186 6 2
Data processing and
communications................... 3,449 625 238 50
Write-down of computer software and
equipment........................ 5,565 -- -- --
Other expenses..................... 10,633 4,699 1,115 1,102
------------ ---------- ----------- -----------
Total expenses................... 68,961 10,832 3,239 1,815
------------ ---------- ----------- -----------
Loss before equity in net loss of
affiliates......................... (20,343) (8,794) (2,993) (1,774)
Equity in net loss of affiliates..... (560) -- -- --
------------ ---------- ----------- -----------
Net Loss........................... $ (20,903) $ (8,794) $ (2,993) $ (1,774)
============ ========== =========== ===========
NET LOSS PER SHARE:
Basic................................ $(0.52) $(1.23) $(0.41) $(0.33)
Diluted.............................. (0.52) (1.23) (0.41) (0.33)
WEIGHTED AVERAGE SHARES USED IN THE
COMPUTATION OF NET LOSS PER SHARE:
Basic................................ 39,909,794 7,140,123 7,303,013 5,378,167
Diluted.............................. 39,909,794 7,140,123 7,303,013 5,378,167
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities readily convertible
to cash................................................ $121,350 $18,110 $1,111 $ 750
Total assets............................................. 163,618 22,296 5,837 2,655
Stockholders' equity..................................... 144,402 20,608 4,859 1,480
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read with the financial statements of Wit
Capital and related notes thereto and Item 6, "Selected Financial Data"
appearing elsewhere in this Report.
The financial information presented and discussed below and elsewhere in
this document represents the historical financial performance and business of
Wit Capital Group, Inc. and does not include the results of operations or
financial condition of SoundView for any of the periods discussed or presented.
OVERVIEW AND BUSINESS
Our wholly owned subsidiary, Wit Capital Corporation, was founded in 1996 as
the first online investment banking firm. With offices in New York and San
Francisco, Wit Capital Corporation is an investment banking firm that offers an
array of investment banking services, including underwriting for public
offerings, private equity services, strategic advisory, and institutional
quality research. Wit Capital's investment banking activities focus on companies
that principally use the Internet to conduct their businesses and more
generally, on issuers seeking to market their stock offerings to online
individual investors. It also focuses on other rapidly growing sectors of the
economy that are related to or dependent on Internet technology. Wit Capital
Corporation also offers individual investors online brokerage services that
include access to IPOs and other securities offerings that in the past have only
been available to institutions and wealthy individuals. In addition, it has
established private equity funds for venture capital investing in Internet
companies by high net worth individuals. Wit Capital Group, Inc. completed its
initial public offering in June 1999.
From its founding in 1996 through the first nine months of 1997, Wit Capital
was engaged in organizational activities. During the last quarter of 1997 and
the first quarter of 1998, it was in an early stage of its operations, and it
generated only minimal revenues from its investment banking and brokerage
activities. Accordingly, we do not believe that period to period comparisons of
our operating results are meaningful and should not be relied upon as indicators
of future performance.
On January 31, 2000 Wit Capital completed its merger with SoundView
Technology Group, Inc., a privately-owned broker-dealer and investment banking
firm focused exclusively on technology. Under the terms of the agreement, it
acquired the outstanding shares of SoundView in exchange for approximately
$313 million, consisting of newly issued common stock, options replacing
SoundView options and approximately $22.5 million in cash. This acquisition has
been accounted for using the purchase method of accounting. The excess of cost
over the estimated fair value of net assets acquired was allocated to certain
identifiable intangible assets and goodwill, a total of approximately
$275 million which will be amortized on a straight line basis over periods
between 4 and 20 years.
SoundView's singular focus in the technology sector has allowed it to
provide in-depth investment research which enables SoundView to provide
investment banking and institutional brokerage services. SoundView's investment
banking business is comprised primarily of the underwriting of public offerings
of equity securities and providing financial advisory services in connection
with transactions such as mergers and acquisitions, divestitures and valuations.
SoundView's brokerage operations provide a variety of sales and trading services
to institutional investors. It leverages its technology expertise through a
sales force which has a comprehensive understanding of the complex and diverse
technologies involved in technology-focused investing. As a result of our merger
with SoundView we believe that our results of operations for the past three
years will not be indicative of the results for any future period.
As a result of the merger with SoundView, we have over 100 investment
banking and equity research professionals focused exclusively on the Internet
and technology sectors. Additionally, we cover more than 235 companies, creating
one of the largest bodies of research in the Internet and
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<PAGE>
technology sectors. As a result of the increase in professionals dedicated to
the investment banking business and the brand power of the combined company, we
expect our investment banking revenue to increase significantly.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
REVENUES
Total revenues for the year ended December 31, 1999 were $48.6 million, were
$2.0 million for the year ended December 31, 1998 and were $246,000 for the year
ended December 31, 1997.
Investment banking revenue for the year ended December 31, 1999 was
$30.3 million, was $1.5 million for the year ended December 31, 1998 and $43,000
for the year ended December 31, 1997. During 1997 and 1998, the revenue
generated from underwriting activities was limited since Wit Capital received
none or only negligible portions of management fees paid to co-managing
underwriters, and underwriting sales credits reflected limited allocations of
the shares being underwritten. In 1998, approximately 36% of this revenue was
generated from one financial advisory transaction in connection with the sale of
a client company. During 1999, Wit Capital began to receive management fees and
larger allocations of the shares in offerings, and has experienced a general
increase in the number of offerings in which it participates. Revenues related
to financial advisory services have also increased as a result of an increase in
strategic advisory relationships and frequency of transactions.
Wit Capital participated in a total of 128 securities offerings during 1999,
57 as co-manager and 71 as syndicate member compared to 1998 during which it
participated in 1 offering as co-manager and 37 offerings as syndicate member.
During 1997, Wit Capital participated in a total of 3 securities offerings as
syndicate member. For the year ended December 31, 1999, total shares
underwritten were 21.2 million, compared to 2.1 million shares underwritten
during 1998 and 188,250 shares underwritten in 1997. Of the shares underwritten
during 1999, Wit Capital retained 24.1 million shares (including directed
shares) compared to 490,000 shares in 1998 and 25,500 shares in 1997. These
figures do not include 2.28 million shares of Wit Capital Group, Inc. common
stock that Wit Capital distributed to its customers during its initial public
offering in June 1999.
Brokerage revenue for the year ended December 31, 1999 was $7.1 million, was
$295,000 for the year ended December 31, 1998 and was $10,000 for the year ended
December 31, 1998. Wit Capital charges its online retail customers a brokerage
commission of $14.95 for market orders and $19.95 for limit orders. The increase
in brokerage revenue resulted primarily from an increase in the number of
customer accounts opened and an increase in the number of trades executed for
its customers. The average daily number of trades executed for the twelve month
period ended December 31, 1999 was 1,500 compared to 46 for the twelve month
period ended December 31, 1998. Wit Capital commenced its brokerage operations
in the fourth quarter of 1997.
SoundView offers a variety of sales and trading services to institutional
investors and employs 68 professionals in this area. It also operates a market
making operation, in which it is market maker in over 200 companies, primarily
characterized as technology companies. As a result of merging SoundView's
institutional capability into Wit Capital's current investment banking and
brokerage businesses, we expect to significantly increase our revenue derived
from brokerage operations.
Interest income for the year ended December 31, 1999 was $4.7 million, was
$183,000 for the year ended December 31, 1998 and was $54,000 for the year ended
December 31, 1998. Wit Capital earns interest income from the investment of cash
balances raised through financing activities until the funds are used in its
business. During 1999, as a result of funds raised in private placements and Wit
Capital's initial public offering, the average monthly cash balance was
$93.5 million as compared to a monthly average of $4.1 million for 1998 and a
monthly average of $1.2 million for 1997.
18
<PAGE>
During the fourth quarter of 1999, Wit Capital recognized an unrealized gain
of $5.5 million on an investment. This unrealized gain represents the value of
common stock warrants received from a client company for which it provided
investment banking services. We expect that we will continue to receive equity
or warrants representing the right to purchase equity in companies for which we
provide investment banking services as consideration for services we perform.
Other revenue for the year ended December 31, 1999 was $1.0 million, was
$45,000 for the year ended December 31, 1998 and was $139,000 for the year ended
December 31, 1997. For the year ended December 31, 1999, other revenue primarily
consisted of management fees earned from Wit VC Fund I LP, advertising revenue
earned from the sale of banner space on our website and a realized gain on the
sale of equity securities that were received as consideration for financial
advisory services. For the year ended December 31, 1998 other revenue consisted
of an unrealized gain on a security position, and in 1997 it consisted of a
one-time publishing royalty payment assigned to us by the founder of our
company.
EXPENSES
Compensation and benefits expense for the year ended December 31, 1999 was
$39.0 million, was $4.4 million for the year ended December 31, 1998, was
$1.6 million for the year ended December 31, 1997. Compensation and benefits
expense consists of salaries, bonuses and other benefits paid or provided to Wit
Capital's employees. The increase in compensation expense primarily relates to
an increase in the number of employees from 25 as of December 31, 1997 to 66 as
of December 31, 1998, and to 241 as of December 31, 1999.
Additionally, in February 1999, Wit Capital entered into employment
contracts with several professionals which entitled them to a total of
$5.5 million in up front payments. Wit Capital recognized compensation expense
of $2.6 million related to those portions of the amounts paid for which no
future service by the employees was required. As a result of the merger with
SoundView and as we continue to hire more investment banking and research
professionals and participate in more transactions, we expect our compensation
expense to grow.
Professional services expense for the year ended December 31, 1999 was
$5.0 million from $878,000, was for the year ended December 31, 1998, and was
$329,000 for the year ended December 31, 1997. Professional services expense
includes legal, consulting, accounting, and recruiting fees which have increased
as Wit Capital continues to make improvements to customer service and
infrastructure, hire additional personnel, and increase brokerage and investment
banking operations.
Brokerage and clearing expense for the year ended December 31, 1999 was
$5.3 million, was $186,000 for the year ended December 31, 1998 and was $6,000
for the year ended December 31, 1997. This expense primarily consists of amounts
paid to the Company's clearing agent for processing and clearing customers'
trades. The increase in brokerage and clearance expense reflects the increased
volume and growth of the brokerage operations. As a result of the merger with
SoundView, we expect brokerage and clearing expense to continue to increase
significantly.
Data processing and communications expense for the year ended December 31,
1999 was $3.4 million, was $625,000 for the year ended December 31, 1998 and was
$238,000 for the year ended December 31, 1997. Data processing and
communications expense includes costs related to market data services,
transaction processing and telephone and other communication charges. These
expenses have increased as a result of an increased number of active customer
accounts and an increased volume of transactions processed. We expect these
costs will continue to grow as transaction volume increases.
Technology development expense for the year ended December 31, 1999 was
$2.8 million, was $1.2 million for the year ended December 31, 1998 and was
$511,000 for the year ended December 31, 1997. The increases resulted from the
continued development and enhancements to Wit Capital's
19
<PAGE>
technology infrastructure as well as the development of its new web site. We
expect technology development expense to increase as operations continue to grow
and as we continue to invest in our infrastructure.
Depreciation and amortization expense for the year ended December 31, 1999
was $1.6 million, was $897,000 for the year ended December 31, 1998, and was
$229,000 for the year ended December 31, 1997. Depreciation and amortization
consists primarily of depreciation and amortization of property, equipment and
leasehold improvements and amortization of computer software. The increases in
depreciation and amortization reflect the increased investments Wit Capital has
made in technology, equipment and facilities. We expect these expenses to
continue to grow as we continue to invest in technology and infrastructure.
Occupancy expense for the year ended December 31, 1999 was $1.1 million, was
$237,000 for the year ended December 31, 1998, and was $201,000 for the year
ended December 31, 1997. Occupancy expense includes costs related to leasing
office space in New York and San Francisco and the increase reflects Wit
Capital's growth and need for expanded office facilities. Wit Capital opened its
San Francisco office in 1998, and leased additional space in New York in the
third quarter of 1999. As we continue to grow and expand our business, we expect
occupancy expense to increase. Additionally, as a result of the merger with
SoundView, we now have an office in Stamford, Connecticut and an additional,
larger office in San Francisco.
Marketing expense for the year ended December 31, 1999 was $2.6 million, was
$1.2 million for the year ended December 31, 1998, and was $641,000 for the year
ended December 31, 1997. During 1998 marketing expense related to developing Wit
Capital's brand name recognition. During 1999, Wit Capital focused on acquiring
customers simply by offering access to initial public offerings. The increase in
marketing expense in 1999 primarily relates to the continuing development and
expansion of Wit Capital's investment banking business. We anticipate spending
increased amounts on focused marketing directed at issuers during the coming
fiscal year.
During the fourth quarter of 1999, Wit Capital wrote-down $5.6 million in
computer software and hardware that it had developed or purchased to operate a
planned after hours trading system. In light of the rapidly changing environment
for after-hours trading and alternative trading systems and the need to complete
the merger with SoundView, Wit Capital determined that it would not operate its
digital trading facility. As of December 31, 1999, Wit Capital had capitalized a
total of approximately $8 million in costs related to the development of the
digital trading facility and in light of the decision, Wit Capital wrote-down
approximately $5.6 million of these capitalized costs, representing management's
estimate of the impairment in the value of the assets. Management estimated the
fair value of the assets remaining by determining which assets were utilizable
in other areas of the business as well as estimating the potential future cash
inflows that might be received from the sale or licensing of part or all of the
developed technology.
Other expenses for the year ended December 31, 1999 were $2.5 million, and
were $1.2 million for the year ended December 30, 1998. Other expenses include
office supplies, registrations and other general administrative expenses which
have all increased as Wit Capital continues to expand our business and
operations. Other expenses in 1998 include write-downs of $782,000 related to
media credits Wit Capital had previously acquired but which, in view of a
revised marketing strategy in 1998, decided not to use. In 1999, other expenses
include $450,000 in primarily non-recurring costs associated with past vendor
and other relationships. Other expenses were ($467,000) for the year ended
December 31, 1997. 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.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, Wit Capital satisfied its cash requirements primarily through
private placements of common stock and convertible preferred stock. During
June 1999, Wit Capital Group, completed an initial public offering in which it
issued 8,740,000 shares of common stock at $9.00 per share. It received
$72.8 million in cash proceeds, net of underwriting discounts and offering
costs, from the offering and an approximate $57 million from private placements
of its equity in that year. We believe that our existing cash balances will be
sufficient to meet anticipated cash requirements for at least the next twelve
months. We may, nonetheless, seek additional financing to support our activities
during the next twelve months or thereafter, including additional public
offerings of our common stock. There can be no assurance, however, that
additional capital will be available on reasonable terms, if at all, when needed
or desired.
Net cash used in operating activities was $8.9 million during the year ended
December 31, 1999, was $6.9 million during the year ended December 31, 1998, and
was $3.9 million during the year ended December 31, 1997. Cash used in operating
activities for the year ended December 31, 1999 was primarily from a net loss of
$20.9 million, an increase in operating assets of $13.6 million that was offset
by a net increase in operating liabilities of $17.5 million. Cash used in
operating activities for the year ended December 31, 1998 was primarily from a
net loss of $8.8 million, a net increase in operating assets of $1.2 million,
and an increase in operating liabilities of $711,000. Cash used in operating
activities in 1997 was primarily attributable to a net loss of $3.0 million,
plus a non-cash expense reimbursement of $750,000.
Cash used in investing activities was $129.3 million during the year ended
December 31, 1999, was $458,000 during the year ended December 31, 1998, and was
$828,000 during the year ended December 31, 1997. Cash used in investing
activities for the year ended December 31, 1999 was primarily for an investment
in Wit Capital Europe of $5.6 million, net purchases of short-term investments
of $108.6 million, fixed asset purchases of $6.6 million and purchases and
development of computer software of $8.4 million. Cash used in investing
activities for the year ended December 31, 1998 resulted from purchases of fixed
assets of $436,000 and from purchases of computer software of $22,000. 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.
Cash provided by financing activities was $132.5 million for the year ended
December 31, 1999, was $24.3 million for the year ended December 31, 1998, and
was $5.1 million for the year ended December 31, 1997. Cash provided by
financing activities resulted primarily from net proceeds of $72.8 million
received from the initial public offering of Wit Capital common stock and from
$24.9 million in net proceeds received from the issuance of Wit Capital
Series E preferred stock, subsequently converted into Class B common stock, and
the sale of warrants to The Goldman Sachs Group, Inc. and from $31.5 million
received from issuances of Wit Capital Series D preferred stock, now common
stock, in private placements. Cash provided by financing activities for the year
ended December 31, 1998, was primarily from issuances of our Series A and B
preferred stock, subsequently converted into common stock, in private
placements. Net cash provided by financing activities was $5.1 million for 1997
and primarily consisted of proceeds from the issuance of preferred stock.
Wit Capital continued to make significant improvements to its customer care
services during the year increasing the number of call center representatives,
improving response time to customer inquiries, and upgrading its processing
software and telecommunications equipment. We are currently upgrading and
expanding the capabilities of our systems infrastructure which at times has been
strained by rapid growth. We expect infrastructure expenditures to continue as
we improve and enhance our online brokerage systems, and expand our affinity
programs.
21
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary risk exposures are market risk (particularly equity price),
credit risk and legal risk. Market risk refers to the risk that a change in the
level of equity prices, interest rates or other factors could result in trading
losses or negatively impact the market for equity issuance. Credit and legal
risk refers to the risk that a counterparty to a transaction might fail to
perform under its contractual commitment resulting in our incurring losses. Our
risk management focuses on the trading of securities, extension of credit to
counterparties and investment banking activities, as well as the monitoring of
trading levels with institutional customers. We monitor these risks daily
through a number of control procedures in order to identify and evaluate the
various risks to which our company is exposed.
MARKET RISK
We may act as a principal to facilitate customer-related transactions in
financial instruments which expose the firm to market risks. We make markets in
over 200 equity securities. As such, we maintain securities inventories to
facilitate customer transactions. Our management believes its practice of
monitoring market risk very closely and we believe that our risk management
results in a carefully controlled exposure to market volatility that should
reduce our exposure to earnings volatility. Managing market risk exposure
includes limiting firm commitments by position level both long and short for all
securities traded and limiting the type of trades that can occur in each
inventory account.
We seek to manage daily risk exposure in our inventory accounts by requiring
various levels of management review of these accounts. The primary purpose of
risk management is to participate in the establishment of position limits, as
well as to monitor both the buy and sell activity in the firm's trading
accounts. Trading activities of may result in the creation of inventory
positions. Position and exposure reports indicating both long and short position
are prepared, distributed and reviewed each day. These reports enable us to
monitor inventory levels, monitor daily trading results by stock and trader, as
well as review inventory aging, pricing and concentration.
We invest our excess cash in money market funds, short-term obligations
issued by the U.S. Government and its agencies and in high-quality corporate
issuers. Our investment portfolio is subject to market risk for changes in
interest rates. We have established investment guidelines that specify credit
quality requirements as well as diversification requirements by issuer and type
of security. We do not hold derivative financial instruments in our investment
portfolio.
CREDIT RISK
Our exposure to credit risk arises from the possibility that a counterparty
to a transaction might fail to perform under its contractual commitment,
resulting in our incurring losses. Credit risk related to various financing
activities is reduced by the industry practice of obtaining and maintaining
possession and control of collateral which is accomplished with established
arrangements with the clearing broker. We actively manage the credit exposure
relating to our trading activities by monitoring the credit worthiness of
counterparties requesting additional collateral when deemed necessary and
limiting the amount and duration of exposure to individual counterparties.
LEGAL RISK
Legal risk includes the risk on non-compliance with applicable legal and
regulatory requirements and the risk that a counterparty's performance
obligations will be unenforceable. We are generally subject to extensive
regulation in the different jurisdictions in which we conduct business. We have
established legal standards and procedures that are designed to ensure
compliance with all applicable statutory and regulatory requirements. We have
also established procedures that are designed to monitor compliance with senior
management's policies relating to conduct, ethics and business practices. In
connection with our business, we have various procedures that address issues
such as
22
<PAGE>
regulatory capital requirements, trading and sales practices, supervision, and
record keeping. We have also established certain procedures to mitigate the risk
that a counterparty's performance obligations will be unenforceable, including
consideration of counterparty legal authority and capacity, adequacy or legal
documentation, the permissibility of a transaction under applicable law and
whether applicable bankruptcy or insolvency laws limit or alter contractual
remedies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WIT CAPITAL GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Index to Consolidated Financial Statements.................. F-1
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Financial Condition as of
December 31, 1999 and 1998................................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997...... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-8
Schedule to Consolidated Financial Statements............... F-18
Notes to Schedule to Consolidated Financial Statements...... F-23
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 10 will be set forth under the caption
"Election of Directors" in the Company's 1999 Proxy Statement, which will be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1999 and which is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Item 11 will be set forth under the caption
"Executive Compensation" in the Company's 1999 Proxy Statement, which will be
filed not later than 120 days after the end of the Company's fiscal year ended
December 31, 1999 and which is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Item 12 will be set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's 1999 Proxy Statement, which will be filed not later than 120 days
after the end of the Company's fiscal year ended December 31, 1999 and which is
incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by Item 13 will be set forth under the caption
"Certain Relationships and Related Transactions" in the Company's 1999 Proxy
Statement, which will be filed not later than 120 days after the end of the
Company's fiscal year ended December 31, 1999 and which is incorporated herein
by this reference.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report on Form 10-K:
1. Financial Statements
The following consolidated financial statements of Wit Capital Group, Inc,
and subsidiaries and the related notes thereto are filed as a part of this
report pursuant to Item 8, beginning on page F-1:
Report of Independent Public
Accountants
Consolidated Statements on Income
for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of
Financial Condition as of
December 31, 1999 and 1998
Consolidated Statements of Changes
in Stockholders' Equity for the
years ended December 31, 1999,
1998 and 1997
Consolidated Statements of Cash
Flows for the years ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial
Statements
Schedule to Consolidated Financial
Statements
Notes to Schedule to Consolidated
Financial Statements
2. Financial Statement Schedules
All financial statement schedules required by Item 14(a)(2) have been
omitted because they are inapplicable or because the required information has
been included in the consolidated financial statements or Notes thereto.
3. Exhibits
The following Exhibits are filed as part of this Report as required by Item
601 of Regulation S-K. The Exhibits designated by an asterisk are management
contracts and compensatory plans and arrangements required to be filed as
Exhibits to this Report.
<TABLE>
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of Wit
Capital Group, Inc. (Incorporated by reference to Exhibit
3.1 to the quarterly report of Wit Capital Group, Inc. on
Form 10-Q for the period ended June 30, 1999).
3.2 By-Laws of Wit Capital Group, Inc. (Incorporated by
reference to Exhibit 3.2 to the quarterly report of Wit
Capital Group, Inc. on Form 10-Q for the period ended June
30, 1999).
4.1 Rights Agreement between Wit Capital Group, Inc. and
American Stock Transfer & Trust Company, as Rights Agent
(Incorporated by reference to Exhibit 4.1 to the quarterly
report of Wit Capital Group, Inc. on Form 10-Q for the
period ended June 30, 1999).
10.1* Wit Capital Group, Inc. Stock Incentive Plan.
10.2* SoundView Technology Group, Inc. Stock Option Plan.
(Incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form S-4 (No. 333-92887) of Wit
Capital Group, Inc).
10.3* Annual Bonus Plan (Incorporated by reference to Exhibit 10.2
to the Registration Statement on Form S-1 (No. 333-74619) of
Wit Capital Group, Inc.).
10.4* Investment Banking Bonus Pool (Incorporated by reference to
Exhibit 10.3 to the Registration Statement on Form S-1 (No.
333-74619) of Wit Capital Group, Inc.).
10.5* Long-Term Incentive Plan (Incorporated by reference to
Exhibit 10.4 to the Registration Statement on Form S-1 (No.
333-74619) of Wit Capital Group, Inc.).
</TABLE>
24
<PAGE>
<TABLE>
<C> <S>
10.6* Deferred Compensation Plan (Incorporated by reference to
Exhibit 10.5 to the Registration Statement on Form S-1 (No.
333-74619) of Wit Capital Group, Inc.).
10.7* Employment Agreement between Wit Capital Group, Inc. and
Robert H. Lessin (Incorporated by reference to Exhibit 10.6
to the Registration Statement on Form S-1 (No. 333-74619) of
Wit Capital Group, Inc.).
10.8* Employment Agreement between Wit Capital Group, Inc. and
Ronald Readmond (Incorporated by reference to Exhibit 10.7
to the Registration Statement on Form S-1 (No. 333-74619) of
Wit Capital Group, Inc.).
10.9* Employment Agreement between Wit Capital Group, Inc. and
Andrew D. Klein (Incorporated by reference to Exhibit 10.8
to the Registration Statement on Form S-1 (No. 333-74619) of
Wit Capital Group, Inc.).
10.10* Employment Agreement between Wit Capital Group, Inc. and
Mark Loehr (Incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form S-1 (No. 333-74619) of Wit
Capital Group, Inc.).
10.12* Employment Agreement between Wit Capital Group, Inc. and
Lloyd H. Feller. (Incorporated by reference to Exhibit 10.12
to the Registration Statement on Form S-4 (No. 333-92887) of
Wit Capital Group, Inc).
10.13* Employment Agreement between Wit Capital Group, Inc. and
Robert C. Mendelson. (Incorporated by reference to Exhibit
10.13 to the Registration Statement on Form S-4 (No.
333-92887) of Wit Capital Group, Inc).
10.14* Employment Agreement between Wit Capital Group, Inc. and
Russell D. Crabs.
10.15* Employment Agreement between Wit Capital Group, Inc. and
Curtis L. Snyder.
10.16* Employment Agreement between Wit Capital Group, Inc. and
John W. Palmer.
10.17 Third Amended and Restated Stockholders Agreement, dated
April 8, 1999, between Wit Capital Group, Inc. and
Stockholders Named Therein (Incorporated by reference to
Exhibit 10.13 to the Registration Statement on Form S-1 (No.
333-74619) of Wit Capital Group, Inc.).
10.18 Third Amended and Restated Registration Rights Agreement,
dated April 8, 1999, between Wit Capital Group, Inc. and
Stockholders Named Therein (Incorporated by reference to
Exhibit 10.14 to the Registration Statement on Form S-1 (No.
333-74619) of Wit Capital Group, Inc.).
10.19 Purchase Agreement, dated as of March 29, 1999, by and
between Wit Capital Group, Inc. and The Goldman Sachs Group,
L.P. (Incorporated by reference to Exhibit 10.15 to the
Registration Statement on Form S-1 (No. 333-74619) of Wit
Capital Group, Inc.).
23.1 Consent of Arthur Andersen LLP with regard to the financial
statements of Wit Capital Group, Inc.
24 Power of Attorney (included with the signature pages hereof)
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On November 4, 1999, the Company filed a current report on Form 8-K
regarding its announcement of the Agreement and Plan of Merger by and among Wit
Capital Group, Inc., W/S Merger Corp. and SoundView Technology Group, Inc. dated
as of October 31, 1999.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report 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 30th day of March 2000.
<TABLE>
<S> <C> <C>
WIT CAPITAL GROUP, INC.
BY: /S/ ROBERT H. LESSIN
-----------------------------------------
Robert H. Lessin
CHAIRMAN OF THE BOARD AND
CO-CHIEF EXECUTIVE OFFICER
By: /s/ RONALD READMOND
-----------------------------------------
Ronald Readmond
VICE CHAIRMAN, CO-CHIEF EXECUTIVE OFFICER
AND PRESIDENT
</TABLE>
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 report, any and all 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 substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT H. LESSIN Co-Chief Executive Officer and
------------------------------------------- Director (Co-Principal March 28, 2000
Robert H. Lessin Executive Officer)
/s/ RONALD READMOND Co-Chief Executive Officer and
------------------------------------------- Director (Co-Principal March 28, 2000
Ronald Readmond Executive Officer)
/s/ ANDREW D. KLEIN Director
------------------------------------------- March 27, 2000
Andrew D. Klein
/s/ RUSSELL D. CRABS Director
------------------------------------------- March 23, 2000
Russell D. Crabs
/s/ JOHN H. N. FISHER Director
------------------------------------------- March 22, 2000
John H. N. Fisher
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ EDWARD H. FLEISCHMAN Director
------------------------------------------- March 27, 2000
Edward H. Fleischman
/s/ STEVEN M. GLUCKSTERN Director
------------------------------------------- March 28, 2000
Steven M. Gluckstern
/s/ JOSEPH R. HARDIMAN Director
------------------------------------------- March 22, 2000
Joseph R. Hardiman
/s/ GILBERT C. MAURER Director
------------------------------------------- March 23, 2000
Gilbert C. Maurer
/s/ ADAM MIZEL Director
------------------------------------------- March 24, 2000
Adam Mizel
/s/ CURTIS L. SNYDER Chief Financial Officer
------------------------------------------- (Principal Financial and March 28, 2000
Curtis L. Snyder Accounting Officer)
</TABLE>
27
<PAGE>
WIT CAPITAL GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Financial Condition as of
December 31, 1999 and 1998................................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997...... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-8
Schedule to Consolidated Financial Statements............... F-18
Notes to Schedule to Consolidated Financial Statements...... F-23
</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, 1999, and 1998 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index on page
F-1 is presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. Such
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
New York, New York
February 16, 2000
F-2
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
- ------------------------------------------------------------
CASH AND CASH EQUIVALENTS................................... $ 12,447,885 $18,110,146
RECEIVABLE FROM CLEARING BROKER............................. 681,807 119,312
SECURITIES OWNED, at market or fair value................... 114,468,173 758,293
PREPAID EXPENSES............................................ 1,610,628 144,430
INVESTMENT BANKING FEES RECEIVABLE.......................... 3,570,176 512,952
INVESTMENT IN AFFILIATES.................................... 17,511,403 --
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of
accumulated depreciation and amortization of $1,110,369
and $243,527 at December 31, 1999 and 1998,
respectively.............................................. 6,312,242 615,181
COMPUTER SOFTWARE, net of accumulated amortization of
$1,212,907 and $560,277 at December 31, 1999 and 1998,
respectively.............................................. 3,706,112 1,614,735
OTHER ASSETS................................................ 3,309,750 421,357
------------ -----------
Total assets................................................ $163,618,176 $22,296,406
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------
LIABILITIES:
Accounts payable and accrued expenses....................... $ 5,130,675 $ 399,827
Accrued compensation........................................ 13,506,087 632,636
Other liabilities........................................... 579,881 655,689
------------ -----------
Total liabilities........................................... 19,216,643 1,688,152
------------ -----------
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $.01 par value, 9,000,000 shares
authorized; 8,997,952 shares issued and outstanding at
December 31, 1998......................................... -- 89,980
Series B Preferred Stock, $.01 par value, 3,000,000 shares
authorized; 2,304,982 shares issued and outstanding at
December 31, 1998......................................... -- 23,050
Series C Preferred Stock, $.01 par value, 7,445,000 shares
authorized; 5,902,750 shares issued and outstanding at
December 31, 1998......................................... -- 59,028
Series D Preferred Stock, $.01 par value, 10,000,000 shares
authorized; 9,933,334 shares issued and outstanding at
December 31, 1998......................................... -- 99,333
Common Stock, $.01 par value, 60,000,000 shares authorized;
11,264,600 shares issued and outstanding at December 31,
1998...................................................... -- 112,647
Common Stock, $.01 par value, 500,000,000 shares authorized;
61,629,828 shares issued and outstanding at December 31,
1999...................................................... 616,298 --
Common Stock, Class B, $.01 par value, 75,000,000 shares
authorized; 11,666,666 shares issued and outstanding at
December 31, 1999......................................... 116,667 --
Common Stock, Class C, $.01 par value, 159,000,000 shares
authorized; no shares issued and outstanding at December
31, 1999 and 1998......................................... -- --
Additional paid-in capital.................................. 196,777,759 39,534,657
Notes receivable from stockholders.......................... (15,333,070) (5,750,000)
Deferred compensation....................................... (3,311,765) --
Accumulated deficit......................................... (34,464,356) (13,560,441)
------------ -----------
Total stockholders' equity.................................. 144,401,533 20,608,254
------------ -----------
Total liabilities and stockholders' equity.................. $163,618,176 $22,296,406
============ ===========
</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, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES:
Investment banking.................................. $ 30,269,532 $ 1,515,105 $ 42,567
Brokerage........................................... 7,087,700 294,454 10,403
Unrealized gain on investment....................... 5,509,080 -- --
Interest............................................ 4,716,824 182,880 53,821
Other............................................... 1,034,415 45,370 138,750
------------ ----------- -----------
Total revenues...................................... 48,617,551 2,037,809 245,541
------------ ----------- -----------
EXPENSES:
Compensation and benefits........................... 39,013,625 4,444,271 1,549,958
Professional services............................... 4,952,832 877,822 329,334
Technology development.............................. 2,771,792 1,155,959 511,076
Data processing and communications.................. 3,449,259 625,231 237,608
Brokerage and clearance............................. 5,346,959 186,322 5,563
Depreciation and amortization....................... 1,609,492 896,652 229,209
Occupancy........................................... 1,108,770 237,334 200,673
Marketing........................................... 2,594,222 1,205,965 641,334
Write-down of computer software and equipment....... 5,565,247 -- --
Other............................................... 2,548,829 1,202,143 (466,633)
------------ ----------- -----------
Total expenses........................................ 68,961,027 10,831,699 3,238,122
------------ ----------- -----------
Net loss before equity in net loss of affiliates.... (20,343,476) (8,793,890) (2,992,581)
Equity in net loss of affiliates.................... (560,439) -- --
------------ ----------- -----------
Net loss.............................................. $(20,903,915) $(8,793,890) $(2,992,581)
============ =========== ===========
NET LOSS PER SHARE:
Basic............................................... $ (.52) $ (1.23) $ (.41)
Diluted............................................. (.52) (1.23) (.41)
WEIGHTED AVERAGE SHARES USED IN THE COMPUTATION OF NET
LOSS PER SHARE:
Basic............................................... 39,909,794 7,140,123 7,303,013
Diluted............................................. 39,909,794 7,140,123 7,303,013
</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, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
OLD NEW CLASS B CLASS C ADDITIONAL
PREFERRED COMMON COMMON COMMON COMMON PAID-IN ACCUMULATED
STOCK STOCK STOCK STOCK STOCK CAPITAL DEFICIT
--------- -------- -------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY, December 31,
1996............................. $ 2,500 $75,811 $ -- $ -- $ -- $ 3,175,563 $(1,773,970)
Issuance of Series A Preferred
Stock.......................... 69,700 -- -- -- -- 6,860,252 --
Conversion of common stock to
Series A Preferred Stock....... 5,000 (3,500) -- -- -- (1,500) --
Repurchase and retirement of
common stock................... -- (1,750) -- -- -- (248,250) --
Net loss......................... -- -- -- -- -- -- (2,992,581)
--------- -------- -------- -------- --------- ------------ ------------
STOCKHOLDERS' EQUITY, December 31,
1997............................. 77,200 70,561 -- -- -- 9,786,065 (4,766,551)
Issuance of common stock......... -- 1,836 -- -- -- 262,115 --
Issuance of common stock for note
receivable..................... -- 40,250 -- -- -- 5,709,750 --
Issuance of Series A Preferred
Stock.......................... 12,780 -- -- -- -- 1,286,600 --
Issuance of Series B Preferred
Stock.......................... 23,050 -- -- -- -- 2,251,932 --
Issuance of Series C Preferred
Stock.......................... 59,028 -- -- -- -- 5,782,184 --
Issuance of Series D Preferred
Stock.......................... 99,333 -- -- -- -- 14,456,011 --
Net loss......................... -- -- -- -- -- -- (8,793,890)
--------- -------- -------- -------- --------- ------------ ------------
STOCKHOLDERS' EQUITY, December 31,
1998............................. 271,391 112,647 -- -- -- 39,534,657 (13,560,441)
Issuance of common stock in
initial public offering, net... -- -- 87,400 -- -- 72,689,869 --
Issuance of common stock......... -- 15,330 4,718 -- 6,835 3,921,188 --
Issuance of common stock for
notes receivable............... -- 47,595 -- -- -- 8,919,642 --
Issuance of Series D Preferred
Stock.......................... 214,001 -- -- -- -- 31,362,528 --
Issuance of Series E Preferred
Stock.......................... 116,667 -- -- -- -- 24,741,546 --
Conversion of Old Common Stock to
Class C Common................. -- (175,572) -- -- 175,572 -- --
Conversion of Class C to New
Common Stock................... -- -- 524,180 -- (524,180) -- --
Conversion of Series A through
D Preferred to Class B and
C Common....................... (602,059) -- -- 116,667 339,773 145,619 --
Issuance of restricted stock to
employees...................... -- -- -- -- 2,000 3,642,880 --
Compensation expense on
restricted stock grants........ -- -- -- -- -- -- --
Increase in equity investment in
affiliate resulting from
issuance of stock.............. -- -- -- -- -- 11,819,830 --
Net loss......................... -- -- -- -- -- -- (20,903,915)
--------- -------- -------- -------- --------- ------------ ------------
STOCKHOLDERS' EQUITY, December 31,
1999............................. $ -- $ -- $616,298 $116,667 $ -- $196,777,759 $(34,464,356)
========= ======== ======== ======== ========= ============ ============
<CAPTION>
NOTES
RECEIVABLE
FROM DEFERRED SUBSCRIPTIONS
STOCKHOLDER COMPENSATION RECEIVABLE TOTAL
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY, December 31,
1996............................. $ -- $ -- $ -- $ 1,479,904
Issuance of Series A Preferred
Stock.......................... -- -- (308,000) 6,621,952
Conversion of common stock to
Series A Preferred Stock....... -- -- -- --
Repurchase and retirement of
common stock................... -- -- -- (250,000)
Net loss......................... -- -- -- (2,992,581)
------------ ------------ ----------- ------------
STOCKHOLDERS' EQUITY, December 31,
1997............................. -- -- (308,000) 4,859,275
Issuance of common stock......... -- -- -- 263,951
Issuance of common stock for note
receivable..................... (5,750,000) -- -- --
Issuance of Series A Preferred
Stock.......................... -- -- 308,000 1,607,380
Issuance of Series B Preferred
Stock.......................... -- -- -- 2,274,982
Issuance of Series C Preferred
Stock.......................... -- -- -- 5,841,212
Issuance of Series D Preferred
Stock.......................... -- -- -- 14,555,344
Net loss......................... -- -- -- (8,793,890)
------------ ------------ ----------- ------------
STOCKHOLDERS' EQUITY, December 31,
1998............................. (5,750,000) -- -- 20,608,254
Issuance of common stock in
initial public offering, net... -- -- -- 72,777,269
Issuance of common stock......... -- -- -- 3,948,071
Issuance of common stock for
notes receivable............... (9,583,070) -- -- (615,833)
Issuance of Series D Preferred
Stock.......................... -- -- -- 31,576,529
Issuance of Series E Preferred
Stock.......................... -- -- -- 24,858,213
Conversion of Old Common Stock to
Class C Common................. -- -- -- --
Conversion of Class C to New
Common Stock................... -- -- -- --
Conversion of Series A through
D Preferred to Class B and
C Common....................... -- -- -- --
Issuance of restricted stock to
employees...................... -- (3,644,880) -- --
Compensation expense on
restricted stock grants........ -- 333,115 -- 333,115
Increase in equity investment in
affiliate resulting from
issuance of stock.............. -- -- -- 11,819,830
Net loss......................... -- -- -- (20,903,915)
------------ ------------ ----------- ------------
STOCKHOLDERS' EQUITY, December 31,
1999............................. $(15,333,070) $ (3,311,765) $ -- $144,401,533
============ ============ =========== ============
</TABLE>
F-5
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $(20,903,915) $(8,793,890) $(2,992,581)
Adjustments to reconcile net loss to net cash used
in operating activities-
Non-cash expenses................................. -- 1,522,901 --
Equity in operations of affiliates................ 560,439 -- --
Write-down of computer software and equipment..... 5,565,247 -- --
Non-cash expense reimbursement.................... -- -- (750,000)
Non-cash charges related to stock based
compensation.................................... 333,115 -- --
Depreciation and amortization..................... 1,609,492 896,652 229,209
(Increase) decrease in operating assets-
Receivable from clearing broker................... (562,495) 17,052 (35,753)
Securities owned.................................. (5,094,236) (217,789) (540,504)
Investment in limited partnership................. (538,986) -- --
Prepaid expenses.................................. (1,466,198) (188,343) (132,659)
Investment banking fees receivable................ (3,057,224) (512,952) --
Other assets...................................... (2,888,393) (316,487) 45,848
Increase (decrease) in operating liabilities-
Accounts payable and accrued expenses............. 4,730,846 (127,618) (134,381)
Compensation payable.............................. 12,873,451 284,210 341,826
Other liabilities................................. (75,808) 554,189 86,000
------------ ----------- -----------
Net cash used in operating activities........... (8,914,665) (6,882,075) (3,882,995)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Wit Capital Japan..................... (88,615) -- --
Investment in Wit Capital Europe.................... (5,624,429) -- --
Purchases of short-term investments................. (153,117,995) -- --
Sales of short-term investments..................... 44,502,351 -- --
Computer software purchased......................... (8,399,254) (21,542) (588,470)
Payments for purchases of furniture, equipment and
leasehold improvements............................ (6,563,903) (436,243) (239,568)
------------ ----------- -----------
Cash used in investing activities............... (129,291,845) (457,785) (828,038)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes receivable from stockholders.................. (615,833) -- --
Proceeds from IPO of common stock................... 72,777,269 -- --
Net proceeds from issuance of common stock.......... 3,948,071 60,301 --
Net proceeds from issuance of preferred stock....... 56,434,742 24,278,918 5,071,952
------------ ----------- -----------
Net cash provided by financing activities........... 132,544,249 24,339,219 5,071,952
------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................... (5,662,261) 16,999,359 360,919
Cash and cash equivalents, beginning of year.......... 18,110,146 1,110,787 749,868
------------ ----------- -----------
Cash and cash equivalents, end of year................ $ 12,447,885 $18,110,146 $ 1,110,787
============ =========== ===========
</TABLE>
F-6
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest.......................................... $ 3,822 $ 7,211 $ 4,362
Taxes............................................. 18,830 43,181 19,337
NON-CASH TRANSACTIONS:
Issuance of common and 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
Series A Preferred Stock subscriptions receivable... -- -- 308,000
Issuance of common stock to stockholders for notes
receivable........................................ 8,967,237 5,750,000 --
Repurchase of common stock.......................... -- -- 250,000
Conversion of common stock to preferred stock....... -- -- 5,000
Issuance of common stock for consulting services.... 40,613 -- --
Issuance of restricted stock to employees........... 3,644,880 -- --
Increase in equity investment in affiliate resulting
from issuance of stock............................ 11,819,830 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
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 accompanying
consolidated financial statements include the accounts of WCG and its wholly
owned subsidiaries, Wit Capital Corporation ("WCC"), BidPlus Corporation
("BidPlus") and Wit Capital Private Equity Advisors LLC ("WCPEA"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
Wit Capital Group, Inc.'s wholly owned subsidiary, Wit Capital Corporation,
was founded in 1996 as the first online investment banking firm. With offices in
New York and San Francisco, Wit Capital Corporation is an issuer-driven Internet
investment banking firm that offers an array of investment banking services,
including underwriting for public offerings, private equity services, strategic
advisory, and institutional quality research. Wit Capital Corporation also
offers individual investors online brokerage services that include access to
IPOs and other securities offerings that in the past have only been available to
institutions and wealthy individuals.
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. The term of the agreement expires in
December 2001. 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. In connection with its underwriting
and brokerage activities, WCC executes various security transactions as
principal or agent. These activities may expose WCC to risk in the event the
company or its customers is unable to fulfill contractual obligations.
2. INVESTMENTS IN AFFILIATES
In July 1999, the Company entered into a joint venture agreement with Trans
Cosmos, Inc. and an investment agreement with Mitsubishi Corporation to
establish a Japanese Internet investment banking firm now known as Wit Capital
Japan Inc. ("Wit Capital Japan"). Wit Capital Japan was incorporated in
August 1999 and is based in Tokyo. Start of operations is anticipated to be
early 2000. As anticipated, in October 1999, Wit Capital Japan signed a second
round of financing which will reduce the Company's ownership in the joint
venture from 60 percent to approximately 30 percent, although the Company has an
option to purchase an additional 10 percent within six months of investors
funding the second round of financing. The Company accounts for its investment
in Wit Capital Japan under the equity method. In connection with the issuance of
common stock by Wit Capital Japan in the above mentioned financing round, the
Company recorded the difference between the carrying amount of the Company's
investment in Wit Capital Japan and the underlying net book value as an increase
to its investment and a corresponding increase in shareholder's equity in the
amount of $11,819,830.
In August 1999, the Company created an alliance with the management team of
Dawntreader Fund I LP ("Dawntreader"), the investment advisor to an early stage
internet fund established in 1998 by the Company's Chairman and Co-Chief
Executive Officer. WCPEA holds a 50 percent interest in a newly created entity,
Wit/Dawntreader Advisors LLC which serves as the investment advisor of Wit VC
Fund I LP (formerly Arista Capital Partners, LP), a newly formed private equity
fund. In October 1999, the Company entered into agreements with several of the
members of the management team of
F-8
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
2. INVESTMENTS IN AFFILIATES (CONTINUED)
Dawntreader for these individuals to become employees of the Company and,
accordingly consolidates Wit/Dawntreader Advisors LLC.
On October 26, 1999, the Company and enba plc ("enba") announced their
intention to combine their efforts to establish a Pan-European investment
banking firm, to be known as Wit Capital Europe. Start of operations is
anticipated to occur in early 2000. As of December 31, 1999, the Company and
enba jointly controlled Wit Capital Europe and owned 55 percent and 45 percent,
respectively, of the equity of Wit Capital Europe. In December 1999 the Company
contributed approximately $5.6 million to the joint venture. The Company also
entered into a subscription agreement to acquire 189,748 shares of enba in
exchange for 1,878,596 shares of the Company's common stock.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Management does not believe
that actual results will differ materially from these estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, WCC, WCPEA 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.
SECURITIES OWNED
Securities transactions and the related expenses are recorded on a trade
date basis and are valued at market or fair value.
COMPUTER SOFTWARE
Costs capitalized related to the purchase of computer software are being
amortized over a period of three years. Costs capitalized related to the
development of software for internal use are amortized over the estimated useful
lives of the software generally over periods of between 1 and 3 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.
F-9
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
INVESTMENTS IN AFFILIATES
Investments in affiliates are accounted for under the equity method.
REVENUE RECOGNITION
The Company derives revenues from commissions and other brokerage fees
related to customer transactions which are recorded on a trade date basis. The
Company records investment banking fees as earned. Investment banking retainer
fees are initially deferred and are recognized as income over the contract
period.
REPORTABLE OPERATING SEGMENT
The Company considers its present operations to be one reportable segment
for purposes of presenting financial information and for evaluating its
performance. The financial statement information presented in the accompanying
financial statements is consistent with the preparation of financial information
for the purpose of internal use.
4. SECURITIES OWNED
Details of securities owned at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
------------ --------
<S> <C> <C>
U.S. Government obligations......................... $ 23,645,877 $218,865
Federal Agency securities........................... 44,731,291 --
Asset Backed securities............................. 24,896,691
---
Corporate bonds..................................... 14,385,940
---
Warrants to purchase equity securities.............. 5,566,495
---
Other............................................... 1,241,879 539,428
------------ --------
$114,468,173 $758,293
============ ========
</TABLE>
5. RELATED PARTY TRANSACTIONS
In 1996, WCG acquired from Global Trade, Inc. ("GTI") all outstanding shares
of BidPlus, the sole asset of which was a proprietary electronic brokerage and
trading system, in exchange for 525,000 shares of common stock. The software was
recorded at $1,125,000 representing management's estimate of the fair value of
the 525,000 shares of common stock at $2.14 per share. Effective December 31,
1996, the founder of GTI agreed to exchange 350,000 of the shares of the common
stock of WCG for a 45% equity interest in Brat, a newly formed subsidiary of
WCG. In consideration for the exchange, WCG agreed to contribute certain rights
to Brat to use the proprietary electronic brokerage and trading system software,
as well as providing technology, general and administrative support on behalf
F-10
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
5. RELATED PARTY TRANSACTIONS (CONTINUED)
of Brat. In 1997, GTI's founder sought greater control over the development of
Brat and in September 1997, exchanged the remaining 175,000 shares of WCG common
stock and the rights to the use of the software for all of WCG's shares of Brat.
The aforementioned exchange of the 525,000 shares of common stock of WCG has
been accounted for as a stock repurchase at $1.43 per share, which represents
the fair value of the common stock on the date of the exchange and corresponding
$750,000 reduction of other expenses related to the cost of services provided to
Brat.
WCC acted as a co-manager in the Company's initial public offering in
June 1999. In connection with its role as a co-manager, WCC received
approximately $1.3 million in underwriting concessions, which was recorded as a
credit to stockholder's equity.
6. WRITE-DOWN OF COMPUTER SOFTWARE AND EQUIPMENT
In December 1999, the Company completed its evaluation of whether to
continue the roll out of its digital trading facility. In light of the rapidly
changing environment for after-hours trading and alternative trading systems and
its need to complete the merger with SoundView, the Company determined that it
is not going to operate its digital trading facility. Accordingly, management
has written down the assets to their estimated fair value. The Company continues
to explore how best to maximize the value of its investment in developing the
digital trading assets, including a sale of the trading system that was
developed, a joint venture with a third party operator, redeployment of the
assets for use in other areas of WCG's business or licensing of WCG's digital
trading technology to third parties. As of December 31, 1999, the Company had
capitalized a total of approximately $8 million in costs related to the
development of its digital trading facility and in light of its decision,
wrote-down approximately $5.6 million of such capitalized costs which represents
management's estimate of the impairment in the value of these assets. Management
estimated the fair value of the assets remaining by determining which assets
were utilizable in other areas of its business as well as estimating the
potential future cash inflows that the Company may receive from the sale or
licensing of part or all of its developed technology.
7. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires the recognition of deferred tax liabilities and assets at tax
rates expected to be in effect when these balances reverse. Future tax benefits
attributable to temporary differences are recognized to the extent that
realization of such benefits is more likely than not.
WCG files consolidated Federal and combined New York State and New York City
income tax returns with its wholly-owned subsidiaries. The income tax provisions
included in the consolidated statements of operations are calculated based on
state and local minimum and alternative methods.
At December 31, 1999, 1998 and 1997, WCG had deferred tax assets of
approximately $14,300,000, $5,200,000 and $2,300,000 which were generated by net
operating losses of approximately $34,000,000, $13,000,000 and $5,300,000,
respectively. The deferred tax assets are fully offset by valuation allowances.
F-11
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
8. STOCKHOLDERS' EQUITY
COMMON STOCK
WCG has extended to certain of its executive officers and other employees,
including its Co-Chief Executive Officers, partial recourse, interest bearing
loans totaling $14,717,237 with which they purchased 8,784,488 shares of common
stock for either $1.43 or $2.14 per share. Interest on the loans is recourse and
nonrefundable. In the event these executive officers or employees cease to be
employed by the Company, the Company has the right to purchase the unvested
portion of such shares at the lower of the fair market value or $1.43 or $2.14
per share, as the case may be. The shares vest incrementally over specified
periods following their respective issuances. With the exception of shares owned
by Robert H. Lessin, the Company's Chairman and Co-Chief Executive Officer, none
of the shares will be repurchasable by the Company after March 31, 2003; none of
Mr. Lessin's shares will be repurchasable by the Company after March 31, 2001.
In addition, the loans may be repaid at any time by these executive officers and
their maturities will accelerate in the event of employment termination. The
loans are collateralized by the Company's stock and will be reflected as notes
receivable in stockholders' equity until repaid.
On May 26, 1999, all outstanding common stock ("Old Common Stock") was
converted into a newly created class C common stock ("Class C Common Stock"). On
June 2, 1999, a 7 for 10 reverse stock split of Class C Common Stock and
Series E Preferred Stock was effected. Accordingly, all references in the
financial statements to the number of shares of Class C Common Stock and
Series E Preferred Stock and rights and per share amounts have been
retroactively restated to reflect this reverse split. On June 4, 1999 Series A,
B, C, D and E Preferred Stock was converted into Class C Common Stock at a
conversion rate of 1.43 to 1 and Series E Preferred Stock was converted into
Class B Common Stock at a conversion rate of 1 to 1.
Additionally, in June 1999, the Company completed an initial public offering
and issued 8,740,000 shares of a newly created common stock ("New Common Stock")
at a price of $9.00 per share. The Company received approximately $72.8 million
in proceeds, net of underwriting discounts and other offering costs.
Simultaneously with the closing of the initial public offering, each outstanding
share of Series A, B, C and D Preferred stock was converted into Class C common
stock. All outstanding shares of Series E Preferred Stock were converted into an
equivalent number of shares of class B common stock ("Class B Common Stock").
On December 7, 1999, shares of the Company's Class C Common Stock were
converted into New Common Stock.
PREFERRED STOCK
As of December 31, 1998, the Company has authorized 30,000,000 shares of
preferred stock of which 29,445,000 shares have been designated to four series
as shown in the accompanying consolidated statements of financial condition.
F-12
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
9. 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,
----------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Shares used in computations:
Weighted average common shares used in computation of
basic net loss per share............................... 39,909,794 7,140,123 7,303,013
Dilutive effect of common stock equivalents.............. -- -- --
---------- --------- ---------
Weighted average shares used in computation of diluted
net loss per share..................................... 39,909,794 7,140,123 7,303,013
========== ========= =========
</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, common stock collateralizing the notes receivable from
stockholders, and unvested restricted stock 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 29,458,414, 8,189,535, and 2,706,114
shares as of December 31, 1999, 1998, and 1997, respectively, included in the
calculation of diluted earnings per share.
10. EMPLOYEE BENEFIT PLANS AND OTHER COMPENSATION
OTHER COMPENSATION
In February 1999, the Company entered into employment contracts with several
employees which entitled the employees to a total of $5,450,000 in upfront
payments. The Company recognized compensation expense of $2,550,000 related to
amounts paid for which no future service by the employee is required. The
Company recorded advances of $2,900,000 which are being expensed over the
employment contract periods for amounts for which the employee is required to
provide service and is obligated to repay any unearned compensation in the event
of termination or resignation prior to completing the contract term. As of
December 31, 1999, an advance of approximately $1,350,000 related to one
employee's contract is included in other assets on the accompanying consolidated
statements of financial condition.
STOCK OPTION PLAN
WCG has adopted a stock incentive plan (the "Plan") that permits the
granting of stock options, restricted stock and other awards to employees,
directors and certain consultants of WCG. 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 ten years from the date of grant, with the
majority of the options expiring in the year 2009.
F-13
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
10. EMPLOYEE BENEFIT PLANS AND OTHER COMPENSATION (CONTINUED)
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123") WCG has accounted
for options granted to employees using the intrinsic value method prescribed by
Accounting Practice Bulletin ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." WCG has granted options with exercise prices that are
equal to or greater than management's estimate of the fair value of such common
stock at the date of grant, and accordingly, the Company has recorded no related
compensation expense. For restricted stock issued with future service
requirements, compensation expense is recognized over the relevant vesting
period.
The following table summarizes the status of the Company's stock options as
of December 31, 1999, 1998 and 1997 and the changes during these periods:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- ---------------- --------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year.............. 8,154,822 $1.47 3,267,772 $1.66 1,509,197 $1.64
Granted............ 9,061,151 7.07 5,834,500 1.49 1,904,700 1.59
Exercised.......... 4,584,107 1.74 5,950 1.71 -- --
Forfeited.......... 1,263,839 3.10 941,500 1.56 146,125 3.54
Outstanding, end of
year................. 11,368,027 5.66 8,154,822 1.47 3,267,772 1.66
Options exercisable,
end of year.......... 3,390,409 2.00 3,437,535 1.43 1,801,865 1.64
</TABLE>
The range of exercisable prices for the options outstanding and the options
exercisable is $1.43--$34.88 and the weighted average is $5.66. The weighted
average contractual lives for outstanding and exercisable options are 8.4 and
8.4 as of December 31, 1999, 8.89 and 8.03 years as of December 31, 1998, and
8.80 and 8.59 as of December 31, 1997, respectively.
The fair value of each option granted during 1997, 1998 and in 1999 prior to
the Company's IPO 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%. The fair value of each option granted after the
Company's IPO was estimated on the date of the grant using the Black-Scholes
method prescribed by SFAS No. 123, assuming a dividend yield of zero and a risk
free interest rate of 5.29%. If the Company had recorded compensation expense
for its stock options granted for the years
F-14
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
10. EMPLOYEE BENEFIT PLANS AND OTHER COMPENSATION (CONTINUED)
ended December 31, 1999, 1998, and 1997, 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,
-----------------------------------------------------------------------------------
1999 1998 1997
--------------------------- ------------------------- -------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net loss................ $(20,903,915) $(22,923,461) $(8,793,890) $(9,268,941) $(2,992,581) $(3,294,797)
Net loss per common
share:
Basic................... $ (0.52) $ (0.57) $ (1.23) $ (1.30) $ (0.41) $ (0.45)
Diluted................. $ (0.52) $ (0.57) $ (1.23) $ (1.30) $ (0.41) $ (0.45)
</TABLE>
Additionally, during 1999, the Company granted a total of 200,000 shares of
restricted stock to employees at no cost to the employees. The restricted stock
vests over a four year period and is subject to continued employment and other
restrictions. The Company is recording compensation expense related to these
grants straight-line over the vesting period.
11. WARRANTS OUTSTANDING
The Company has 5,984,705 and 1,322,181 outstanding warrants as of
December 31, 1999 and December 31, 1998, respectively. Warrants were issued to
be convertible to either common or preferred shares of WCG stock. The following
table summarizes the status of the Company's warrants as of December 31, 1999,
1998 and 1997 and the changes during these periods:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------
1999 1998 1997
-------------------------- -------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year.......................... 1,322,181 $1.50 221,900 $1.84 148,400 $2.06
Granted..................... 5,742,295 5.49 1,100,281 1.43 73,500 1.43
Exercised................... 1,009,771 1.54 -- -- -- --
Forfeited................... 70,000 .36 -- -- -- --
Outstanding, end of year........ 5,984,705 5.45 1,322,181 1.50 221,900 1.84
Warrants exercisable, end of
year.......................... 347,410 1.59 1,302,348 1.50 179,435 1.91
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
WCG has a noncancelable operating lease covering office space that includes
scheduled rent increases every two years commencing November 1998 and an initial
free rent period. Additionally, the Company has a one-year noncancelable
operating lease for office space located in California, which
F-15
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
expires in April 2000. Rent expense for the years ended December 31, 1999, 1998
and 1997 is $514,083, $137,454, and $122,500, respectively. Future lease
commitments are as follows:
<TABLE>
<CAPTION>
MINIMUM LEASE
OBLIGATION
-------------
<S> <C>
Year ending December 31:
2000...................................................... $504,725
2001...................................................... 428,799
2002...................................................... 270,375
2003...................................................... 288,750
Thereafter................................................ 872,156
</TABLE>
The Company is currently subject to claims and legal proceedings arising in
the normal course of its business. In the opinion of management, the resolution
of such legal proceedings should not have a material adverse effect on the
financial position, results of operations or liquidity of the Company.
A person formerly associated with the Company has asserted a right to
purchase 560,000 shares of common stock at $1.43 per share. In the opinion of
management, such assertion is without merit, and the Company intends to contest
any lawsuit filed against it. These 560,000 shares of common stock have been
reported as forfeited stock options in 1998.
13. CAPITAL REQUIREMENTS
WCC is subject to the SEC's Uniform Net Capital Rule 15c3-1. WCC's net
capital, as defined, shall be required to be the greater of $100,000 or the
minimum net capital required based on aggregate indebtedness. As of
December 31, 1999 and December 31, 1998, WCC's ratio of aggregate indebtedness
to net capital was .51 to 1 and .09 to 1 and its net capital was $23,914,930 and
$8,446,190 which was $23,095,740 and $8,346,190 in excess of the minimum net
capital requirements, respectively.
14. SUBSEQUENT EVENTS
COVERED BY AUDITORS REPORT
On January 31, 2000 the Company competed its merger with SoundView
Technology Group, Inc. ("SoundView"), a Connecticut-based private broker-dealer
and investment banking firm focused exclusively on technology. Under the terms
of the agreement, WCG acquired the outstanding shares of SoundView in exchange
for approximately $313 million; consisting of newly issued Wit Capital common
stock, options replacing SoundView options and approximately $22.5 million in
cash. This acquisition will be accounted for using the purchase method of
accounting.
In February 2000, the $1,350,000 advance referred to in Note 10 was expensed
as a result of an amendment to the employee' s contract stating the amount was
no longer repayable to the Company.
On February 14, 2000, Wit Capital Private Equity Advisors, LLC changed its
name to Wit VC LLC.
F-16
<PAGE>
WIT CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
14. SUBSEQUENT EVENTS (CONTINUED)
NOT COVERED BY AUDITORS REPORT
In March 2000, SoundView Technology Group, Inc. changed its name to Wit
SoundView Corporation.
In March 2000, subject to the subscription agreement with enba referred to
in Note 2, we acquired 189,748 shares of enba in exchange for 1,878,596 shares
of the Company's common stock.
F-17
<PAGE>
WIT CAPITAL GROUP, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS................................... $ 6,580,689 $ 9,180,804
SECURITIES OWNED, at market or fair value................... 72,297,589 --
PREPAID EXPENSES............................................ 930,382 95,671
INVESTMENTS IN SUBSIDIARIES AND AFFILIALTES................. 58,428,656 10,716,505
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of 4,737,845 611,953
accumulated depreciation and amortization of $1,079,861
and $240,747 at December 31, 1999 and 1998,
respectively..............................................
COMPUTER SOFTWARE, net of accumulated amortization of 2,231,699 286,687
$604,554 and $254,973 at December 31, 1999 and 1998,
respectively..............................................
OTHER ASSETS................................................ 9,718,756 110,760
------------ ------------
Total assets................................................ $154,925,616 $ 21,002,380
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses....................... $ 6,418,579 $ 295,590
Accrued compensation........................................ 3,964,710 38,333
Other liabilities........................................... 140,794 60,203
------------ ------------
Total liabilities........................................... 10,524,083 394,126
------------ ------------
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $.01 par value, 9,000,000 shares -- 89,980
authorized; 8,997,952 shares issued and outstanding at
December 31, 1998.........................................
Series B Preferred Stock, $.01 par value, 3,000,000 shares -- 23,050
authorized; 2,304,982 shares issued and outstanding at
December 31, 1998.........................................
Series C Preferred Stock, $.01 par value, 7,445,000 shares -- 59,028
authorized; 5,902,750 shares issued and outstanding at
December 31, 1998.........................................
Series D Preferred Stock, $.01 par value, 10,000,000 shares -- 99,333
authorized; 9,933,334 shares issued and outstanding at
December 31, 1998.........................................
Common Stock, $.01 par value, 60,000,000 shares authorized; -- 112,647
11,264,600 shares issued and outstanding at December 31,
1998......................................................
Common Stock, $.01 par value, 500,000,000 shares authorized; 616,298 --
61,629,828 shares issued and outstanding at December 31,
1999......................................................
Common Stock, Class B, $.01 par value, 75,000,000 shares 116,667 --
authorized; 11,666,666 shares issued and outstanding at
December 31, 1999.........................................
Common Stock, Class C, $.01 par value, 159,000,000 shares -- --
authorized; no shares issued and outstanding at December
31, 1999 and 1998.........................................
Additional paid-in capital.................................. 196,777,759 39,534,657
Notes receivable from stockholders.......................... (15,333,070) (5,750,000)
Deferred compensation....................................... (3,311,765) --
Accumulated deficit......................................... (34,464,356) (13,560,441)
------------ ------------
Total stockholders' equity.................................. 144,401,533 20,608,254
------------ ------------
Total liabilities and stockholders' equity.................. $154,925,616 $ 21,002,380
============ ============
</TABLE>
The accompanying note is an integral part of these statements.
F-18
<PAGE>
WIT CAPITAL GROUP, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES:
Interest............................................ $ 3,016,998 $ 77,117 $ 21,372
Consulting fees..................................... -- -- 22,500
Other............................................... 485,369 138,750
------------ ----------- -----------
Total revenues.................................. 3,502,367 77,117 182,622
------------ ----------- -----------
EXPENSES:
Compensation and benefits........................... 25,198,861 3,969,604 1,549,958
Professional services............................... 3,076,731 415,443 86,478
Technology development.............................. 1,703,546 922,036 385,095
Data processing and communications.................. 1,336,533 414,181 186,940
Brokerage and clearance............................. 205,559 -- --
Depreciation and amortization....................... 1,278,706 659,259 153,184
Occupancy........................................... 1,118,050 237,334 200,673
Marketing........................................... 2,144,417 1,057,744 631,792
Write-down of computer software and equipment....... 1,125,000 -- --
Other............................................... 1,795,960 1,078,301 (565,980)
------------ ----------- -----------
Total expenses.................................. 38,983,363 8,753,902 2,628,140
------------ ----------- -----------
Loss before income tax benefit and equity in net
income (loss) of subsidiaries and affiliates........ (35,480,996) (8,676,785) (2,445,518)
Income tax benefit.................................... (6,155,010) -- --
------------ ----------- -----------
Net loss before equity in net income (loss) of
subsidiaries and affiliates....................... (29,325,986) (8,676,785) (2,445,518)
Equity in net income (loss) of subsidiaries and
affiliates.......................................... 8,422,071 (117,105) (547,063)
------------ ----------- -----------
Net loss............................................ $(20,903,915) $(8,793,890) $(2,992,581)
============ =========== ===========
</TABLE>
The accompanying note is an integral part of these statements.
F-19
<PAGE>
WIT CAPITAL GROUP, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
OLD NEW CLASS B CLASS C ADDITIONAL
PREFERRED COMMON COMMON COMMON COMMON PAID-IN ACCUMULATED
STOCK STOCK STOCK STOCK STOCK CAPITAL DEFICIT
----------- ----------- -------- -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY, December
31, 1996....................... $ 2,500 $ 75,811 $ $ $ $ 3,175,563 $ (1,773,970)
Issuance of Series A Preferred
Stock........................ 69,700 -- -- -- -- 6,860,252 --
Conversion of common stock to
Series A Preferred Stock..... 5,000 (3,500) -- -- -- (1,500) --
Repurchase and retirement of
common stock................. -- (1,750) -- -- -- (248,250) --
Net loss....................... -- -- -- -- -- -- (2,992,581)
----------- ----------- -------- -------- --------- ------------ ------------
STOCKHOLDERS' EQUITY, December
31, 1997....................... 77,200 70,561 -- -- -- 9,786,065 (4,766,551)
Issuance of common stock....... -- 1,836 -- -- -- 262,115 --
Issuance of common stock for
note receivable.............. -- 40,250 -- -- -- 5,709,750 --
Issuance of Series A Preferred
Stock........................ 12,780 -- -- -- -- 1,286,600 --
Issuance of Series B Preferred
Stock........................ 23,050 -- -- -- -- 2,251,932 --
Issuance of Series C Preferred
Stock........................ 59,028 -- -- -- -- 5,782,184 --
Issuance of Series D Preferred
Stock........................ 99,333 -- -- -- -- 14,456,011 --
Net loss....................... -- -- -- -- -- -- (8,793,890)
----------- ----------- -------- -------- --------- ------------ ------------
STOCKHOLDERS' EQUITY, December
31, 1998....................... 271,391 112,647 -- -- -- 39,534,657 (13,560,441)
Issuance of common stock in
initial public offering,
net.......................... -- -- 87,400 -- -- 71,348,644 --
Underwriting concessions
received by WCC from IPO of
WCG common stock............. -- -- -- -- -- 1,341,225 --
Issuance of common stock....... -- 15,330 4,718 -- 6,835 3,921,188 --
Issuance of common stock for
notes receivable............. -- 47,595 -- -- -- 8,919,642 --
Issuance of Series D Preferred
Stock........................ 214,001 -- -- -- -- 31,362,528 --
Issuance of Series E Preferred
Stock........................ 116,667 -- -- -- -- 24,741,546 --
Conversion of Old Common Stock
to Class C Common............ -- (175,572) -- -- 175,572 -- --
Conversion of Class C to New
Common Stock................. -- -- 524,180 -- (524,180) -- --
Conversion of Series A through
D Preferred to Class B and C
Common....................... (602,059) -- -- 116,667 339,773 145,619 --
Issuance of restricted stock to
employees.................... -- -- -- -- 2,000 3,642,880 --
Compensation Expense on
restricted stock grants...... -- -- -- -- -- -- --
Increase in equity investment
in affiliate resulting from
issuance of stock............ -- -- -- -- -- 11,819,830
Net loss....................... -- -- -- -- -- -- (20,903,915)
----------- ----------- -------- -------- --------- ------------ ------------
STOCKHOLDERS' EQUITY,
December 31, 1999.............. $ -- $ -- $616,298 $116,667 $ -- $196,777,759 $(34,464,356)
=========== =========== ======== ======== ========= ============ ============
<CAPTION>
NOTES
RECEIVABLE
FROM DEFERRED SUBSCRIPTIONS
STOCKHOLDER COMPENSATION RECEIVABLE TOTAL
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY, December
31, 1996....................... $ -- $ $ -- $ 1,479,904
Issuance of Series A Preferred
Stock........................ -- -- (308,000) 6,621,952
Conversion of common stock to
Series A Preferred Stock..... -- -- -- --
Repurchase and retirement of
common stock................. -- -- -- (250,000)
Net loss....................... -- -- -- (2,992,581)
------------ ----------- --------- ------------
STOCKHOLDERS' EQUITY, December
31, 1997....................... -- -- (308,000) 4,859,275
Issuance of common stock....... -- -- -- 263,951
Issuance of common stock for
note receivable.............. (5,750,000) -- -- --
Issuance of Series A Preferred
Stock........................ -- -- 308,000 1,607,380
Issuance of Series B Preferred
Stock........................ -- -- -- 2,274,982
Issuance of Series C Preferred
Stock........................ -- -- -- 5,841,212
Issuance of Series D Preferred
Stock........................ -- -- -- 14,555,344
Net loss....................... -- -- -- (8,793,890)
------------ ----------- --------- ------------
STOCKHOLDERS' EQUITY, December
31, 1998....................... (5,750,000) -- -- 20,608,254
Issuance of common stock in
initial public offering,
net.......................... -- -- -- 71,436,044
Underwriting concessions
received by WCC from IPO of
WCG common stock............. -- -- -- 1,341,225
Issuance of common stock....... -- -- -- 3,948,071
Issuance of common stock for
notes receivable............. (9,583,070) -- -- (615,833)
Issuance of Series D Preferred
Stock........................ -- -- -- 31,576,529
Issuance of Series E Preferred
Stock........................ -- -- -- 24,858,213
Conversion of Old Common Stock
to Class C Common............ -- -- -- --
Conversion of Class C to New
Common Stock................. -- -- -- --
Conversion of Series A through
D Preferred to Class B and C
Common....................... -- -- -- --
Issuance of restricted stock to
employees.................... -- (3,644,880) -- --
Compensation Expense on
restricted stock grants...... -- 333,115 -- 333,115
Increase in equity investment
in affiliate resulting from
issuance of stock............ -- -- -- 11,819,830
Net loss....................... -- -- -- (20,903,915)
------------ ----------- --------- ------------
STOCKHOLDERS' EQUITY,
December 31, 1999.............. $(15,333,070) $(3,311,765) $ -- $144,401,533
============ =========== ========= ============
</TABLE>
F-20
<PAGE>
WIT CAPITAL GROUP, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $(20,903,915) $ (8,793,890) $ (2,992,581)
Adjustments to reconcile net loss to net cash used
in operating activities--
Equity in net income of subsidiaries.............. (8,982,513) 117,105 547,063
Equity in operations of affiliates................ 560,439
Non-cash expenses................................. 1,565 1,522,901 --
Income tax benefit................................ (6,155,010) -- --
Non-cash expense reimbursement.................... -- -- (750,000)
Write-down of computer software and equipment..... 1,125,000 -- --
Non-cash charges related to stock based
compensation.................................... 333,115 -- --
Depreciation and amortization..................... 1,278,706 659,259 153,184
(Increase) decrease in operating assets--
Securities owned.................................. 103,540 -- --
Investment in limited partnership................. (325,804) -- --
Prepaid expenses.................................. (834,711) (139,584) (132,659)
Other assets...................................... (3,452,986) (101,275) 30,141
Increase (decrease) in operating liabilities--
Accounts payable and accrued expenses............. 6,122,989 (41,269) (418,209)
Compensation payable.............................. 3,926,377 (309,493) 341,826
Other liabilities................................. 80,591 (17,414) 62,617
------------ ------------ ------------
Net cash used in operating activities........... (27,122,617) (7,103,660) (3,158,618)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries and affiliates.......... (29,929,802) (8,147,598) (1,434,775)
Capital distribution from subsidiary................ 3,000,000 -- --
Purchases of short-term investments................. (110,432,652) -- --
Sales of short-term investments..................... 38,031,523 -- --
Computer software purchased......................... (2,384,593) (21,917) (19,742)
Purchases of furniture, equipment and leasehold
improvements...................................... (4,964,998) (434,880) (234,929)
------------ ------------ ------------
Cash used in investing activities............... (106,680,522) (8,604,395) (1,689,446)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes receivable from stockholders.................. (615,833) -- --
Proceeds from IPO of common stock................... 71,436,044 -- --
Net proceeds from issuance of common stock.......... 3,948,071 60,301 --
Net proceeds from issuance of preferred stock....... 56,434,742 24,278,918 5,071,952
------------ ------------ ------------
Net cash provided by financing activities....... 131,203,024 24,339,219 5,071,952
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents................................... (2,600,115) 8,631,164 223,888
Cash and cash equivalents, beginning of year........ 9,180,804 549,640 325,752
------------ ------------ ------------
Cash and cash equivalents, end of year.............. $ 6,580,689 $ 9,180,804 $ 549,640
============ ============ ============
</TABLE>
F-21
<PAGE>
WIT CAPITAL GROUP, INC.
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest.......................................... $ 3,822 $ 7,211 $ 4,362
Taxes............................................. 18,830 43,181 19,337
NON-CASH TRANSACTIONS:
Issuance of common and 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
Series A Preferred Stock subscriptions
receivable...................................... -- -- 308,000
Issuance of common stock to stockholders for notes
receivable...................................... 8,967,237 5,750,000 --
Repurchase of common stock........................ -- -- 250,000
Conversion of common stock to preferred stock..... -- -- 5,000
Issuance of common stock for consulting
services........................................ 40,613 -- --
Issuance of restricted stock to employees......... 3,644,880 -- --
Increase in equity investment in affiliate
resulting from issuance of stock................ 11,819,830 -- --
Underwriting concessions received by WCC from IPO of
WCG Common Stock.................................. 1,341,225 -- --
</TABLE>
The accompanying note is an integral part of these statements
F-22
<PAGE>
WIT CAPITAL GROUP, INC.
(PARENT COMPANY ONLY)
NOTES TO SCHEDULE TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The 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 Annual Report on Form 10-K.
2. INCOME TAXES
Wit Capital Group, Inc. (parent company only) has recognized deferred tax
assets to the extent that deferred tax liabilities have been recorded on
consolidated subsidiaries.
F-23
<PAGE>
Exhibit 10.1
WIT CAPITAL GROUP, INC.
STOCK INCENTIVE PLAN
(INCLUDING AMENDMENTS MADE THROUGH JANUARY 27, 2000)
1. RESTATEMENT, PURPOSE AND TYPES OF AWARDS
Wit Capital Group, Inc., a Delaware corporation (the "Corporation"),
maintained the Wit Capital Group, Inc. and Its Subsidiaries Stock Option and
Restricted Stock Purchase Plan (the "Prior Plan"). The Prior Plan is hereby
amended and restated, as set forth herein (the "Plan"), effective March 1, 1999,
subject to the approval of the shareholders of the Corporation within twelve
months of such effective date. Notwithstanding anything herein to the contrary,
nothing in this Plan shall adversely affect the rights or obligations, under any
Award granted under the Prior Plan, of any grantee or holder of the Award
without such person's approval.
The purpose of the Plan is to promote the long-term growth and
profitability of the Corporation by: (i) providing key people with incentives to
improve stockholder value and to contribute to the growth and financial success
of the Corporation; and (ii) enabling the Corporation to attract, retain and
reward the best-available persons.
The Plan permits the granting of stock options (including incentive
stock options qualifying under Code section 422 and nonqualified stock options),
stock appreciation rights, restricted or unrestricted stock awards, phantom
stock, performance and other awards, or any combination of the foregoing.
2. DEFINITIONS
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "AFFILIATE" shall mean any entity, whether now or hereafter
existing, which controls, is controlled by, or is under common control with, the
Corporation (including, but not limited to, joint ventures, limited liability
companies, and partnerships). For this purpose, "control" shall mean ownership
of 50% or more of the total combined voting power or value of all classes of
stock or interests of the entity.
(b) "AWARD" shall mean any stock option, stock appreciation right,
stock award, phantom stock award, or performance award.
(C) "BOARD" shall mean the Board of Directors of the Corporation.
(D) "CHANGE IN CONTROL" shall be deemed to have occurred if:
(i) the date of the acquisition by any "person" (within
the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act), excluding the Corporation or any of
its subsidiaries or affiliates or any employee
benefit plan sponsored by any of the foregoing, of
beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act) of 25% or more of
either (x) the then outstanding shares of common
stock of the Corporation or (y) the then outstanding
voting securities entitled to vote generally in the
election of directors; or
<PAGE>
(ii) the date the individuals who constitute the Board as
of the date of the Corporation's initial public
offering (the "Incumbent Board") cease for any reason
to constitute at least a majority of the members of
the Board, provided that any individual becoming a
director subsequent to the effective date of the
initial public offering whose election, or nomination
for election by the Corporation's stockholders, was
approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other
than any individual whose nomination for election to
Board membership was not endorsed by the
Corporation=s management prior to, or at the time of,
such individual=s initial nomination for election)
shall be, for purposes of the Plan, considered as
though such person were a member of the Incumbent
Board; or
(iii) the consummation of a merger, consolidation,
recapitalization, reorganization, sale or disposition
of all or a substantial portion of the Corporation's
assets, a reverse stock split of outstanding voting
securities, the issuance of shares of stock of the
Corporation in connection with the acquisition of the
stock or assets of another entity, provided, however,
that a Change in Control shall not occur under this
clause (iii) if consummation of the transaction would
result in at least 51% of the total voting power
represented by the voting securities of the
Corporation (or, if not the Corporation, the entity
that succeeds to all or substantially all of the
Corporation's business) outstanding immediately after
such transaction being beneficially owned (within the
meaning of Rule 13d-3 promulgated pursuant to the
Exchange Act) by at least 75% of the holders of
outstanding voting securities of the Corporation
immediately prior to the transaction, with the voting
power of each such continuing holder relative to
other such continuing holders not substantially
altered in the transaction.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder.
(f) "COMMON STOCK" shall mean shares of common stock of the
Corporation, $.01 par value.
(g) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "FAIR MARKET VALUE" of a share of the Corporation's Common Stock
for any purpose at particular date shall be determined by the Administrator
using such methods and procedures as it shall from time to time determine in
good faith; provided, however, that (i) if the shares of the Common Stock are
traded on a registered national securities exchange or through a market operated
by the Nasdaq Stock Market, Inc., (including the OTC Bulletin Board), the last
regular way sales price for the primary trading session reported through any
applicable consolidated or other transaction reporting plan approved by the SEC
pursuant to the Exchange Act or (ii) if there was no such sale on a given day,
the average of the closing bid and asked prices reported through any applicable
quotation reporting plan approved by the SEC.
(i) "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.
(j) "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.
-2-
<PAGE>
(k) "SUBSIDIARY" AND "SUBSIDIARIES" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section 424(f) of the Code,
or any successor thereto.
3. ADMINISTRATION
(a) ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board or by such committee or committees as may be appointed by the Board from
time to time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) POWERS OF THE ADMINISTRATOR. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include authority,
in its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards.
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine the
types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and substitute
new Awards (provided however, that, except as provided in Section 7(d) of the
Plan, any modification that would materially adversely affect any outstanding
Award shall not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an
Award following termination of any grantee's employment or other relationship
with the Corporation; and (vii) establish objectives and conditions, if any, for
earning Awards and determining whether Awards will be paid after the end of a
performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) NON-UNIFORM DETERMINATIONS. The Administrator's determinations
under the Plan (including without limitation, determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the Grant Agreements evidencing such Awards) need
not be uniform and may be made by the Administrator selectively among persons
who receive, or are eligible to receive, Awards under the Plan, whether or not
such persons are similarly situated.
(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.
-3-
<PAGE>
(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
(a) 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
27,350,000 shares of Common Stock. The Corporation shall
reserve such number of shares for Awards under the Plan,
subject to adjustments as provided in Section 7(d). If any
Award, or portion of an Award, under the Plan expires or
terminates unexercised, becomes unexercisable or is forfeited
or otherwise terminated, surrendered or canceled as to any
shares, or if any shares of Common Stock are surrendered to
the Corporation in connection with any Award (whether or not
such surrendered shares were acquired pursuant to any Award),
the shares subject to such Award and the surrendered shares
shall thereafter be available for further Awards under the
Plan; provided, however, that any such shares that are
surrendered to the Corporation in connection with any Award or
that are forfeited after issuance shall not be available for
purchase pursuant to incentive stock options intended to
qualify under Code section 422.
(b) During any calendar year, no participant may be
granted Awards that may be settled by delivery of more than
one million shares of Common Stock, subject to adjustment as
provided in Section 7(d). In addition, with respect to Awards
that may be settled in cash (in whole or in part), no
participant may be paid during any calendar year cash amounts
relating to such Awards that exceed the greater of the Fair
Market Value of the number of shares of Common Stock set forth
in the preceding sentence at the date of grant or the date of
settlement of the Award. This provision sets forth two
separate limitations, so that Awards that may be settled
solely by delivery of Common Stock will not operate to reduce
the amount of cash-only Awards, and vice versa; nevertheless,
Awards that may be settled in Common Stock or cash must not
exceed either limitation.
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 27,350,000 shares of Common Stock. The Corporation shall reserve
such number of shares for Awards under the Plan, subject to adjustments as
provided in Section 7(d). If any Award, or portion of an Award, under the Plan
expires or terminates unexercised, becomes unexercisable or is forfeited or
otherwise terminated, surrendered or canceled as to any shares, or if any shares
of Common Stock are surrendered to the Corporation in connection with any Award
(whether or not such surrendered shares were acquired pursuant to any Award),
the shares subject to such Award and the surrendered shares shall thereafter be
available for further Awards under the Plan; provided, however, that any such
shares that are surrendered to the Corporation in connection with any Award or
that are forfeited after issuance shall not be available for purchase pursuant
to incentive stock options intended to qualify under Code section 422.
-4-
<PAGE>
5. PARTICIPATION
Participation in the Plan shall be open to all employees, officers,
directors, and consultants of the Corporation, or of any Affiliate of the
Corporation, as may be selected by the Administrator from time to time.
6. AWARDS
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement.
(a) STOCK OPTIONS. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is defined
in Code section 422 or nonqualified stock options; provided, however, that
Awards of incentive stock options shall be limited to employees of the
Corporation or of any Parent or Subsidiary of the Corporation. Options intended
to qualify as incentive stock options under Code section 422 must have an
exercise price at least equal to Fair Market Value on the date of grant, but
nonqualified stock options may be granted with an exercise price less than Fair
Market Value. No stock option shall be an incentive stock option unless so
designated by the Administrator at the time of grant or in the Grant Agreement
evidencing such stock option.
(b) STOCK APPRECIATION RIGHTS. The Administrator may from time to time
grant to eligible participants Awards of Stock Appreciation Rights ("SAR"). An
SAR entitles the grantee to receive, subject to 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
-5-
<PAGE>
Common Stock represented by a phantom stock unit solely as a result of the grant
of a phantom stock unit to the grantee.
(e) PERFORMANCE AWARDS. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance awards may be
paid by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole discretion of the Administrator. Performance
goals established by the Administrator may be based on the Corporation's or an
Affiliate's operating income or one or more other business criteria selected by
the Administrator that apply to an individual or group of individuals, a
business unit, or the Corporation or an Affiliate as a whole, over such
performance period as the Administrator may designate.
(f) OTHER AWARDS. The Administrator may, in its discretion, grant other
awards in such number, and upon such terms, and at any time and from time to
time, as shall be determined by the Administrator. Such awards may be
denominated in cash, in shares of Common Stock, in share-equivalent units, in
share appreciation units, in securities or debentures convertible into Common
Stock or in a combination of the foregoing and may be paid in cash or in shares
of Common Stock, all as determined by the Administrator. Such awards may be
issued alone or in tandem with other awards as described above, may be granted
based on or subject to performance measures, and may relate to annual bonus or
long-term performance awards.
7. MISCELLANEOUS
(a) WITHHOLDING OF TAXES. Grantees and holders of Awards shall pay to
the Corporation or its Affiliate, or make provision satisfactory to the
Administrator for payment of, any taxes required to be withheld in respect of
Awards under the Plan no later than the date of the event creating the tax
liability. The 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
-6-
<PAGE>
subject to Awards or providing or mandating alternative settlement methods such
as settlement of the Awards in cash or in shares of Common Stock or other
securities of the Corporation or of any other entity, or in any other matters
which relate to Awards as the Administrator shall, in its sole discretion,
determine to be necessary or appropriate.
Notwithstanding anything in the Plan to the contrary and without the
consent of holders of Awards, the Administrator, in its sole discretion, may
make any modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards in whole or in part
regardless of the vested status of the Award, in order to facilitate any
business combination that is authorized by the Board to comply with requirements
for treatment as a pooling of interests transaction for accounting purposes
under generally accepted accounting principles.
The Administrator is authorized to make, in its discretion and without
the consent of holders of Awards, adjustments in the terms and conditions of,
and the criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Corporation, or the financial statements of the Corporation
or any Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Administrator determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
(e) SUBSTITUTION OF AWARDS IN MERGERS AND ACQUISITIONS. Awards may be
granted under the Plan from time to time in substitution for Awards held by
employees or directors of entities who become or are about to become employees
or directors of the Corporation or an Affiliate as the result of a merger or
consolidation of the employing entity with the Corporation or an Affiliate, or
the acquisition by the Corporation or an Affiliate of the assets or stock of the
employing entity. The terms and conditions of any substitute Awards so granted
may vary from the terms and conditions set forth herein to the extent that the
Administrator deems appropriate at the time of grant to conform the substitute
Awards to the provisions of the awards for which they are substituted.
(f) ACCELERATION OF VESTING UPON A CHANGE IN CONTROL. Notwithstanding
anything contained herein to the contrary, all conditions and/or restrictions
relating to the continued performance of services and/or the achievement of
performance objectives with respect to the exercisability or full enjoyment of
an Award shall lapse immediately prior to a Change in Control; PROVIDED,
HOWEVER, that such lapse shall not occur if it is intended that the transaction
constituting such Change in Control be accounted for as a pooling of interests
under Accounting Principles Board Opinion No. 16 (or any successor thereto), and
operation of this Section 7(f) would otherwise violate Paragraph 47(c) thereof.
(g) TERMINATION, AMENDMENT AND MODIFICATION OF THE PLAN. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.
(h) 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.
(i) 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
-7-
<PAGE>
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.
(j) 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.
(k) EFFECTIVE DATE; TERMINATION DATE. The Plan is effective as of March
1, 1999, the date on which the Plan, as an amendment and restatement of the
Prior Plan, was approved by the Board, subject to the approval of the
stockholders of the Corporation within twelve months of such effective date. No
Award shall be granted under the Plan after the close of business March 1 2009.
Subject to other applicable provisions of the Plan, all Awards made under the
Plan prior to such termination of the Plan shall remain in effect until such
Awards have been satisfied or terminated in accordance with the Plan and the
terms of such Awards.
Date Approved by the Stockholders: April 6, 1999; amended January 27,2000
-8-
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into effective as of
January 31, 2000, between Wit Capital Group, Inc., a Delaware corporation
(together with each of its subsidiaries and divisions, the "Corporation"), and
Russell Crabs (the "Executive").
W I T N E S S E T H:
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 a Managing Director 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 with the Corporation and its Subsidiaries
as may be properly assigned to him by the Corporation.
2. EMPLOYMENT PERIOD. The Employment Period shall begin at the Effective
Time of the Merger (as such terms are defined therein) contemplated by the
Agreement and Plan of Merger dated as of October 31, 1999 by and among the
Corporation, SoundView Technology Group, Inc. ("SoundView") and W/S Merger Corp.
(the "Merger Agreement") and shall continue for 36 months.
3. BASE SALARY. During the Employment Period, the Corporation shall pay
the Executive a minimum annual base salary of $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.
4. BONUS. During the Employment Period, the Executive shall be entitled
to participate in such bonus plans as are in effect from time to time for other
employees of the Company with equal status. For the periods ending December 31,
2000, 2001 and 2002, the Executive shall be entitled to a guaranteed bonus of at
least $550,000 in each period.
<PAGE>
5. BENEFITS.
(1) In addition to and except for the matters governed by this
Agreement, the Executive shall be entitled to 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.
(2) The Executive shall be entitled to four (4) weeks 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. 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 I.
7. TERMINATION.
7.1 TERMINATION BY THE CORPORATION.
(1) The Corporation, by action of its Board, may terminate the
Executive's employment under this Agreement without Cause (as defined in Section
7.1), at any time by giving notice thereof to the Executive at least thirty (30)
days before the effective date of such termination. The Employment Period shall
terminate as of the date of such termination of employment.
(2) 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" shall mean the Executive's (i) neglect, failure or refusal to timely
perform the duties of his employment (other than by reason of a physical or
mental illness or impairment), or his gross negligence in the performance of his
duties, (ii) material breach of any agreements, covenants and representations
made in any employment agreement or other agreement with the Corporation or any
of its Subsidiaries, (iii) violation of any law, rule, regulation or by-law of
any governmental authority (state, federal or foreign), any securities exchange
or association or other regulatory or self-regulatory body or agency applicable
to the Corporation or any of its Subsidiaries or any material general policy or
directive of the Corporation or any of its Subsidiaries applicable to the
Executive, (iv) conviction of, or plea of guilty or nolo contendere to, a crime
involving moral turpitude, dishonesty, fraud or unethical
2
<PAGE>
business conduct, or a felony, (v) giving or accepting undisclosed material
commissions or other payments in cash or in kind in connection with the affairs
of the Corporation or any of its Subsidiaries or their clients, (vi) failure to
obtain or maintain any registration, license or other authorization or approval
that the Corporation reasonably believes is required in order for the Executive
to perform his duties, or (vii) habitual abuse of alcohol or drugs. The
Corporation may require the Executive to take a drug test prior to commencing
employment with the Corporation.
7.2 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 thirty (30) days before the effective date
of such termination. The Employment Period shall terminate as of the date of
such termination of employment.
7.3 SEVERANCE BENEFITS.
(1) 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 7.3), 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 Employment Period; and
(ii) an amount representing the Executive's unpaid Guaranteed Bonus through the
end of the Employment Period. In addition, the Corporation shall amend to the
Executive's stock option grant that represents Executives options to purchase
the Corporation's Common Stock on the Effective Date of the Merger to provide
for immediate vesting if Executive's employment is terminated by the Corporation
without Cause
(2) If the Executive's employment under this Agreement is
terminated by the Corporation for Cause or by the Executive without Good Reason
, 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 s Executive's
unpaid Base Salary earned to the termination date.
(3) If the Executive dies or becomes totally disabled (as defined
in Section 7.4), 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) an amount representing the Executive's unpaid Guaranteed Bonus prorated to
the date of termination.
(4) "Good Reason" means (i) any failure by the Corporation to pay
or provide the compensation and benefits under this Agreement;
(1) a change, without Cause, in the Executive's
responsibilities which represents a materially adverse change from the
employee's responsibilities as in effect at any time within the preceding six
(6) months or a material reduction, without Cause, in the Execu-
3
<PAGE>
tive's corporate title (such as from Managing Director to Vice President) in
effect at any time within the preceding six (6) months;
(2) requiring the Executive to be based at any place
outside a 50-mile radius from the Executive's previous job location or
residence, except for reasonably required travel on business;
(3) the Corporation acquires or creates an additional
business as a result of which Soundview's institutional brokerage business, its
investment banking technology group or its technology research group, as
developed and expanded within the Corporation, is no longer the Corporation's
primary institutional brokerage business or its primary investment banking
technology group, as the case may be; or
(4) the Corporation changes its compensation methodology
from the basic methodology utilized by Soundview before the Merger such that it
no longer uses a combination of cash, stock and options in a merit based
compensation system rewarding individual performance within prevalent industry
standards, as determined by senior management and the Board of Directors.
(5) If the Executive is entitled to receive a payment or
other benefits under this Agreement upon termination of his employment with the
Corporation, the Executive hereby irrevocably waives the right to receive any
similar payments or other benefits under any broad based 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.
7.4 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. Notwithstanding
anything to the contrary contained in any other agreement, if this Agreement is
terminated by death or disability, the unvested options held by Employee on the
Effective Time of the Merger shall be fully vested on such termination.
8. 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.
4
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9. 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.
10. 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. Wit Capital Group, Inc. 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.
11. 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.
12. 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.
13. 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 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 RELAT-
5
<PAGE>
ING 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 CONNECTICUT
[IN AGREEMENTS WITH EXECUTIVES BASED IN CONNECTICUT], SAN FRANCISCO [IN]
AGREEMENTS WITH EXECUTIVE BASED IN CALIFORNIA], 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: /s/ Ronald W. Readmond
--------------------------------
Ronald W. Readmond,
Co-Chief Executive Officer
EXECUTIVE
/s/ Russell Crabs
-----------------------------------
Russell Crabs
6
<PAGE>
Exhibit 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into effective as of
January 31, 2000, between Wit Capital Group, Inc., a Delaware corporation
(together with each of its subsidiaries and divisions, the "Corporation"), and
Curt Snyder (the "Executive").
W I T N E S S E T H:
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 a Managing Director and Chief
Financial 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
with the Corporation and its Subsidiaries as may be properly assigned to him by
the Corporation.
2. EMPLOYMENT PERIOD. The Employment Period shall begin at the Effective
Time of the Merger (as such terms are defined therein) contemplated by the
Agreement and Plan of Merger dated as of October 31, 1999 by and among the
Corporation, S. Technology Group, Inc. ("Stamford") and W/S Merger Corp. (the
"Merger Agreement") and shall continue for 36 months.
3. BASE SALARY. During the Employment Period, the Corporation shall pay
the Executive a minimum annual base salary of $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.
4. BONUS. During the Employment Period, the Executive shall be entitled
to participate in such bonus plans as are in effect from time to time for other
employees of the
<PAGE>
Company with equal status. For the periods ending December 31, 2000, 2001 and
2002, the Executive shall be entitled to a guaranteed bonus of at least $550,000
in each period.
5. BENEFITS.
(1) In addition to and except for the matters governed by this
Agreement, the Executive shall be entitled to 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.
(2) The Executive shall be entitled to four (4) weeks 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. RETENTION POOL. The Executive shall be entitled to participate in a
pool of shares of the Corporation's Common Stock being allocated to certain
executives of the Corporation to encourage them to remain as highly productive
numbers of senior management (the "Retention Pool"). The Executive's interest in
the Retention Pool shall be initially 113,879 shares (based on $17.5625 share
price to be adjusted for final conversion ratio) and shall be subject to the
vesting, forfeiture and early vesting provisions set forth in the Merger
Agreement provided, however, that in the event of termination for death or
disability, as defined in Section 8.4 of this Agreement, the Executive's initial
shares in the Retention Pool shall be fully vested.
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 I.
8. TERMINATION.
8.1 TERMINATION BY THE CORPORATION.
(1) The Corporation, by action of its Board, may terminate the
Executive's employment under this Agreement without Cause (as defined in Section
8.1), at any time by giving notice thereof to the Executive at least thirty (30)
days before the effective date of such termination. The Employment Period shall
terminate as of the date of such termination of employment.
(2) 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
2
<PAGE>
termination. For all purposes of this Agreement, the Employment Period shall end
as of the date of such termination of employment. "Cause" shall mean the
Executive's (i) neglect, failure or refusal to timely perform the duties of his
employment (other than by reason of a physical or mental illness or impairment),
or his gross negligence in the performance of his duties, (ii) material breach
of any agreements, covenants and representations made in any employment
agreement or other agreement with the Corporation or any of its Subsidiaries,
(iii) violation of any law, rule, regulation or by-law of any governmental
authority (state, federal or foreign), any securities exchange or association or
other regulatory or self-regulatory body or agency applicable to the Corporation
or any of its Subsidiaries or any material general policy or directive of the
Corporation or any of its Subsidiaries applicable to the Executive, (iv)
conviction of, or plea of guilty or nolo contendere to, a crime involving moral
turpitude, dishonesty, fraud or unethical business conduct, or a felony, (v)
giving or accepting undisclosed material commissions or other payments in cash
or in kind in connection with the affairs of the Corporation or any of its
Subsidiaries or their clients, (vi) failure to obtain or maintain any
registration, license or other authorization or approval that the Corporation
reasonably believes is required in order for the Executive to perform his
duties, or (vii) habitual abuse of alcohol or drugs. The Corporation may require
the Executive to take a drug test prior to commencing employment with the
Corporation.
8.2 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 thirty (30) days before the effective date
of such termination. The Employment Period shall terminate as of the date of
such termination of employment.
8.3 SEVERANCE BENEFITS.
(1) 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), 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 Employment Period; and
(ii) an amount representing the Executive's unpaid Guaranteed Bonus through the
end of the Employment Period. In addition, the Corporation shall amend to the
Executive's stock option grant that represents Executives options to purchase
the Corporation's Common Stock on the Effective Date of the Merger to provide
for immediate vesting if Executive's employment is terminated by the Corporation
without Cause. The Corporation shall also include in the restricted stock grant
to Executive of shares from the Retention Pool referred to in Section 6, a
provision that provides for immediate vesting if the Executive's employment is
terminated without Cause.
(2) If the Executive's employment under this Agreement is
terminated by the Corporation for Cause or by the Executive without Good Reason
, 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 s Executive's
unpaid Base Salary earned to the termination date.
3
<PAGE>
(3) 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; and
(ii) an amount representing the Executive's unpaid Guaranteed Bonus prorated to
the date of termination.
(4) "Good Reason" means (i) any failure by the Corporation to pay
or provide the compensation and benefits under this Agreement;
(1) a change, without Cause, in the Executive's
responsibilities which represents a materially adverse change from the
employee's responsibilities as in effect at any time within the preceding six
(6) months or a material reduction, without Cause, in the Executive's corporate
title (such as from Managing Director to Vice President) in effect at any time
within the preceding six (6) months;
(2) requiring the Executive to be based at any place
outside a 50-mile radius from the Executive's previous job location or
residence, except for reasonably required travel on business;
(3) the Corporation acquires or creates an additional
business as a result of which Soundview's institutional brokerage business, its
investment banking technology group or its technology research group, as
developed and expanded within the Corporation, is no longer the Corporation's
primary institutional brokerage business or its primary investment banking
technology group, as the case may be; or
(4) the Corporation changes its compensation methodology
from the basic methodology utilized by Soundview before the Merger such that it
no longer uses a combination of cash, stock and options in a merit based
compensation system rewarding individual performance within prevalent industry
standards, as determined by senior management and the Board of Directors.
(5) If the Executive is entitled to receive a payment or
other benefits under this Agreement upon termination of his employment with the
Corporation, the Executive hereby irrevocably waives the right to receive any
similar payments or other benefits under any broad based 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.
8.4 TERMINATION BY DEATH OR DISABILITY. This Agreement shall terminate
automatically upon the Executive's death. If the Corporation determines in good
4
<PAGE>
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. Notwithstanding
anything to the contrary contained in any other agreement, if this Agreement is
terminated by death or disability, the unvested options held by Employee on the
Effective Time of the Merger shall be fully vested on such termination.
9. 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.
10. 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.
11. 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. Wit Capital Group, Inc. 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.
12. 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.
13. 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.
5
<PAGE>
14. 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 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 CONNECTICUT [IN]
AGREEMENTS WITH EXECUTIVES BASED IN CONNECTICUT], SAN FRANCISCO [IN AGREEMENTS]
WITH EXECUTIVE BASED IN CALIFORNIA], 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: /s/ Ronald W. Readmond
-------------------------------
Ronald W. Readmond,
Co-Chief Executive Officer
EXECUTIVE
/s/ Curt Snyder
----------------------------------
Curt Snyder
6
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
This Employment Agreement (the "AGREEMENT") is entered into effective as of
February 8, 2000, between Wit Capital Group, Inc., a Delaware corporation (the
"CORPORATION"), and John W. Palmer (the "EXECUTIVE").
W I T N E S S E T H:
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 the Director of Technology for the period
specified in Section 2 (the "EMPLOYMENT PERIOD"), subject to the terms and
conditions of this Agreement. The Executive shall have overall responsibility
and authority for all aspects of technology, including items such as systems
design/architecture, development, and operations; he shall be responsible for
the evaluation, selection and maintenance of relationships with vendors
providing systems and communications services to the Corporation. The systems
development and operations personnel report to the Executive who shall have
those responsibilities commonly associated with the position of Chief
Information Officer/Chief Technology Officer at comparable firms. During the
Employment Period, the Executive shall, as a senior executive of the Company,
report to the President and Co-CEO or such other senior executive as the Board
of Directors may deem appropriate from time to time and he shall assume such
duties and responsibilities as may be properly assigned to him by the
Corporation.
2. EMPLOYMENT PERIOD. The Employment Period shall begin on February 8,
2000 and shall continue for two years.
3. BASE SALARY. During the Employment Period, the Corporation shall pay
the Executive a minimum annual base salary of $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. ANNUAL BONUS PLAN During the Employment Period, the Executive shall
be entitled to participation at the senior executive level in the Annual Bonus
Plan for Executives. For the first year of the Employment Period, the Executive
shall be entitled to a guaranteed bonus of at least Four Hundred Thousand
Dollars ($400,000), and for the second year of the Employment Term, a guaranteed
bonus of Two Hundred Thousand Dollars ($200,000) ("GUARANTEED BONUS"). The
Guaranteed Bonus shall be paid to the Executive on a semi-annual basis with the
first payment due six (6) months from the effective date of this Agreement. The
amount of the bonus, if any, in excess of the Guaranteed Bonus, shall be
comparable to other senior executives in comparable firms with similar
responsibilities and shall include, if applicable, achievement of objective
written goals set for the Executive by mutual agreement with the Company. By way
of example, achievement of specified goals could result in additional
compensation if relevant information indicated that a higher total compensation
package was the appropriate level for a person performing the Executive's
responsibilities at the level of the Executive's performance for the period at a
comparable company.
5. BENEFITS.
(a) In addition to and except for the matters governed by this
Agreement, the Executive shall be entitled to employee benefits and perquisites,
including but not limited to pension, deferred compensation plans, incentive,
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.
(b) The Executive shall be entitled to four (4) weeks paid
vacation as well as holidays, leave of absence and leave for illness and
temporary disability in accordance with the policies of the Corporation.
(c) The Executive shall be entitled to reimbursement for normal
and customary business expenses in accordance with the Company's policies for
expense reimbursement. The Executive's principal place of employment shall not
be changed from New York City or any place within 75 miles from New York City
without the consent of the Executive.
6. STOCK PURCHASE.
The Executive shall have the right to purchase seventy-five
thousand (75,000) shares of the Common Stock of the Corporation in accordance
with the Stock Purchase Agreement attached hereto as Exhibit I..
7. STOCK OPTIONS.
The Executive shall be granted an option on the commencement of
his employment, pursuant to the Corporation's Stock Incentive Plan, to purchase
one hundred and seventy-five thousand (175,000) shares of the Corporation's
Common Stock at the fair market value based on the February 7, 2000 closing
price Such options shall vest incrementally as
2
<PAGE>
follows: 10,937 shares on June 30, 2000; 10,938 shares on September 30, 2000;
and 10,937 shares on the last days of December and June, and 10,938 shares on
the last days of March and September thereafter until March 30, 2004. The
Options shall be designated Incentive Stock Options pursuant to the
Corporation's Stock Incentive Plan to the degree permitted under law.
The Executive shall also be eligible to receive additional annual
grants as the Board or a committee of the Board may determine to be appropriate
for senior executives in its sole judgment. In the past, by way of example, such
grants have ranged from 0 to 100,000.
8. NON-DISCLOSURE;
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 and Assignment of Inventions Agreement" attached hereto
as Exhibit II.
9. TERMINATION.
9.1 TERMINATION BY THE CORPORATION.
(a) The Corporation may terminate the Executive's employment
under this Agreement without Cause (as defined in Section 9.1(b)), at any time
by giving notice thereof to the Executive at least thirty (30) 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 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" shall mean 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 written 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 written 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 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.
9.2 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 thirty (30) days before the effective date
of such termination. The Employment Period shall terminate as of the date of
such termination of employment.
3
<PAGE>
9.3 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 9.3(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 two year Employment
Period; and (ii) an amount representing the Executive's unpaid Guaranteed Bonus
through the end of the Employment Period.
(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 9.4),
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) an
amount representing the Executive's unpaid Guaranteed Bonus prorated 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);
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.
9.4 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.
4
<PAGE>
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 with a copy to Robert C. Lawrence, Esq.,
Caldwalder, Wickersham & Taft, 100 Maiden Lane, New York, NY 10038 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; WAIVER. 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. Neither party may assign his or its duties or rights under this Agreement
without the prior written consent of the other party; provided, however that (i)
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
and (ii) this Agreement may be assigned without consent in connection with any
sale of all or substantially all of the Corporation's assets or upon any merger,
consolidation or reorganization of the Corporation with or into any other
corporation.
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 OF THE
5
<PAGE>
EMPLOYEE NON-DISCLOSURE AND ASSIGNMENT OF INVENTIONS AGREEMENT
REFERRED TO IN SECTION 8 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.
16. INDEMNIFICATION. The company shall indemnify the Executive to the
fullest extent permitted under applicable law and the Company's
By-Laws.
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: /s/ Ronald W. Readmond
- -------------------------------- --------------------------------
Ronald W. Readmond,
Co-Chief Executive Officer
EXECUTIVE
/s/ John W. Palmer
--------------------------------
6
<PAGE>
Exhibit 21.1
List of Subsidiaries of Wit Capital Group, Inc.
Name Location of Jurisdiction
- ---- ------------------------
Wit Capital Corporation New York
SoundView Technology Group, Inc. (1) Delaware
(1) SoundView Technology Group, Inc. became a subsidiary of Wit Capital
Group, Inc. on January 31, 2000, in connection with the closing of the
merger. Effective March 22, 2000, SoundView Technology Group, Inc.
changed its name to Wit SoundView Corporation.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 16, 2000 relating to the consolidated statements of
financial condition of Wit Capital Group, Inc. and subsidiaries as of December
31, 1999 and 1998 and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999, included in this Form 10-K, into the Company's
previously filed Registration Statement on Form S-8 (File No. 333-85203) and the
related resale prospectus prepared in accordance with Form S-3.
New York, New York
March 28, 2000 /s/ ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001071620
<NAME> WIT CAPITAL GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 12,448
<RECEIVABLES> 4,252
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 114,468
<PP&E> 6,312
<TOTAL-ASSETS> 163,618
<SHORT-TERM> 0
<PAYABLES> 18,637
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<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 733
<OTHER-SE> 143,669
<TOTAL-LIABILITY-AND-EQUITY> 163,618
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 4,717
<COMMISSIONS> 7,088
<INVESTMENT-BANKING-REVENUES> 30,270
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<INCOME-PRETAX> (20,904)
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<CHANGES> 0
<NET-INCOME> (20,904)
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