<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 2000
REGISTRATION NO. 333-
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WIT SOUNDVIEW GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 6211 13-3900397
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------
826 BROADWAY
NEW YORK, NEW YORK 10003
(212) 253-4400
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
ROBERT H. LESSIN
CHIEF EXECUTIVE OFFICER
WIT SOUNDVIEW GROUP, INC.
826 BROADWAY
NEW YORK, NEW YORK 10003
(212) 253-4400
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD T. PRINS, ESQ. LLOYD H. FELLER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP ROBERT C. MENDELSON, ESQ.
FOUR TIMES SQUARE CO-GENERAL COUNSEL
NEW YORK, NEW YORK 10036-6522 WIT SOUNDVIEW GROUP, INC.
(212) 735-3000 826 BROADWAY
CURTIS L. MO, ESQ. NEW YORK, NEW YORK 10003
DAVID P. MCLEAN, ESQ. (212) 253-4400
JOSEPH K. WYATT, ESQ. ALAN K. AUSTIN, ESQ.
BROBECK, PHLEGER & HARRISON LLP WILSON, SONSINI, GOODRICH & ROSATI
TWO EMBARCADERO PLACE 650 PAGE MILL ROAD
2200 GENG ROAD PALO ALTO, CA 94304-1050
PALO ALTO, CA 94303-0913 (650) 493-9300
(650) 424-0160
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this registration
statement, which relates to the issuance of common stock, par value $.01 per
share, of Wit SoundView Group, Inc. in the merger of E*OFFERING Corp. with and
into Wit SoundView Corporation, a wholly owned subsidiary of Wit SoundView
Group, Inc., pursuant to the Agreement and Plan of Merger, dated as of May 15,
2000, among Wit SoundView Group, Inc., Wit SoundView Corporation and E*OFFERING
Corp.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT (1) PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share...... 28,486,247 $1.50 $30,686,760 $8,101.30
Preferred Stock purchase rights (3).......... 28,486,247 N/A N/A N/A
</TABLE>
(1) Calculated as the book value of each share of E*OFFERING's common stock on a
fully diluted basis as of May 31, 2000, assuming conversion of all preferred
stock as of such date.
(2) Estimated solely for the purpose of calculation of the registration fee
pursuant to Rules 457(f)(2) under the Securities Act of 1933, the
registration fee is based on the aggregate book value of the E*OFFERING
common and preferred stock to be received by Wit SoundView.
(3) Preferred Stock purchase rights will be distributed without charge with
respect to each share of common stock of Wit SoundView registered hereby.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS DOCUMENT IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL THESE SECURITIES UNTIL THAT
REGISTRATION STATEMENT IS EFFECTIVE. THIS DOCUMENT IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. THE SECURITIES AND EXCHANGE
COMMISSION AND THE STATE SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED
THE SHARES OF WIT SOUNDVIEW COMMON STOCK TO BE ISSUED IN THE MERGER OR
DETERMINED IF THIS DOCUMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
[LOGO]
, 2000
Dear Wit SoundView Group, Inc. Stockholder:
We are holding a special meeting of stockholders of Wit SoundView
Group, Inc. on , 2000 at which you will be asked to consider and vote
upon our proposed acquisition of E*OFFERING Corp. We are enclosing a proxy
statement/prospectus to provide you with information you should know about this
transaction.
E*OFFERING Corp. is a full service Internet investment banking firm that
uses the Internet and related technologies such as electronic mail and
multimedia to deliver investment banking products to online individual investors
and institutional clients. Wit SoundView will acquire the outstanding shares and
assume all the outstanding options and warrants of E*OFFERING and will issue up
to 28,486,247 shares of Wit SoundView common stock in exchange for E*OFFERING's
shares and upon exercise of the outstanding options and warrants. The maximum
number of Wit SoundView shares had a value of $291,984,032, or $10.25 per share,
at the close of trading on May 12, 2000, the last trading day before the merger
agreement was signed. We have agreed to issue an additional 4,025,948 shares and
a warrant to purchase up to an aggregate of 2 million shares of our common stock
to E*TRADE Group Inc. in connection with a strategic alliance with E*TRADE. We
have also agreed to sell two million shares to E*TRADE and two million shares to
certain affiliates of General Atlantic Partners, LLC for an aggregate of
$41 million, or $10.25 per share. These issuances to E*TRADE and certain
affiliates of General Atlantic Partners, LLC are contingent on completion of the
merger.
The board of directors of each company and the stockholders of E*OFFERING
have approved the transaction, which is expected to close in October, 2000.
Completion is contingent on Wit SoundView stockholder approval, regulatory
approval and other customary closing conditions. The board of directors of Wit
SoundView has unanimously approved the terms of the merger agreement and the
merger and unanimously reaffirms its recommendation that you vote FOR approval
of the merger agreement and the merger. Please consider matters under the "Risk
Factors" caption beginning on page of the proxy statement/prospectus.
E*OFFERING has already obtained stockholder approval for the merger by
soliciting consents from nine of its significant shareholders to approve the
merger agreement at the time the merger agreement was entered into. Obtaining
consents for the merger from these significant shareholders was a private
offering of the shares to be issued to these persons in the merger. These
significant shareholders collectively own approximately 78% of E*OFFERING's
voting stock. The registration statement will not cover the shares received in
the merger by these significant shareholders but only the potential resale of
those shares, subject to applicable transfer restrictions imposed under the
merger agreement. Six significant stockholders of Wit SoundView have agreed to
vote in favor of the merger agreement. These significant stockholders of Wit
SoundView collectively own approximately 32% of Wit SoundView's voting stock.
Enclosed you will find a proxy card for the Wit SoundView special meeting.
Please either vote electronically, by telephone or complete, sign and date the
enclosed proxy card and return it in the accompanying prepaid envelope to ensure
that your shares will be represented at the special meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING
WHETHER OR NOT YOU ARE PERSONALLY ABLE TO ATTEND. STOCKHOLDERS WHO DO NOT EXPECT
TO ATTEND THE MEETING IN PERSON ARE URGED TO PLEASE SIGN, DATE AND MAIL THE
ACCOMPANYING PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. THIS WILL ENSURE THAT YOUR
SHARES ARE VOTED IN ACCORDANCE WITH YOUR WISHES AND THAT A QUORUM WILL BE
PRESENT AT THE SPECIAL MEETING.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE WITSOUNDIEW COMMON STOCK TO BE ISSUED IN THE MERGER
OR DETERMINED IF THIS PROSPECTUS/PROXY SOLICITATION
<PAGE>
STATEMENT IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT US THAT IS NOT INCLUDED OR DELIVERED WITH THIS
DOCUMENT. WE URGE YOU TO READ THIS INFORMATION WHICH IS DESCRIBED IN GREATER
DETAIL IN THE SECTION OF THIS PROXY STATEMENT/PROSPECTUS ENTITLED "WHERE YOU CAN
FIND MORE INFORMATION." IN ADDITION, THE INFORMATION IS AVAILABLE WITHOUT CHARGE
TO OUR STOCKHOLDERS AT THE WEB SITE MAINTAINED BY THE SECURITIES AND EXCHANGE
COMMISSION AT HTTP://WWW.SEC.GOV OR UPON A WRITTEN OR ORAL REQUEST TO WIT
SOUNDVIEW GROUP, INC., 826 BROADWAY, NEW YORK, NEW YORK 10003, ATTENTION:
INVESTOR RELATIONS, (212) 253-4400.
If you would like an additional copy of the proxy statement/prospectus, you
may call our stockholder contact at 1-800-223-2064. A copy of this document is
also available on Wit SoundView's Web site, at:
http://www.witcapital.com/merger/filings/s4eoffering.html.
Thank you for your continued support.
ROBERT H. LESSIN
Chief Executive Officer
<PAGE>
[COMPANY LETTERHEAD]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 2000
We will hold a special meeting of stockholders of Wit SoundView Group, Inc.
at a.m., New York City time, at the , New York, New York to
consider and vote upon a proposal to approve the Agreement and Plan of Merger,
dated as of May 15, 2000, by and among Wit SoundView Group, Inc., Wit SoundView
Corporation and E*OFFERING Corp., and on any other matters which may properly
come before the meeting or which are incident to the conduct of the meeting. In
the merger, E*OFFERING will merge with and into Wit SoundView Corporation and
become a subsidiary of Wit SoundView Group, Inc., and Wit SoundView will acquire
the outstanding shares and assume all the outstanding options and warrants of
E*OFFERING and will issue up to 28,486,247 shares of Wit SoundView common stock
in exchange for such shares and upon exercise of such options and warrants.
Approval of the Agreement and Plan of Merger will also be approval of Wit
SoundView's assumption of E*OFFERING's stock option plans, although no
additional options to purchase shares will be granted under the plans. In
addition, closing of the merger is a condition to the commencement of a
strategic alliance with E*TRADE Group Inc. and Wit SoundView's payment to
E*TRADE of consideration for this exclusive alliance, including the issuance to
E*TRADE of 4,025,948 shares and a contingent warrant to purchase up to an
aggregate of 2 million shares of our common stock and the transfer to E*TRADE of
substantially all of Wit SoundView's retail brokerage accounts. We have also
agreed to sell 2 million shares to E*TRADE and 2 million shares to certain
affiliates of General Atlantic Partners, LLC for an aggregate of $41 million or
$10.25 per share. These issuances to E*TRADE and the affiliates of General
Atlantic Partners, LLC are contingent upon the closing of the merger.
Stockholders of record at the close of business on , 2000 are
entitled to vote their shares at the special meeting and any adjournments or
postponements of it. Each share of Wit SoundView common stock will entitle the
record holder to one vote on each matter put to a vote at the special meeting.
For more information about the merger, please review the proxy
statement/prospectus and the Agreement and Plan of Merger attached as
Appendix I. A copy of this document is also available on Wit SoundView's Web
site, which can be found at:
http://www.witcapital.com/merger/filings/s4eoffering.html.
Your vote is very important. Please vote either electronically or by
telephone, or complete, sign and date the enclosed proxy card and return it
promptly in the enclosed return envelope, whether or not you plan to attend the
meeting. The accompanying envelope requires no postage if mailed in the United
States. If you do not specify your vote on your submission, your shares will be
voted FOR the adoption of the merger agreement. If you fail to submit a proxy or
fail to vote electronically or if you do so but check the "abstain" box, your
inaction will not count as a vote for or against the adoption of the merger
agreement. You may revoke your proxy or electronic vote and vote in person if
you decide to attend the special meeting and hold your shares in your own name.
By order of the Board of Directors,
ROBERT C. MENDELSON
Secretary
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE WIT SOUNDVIEW COMMON STOCK TO BE ISSUED IN THE
MERGER OR DETERMINED IF THIS PROSPECTUS/PROXY SOLICITATION STATEMENT IS ACCURATE
OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... iv
SUMMARY OF PROXY STATEMENT/PROSPECTUS....................... 1
Wit SoundView Group, Inc.................................. 1
E*OFFERING Corp........................................... 1
The Special Meeting of Wit SoundView Stockholders......... 2
The Merger................................................ 3
Opinion of Wit SoundView's Financial Advisor.............. 4
Accounting Treatment...................................... 4
Applicable Waiting Periods and Regulatory Approvals....... 5
Trading of Wit SoundView Common Stock to be Issued in the
Merger.................................................. 5
Restrictions on Sale of Shares By Affiliates of Wit
SoundView and E*OFFERING................................ 5
Management Following the Merger........................... 6
Dividend Policy........................................... 6
Interests of Certain Persons in the Merger................ 6
Material Federal Income Tax Considerations................ 6
The Merger Agreement...................................... 7
Strategic Alliance With E*TRADE........................... 8
Related Agreements........................................ 10
MARKET PRICE INFORMATION.................................... 12
Wit SoundView Market Price Data........................... 12
E*OFFERING Market Price Data.............................. 12
Recent Closing Prices..................................... 12
RISK FACTORS................................................ 13
Risks Related to the Merger and Related Transactions...... 13
Risks Related to the Combined Company..................... 15
FORWARD-LOOKING STATEMENTS.................................. 20
THE SPECIAL MEETING OF WIT SOUNDVIEW STOCKHOLDERS........... 21
General................................................... 21
Date, Time and Place...................................... 21
Matters to Be Considered at the Special Meeting........... 21
Record Date............................................... 21
Voting and Revocation of Proxies.......................... 21
Votes Required............................................ 22
Quorum and Abstentions.................................... 22
Solicitation of Proxies and Expenses...................... 22
Board Recommendations..................................... 22
THE MERGER.................................................. 24
Background of the Merger.................................. 24
Reasons for the Merger and Other Material Transactions.... 25
Recommendation of Wit SoundView's Board of Directors...... 29
Opinion of Wit SoundView's Financial Advisor.............. 29
Consent of E*OFFERING's Shareholders...................... 33
Accounting Treatment...................................... 34
Applicable Waiting Periods and Regulatory Approvals....... 34
Trading of Wit SoundView Common Stock to be Issued in the
Merger.................................................. 34
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Restrictions on Sale of Shares by Affiliates of Wit
SoundView and E*OFFERING................................ 34
Management Following the Merger........................... 35
Dividend Policy........................................... 36
Interests of Certain Persons in the Merger................ 36
APPRAISAL RIGHTS............................................ 37
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS.................. 38
THE MERGER AGREEMENT AND RELATED AGREEMENTS................. 40
Merger Agreement.......................................... 40
STRATEGIC ALLIANCE WITH E*TRADE............................. 47
The Strategic Alliance Agreement.......................... 47
Account Transfer Agreement................................ 48
OTHER AGREEMENTS RELATED TO THE TRANSACTIONS................ 50
SELECTED HISTORICAL FINANCIAL DATA OF WIT SOUNDVIEW......... 52
SELECTED HISTORICAL FINANCIAL DATA OF E*OFFERING............ 54
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA........ 56
WIT SOUNDVIEW'S BUSINESS.................................... 61
DESCRIPTION OF WIT SOUNDVIEW STOCK.......................... 62
Transfer Agent and Registrar.............................. 62
General................................................... 62
Common Stock.............................................. 62
Class B Common Stock...................................... 62
Preferred Stock........................................... 62
Registration Rights....................................... 63
Stockholder Rights Plan................................... 63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF E*OFFERING................... 67
Overview.................................................. 67
E*OFFERING'S BUSINESS....................................... 73
Relationship with E*TRADE................................. 73
Investment Banking........................................ 73
Research.................................................. 73
Sales and Trading......................................... 74
Corporate Executive Services.............................. 74
Competition............................................... 74
Regulation................................................ 74
Employees................................................. 75
Properties................................................ 75
Legal Matters............................................. 75
MANAGEMENT OF E*OFFERING.................................... 76
Executive Officers and Directors.......................... 76
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF
E*OFFERING................................................ 81
DESCRIPTION OF E*OFFERING STOCK............................. 83
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
General................................................... 83
Common and Preferred Stock................................ 83
CERTAIN TRANSACTIONS OF E*OFFERING.......................... 86
Stock Issuances to Executive Officers, Directors and Our
Largest Stockholders.................................... 86
Operating Agreement with E*TRADE.......................... 86
Leases With Related Parties............................... 87
Delaware Anti-Takeover Law................................ 87
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... 88
LEGAL OPINIONS.............................................. 96
EXPERTS..................................................... 96
WHERE YOU CAN FIND MORE INFORMATION......................... 96
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
APPENDIX I--AGREEMENT AND PLAN OF MERGER
APPENDIX II--OPINION OF GOLDMAN, SACHS & CO.
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL E*OFFERING SHAREHOLDERS RECEIVE IN THE MERGER?
A: E*OFFERING shareholders will receive shares of Wit SoundView common stock in
exchange for the E*OFFERING common and preferred stock which they own.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We are working to complete the merger in the third quarter of 2000. Because
the merger is subject to various conditions, however, we cannot predict its
exact date of completion.
Q: WILL WIT SOUNDVIEW STOCKHOLDERS RECEIVE ANY SHARES AS A RESULT OF THE MERGER?
A: No, Wit SoundView stockholders will continue to hold the Wit SoundView
shares that they currently own.
Q: SHOULD WIT SOUNDVIEW STOCKHOLDERS SEND IN THEIR STOCK CERTIFICATES?
A: No. Wit SoundView stockholders will continue to own their shares of Wit
SoundView common stock after the merger and should continue to hold their
stock certificates.
Q: WHAT STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGER AGREEMENT AND THE
MERGER?
A: Approval of the merger agreement requires the affirmative vote of a majority
of the votes cast at the special meeting of the stockholders of Wit
SoundView.
Q: DOES THE WIT SOUNDVIEW BOARD OF DIRECTORS RECOMMEND APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER?
A: Yes, the Wit SoundView Board of Directors unanimously recommends that
stockholders vote for approval of the merger and the merger agreement.
Q: HOW DO I VOTE?
A: Mail your signed proxy card in the enclosed return envelope or grant your
proxy by telephone or the Internet as soon as possible after carefully
reading this document, so that your shares may be represented at the special
meeting of stockholders. You may also attend the meeting in person instead
of submitting a proxy if you hold your shares directly in your name. If your
shares are held in "street name" by your broker, your broker will vote your
shares only if you provide instructions on how to vote. You should follow
the directions provided by your broker regarding how to instruct your broker
to vote your shares.
Q: CAN I CHANGE MY VOTE AFTER MAILING MY PROXY?
A: Yes. You may change your vote by delivering a signed notice of revocation or
a later-dated, signed proxy card to the corporate secretary of Wit SoundView
before the stockholder meeting, or by attending the stockholder meeting and
voting in person if you hold your shares in your own name.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE MERGER?
A: Yes. We have set out under the heading "Risk Factors" beginning on page 13
of this proxy statement/ prospectus a number of risk factors that you should
consider.
Q: WHOM CAN I CALL WITH QUESTIONS?
A: If you have any questions about the merger, or if you need additional copies
of this proxy statement/ prospectus or the enclosed proxy, you should
contact:
Georgeson Shareholder Communications Inc.
17 State Street, 10th Floor
New York, NY 10004
Telephone: 1-800-223-2064 (investor toll-free number)
1-212-440-9800 (banks and brokers call collect)
iv
<PAGE>
SUMMARY OF PROXY STATEMENT/PROSPECTUS
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. YOU SHOULD CAREFULLY READ THE ENTIRE PROXY STATEMENT/
PROSPECTUS, INCLUDING THE APPENDICES, AND THE OTHER DOCUMENTS WE REFER YOU TO
FOR A MORE COMPLETE UNDERSTANDING OF THE MERGER. WHEN WE REFER TO "WIT
SOUNDVIEW" OR "WE", "US" OR "OUR" IN THIS PROXY STATEMENT/PROSPECTUS, WE MEAN
WIT SOUNDVIEW GROUP, INC., FORMERLY KNOWN AS WIT CAPITAL GROUP, INC., AND ITS
SUBSIDIARIES. WHEN WE REFER TO "COMBINED COMPANY" WE MEAN WIT SOUNDVIEW AND
E*OFFERING AND ITS SUBSIDIARY. IN ADDITION, WE INCORPORATE BY REFERENCE
IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT WIT SOUNDVIEW IN THIS PROXY
STATEMENT/PROSPECTUS. YOU MAY OBTAIN THE INFORMATION INCORPORATED BY REFERENCE
INTO THIS PROXY STATEMENT/ PROSPECTUS WITHOUT CHARGE BY FOLLOWING THE
INSTRUCTIONS IN THE SECTION ENTITLED "WHERE YOU CAN FIND MORE INFORMATION" ON
PAGE 96.
THE COMPANIES
WIT SOUNDVIEW GROUP, INC.
Wit SoundView is an Internet investment banking and brokerage firm that
provides an array of services to its institutional and retail customers. Wit
SoundView uses electronic mail and the Internet to distribute public offerings
to retail customers and uses more traditional channels for distribution of
public equity offerings to its institutional customers. Wit SoundView also
provides extensive equity research focused almost exclusively on technology and
the Internet. Other services include institutional sales and trading, private
placements, strategic advisory services and merger and acquisition advice. Wit
SoundView has also established private equity funds for venture capital
investing in Internet and technology companies.
Wit SoundView is a Delaware corporation. Its executive offices are located
at 826 Broadway, Seventh Floor, New York, New York 10003. Its telephone number
is (212) 253-4400. Its Web site is
http://www.witcapital.com. Other than the electronic version of this proxy
statement/prospectus that is available on the Wit SoundView Web site
(HTTP://WWW.WITCAPITAL.COM/MERGER/FILINGS/S4EOFFERING.HTML), none of the
information on Wit SoundView's Web site is part of this proxy
statement/prospectus. Wit SoundView's regulated activities are carried out
through its wholly owned subsidiaries, Wit Capital Corporation and Wit SoundView
Corporation, which are broker-dealers licensed with the Securities and Exchange
Commission and members of the National Association of Securities Dealers.
E*OFFERING CORP.
E*OFFERING is an Internet investment banking firm that uses the Internet and
related technologies such as electronic mail and multimedia to deliver
investment banking products to online individual investors and institutional
clients. E*OFFERING provides a range of investment banking services, including
initial and follow-on public offering underwriting, private equity agency
services, sales and trading, equity research and financial advisory services.
E*OFFERING is privately owned by E*TRADE Group, Inc., General Atlantic Partners,
other venture capitalists, its employees and other investors.
E*OFFERING is a California corporation. Its executive offices are located at
Steuart Street Tower, 4th Floor, One Market Street, San Francisco, California
94105. Its telephone number is (415) 618-6200. Its Web site is
HTTP://WWW.EOFFERING.COM. None of the information on E*OFFERING's website is
part of this proxy statement/prospectus. E*OFFERING's regulated activities are
carried out through its wholly owned subsidiary, E*OFFERING Corp. (formerly
Meridian Capital Group), which is a broker-dealer licensed with the Securities
and Exchange Commission and a member of the National Association of Securities
Dealers.
1
<PAGE>
THE SPECIAL MEETING OF WIT SOUNDVIEW STOCKHOLDERS (SEE PAGE 21)
DATE, TIME AND PLACE (SEE PAGE 21)
The special meeting will be held on , 2000 at a.m., New York
City time, at the , New York, New York.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING (SEE PAGE 21)
At the special meeting and any adjournment or postponement of the special
meeting, Wit SoundView stockholders will be asked:
- to consider and vote upon the adoption of the Agreement and Plan of
Merger, dated as of May 15, 2000, by and among Wit SoundView, Wit
SoundView Corporation and E*OFFERING, including the assumption of
E*OFFERING's stock option plans; and
- to transact such other business as may properly come before the special
meeting.
RECORD DATE (SEE PAGE 21)
Wit SoundView's board has fixed the close of business on , 2000 as
the record date for determination of Wit SoundView stockholders entitled to
notice of and to vote at the special meeting.
VOTING AND REVOCATION OF PROXIES (SEE PAGE 21)
Wit SoundView stockholders should complete, date and sign the accompanying
proxy and promptly return it in the accompanying envelope or otherwise mail it
to Wit SoundView. If voting by telephone or the Internet, please follow the
instructions set forth on the enclosed proxy card. Brokers holding shares in
"street name" may vote the shares only if the stockholder provides instructions
on how to vote. Brokers will provide a stockholder with directions on how to
instruct the broker to vote the shares. All properly executed proxies that Wit
SoundView receives prior to the vote at the special meeting, and that are not
revoked, will be voted in accordance with the instructions indicated on the
proxies or, if no direction is indicated, to approve the merger agreement. Wit
SoundView's board does not currently intend to bring any other business before
the special meeting and no matters may be brought before the special meeting by
any person other than the board. If other business properly comes before the
special meeting, the proxies will vote in accordance with their own judgment.
A stockholder may revoke its proxy at any time prior to use by delivering to
the corporate secretary of Wit SoundView a signed notice of revocation or a
later-dated, signed proxy, or by attending the special meeting and voting in
person. Attendance at the special meeting does not in itself constitute the
revocation of a proxy.
VOTES REQUIRED (SEE PAGE 22)
Approval of the merger agreement requires the affirmative vote of the
holders of a majority of the votes cast at the special meeting of Wit SoundView
stockholders. Six significant stockholders of Wit SoundView have agreed to vote
in favor of the merger agreement. These significant stockholders of Wit
SoundView collectively own approximately 32% of Wit SoundView's voting stock.
E*OFFERING has obtained shareholder approval for the merger by soliciting
consents to approve the merger agreement from nine of its significant
shareholders who collectively own approximately 78% of E*OFFERING's issued and
outstanding shares.
QUORUM AND ABSTENTIONS (SEE PAGE 22)
A quorum is present at the special meeting if the holders of a majority of
the shares of Wit SoundView common stock issued and outstanding and entitled to
vote at the special meeting on the record date are represented at the special
meeting either in person or by proxy. Abstentions will be included in the
calculation of the number of shares present and voting at the meeting for the
purpose of determining the presence of a quorum, but shall not be included in
the number of votes cast. Abstentions will therefore
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have no effect on the outcome of the votes on the approval of the merger
agreement. Wit SoundView stockholders are urged to return the enclosed proxy
card marked to indicate their vote, or, if voting by telephone or the Internet,
to follow the instructions set forth on the enclosed proxy card.
SOLICITATION OF PROXIES AND EXPENSES (SEE PAGE 22)
Wit SoundView has retained the services of Georgeson Shareholder
Communications Inc. to assist in the solicitation of proxies from its
stockholders. In addition to solicitation by mail, the directors, officers and
employees of Wit SoundView may solicit proxies from its stockholders by
telephone, facsimile, other electronic means or in person. Brokerage houses,
nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in sending proxy materials to beneficial owners.
BOARD RECOMMENDATIONS (SEE PAGE 22)
The Wit SoundView board of directors has determined that the merger
agreement and the strategic alliance agreement, taken as a unitary transaction,
are advisable and fair to and in the best interests of Wit SoundView and its
stockholders. Accordingly, the board has unanimously approved the merger
agreement and the strategic alliance agreement, taken as a unitary transaction,
and unanimously recommends that stockholders vote FOR approval of the merger
agreement and the merger.
DISSENTING SHARES
Each E*OFFERING shareholder was notified that he or she was entitled to
statutory dissenters' rights. The period during which such shareholders could
have informed E*OFFERING of their intention to exercise those rights terminated
on July 3, 2000 without the exercise of dissenters' rights by any E*OFFERING
shareholder.
THE MERGER (SEE PAGE 24)
GENERAL
Under the terms of the merger agreement, Wit SoundView will acquire by
merger 100 percent of the outstanding shares and will assume all of the then
outstanding options and warrants of E*OFFERING and will issue up to 28,486,247
newly issued shares of Wit SoundView common stock in exchange for such shares
and upon exercise of such options and warrants. The maximum number of Wit
SoundView shares had a value of $291,984,032, or $10.25 per share, at the close
of trading on May 12, 2000, the last trading day before the merger agreement was
signed.
The boards of directors and managements of Wit SoundView and E*OFFERING have
each determined that, compared to continuing their operations on a stand-alone
basis, the merged company would have better potential to improve long-term
operating and financial results and would have an enhanced competitive position.
The merger combines Wit SoundView's strengths in deal origination and research
with E*OFFERING's technology platform, product capabilities, significant
presence in Silicon Valley and retail distribution channels. The board and
management of each company believes that the combined company will be able to
accelerate the process of bringing high-quality investment banking products and
services to the online investing marketplace. In connection with the merger
E*TRADE and Wit SoundView entered into a strategic alliance agreement pursuant
to which Wit SoundView will be the exclusive source to E*TRADE of equity and
equity related securities offered to retail customers in initial public
offerings and follow-on offerings in the United States, and pursuant to which
Wit SoundView must make available exclusively to customers of E*TRADE all
securities allocated by it for retail distribution in any United States public
offering of equity and equity related securities in which it participates as an
underwriter or dealer. Both companies believe that the breadth and depth of
their expertise and experience, along with the combined company's strategic
relationship with E*TRADE, will enable us to maintain our leading position as an
online investment bank focusing on the Internet and technology sectors. As part
of the consideration for this strategic alliance, Wit SoundView will issue to
E*TRADE
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4,025,948 shares of common stock and a warrant to purchase up to 2 million
additional shares, the exercisability of which is contingent upon E*TRADE's
maintaining the exclusivity provisions described above in years four and five of
the strategic alliance, and will transfer to E*TRADE substantially all of its
online brokerage accounts and exit the retail brokerage business. In addition,
concurrently with the merger, E*TRADE and certain affiliates of General Atlantic
Partners, LLC will each purchase 2 million shares of Wit SoundView's common
stock at a purchase price of $10.25 per share.
CONSENT OF E*OFFERING'S SHAREHOLDERS
Wit SoundView wished to obtain approval of the merger agreement during the
latter stages of negotiations of the merger by obtaining written consents and
irrevocable proxies from the holders of a majority of each class of E*OFFERING's
voting stock. Consents were obtained from nine of E*OFFERING's significant
shareholders, which collectively own approximately 78% of E*OFFERING's voting
stock. On May 15, 2000, Wit SoundView and E*OFFERING entered into a definitive
merger agreement and related agreements and these significant shareholders
delivered written consents approving the merger agreement and irrevocable
proxies to vote in favor of the merger agreement. These written consents
represented a sufficient number of shares to approve the merger under California
law.
Obtaining consents for the merger from the nine significant shareholders of
E*OFFERING constituted a private offering of the shares of Wit SoundView common
stock to be issued to these persons in the merger. Consequently, the shares of
Wit SoundView common stock to be received by these persons upon completion of
the merger are being registered only for resale by means of the registration
statement of which this proxy statement/prospectus forms an integral part. The
17,884,234 shares to be received by Softbank, General Atlantic Partners, LLC and
E*TRADE and their respective affiliates are subject to long-term transfer
restrictions.
SHARES TO BE ISSUED IN THE MERGER
The maximum number of shares of Wit SoundView common stock and options and
warrants to purchase shares of Wit SoundView common stock to be issued under the
merger agreement and related transactions represents approximately 25% of the
fully-diluted common stock of the combined company.
OPINION OF WIT SOUNDVIEW'S FINANCIAL ADVISOR (SEE PAGE 29)
On May 14, 2000, Goldman, Sachs & Co. delivered its opinion to the board of
directors of Wit SoundView that, as of that date, the total consideration to be
issued pursuant to the merger agreement and the strategic alliance agreement,
taken as a unitary transaction, was fair from a financial point of view to Wit
SoundView. The opinion of Goldman Sachs does not constitute a recommendation as
to how any holder of Wit SoundView shares should vote with respect to the
merger.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS IS ATTACHED TO THIS
DOCUMENT AS ANNEX II. STOCKHOLDERS OF WIT SOUNDVIEW ARE ENCOURAGED TO, AND
SHOULD, READ THE OPINION IN ITS ENTIRETY.
ACCOUNTING TREATMENT (SEE PAGE 34)
The merger will be accounted for under the "purchase" method of accounting
in accordance with generally accepted accounting principles. This means that,
for accounting and financial reporting purposes, the assets and liabilities of
E*OFFERING will be recorded at their fair value, and any excess of Wit
SoundView's purchase price over the fair value of E*OFFERING's tangible net
assets will be recorded as intangible assets, including goodwill.
APPLICABLE WAITING PERIODS AND REGULATORY APPROVALS (SEE PAGE 34)
The merger is subject to U.S. antitrust laws. We have made the required
filings with the Department of Justice and the Federal Trade Commission, which
terminated the statutory antitrust review period on July 11, 2000. The rules of
the National Association of Securities Dealers, Inc., or the NASD, to which Wit
SoundView's and E*OFFERING's primary subsidiaries are each subject, require
advance notice to the
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NASD of the merger and the transfer of Wit SoundView's retail brokerage business
to E*TRADE. Although prior approval by the NASD is not mandatory, it is
customary not to complete a merger subject to these rules until the NASD has
indicated its approval. Wit SoundView and E*OFFERING have provided the required
notice. Neither Wit SoundView nor E*OFFERING is aware of any other material
governmental or regulatory approval required for completion of the merger, other
than compliance with the applicable merger procedures of the Delaware General
Corporation Law and the California Corporation Law.
TRADING OF WIT SOUNDVIEW COMMON STOCK TO BE ISSUED IN THE MERGER (SEE PAGE 34)
The shares of Wit SoundView common stock to be issued in the merger will be
included for trading on Nasdaq upon completion of the merger.
RESTRICTIONS ON SALE OF SHARES BY AFFILIATES OF WIT SOUNDVIEW AND E*OFFERING
(SEE PAGE 34)
The shares of Wit SoundView common stock to be received in the merger by
E*TRADE, General Atlantic Partners, LLC, Softbank Corp., and their respective
affiliates in exchange for their E*OFFERING shares, which represent
approximately 62% of the maximum number of shares to be issued by Wit SoundView
in the merger and upon exercise of options and warrants, will be subject to
transfer restrictions under the merger agreement that will expire three years
from the date the merger is completed unless the strategic alliance agreement is
earlier terminated. In addition, approximately 8% of the shares to be issued by
Wit SoundView in the merger will be subject to transfer restrictions under the
merger agreement that will expire 180 days from the date the merger is
completed. As part of a retention pool for key employees, E*OFFERING will, prior
to the closing, issue approximately 745,000 shares of E*OFFERING restricted
stock, which will be exchanged for 500,000 shares of Wit SoundView common stock
in the merger. As an additional part of the retention pool, at the effective
time of the merger, Wit SoundView will grant to certain of E*OFFERING's
employees options to purchase not less than 500,000 shares of Wit SoundView
common stock. The restricted shares are subject to transfer restrictions and
forfeiture provisions which lapse as to one-third of the shares at the first,
second and third anniversaries of the merger, respectively, while each option
will vest in sixteen equal quarterly installments at the end of each calendar
quarter over four years from the date of the grant.
As part of the consideration for entering into the strategic alliance with
E*TRADE, Wit SoundView will issue to E*TRADE 4,025,948 shares which will have a
three year transfer restriction from the date of closing, unless the strategic
alliance agreement is earlier terminated. Pursuant to a stock purchase
agreement, E*TRADE and certain affiliates of General Atlantic Partners, LLC will
each purchase two million shares of Wit SoundView's common stock. These shares
are not subject to any restrictions on transfer other than those imposed by
applicable securities laws.
Any person who is deemed to be an affiliate of either Wit SoundView or
E*OFFERING at the time of the special meeting of Wit SoundView or at the time
E*OFFERING obtained shareholder approval of the merger may sell their shares of
Wit SoundView common stock acquired in connection with the merger only pursuant
to the volume and manner of sale limitations contained in Rule 145 under the
Securities Act or pursuant to an effective registration statement or other
applicable exemption. Persons who may be deemed to be affiliates include
individuals or entities that control, are controlled by or are under common
control with either Wit SoundView or E*OFFERING and may include some of the
officers, directors, and principal stockholders of Wit SoundView and E*OFFERING.
For purposes of the Securities Act, the shareholders of E*OFFERING from whom
E*OFFERING obtained shareholder approval of the merger agreement will receive
their shares of Wit SoundView common stock in a private placement pursuant to an
investment decision made at the time they provided their consent to the merger
agreement. These E*OFFERING shareholders currently own approximately 78% of
E*OFFERING's shares. The Wit SoundView shares to be received by General Atlantic
Partners, LLC, Softbank Corp. and E*TRADE and their respective affiliates are
subject to long-term transfer restrictions. General Atlantic Partners, LLC,
Softbank Corp. and E*TRADE and their respective affiliates
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own approximately 62% of E*OFFERING's fully diluted shares. The signatories to
the voting agreement and their respective affiliates will be permitted to sell
shares that are not subject to transfer restrictions under the merger agreement
pursuant to this proxy statement/prospectus, during the period which this
registration statement remains effective. When this registration statement is no
longer effective, Wit SoundView intends to register the resale of any remaining
unsold shares held by the signatories to the voting agreement and to maintain
the effectiveness of that registration until the lapse of applicable holding
period restrictions and volume limitations under Rule 145 of the Securities Act.
Any sales by these persons must be made in accordance with Rule 145. Rule 145
permits sales pursuant to limitations on the number of shares sold and the
manner of sale provisions contained in Rule 144 under the Securities Act. Other
E*OFFERING shareholders, who are affiliates and are not party to the voting
agreement, will be permitted to sell unrestricted shares in accordance with
Rule 145 without regard to whether this registration statement remains
effective.
MANAGEMENT FOLLOWING THE MERGER (SEE PAGE 35)
Wit SoundView does not anticipate any change in its senior management team
as a result of the merger. Wit SoundView has agreed to use its reasonable best
efforts to appoint Christos Cotsakos, E*TRADE's Chairman and Chief Executive
Officer, and William Ford, a managing member at General Atlantic Partners, LLC,
to its board of directors, contingent upon completion of the merger and
commencement of the strategic alliance between Wit SoundView and E*TRADE. See
page 47 of this proxy statement/prospectus for a discussion of the strategic
alliance. The shareholders of E*OFFERING will become stockholders of Wit
SoundView, and their rights as stockholders will be governed by Wit SoundView's
amended and restated certificate of incorporation, Wit SoundView's by-laws and
the laws of the State of Delaware.
DIVIDEND POLICY (SEE PAGE 36)
Neither Wit SoundView nor E*OFFERING has ever paid dividends to its
stockholders and Wit SoundView does not expect to pay dividends for the
foreseeable future.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 36)
Goldman Sachs has acted as Wit SoundView's financial advisor in connection
with the merger. The Goldman Sachs Group, Inc., an affiliate of Goldman Sachs,
owns non-voting stock representing approximately 15% of Wit SoundView's common
equity and warrants to purchase additional shares. In addition, the Goldman
Sachs affiliate has a right of first refusal to purchase all of the shares
offered by Wit SoundView to specified competitors of Goldman Sachs should Wit
SoundView attempt to sell 5% or more of its fully-diluted common equity to such
a specified competitor. The Goldman Sachs affiliate also has registration rights
with respect to the Wit SoundView shares it owns.
Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to Wit SoundView in
connection with the merger, is rendering an opinion as to the validity of the
shares of common stock that Wit SoundView is registering in this proxy
statement/prospectus. Joseph H. Flom is a member of Wit SoundView's special
advisory board and is also a partner of Skadden, Arps, Slate, Meagher & Flom
LLP. In return for his service on Wit SoundView's special advisory board, Wit
SoundView has granted Mr. Flom options to purchase Wit SoundView common stock.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS (SEE PAGE 38)
The merger is expected to qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code. If the merger qualifies
as a tax-free reorganization, a holder of E*OFFERING stock will not recognize
any gain or loss solely upon the holder's receipt of Wit SoundView common stock
in exchange for the holder's E*OFFERING stock in the merger, except to the
extent the holder of E*OFFERING stock receives cash in lieu of a fractional
share of Wit SoundView common stock. It is a condition to the respective
obligations of the parties to complete the merger that Wit SoundView and
E*OFFERING will receive legal opinions to this effect.
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THE MERGER AGREEMENT (SEE PAGE 40)
EXCHANGE RATIO (SEE PAGE 40)
The merger agreement provides that each holder of E*OFFERING common stock
will receive a percentage of a share of Wit SoundView common stock for each
share of E*OFFERING common stock exchanged in the merger based upon an exchange
ratio. The exchange ratio will be 0.674237515, subject to an insignificant
downward adjustment for certain accrued but unpaid E*TRADE preferred stock
dividends accruing after April 30, 2000 up to the date of the merger. This
exchange ratio will also be used to calculate the number of shares of Wit
SoundView common stock that each preferred stockholder will receive in the
merger in addition to any applicable liquidation preference and the number of
shares each optionholder will receive upon exercise of its options.
CASH IN LIEU OF FRACTIONAL SHARES (SEE PAGE 41)
No fractional shares of Wit SoundView common stock will be issued in the
merger. In lieu of any fractional shares, each shareholder of E*OFFERING who
would otherwise be entitled to a fraction of a share of Wit SoundView's stock
pursuant to the merger will be paid an amount in cash, without interest,
determined by multiplying $10.25 by the fraction of a share of Wit SoundView's
stock to which such shareholder would otherwise be entitled.
E*OFFERING STOCK OPTIONS AND WARRANTS (SEE PAGE 41)
The terms and provisions of E*OFFERING's stock option plans will generally
continue in full force and effect and will govern each outstanding option,
warrant or other right granted under E*OFFERING's 1998 Stock Option Plan and
2000 Stock Option/Stock Issuance Plan immediately prior to the time the merger
is effective. At the time the merger is effective, each option, warrant or other
right then outstanding will be automatically converted into an option to
purchase a fraction of a share of Wit SoundView common stock equal to the
exchange ratio. The exercise price per share will also be appropriately
adjusted. In addition, the vesting schedule for E*OFFERING options outstanding
and not yet vested at the time the merger is effective will be modified, in the
case of an optionholder not benefited by such modification, upon receiving the
written consent of the holder, to vest in sixteen equal quarterly installments
over a four year period from the vesting commencement date. Options held by some
non-employees will vest immediately prior to the completion of the merger.
RETENTION POOL (SEE PAGE 42)
Prior to the merger, E*OFFERING will issue to designated E*OFFERING
employees an aggregate of approximately 745,000 shares of E*OFFERING common
stock under a restricted stock plan. These retention shares will be converted
into Wit SoundView common stock at the exchange ratio. One third of the
retention shares allocated to an employee will vest if that employee has been
continuously employed by Wit SoundView and its subsidiaries for the first twelve
months after the merger. The second third of the retention shares allocated to
an employee will vest if that employee has been continuously employed by Wit
SoundView and its subsidiaries for the first twenty-four months after the
merger. The remaining third of the retention shares allocated to an employee
will vest if that employee has been continuously employed by Wit SoundView and
its subsidiaries for the first thirty-six months after the merger. The only
exceptions to the continuous employment requirement will be termination of
employment by Wit SoundView without cause and a change in control of Wit
SoundView. Retention shares that do not vest due to termination for cause or
because the employee has exercised dissenter's rights will be forfeited. At the
effective time of the merger, Wit SoundView will also grant to designated
E*OFFERING employees options to purchase not less than 500,000 shares of its
common stock and establish a cash bonus pool of $5 million to be distributed no
later than March 31, 2001.
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EXCHANGE OF E*OFFERING STOCK CERTIFICATES FOR WIT SOUNDVIEW STOCK
CERTIFICATES (SEE PAGE 42)
Upon surrender of the E*OFFERING stock certificates, the exchange agent will
issue Wit SoundView share certificates to each surrendering holder. Holders of
E*OFFERING stock subject to transfer restrictions will receive certificates
bearing legends reflecting the applicable transfer restrictions.
THE EXCHANGE AGENT (SEE PAGE 41)
American Stock Transfer & Trust Company will act as the exchange agent in
connection with the merger.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 45)
The merger agreement may be terminated under certain circumstances at any
time by Wit SoundView or E*OFFERING before the completion of the merger:
- by both parties' mutual written consent;
- by either party, if it has become impossible to satisfy some condition to
the other party's obligation to complete the merger on or prior to
October 31, 2000 and the other party has not waived that condition
promptly after the impossibility has become known;
- by the non-breaching party, if there has been a breach of any of the
representations and warranties in the merger agreement by one of the
parties which would entitle the non-breaching party to choose not to
complete the merger, and if the breach cannot be cured before October 31,
2000;
- by the non-breaching party, if there has been a material breach of any of
the covenants or agreements in the merger agreement by one of the parties
and if the breach has not been cured within 20 business days after receipt
of notice by the breaching party; or
- by either party, if the completion of the merger has not occurred by
October 31, 2000.
If Wit SoundView fails to get approval of the merger from its stockholders,
it will have to pay a break-up fee of $13,330,000 to E*OFFERING and reimburse
E*OFFERING for expenses incurred in the negotiation and preparation of the
merger agreement and related agreements.
Notwithstanding the foregoing, a party that is in material breach of its
obligations or representations and warranties does not have the right to
terminate the merger agreement. Subject to the potential payment of a
termination fee by Wit SoundView, the merger agreement will become null and void
upon termination, except that no party shall be relieved of liability for a
breach of the merger agreement prior to its termination.
STRATEGIC ALLIANCE WITH E*TRADE
STRATEGIC ALLIANCE AGREEMENT
In connection with the merger, on May 15, 2000, Wit SoundView agreed to
enter into a strategic alliance with E*TRADE, which owns approximately 27% of
E*OFFERING's fully diluted capital stock and will own approximately 9% of Wit
SoundView's common stock following completion of the merger and commencement of
the strategic alliance. As part of this alliance, Wit SoundView will be the
exclusive source to E*TRADE and its controlled affiliates of equity and equity
related securities offered to retail customers in initial public offerings and
follow-on offerings in the United States. Conversely, Wit SoundView must make
available exclusively to customers of E*TRADE substantially all securities
allocated to it for retail distribution in any United States public offering of
equity and equity related securities in which it participates as an underwriter
or dealer. In addition, Wit SoundView will transfer substantially all of its
retail brokerage accounts to E*TRADE pursuant to an account transfer agreement.
E*TRADE's
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retail customers will gain access to a broad range of products and services
currently offered by Wit SoundView, such as securities research and the
opportunity to apply for participation in a range of Internet and
technology-related initial public offerings, follow-on offerings and private
placements. As part of this strategic alliance, E*TRADE and Wit SoundView will
cooperate on joint sales and marketing efforts and will share trading, customer
and research products and data.
The exclusivity rights granted under this strategic alliance agreement have
a three-year term, which will be extended automatically upon the satisfaction of
certain performance standards by Wit SoundView or upon mutual agreement of the
parties. In consideration for the exclusivity rights granted under the
agreement, E*TRADE will receive 4,025,948 shares of Wit SoundView's common
stock, par value $0.01, and a warrant to purchase in aggregate up to an
additional two million shares, the exercisability of which is contingent on the
exclusivity as discussed in further detail under "Common Stock Warrant" below.
In addition, E*TRADE and affiliates of General Atlantic Partners, LLC will each
purchase two million shares of Wit SoundView's common stock pursuant to a stock
purchase agreement.
In the event that there is a change in control of E*TRADE while the
exclusivity rights are in effect and E*TRADE's successor does not assume
E*TRADE's obligations under the strategic alliance or materially breaches such
obligations, Wit SoundView will have the right to provide E*TRADE's successor
with securities for offering to its retail customers for a period of two years.
The right to provide securities for sale to E*TRADE's customers will be
non-exclusive and Wit SoundView will not be the exclusive provider of retail
securities to the customers of E*TRADE's successor. In addition, E*TRADE's
successor will pay to Wit SoundView liquidated damages of $160 million reduced
by $5 million at the end of each calendar month, commencing the month of the
merger closing and continuing until the amount equals $100 million. Wit
SoundView will also receive the shares of its common stock remaining in the
special escrow fund established pursuant to the merger agreement.
In the event that there is a change in control of Wit SoundView while the
exclusivity rights are in effect and Wit SoundView's successor does not assume
Wit SoundView's obligations under the strategic alliance or materially breaches
such obligations, Wit SoundView's successor will continue to offer securities to
customers of E*TRADE on a non-exclusive basis and E*TRADE will not be obligated
to use Wit SoundView's successor as the exclusive provider of retail securities
to the customers of E*TRADE. In addition, Wit SoundView's successor will pay to
E*TRADE liquidated damages of $75 million, reduced by $2,083,000 at the end of
each calendar month, commencing the month of the merger closing and continuing
until the amount equals $50 million. Finally, E*TRADE will receive the shares of
Wit SoundView common stock that are remaining in the special escrow fund
established pursuant to the merger agreement, free and clear of all liens,
encumbrances and claims.
ACCOUNT TRANSFER AGREEMENT
On May 15, 2000, as additional consideration of the exclusivity rights under
the strategic alliance, E*TRADE and Wit SoundView entered into an account
transfer agreement pursuant to which E*TRADE will acquire and assume from Wit
SoundView all right, title and interest in and to substantially all retail
brokerage accounts maintained by Wit SoundView and all related properties and
rights in and to such retail brokerage accounts. Wit SoundView will transfer, or
cause to be transferred, to the custody of E*TRADE, all fully-paid securities of
each customer who maintains a Wit SoundView retail brokerage account and who has
not objected to the transfer.
COMMON STOCK WARRANT
On May 15, 2000, Wit SoundView agreed to issue to E*TRADE a warrant to
purchase up to two million shares of Wit SoundView's common stock at a purchase
price of $10.25 per share, which represents the fair market value of the common
stock on the last trading day immediately preceding the date of the warrant.
E*TRADE may exercise the warrant to purchase up to one million shares of Wit
SoundView's
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common stock over the course of the fourth year of the strategic alliance
provided that the exclusivity rights discussed above have been in effect for the
first three years of the strategic alliance and are continuing for the fourth
year and E*TRADE has complied with its exclusivity obligations. If the
exclusivity rights have been in effect for the first four years of the strategic
alliance and are continuing for the fifth year and E*TRADE has complied with its
exclusivity obligations, then E*TRADE may purchase up to an additional
1 million shares over the course of the fifth year of the strategic alliance.
STOCK PURCHASE AGREEMENT
On May 15, 2000, E*TRADE, certain affiliates of General Atlantic Partners,
LLC and Wit SoundView entered into a stock purchase agreement pursuant to which
E*TRADE and certain affiliates of General Atlantic Partners, LLC each agreed to
purchase two million shares of Wit SoundView common stock at the time the merger
is completed. The purchase price of the shares is $10.25 per share, the closing
price of Wit SoundView's common stock on the last trading day before the date of
the agreement. The agreement contains customary representations and warranties
and provides E*TRADE and General Atlantic's affiliates with certain piggyback
and demand registration rights.
RELATED AGREEMENTS
VOTING AGREEMENT AMONG WIT SOUNDVIEW AND LARGE SHAREHOLDERS OF E*OFFERING
On May 15, 2000, nine securityholders of E*OFFERING, representing
approximately 78% of the voting power of E*OFFERING's capital stock, entered
into a voting agreement with Wit SoundView. Under the terms of the voting
agreement, each of the E*OFFERING securityholders agreed to vote, and granted to
Wit SoundView an irrevocable proxy to vote, all of their shares of E*OFFERING's
capital stock in favor of the merger with Wit SoundView and against any other
competing proposal or offer to buy all or a substantial part of the business or
properties of E*OFFERING. The E*OFFERING securityholders also agreed to vote,
and granted to Wit SoundView an irrevocable proxy to vote, against any action,
proposal or agreement that would delay, impede, frustrate, prevent or nullify
the merger agreement or the satisfaction of the conditions to the merger.
E*TRADE, General Atlantic Partners, LLC and Softbank, three of the shareholders
that are parties to the voting agreement, also consented to a three-year
transfer restriction on the shares of Wit SoundView common stock to be received
by them in the merger and agreed to place a portion of those shares in an escrow
fund described below.
VOTING AGREEMENT AMONG E*OFFERING AND LARGE STOCKHOLDERS OF WIT SOUNDVIEW
On May 15, 2000, six securityholders of Wit SoundView representing
approximately 32% of the voting power of Wit SoundView's capital stock entered
into a voting agreement with E*OFFERING. Each of these securityholders agreed to
vote, and granted to E*OFFERING and E*TRADE irrevocable proxies to vote, all of
its shares of Wit SoundView's capital stock in favor of the merger with
E*OFFERING. They also agreed to vote, and granted to E*OFFERING and E*TRADE
irrevocable proxies to vote, against any action, proposal or agreement that
would delay, impede, frustrate, prevent or nullify the merger agreement or the
satisfaction of the conditions to the merger.
ESCROW AGREEMENT
Upon completion of the merger, Wit SoundView, E*TRADE, as agent for the
shareholders of E*OFFERING, and an escrow agent will enter into an escrow
agreement. Pursuant to the merger agreement, Wit SoundView will deposit 10% of
the shares of its common stock to be issued in the merger into an escrow fund on
behalf of the shareholders of E*OFFERING. The escrow fund may be used to
indemnify Wit SoundView and its officers, directors, agents and employees for
damages arising out of any misrepresentation or breach of, or default in
connection with, any of the representations, warranties, covenants and
agreements given or made by E*OFFERING in the merger agreement. The escrow agent
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will hold the escrow shares and invest any cash dividends or distributions on
these escrow shares, if any, as directed by E*TRADE. If requested by E*TRADE,
the escrow agent will deliver to E*TRADE a proxy authorizing E*TRADE to exercise
voting or consent authority in respect of the escrow shares. The escrow
agreement will terminate after one year and the escrow agent will deliver any
remaining escrow shares to the shareholders of E*OFFERING.
STANDSTILL AGREEMENT
On May 15, 2000, Wit SoundView and E*TRADE entered into a standstill
agreement pursuant to which both parties agreed not to purchase, acquire or
beneficially own an aggregate of 19.9% or more of any class of voting securities
of the other party for a period of eighteen months or, if the merger is
consummated, six years and six months after the completion of the merger. Both
parties also agreed not to make or in any way participate in any proxy
solicitation or election contest of the other party or to purchase all or
substantial portions of the assets of the other party. The agreement prohibits
any actions by either party that would result in or encourage a third party's
acquisition or control of the other party.
SPECIAL ESCROW FUND
Within five business days after the merger is completed, Wit SoundView will
deposit 25% of the shares of common stock that will be issued in the merger to
E*TRADE, General Atlantic Partners, LLC and Softbank, and the entities
controlled by them, into a special escrow fund. One thirty-sixth of the shares
deposited into this escrow fund will be released on the last business day of
each calendar month following the effectiveness of the merger. In the event that
there is a change in control of E*TRADE and its successor entity does not assume
E*TRADE's obligations under the strategic alliance agreement, then all shares
remaining in the special escrow account will be surrendered to Wit SoundView for
cancellation. If there is a change in control of Wit SoundView and the successor
does not assume Wit SoundView's obligations under the strategic alliance
agreement, then all shares remaining in the special escrow fund will be released
to the E*OFFERING shareholders on whose behalf the shares were deposited.
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MARKET PRICE INFORMATION
WIT SOUNDVIEW MARKET PRICE DATA
Wit SoundView'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
SoundView common stock for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR 1999:
Second quarter (beginning June 4, 1999)..................... $38.00 $ 9.00
Third quarter............................................... 37.50 15.50
Fourth quarter.............................................. 24.75 15.38
FISCAL YEAR 2000:
First quarter............................................... $22.25 $12.31
Second quarter.............................................. 17.69 $ 6.38
</TABLE>
E*OFFERING MARKET PRICE DATA
E*OFFERING's common stock is not traded in any securities market.
RECENT CLOSING PRICES
On May 12, 2000, the last trading day before announcement of the proposed
merger, the closing price per share of Wit SoundView common stock on the Nasdaq
National Market was $10.25. On May 8, 2000, five business days before
announcement of the proposed merger, the closing price per share of Wit
SoundView common stock on the Nasdaq National Market was $12.88. On July 17,
2000, the latest practicable trading day before the printing of this proxy
statement/prospectus, the closing price per share of Wit SoundView common stock
on the Nasdaq National Market was $11.50.
Because the market price of Wit SoundView common stock is subject to
fluctuation, the market value of the shares of Wit SoundView common stock that
holders of E*OFFERING common stock will receive in the merger may increase or
decrease prior to and following the merger. We urge stockholders to obtain
current market quotations for Wit SoundView common stock. No assurance can be
given as to the future prices or markets for Wit SoundView common stock.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
IN DETERMINING HOW TO VOTE. THESE MATTERS SHOULD BE CONSIDERED IN CONJUNCTION
WITH THE OTHER INFORMATION INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS.
RISKS RELATED TO THE MERGER AND RELATED TRANSACTIONS
INABILITY TO SUCCESSFULLY INTEGRATE THE E*TRADE DISTRIBUTION NETWORK WITH THE
INVESTMENT BANKING OPERATIONS OF THE COMBINED COMPANY COULD ADVERSELY AFFECT
COMBINED FINANCIAL RESULTS.
Currently, the investment banking operations of E*OFFERING and the online
brokerage operations of E*TRADE are closely integrated. In order for the merger
to be successful and the relationship between the combined company and E*TRADE
to be successful, the combined company must gain attractive underwriting and
distribution assignments from issuers and maintain a close working relationship
with E*TRADE. The failure of the combined company to maintain and deepen its
relationship with E*TRADE would likely have a material adverse effect on the
combined company's business, financial condition and operating results or could
result in the loss of key personnel.
INABILITY TO SUCCESSFULLY INTEGRATE E*OFFERING WITH WIT SOUNDVIEW COULD
ADVERSELY AFFECT COMBINED FINANCIAL RESULTS.
It is important to the success of the merger for Wit SoundView to integrate
the investment banking operations of E*OFFERING, including its West Coast
operations and focus on different companies. An inability to complete this
integration could have adverse effects on combined revenues and financial
results, including earnings per share.
THE MERGER AND RELATED TRANSACTIONS COULD ADVERSELY AFFECT COMBINED FINANCIAL
RESULTS.
If the benefits of the merger, the strategic alliance with E*TRADE and the
disposition of our retail brokerage business do not exceed the costs associated
with these transactions, including any dilution to Wit SoundView's stockholders
resulting from the issuance of shares in connection with these transactions, Wit
SoundView's financial results, including earnings per share, could be adversely
affected.
THE MARKET PRICE OF WIT SOUNDVIEW COMMON STOCK MAY DECLINE AS A RESULT OF THE
MERGER AND RELATED TRANSACTIONS.
The market price of our common stock may decline if:
- the integration of Wit SoundView and E*OFFERING is unsuccessful;
- Wit SoundView does not achieve the perceived benefits of the merger and
related transactions as rapidly or to the extent anticipated by financial
or industry analysts; or
- the effect of the merger and related transactions on our financial results
is not consistent with the expectations of financial or industry analysts.
THE LOSS OF PROFESSIONALS COULD ADVERSELY AFFECT OUR BUSINESSES AND RESULTS OF
OPERATIONS.
Our business is relationship-intensive, and our success depends on
identifying, hiring, training and retaining talented professionals. If a
significant number of our current employees or any of our senior managers or key
business managers leave, we may be unable to maintain anticipated levels of
business. Moreover, Wit SoundView and E*OFFERING employees may experience
uncertainty about their future roles with the combined company. Any uncertainty
may adversely affect our ability to attract and retain key management, sales,
marketing and technical personnel. Even if we retain our current employees, our
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management must continually recruit talented professionals in order for our
business to grow. We compete intensely with our competitors for qualified
personnel. If we cannot attract, motivate and retain qualified professionals,
our business and results of operations could suffer material harm.
FAILURE TO COMPLETE THE MERGER AND RELATED TRANSACTIONS COULD NEGATIVELY AFFECT
OUR STOCK PRICE AND FUTURE BUSINESS AND OPERATIONS.
If the merger and related transactions are not completed for any reason, we
may be subject to a number of material risks, including the following:
- the price of our common stock may decline to the extent that the current
market price of our common stock reflects a market assumption that the
merger and related transactions are beneficial and will be completed;
- because the strategic alliance with E*TRADE will not become effective, we
will not be able to gain exclusive retail distribution rights with respect
to E*TRADE's retail brokerage customers; and
- we may be liable for substantial costs and break-up fees in certain
circumstances.
Further, if the merger and related transactions are terminated and our board
of directors determines to seek substitute transactions, there can be no
assurance that we will be able to find a suitable substitute for an equivalent
or more attractive price than the price to be paid in the merger. If our failure
to complete the merger causes any or all of these or other potential
consequences to occur, the result would adversely affect our business.
THE FAIRNESS OPINION OBTAINED BY US DOES NOT REFLECT CHANGES IN THE RELATIVE
VALUES OF THE COMPANIES SINCE THE MERGER AGREEMENT WAS SIGNED.
We do not intend to obtain an updated fairness opinion of Goldman Sachs.
Changes in the operations and prospects of us or E*OFFERING, general market and
economic conditions and other factors on which the opinion of Goldman Sachs is
based may have altered the relative values of the companies. Therefore, the
opinion of Goldman Sachs does not address the fairness of the merger
consideration at the time the merger will be completed. In addition, because our
shares being issued in the merger and related transactions are being issued at a
fixed price or ratio, increases or decreases in our stock price will benefit or
harm E*OFFERING shareholders and the purchasers of our shares.
THE COMBINED COMPANY IS DEPENDENT ON E*TRADE TO FURTHER BUILD ITS BRAND.
The combined company will not have its own retail distribution network of
individual investors for growth in its retail online stock distribution
business. The combined company will depend on E*TRADE's marketing and sales
efforts for the combined company's visibility and credibility with retail online
investors and to assist the combined company in further building its brand in
the online marketplace. If E*TRADE is unwilling or unable to market the combined
company's brand name and product satisfactorily, individual investors'
acceptance of the combined company and its ability to obtain underwriting
business would likely suffer.
THE RELATIONSHIP OF THE COMBINED COMPANY WITH E*TRADE MAY MAKE IT MORE DIFFICULT
FOR THE COMBINED COMPANY TO DEVELOP OR MAINTAIN STRATEGIC RELATIONSHIPS WITH
OTHER INVESTMENT BANKING FIRMS.
E*OFFERING and Wit SoundView have consistently tried to develop constructive
working relationships with a number of traditional investment banking firms. The
strategic relationship with E*TRADE may make it more difficult for the combined
company to develop or maintain relationships with firms whose retail brokerage
businesses compete with E*TRADE and, as a result, may make it more difficult for
the combined company to obtain assignments in public offerings lead managed by
competitors of E*TRADE.
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E*TRADE WILL BECOME THE COMBINED COMPANY'S SOLE DISTRIBUTOR OF RETAIL SECURITIES
IN UNITED STATES PUBLIC EQUITY OFFERINGS.
Under the strategic alliance agreement with E*TRADE, the combined company
will distribute exclusively to retail customers of E*TRADE equity and
equity-related securities offered in initial public offerings and follow-on
public offerings in the United States and available for retail distribution.
There can be no assurance that E*TRADE will be able to provide a large enough
customer base or to sustain sufficient demand for all of the public offerings
that the combined company is capable of underwriting. The combined company's
ability to sell securities to retail customers will depend greatly on the
ability of E*TRADE to sustain its customer base and to successfully market and
distribute the securities that Wit SoundView underwrites.
The strategic alliance agreement terminates automatically after five years
and can be terminated at any time for breach by either party, subject to a
thirty-day cure period. The alliance may also become non-exclusive after either
three years or four years if the combined company is unable to meet certain
performance criteria. If the alliance is terminated for any reason, there can be
no assurance that the combined company will be able to negotiate a similar
arrangement with another party on favorable terms, if at all. Any failure to
negotiate a satisfactory distribution arrangement would likely undermine the
combined company's ability to underwrite securities offerings.
RISKS RELATED TO THE COMBINED COMPANY
WIT SOUNDVIEW INCURRED LOSSES THROUGH MARCH 31, 2000 AND MAY INCUR ADDITIONAL
LOSSES IN 2000.
As of March 31, 2000, Wit SoundView had accumulated net losses of
$27 million since inception. We have not yet achieved profitability on an annual
basis. Although our revenue has grown in recent periods and our first fiscal
quarter in 2000 has been profitable, there can be no assurance that our revenues
will continue at their current level or increase in the future or that we will
remain profitable. We expect to continue to increase our operating expenses
significantly, increase our investment banking and research staff and expand our
sales, marketing and trading operations. If such expenses precede or are not
followed by increased revenues, our business, results of operations and
financial condition could be materially and adversely affected. Our limited
operating history and the uncertain nature of the markets we address make it
difficult or impossible to predict what the results of our operations will be in
the future. Therefore, you should not assume that our recent revenue growth and
profitability mean that our revenues and profits will continue to grow at the
same rate as we have experienced in the recent past.
THE COMBINED COMPANY MAY NOT BE ABLE TO SATISFY THE DEMAND OF E*TRADE'S RETAIL
INVESTORS FOR UNDERWRITTEN OFFERINGS, AND ITS INVESTMENT BANKING BUSINESS AND
RELATIONSHIP WITH E*TRADE MAY BE SERIOUSLY AFFECTED BY CUSTOMER DISSATISFACTION.
Neither E*OFFERING nor Wit SoundView has ever received in any initial public
offering an allotment of shares for sale that has been sufficient to satisfy
consumer demand for shares in that offering. The combined company may not be
able to increase the allotments of shares for sale to levels that satisfy its
customers demand and, as a result, E*TRADE may experience customer
dissatisfaction. The combined company's relationship with E*TRADE may be harmed
as a result.
INABILITY TO EXPAND OUR INTERNET BUSINESS COULD ADVERSELY AFFECT OUR BUSINESS.
Our prospects are subject to the risks, expenses and uncertainties
encountered by companies in the rapidly evolving markets for Internet products
and services. These risks include the failure to continue to develop our name
recognition and reputation, the rejection of our services by Internet users or
vendors, our inability to maintain and increase the use of our online services,
increased competition from other
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<PAGE>
investment banking firms and our inability to attract, retain and motivate
highly qualified employees. We may not be successful in addressing these risks,
and our business and financial condition could suffer.
OUR INTERNATIONAL EXPANSION MAY NOT PROVE TO BE SUCCESSFUL.
We would like to emerge as a global brand known internationally for online
capital raising and Internet investment banking. We have recently entered into
ventures to create online investment banking and brokerage enterprises in Europe
and Japan and are devoting a significant amount of our management's time and our
funds to developing these businesses. In order to succeed, these ventures will
have to overcome hurdles presented by regulatory regimes unlike those in the
United States, the dominance of large securities firms and the lack of
acceptance of online capital raising and e-commerce in general. We cannot
guarantee that these international ventures and any other ventures that we may
enter into will be successful or that they will assist in establishing the Wit
SoundView brand as a global brand.
WE ENGAGE IN MARKET-MAKING ACTIVITIES, WHICH SUBJECT US TO INCREASED RISKS WHICH
COULD BE HARMFUL TO OUR BUSINESS.
We currently make markets in approximately 235 Internet and technology
stocks. Market-making requires commitment of capital and may result in volatile
earnings or losses. If we begin to make markets in additional volatile
Internet-related securities, we may not be able to manage the risks involved
with market-making volatility. Increased volatility in market-making will cause
an increase in expenses to ensure the proper functioning of this type of
market-making, including the addition of more market-makers. In addition,
pending regulations will require securities to trade in decimals instead of
fractions. Once these regulations are implemented, they may result in a further
decrease in spreads between bid and ask prices, which could make the execution
of trades and market-making activities less profitable and lead to increased
competition. If there is any further decline in the spreads that market-makers
receive in trading equity securities, our business, financial condition and
operating results may be materially adversely affected.
OUR REVENUES MAY DECLINE DUE TO CHANGES IN MARKET STRUCTURE WHICH MAY
SIGNIFICANTLY ALTER OUR PRESENT ACTIVITIES AS A BROKER FOR LISTED SECURITIES.
The securities industry is experiencing a period of intense changes. In this
transforming environment, the role brokers will play in transactions for listed
securities is unpredictable. Important factors include the recent elimination of
a rule that prohibited dealers from making markets in some listed securities in
their own trading rooms, the growth of electronic communications networks which
conduct trading of some securities away from the major exchanges, the potential
for a move toward a central limit order book to consolidate and provide
protection for orders in Nasdaq and listed securities and the ongoing phase-in
of decimalization. These factors may also contribute to growth in the trading
between institutional investors in transactions in which brokers no longer
participate. If these developments lead to a general decrease in the need for
brokers in institutional securities trading, our brokerage business will be
adversely affected.
WE MUST RECEIVE INCREASED SHARE ALLOTMENTS IN UNDERWRITTEN OFFERINGS OR OUR
INVESTMENT BANKING BUSINESS MAY BE SERIOUSLY AFFECTED BY LIMITED REVENUES FROM
PUBLIC UNDERWRITING ACTIVITIES.
During 1999 and 2000, Wit SoundView started to receive larger management
fees and allocations of the shares in the offerings in which we have
participated and has experienced a general increase in the number of offerings
in which we participate. An inability to continue to secure equivalent or
increased portions of underwriting and management fees and selling concessions
may force us to revise our strategy of seeking principally to be a co-manager
and require us to seek more frequently to be a lead underwriter. This strategy
may be more difficult to achieve and would result in our having significant
additional responsibilities. These responsibilities include forming and managing
underwriting syndicates, leading
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underwriters' due diligence examination of the issuers, taking the lead
underwriter's role in the preparation of prospectuses and other offering
materials and developing and coordinating the marketing efforts for the
securities. While we have been assembling an experienced group of investment
bankers and syndicate managers and the addition of E*OFFERING's personnel and
franchise will accelerate our efforts in this segment of our business, the
ability to coordinate these efforts and effectively sell an issuer's securities
will be critical to our ability to develop and maintain a reputation as a
leading investment banking firm.
WE MAY INCUR LOSSES AND LIABILITIES IN THE COURSE OF BUSINESS WHICH COULD PROVE
COSTLY TO DEFEND OR RESOLVE.
Participation in underwritings involves significant economic and legal
risks. Economic risks include incurring losses if we are unable to resell the
securities we committed to purchase, if we are forced to liquidate our
commitment at less than the price at which we purchased the securities from the
issuer or if we are forced to retain significant position concentrations in
individual securities due to market conditions. We expect to be active in the
underwriting of initial public offerings and follow-on offerings of the
securities of emerging and mid-size growth companies, which often involves a
high degree of risk and volatility. Legal risks include potential liability
under federal and state securities and other laws for allegedly false or
misleading statements made in connection with such securities offerings and
other transactions. We also face the possibility that customers or
counterparties will claim that we improperly failed to apprize them of
applicable risks, or that they were not authorized or permitted under applicable
corporate or regulatory requirements to enter into transactions with us and
therefore their obligations to us are not enforceable. Substantial legal
liability or a regulatory action against us could cause us to incur significant
expenses and could have a material adverse financial effect on us.
OUR RELATIONSHIP WITH GOLDMAN SACHS MAY MAKE IT MORE DIFFICULT FOR US TO DEVELOP
OR MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER INVESTMENT BANKING FIRMS.
Since our inception, we have consistently tried to develop constructive
working relationships with a number of traditional investment banking firms. In
certain cases, these relationships have enabled us to obtain assignments in
public offerings that we might not otherwise have obtained. Goldman Sachs
Group, Inc., an affiliate of Goldman Sachs, owns approximately 15% of Wit
SoundView's common equity and warrants to purchase additional shares. In
addition, under the terms of our agreement with Goldman Sachs, if we intend to
offer equity securities representing more than 5% of our shares on a fully
diluted basis to any of a number of designated competitors of Goldman Sachs,
Goldman Sachs will have a right of first refusal to purchase all the offered
shares on the same terms as offered to the competitor. The Goldman Sachs
investment in us may make it more difficult for us to develop or maintain
relationships with firms that compete with Goldman Sachs and, as a result, may
make it more difficult for us to obtain assignments in public offerings lead
managed by competitors of Goldman Sachs.
OUR AGREEMENT WITH GOLDMAN SACHS IS NOT EXCLUSIVE AND DOES NOT PROHIBIT GOLDMAN
SACHS FROM COMPETING DIRECTLY OR INDIRECTLY WITH US.
Although Goldman Sachs has invested in us, it is not prohibited from
assisting any other broker-dealer involved in online investment banking. Goldman
Sachs is not precluded from competing directly against us. Moreover, a
representative of Goldman Sachs attends meetings of our board of directors and
has access to our confidential information. Finally, Goldman Sachs is not
required to reserve for us any particular number of shares--or even to include
us--in any public offerings that they lead manage. We cannot predict how our
relationship with Goldman Sachs will develop or whether we will receive
significant benefits from our association with them.
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WE MAY NOT BE ABLE TO KEEP UP IN A COST-EFFECTIVE WAY WITH RAPID TECHNOLOGICAL
CHANGE.
The online financial services industry is characterized by rapid
technological change, changes in customer requirements, frequent new service and
product introductions and enhancements and evolving industry standards. Our
future success will depend, in part, on our ability to develop technologies and
enhance our existing services and products. We must also develop new services
and products that address the increasingly sophisticated and varied needs of our
customers and prospective customers. We must respond to technological advances
and evolving industry standards and practices on a timely and cost-effective
basis. The development and enhancement of services and products entails
significant technical and financial risks. We may not effectively use new
technologies, adapt services and products to evolving industry standards or
develop, introduce and market service and product enhancements or new services
and products. In addition, we may experience difficulties that could delay or
prevent the successful development, introduction or marketing of these services
and products, and our new service and product enhancements may not achieve
market acceptance. If we encounter any of these problems, our business,
financial condition and operating results may be materially adversely affected.
PERIODS OF DECLINING SECURITIES PRICES, INACTIVITY OR UNCERTAINTY IN THE PUBLIC
OR PRIVATE EQUITY MARKETS MAY ADVERSELY AFFECT OUR REVENUES.
Our revenues are likely to be lower during periods of declining securities
prices or securities market inactivity in the Internet and technology
industries. The public markets have historically experienced significant
volatility not only in the number and size of securities offerings, but also in
the secondary market trading volume and prices of newly issued securities.
Activity in the markets for offerings by companies in the Internet industry and
some technology sectors has been very volatile and may not sustain attractive
levels. Our revenues from private capital raising activities may also be
adversely affected during periods of declining prices or inactivity in the
public markets. The growth in our revenues will depend largely on a significant
increase in the number and size of underwritten transactions by companies in our
targeted industries and by the related increase in secondary market trading for
these companies. Underwriting activity may also decrease during periods of
market uncertainty occasioned by concerns over inflation, rising interest rates
and related issues.
WE MAY NOT BE ABLE TO DEVELOP AND MAINTAIN MARKETING RELATIONSHIPS WITH OTHER
INTERNET COMPANIES, WHICH MAY ADVERSELY AFFECT THE GROWTH OF OUR BUSINESS.
Our strategy for expanding brand recognition and exposure depends to some
extent on our relationship with other Internet companies. We plan to enter into
marketing agreements with these companies that will permit us to advertise our
products and services on their Web pages. We plan to reach a larger and broader
potential customer base by disseminating our own investment research. If we
cannot secure or maintain these marketing agreements on favorable terms, our
prospects could be harmed. Additionally, other online brokers which advertise on
popular Web sites may object to and attempt to undermine our marketing
agreements or relationships. If successful, the efforts of competing brokers
could materially and adversely affect our growth.
WE MAY NOT BE ABLE TO DEVELOP AND MAINTAIN RELATIONSHIPS WITH OTHER TECHNOLOGY
COMPANIES, WHICH MAY ADVERSELY AFFECT THE GROWTH OF OUR BUSINESS.
One of our strategies for expanding brand recognition and exposure depends
to some extent on our relationship with technology companies. We obtain
investment banking assignments, in part, due to our expertise in the technology
industry and the word-of-mouth exposure that this expertise brings. If we cannot
increase our exposure to other technology companies, our prospects could be
harmed. Additionally, other investment banking firms which focus on the
technology industry may attempt to undermine these relationships. If successful,
the efforts of competing investment banking firms could materially and adversely
affect our growth.
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THE INTENSIFYING COMPETITION WE FACE FROM BOTH ESTABLISHED AND RECENTLY FORMED
ENTITIES MAY ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY.
We encounter intense competition in all aspects of our business, and we
expect this competition to increase in the future. Our principal competitors in
connection with our investment banking activities are traditional investment
banking firms, some of which offer their underwritten securities through the
Internet. We also face competition from recently formed online investment
banking initiatives, such as W. R. Hambrecht & Co. In addition, a group
comprised of Charles Schwab, Ameritrade and TD Waterhouse, along with three
venture capital firms, has formed an online investment banking firm. In the
context of online distributions of public offerings, we are facing growing
competition from brokerage firms such as Charles Schwab and Fidelity Brokerage
Services, among others, which offer equity securities through the Internet. Most
of these investment banking firms have been established for longer periods of
time and are far better capitalized and staffed than we are, and have larger,
established customer bases than we do.
IF WE FAIL TO COMPLY WITH APPLICABLE LAWS AND REGULATIONS, WE MAY FACE PENALTIES
OR OTHER SANCTIONS THAT MAY BE DETRIMENTAL TO OUR BUSINESS.
When enacted, the Securities Act of 1933, which governs the offer and sale
of securities, and the Securities Exchange Act of 1934, which governs, among
other things, the operation of the securities markets and broker-dealers, did
not contemplate the conduct of a securities business conducted over the
Internet. Uncertainty regarding the application of these laws and other
regulations to our business may adversely affect the viability and profitability
of our business. If we fail to comply with an applicable law or regulation,
government regulators and self regulatory organizations may institute
administrative or judicial proceedings against us that could result in censure,
fine, civil penalties, including treble damages in the case of insider trading
violations, the issuance of cease-and-desist orders, the loss of our status as a
broker-dealer, the suspension or disqualification of our officers or employees
or other adverse consequences. The imposition of any material penalties or
orders on us could have a material adverse effect on our business, operating
results and financial condition.
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FORWARD-LOOKING STATEMENTS
We have included in this proxy statement/prospectus statements which may
constitute forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are not historical facts but instead represent only
our beliefs regarding future events, many of which, by their nature, are
inherently uncertain and outside of our, or our management's, control. It is
possible that our actual results may differ, possibly materially, from the
anticipated results indicated in these forward-looking statements. Important
factors that could cause actual results to differ from those in our specific
forward-looking statements include:
- a decline in general economic conditions of the United States securities
markets;
- the inability to secure share allotments in underwritten offerings in
which we participate sufficiently to satisfy our customers' demand and
generate revenue;
- the inability to ensure sufficient revenue to cover our costs and create
profits;
- risk that E*TRADE will be unable to perform its obligations under the
strategic alliance agreement;
- risks due to market-making and institutional sales and trading activities;
- increasing competitive pressures; and
- failure to integrate our business with E*OFFERING and E*TRADE.
For additional information regarding these and other important factors that
could cause actual results to differ from those in our forward-looking
statements, you should read the section in this proxy statement/ prospectus
entitled "Risk Factors."
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THE SPECIAL MEETING OF WIT SOUNDVIEW STOCKHOLDERS
GENERAL
We are furnishing this proxy statement/prospectus to holders of Wit
SoundView common stock in connection with the solicitation of proxies by the Wit
SoundView board of directors for use at the special meeting of stockholders of
Wit SoundView to be held on , 2000, and any adjournment or postponement
thereof.
This proxy statement/prospectus is first being furnished to Wit SoundView
stockholders on or about , 2000.
DATE, TIME AND PLACE
The special meeting will be held on , 2000 at a.m. at
the , New York, New York.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting and any adjournment or postponement of the special
meeting, Wit SoundView stockholders will be asked:
- to consider and vote upon the adoption of the Agreement and Plan of
Merger, dated as of May 15, 2000, among Wit SoundView, Wit SoundView
Corporation and E*OFFERING, including the assumption of E*OFFERING's stock
option plans; and
- to transact such other business as may properly come before the special
meeting.
RECORD DATE
Wit SoundView's board has fixed the close of business on , 2000 as
the record date for determination of Wit SoundView stockholders entitled to
notice of and to vote at the special meeting.
VOTING AND REVOCATION OF PROXIES
We request that Wit SoundView stockholders complete, date and sign the
accompanying proxy and promptly return it in the accompanying envelope or
otherwise mail it to Wit SoundView. If voting by telephone or the Internet,
please follow the instructions set forth on the enclosed proxy card. Brokers
holding shares in "street name" may vote the shares only if the stockholder
provides instructions on how to vote. Brokers will provide a stockholder with
directions on how to instruct the broker to vote the shares. All properly
executed proxies that Wit SoundView receives prior to the vote at the special
meeting, and that are not revoked, will be voted in accordance with the
instructions indicated on the proxies or, if no direction is indicated, will be
considered to be votes of approval of the merger agreement. Wit SoundView's
board does not currently intend to bring any other business before the special
meeting and no matters may be brought before the special meeting by any person
other than the board. If other business properly comes before the special
meeting, the proxies will vote in accordance with their own judgment. We
recommend that stockholders vote by proxy even if they are planning to attend
the special meeting. Stockholders may change their proxy votes at the special
meeting.
A stockholder may revoke its proxy at any time prior to use
- by delivering to the corporate secretary of Wit SoundView a signed notice
of revocation or a later-dated, signed proxy; or
- by attending the special meeting and voting in person.
Attendance at the special meeting does not in itself constitute the revocation
of a proxy.
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VOTES REQUIRED
As of the close of business on June 30, 2000, there were 78,797,740 shares
of Wit SoundView common stock outstanding and entitled to vote at the special
meeting. Approval of the merger agreement requires the affirmative vote of the
holders of a majority of the shares of Wit SoundView common stock entitled to
vote and present or represented by proxy at the special meeting of Wit SoundView
stockholders. Stockholders have one vote per share of Wit SoundView common stock
owned on the record date. Shares of Wit SoundView Class B common stock are not
entitled to vote at the special meeting. E*OFFERING has obtained stockholder
approval for the merger by obtaining consents to approve the merger agreement
from nine of its significant shareholders who collectively own approximately 78%
of E*OFFERING's issued and outstanding shares.
As of June 30, 2000, directors, executive officers of Wit SoundView and
their affiliates beneficially owned an aggregate of 27,745,014 shares of Wit
SoundView common stock entitled to vote at the special meeting (exclusive of any
shares issuable upon the exercise of options not exercisable within 60 days of
June 30, 2000) or approximately 35% of the shares of Wit SoundView common stock
outstanding and entitled to vote on such date. On May 15, 2000, six stockholders
of Wit SoundView entered into a voting agreement with E*OFFERING pursuant to
which they agreed to vote their shares in favor of the merger with E*OFFERING.
As of July 15, 2000, to Wit SoundView's and E*OFFERING's knowledge, no directors
or executive officers of E*OFFERING owned shares of Wit SoundView common stock.
QUORUM AND ABSTENTIONS
A quorum of stockholders is necessary to hold a valid meeting. A quorum is
present at the special meeting if the holders of a majority of the shares of Wit
SoundView common stock issued and outstanding and entitled to vote at the
special meeting on the record date are represented at the special meeting either
in person or by proxy. Abstentions will be included in the calculation of the
number of shares present and voting at the meeting for the purpose of
determining the presence of a quorum, but shall not be included in the number of
votes cast. Therefore, abstentions have no effect on the outcome of the vote on
the approval of the merger agreement. Accordingly, Wit SoundView stockholders
are urged to return the enclosed proxy card marked to indicate their vote, or if
voting by telephone or the Internet, to follow the instructions set forth on the
enclosed proxy card.
SOLICITATION OF PROXIES AND EXPENSES
Wit SoundView has retained the services of Georgeson Shareholder
Communications Inc. to assist in the solicitation of proxies from its
stockholders. The fees to be paid to that firm for these services are not
expected to exceed $6,500 plus reasonable out-of-pocket expenses. Wit SoundView
will also pay for all printing and filing costs and expenses incurred in
connection with the registration statement and this proxy statement/prospectus.
In addition to solicitation by mail, the directors, officers and employees
of Wit SoundView may solicit proxies from its stockholders by telephone,
facsimile, other electronic means or in person. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy materials to beneficial owners.
BOARD RECOMMENDATIONS
The Wit SoundView board of directors has determined that the merger
agreement and the strategic alliance agreement, taken as a unitary transaction,
are advisable and fair to, and in the best interests of, Wit SoundView and its
stockholders. Accordingly, the board has unanimously approved the merger
agreement and the strategic alliance agreement, taken as a unitary transaction,
and unanimously recommends that stockholders vote FOR approval of the merger
agreement and the merger. Approval of the
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merger agreement will result in the assumption of E*OFFERING's stock option
plans and the issuance of Wit SoundView shares and warrants under the merger
agreement and related transactions.
The matters to be considered at the special meeting are of great importance
to Wit SoundView stockholders. Accordingly, Wit SoundView stockholders are urged
to read and carefully consider the information presented in this proxy
statement/prospectus, and to complete, date, sign and promptly return the
enclosed proxy in the enclosed postage-paid envelope or vote appropriately by
telephone or the Internet.
WIT SOUNDVIEW STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
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THE MERGER
This section of the proxy statement/prospectus describes material aspects of
the proposed merger, including the merger agreement. While we believe that the
description covers the material terms of the merger and the related agreements,
this summary may not contain all of the information that is important to Wit
SoundView stockholders. Stockholders should read the entire merger agreement and
the other documents we refer to carefully and in their entirety for a more
complete understanding of the merger.
The following discussion of the background of the merger and the parties'
reasons for the transactions and the potential benefits that could result from
the merger contains forward-looking statements that involve risks and
uncertainties. Readers are cautioned not to place undue reliance on these
forward-looking statements. The actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including those set forth under "Risk Factors."
BACKGROUND OF THE MERGER
The merger with E*OFFERING and the strategic alliance with E*TRADE were
first broached to a senior executive of Wit SoundView as a result of a
discussion between a director of Wit SoundView and a partner of General Atlantic
Partners, the largest shareholder of E*OFFERING. A meeting was held on
April 18, 2000 with representatives of General Atlantic Partners and E*TRADE to
discuss the viability of a potential transaction. On Tuesday, April 25 and
Wednesday, April 26, 2000, follow-up meetings involving a number of people from
E*OFFERING, General Atlantic Partners, E*TRADE and Wit SoundView and Wit
SoundView's financial advisors, Goldman Sachs, took place. On April 26,
representatives of Wit SoundView and Goldman Sachs met with representatives of
E*TRADE to discuss the strategic alliance.
A preliminary term sheet was sent on Thursday, April 27 to Wit SoundView.
Thereafter, the parties, together with their advisers, revised and negotiated
the terms of the term sheet. During this same period, the parties began drafting
and negotiating a series of agreements.
On May 8, 2000, Wit SoundView's board of directors held a meeting at which
members of Wit SoundView's senior management, as well as representatives of
Goldman Sachs, participated. At the meeting, Wit SoundView's management reviewed
the status of negotiations and presented its views. Management and Goldman Sachs
responded to questions raised by members of Wit SoundView's Board of Directors
regarding the proposed transaction. Following these discussions, the Board
engaged in a full discussion of the terms of the proposed transactions and their
advisability. No action was taken by the Board at this meeting other than
directing management to continue negotiating the transactions with the objective
of strengthening the proposed strategic alliance with E*TRADE and to report back
to the Board with regard to the continued negotiation of matters discussed at
the meeting.
Additional meetings of the Board were held on May 10, 12 and 14 to discuss
the proposed transactions. Final approval for the transactions was provided by
Wit SoundView's Board at a special telephonic meeting on May 14, 2000. At the
meeting, Goldman Sachs, after a review of the open issues and response to
questions from the Board members by management, indicated that, based upon and
subject to various considerations, it would provide an opinion at the time the
various agreements were signed that the total consideration to be issued
pursuant to the merger agreement and strategic alliance agreement, taken as a
unitary transaction, was fair to Wit SoundView from a financial point of view.
The opinion of Goldman Sachs is attached as Appendix II to this proxy
statement/prospectus.
On Sunday, May 14, 2000 continuing to the morning of May 15, 2000, Wit
SoundView, E*OFFERING and E*TRADE, together with their respective legal and
financial advisors, completed negotiation of the terms of the definitive merger
agreement, strategic alliance and other related agreements. Wit SoundView,
E*OFFERING, E*TRADE, General Atlantic Partners and others executed and delivered
the merger agreement and other agreements on Monday, May 15, 2000. Wit
SoundView, E*OFFERING and E*TRADE announced the merger and strategic alliance on
the morning of May 15, 2000.
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REASONS FOR THE MERGER AND OTHER MATERIAL TRANSACTIONS
JOINT REASONS FOR THE MERGER. The boards of directors and managements of
Wit SoundView and E*OFFERING have each determined that, compared to continuing
their operations on a stand-alone basis, the merged company would have better
potential to improve long-term operating and financial results and would have an
enhanced competitive position. Wit SoundView is a leading Internet investment
banking and brokerage firm that uses electronic mail and the Internet to offer
and sell shares in public offerings to individual investors. Wit SoundView has
the competitive strengths of publicity and exposure from being the first
Internet investment banking firm. It has relationships with numerous corporate
issuers, venture capitalists and others in the financial services sector and has
developed an expertise in working with Internet and other companies to develop
Internet strategies and businesses. E*OFFERING is a full service Internet
investment banking firm that uses the Internet and related technologies such as
electronic mail and multimedia to deliver investment banking products to online
individual investors and institutional clients. Both companies believe that the
combined company will be able to offer its investment banking services to a
broader variety of issuers and that it should be able to receive increased share
allotments in underwritten offerings in which it participates. Both companies
believe that the breadth and depth of their expertise and experience will enable
the combined company to maintain a position as the leading online investment
banking firm focused on the Internet and technology sectors.
Wit SoundView's and E*OFFERING's boards of directors and managements have
identified a number of additional potential benefits of the transactions that
they believe will contribute to the success of the merged companies. These
potential benefits include the following:
- the combined company should be able to provide Internet and technology
issuers significantly increased capabilities in capital raising, share
distribution, research, strategic advisory, trading and online investor
access. The addition of Wit SoundView's expertise, personnel and
relationships to E*OFFERING's Internet and technology strengths provides
the combined company with more comprehensive coverage of the Internet and
technology sectors, providing stronger incentive for issuers to utilize
Wit SoundView;
- the combined company should be able to leverage its market position, brand
recognition, investment banking and distribution capabilities and the
strategic alliance with E*TRADE to command an increasing proportion of
fees and share allocations in the public offerings in which it
participates;
- through the E*TRADE strategic alliance the combination should provide
individual retail investors with an increased number of offerings and
higher share allocations across a broader range of Internet and technology
sectors;
- the combined company will have one of the largest investment banking and
research groups focusing exclusively on Internet and technology companies.
This combination will significantly expand the combined company's number
of investment banking and research professionals to over 185;
- the combined company will have a significant and substantially enlarged
presence in the Silicon Valley and Silicon Alley markets of Northern
California and New York City, respectively;
- the combined company will benefit from the strategic relationships that
E*OFFERING has in place; and
- the combined experience, financial resources, size and breadth of services
offered by Wit SoundView and E*OFFERING are expected to allow the combined
company to respond more quickly and effectively to increased competition
and market demands in an industry experiencing rapid innovation and
change.
Wit SoundView and E*OFFERING have each identified separate, additional
reasons for the transactions, which are discussed below. However, Wit
SoundView's and E*OFFERING's boards of directors and
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managements each recognize that the potential benefits of the transactions may
not be realized. See "Risk Factors."
WIT SOUNDVIEW'S REASONS FOR THE MERGER AND OTHER MATERIAL TRANSACTIONS. In
reaching its decision to approve the merger agreement and to recommend approval
of the merger agreement, the strategic alliance agreement and related
transactions by Wit SoundView stockholders, the Wit SoundView board of directors
consulted with its management team and financial advisors and independently
considered the basic terms of the proposed merger agreement and the transactions
contemplated by those agreements.
The factors enumerated above and in the following paragraphs summarize the
factors the board of directors of Wit SoundView has considered in reaching its
decision regarding the transactions and in preparing this proxy
statement/prospectus. Among these factors, the Wit SoundView board of directors
in particular has considered the following:
- current industry, economic and market conditions, including increased
competition from other strategic alliances in Wit SoundView's sectors;
- the importance of increasing the number of public offerings in which Wit
SoundView participates as a co-manager and the importance of receiving
larger share allocations in the public offerings in which Wit SoundView
participates;
- presentations from senior management and discussions with representatives
of Goldman Sachs regarding business and financial due diligence;
- the competitive importance of market position, size and adequacy of
financial resources;
- the ability to enter into a strategic relationship with E*TRADE;
- the exclusive distribution rights which will be gained with respect to
E*TRADE's retail brokerage customers;
- the transfer of Wit SoundView's retail brokerage accounts to E*TRADE,
enabling Wit SoundView to focus on its core capital raising activities;
- the separate cash consideration to be received by Wit SoundView upon the
sale to E*TRADE and General Atlantic Partners, LLC of four million shares
at $10.25 per share;
- the potential benefits of the merger to Wit SoundView customers and
stockholders;
- the basic terms of the merger agreement;
- the opinion of Goldman Sachs that as of May 15, 2000, based upon and
subject to the various considerations set forth in the opinion, the total
consideration to be issued pursuant to the merger agreement and the
strategic alliance agreement, taken as a unitary transaction, was fair,
from a financial point of view, to Wit SoundView;
- the ability to act as a lead managing underwriter utilizing E*TRADE's
strong distribution platform;
- access to order flow from customers of E*TRADE for companies for which we
act as a lead manager or co-manager;
- the complementary characteristics of the respective business and
management philosophies and corporate cultures of E*OFFERING and Wit
SoundView; and
- the ability to provide a benefit to corporate issuers due to Wit
SoundView's increased distribution capabilities and broader expertise in
Internet and technology sectors.
The Wit SoundView board believes the transactions will bring Wit SoundView
closer to its goal of becoming the leading online investment banking firm.
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In assessing the transactions, the Wit SoundView board has also considered
several sources of information, including the following:
- historical information concerning the businesses, financial performance,
financial condition, operations and results of operations, technology,
management style, competitive position, trends and prospects of Wit
SoundView and E*OFFERING;
- information and advice by members of Wit SoundView's board and management
concerning the business, technology, services, operations, properties,
assets, financial condition, operating results and prospects of Wit
SoundView, trends in Wit SoundView's business and financial results and
capabilities of Wit SoundView's management team; and
- the financial analyses performed by Goldman Sachs and presented to the Wit
SoundView board of directors at its meeting held on May 14, 2000. The
material analyses performed by Goldman Sachs are summarized in this
document in the section entitled "Opinion of Wit SoundView's Financial
Advisor."
The Wit SoundView board has also identified and considered a number of
uncertainties and risks concerning the transactions, including the following:
- the risk that the potential benefits sought by the transactions might not
be fully realized, if at all;
- the risk that the combined company might experience slower growth relative
to the prior growth rate of the individual companies; and
- the other risks associated with the businesses of Wit SoundView,
E*OFFERING and the combined company and the transactions described in this
proxy statement/prospectus under "Risk Factors."
The Wit SoundView board believes that certain of these risks are unlikely to
have a material impact on the combined company, and that, overall, the risks
associated with the transactions are outweighed by the potential benefits of the
transactions.
As a result of the foregoing considerations, Wit SoundView's board believes
that the potential advantages of the transactions outweigh the benefits of
remaining a stand-alone company. The Wit SoundView board also believes that the
combined company would have a far greater opportunity to compete in its industry
than Wit SoundView would have if it remained a stand-alone company.
In view of the variety of factors considered in connection with its
evaluation of the transactions, the Wit SoundView board has not found it
practicable to quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination and has not done so. In
addition, many of the factors contain elements which may affect the fairness of
the transactions in both a positive and negative way. Except as described above,
the Wit SoundView board, as a whole, has not attempted to analyze each
individual factor separately to determine how it might have affected the
fairness of the transactions. Consequently, individual members of the Wit
SoundView board may have given different weights to different factors and may
have viewed factors as affecting the determination of fairness differently.
E*OFFERING'S REASONS FOR THE TRANSACTIONS. In arriving at its decision to
approve the transactions, E*OFFERING's board considered a number of factors,
including those set forth under "Joint Reasons for the Transactions." The joint
reasons enumerated above and in the following paragraphs summarize the factors
E*OFFERING's board and management have considered in reaching their decisions
regarding the transactions. In particular, E*OFFERING's management has
considered the following:
- the strategic benefits expected from the transactions and the anticipated
effect of the transactions on long-term stockholder value, in light of the
following:
- the business, financial condition, results of operations and prospects
of E*OFFERING and Wit SoundView;
- the current economic and industry environment;
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- the risks and uncertainties of proceeding as a stand-alone company;
- the relative advantages and disadvantages of a number of other
strategic alternatives, taking into account the risks and uncertainties
associated with such alternatives;
- the importance to E*OFFERING's business success of broadening its
research coverage and deepening its investment banking expertise;
- the potential for more management and underwriting business, as most
recent underwriting syndicates have included only one online investment
banking firm;
- the immediate increased presence in East Coast financial markets, where
Wit SoundView has focused its investment banking business and
operations;
- the complementary characteristics of the respective business and
management philosophies and corporate cultures of E*OFFERING and Wit
SoundView;
- the continuing exclusive distribution relationship with E*TRADE;
- the potential benefits of the transactions to E*OFFERING customers and
stockholders;
- the fairness to E*OFFERING of the terms and conditions of the merger
agreement which was the product of extensive arm's-length negotiations;
and
- the fact that the merger is expected to qualify as a tax free
reorganization.
In assessing the merger, E*OFFERING's management has also considered several
sources of information, including the following:
- historical information concerning the businesses, financial performance,
financial condition, operations and results of operation, technology and
management style, competitive position, trends and prospects of Wit
SoundView, E*OFFERING and E*TRADE;
- SEC filings by Wit SoundView;
- current and historical market prices, volatility and trading data for Wit
SoundView; and
- information and advice by members of E*OFFERING's management concerning
the business, technology, services, operations, properties, assets,
financial condition, operating results and prospects of Wit SoundView,
trends in Wit SoundView's business and financial results and capabilities
of Wit SoundView's management team.
E*OFFERING's management has also identified and considered a number of
uncertainties and risks concerning the merger, including the following:
- the risk that the potential benefits sought by the merger might not be
fully realized, if at all;
- the risk of loss of momentum and growth opportunities if the merger does
not proceed;
- the risk that the combined company might experience slower growth relative
to the prior growth rates of the individual companies; and
- the other risks associated with the businesses of Wit SoundView,
E*OFFERING and the combined company and the merger described in this proxy
statement/prospectus under "Risk Factors."
E*OFFERING's management believes that certain of these risks are unlikely to
occur or unlikely to have a material impact on the combined company, and that,
overall, the risks associated with the merger are outweighed by the potential
benefits of the merger.
As a result of the foregoing considerations, E*OFFERING's management
believes that the potential advantages of the merger and the related
transactions outweigh the benefits of remaining a stand-alone company.
E*OFFERING's management also believes that the combined company would have a
greatly enhanced competitive position relative to E*OFFERING's current status as
a stand-alone entity.
In view of the variety of factors considered in connection with its
evaluation of the merger, E*OFFERING's management has not found it practicable
to quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination and has not done so.
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In addition, many of the factors contain elements which may affect the
fairness of the merger in both a positive and negative way. E*OFFERING's
management and board, as a whole, have not attempted to analyze each individual
factor separately to determine how it affected the fairness of the merger and
related transactions. Consequently, individual members of E*OFFERING's
management and board may have given different weight to different factors and
may have viewed the factors as affecting the determination of fairness
differently.
RECOMMENDATION OF WIT SOUNDVIEW'S BOARD OF DIRECTORS
The Wit SoundView board of directors has determined that the merger
agreement and the strategic alliance agreement, taken as a unitary transaction,
are advisable and fair to, and in the best interests of, Wit SoundView and its
stockholders. Accordingly, the board has unanimously approved the merger
agreement and the strategic alliance agreement, taken as a unitary transaction,
and unanimously recommends that stockholders vote FOR approval of the merger
agreement and the merger. Approval of the merger agreement will result in the
assumption of E*OFFERING's stock option plans and the issuance of Wit SoundView
shares and warrants under the merger agreement and related transactions.
OPINION OF WIT SOUNDVIEW'S FINANCIAL ADVISOR
On May 14, 2000, Goldman Sachs delivered its oral opinion to the board of
directors of Wit SoundView that, as of that date, the total consideration to be
issued pursuant to the merger agreement and the strategic alliance agreement,
taken as a unitary transaction, was fair from a financial point of view to Wit
SoundView. Goldman Sachs subsequently confirmed its earlier oral opinion by
delivery of its written opinion dated May 15, 2000.
The full text of the written opinion of Goldman Sachs, dated May 15, 2000,
which identifies assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as Annex II to
this document. Stockholders of Wit SoundView are urged to, and should, read this
opinion in its entirety.
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- the strategic alliance agreement;
- the account transfer agreement;
- the Registration Statement on Form S-1 of Wit SoundView relating to the
initial public offering of Wit SoundView, including the prospectus
contained therein dated June 4, 1999;
- the annual reports on Form 10-K of Wit SoundView and E*TRADE for the year
ended December 31, 1999;
- audited historical financial statements of E*OFFERING for the year ended
September 31, 1999;
- various interim reports to stockholders and Quarterly Reports on
Form 10-Q of Wit SoundView and E*TRADE;
- various other communications from Wit SoundView to its stockholders;
- various financial and other information related to E*OFFERING;
- various internal financial analyses and forecasts for E*OFFERING prepared
by the management of E*OFFERING;
- various internal financial analyses and forecasts for Wit SoundView
prepared by the management of Wit SoundView;
- various financial analyses and forecasts for E*OFFERING prepared by the
management of Wit SoundView; and
- various cost savings and operating synergies projected by the management
of Wit SoundView to result from the transactions contemplated by the
merger and the strategic alliance agreement.
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Goldman Sachs also held discussions with members of the senior managements
of Wit SoundView, E*TRADE and E*OFFERING regarding their assessment of the
strategic rationale for, and the potential benefits of, transactions
contemplated by the merger agreement and the strategic alliance agreement and
past and current business operations, financial condition and future prospects
of their respective companies. In addition, Goldman Sachs:
- compared certain financial and other information for E*OFFERING and
certain financial and stock market information for Wit SoundView with
similar information for various other companies the securities of which
are publicly traded; and
- reviewed the financial terms of various recent business combinations in
the brokerage and Internet industries specifically and in other industries
generally; and
- performed such other studies and analyses as Goldman Sachs considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information discussed with or reviewed by it and assumed
such accuracy and completeness for purposes of rendering its opinion. In that
regard, it assumed with the consent of Wit SoundView that the forecasts prepared
by Wit SoundView and the cost savings and operating synergies projected by the
management of Wit SoundView were prepared on a basis reflecting the best
currently available estimates and judgments of Wit SoundView and that these
forecasts and operating synergies will be realized in the amounts and time
periods contemplated thereby. In addition, Goldman Sachs did not make an
independent evaluation or appraisal of the assets and liabilities of Wit
SoundView or E*OFFERING or any of their subsidiaries and Goldman Sachs was not
furnished with any such evaluation or appraisal. The advisory services and the
opinion of Goldman Sachs were provided for the information and assistance of the
board of directors of Wit SoundView in connection with its consideration of the
transaction contemplated by the merger agreement, the strategic alliance
agreement and the account transfer agreement and such opinion does not
constitute a recommendation as to how any holder of Wit SoundView shares should
vote with respect to the merger.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its oral opinion to Wit SoundView's
board of directors on May 14, 2000. Goldman Sachs utilized substantially the
same type of financial analyses in connection with providing the written opinion
attached as Annex II to this document. In providing its opinion, Goldman Sachs
did not assign any relative importance to any particular financial analysis.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES MAY INCLUDE INFORMATION IN
TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
CONTRIBUTION ANALYSIS. Goldman Sachs reviewed historical and estimated
future operating and financial information including, among other things, pro
forma ownership, revenue, pretax cash flow, cash net income, book value, cash on
balance sheet and total employees for Wit SoundView, E*OFFERING and the pro
forma combined company resulting from the merger, the strategic alliance with
E*TRADE and Wit SoundView's exit from the retail brokerage business and
potential benefits of the merger, or synergies. Goldman Sachs also analyzed the
relative revenue, pretax cash flow, cash net income, book value, cash on balance
sheet and total employee contribution of Wit SoundView and E*OFFERING to the
combined company on a pro forma basis based on financial data and assumptions
provided to Goldman Sachs by Wit SoundView management. In this regard and based
upon such data, Goldman Sachs utilized two estimates of potentially achievable
synergy levels:
- full pretax operating income synergies in estimated fiscal years 2000 and
2001; and
- pretax operating income synergies in estimated fiscal years 2000 and 2001,
representing the full synergies as adjusted to reduce non-retail brokerage
expense and revenue synergies by 50%.
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Each of these scenarios indicated that the Wit SoundView stockholders would
receive 75% of the outstanding common equity of the combined company after the
merger and Wit SoundView would contribute 74% of the total employees of the
combined company. Based on the book value of Wit SoundView and E*OFFERING on
March 31, 2000, Goldman Sachs also determined that, in both scenarios, Wit
SoundView would contribute 93% of the stated book value and 86% of the tangible
book value to the combined company.
The results of the analyses assuming the full potential synergies are
summarized as follows:
<TABLE>
<CAPTION>
WIT SOUNDVIEW 2000 Q1/A 2000E
CONTRIBUTION PRO FORMA PRO FORMA
TO COMBINED: (ANNUALIZED) 2000E (ANNUALIZED) 2001E
------------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Revenue........................................... 77% 80% 76% 73%
Pre-Tax Cash Flow................................. 78% 79% 63% 58%
Cash Net Income................................... 74% 79% 59% 54%
</TABLE>
The results of these analyses based on the partial potential synergies, are
summarized as follows:
<TABLE>
<CAPTION>
WIT SOUNDVIEW 2000 Q1/A 2000E
CONTRIBUTION PRO FORMA PRO FORMA
TO COMBINED: (ANNUALIZED) 2000E (ANNUALIZED) 2001E
------------- ------------ -------- ------------- --------
<S> <C> <C> <C> <C>
Revenue.......................................... 81% 82% 81% 78%
Pre-Tax Cash Flow................................ 87% 85% 71% 64%
Cash Net Income.................................. 86% 87% 69% 61%
</TABLE>
PRO FORMA MERGER ANALYSIS. Goldman Sachs prepared pro forma analyses of the
financial impact of the merger and the strategic alliance first using earnings
estimates for Wit SoundView and E*OFFERING provided by the management of Wit
SoundView ("management estimates") and then using earnings estimates for Wit
SoundView based on Thomas Weisel Partners research estimates and earnings
estimates for E*OFFERING based on Wit SoundView management estimates ("partially
external estimates"). In each of these two scenarios, Goldman Sachs compared the
estimated revenue, net income and cash net income per share of Wit SoundView
common stock in the third and fourth quarter of fiscal year 2000, taken
together, and each of the estimated fiscal years 2000 and 2001, on a standalone
basis, to the revenue, net income, and cash net income per share of the common
stock of the combined company on a pro forma basis during the same period
assuming an aggregate consideration of $374 million based on the closing
quotation of Wit SoundView common stock on the Nasdaq National Market on May 9,
2000, a retention pool of one million shares of Wit SoundView common stock
valued at $12 million and the same two synergy estimates used above.
Based on these analyses, the proposed transaction would be accretive to Wit
SoundView's stockholders on a cash net income per share basis in all of the
above scenarios.
Assuming full synergies the transaction would be:
- accretive on a revenue per share and net income per share basis in
estimated fiscal year 2000 post-closing and in estimated fiscal year 2001
using management estimates and partially external estimates and accretive
on a revenue per share basis for estimated fiscal year 2000 annualized
using partially external estimates; and
- dilutive on a revenue per share and net income per share basis in
estimated fiscal year 2000 annualized using management estimates and
dilutive only on a net income per share basis in estimated fiscal year
2000 annualized using partially external estimates.
Assuming partial synergies and management estimates, the proposed
transaction would be dilutive on a revenue and net income per share basis in
estimated fiscal year 2000 post-closing and in estimated fiscal years 2000
(annualized) and 2001.
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Assuming partial synergies and partially external estimates, the proposed
transaction would be:
- accretive on a revenue per share and net income per share basis in
estimated fiscal year 2001; and
- dilutive on a revenue per share and net income per share basis in
estimated fiscal year 2000 post-closing and in estimated fiscal year 2000
(annualized).
TRANSACTION DYNAMICS ANALYSIS. Goldman Sachs performed a comparative
analysis of the implied ratios of Wit SoundView's market value to Wit
SoundView's estimated revenues in fiscal years 2000 and 2001, respectively; and
Wit SoundView's market value to Wit SoundView's estimated cash net income in
fiscal years 2000 and 2001, respectively.
Goldman Sachs performed these analyses for Wit SoundView as a stand-alone
company; and as a combined company, using a retention pool of one million shares
of Wit SoundView common stock valued at $12 million and the same two synergy
estimates used above.
Goldman Sachs conducted this analysis using both management estimates and
partially external estimates, as above. In each scenario, Goldman Sachs
calculated estimated fiscal year 2000 revenues and cash net income for Wit
SoundView by annualizing the synergies estimates used above.
DISCOUNTED CASH FLOW ANALYSIS. Goldman Sachs performed a discounted cash
flow analysis on E*OFFERING using (a) the Wit SoundView management projections
and before taking into account any of the synergies resulting from the merger
and (b) using the Wit SoundView management projections after taking into account
any synergies resulting from the merger. Goldman Sachs calculated a net present
value of free cash flows for the fiscal years 2000 through 2005 using revenue
growth rates ranging from 20% to 35% and assuming net margins of 10%, 12.5% and
15% and capital expenditures equal to free cash flow. Goldman Sachs calculated
implied values of E*OFFERING using terminal values in fiscal year 2004 based on
forward P/E multiples ranging from 20.0x to 35.0x. These terminal values were
then discounted to present value using a discount rate of 15%.
In performing these analyses, Goldman Sachs did not assign relative
importance or weights to the various sets of ratios and multiples.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Wit SoundView, E*OFFERING or E*TRADE or the contemplated transaction.
The analyses were prepared solely for purposes of Goldman Sachs' providing
its opinion to the Wit SoundView board of directors as to the fairness, from a
financial point of view, of the total consideration to be issued pursuant to the
merger agreement and the strategic alliance agreement, taken as a unitary
transaction, to Wit SoundView. These analyses do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of Wit SoundView,
E*OFFERING, E*TRADE, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the board of directors of Wit
SoundView was one of many factors taken into consideration by the Wit
SoundView's board of directors in making its determination to approve the merger
agreement. The foregoing summary does not purport to be a complete description
of the analyses performed by Goldman Sachs. You should read in its entirety the
written opinion of Goldman Sachs attached as Annex II to this document.
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Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes, having provided various
investment banking services to Wit SoundView from time to time. Goldman Sachs is
familiar with Wit SoundView, having acted as its exclusive financial advisor in
its October 1999 agreement to acquire SoundView Technology Group, Inc. and
having acted as Wit SoundView's financial advisor in connection with, and
participating in the negotiations leading to, the merger agreement.
As of May 12, 2000, an affiliate of Goldman Sachs, the Goldman Sachs
Group, Inc. owned approximately 11,666,666 shares of Wit SoundView's Class B
Common Stock, par value $0.01 per share, and warrants to purchase approximately
5,637,295 shares of Wit SoundView's Class B Common Stock, together representing
15.4% of the fully diluted capital stock of Wit SoundView. The warrants may be
exercised beginning in October 2000. In connection with its investment in Wit
SoundView, Wit SoundView and the Goldman Sachs Group, Inc. are parties to an
agreement that, among other things, gives the Goldman Sachs Group, Inc. a right
of first refusal to purchase additional shares of common equity before Wit
SoundView sells 5.0% of its fully diluted common equity to certain designated
competitors of Goldman Sachs. Moreover, the Goldman Sachs Group Inc. has
registration rights with respect to the shares of Class B Common Stock owned by
such affiliate and has agreed for a limited period of time not to acquire more
than 25% of Wit SoundView's fully diluted common equity.
Goldman Sachs may also provide investment banking services to Wit SoundView
or E*TRADE in the future. Wit SoundView selected Goldman Sachs as its financial
advisor because it is a nationally recognized investment banking firm that has
substantial experience in transactions similar to the merger.
Goldman Sachs provides a full range of financial, advisory and security
services and in the course of its normal trading activities may from time to
time effect transactions and hold securities, including derivative securities,
of Wit SoundView or E*TRADE for its own account and for the accounts of
customers. As of May 15, 2000, Goldman Sachs accumulated a long position of
46,389 shares of E*TRADE common stock, against which Goldman Sachs is short
3,501,757 shares of E*TRADE common stock, and options to purchase 3,517,314
shares of E*TRADE common stock.
Pursuant to a letter agreement, dated April 27, 2000, Wit SoundView engaged
Goldman Sachs to act as its exclusive financial advisor in connection with the
possible acquisition of all or a portion of the stock or assets of E*OFFERING
and the possible sale of Wit SoundView's broker-dealer subsidiary, Wit SoundView
Corporation to E*TRADE Group, Inc. Pursuant to the terms of this engagement
letter, Wit SoundView has agreed to pay Goldman Sachs a transaction fee of
$3,335,000 upon completion of the merger.
Wit SoundView has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
CONSENT OF E*OFFERING'S SHAREHOLDERS
Wit SoundView wished to obtain approval of the merger agreement during the
latter stages of negotiations of the merger by obtaining written consents and
irrevocable proxies from the holders of a majority of each class of E*OFFERING's
shares. E*OFFERING obtained approval for the merger by soliciting consents from
nine of its significant shareholders who collectively own approximately 78% of
E*OFFERING's voting stock. All of these shareholders are active in E*OFFERING's
affairs, are founders and/or are represented on E*OFFERING's board of directors.
On May 15, 2000, Wit SoundView and E*OFFERING entered into a definitive merger
agreement and related agreements and these shareholders delivered written
consents approving the merger agreement and irrevocable proxies to vote in
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favor of the merger agreement. These written consents represented a sufficient
number of shares to approve the merger under California law.
Obtaining consents for the merger from these significant shareholders was a
private offering of the shares to be issued to these persons in the merger.
Consequently, the shares of Wit SoundView common stock to be received by these
persons upon completion of the merger are being registered only for resale by
means of the registration statement of which this proxy statement/prospectus
forms an integral part. The 17,884,234 shares to be received by Softbank,
General Atlantic Partners, LLC and E*TRADE and their respective affiliates are
subject to long-term transfer restrictions.
ACCOUNTING TREATMENT
The merger will be accounted for under the "purchase" method of accounting
in accordance with generally accepted accounting principles. This means that,
for accounting and financial reporting purposes, the assets and liabilities of
E*OFFERING will be recorded at their fair value, and any excess of Wit
SoundView's purchase price over the fair value of E*OFFERING's tangible net
assets will be recorded as intangible assets, including goodwill.
APPLICABLE WAITING PERIODS AND REGULATORY APPROVALS
The merger is subject to U.S. antitrust laws. We have made the required
filings with the Department of Justice and the Federal Trade Commission, which
terminated the statutory antitrust review period on July 11, 2000. Although the
termination of their antitrust review does not preclude the Department of
Justice and the Federal Trade Commission, or any state or private person, from
challenging the merger at a later time, we do not expect any challenge for
antitrust reasons.
The rules of the National Association of Securities Dealers, Inc., or the
NASD, to which E*OFFERING and Wit SoundView's broker-dealer subsidiaries are
each subject, require advance notice of the merger and accounts transfer to the
NASD. Although prior approval by the NASD is not mandatory, it is customary not
to complete a transaction subject to these rules until the NASD has indicated
its approval. E*OFFERING and Wit SoundView have provided the required notice.
Neither Wit SoundView nor E*OFFERING is aware of any other material
governmental or regulatory approval required for completion of the merger, other
than compliance with the applicable merger procedures of the Delaware General
Corporation Law and the California Corporation Law.
TRADING OF WIT SOUNDVIEW COMMON STOCK TO BE ISSUED IN THE MERGER
The shares of Wit SoundView common stock to be issued in the merger will be
included for trading on Nasdaq upon completion of the merger.
RESTRICTIONS ON SALE OF SHARES BY AFFILIATES OF WIT SOUNDVIEW AND E*OFFERING
The shares of Wit SoundView common stock to be received in the merger by
E*TRADE, General Atlantic Partners, LLC, Softbank Corp., and their respective
affiliates in exchange for their E*OFFERING shares, which represent
approximately 62% of the maximum number of shares to be issued by Wit SoundView
in the merger and upon exercise of options and warrants, will be subject to
transfer restrictions under the merger agreement that will expire three years
from the date the merger is completed unless the strategic alliance agreement is
earlier terminated. In addition, approximately 8% of the shares to be issued by
Wit SoundView in the merger and upon exercise of options and warrants to
E*OFFERING shareholders in exchange for E*OFFERING shares will be subject to
transfer restrictions under the merger agreement that will expire 180 days from
the date the merger is completed. As part of a retention pool for key employees,
E*OFFERING will prior to the closing issue approximately 745,000 shares of
E*OFFERING restricted stock, which will be exchanged for 500,000 shares of the
Wit SoundView
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common stock in the merger. As an additional part of the retention pool, at the
effective time of the merger, Wit SoundView will grant to certain of
E*OFFERING's employees options to purchase not less than 500,000 shares of Wit
SoundView common stock. The restricted shares are subject to transfer
restrictions and forfeiture provisions which lapse as to one-third of the
shares, at the first, second and third anniversaries of the merger,
respectively, while each option will vest in sixteen equal quarterly
installments at the end of each calendar quarter over four years from the date
of the grant.
As part of the consideration for entering into the strategic alliance with
E*TRADE, Wit SoundView will issue to E*TRADE 4,025,948 shares which will have a
three year transfer restriction from the date of closing unless the strategic
alliance agreement is earlier terminated. Pursuant to a stock purchase
agreement, E*TRADE and General Atlantic Partners, LLC will each purchase two
million shares of Wit SoundView's common stock. These shares are not subject to
any restrictions on transfer other than those imposed by applicable securities
laws.
Any person who is deemed to be an affiliate of either Wit SoundView or
E*OFFERING at the time of the special meeting of Wit SoundView or at the time
E*OFFERING obtained shareholder approval of the merger may sell their shares of
Wit SoundView common stock acquired in connection with the merger only pursuant
to the volume and manner of sale limitations contained in Rule 145 under the
Securities Act or pursuant to an effective registration statement or other
applicable exemption. Persons who may be deemed to be affiliates include
individuals or entities that control, are controlled by or are under common
control with either Wit SoundView or E*OFFERING and may include some of the
officers, directors, and principal stockholders of Wit SoundView and E*OFFERING.
For purposes of the Securities Act, the shareholders of E*OFFERING from whom
E*OFFERING obtained shareholder approval of the merger agreement will receive
their shares of Wit SoundView common stock in a private placement pursuant to an
investment decision made at the time they provided their consent to the merger
agreement. These E*OFFERING shareholders currently own approximately 78% of
E*OFFERING's shares and will be issued up to 18% of Wit SoundView's shares of
common stock in the merger and related transactions. The shares to be received
by General Atlantic Partners, LLC, Softbank Corp. and E*TRADE and their
respective affiliates are subject to long-term transfer restrictions. General
Atlantic Partners, LLC, Softbank Corp. and E*TRADE and their respective
affiliates own approximately 62% of E*OFFERING's fully diluted shares. The
signatories to the voting agreement and their respective affiliates will be
permitted to sell shares that are not subject to transfer restrictions under the
merger agreement pursuant to this proxy statement/prospectus, during the period
which this registration statement remains effective. When this registration
statement is no longer effective, Wit SoundView intends to register the resale
of any remaining unsold shares held by the signatories to the voting agreement
and to maintain the effectiveness of that registration until the lapse of
applicable holding period restrictions and volume limitations under Rule 145 of
the Securities Act. Any sales by these persons must be made in accordance with
Rule 145. Rule 145 permits sales pursuant to limitations on the number of shares
sold and the manner of sale. Other E*OFFERING shareholders, who are affiliates
and are not party to the voting agreement, will be permitted to sell
unrestricted shares in accordance with Rule 145 without regard to whether this
registration statement remains effective.
MANAGEMENT FOLLOWING THE MERGER
Wit SoundView does not anticipate any changes in its senior management team
as a result of the merger. Wit SoundView has agreed to use its reasonable best
efforts to appoint Christos Cotsakos, E*TRADE's Chairman and Chief Executive
Officer, and William Ford, a managing member at General Atlantic Partners, LLC,
to its board of directors, contingent upon completion of the merger and
commencement of the strategic alliance between Wit SoundView and E*TRADE. The
shareholders of E*OFFERING will become stockholders of Wit SoundView, and their
rights as stockholders will be governed by Wit SoundView's amended and restated
certificate of incorporation, Wit SoundView's by-laws
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and the laws of the State of Delaware. Biographical information for
Messrs. Cotsakos and Ford is as follows:
CHRISTOS COTSAKOS
Christos M. Cotsakos, 51, is Chairman of the Board and Chief Executive
Officer of E*TRADE Group, Inc. He joined E*TRADE in March 1996 as President and
Chief Executive Officer. Prior to joining E*TRADE, he served as President,
Co-Chief Executive Officer, Chief Operating Officer and a director of A.C.
Nielsen, Inc. from March 1995 to January 1996, as President and Chief Executive
Officer of Nielsen International from September 1993 to March 1995, and as
President and Chief Operating Officer of Nielsen Europe, Middle East and Africa
from March 1992 to September 1993. Mr. Cotsakos joined Nielsen after 19 years
with the Federal Express Corporation, where he held a number of senior executive
positions. Mr. Cotsakos serves as a director of Fox Entertainment Group, Inc.,
Webvan Group, Inc. (an online retailer), PlanetRX.com, Inc. (an online
healthcare retailer), Digital Island, Inc. (a global network and related
services company), Critical Path, Inc. (a provider of Internet messaging and
collaboration solutions), Tickets.com (an on-line ticket seller) and National
Processing, Inc. (a provider of transaction processing services and solutions),
as well as several technology companies in the private sector. A decorated
Vietnam Veteran, he received a BA from William Paterson University, an MBA from
Pepperdine University and is currently pursuing a PhD in economics at the
Management School, University of London. Mr. Cotsakos has been the recipient of
several industry and visionary awards during his tenure at E*TRADE Group, A.C.
Nielsen and Federal Express.
WILLIAM FORD
WILLIAM E. FORD, 37, is a Managing Member of General Atlantic Partners, LLC,
a private equity firm that invests globally in software, services and related
information technology companies, and has
been with General Atlantic since 1991. Mr. Ford also serves as a director of LHS
Group Inc. (a billing solutions company), E*TRADE Group, Inc., Priceline.com
Incorporated (an e-commerce company), Tickets.com, Inc. and Quintiles
Transnational Corp. (a healthcare and pharmaceuticals services company).
DIVIDEND POLICY
Neither Wit SoundView nor E*OFFERING has ever paid dividends to its
stockholders and Wit SoundView does not expect to pay dividends for the
foreseeable future.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Goldman Sachs has acted as Wit SoundView's financial advisor in connection
with the merger. Goldman Sachs also owns an equity interest in Wit SoundView. On
April 9, 1999, Wit SoundView issued 11,666,666 shares of Series E preferred
stock (subsequently converted into an equal number of shares of Wit SoundView's
Class B common stock) for a purchase price of $25 million. Goldman Sachs also
received warrants to purchase 5,637,295 shares of Series E preferred stock. The
warrants are exercisable for an equivalent number of shares of Class B common
stock and may be exercised beginning in October 2000 at a per share exercise
price equal to $5.57. In addition, Goldman Sachs may receive warrants to
purchase up to an additional 153,247 shares of Class B common stock which is
dependent upon the resolution of a pending dispute.
The validity of the shares of common stock that Wit SoundView is registering
in this proxy statement/ prospectus is being passed upon by Skadden, Arps,
Slate, Meagher & Flom LLP, the same firm which has acted as Wit SoundView's
legal counsel in connection with the merger. Joseph H. Flom is a member of Wit
SoundView's special advisory board and is also a partner of Skadden, Arps,
Slate, Meagher & Flom LLP. In return for his service on Wit SoundView's special
advisory board, Wit SoundView has granted Mr. Flom
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options to purchase common stock. See the section entitled "Management of Wit
SoundView--Compensation of Directors and Special Advisory Board Members" in Wit
SoundView's Form 10-K for 1999 which is incorporated by reference in this proxy
statement/prospectus.
APPRAISAL RIGHTS
E*OFFERING is a California corporation. Under Section 1300 et seq. of the
California Corporation Law, E*OFFERING shareholders have appraisal rights, which
are sometimes referred to as "dissenters' rights," in connection with the
merger. Each E*OFFERING shareholder has been notified that he or she is entitled
to statutory appraisal rights and the period during which E*OFFERING
shareholders could have informed E*OFFERING of their intention to exercise their
appraisal rights terminated on July 3, 2000. No holders of shares of E*OFFERING
stock demanded appraisal of their shares.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material United States federal income
tax consequences of the exchange of shares of E*OFFERING for Wit SoundView
common stock pursuant to the merger. We have received the opinion of Skadden,
Arps, Slate, Meagher & Flom LLP, our counsel in connection with the merger,
that, subject to the assumptions, exceptions, limitations and qualifications set
forth in their opinion, the material United States federal income tax
considerations relevant to the exchange of shares of E*OFFERING capital stock
for Wit SoundView common stock in the merger that are generally applicable to
holders of E*OFFERING common stock are as follows:
- The merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
- A holder of E*OFFERING capital stock will not recognize any gain or loss
solely upon such holder's receipt of Wit SoundView common stock in
exchange for such holder's E*OFFERING capital stock in the merger, except
to the extent the holder of E*OFFERING capital stock receives cash in lieu
of a fractional share of Wit SoundView common stock.
- The aggregate tax basis of the Wit SoundView common stock that a holder of
E*OFFERING capital stock receives in the merger will be the same as the
aggregate tax basis of the E*OFFERING capital stock surrendered by such
holder in exchange for Wit SoundView common stock increased by the amount
of any gain recognized and reduced by the amount of any cash received (and
further reduced by any tax basis attributable to any fractional share the
holder is deemed to have disposed of).
- The holding period of the Wit SoundView common stock that each holder
receives in the merger will include the period for which the E*OFFERING
capital stock surrendered in exchange for Wit SoundView common stock was
considered to be held, if the surrendered E*OFFERING capital stock is held
as a capital asset at the time of the merger.
- Cash payments that a holder of E*OFFERING capital stock receives in lieu
of a fractional share will be treated as if the fractional share of Wit
SoundView common stock had been issued in the merger and then redeemed by
Wit SoundView. A holder of E*OFFERING capital stock receiving cash in lieu
of fractional shares should recognize gain or loss upon payment measured
by any difference between the amount of cash received and the holder's
basis in the fractional share.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP and this discussion
are based on currently existing provisions of the Internal Revenue Code,
existing and proposed treasury regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change. Any change,
which may or may not be retroactive, could alter the tax consequences to
E*OFFERING shareholders as described above.
E*OFFERING shareholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
E*OFFERING shareholders in light of their individual circumstances, such as
shareholders who:
- are dealers in securities or foreign currency;
- are subject to the alternative minimum tax provisions of the Internal
Revenue Code;
- are foreign persons;
- do not hold their E*OFFERING capital stock as capital assets;
- acquired their shares in connection with stock option or stock purchase
plans or in other compensatory transactions; or
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- hold their E*OFFERING capital stock as part of a straddle, pledge against
currency risk, constructive sale, or conversion transaction.
In addition, the following discussion does not address:
- the tax consequences of other transactions effectuated prior or subsequent
to, or concurrently with, the merger (whether or not any such transactions
are undertaken in connection with the merger), including without
limitation the strategic alliance agreement, the special escrow fund or
any transaction in which the shares of E*OFFERING capital stock are
acquired or shares of Wit SoundView are disposed of,
- the tax consequences of the merger under foreign, state or local tax laws,
or
- the tax consequences of the assumption by Wit SoundView of E*OFFERING
stock options or the tax consequences of the receipt of rights to acquire
Wit SoundView common stock.
ACCORDINGLY, E*OFFERING SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
Neither Wit SoundView nor E*OFFERING is requesting a ruling from the
Internal Revenue Service as to the tax consequences of the merger. The
respective obligations of the parties to complete the merger are conditioned on
Wit SoundView's receipt of an opinion from Skadden, Arps, Slate, Meagher & Flom
LLP and E*OFFERING's receiving an opinion from Wilson Sonsini Goodrich & Rosati,
in each case dated on the date of the closing, to the effect that the merger
will constitute a reorganization within the meaning of the Internal Revenue
Code. E*OFFERING shareholders should be aware that the tax opinions do not bind
the IRS. The IRS may therefore successfully assert a contrary opinion. The tax
opinions will be subject to certain assumptions and qualifications, including,
but not limited to, the truth and accuracy of representations made by Wit
SoundView and E*OFFERING.
A successful IRS challenge to the reorganization status of the merger would
result in an E*OFFERING shareholder recognizing taxable gain or loss with
respect to each share of E*OFFERING common stock surrendered equal to the
difference between (A) each shareholder's basis in the shares and (B) the fair
market value, as of the effective time, of the Wit SoundView common stock and
any other consideration received in exchange. In this event, a stockholder's
aggregate basis in the Wit SoundView common stock received would equal its fair
market value as of the closing date of the merger, and the shareholder's holding
period for Wit SoundView common stock would begin the day after the merger.
TAX CONSEQUENCES OF THE ESCROW. Under the merger agreement, 10% of the
aggregate number of shares of Wit SoundView common stock issuable in the merger
will be placed in escrow. The return of any escrow shares to Wit SoundView in
satisfaction of an indemnifiable claim should result in the recognition of gain
or loss to the holders of escrow shares, and each holder of escrow shares should
increase the basis in its remaining Wit SoundView common stock by an amount
equal to the amount at which the escrow shares returned by such holder were
valued. Shareholders of E*OFFERING are urged to consult their tax advisors
regarding the tax consequences to them of the transfer of the escrow shares.
BACKUP WITHHOLDING WITH RESPECT TO CASH PAID INSTEAD OF FRACTIONAL SHARES OF
WIT SOUNDVIEW COMMON STOCK. Certain non-corporate E*OFFERING shareholders may be
subject to backup withholding at a 31% rate on cash payments received instead of
fractional shares of Wit SoundView common stock. Backup withholding will not
apply, however, to an E*OFFERING shareholder who furnishes a correct taxpayer
identification number and certifies that he, she or it is not subject to backup
withholding on the substitute Form W-9 or successor form included in the letter
of transmittal to be delivered to E*OFFERING shareholders following the date of
the merger, provides a certification of foreign status on Form W-8 or successor
form or is otherwise exempt from backup withholding.
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THE MERGER AGREEMENT AND RELATED AGREEMENTS
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX I TO THIS PROXY
STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE. WE URGE YOU TO READ
THE MERGER AGREEMENT IN ITS ENTIRETY FOR A MORE COMPLETE DESCRIPTION OF THE
MERGER. IN THE EVENT OF ANY DISCREPANCY BETWEEN THE TERMS OF THE MERGER
AGREEMENT OR OTHER AGREEMENTS AND THE FOLLOWING SUMMARY, THE MERGER AGREEMENT
WILL CONTROL.
MERGER AGREEMENT
E*OFFERING, a California corporation, will merge with and into Wit SoundView
Corporation, a wholly owned subsidiary of Wit SoundView, following the approval
of the merger agreement by Wit SoundView stockholders, and the satisfaction or
waiver of other conditions to the merger.
Wit SoundView Corporation will continue as the surviving corporation and a
wholly owned subsidiary of Wit SoundView following the merger.
EFFECTIVE TIME
At the closing of the merger, the parties will cause the merger to become
effective by filing a certificate of merger with the Secretary of State of the
State of Delaware and the merger agreement, together with the related officers
certificates required by Section 1103 of the California Corporation Law, with
the Secretary of State of California. Wit SoundView and E*OFFERING are working
toward completing the merger as soon as possible and hope to complete the merger
by October, 2000. Because the merger is subject to a number of conditions,
however, we cannot predict the exact timing.
DIRECTORS AND OFFICERS OF WIT SOUNDVIEW CORPORATION AFTER THE MERGER
The directors and officers of Wit SoundView Corporation immediately prior to
the merger will continue to be the directors and officers after the effective
time of the merger until their successors have been duly elected or appointed
and qualified.
CONVERSION OF E*OFFERING SHARES IN THE MERGER
EXCHANGE RATIO. Each holder of E*OFFERING capital stock will receive a
percentage of a share of Wit SoundView common stock for each share of E*OFFERING
capital stock exchanged in the merger based upon an exchange ratio. The exchange
ratio will be 0.674237515, subject to an insignificant downward adjustment for
certain accrued but unpaid Series C convertible preferred stock dividends
accruing after April 30, 2000 up to the date of the merger.
The merger agreement provides that each share of Series C convertible
preferred stock will be converted into and exchanged for the right to receive
the number of Wit SoundView shares equal to the sum of (a) the quotient derived
by dividing the sum of $3.481280502 plus any accrued and unpaid cumulative
dividends, by $10.25 plus (b) the exchange ratio.
Each share of Series B convertible preferred stock will be converted into
and exchanged for the right to receive the number of Wit SoundView shares equal
to the sum of (a) the quotient derived by dividing the sum of $4.00 plus any
declared and unpaid dividends, by $10.25 plus (b) the exchange ratio.
Each share of Series A convertible preferred stock will be converted into
and exchanged for the right to receive the number of Wit SoundView shares equal
to the sum of (a) the quotient derived by dividing the sum of $1.00 plus any
declared and unpaid dividends, by $10.25 plus (b) the exchange ratio.
Each share of common stock will be converted and exchanged for the right to
receive 0.674237515 (as adjusted downward to reflect additional accrued and
unpaid dividends on the Series C convertible
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preferred stock from April 30, 2000 to the effective date of the merger) of a
share of Wit SoundView common stock.
DISSENTING SHARES. Under Section 1300 of the California Corporations Law,
shareholders of a California corporation are entitled to assert statutory
dissenters' rights in a merger. Each E*OFFERING shareholder was notified that he
or she was entitled to statutory dissenters' rights. The period during which
such shareholders were required to inform E*OFFERING of their intention to
exercise those rights expired on July 3, 2000. No E*OFFERING shareholder
exercised dissenters' rights and accordingly no shareholders have dissenters'
rights in the transaction.
CASH IN LIEU OF FRACTIONAL SHARES.
No fractional shares of Wit SoundView common stock will be issued in the
merger. In lieu of any fractional shares, each shareholder of E*OFFERING who
would otherwise be entitled to a fraction of a share of Wit SoundView's stock
pursuant to the merger will be paid an amount in cash, without interest,
determined by multiplying $10.25 by the fraction of a share of Wit SoundView's
stock to which such shareholder would otherwise be entitled.
E*OFFERING STOCK OPTIONS AND WARRANTS
At the effective time, each outstanding option to purchase shares of
E*OFFERING common stock or other right granted under E*OFFERING's 1998 Stock
Option Plan and 2000 Stock Option/Stock Issuance Plan and any other warrants or
other rights outstanding will be converted into an option or warrant to purchase
the same fraction of a share of Wit SoundView common stock. Except with respect
to the changes in vesting described below, each converted E*OFFERING stock
option, warrant or other right will continue to have the same terms, and be
subject to the same conditions, that were applicable to the option or right
immediately prior to the effective time. At the effective time of the merger,
E*OFFERING's stock option plans will be adopted by Wit SoundView, although no
additional options to purchase shares will be granted under that plan.
Each holder of an E*OFFERING stock option, warrant or other right, when
converted, will be eligible to purchase the number of shares of E*OFFERING
common stock it could have purchased prior to the merger multiplied by the
exchange ratio for the conversion of shares of E*OFFERING common stock into
shares of Wit SoundView common stock. The exercise price for each converted
stock option, warrant or other right will also be appropriately adjusted. The
new exercise price of each E*OFFERING stock option, warrant or other right will
equal the per share exercise price immediately prior to the merger divided by
the exchange ratio and then rounded up to the nearest whole cent.
In addition, E*OFFERING options outstanding and not yet vested at the
effective time of the merger will, in the case of an option-holder not
benefitted by the vesting modification below upon the receipt of the written
consent of the holder, and except to the extent forfeited under E*OFFERING's
Stock Option/ Stock Issuance Plans, vest in sixteen equal quarterly installments
over a four-year period from the vesting commencement date. Some non-employee
stock options of E*OFFERING will vest immediately prior to the effective date of
the merger.
THE EXCHANGE AGENT
Promptly after the effective time, Wit SoundView is required to deposit with
American Stock Transfer Company, the exchange agent, certificates representing
the shares of Wit SoundView common stock to be exchanged for shares of
E*OFFERING capital stock and cash to pay for any dividends or distributions that
holders of E*OFFERING capital stock may be entitled to receive under the merger
agreement.
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EXCHANGE OF E*OFFERING STOCK CERTIFICATES FOR WIT SOUNDVIEW STOCK
CERTIFICATES
Promptly after the receipt of the final allocation schedule, the exchange
agent will mail to E*OFFERING shareholders a letter of transmittal and
instructions for surrendering their E*OFFERING stock certificates in exchange
for Wit SoundView stock certificates.
E*OFFERING shareholders should not submit their stock certificates for
exchange until they have received the letter of transmittal and instructions
referred to above.
Upon surrender of the E*OFFERING stock certificates, the exchange agent will
issue to holders one or more certificates for the Wit SoundView shares they are
entitled to receive. Certificates for shares belonging to Crosspoint Venture
Partners 2000, New Enterprise Associates 9, L.P., NEA Ventures 2000, L.P. and
Battery Ventures V, L.P., the base lock-up shares, will have a one hundred
eighty (180) day transfer restriction, and certificates for shares belonging to
E*TRADE, Softbank Corp. and General Atlantic Partners, the strategic investor
lock-up shares, will have a three-year transfer restriction. For additional
information regarding restrictions on sale, see the section of this proxy
statement/prospectus entitled "The Merger--Restrictions on Sale of Shares by
Affiliates of Wit SoundView and E*OFFERING."
SPECIAL ESCROW FUND
At the effective time of the merger, twenty-five percent of the strategic
investor lock-up shares will be placed in a special escrow fund. One
thirty-sixth of these shares will be released from the special escrow fund each
month following the month in which the effective time of the merger occurs,
except to the extent such shares are required to be surrendered to Wit SoundView
or released to the shareholders on account of early termination of the strategic
alliance agreement. See "Other Agreements Related to the Transactions--Special
Escrow Fund."
FRACTIONAL SHARES
No fractional shares of Wit SoundView common stock will be issued in
connection with the merger. Instead, E*OFFERING shareholders will receive an
amount of cash, in lieu of a fraction of a share of Wit SoundView common stock,
equal to the product of (1) the fraction and (2) $10.25.
RETENTION POOL
Prior to the merger, E*OFFERING will issue to designated E*OFFERING
employees an aggregate of approximately 745,000 shares of E*OFFERING's common
stock, which will serve as retention shares. One third of the retention shares
allocated to an employee will vest when that employee has been continuously
employed by Wit SoundView and its subsidiaries for the first twelve months after
the merger, the second third of such employee's retention shares will vest when
the employee has been continuously employed by Wit SoundView and its
subsidiaries for the first twenty-four months after the merger, and the
remaining one-third of retention shares allocated to an employee will vest when
that employee has been continuously employed by Wit SoundView and its
subsidiaries for the first thirty-six months after the merger. The only
exceptions to the continuous employment requirement will be termination of
employment by Wit SoundView without cause and a change in control of Wit
SoundView. Retention shares that do not vest due to termination of employment or
because the employee has exercised dissenter's rights will be forfeited. The
exchange agent will issue to each recipient of retention pool shares three
certificates with transfer restrictions reflecting the vesting schedule
described above.
In order to assist in retaining key E*OFFERING employees following the
closing, at the effective time of the merger, Wit SoundView will also establish
a cash bonus pool of $5 million, which will be distributed no later than
March 31, 2001, and grant options to purchase 500,000 shares of Wit SoundView
common stock.
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REPRESENTATIONS AND WARRANTIES
Wit SoundView and E*OFFERING each made a number of representations and
warranties in the merger agreement about their authority to enter into the
merger agreement and to consummate the other transactions contemplated by the
merger agreement and about aspects of their business, financial condition,
structure and other facts pertinent to the merger, including representations
about the following topics:
- corporate matters, such as organization and qualification, capitalization,
authority and necessary approvals;
- compliance with permits and applicable laws, rules and regulations of
governmental entities;
- financial statements;
- books and records;
- recent changes in business, finances, properties, assets, compensation
payments, dividend payments or accounting practices; and
- business matters, such as employee benefit plans, labor matters, material
contracts, taxes, insurance, litigation and intellectual property.
E*OFFERING'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
E*OFFERING has agreed that, until the completion of the merger or unless Wit
SoundView consents in writing, E*OFFERING and its subsidiaries will conduct
their businesses in the ordinary course of business and consistent with past
practices and will use commercially reasonable efforts:
- to preserve E*OFFERING's business organization intact;
- to keep available the services of its current officers and employees; and
- to preserve its relationships with persons or entities with which it has
business relations.
E*OFFERING has also agreed that, until the completion of the merger or
unless Wit SoundView consents in writing, E*OFFERING and its subsidiaries will
conduct their business in compliance with specific restrictions designed to
ensure that E*OFFERING's business and its practices do not change significantly
from the time the merger was negotiated.
WIT SOUNDVIEW'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Wit SoundView has agreed that, until the completion of the merger or unless
E*OFFERING consents in writing, Wit SoundView and its subsidiaries will conduct
their businesses in the ordinary course of business and consistent with past
practices and will use commercially reasonable efforts:
- to preserve Wit SoundView's business organization intact;
- to keep available the services of its current officers and employees; and
- to preserve its relationships with persons or entities with which it has
business relations.
Wit SoundView has also agreed that, until the completion of the merger or
unless E*OFFERING consents in writing, Wit SoundView and its subsidiaries will
conduct their business in compliance with specific restrictions designed to
ensure that it does not change its charter or significantly change certain
aspects of its business from the time the merger was negotiated.
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Wit SoundView has also agreed:
- to use its reasonable best efforts to properly call and hold a special
meeting of Wit SoundView stockholders to approve the merger and to solicit
from its stockholders proxies in favor of approval of the merger
agreement; and
- to prepare and file with the SEC, as promptly as practicable, this
registration statement.
OTHER COVENANTS
Each of E*OFFERING and Wit SoundView has also agreed to use all commercially
reasonable efforts to complete the merger and related transactions.
The understandings in the merger agreement relating to the conduct of
E*OFFERING's and Wit SoundView's respective businesses are complicated and not
easily summarized. We urge stockholders to carefully read the article in the
merger agreement entitled "Covenants."
NO SOLICITATION OF COMPETING TRANSACTION
Until the merger is completed or the merger agreement is terminated,
E*OFFERING has agreed not to directly or indirectly solicit, encourage,
participate, or initiate discussions or negotiations with or disclose any
information to any persons concerning any "acquisition proposal" relating to
E*OFFERING. E*OFFERING must immediately notify Wit SoundView of the existence
and details of any acquisition proposal.
E*OFFERING's board may not:
- withdraw or modify, or propose to withdraw or modify, its approval of the
merger or the merger agreement in a manner adverse to Wit SoundView;
- approve or recommend, or propose to approve or recommend, any acquisition
proposal; or
- enter into any agreement with respect to an acquisition proposal.
CONDITIONS TO COMPLETION OF THE MERGER
Wit SoundView's and E*OFFERING's respective obligations to complete the
merger and the related transactions are subject to approval of the merger
agreement by Wit SoundView's stockholders, as well as the prior satisfaction or
waiver, if permitted by applicable law, of the following conditions before
completion of the merger:
- each party's representations and warranties must be true and correct in
all material respects when made and as of the completion of the merger,
except for such failures which would not have a material adverse effect on
the party making the representation or warranty, and all obligations under
the merger agreement must have been performed in all material respects;
- no order, writ, injunction or decree prohibits or prevents completion of
the merger;
- this registration statement relating to the issuance of shares of Wit
SoundView common stock in connection with the merger must be declared
effective by the SEC;
- all necessary governmental filings will have been made and consents
obtained, and any waiting period under the antitrust laws that applies to
the completion of the merger must have expired or been terminated;
- opinions as to corporate matters pertaining to each of the parties must
have been rendered; and
- neither Wit SoundView nor E*TRADE shall have terminated the strategic
alliance agreement.
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Wit SoundView's obligations to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the merger:
- each affiliate of E*OFFERING who will become an affiliate of Wit SoundView
upon completion of the merger will have delivered an executed letter to
Wit SoundView stating that the affiliate will comply with Rule 145 under
the Securities Act;
- an opinion of Skadden, Arps, Slate, Meagher & Flom LLP will have been
rendered to the effect that the merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code and that
Wit SoundView, E*OFFERING and Wit SoundView Corporation will be parties to
the reorganization;
- E*OFFERING dissenting shares immediately prior to the effective time will
not exceed 10% of the sum of issued and outstanding shares immediately
prior to the effective time; and
- E*TRADE will have completed all procedures necessary, including
development of the technical interface, so that former Wit SoundView
brokerage account holders whose accounts have been transferred to E*TRADE
can place bids through the Internet to Wit SoundView's Vostock website and
participate in secondary offerings through the Vostock auction process.
E*OFFERING's obligations to complete the merger and the other transactions
contemplated by the merger agreement are also subject to receipt of an opinion
of Wilson Sonsini Goodrich & Rosati to the effect that the merger will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code and that Wit SoundView, E*OFFERING and Wit SoundView Corporation
will be parties to the reorganization.
ESCROW AND INDEMNIFICATION
Within five business days after the effective time, Wit SoundView will
deposit with an escrow agent ten percent of the shares to be issued in the
merger or reserved for issuance upon exercise of stock options. The shares will
constitute the escrow fund, which will be used to compensate Wit SoundView for
damages exceeding $3 million and arising out of misrepresentations or breaches
by E*OFFERING under the agreement. Any damage claims presented to the escrow
agent that are contested will be settled through binding arbitration if the
parties are unable to reach an agreement. The escrow period will terminate one
year from the closing date with respect to any claims not made prior to that
time.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated under certain circumstances at any
time by either party before the completion of the merger, as summarized below:
- the merger agreement may be terminated by mutual written consent of the
parties;
- the merger agreement may be terminated by either of the parties if it
becomes impossible for any of a party's conditions to completion of the
merger to be satisfied on or prior to October 31, 2000 and the other party
has not waived the condition promptly after the impossibility has become
known;
- if there has been a breach of any of the representations and warranties in
the merger agreement by one of the parties, the non-breaching party may
terminate the merger agreement if the breach can not be cured before
October 31, 2000;
- if there has been a material breach of any of the covenants or agreements
in the merger agreement by one of the parties, the non-breaching party may
terminate the merger agreement if the breach has not been cured within 20
business days after receipt of notice by the breaching party; or
- if the completion of the merger has not occurred by October 31, 2000.
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Notwithstanding the foregoing, a party in material breach of its obligations
or representations and warranties does not have the right to terminate the
merger agreement. Subject to the break-up fees and expense reimbursement
provisions discussed below, the merger agreement will become null and void upon
termination except that no party shall be relieved of liability for breach of
the merger agreement prior to its termination.
If the merger agreement is terminated because of a breach of any party's
representations or warranties or a material breach of the other party's
covenants or agreements, the non-breaching party will receive a cash amount
equal to the aggregate amount of its direct and indirect expenses incurred in
connection with the negotiation and preparation of the merger agreement. If the
merger agreement is terminated because Wit SoundView fails to get the necessary
approval from its shareholders, Wit SoundView must pay a break-up fee of
$13,330,000 in addition to any of E*OFFERING's expenses in connection with the
negotiation and preparation of the merger agreement and related agreements.
Unless each of the merger agreement, the account transfer agreement, the
stock purchase agreement and the strategic alliance agreement are in full force
and effect immediately prior to the closing of the merger, the merger and the
related transactions will not be completed and each such agreement will be
terminated. These agreements will not be terminated, however, if Wit SoundView,
E*OFFERING and E*TRADE consent in writing to the closing of the merger despite
the failure of one or more of the agreements to be in full force and effect
immediately prior to the closing of the merger. In addition, each of the account
transfer agreement, the stock purchase agreement and the strategic alliance
agreement will be terminated upon the termination of the merger agreement unless
otherwise agreed in writing by Wit SoundView, E*OFFERING and E*TRADE.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
Wit SoundView, E*TRADE and E*OFFERING may amend the merger agreement without
any requirement that the stockholders of either party approve the amendment,
unless the amendment has the effect of materially decreasing the consideration
into which E*OFFERING capital stock will be converted. Both E*OFFERING and Wit
SoundView may waive in writing the performance by the other party of
representations, warranties, covenants or other understandings under the merger
agreement and the satisfaction of any conditions to its obligations to close the
transactions.
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STRATEGIC ALLIANCE WITH E*TRADE
In connection with the merger, Wit SoundView has entered into a strategic
alliance with E*TRADE, which owns approximately 27% of E*OFFERING's fully
diluted capital stock. As part of this alliance, Wit SoundView will be the
exclusive source to E*TRADE and its controlled affiliates of equity and equity
related securities offered to retail customers in initial public offerings and
follow-on offerings in the United States. Wit SoundView must exclusively make
available to customers of E*TRADE substantially all securities allocated by Wit
SoundView for retail distribution in any United States public offering of equity
and equity related securities in which it participates as an underwriter or
dealer. The strategic alliance runs through June 30, 2005, at least the first
three years of which will be on an exclusive basis. In addition, Wit Capital
Corporation will transfer substantially all of its online retail brokerage
accounts to E*TRADE.
THE STRATEGIC ALLIANCE AGREEMENT
GENERAL
In connection with the merger, on May 15, 2000, Wit SoundView agreed to
enter into a strategic alliance with E*TRADE, which owns approximately 27% of
E*OFFERING's fully diluted capital stock and will own approximately 9% of Wit
SoundView's fully diluted common stock following completion of the merger and
commencement of the strategic alliance. As part of this alliance, Wit SoundView
will be the exclusive source to E*TRADE and its controlled affiliates of equity
and equity related securities offered to retail customers in initial public
offerings and follow-on offerings in the United States. Conversely, Wit
SoundView must make available exclusively to customers of E*TRADE substantially
all securities allocated to it for retail distribution in any United States
public offering of equity and equity related securities in which it participates
as an underwriter or dealer. In addition, Wit SoundView will transfer
substantially all of its retail brokerage accounts to E*TRADE pursuant to an
account transfer agreement. E*TRADE's retail customers will gain access to a
broad range of products and services currently offered by Wit SoundView, such as
securities research and the opportunity to apply for participation in a range of
Internet and technology-related initial public offerings, follow-on offerings
and private placements. As part of this strategic alliance, E*TRADE and Wit
SoundView will cooperate on joint sales and marketing efforts and will share
trading, customer and research products and data.
EXCLUSIVITY
The exclusivity rights granted under the strategic alliance agreement have a
three-year term, which will be automatically extended on a year-by-year basis
for the fourth and fifth years of the strategic alliance upon the satisfaction
of certain performance standards by Wit SoundView and may also be extended upon
mutual agreement of the parties. Wit SoundView must satisfy the performance
standards during a one-year measurement period prior to the third anniversary to
maintain the exclusivity rights for the fourth year of the strategic alliance.
Wit SoundView must also satisfy the performance standards during a one-year
measurement period prior to the fourth anniversary to maintain the exclusivity
rights for the fifth year of the strategic alliance. These performance standards
are based upon the percentage of initial public offerings during specified
measurement periods that Wit SoundView participates in in various capacities and
the percentage of shares in those offerings that are made available to E*TRADE.
In the event that Wit SoundView fails to satisfy performance standards,
E*TRADE may terminate the exclusivity rights to Wit SoundView, effective as of
July 1, 2003. In the event that the exclusivity rights are extended up to
July 1, 2004, but Wit SoundView subsequently fails to satisfy specified
performance standards, E*TRADE may terminate Wit SoundView's exclusivity rights,
effective as of July 1, 2004. If at any time the exclusivity rights are no
longer in effect under the strategic alliance agreement, Wit SoundView will no
longer be obligated to offer all of its retail securities solely and exclusively
for sale to customers of E*TRADE through E*TRADE and E*TRADE will no longer be
obligated to offer to its customers only those retail shares provided by Wit
SoundView.
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SHARE ALLOCATION
In each United States public offering of equity securities that Wit
SoundView participates in as an underwriter, placement agent, broker-dealer,
selling group member, distributor or otherwise, Wit SoundView must make
available to E*TRADE substantially all of the total number of securities in such
offering that are available to Wit SoundView for retail distribution. E*TRADE
must establish commercially reasonable criteria for the allocation to retail
brokerage accounts of securities made available by Wit SoundView to E*TRADE and
must undertake commercially reasonable steps to maximize share retention by its
retail customers of securities offered by Wit SoundView for at least thirty
(30) days, subject to applicable regulatory requirements.
E*TRADE will receive dealer concessions in connection with registered
offerings in which Wit SoundView is an underwriter. E*TRADE's percentage of
dealer concessions will vary depending upon the number of shares allocated to
its customers and whether Wit SoundView participates as a lead managing
underwriter.
Wit SoundView will also be the exclusive source of private placements for
E*TRADE in terms being negotiated by the parties for inclusion in an addendum to
the strategic alliance agreement. To the extent that the parties are unable to
agree upon the terms and conditions of the addendum, any disagreements will be
resolved by a special committee established pursuant to the terms of the
strategic alliance agreement.
CHANGE IN CONTROL OF E*TRADE
In the event that there is a change in control of E*TRADE while the
exclusivity rights are in effect and E*TRADE's successor does not assume
E*TRADE's obligations under the strategic alliance or thereafter materially
breaches the exclusivity obligations, Wit SoundView will have the right to
provide E*TRADE's successor with securities for offering to its retail customers
for a period of two years. The right to provide securities for sale to E*TRADE's
customers will be non-exclusive and Wit SoundView will not be the exclusive
provider of retail securities to the customers of E*TRADE's successor. In
addition, E*TRADE's successor will pay to Wit SoundView liquidated damages of
$160 million reduced by $5 million at the end of each calendar month, commencing
the month of the merger closing and continuing until the amount equals
$100 million. Wit SoundView will also receive the shares of its common stock
remaining in the special escrow fund established pursuant to the merger
agreement.
CHANGE IN CONTROL OF WIT SOUNDVIEW
In the event that there is a change in control of Wit SoundView while the
exclusivity rights are in effect and Wit SoundView's successor does not assume
Wit SoundView's obligations under the strategic alliance or materially breaches
its exclusivity obligations, Wit SoundView's successor will continue to offer
securities to customers of E*TRADE on a non-exclusive basis and E*TRADE will not
be obligated to use Wit SoundView's successor as the exclusive provider of
retail securities to the customers of E*TRADE. In addition, Wit SoundView's
successor will pay to E*TRADE liquidated damages of $75 million, reduced by
$2,083,000 at the end of each calendar month commencing the month of the merger
closing and continuing until the amount equals $50 million. Finally, E*TRADE
will receive the shares of Wit SoundView common stock that are remaining in the
special escrow fund established pursuant to the merger agreement, free and clear
of all liens, encumbrances and claims.
ACCOUNT TRANSFER AGREEMENT
On May 15, 2000, E*TRADE and Wit SoundView entered into an account transfer
agreement pursuant to which E*TRADE will acquire and assume from Wit Capital
Corporation all right, title and interest in, and to, substantially all retail
brokerage accounts maintained by Wit Capital Corporation as of the date of
closing the agreement and all related properties and rights in and to such
retail brokerage
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accounts. Wit Capital Corporation will transfer, or cause to be transferred, to
the custody of E*TRADE, all fully-paid securities of each customer who maintains
a retail Wit Capital Corporation brokerage account and who has not objected to
the transfer.
The agreement contains standard representations and warranties of the
parties. Neither party is obligated to complete the account transfer agreement
if the merger agreement, strategic alliance agreement and stock purchase
agreement are not in full force and effect at the time of closing.
COMMON STOCK WARRANT
At the time the strategic alliance agreement comes into effect, Wit
SoundView will issue to E*TRADE a warrant to purchase up to two million shares
of Wit SoundView's common stock at a purchase price of $10.25 per share, the
fair market value of the common stock on the last trading day immediately
preceding the date the strategic alliance agreement was signed. E*TRADE may
exercise the warrant to purchase up to 1 million shares of Wit SoundView's
common stock over the course of the fourth year of the strategic alliance
provided that the exclusivity rights have been in effect for the first three
years of the strategic alliance and are continuing for the fourth year and
E*TRADE has complied with its exclusivity obligations. If the exclusivity rights
have been in effect for the first four years of the strategic alliance and are
continuing for the fifth year and E*TRADE has complied with its exclusivity
obligations, then E*TRADE may purchase up to an additional one million shares
over the course of the fifth year of the strategic alliance.
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OTHER AGREEMENTS RELATED TO THE TRANSACTIONS
VOTING AGREEMENT AMONG WIT SOUNDVIEW AND E*OFFERING'S SECURITYHOLDERS
On May 15, 2000, nine securityholders of E*OFFERING representing
approximately 78% of the voting power of E*OFFERING's capital stock entered into
a voting agreement with Wit SoundView. Under the terms of the voting agreement,
each of the E*OFFERING securityholders agreed to vote, and granted to Wit
SoundView an irrevocable proxy to vote, all of their shares of E*OFFERING's
capital stock in favor of the merger with Wit SoundView and against any other
competing proposal or offer to buy all or a substantial part of the business or
properties of E*OFFERING. The E*OFFERING securityholders also agreed to vote,
and granted to Wit SoundView an irrevocable proxy to vote, against any action,
proposal or agreement that would delay, impede, frustrate, prevent or nullify
the merger agreement or the satisfaction of the conditions to the merger.
E*TRADE, General Atlantic Partners and Softbank, who are three of the
shareholders that are parties to the voting agreement, also consented to a
three-year transfer restriction on the shares of Wit SoundView common stock to
be received by them in the merger and agreed to place a portion of those shares
in an escrow fund described below.
VOTING AGREEMENT AMONG E*OFFERING AND WIT SOUNDVIEW'S SECURITYHOLDERS
On May 15, 2000, six securityholders of Wit SoundView representing
approximately 32% of the voting power of Wit SoundView's capital stock entered
into a voting agreement with E*OFFERING. Each of these securityholders agreed to
vote, and granted to E*OFFERING and E*TRADE irrevocable proxies to vote, all of
its shares of Wit SoundView's capital stock in favor of the merger with
E*OFFERING. They also agreed to vote, and granted to E*OFFERING and E*TRADE
irrevocable proxies to vote, against any action, proposal or agreement that
would delay, impede, frustrate, prevent or nullify the merger agreement or the
satisfaction of the conditions to the merger.
ESCROW AGREEMENT
Prior to the consummation of the merger, Wit SoundView, E*TRADE, as agent
for the shareholders of E*OFFERING, and an escrow agent, will enter into an
escrow agreement. Pursuant to the merger agreement, Wit SoundView will deposit
10% of the shares of common stock to be issued in the merger into an escrow fund
on behalf of the shareholders of E*OFFERING. The escrow fund may be used to
indemnify Wit SoundView and its officers, directors, agents and employees for
damages arising out of any misrepresentation or breach of, or default in
connection with, any of the representations, warranties, covenants and
agreements given or made by E*OFFERING in the merger agreement. The escrow agent
will hold the escrow shares and invest any cash dividends or distributions on
these escrow shares, if any, as directed by E*TRADE. If requested by E*TRADE,
the escrow agent will deliver to E*TRADE a proxy authorizing E*TRADE to exercise
voting or consent authority in respect of the escrow shares. The escrow
agreement will terminate after one year with respect to any claims not made
prior to that time and the escrow agent will deliver the remaining escrow shares
to the shareholders of E*OFFERING.
STANDSTILL AGREEMENT
On May 15, 2000, Wit SoundView and E*TRADE entered into a standstill
agreement, pursuant to which both parties agreed not to purchase, acquire or
beneficially own an aggregate of 19.9% or more of any class of voting securities
of the other party for a period of eighteen months or, if the merger is
consummated, six years and six months after the completion of the merger. Both
parties also agreed not to make or in any way participate in any proxy
solicitation or election contest of the other party or to purchase all or
substantial portions of the assets of the other party. The agreement prohibits
any actions by either party that would result in or encourage a third party's
acquisition or control of the other party.
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STOCK PURCHASE AGREEMENT
On May 15, 2000, E*TRADE, certain affiliates of General Atlantic Partners
and Wit SoundView entered into a stock purchase agreement, pursuant to which
E*TRADE and General Atlantic Partners each agreed to purchase two million shares
of Wit SoundView's common stock. The purchase price of the shares is $10.25 per
share, the closing price of Wit SoundView's common stock on the last trading day
before the date of the merger agreement. The agreement contains customary
representations and warranties and provides E*TRADE and General Atlantic
Partners with certain piggyback and demand registration rights. As a condition
to closing, the merger agreement, the account transfer agreement and the
strategic alliance agreement must all be in full force and effect.
SPECIAL ESCROW FUND
Within five business days after the merger is completed, Wit SoundView will
deposit 25% of the shares of common stock that will be issued in the merger to
E*TRADE, General Atlantic Partners, Softbank Corp. and the entities controlled
by them, into a special escrow fund. One thirty-sixth of the shares deposited
into this escrow fund will be released on the last business day of each calendar
month following the effectiveness of the merger. In the event that there is a
change in control of E*TRADE and its successor entity does not assume E*TRADE's
obligations under the strategic alliance agreement, then all shares remaining in
the special escrow account will be surrendered to Wit SoundView for
cancellation. If there is a change in control of Wit SoundView and the successor
does not assume Wit SoundView's obligations under the strategic alliance
agreement, then all shares remaining in the special escrow fund will be released
to the E*OFFERING shareholders on whose behalf the shares were deposited.
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SELECTED HISTORICAL FINANCIAL DATA OF WIT SOUNDVIEW
The following selected historical financial data of Wit SoundView for the
period from March 27, 1996 (inception) to December 31, 1996, for the years ended
December 31, 1997, 1998 and 1999 and for the three months ended March 31, 1999
have been derived from Wit SoundView's consolidated financial statements, which
have been audited by Arthur Andersen LLP, independent public accountants, and
are incorporated by reference in this proxy statement/prospectus. The selected
historical financial data for the three months ended March 31, 2000 have been
derived from Wit SoundView's unaudited consolidated financial statements. In our
opinion, such unaudited data includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the information set
forth therein. The results of operations for the three months ended March 31,
2000 are not necessarily indicative of results to be expected for any future
period. All per share and weighted average share information has been adjusted
to reflect the Wit SoundView 7 for 10 reverse stock split effected June 2, 1999.
The selected historical consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes thereto
and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Wit SoundView," which are incorporated by reference in
this proxy statement/prospectus.
52
<PAGE>
STATEMENT OF OPERATIONS DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 27,
1996
(INCEPTION)
THREE MONTHS ENDED YEAR ENDED TO
MARCH 31, DECEMBER 31, DECEMBER 31,
----------------------- ---------------------------------- ------------
2000 1999 1999 1998 1997 1996
----------- --------- ---------- --------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Investment banking.............. $ 60,349 $ 3,122 $ 30,270 $ 1,515 $ 43 $ --
Brokerage....................... 36,525 434 7,088 295 10 --
Interest and other.............. 9,714 347 11,260 228 193 41
---------- --------- ---------- --------- --------- ---------
Total revenues................ 106,588 3,903 48,618 2,038 246 41
---------- --------- ---------- --------- --------- ---------
EXPENSES:
Compensation and benefits....... 64,942 6,558 39,014 4,444 1,550 378
Professional services........... 2,277 681 4,953 878 330 283
Brokerage and clearance......... 6,197 261 5,347 186 6 2
Data processing and
communications................ 1,772 300 3,449 625 238 50
Other expenses.................. 11,581 1,003 16,198 4,699 1,115 1,102
---------- --------- ---------- --------- --------- ---------
Total expenses................ 86,769 8,803 68,961 10,832 3,239 1,815
---------- --------- ---------- --------- --------- ---------
Net income (loss) before income
tax provision and equity in
net loss of affiliates........ 19,819 (4,900) (20,343) (8,794) (2,993) (1,774)
Provision for income taxes...... 10,608 -- -- -- -- --
---------- --------- ---------- --------- --------- ---------
Net income (loss) before
equity in net loss of
affiliates.................. 9,211 (4,900) (20,343) (8,794) (2,993) (1,774)
Equity in net loss of
affiliates.................... (1,710) -- (560) -- -- --
---------- --------- ---------- --------- --------- ---------
Net income (loss)............. $ 7,501 $ (4,900) $ (20,903) $ (8,794) $ (2,993) $ (1,774)
========== ========= ========== ========= ========= =========
NET INCOME (LOSS) PER SHARE:
Basic........................... $ 0.10 $ (0.67) $ (0.52) $ (1.23) $ (0.41) $ (0.33)
Diluted......................... 0.08 (0.67) (0.52) (1.23) (0.41) (0.33)
WEIGHTED AVERAGE SHARES USED IN
THE COMPUTATION OF NET LOSS
PER SHARE:
Basic........................... 72,997,204 7,266,428 39,909,794 7,140,123 7,303,013 5,378,167
Diluted......................... 98,085,755 7,266,428 39,909,794 7,140,123 7,303,013 5,378,167
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------------------------
2000 1999 1998 1997 1996
----------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities readily
convertible to cash......................... $113,445 $126,916 $18,868 $1,651 $ 750
Total assets.................................. 627,247 163,618 22,296 5,837 2,655
Stockholders' equity.......................... 484,162 144,402 20,608 4,859 1,480
</TABLE>
53
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF E*OFFERING
The following selected historical financial data of E*OFFERING for the
period from November 13, 1998 (Inception) to September 30, 1999 have been
derived from E*OFFERING's consolidated financial statements, which have been
audited by Deloitte & Touche LLP, independent auditors, and are included
elsewhere in this proxy/statement prospectus. The selected historical financial
data for the six months ended March 31, 2000 and for the period from
November 13, 1998 (Inception) to March 31, 1999 have been derived from
E*OFFERING's unaudited consolidated financial statements. In E*OFFERING's
opinion, such unaudited data includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the information set
forth therein. The results of operations for the six months ended March 31, 2000
and for the period from November 13, 1998 (Inception) to March 31, 1999 are not
necessarily indicative of results to be expected for any future period. The
selected historical consolidated financial data should be read in conjunction
with the consolidated financial statements and related notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of E*OFFERING," which are included elsewhere in this proxy
statement/prospectus.
54
<PAGE>
STATEMENTS OF OPERATIONS DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
NOVEMBER 13, 1998 NOVEMBER 13, 1998
SIX MONTHS ENDED (INCEPTION) TO (INCEPTION) TO
MARCH 31, 2000 MARCH 31, 1999 SEPTEMBER 30, 1999
---------------- ----------------- ------------------
<S> <C> <C> <C>
REVENUES:
Investment banking.......................... $ 19,666 $ -- $ 7,312
Brokerage................................... 14,440 -- 1,208
Interest and other.......................... 805 61 338
--------- ---------- ---------
Total revenues............................ 34,911 61 8,858
--------- ---------- ---------
EXPENSES:
Compensation and benefits................... 24,261 347 10,973
Professional services....................... 3,376 58 1,862
Brokerage and clearance..................... 1,535 -- 1,005
Data processing and communications.......... 1,357 9 1,158
Other expenses.............................. 10,842 453 7,193
--------- ---------- ---------
Total expenses............................ 41,371 867 22,191
--------- ---------- ---------
Net loss.................................. (6,460) (806) (13,333)
Accretion related to Series B preferred
stock..................................... -- -- 291
Series C preferred stock dividend........... 689 -- --
--------- ---------- ---------
Net loss applicable to common
shareholders............................ $ (7,149) $ (806) $ (13,624)
========= ========== =========
NET LOSS PER COMMON SHARE:
Basic..................................... $ (1.68) $ (0.19) $ (3.04)
Diluted................................... (1.68) (0.19) (3.04)
WEIGHTED AVERAGE SHARES USED IN THE
COMPUTATION OF NET LOSS PER COMMON SHARE:
Basic..................................... 4,248,509 4,142,050 4,484,005
Diluted................................... 4,248,509 4,142,050 4,484,005
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999 SEPTEMBER 30, 1999
-------------- -------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities
readily convertible to cash............. $19,052 $10,015 $ 1,735
Total assets.............................. 50,064 10,888 14,025
Stockholders' equity (deficiency)......... 30,687 10,778 (1,235)
</TABLE>
55
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The pro forma combined statements of operations data presented below for the
year ended December 31, 1999 assume that both the merger with E*OFFERING and the
merger with SoundView Technology Group, Inc., which was completed on
January 31, 2000, occurred on January 1, 1999. The pro forma combined statements
of operations data presented below for the three month period ended March 31,
2000 assume that the merger with E*OFFERING occurred on January 1, 2000 and
includes the results of SoundView Technology Group, Inc. from January 31, 2000,
the closing date of that merger. The pro forma combined balance sheet data
presented below assumes that the merger with E*OFFERING occurred as of the
respective balance sheet date. In addition, the pro forma statements of
operations and statement of financial condition also assume that certain
agreements that are contingent upon the closing of the merger with E*OFFERING
occurred as of the beginning of the period presented or as of the date
indicated. Those agreements include the strategic alliance agreement, the
account transfer agreement and the stock purchase agreement, each of which is
discussed in this proxy statement/prospectus. You should not assume that Wit
SoundView, E*OFFERING and SoundView would have achieved the unaudited pro forma
combined results if they had actually been combined during the periods shown.
As consideration for the merger with E*OFFERING, Wit SoundView will acquire
the outstanding shares of E*OFFERING in exchange for up to 28,486,247 newly
issued shares of Wit SoundView common stock and options and warrants to purchase
shares of Wit SoundView common stock. The merger will be accounted for using the
purchase method of accounting. In addition to the pro forma effect of the merger
with E*OFFERING, certain transactions that are contingent upon the closing of
the merger are also reflected in the pro forma information. The first of such
agreements, the strategic alliance agreement with E*TRADE provides that Wit
SoundView will be the exclusive source of retail equity or equity related
securities in initial public offerings and follow-on offerings to the
2.6 million retail customers of E*TRADE. As consideration for this agreement,
Wit SoundView will issue 4,025,948 shares of common stock to E*TRADE and a
warrant to purchase an additional two million shares, exercisable under certain
circumstances after three years, and will transfer to E*TRADE substantially all
of its retail brokerage accounts pursuant to the account transfer agreement. In
connection with the distribution of such equity securities to customers of
E*TRADE, E*TRADE will receive a portion of the dealer selling concession
received by Wit SoundView. E*TRADE's percentage of such revenue will depend on
the number of shares allocated to E*TRADE's customers and whether Wit SoundView
participates as a lead managing underwriter or in another capacity. Accordingly,
the pro forma results of operations have been adjusted to include selling
expense related to the portion of the dealer selling concession that would have
been allocated to E*TRADE had the strategic alliance agreement been in effect
during the periods presented.
The pro forma results have not been adjusted to include revenue synergies
that Wit SoundView management believes are attainable and additional revenues
the combined company will receive under the provisions of the strategic alliance
agreement. Those revenues include increased participation in public equity
offerings, increased economics on public equity offerings and commission and
trading revenue from our customers and from order flow from customers of
E*TRADE.
In addition to the strategic alliance agreement, the pro forma information
assumes that the provisions of the account transfer agreement with E*TRADE were
in effect as of January 1, 1999. The account transfer agreement provides for the
transfer of substantially all of Wit SoundView's approximately 125,000 online
retail brokerage accounts to E*TRADE. Accordingly, the revenues and expenses
associated with Wit SoundView's online retail brokerage operations have been
removed from the results of operations reflected in the periods presented.
Expenses removed from the pro forma results represent actual expenses that were
directly related to the online retail brokerage operations. Certain expenses,
including costs of communications and other general and administrative costs,
were not adjusted, as they were not readily identifiable. Additionally, actual
revenues and expenses such as salary and bonus paid to employees of E*OFFERING
whose services will no longer be required by the combined company have not been
adjusted. However, certain non-recurring adjustments to reflect the liabilities
associated with severance of
56
<PAGE>
Wit SoundView and E*OFFERING employees have been reflected in the pro forma
statement of financial condition.
For purposes of the pro forma financial statements, the merger agreement,
the strategic alliance agreement and the account transfer agreement have been
presented as if they are not tax deductible, pending final determination of
their tax status.
The pro forma data also assumes that the transactions contemplated by the
stock purchase agreement with E*TRADE and certain affiliates of General Atlantic
Partners had been consummated as of the balance sheet date presented. The
agreement provides for the purchase of two million shares of Wit SoundView
common stock by each of E*TRADE and certain affiliates of General Atlantic
Partners for an aggregate purchase price of $41 million or $10.25 per share.
The pro forma combined statements of operations data presented below for the
year ended December 31, 1999 also assume that the merger with SoundView
Technology Group, Inc., which was completed on January 31, 2000, occurred on
January 1, 1999. Under the terms of the merger agreement with SoundView, Wit
SoundView acquired the outstanding shares of SoundView in exchange for
approximately $320 million, consisting of newly issued common stock, options
replacing SoundView options and approximately $22.5 million in cash. The
acquisition was accounted for using the purchase method of accounting. The
excess of cost over the estimated fair value of assets acquired was allocated to
certain identifiable assets and goodwill, a total of approximately $276 million
which is being amortized on a straight line basis over periods of between three
and 20 years.
The unaudited pro forma combined results should be read in conjunction with
the unaudited pro forma combined condensed financial information and related
notes and the historical consolidated financial statements and related notes,
each of which are either included elsewhere in this proxy statement/ prospectus
or incorporated by reference herein, and other financial information pertaining
to Wit SoundView and E*OFFERING, including "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Wit SoundView," which is
incorporated in this proxy statement/prospectus by reference to Wit SoundView's
Form 10-K for 1999, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of E*OFFERING" and "Risk Factors" which
appear elsewhere in this proxy statement/prospectus.
57
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2000 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Investment banking......................................... $ 73,737 $ 102,785
Brokerage.................................................. 41,464 99,773
Gains from firm investments................................ 62 15,331
Asset management fees...................................... 7,833 12,857
Interest and investment income............................. 2,145 6,577
Gain on joint venture...................................... -- 943
Other...................................................... 327 1,165
----------- ----------
Total revenues........................................... 125,568 239,431
----------- ----------
EXPENSES:
Compensation and benefits.................................. 81,947 167,668
Brokerage and clearance.................................... 7,702 21,184
Professional services...................................... 4,293 12,007
Data processing and communications......................... 2,134 7,280
Amortization of intangible assets.......................... 15,087 65,059
Other operating expenses................................... 13,666 38,244
----------- ----------
Total expenses........................................... 124,829 311,442
----------- ----------
Net income (loss) before income tax provision and equity in
net loss of affiliates................................... 739 (72,011)
Provision (benefit) for income taxes....................... 4,015 (7,574)
----------- ----------
Net loss before equity in net loss of affiliates........... (3,276) (64,437)
Equity in net loss of affiliates........................... (1,710) (560)
----------- ----------
Net Loss................................................. $ (4,986) $ (64,997)
=========== ==========
NET LOSS PER SHARE:
Basic.................................................... $ (0.05) $ (0.80)
Diluted.................................................. (0.05) (0.80)
WEIGHTED AVERAGE SHARES USED IN THE COMPUTATION OF NET LOSS
PER SHARE:
Basic.................................................... 102,852,991 81,130,273
Diluted.................................................. 102,852,991 81,130,273
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------
(UNAUDITED)
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash, cash equivalents and securities readily convertible to
cash...................................................... $ 164,913
Total assets................................................ 1,021,293
Stockholders' equity........................................ 831,193
</TABLE>
58
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables reflect the historical net loss and book value per
share of Wit SoundView common stock and the historical net loss and book value
per share of E*OFFERING common stock in comparison with the unaudited pro forma
net income and book value per share after giving effect to the proposed merger
of Wit SoundView with E*OFFERING. The information presented in the following
tables should be read in conjunction with the unaudited pro forma condensed
combined financial statements included in this proxy statement/prospectus and
the historical consolidated financial statements and related notes of Wit
SoundView and E*OFFERING which are included elsewhere in this proxy
statement/prospectus.
<TABLE>
<CAPTION>
PERIODS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- -----------------------------------------
2000 1999 1999 1998 1997 1996(5)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
WIT SOUNDVIEW HISTORICAL PER SHARE DATA:
Basic net income (loss) per share(2).................. $0.10 $(0.67) $(0.52) $(1.23) $(0.41) $(0.33)
Fully diluted net income (loss) per share(2).......... 0.08 (0.67) (0.52) (1.23) (0.41) (0.33)
Historical book value per share(1).................... 5.38 0.77 1.97 0.68 0.40 0.26
Historical book value per share--diluted(3)........... 5.27 0.95 2.66 0.87 0.68 0.51
</TABLE>
<TABLE>
<CAPTION>
PERIODS ENDED
MARCH 31,
------------------- PERIOD ENDED
2000 1999(7) SEPTEMBER 30, 1999(6)
-------- -------- ---------------------
<S> <C> <C> <C>
E*OFFERING HISTORICAL PER SHARE DATA:
Basic net loss per share(2)................................. $(1.68) $(0.19) $(3.04)
Diluted net loss per share(2)............................... (1.68) (0.19) (3.04)
Historical book value per share(1).......................... 1.73 1.27 (0.13)
Historical book value per share--diluted(3)................. 1.50 1.10 0.13
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
WIT SOUNDVIEW AND E*OFFERING PRO FORMA COMBINED PER SHARE
DATA:
Basic net loss per Wit SoundView share(2)................... $(0.05) $(0.80)
Basic net loss per equivalent E*OFFERING share(4)........... (0.03) (0.54)
Diluted net loss per Wit SoundView share(2)................. (0.05) (0.80)
Diluted net loss per equivalent E*OFFERING share(4)......... (0.03) (0.54)
Book value per Wit SoundView share(1)....................... 6.91 4.13
Book value per equivalent E*OFFERING share(4)............... 4.66 2.79
Book value per Wit SoundView share--diluted(3).............. 6.32 4.03
Book value per equivalent E*OFFERING share(4)............... 4.26 2.72
</TABLE>
------------------------
(1) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock outstanding and considering
the conversion of Wit SoundView's Series A, B, C and D preferred stock into
Wit SoundView Class C common stock and Wit SoundView Series E preferred
stock into Wit SoundView Class B common stock upon completion of Wit
SoundView's initial public offering in June 1999. All shares of Wit
SoundView Class C common stock were automatically converted into an equal
number of shares of Wit SoundView common stock on December 7, 1999. The pro
forma combined book value per share is computed by dividing pro forma
stockholders' equity by the pro forma number of shares of Wit SoundView
common stock outstanding.
59
<PAGE>
(2) Basic net income (loss) per share is computed using the weighted average
number of shares of common stock outstanding during the period. Diluted net
income (loss) per share is computed using the weighted average number of
common and common share equivalents outstanding during the period. Common
equivalent shares consist of the incremental common shares issuable upon
conversion of the convertible preferred stock and shares issuable upon the
exercise of stock options and warrants. In periods in which a net loss is
reported, common stock equivalents are not included in the calculation of
diluted net loss per share as they are anti-dilutive and would result in a
reduction of net loss per share.
(3) The historical book value per share diluted assumes the exercise of all
outstanding options and warrants.
(4) The equivalent pro forma combined per share data for E*OFFERING is
calculated by multiplying the pro forma combined share amounts by the
assumed exchange ratio of 0.674237515 shares of Wit SoundView common stock
for each share of E*OFFERING common stock.
(5) Period from March 27, 1996 (inception) through December 31, 1996 for Wit
SoundView.
(6) Period from November 13, 1998 (inception) through September 30, 1999 for
E*OFFERING.
(7) Period from November 13, 1998 (inception) through March 31, 1999 for
E*OFFERING.
60
<PAGE>
WIT SOUNDVIEW'S 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. By combining the Wit
Capital and SoundView research coverage and distribution capabilities, we have
significantly expanded our investment banking activities.
For a more complete description of Wit SoundView's business please see the
section entitled "Business" in Wit SoundView's annual report filed in Wit
SoundView's Form 10-K for 1999.
61
<PAGE>
DESCRIPTION OF WIT SOUNDVIEW STOCK
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Co. is the transfer agent and registrar for
our common stock.
GENERAL
Our authorized capital stock consists of 500 million shares of common stock,
$.01 par value, 75 million shares of Class B common stock, $.01 par value and
30 million shares of preferred stock, $.001 par value. As of June 30, 2000 there
are 78,797,470 shares of common stock and 11,666,666 shares of Class B common
stock outstanding, assuming no exercise of outstanding stock options and
warrants. There are outstanding options and warrants to purchase an aggregate of
23,454,237 shares of common stock and Class B common stock.
The following summary of the terms and provisions of our capital stock does
not purport to be complete. Reference should be made to our amended and restated
certificate of incorporation and our by-laws, and to applicable law, for the
complete description of the terms and provisions of our capital stock.
COMMON STOCK
The holders of common stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. The
holders of the common stock are entitled to such dividends as may be declared in
the discretion of the board of directors out of funds legally available
therefor, subject to the preferential dividend rights of any shares of preferred
stock. See "The Merger--Dividend Policy." Upon liquidation, holders of common
stock are entitled to share ratably in the remaining assets after payment or
provision for all liabilities and any preferential liquidation rights of any
preferred stock. The holders of common stock have no preemptive rights to
purchase shares of our stock. Shares of common stock are not subject to any
redemption provisions, and shares of common stock are not convertible into any
other securities. All outstanding shares of common stock are fully paid and
nonassessable. The shares of our common stock we are issuing in the merger will
also be fully paid and nonassessable when we receive the appropriate number of
shares of E*OFFERING common stock in exchange for shares of our common stock.
CLASS B COMMON STOCK
The holders of Class B common stock are generally not entitled to vote
except as required by law. The holders of the Class B common stock are entitled
to any dividends declared by our board of directors which are payable to holders
of common stock on the same terms and in the same form as those dividends paid
to holders of common stock. Upon liquidation, holders of Class B common stock
are entitled to share ratably in the remaining assets after payment or provision
for all liabilities and any preferential liquidation rights of any preferred
stock. The Class B common stock will be treated in an identical manner as the
common stock with respect to any reclassification, recapitalization, stock split
or similar transaction and in any merger, consolidation or share exchange. The
holders of Class B common stock have no preemptive rights to purchase shares of
our stock. If any person or entity other than Goldman Sachs or any of its
affiliates becomes the beneficial owner of shares of Class B common stock, these
shares will automatically convert into an equal number of shares of common
stock. Shares of Class B common stock are not subject to any redemption
provisions. All outstanding shares of Class B common stock are fully paid and
non-assessable.
PREFERRED STOCK
Our amended and restated certificate of incorporation provides for
30 million authorized shares of preferred stock, none of which are outstanding.
The existence of authorized but unissued preferred stock
62
<PAGE>
may enable the board of directors to render more difficult or to discourage an
attempt to obtain control of us by means of a merger, tender offer, proxy
contest or otherwise. For example, if in the due exercise of its fiduciary
obligations, the board of directors were to determine that a takeover proposal
is not in our best interests, the board of directors could cause shares of
preferred stock to be issued without stockholder approval in one or more private
offerings or other transactions that might dilute the voting or other rights of
the proposed acquirer or insurgent stockholder group. In this regard, the
amended and restated certificate of incorporation grants the board of directors
broad power to establish the rights and preferences of authorized and unissued
preferred stock. The issuance of shares of preferred stock pursuant to the board
of directors' authority described above could decrease the amount of earnings
and assets available for distribution to holders of shares of common stock and
adversely affect the rights and powers, including voting rights, of such holders
and may have the effect of delaying, deterring or preventing a change in control
of Wit SoundView. The board of directors currently does not intend to seek
stockholder approval prior to any issuance of preferred stock, unless otherwise
required by law.
REGISTRATION RIGHTS
Goldman Sachs, Capital Z Partners, Draper Fisher Jurvetson and certain other
stockholders, or their respective transferees, are entitled to certain
registration rights with respect to the registrable securities. These rights are
provided under the terms of the registrable securities and an agreement between
us and the holders of these registrable securities. This agreement provides
demand registration rights under the Securities Act beginning in December 1999.
These stockholders may require that we file up to an aggregate of six
registration statements, subject to certain conditions. In addition, the holders
are entitled to require us to include their registrable securities in future
registration statements we file under the Securities Act, often referred to as
"piggyback" registration rights. The holders are also entitled to require us to
register their registrable securities on a registration statement on Form S-3.
However, holders of these shares will be restricted from exercising such rights
within six months after the filing of any registration statement if the
registration of shares of common stock pursuant to the exercise of demand
registration rights, piggyback registration rights or S-3 registration rights
would result in such shares becoming freely tradable without restriction under
the Securities Act immediately upon the effectiveness of such registration
subject to any lock-up agreements we have with these stockholders. We are
required to bear substantially all registration and selling expenses in
connection with the above-described registrations, except for underwriting
discounts, income and transfer taxes (if any), selling expenses and the fees and
expenses of more than one counsel representing the holders of the registrable
securities. These registration rights are transferable in certain circumstances
and may be amended or waived only with our written consent and the consent of a
specified number of holders of the registrable securities.
STOCKHOLDER RIGHTS PLAN
Each share of our common stock includes one voting class right ("Voting
Class Right") and each share of Class B common stock includes one nonvoting
class right ("Class B Common Right"). The Voting Class Rights and the Class B
Common Rights are referred to collectively herein as the "Rights." Each Voting
Class Right entitles its registered holder to purchase from us a unit consisting
of one one-hundredth of a share (a "Fractional Share") of Class 1 Series A
Junior Participating Preferred Stock, par value $.001 per share, and each
Class B Common Right entitles the registered holder to purchase from us a unit
consisting of a Fractional Share of Class 2 Series A Junior Participating
Preferred Stock, par value $.001 per share (the Class 1 Series A Junior
Participating Preferred Stock and the Class 2 Series A Junior Participating
Preferred Stock, collectively referred to as the "Preferred Shares"), at a
purchase price of $40.00 per Fractional Share, subject to adjustment (the
"Purchase Price").
Initially, the Voting Class Rights will be attached to all certificates
representing outstanding shares of common stock and the Class B Common Rights
will be attached to all certificates representing outstanding shares of Class B
common stock, and no separate certificates for the Rights ("Rights
Certificates") will be
63
<PAGE>
distributed. The Voting Rights will separate from the common stock and the
Class B Common Rights will separate from the Class B common stock and a
"Distribution Date" will occur, with certain exceptions, upon the earlier of
(i) ten days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of common stock (the date of the announcement being the
"Stock Acquisition Date"), or (ii) ten business days following the commencement
of a tender offer or exchange offer that would result in a person's becoming an
Acquiring Person.
However, as long as Capital Z Financial Services Fund II, L.P., together
with all of its affiliates and associates, does not become the beneficial owner
of 25% or more of all outstanding shares of common stock of all classes
(assuming the exercise of all outstanding options, rights and warrants to
acquire our common stock), Capital Z, together with its affiliates and
associates, shall not be or become an Acquiring Person. Furthermore, as long as
The Goldman Sachs Group, Inc., together with all its affiliates and associates,
does not become the beneficial owner of 25% or more of all such outstanding
shares of common stock, Goldman Sachs, together with its affiliates and
associates, shall not be or become an Acquiring Person. In certain
circumstances, the Distribution Date may be delayed by our board of directors.
Certain inadvertent acquisitions will not result in a person's becoming an
Acquiring Person if the person promptly divests itself of sufficient common
stock.
Until the Distribution Date, (a) the Voting Class Rights will be evidenced
by the common stock certificates and the Class B Common Rights will be evidenced
by the Class B common stock certificates and both will be transferred only with
such common stock certificates and such Class B common stock certificates, as
the case may be, (b) common stock certificates and Class B common stock
certificates will contain a notation incorporating the Rights Agreement by
reference and (c) the surrender for transfer of any certificate for common stock
will also constitute the transfer of the Rights associated with either the
common stock or the Class B common stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on September 30, 2009, unless earlier redeemed or
exchanged by us as described below.
As soon as practicable after the Distribution Date, Rights Certificates will
be mailed to holders of record of common stock and Class B common stock as of
the close of business on the Distribution Date and, from and after the
Distribution Date, the separate Rights Certificates alone will represent the
Rights. All shares of common stock and Class B common stock issued prior to the
Distribution Date will be issued with the appropriate Rights. Shares of common
stock and Class B common stock issued after the Distribution Date in connection
with certain employee benefit plans or upon conversion of certain securities
will be issued with appropriate Rights. Except as otherwise determined by the
board of directors, no other shares of common stock or Class B common stock
issued after the Distribution Date will be issued with Rights.
In the event (a "Flip-In Event") that a person becomes an Acquiring Person
(except pursuant to a tender or exchange offer for all outstanding shares of
common stock at a price and on terms that a majority of the independent
directors of our board of directors determines to be fair to and otherwise in
our best interests and the best interests of our stockholders (a "Permitted
Offer")), each holder of a Voting Class Right will thereafter have the right to
receive, upon exercise of such Right, a number of shares of our common stock and
each holder of a Class B Common Right will thereafter have the right to receive,
upon exercise of such Right, a number of shares of Class B common stock (or, in
certain circumstances, cash, property or other securities) having a Current
Market Price (as defined in the Rights Agreement) equal to approximately two
times the exercise price of the Right. Notwithstanding the foregoing, following
the occurrence of any Triggering Event (as defined below), all Rights that are,
or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by or transferred to an Acquiring Person (or by certain
related parties) will be null and void in the circumstances set forth in the
Rights Agreement.
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However, the Rights are not exercisable following the occurrence of any Flip-In
Event until such time as the Rights are no longer redeemable by us as set forth
below.
In the event (a "Flip-Over Event") that, at any time from and after the time
an Acquiring Person becomes such, (i) our company is acquired in a merger or
other business combination transaction (other than certain mergers that follow a
Permitted Offer), or (ii) 50% or more of our assets or earning power is sold or
transferred, each holder of a Right (except Rights that are voided as set forth
above) shall thereafter have the right to receive, upon exercise, a number of
shares of common stock of the acquiring company having a Current Market Price
equal to two times the exercise price of the Right. Flip-In Events and Flip-Over
Events are collectively referred to as "Triggering Events."
The number of outstanding Rights associated with a share of common stock or
Class B common stock, or the number of Fractional Shares of Preferred Shares
issuable upon exercise of a Right and the Purchase Price, are subject to
adjustment in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the common stock or Class B common stock occurring prior to
the Distribution Date. The Purchase Price payable, and the number of Fractional
Shares of Shares or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution in the
event of certain transactions affecting the Preferred Shares.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional shares of Preferred Shares that are not integral multiples
of a Fractional Share are required to be issued and, in lieu thereof, an
adjustment in cash may be made based on the market price of the Preferred Shares
on the last trading date prior to the date of exercise. Alternatively,
certificates of scrip or warrants may be issued entitling the holders thereof to
receive a full share in return for such scrip or warrants aggregating a full
share. Pursuant to the Rights Agreement, we reserve the right to require prior
to the occurrence of a Triggering Event that, upon any exercise of Rights, a
predetermined number of Rights be exercised so that only whole shares of
Preferred Shares will be issued.
At any time until the date of the first public announcement of the
occurrence of a Flip-In Event, we may redeem the Rights in whole, but not in
part, at a price of $.01 per Right, payable, at our option, in cash, shares of
our common stock, in the case of holders of Voting Class Rights, or Class B
common stock, in the case of holders of Class B Common Rights, or such other
consideration as our board of directors may determine. Immediately upon the
effectiveness of the action of our board of directors ordering redemption of the
Rights, the Rights will terminate and the only right of the holders of Rights
will be to receive the $.01 redemption price. In the event that prior to the
Distribution Date, the Class B common stock is converted, in whole or in part,
into our common stock, the Class B Common Rights attached to the shares of
Class B common stock will be converted to Voting Class Rights pursuant to a
conversion ratio equivalent to the conversion ratio used for converting the
Class B common stock to common stock. In the event that on or after the
Distribution Date, all outstanding shares of Class B common stock are converted
into shares of common stock, all Class B Common Rights then outstanding will be
converted to Voting Class Rights pursuant to a conversion ratio equivalent to
the conversion ratio used for converting the Class B common stock to common
stock.
At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of our common stock
then outstanding or the occurrence of a Flip-Over Event, we may exchange the
Rights (other than Rights owned by an Acquiring Person or an Affiliate or an
associate of an Acquiring Person, which will have become void), in whole or in
part, at an exchange ratio of one share of common stock, in the case of holders
of Voting Class Rights, or Class B common stock, in the case of holders of
Class B Common Rights, and/or other equity securities deemed to have the same
value as one share of common stock per Voting Class Right, or one share of
Class B common stock per Class B Common Right, subject to adjustment.
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Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder, including, without limitation, the right to vote or to receive
dividends. While the distribution of the Rights should not be taxable to
stockholders or to us, stockholders may, depending upon the circumstances,
recognize taxable income in the event that the Rights become exercisable for our
common stock or Class B common stock (or other consideration) or for the common
stock of the acquiring company as set forth above or are exchanged as provided
in the preceding paragraph.
Other than the redemption price, any of the provisions of the Rights
Agreement may be amended by our board of directors as long as the Rights are
redeemable. Thereafter, the provisions of the Rights Agreement, other than the
redemption price, may be amended by the board of directors in order to cure any
ambiguity, defect or inconsistency, to make changes that do not materially
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person), or to shorten or lengthen any time period under the
Rights Agreement; provided, however, that no amendment to lengthen the time
period governing redemption shall be made at such time as the Rights are not
redeemable.
DELAWARE ANTI-TAKEOVER LAW
Wit SoundView is subject to Section 203 of the DGCL. In general,
Section 203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years following the date the person became an interested stockholder, unless
(with certain exceptions) the "business combination" or the transaction in which
the person became an "interested stockholder" is approved in a prescribed
manner. Generally, a "business combination" includes a merger, asset or stock
sale or other transaction resulting in a financial benefit to the "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns 15% or more of a corporation's outstanding
voting stock or was the owner of 15% or more of a corporation's outstanding
voting stock at any time within the prior three years, other than "interested
stockholders" prior to the time Wit SoundView's common stock was quoted on
Nasdaq. The existence of this provision would be expected to have an
anti-takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging takeover attempts that might result
in a premium over the market price for the shares of common stock held by
stockholders. Because the board of directors of Wit SoundView approved the
merger prior to the execution of the merger agreement, the business combination
that will result from the merger is not prohibited by Section 203.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF E*OFFERING
OVERVIEW
E*OFFERING was incorporated in the state of California in 1998. E*OFFERING
is an Internet investment banking firm that uses the Internet and related
technologies such as electronic mail and multimedia to deliver investment
banking products to online individual investors and institutional clients.
E*OFFERING provides a range of investment banking services, including initial
and follow-on public offering underwriting, private equity agency services,
sales and trading, equity research and financial advisory services.
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E*OFFERING CORP.
STATEMENTS OF OPERATIONS DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
NOVEMBER 13, 1998 NOVEMBER 13, 1998
SIX MONTHS ENDED (INCEPTION) TO (INCEPTION) TO
MARCH 31, 2000 MARCH 31, 1999 SEPTEMBER 30, 1999
---------------- ------------------ -------------------
<S> <C> <C> <C>
REVENUES:
Investment banking.......................... $ 19,666 $ -- $ 7,312
Brokerage................................... 14,440 -- 1,208
Interest income............................. 412 61 272
Other....................................... 393 -- 66
---------- ---------- ----------
Total revenues............................ 34,911 61 8,858
---------- ---------- ----------
EXPENSES:
Compensation and benefits................... 24,261 347 10,973
Brokerage and clearance..................... 1,535 -- 1,005
Marketing and business development.......... 1,983 372 3,080
Amortization of intangible assets and
goodwill.................................. 306 -- 132
Professional services....................... 3,376 58 1,862
Data processing and communications.......... 1,357 9 1,158
Write down of computer software and
equipment................................. -- -- --
Depreciation and amortization............... 1,367 11 903
Technology development...................... 2,825 15 993
Occupancy................................... 1,633 18 528
Other expenses.............................. 2,728 37 1,557
---------- ---------- ----------
Total expenses............................ 41,371 867 22,191
---------- ---------- ----------
Net loss.................................. (6,460) (806) (13,333)
Accretion related to Series B preferred
stock..................................... -- -- 291
---------- ---------- ----------
Series C preferred dividend................. 689 -- --
Net loss applicable to common
shareholders............................ $ (7,149) $ (806) $ (13,624)
========== ========== ==========
NET LOSS PER COMMON SHARE:
Basic................................... $ (1.68) $ (0.19) $ (3.04)
Diluted................................. (1.68) (0.19) (3.04)
WEIGHTED AVERAGE SHARES USED IN THE
COMPUTATION OF NET LOSS PER COMMON
SHARE:
Basic................................... 4,248,509 4,142,050 4,484,005
Diluted................................. 4,248,509 4,142,050 4,484,005
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999 SEPTEMBER 30, 1999
---------------- ------------------ -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities
readily convertible to cash........... $ 19,052 $ 10,015 $ 1,735
Total assets............................ 50,064 10,888 14,025
Stockholders' equity (deficiency)....... 30,687 10,778 (1,235)
</TABLE>
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RESULTS OF OPERATIONS FOR THE PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) THROUGH
MARCH 31, 1999
The period from November 13, 1998 through March 31, 1999 reflects
E*OFFERING's start-up phase. E*OFFERING obtained its broker/dealer license in
April 1999; accordingly, the only revenue reported for such period was interest
income. Expenses for the same period primarily reflect compensation and benefits
and marketing and business development, typically indicative of a business
start-up phase. The management's discussion and analysis that follows will focus
on the periods from November 13, 1998 (Inception) through September 30, 1999 and
from October 1, 1999 through March 31, 2000.
RESULTS OF OPERATIONS FOR THE PERIODS FROM NOVEMBER 13, 1998 (INCEPTION) THROUGH
SEPTEMBER 30, 1999 AND FROM OCTOBER 1, 1999 THROUGH MARCH 31, 2000
REVENUES
Investment banking revenues are primarily derived from the co-management of
public offerings of equity securities and the provision of financial advisory
services. E*OFFERING also receives revenues from its participation in
underwriting syndicates for offerings for which it is not a manager. Investment
banking revenues increased 169% from $7.3 million for the period from
November 13, 1998 (Inception) through September 30, 1999 to $19.7 million for
the period from October 1, 1999 through March 31, 2000. The increase was
primarily attributable to the expansion of E*OFFERING's investment banking and
merger and acquisition capabilities, an increase in the number of public
offerings which E*OFFERING co-managed and/or participated in as an underwriting
or syndicate member as well as favorable market conditions for e-commerce
companies.
Revenues derived from brokerage operations relate to E*OFFERING's
institutional equity business and consist of agency commissions for listed
securities and revenues from principal transactions in NASDAQ market making
activities. Brokerage revenues increased 1095% from $1.2 million for the period
from November 13, 1998 (Inception) through September 30, 1999 to $14.4 million
for the period from October 1, 1999 through March 31, 2000. The increase
resulted from the steady build up of the sales and trading staff, increased
exchange volumes, the hiring of additional research analysts (resulting in an
increase in the number of companies under coverage), an increase in the number
of stocks for which E*OFFERING makes a market, an increase in the number of
public offerings in which E*OFFERING participates as an underwriting member and
an increase in the economic participation in the public offerings which
E*OFFERING co-managed.
Interest income is derived from short term Treasury Bills, cash balances
maintained with E*OFFERING's clearing broker and from interest bearing accounts
and cash equivalents at the bank. Interest income increased 51% from $272,000
for the period from November 13, 1998 (Inception) through September 30, 1999 to
$412,000 for the period from October 1, 1999 through March 31, 2000 due to
increased cash balances resulting from a round of financing in January 2000 and
from the growth in E*OFFERING's investment banking and brokerage revenues.
Other income increased 495% from $66,000 for the period from November 13,
1998 (Inception) to September 30, 1999 to $393,000 for the period from
October 1, 1999 to March 31, 2000. The increase was primarily due to the account
referral fees, which the Company received for new customer accounts referred to
E*TRADE.
EXPENSES
Compensation consists of salaries, bonuses and commissions and benefits
E*OFFERING pays and provides to its employees. Compensation expenses increased
121% from $11 million for the period from November 13, 1998 (Inception) through
September 30, 1999 to $24.3 million for the period from October 1, 1999 through
March 31, 2000. The increase in compensation primarily reflects the increase in
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E*OFFERING's commission based revenues. It also reflects the one time severance
costs associated with the closing of one of E*OFFERING's Newport Beach offices
in November 1999.
Brokerage and clearance expenses primarily consist of fees paid to
independent floor brokers on the New York Stock Exchange for the execution of
E*OFFERING customer agency business and fees paid to E*OFFERING's clearing
broker. Brokerage and clearance expenses increased 53% from $1 million for the
period from November 13, 1998 (Inception) through September 30, 1999 to $1.5
million for the period from October 1, 1999 through March 31, 2000. The increase
reflects the growth in the transactional volume of E*OFFERING's brokerage
operations.
Marketing and business development expenses primarily consist of
promotional, advertising, travel and entertainment expenses. Marketing and
business development expenses decreased 36% from $3.1 million for the period
from November 13, 1998 (Inception) through September 30, 1999 to $2 million for
the period from October 1, 1999 through March 31, 2000. The decrease in
promotional and advertising expenses was due to the fact that E*OFFERING
launched significant branding, promotional and advertising activities during the
period from November 13, 1998 (inception) to September 30, 1999 in an effort to
establish and position itself as a premier Internet investment banking firm.
This decrease was partially offset by an increase in travel and entertainment
expenses related to the expansion of E*OFFERING's brokerage operations and
investment banking business.
Professional service expenses include legal, accounting, agency recruiting
and general consulting fees. Professional service expenses increased 81% from
$1.9 million for the period from November 13, 1998 (Inception) through
September 30, 1999 to $3.4 million for the period from October 1, 1999 through
March 31, 2000. The increase in legal fees was due to E*OFFERING's expansion of
its products and in connection with an aborted initial public offering for which
the Company was going to be the lead manager. The increase in accounting fees
was attributable to the general ledger system conversion, which was completed in
November 1999. The increase in agency recruiting fees resulted from the
expansion of E*OFFERING's investment banking business and the searches for
certain senior management positions. The increase in general consulting fees was
due to E*OFFERING's business growth and the corporate infrastructure necessary
to accommodate such growth.
Data processing and communication expenses primarily reflect the costs of
market data services and telecommunications. Data and communication expenses
increased 17% from $1.2 million for the period from November 13, 1998
(Inception) through September 30, 1999 to $1.4 million for the period from
October 1, 1999 through March 31, 2000. The increase in these expenses directly
relates to E*OFFERING's expansion of its investment banking business and
brokerage operations.
Depreciation and amortization expenses include the depreciation of
telecommunication, networking and computer equipment and the amortization of
leasehold improvements, software licenses and internally developed software.
Depreciation and amortization expenses increased 51% from $903,000 for the
period from November 13, 1998 (Inception) through September 30, 1999 to $1.4
million for the period from October 1, 1999 through March 31, 2000. Increases in
these expenses correspond to increases in the purchase and deployment of
computer hardware and software and in the build out costs of leased space in San
Francisco.
Technology development expenses primarily reflect the costs to develop
online products and the technology infrastructure required to support them.
Technology development expenses increased 184% from $993,000 for the period from
November 13, 1998 (Inception) through September 30, 1999 to $2.8 million for the
period from October 1, 1999 through March 31, 2000. The increase was due to the
development of an online private placement system allowing accredited and
institutional investors to participate in online private placement offerings.
E*OFFERING significantly revised its corporate web site and architecture and is
in the process of developing its next generation corporate web site and
architecture. E*OFFERING is also developing a web content management application
and a corporate intranet web site and architecture.
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Occupancy expenses include costs relating to E*OFFERING's leasing of office
space, furniture and equipment in San Francisco and Newport Beach. Occupancy
expenses increased 209% from $528,000 for the period from November 13, 1998
(Inception) through September 30, 1999 to $1.6 million for the period from
October 1, 1999 through March 31, 2000. The increase in occupancy expenses
reflects E*OFFERING's business growth and its need for expanded office
facilities; such expansion efforts were substantially completed in the second
quarter of the fiscal year 2000.
Other operating expenses include registration fees, postage, printing and
office supplies. Other operating expenses increased 75% from $1.6 million for
the period from November 13, 1998 (Inception) through September 30, 1999 to $2.7
million for the period from October 1, 1999 through March 31, 2000. The increase
in other operating expenses is attributable to certain nonrecurring costs,
including without limitation, the leasehold improvements write-off in connection
with the closing of one of E*OFFERING's Newport Beach offices.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, E*OFFERING had $19 million in cash, cash equivalents
and securities readily convertible to cash. E*OFFERING believes that this
balance, together with cash from operations, will be sufficient to meet
anticipated cash requirements for at least the next twelve months.
Net cash used in operating activities for the six months ended March 31,
2000 was $12.3 million as a result of an increase in receivables from clearing
brokers and the payment of bonuses for 1999. E*OFFERING's brokerage revenues are
collected at the clearing broker and withdrawn as needed for its operations or
investment.
Net cash of $18.4 million used in investing activities for the six months
ended March 31, 2000 was for the purchase of network and computer equipment, the
build out of the San Francisco leasehold improvements and the investment in
securities readily convertible to cash.
Net cash of $33.5 million provided by financing activities for the six
months ended March 31, 2000 was from a round of financing completed in
January 2000.
For the period from November 31, 1998 (inception) to March 31, 1999, net
cash of $1.1 million used in operating activities was primarily attributable to
the net operating loss and an operating expense advance to Meridian Capital
Group, Inc. Net cash of $457,000 used in investing activities was for the
purchase of computer and office equipment. Net cash of $11.6 million provided by
financing activities was from the issuance of preferred and common stock.
For the period from November 13, 1998 (inception) to September 30, 1999, net
cash of $13.3 million used in operating activities was as a result of the net
operating loss, increase in receivables from clearing broker, increase in other
assets, partially offset by increases in accounts payable, compensation payable
and other liabilities. Net cash of $6.8 million used in investing activities was
for the acquisition of Meridian Capital Group Inc. and the purchase of network
and computer equipment and leasehold improvements for one of the Newport Beach
offices. Net cash of $21.7 million provided from financing activities was from
the issuance of the preferred stock and subordinated debt.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133
established accounting and reporting standards for derivative instruments,
including certain instruments embedded in other contracts and for hedging
activities. The effective date of SFAS No. 133 was delayed to fiscal 2001 by the
issuance of SFAS No. 137. E*OFFERING has not yet determined the effect, if any,
of adopting this new standard.
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E*OFFERING adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which
requires that an enterprise report, by major components and as a single total,
the change in net assets. There were no other comprehensive income items for the
period November 13, 1998 (date of inception) to September 30, 1999.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS ("SAB 101"). SAB 101 summarizes certain of
the SEC staffs' views in applying generally accepted accounting principles to
revenue recognition in financial statements. E*OFFERING has not yet determined
the effect, if any, of SAB on the Company's financial statements.
RISK MANAGEMENT
E*OFFERING's primary risk exposures are market risk, credit risk and legal
risk. Market risk relates to the risk that a change in the level of equity
prices, interest rates or other market factors could result in trading losses or
negatively impact the market for equity issuance, which in turn negatively
impact transactional volumes. Credit and legal risk relate to the risk that a
counterparty to a transaction might fail to perform under its contractual
commitment, resulting in E*OFFERING's incurring losses. E*OFFERING's risk
management focuses on its investment banking activities, the extension of credit
to counter parties and the trading of securities as well as the monitoring of
trading levels with institutional clients. E*OFFERING monitors these risks daily
through the controls and procedures designed to identify and evaluate the
various risks to which E*OFFERING is exposed.
MARKET RISK
E*OFFERING may act as a principal to facilitate customer-related
transactions in securities, which exposes E*OFFERING to market risk. E*OFFERING
makes markets in certain equity securities. As such, E*OFFERING maintains
securities inventories to facilitate customer transactions. Managing market risk
exposures includes limiting firm commitments by position levels, both long and
short for all securities traded and limiting the type of trades that can be
executed in each inventory account.
E*OFFERING manages daily risk exposure in its 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 the activities in the trading accounts.
As of March 31, 2000, E*OFFERING did not have material assets and
liabilities which are subject to market risk and, accordingly, was not exposed
to material market risk.
CREDIT RISK
E*OFFERING's exposure to credit risk arises from the possibility that a
counterparty to a transaction might fail to perform under its contractual
commitment, resulting in E*OFFERING incurring losses. Credit risk relates 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. E*OFFERING actively manages
the credit exposure relating to its trading activities by monitoring the
creditworthiness of counterparties and limiting the amount and duration of
exposure to individual counter parties.
LEGAL RISK
Legal risk includes the risk of non-compliance with applicable legal and
regulatory requirements and the risk that a counter party's performance
obligations will be unenforceable. E*OFFERING is subject to extensive
regulations in the different jurisdictions in which it conducts business.
E*OFFERING has established controls and procedures to ensure compliance with all
applicable statutory and regulatory requirements. E*OFFERING has also
established procedures that are designed to ensure that senior management's
policies relating to conduct, ethics and business practices are followed.
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E*OFFERING'S BUSINESS
E*OFFERING is a full service Internet investment banking firm that uses the
Internet and related technologies such as electronic mail and multimedia to
deliver investment banking products to online individual investors and
institutional clients. E*OFFERING provides a range of investment banking
services, including initial and follow-on public offering underwriting, private
equity agency services, sales and trading, equity research and financial
advisory services. E*OFFERING is privately owned by E*TRADE Group, Inc., General
Atlantic Partners, other venture capitalists, its employees and other
shareholders.
RELATIONSHIP WITH E*TRADE
E*OFFERING has a close relationship with E*TRADE Securities, Inc., under
which E*OFFERING is the exclusive source of all equity related investment
banking products and services for E*TRADE. The relationship with E*TRADE also
gives E*OFFERING an important audience for the analyses produced by E*OFFERING's
research department.
INVESTMENT BANKING
E*OFFERING'S investment banking services consist primarily of the management
and underwriting of initial and follow-on public offerings, as well as private
placement agency and financial advisory services. E*OFFERING believes that its
strategic relationship with E*TRADE gives it a competitive advantage in
obtaining underwriting business, because it offers issuers wanting to build a
retail investor base for their securities access to over 2.6 million retail
brokerage accounts. From its inception in November 1998 to March 31, 2000,
E*OFFERING acted as a lead managing underwriter in one follow-on offering, and
as co-managing underwriter in 22 initial public offerings and 5 follow-on
offerings.
In addition to participating in public offerings of securities as a lead or
co-managing underwriter, E*OFFERING also participates in public offerings as a
member of an underwriting syndicate managed by other investment banking firms.
Invitation into an underwriting syndicate arises from an investment banking
firm's expertise in a specific investment sector or distribution channel, and
also from building relationships with syndicate departments of other investment
banks. From its inception in November 1998 to March 31, 2000, E*OFFERING
participated as a member of an underwriting syndicate in 177 public offerings.
E*OFFERING also provides financial advisory services, including advice on
mergers and acquisitions, divestitures and valuation.
RESEARCH
E*OFFERING's research team provides analysis of key technology and Internet
related companies and sectors. E*OFFERING distributes its research to clients
and also makes it available through the Internet on the E*OFFERING and E*TRADE
web sites and by syndication arrangements with other leading web sites such as
Yahoo! Finance Vision and Multex.com. E*OFFERING's research analysts have
appeared on financial market-oriented television channels and have been quoted
in traditional media such as The Wall Street Journal and Business Week and
interactive media such as CBS.Marketwatch.com and CNET.
As of March 31, 2000, E*OFFERING provided research for coverage of 28
Internet and technology related companies.
E*OFFERING believes that its high quality research complements its
distribution network in the market for new equity issues.
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SALES AND TRADING
E*OFFERING provides a full range of sales and trading services to
institutional investors. E*OFFERING currently employs 22 sales and trading
professionals operating out of its San Francisco offices.
E*OFFERING's trading department makes markets in securities of companies
chosen based on their significance as an investment banking clients or where
E*OFFERING feels it has a competitive advantage based on the quality of its
research. As of March 31, 2000, E*OFFERING was a market maker in 98 companies,
which included 38 Internet and technology related companies.
CORPORATE EXECUTIVE SERVICES
E*OFFERING's corporate executive services group provides high net worth
individuals and corporate clients with products and services tailored to them.
This group develops and maintains relationships with corporate officers and
accredited investors, providing a customer base to which E*OFFERING markets
products such as private equity and financial services. E*OFFERING also believes
that its experience in administering directed and affinity share programs gives
it an advantage in obtaining other investment banking business.
COMPETITION
The financial services industry is highly competitive, and is expected to
grow more competitive in the near future. E*OFFERING faces direct competition
primarily from other established investment banking firms, as well as from
traditional and online brokerage firms. E*OFFERING's competitors include large
Wall Street firms as well as relatively new securities firms.
Many of E*OFFERING's competitors have significantly greater financial,
technical, marketing and other resources than it does. Some of these competitors
also offer a wider range of products and services than it does 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 able to undertake more extensive
promotional activities, offer more attractive terms to customers, clients and
employees and adopt more aggressive pricing policies compared to E*OFFERING.
E*OFFERING's principal competitors in connection with its investment banking
and brokerage businesses are larger investment banking firms. It also faces
competition from recently formed online investment banks that are also focused
on technology industries.
E*OFFERING also faces intense competition for the attraction and retention
of qualified employees in the securities industry. E*OFFERING's ability to
compete effectively in its businesses will depend on its ability to attract new
employees and retain and motivate its existing employees.
REGULATION
REGULATION OF THE SECURITIES INDUSTRY AND BROKER-DEALERS. E*OFFERING's
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 the rest of the world are charged
with safeguarding the integrity of the securities and other financial markets
and with protecting the interests of customers participating in those markets.
In the United States, the SEC is the federal agency responsible for the
administration of the federal securities laws. E*OFFERING is a registered as a
broker-dealer with the SEC and in each state in which it does business other
than Maine and Missouri, where it is currently seeking registration. E*OFFERING
is 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
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<PAGE>
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, E*OFFERING is subject to the Uniform Net Capital Rule under the
Securities and Exchange Act of 1934. The Uniform Net Capital Rule specifies the
minimum level of net capital a broker-dealer must maintain and also requires
that at least a minimum part of its assets be kept in relatively liquid form. As
of March 31, 2000, E*OFFERING was required to maintain minimum net capital of
$900,000 and had total net capital of approximately $16.6 million, or
$15.7 million 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 capital structure 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. These rules governing net capital and
restrictions on withdrawals of funds could operate to prevent E*OFFERING from
meeting its financial obligations on a timely basis.
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 E*OFFERING's mode of operation and its
profitability.
EMPLOYEES
As of March 31, 2000, E*OFFERING had 133 employees, including 24 in
investment banking, 14 in research, 22 in sales and trading, 11 in corporate
executive services and 62 in general and administrative positions.
PROPERTIES
E*OFFERING's principal executive offices are located in San Francisco,
California, where it leases 31,750 square feet of office space. The term of the
lease expires in early 2001. E*OFFERING also leases office suites in Newport
Beach, California, and New York City.
LEGAL MATTERS
E*OFFERING is currently subject to claims and legal proceedings arising in
the normal course of its business as an underwriter. E*OFFERING does not believe
that the resolution of such legal proceedings should have a material adverse
effect on its financial condition.
In April, 2000, Alfred Lutter, a former officer of E*OFFERING, filed a
complaint in Superior Court of California, Orange County. The action alleges
that Mr. Lutter was entitled under an agreement with E*OFFERING to accelerated
vesting of all 125,000 shares of common stock of E*OFFERING underlying his stock
options. In particular, the action alleges that Mr. Lutter's agreement provided
for accelerated vesting of his stock options upon a "change in control" as
defined in his agreement, and that such a change in control occurred in
November, 1999 when the former chief executive officer of E*OFFERING and a
current director, ceased to be (i) president, (ii) in charge of day-to-day
operations, or (iii) Mr. Lutter's direct supervisor. Mr. Lutter seeks delivery
of 106,250 shares of E*OFFERING common stock for a purchase price of $0.40 per
share and damages. E*OFFERING has been served with a copy of this Complaint and
has filed its Answer. In its Answer, E*OFFERING denies Lutter's claims and
raises affirmative defenses.
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<PAGE>
MANAGEMENT OF E*OFFERING
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to
E*OFFERING's three (3) executive officers and five (5) directors as of
April 30, 2000.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- -------- -----
<S> <C> <C>
Steven R. King....................... 45 Interim President and Chief Executive Officer
Phillip F. Whalen.................... 52 Executive Vice President of Marketing, Products and
Technology
Timothy L. Newell.................... 40 Managing Director, Corporate Finance
Thomas A. Bevilacqua................. 43 Director
Christos M. Cotsakos................. 51 Director
Walter W. Cruttenden, III............ 49 Director
Mark F. Dzialga...................... 36 Director
D. Rex Golding....................... 42 Director
</TABLE>
STEVEN R. KING, INTERIM PRESIDENT AND CHIEF EXECUTIVE OFFICER. Steve King
joined E*OFFERING in August of 1999 as interim President, assuming the added
role of interim CEO in January of 2000. He currently oversees day-to-day
operations for E*OFFERING. Prior to joining E*OFFERING, he served as Vice
President and General Manager of E*TRADE's Investment Banking Group. Mr. King
originally joined E*TRADE as Vice President of Strategic Alliances and Business
Development in January 1997. He went on to serve as Vice President and General
Manager of E*TRADE's Business Solutions Group. Prior to E*TRADE, Mr. King held
various senior management positions in the online information and electronic
commerce industries. He was Director of Partnerships and Sales in the corporate
division of Information Access Co. (a division of The Thomson Corporation) from
1993 to 1997, Vice President of Division Operations at KMI Services Group from
1989 to 1993, and Western Area Director for the online and electronic publishing
division of Ziff-Davis Publishing from 1985 to 1989. Mr. King earned a BS in
business administration from Edison State College.
PHILLIP F. WHALEN, JR., EXECUTIVE VICE PRESIDENT OF MARKETING, PRODUCTS AND
TECHNOLOGY. Phillip F. Whalen, Jr. joined E*OFFERING in August of 1999 as
Executive Vice President of Marketing, Products, and Technology. Mr. Whalen came
from a position at E*TRADE Securities, Inc. where he was a full time executive
consultant, running marketing and sales organizations from July 1998 to
August 1999. From April 1998 to July 1998, Mr. Whalen held a similar position at
ShareData, Inc., which was subsequently acquired by E*TRADE. Prior to working at
ShareData, from November 1996 to February 1998, Mr. Whalen was President, Chief
Executive Officer, and a Director of Thinking Tools, Inc., where he established
the company as one of the premier software providers for Y2K risk assessment.
Mr. Whalen has also served as Managing Director and/or Vice President of Sales
and Marketing for numerous software companies in the U.S. and abroad, including
Digital Tools, Inc., Clarity Software, Inc., and cc:Mail, Inc. He received a BA
from Denison University, an MA from Webster University, and an MBA from Stanford
University School of Business.
TIMOTHY L. NEWELL, MANAGING DIRECTOR, CORPORATE FINANCE. Mr. Newell joined
E*OFFERING in March 1999 with more than 15 years experience in working with
technology companies and technology industry leaders. Prior to joining
E*OFFERING, from December 1997 to March 1999, Mr. Newell headed the electronic
commerce investment banking group for the investment bank of Fleet Boston
Robertson Stephens, where he was responsible for building the firm's electronic
commerce and Internet infrastructure
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<PAGE>
corporate finance practice. From April 1993 to October 1997, Mr. Newell served
on the White House staff in various management and policy roles. Initially
appointed as Assistant to the Director for Intergovernmental Affairs and Policy
within the White House Office of Science and Technology Policy, he subsequently
was appointed and served as Deputy Director for Policy of the White House Office
of Science and Technology Policy. Prior to joining the Clinton Administration,
from April 1987 to April 1993, Mr. Newell served on the staff of Congressman
Norman Y. Mineta as Legislative Assistant, Legislative Director and Washington
Staff Director. Mr. Newell is a graduate of Brown University.
THOMAS A. BEVILACQUA, DIRECTOR. Tom Bevilacqua has been Chief Corporate
Development and Strategic Investment Officer of E*TRADE since March 1999. Prior
to joining E*TRADE, from 1991 to 1999, Mr. Bevilacqua was a partner at the
Silicon Valley law firm of Brobeck, Phleger & Harrison LLP, where he served as a
member of the executive committee and as co-head of the firm's venture
investment fund and information technology practice group. Mr. Bevilacqua earned
a BS in business administration and a JD from the University of California.
CHRISTOS M. COTSAKOS, DIRECTOR. See the section in this proxy
statement/prospectus entitled "The Merger--Management Following the Merger" for
a description of Mr. Cotsakos' relevant business experience.
WALTER W. CRUTTENDEN, III, DIRECTOR. Walter W. Cruttenden, III is an active
investor in private companies favoring the Internet, general technology, and
healthcare sectors. Mr. Cruttenden founded E*OFFERING in November 1998. In 1984,
he also founded Cruttenden Roth, Inc., (now Roth Capital Partners, Inc.) and
served as CEO through the company's rapid-growth phase. He sold a major interest
in Cruttenden Roth in 1998.
MARK F. DZIALGA, DIRECTOR. Mark Dzialga is a partner at the private equity
firm General Atlantic Partners, LLC. Mr. Dzialga joined General Atlantic in
1998. Prior to joining General Atlantic, Mr. Dzialga was the co-head of the
Merger and Acquisitions Technology Group at The Goldman Sachs Group, Inc. for
eight years. Mr. Dzialga has an MBA from the Columbia University Graduate School
of Business and a BS in accounting from Canisius College.
D. REX GOLDING, DIRECTOR. Rex Golding is the Managing Director of Softbank
Venture Capital. Prior to joining SOFTBANK Venture Capital, Mr. Golding held the
following positions: Co-head of the Global Technology Banking Group at Morgan
Stanley Dean Witter & Co. from 1996 to 1999, Co-founder and Chief Financial
Officer at 3DO Company from 1991 to 1994, CFO and Vice President, Business
Development at OnLive! Technologies, Inc. from 1994 to 1996, Investment Banker
for Technology Companies at Salomon Brothers from 1984 to 1987 and prior to
1984, at Shearson Lehman Hutton, and Investment Banker at Volpe Brown Whelan &
Co. from 1988 to 1991. Mr. Golding holds an AB in applied mathematics from
Harvard University and an MBA from Harvard Business School. He also serves on
the boards of Spinway.com, Inc., BlueLight.com, and Legal Knowledge Company.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by E*OFFERING to its
interim chief executive officer and its two other executive officers (the "Named
Executive Officers") during 1999.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
--------------------------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Steven R. King(1)........................ $142,915(4) $ 53,693(4) 50,000 --
Interim President and Chief Executive
Officer
Phillip F. Whalen, Jr.(3)................ 204,600 -- -- --
Executive Vice President of Marketing,
Products and Technology
Timothy L. Newell(2)..................... 202,418 1,000,000 275,000 --
Managing Director, Corporate Finance
</TABLE>
------------------------
(1) Steven King is an employee of and is compensated by E*TRADE.
(2) Tim Newell joined E*OFFERING on March 8, 1999. His annual base salary for
1999 was $250,000.
(3) Phillip Whalen joined E*OFFERING on August 11, 1999. He is compensated as an
independent consultant. As such he does not draw a base salary.
(4) Represents compensation paid by E*TRADE.
STOCK OPTIONS
OPTION GRANTS. The following table sets forth information regarding stock
options granted under E*OFFERING's stock option plans in 1999 to the Named
Executive Officers. The exercise price per share of common stock underlying each
option was equal to its fair market value on the date of the grant as determined
by the board of directors. Each option was granted under the 1998 stock option
plan and vests over five years from the date of the grant.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
PERCENTAGE AT ASSUMED
OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED APPRECIATION FOR
UNDERLYING TO EXERCISE OR OPTION TERMS(3)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION -------------------
GRANTED IN 1999(2) ($/SHARE) DATE 5% 10%
---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Steven R. King................... 50,000(1) 0.99% $0.40 2009 $12,578 $31,875
Phillip F. Whalen................ -- -- -- -- -- --
Timothy L. Newell................ 275,000 5.42 0.40 2009 69,178 175,312
</TABLE>
------------------------
(1) Such options were granted as nonstatutory stock options.
(2) Based on an aggregate of 5,069,277 shares of common stock underlying options
granted to employees in 1999, including options granted to the Named
Executive Officers.
(3) Amounts represent hypothetical values that could be achieved for the
respective options if exercised at the end of the option term. These values
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based on the market price of the underlying securities
on the date of the grant. These
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<PAGE>
assumptions are not intended to forecast future appreciation of our stock
price. The potential realizable value computation does not take into account
federal or state income tax consequences of option exercises or sales of
appreciated stock.
AGGREGATE OPTION EXERCISES FOR THE YEAR ENDED DECEMBER 31, 1999 AND OPTION
VALUES AS OF DECEMBER 31, 1999
The following table sets forth for each of the Named Executive Officers
certain information concerning the number of shares subject to both exercisable
and unexercisable stock options at December 31, 1999. The values of unexercised
in-the-money options represent the positive spread between the respective
exercise prices of the stock options and the value of Wit SoundView shares to be
received in exchange for E*OFFERING shares in the merger, based on an exchange
ratio of .674237515 and the closing price of Wit SoundView Common Stock on the
Nasdaq National Market on July 17, 2000, the most recent practicable date prior
to the filing of this proxy statement/prospectus.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON --------------------------- ---------------------------
EXERCISE VALUE RECEIVED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven R. King................ -- -- 5,000 45,000 $ 36,769 $ 330,918
Timothy L. Newell............. -- -- 41,250 233,750 303,341 3,718,935
Phillip F. Whalen............. -- -- -- -- -- --
</TABLE>
MANAGEMENT BENEFIT PLANS
401(K) AND PROFIT SHARING PLAN
The E*OFFERING 401(k) Plan was established in 1998 to provide E*OFFERING
employees with deferred compensation as well as an opportunity to defer their
own compensation to accumulate retirement savings. The plan allows for all
employees who meet minimum eligibility requirements to participate in the plan.
Under the 401(k) plan, an employee may contribute up to 15% of his or her
pre-tax gross compensation. This contribution cannot exceed a statutorily
prescribed annual limit. The Board of Directors of E*OFFERING, at its sole
discretion, may make matching contributions. To date, it has not made such
contributions.
1998 STOCK OPTION PLAN
E*OFFERING has established the 1998 Stock Option Plan which permits a
committee appointed by the board of directors to grant options to directors,
officers, key employees and employees of companies that do business with
E*OFFERING. The options may be granted as incentive stock options or
nonqualified stock options. Stock options vest over a five year period and
vested options are exercisable in whole or in consecutive installments,
cumulative or otherwise, during the term as determined in the discretion of the
committee.
The purpose of the plan is to promote long-term growth and profitability by
providing key employees and employees of companies that do business with
E*OFFERING with incentives to remain with the company and to contribute to its
growth and financial success. The 1998 Stock Option Plan has authorized the
grant of options to purchase up to 5 million shares of E*OFFERING's Common
Stock. As of May 15, 2000, a total of 108 persons hold options to purchase
2,200,100 shares of Common Stock at a weighted average exercise price of $0.40,
of which options are vested with respect to 413,635 shares. E*OFFERING stopped
granting options under the 1998 Stock Option Plan on September 30, 1999.
Assuming completion of the merger with Wit SoundView, the E*OFFERING 1998 Stock
Option Plan will be assumed by Wit SoundView.
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<PAGE>
2000 STOCK OPTION/STOCK ISSUANCE PLAN
E*OFFERING has established a 2000 Stock Option/Stock Issuance Plan which
permits the Plan Administrator under the authority of the board of directors to
grant options or issue Common Shares to (i) employees, (ii) non-employee members
of the board, (iii) non-employee members of the board of directors of any
Subsidiary or Parent, or (iv) consultants and other independent advisors of
E*OFFERING. Each option shall be exercisable at such time or times, during such
period and for such number of shares as shall be determined by the Plan
Administrator. No option will have a term in excess of ten (10) years as
measured from the date of the option grant. The options may be granted as
incentive stock options or nonqualified stock options. Under the Plan, the Plan
Administrator may also issue stock awards. The purchase price for the stock
issuances cannot be less than eighty-five percent (85%) of the Fair Market Value
per share of Common Stock on the issue date, and the purchase price per share of
the Common Stock issued to a 10% Stockholder shall not be less than one hundred
and ten percent (110%) of the Common Stock's fair market value. The Plan
Administrator has the discretion to issue stock that is fully vested upon
issuance or in one or more installments, however, the vesting schedule of any
stock issuance may not be more restrictive than twenty percent (20%) per year
vesting, with initial vesting to occur more than one (1) year after the issuance
date. Such a restriction does not apply to Common Stock issuances to officers,
non-employee Board members or independent consultants.
The purpose of the 2000 Stock Option/Stock Issuance Plan is to promote
long-term growth and profitability by providing key employees and consultants
with incentives to remain with the company and to contribute to its growth and
financial success. The Plan has authorized the grant of options/issuances to
purchase up to 5,512,173 shares of E*OFFERING's Common Stock. As of May 15,
2000, a total of 82 current employees, non-employee members of the board,
non-employee members of the board of directors of any Subsidiary or Parent,
consultants and other independent advisors of E*OFFERING hold options to
purchase 2,172,500 shares of Common Stock at a weighted average exercise price
of $0.80 per share. No options have vested. Assuming completion of the merger
with Wit SoundView, the E*OFFERING 2000 Stock Option/Stock Issuance Plan will be
assumed by Wit SoundView and no additional options to purchase shares or Common
Stock issuances will be granted under the E*OFFERING 2000 Stock Option/ Stock
Issuance Plan.
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<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
OF E*OFFERING
The following table sets forth certain information regarding the beneficial
ownership of E*OFFERING's Common or Preferred Stock as of May 15, 2000 by:
(1) each person or entity that E*OFFERING knows beneficially owns 5% or more of
E*OFFERING's Common or Preferred Stock; (2) each director; (3) its Named
Executive Officers as of May 15, 2000; and (4) all its current directors and
executive officers as a group.
This table lists applicable percentage ownership based on 4,324,603 shares
of Common Stock and 19,068,441 shares of Preferred Stock outstanding as of
May 15, 2000. Beneficial ownership is determined in accordance with the rules of
the SEC. In general, a person who has voting power and/or investment power with
respect to securities is treated as a beneficial owner of those securities.
Options and warrants to purchase shares of Common Stock that are exercisable
within 60 days of May 15, 2000 are deemed to be beneficially owned by the
persons holding these options or warrants for the purpose of computing
percentage ownership of that person, but are not treated as outstanding for the
purpose of computing any other person's ownership percentage. Unless indicated
otherwise, E*OFFERING believes that the persons named in this table have sole
voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
TOTAL PERCENTAGE
PERCENTAGE OF OF COMMON AND
NUMBER OF COMMON NUMBER OF PERCENTAGE OF PREFERRED
COMMON SHARES SHARES PREFERRED SHARES PREFERRED SHARES SHARES
NAME & ADDRESS OF BENEFICIAL BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNERS(1) OWNED OWNED OWNED OWNED OWNED
---------------------------- --------------- ------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
E*TRADE.............................. 2,725,894(2) 38.66% 6,172,506(3) 31.07% 33.06%
Entities affiliated with General
Atlantic Partners 61 L.P. ......... -- -- 7,298,850(4) 38.28 31.20
3 Pickwick Plaza,
Greenwich, CT 06830
Entities affiliated with Softbank
Technology Ventures V L.P. ........ -- -- 2,412,905(5) 12.65 10.31
200 W. Evelyn Street, Suite 200,
Mountain View, CA 94043
Entities affiliated with New
Enterprise Associates 9 L.P. ...... -- -- 1,436,253(6) 7.53 6.14
1119 St. Paul Street,
Baltimore, MD 21202
Sanford Robertson.................... 1,250,000(7) 23.48 200,000(8) 1.05 5.94
One Maritime Plaza, Suite 2500,
San Francisco, CA 94104
Frank W. Cutler...................... 345,000(9) 7.93 600,000(8) 3.15 4.04
4600 Campus Drive,
Newport Beach, CA 9660
Walter W. Cruttenden, III............ 1,524,500(10) 34.85 200,000(8) 1.05 7.36
Christos M. Cotsakos................. 3,275,894(11) 46.46 6,183,006(12) 31.12 22.97
Thomas A. Bevilacqua................. 2,925,894(13) 41.50 6,177,506(14) 32.40 22.95
Mark F. Dzialga...................... 100,000(15) 2.26 7,298,850(16) 38.28 31.49
D. Rex Golding....................... 50,000(17) 1.14 2,412,905(18) 12.65 10.51
Steven R. King....................... 125,000 2.89 -- -- --
Phillip F. Whalen, Jr................ 75,000 1.73 -- -- --
Timothy L. Newell.................... 55,000(19) 1.26 -- -- --
All executive officers and directors
as a group (8 people).............. 5,405,394(20) 73.99 6,388,006 32.15 43.40
</TABLE>
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<PAGE>
------------------------------
(1) Unless otherwise indicated, the address for each stockholder on this table
is c/o E*OFFERING Corp., Steuart Street Tower, 4th Floor, One Market Street,
San Francisco, California 94105.
(2) Includes warrants to purchase 2,725,894 Common Shares exercisable within
60 days.
(3) Includes 2,500,000 Series B Convertible Preferred Shares, 2,872,506
Series C Convertible Preferred Shares and warrants to purchase 800,000
Series B Convertible Preferred Shares exercisable within 60 days.
(4) Consists of 1,295,290 Series C Convertible Preferred Shares held by General
Atlantic Coinvestment Partners II L.P. and 6,003,560 Series C Convertible
Preferred Shares held by General Atlantic Partners 61 L.P.
(5) Consists of 2,309,874 Series C Convertible Preferred Shares held by Softbank
Technology Ventures V L.P., 61,529 Series C Convertible Preferred Shares
held by Softbank Technology Ventures Advisors Fund V L.P. and 41,502
Series C Convertible Preferred Shares held by Softbank Technology Ventures
Entrepreneurs Fund V L.P.
(6) Consists of 1,434,817 Series C Convertible Preferred Shares held by New
Enterprise Associates 9 L.P. and 1,436 Series C Convertible Preferred Shares
held by NEA Ventures 2000 L.P.
(7) Includes warrants to purchase 1 million Common Shares exercisable within
60 days.
(8) The preferred stock consists of Series A Convertible Preferred Shares.
(9) Includes 25,000 Common Shares issuable upon exercise of options within
60 days.
(10) Consists of 1,001,000 Common Shares held by Walter W. Cruttenden, III,
350,000 Common Shares held by Cruttenden Partners LLC, 123,500 Common Shares
held by Christopher Cruttenden and 50,000 Common Shares issuable to Walter
W. Cruttenden, III upon exercise of options within 60 days. Mr. Cruttenden
disclaims any beneficial ownership of Common Stock held by Christopher
Cruttenden and disclaims any beneficial ownership of Common Stock held by
Cruttenden Partners LLC, except to the extent of his pecuniary interest in
these shares.
(11) Includes warrants to purchase 2,725,894 Common Shares exercisable within 60
days held by E*TRADE and 550,000 Common Shares held by Christos M. Cotsakos.
Mr. Cotsakos is the Chairman and CEO of E*TRADE. He disclaims any beneficial
ownership of Common Stock held by E*TRADE.
(12) Includes 2,500,000 Series B Convertible Preferred Shares, 2,872,506
Series C Convertible Preferred Shares and warrants to purchase 800,000
Series B Convertible Preferred Shares exercisable within 60 days held by
E*TRADE and 10,500 shares of Series A Preferred Stock held by Suzanne R.
Cotsakos. Mr. Cotsakos disclaims any beneficial ownership of Preferred Stock
held by E*TRADE and Suzanne R. Cotsakos.
(13) Includes warrants to purchase 2,725,894 Common Shares exercisable within 60
days held by E*TRADE and 200,000 Common Shares held by Thomas A. Bevilacqua.
Mr. Bevilacqua is the Chief Corporate Development and Strategic Investment
Officer of E*TRADE. Mr. Bevilacqua disclaims any beneficial ownership of
Common Stock held by E*TRADE.
(14) Includes 2,500,000 Series B Convertible Preferred Shares, 2,872,506
Series C Convertible Preferred Shares and warrants to purchase 800,000
Series B Convertible Preferred Shares exercisable within 60 days held by
E*TRADE and 5,000 shares of Series A Preferred Stock held by Thomas A.
Bevilacqua. Mr. Bevilacqua disclaims any beneficial ownership of Preferred
Stock held by E*TRADE.
(15) Includes 100,000 Common Shares issuable upon exercise of options within
60 days.
(16) Includes 7,298,850 shares of Preferred Stock owned by Entities affiliated
with General Atlantic Partners 61 L.P. Mr. Dzialga disclaims any beneficial
ownership of these shares except to the extent of his pecuniary interest in
these entities.
(17) Includes 50,000 Common Shares issuable upon exercise of options within
60 days.
(18) Includes 2,412,905 shares of Preferred Stock owned by Entities affiliated
with Softbank Technology Ventures V L.P. Mr. Golding disclaims any
beneficial ownership of these shares except to the extent of his pecuniary
interest in these entities.
(19) Includes 55,000 Common Shares issuable upon exercise of options within
60 days.
(20) Includes options and warrants to purchase common stock and preferred stock
exercisable within 60 days by the eight executive officers and directors as
a group as noted in footnotes 10 through 19 inclusive.
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DESCRIPTION OF E*OFFERING STOCK
GENERAL
E*OFFERING's authorized capital stock of 65,446,789 shares, no par value per
share, consists of two classes, designated "Common Stock" and "Preferred Stock."
The Common Stock consists of 42,578,347 shares, no par value per share, and the
Preferred Stock consists of 22,868,442 authorized shares, no par value per
share. The authorized Preferred Stock is divided into three series, namely,
Series A Convertible Preferred Stock, consisting of 1,600,000 shares, Series B
Convertible Preferred Stock, consisting of 5,800,000 shares and Series C
Convertible Preferred Stock consisting of 15,468,442 shares. As of May 15, 2000,
4,324,603 shares of Common Stock, 1,600,000 shares of Series A Convertible
Preferred Stock, 2,500,000 shares of Series B Convertible Preferred Stock and
14,968,441 shares of Series C Convertible Preferred Stock were issued and
outstanding. As of May 15, 2000, there were outstanding warrants for the
purchase of 3,725,894 shares of Common Stock and 800,000 Series B Convertible
Preferred Stock.
The following summary of the terms and provisions of E*OFFERING's Common and
Preferred Stock does not purport to be complete. Reference should be made to its
amended and restated Articles of Incorporation and its Bylaws, and to applicable
law, for the complete description of the terms and provisions of E*OFFERING's
Common and Preferred Stock.
COMMON AND PREFERRED STOCK
VOTING. The holders of Common and Preferred Stock are entitled to vote on
all matters submitted to be voted upon by stockholders. The holders of Common
Stock are entitled to have one vote for each share of Common Stock owned and the
holders of Preferred Stock are entitled to one vote for each share of Common
Stock into which their respective shares are convertible. Each share of
Preferred Stock is currently entitled to one vote. The holders of Common Stock
and Series A Convertible Preferred Stock are entitled to vote together as a
single class to elect one director to the board. The holders of Series B
Convertible Preferred Stock are entitled to vote as a single class to elect two
directors to the board. The holders of Series C Convertible Preferred Stock are
entitled to vote as a single class to elect two directors to the board.
In addition, holders of Series A Convertible Preferred Stock are entitled to
vote as a separate class on an as converted basis on matters that affect their
respective rights and privileges. These voting rights are triggered on matters
relating to the (i) redemption or repurchase of Common Stock (other than the
repurchase of Common Stock at cost from parties that have terminated their
relationship with E*OFFERING or the repurchase of 1,451,000 shares of Common
Stock in connection with its Series C Preferred financing), (ii) an increase in
the number of authorized shares of the Series A Convertible Preferred Stock and
(iii) modifications to the Articles of Incorporation or By-laws altering or
adversely affecting the preferences, rights, privileges, or powers of, or the
restrictions provided for the benefit of the Series A Convertible Preferred
Stock. Holders of Series B Convertible Preferred Shares are entitled to vote
separately as a class on matters relating to the redemption of Series B
Convertible Preferred Stock. Holders of Series B and C Convertible Preferred
Stock are entitled to vote together as a class for the purposes of
(i) authorizing, designating or issuing shares of any class of stock or debt
securities having any right, preference or priority as to voting, dividends,
redemption or liquidation rights superior to or on a parity with any such
preference or priority of the Series B Convertible Preferred Stock,
(ii) redemption, purchase or acquisition of Common Stock, Series A Convertible
Preferred of Series B Convertible Preferred Stock, or the declaration of any
payment or dividend (other than the repurchase of Common Stock at cost from
parties that have terminated their relationship with E*OFFERING or the
repurchase of 1,451,000 shares of Common Stock in connection with its Series C
Convertible Preferred financing), (iii) amendment, waiver or repeal of
E*OFFERING's Articles of Incorporation or Bylaws, (iv) sale of all or
substantially all of E*OFFERING's assets, (v) changing E*OFFERING's line of
business, (vi) changing the authorized number of directors, (vii) permitting any
subsidiary to sell or issue equity securities to a
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party other than E*OFFERING, (viii) increasing the authorized Common Stock,
Series A Convertible Preferred or Series B Convertible Preferred Stock,
(ix) issuing additional Series B Convertible Preferred Stock, and
(x) authorizing, designating, or issuing any other Preferred Stock.
DIVIDENDS. The Common Stockholders are entitled to share ratably with
holders of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock (on an as converted basis) on such dividends as may be declared
in the discretion of the board of directors out of funds legally available
therefor. In addition, the holders of Series B Convertible Preferred Stock are
entitled to non-cumulative dividends of $0.32 per share per annum payable only
when declared by the board. No dividends shall be paid or declared on any Common
Stock or Series A Convertible Preferred Stock of the Corporation for any fiscal
year until dividends for the Series B Convertible Preferred Stock are paid or
declared. The holders of Series C Convertible Preferred Stock are entitled to
cumulative dividends at an annual rate equal to 8% of the Series C Convertible
Preferred Stock liquidation preference accruing on a daily basis and compounded
semi-annually whether or not declared. The holders of Series C Convertible
Preferred Stock rank in seniority to all other stock of E*OFFERING in the
receipt of dividends.
LIQUIDATION. Upon liquidation, holders of Series A Convertible Preferred
Stock are entitled to $1.00 per share of Series A Convertible Preferred Stock
held plus all declared and unpaid dividends on such shares in preference to any
distribution made to the Common Stockholders. Holders of Series B Convertible
Preferred Stock are entitled to $4.00 per share plus all declared and unpaid
dividends in preference to any distribution made to the Common Stockholders.
Series A and Series B Convertible Preferred Stockholders rank equally with
respect to the liquidation preference. Upon liquidation, the holders of
Series C Convertible Preferred Stock are entitled to $3.481280502 per share plus
all accrued and unpaid dividends in preference to all other stockholders of
E*OFFERING. The holders of Common Stock are entitled to share ratably in the
remaining assets with the holders of the Series A, Series B and Series C
Convertible Preferred Stock (on an as converted basis) in the remaining assets
of E*OFFERING.
CONVERSION. Each of the Series of Preferred Stock has rights of conversion
based on the conversion mechanisms contained in E*OFFERING's Articles of
Incorporation. Holders of the Series A, Series B and Series C Convertible
Preferred Stock are initially entitled to convert one share of Preferred Stock
for one share of Common Stock. The conversion price for each of the Series of
Common Stock is subject to subsequent adjustment for dilutive issues. The
Series A and Series B Convertible Preferred Stock is automatically converted
into Common Stock immediately prior to a public offering of Common Stock at the
then effective applicable Series A and Series B Conversion Prices provided that
the price per share of Common Stock offered to the public is not less than four
times the then effective Series B Conversion Price and the aggregate offering
price is not less than Fifteen Million Dollars ($15,000,000). Each share of
Series C Preferred Convertible Stock is automatically converted to shares of
Common Stock at the then effective conversion price simultaneously with the
closing of a Qualified Initial Public Offering.
The holders of Common Stock have no preemptive rights to purchase shares of
E*OFFERING stock. Shares of Common Stock are not subject to any redemption
provisions, and shares of Common Stock are not convertible into any other
securities. The holders of Preferred Stock have no preemptive rights to purchase
stock nor are they subject to any redemption provisions.
REGISTRATION RIGHTS. Under a Registration Rights Agreement dated
January 12, 2000, the Designated Holders of E*OFFERING Common Stock, Preferred
Stock convertible into Common Stock and the E*TRADE Warrants convertible into
Common Stock are entitled to rights with respect to registration of all of their
shares under the Securities Act. The Designated Holders include E*TRADE
Stockholders, General Atlantic Partners Stockholders, Walter Cruttenden, III,
Cruttenden Partners, Chris Cruttenden, Sanford R. Robertson, Frank Cutler and
any transferee of any of them. Under these registration rights, beginning six
months following the closing of E*OFFERING's initial public offering (IPO),
General Atlantic Partners and E*TRADE (the "Initiating Holders") may require
that E*OFFERING register their shares for public resale, provided that the
anticipated aggregate offering price of the securities to be
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<PAGE>
registered is at least $1 million (a "Demand Registration"). E*OFFERING is not
obligated to register these shares after it has effected two such Demand
Registrations for each of the Initiating Holders.
Upon E*OFFERING becoming eligible to register on Form S-3, the Initiating
Holders may request E*OFFERING to register their securities for public resale on
Form S-3. However, E*OFFERING is not obligated to effect such a registration if
within 12 months of the date of such request it has effected two registrations
on form S-3, if the securities proposed to be registered for sale to the public
are less than $5,000,000 in value or if within 30 days of the time of such
request it has fixed plans to engage in a public offering that would be
adversely affected by the requested S-3 Registration.
Furthermore, in the event that E*OFFERING elects to register its shares of
common stock for purposes of effecting any public offering of cash for its own
account, the holders of registrable securities are entitled to include their
shares of common stock in such registration, subject to the right of the
managing underwriter to reduce the number of shares proposed to be registered in
view of the market conditions. E*OFFERING will be responsible for all expenses
(other than underwriting discounts and commissions) in connection with any of
the above registrations.
The Designated Holders possess incidental or "Piggy-Back" rights with
respect to the Demand Registrations, Form S-3 Registrations made pursuant to a
request by one of the Initiating Holders and other Registration Statements filed
by E*OFFERING (other than Form S-4 or S-8 Registrations) after the IPO.
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<PAGE>
CERTAIN TRANSACTIONS OF E*OFFERING
Except as described below, none of E*OFFERING's directors, officers or
principal security holders has or has had a direct or indirect material interest
in any transaction to which E*OFFERING is or has been a party. E*OFFERING
believes that the terms of each of the transactions described below were no less
favorable to E*OFFERING than could have been obtained from unaffiliated third
parties.
STOCK ISSUANCES TO EXECUTIVE OFFICERS, DIRECTORS AND OUR LARGEST STOCKHOLDERS
The following table sets forth issuances of E*OFFERING's Common and
Preferred Stock to its executive officers, directors and largest stockholders.
<TABLE>
<CAPTION>
PRICE PER SHARE ISSUANCE
STOCKHOLDER CLASS OF STOCK SHARE AMOUNTS DATE
----------- -------------- ----------- --------- --------
<S> <C> <C> <C> <C>
Cotsakos, Christos M......... Common $ 0.10 150,000 Feb-99
Common $ 0.40 100,000 Sep-99
Cruttenden, III, Walter W.... Common $0.01351370 2,325,000 Jan-99
Series A Preferred $ 1.00 200,000 Jan-99
Cutler, Frank W.............. Common $0.01351317 375,000 Jan-99
Series A Preferred $ 1.00 600,000 Jan-99
Robertson, Sandford.......... Common $0.01351320 250,000 Jan-99
Series A Preferred $ 1.00 200,000 Jan-99
Common Stock Warrants $0.01351320 2,075,000 Jan-99
E*TRADE Securities Inc....... Series B Preferred $ 4.00 2,500,000 Feb-99
Series B Preferred $ 4.00 800,000 Feb-99
Class A Warrants
Convertible Preferred
Class B
Warrants (1)
Cruttenden Partners LLC...... Common $0.01351320 500,000 Jan-99
</TABLE>
------------------------
(1) On January 13, 2000 E*TRADE's Class B Convertible Preferred Share Warrants
were exchanged for Class C Warrants to purchase 2,725,894 shares of
E*OFFERING's common stock at a price of $0.40 per share.
OPERATING AGREEMENT WITH E*TRADE
E*OFFERING entered into an operating agreement with E*TRADE pursuant to a
letter of intent created between the parties on January 12, 2000. The operating
agreement provides that E*OFFERING shall be the exclusive source of all equity
related investment banking products and services for E*TRADE (except in the area
of debt-related securities) for a period of three (3) years. For each public
offering that E*OFFERING participates in, E*TRADE shall be allotted a minimum
amount of the total shares made available to E*OFFERING. Under the agreement,
E*TRADE will retain an amount of the selling concession of shares as agreed upon
by the two parties. Additionally, the letter of intent establishes collaboration
between the parties in the areas of trading flow, research subscriptions, data
sharing, marketing, branding, affinity and directed share programs and use of
E*TRADE personnel. The operating agreement will be terminated and superseded in
its entirety by the strategic alliance agreement upon completion of the merger.
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<PAGE>
LEASES WITH RELATED PARTIES
E*OFFERING had two operating leases in place with related parties. The first
lease was a month-to-month lease with Walter Cruttenden, one of its founders and
a major shareholder, and covered E*OFFERING'S Newport Beach facilities. This
lease expired in December 1999. The second lease was with E*TRADE, and covered
E*OFFERING'S former facilities at 120 Montgomery Street in San Francisco. This
lease expired in November 1999. The aggregate amount of rent paid from the date
of E*OFFERING'S inception (November 13, 1998) through December 31, 1999 for the
leased properties to the two lessors was $118,200 to Walter Cruttenden and
$148,400 to E*TRADE.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The pro forma combined statements of operations data presented below for the
year ended December 31, 1999 assume that both the merger with E*OFFERING and the
merger with SoundView Technology Group, Inc., which was completed on
January 31, 2000, occurred on January 1, 1999. The pro forma combined statements
of operations data presented below for the three month period ended March 31,
2000 assume that the merger with E*OFFERING occurred on January 1, 2000 and
includes the results of SoundView Technology Group, Inc. from January 31, 2000,
the closing date of that merger. The pro forma combined balance sheet data
presented below assumes that the merger with E*OFFERING occurred as of the
respective balance sheet date. In addition, the pro forma statements of
operations and statement of financial condition also assume that certain
agreements that are contingent upon the closing of the merger with E*OFFERING
occurred as of the beginning of the period presented or as of the date
indicated. Those agreements include the strategic alliance agreement, account
transfer agreement and the stock purchase agreement, each of which is discussed
in this proxy/statement prospectus. You should not assume that Wit SoundView,
E*OFFERING and SoundView would have achieved the unaudited pro forma combined
results if they had actually been combined during the periods shown.
As consideration for the merger with E*OFFERING, Wit SoundView will acquire
the outstanding shares of E*OFFERING in exchange for up to 28,486,247 newly
issued shares of Wit SoundView common stock and options and warrants to purchase
shares of Wit SoundView common stock. The merger will be accounted for using the
purchase method of accounting. In addition to the pro forma effect of the merger
with E*OFFERING, certain transactions that are contingent upon the closing of
the merger are also reflected in the pro forma information. The first of such
agreements, the strategic alliance agreement with E*TRADE provides that Wit
SoundView will be the exclusive source of retail equity or equity related
securities in initial public offerings and follow-on offerings to the
2.6 million retail customers of E*TRADE. As consideration for this agreement,
Wit SoundView will issue 4,025,948 shares of common stock to E*TRADE and a
warrant to purchase an additional 2 million shares, exercisable under certain
circumstances after three years, and will transfer to E*TRADE substantially all
of its retail brokerage accounts pursuant to the account transfer agreement. In
connection with the distribution of such equity securities to customers of
E*TRADE, E*TRADE will receive a portion of the dealer selling concession
received by Wit SoundView. E*TRADE's percentage of such revenue will depend on
the number of shares allocated to E*TRADE's customers and whether Wit SoundView
participates as a lead managing underwriter or in another capacity. Accordingly,
the pro forma results of operations have been adjusted to include selling
expense related to the portion of the dealer selling concession that would have
been allocated to E*TRADE had the strategic alliance agreement been in effect
during the periods presented.
The pro forma results have not been adjusted to include revenue synergies
that Wit SoundView management believes are attainable and additional revenues
the combined company will receive under the provisions of the strategic alliance
agreement. Those revenues include increased participation in public equity
offerings, increased economics on public equity offerings and commission and
trading revenue from our customers and from order flow from customers of
E*TRADE.
In addition to the strategic alliance agreement, this pro forma information
assumes that the provisions of the account transfer agreement with E*TRADE were
in effect as of January 1, 1999. The account transfer agreement provides for the
transfer of substantially all of Wit SoundView's approximately 125,000 online
retail brokerage accounts to E*TRADE. Accordingly, the revenues and expenses
associated with Wit SoundView's online retail brokerage operations have been
removed from the results of operations reflected in the periods presented.
Expenses removed from the pro forma results represent actual expenses that were
directly related to the online retail brokerage operations. Certain expenses,
including costs of communications and other general and administrative costs,
were not adjusted, as they were not readily identifiable. Additionally, actual
revenues and expenses such as salary and bonus paid to employees of E*OFFERING
whose services will no longer be required by the combined company have not been
adjusted. However, certain non-recurring adjustments to reflect the liabilities
associated with severance of
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<PAGE>
Wit SoundView and E*OFFERING employees have been reflected in the pro forma
statement of financial condition.
For purposes of the pro forma financial statements, the merger agreement,
the strategic alliance agreement and the account transfer agreement have been
presented as if they are not tax deductible, pending final determination of
their tax status.
The pro forma data also assumes that the transactions contemplated by the
stock purchase agreement with E*TRADE and certain affiliates of General Atlantic
Partners had been consummated as of the balance sheet date presented. The
agreement provides for the purchase of 2 million shares of Wit SoundView common
stock by each of E*TRADE and certain affiliates of General Atlantic Partners for
an aggregate purchase price of $41 million or $10.25 per share.
The pro forma combined statements of operations data presented below for the
year ended December 31, 1999 also assume that the merger with SoundView
Technology Group, Inc., which was completed on January 31, 2000, occurred on
January 1, 1999. Under the terms of the merger agreement with SoundView, Wit
SoundView acquired the outstanding shares of SoundView in exchange for
approximately $320 million, consisting of newly issued common stock, options
replacing SoundView options and approximately $22.5 million in cash. The
acquisition was accounted for using the purchase method of accounting. The
excess of cost over the estimated fair value of assets acquired was allocated to
certain identifiable assets and goodwill, a total of approximately $276 million
which is being amortized on a straight line basis over periods of between 3 and
20 years.
The unaudited pro forma combined results should be read in conjunction with
the unaudited pro forma combined condensed financial information and related
notes and the historical consolidated financial statements and related notes
each which are either included elsewhere in this proxy statement/ prospectus or
incorporated by reference herein, and other financial information pertaining to
Wit SoundView and E*OFFERING, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Wit SoundView," which is
incorporated in this proxy statement/prospectus by reference to Wit SoundView's
Form 10-K for 1999, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of E*OFFERING" and "Risk Factors" which
appear elsewhere in this proxy statement/prospectus.
89
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
AS OF MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
WIT SOUNDVIEW E*OFFERING ADJUSTMENTS COMBINED
------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents......... $ 62,898,235 $4,463,170 $ (4,850,000)(A) $ 98,984,285
41,000,000 (B)
(4,527,120)(C)
Receivable from clearing broker... 42,904,545 15,303,590 58,208,135
Securities owned, at market
value........................... 50,546,658 15,382,230 65,928,888
Investment banking fees
receivable...................... 50,636,727 5,223,374 55,860,101
Investments....................... 76,955,367 -- 76,955,367
Investments in affiliates......... 15,261,179 -- 15,261,179
Intangible assets................. 273,108,020 1,055,406 315,714,307 (D) 588,822,327
(1,055,406)(E)
Furniture, equipment, and
leasehold improvements, net..... 11,665,508 6,349,701 18,015,209
Computer software, net............ 2,631,475 1,217,709 (2,300,000)(F) 1,549,184
Prepaid expenses.................. 3,289,671 120,738 3,410,409
Other assets...................... 37,349,721 948,308 38,298,029
------------ ----------- ------------ --------------
Total assets.................... $627,247,106 $50,064,226 $343,981,781 $1,021,293,113
============ =========== ============ ==============
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES:
Securities sold, but not yet
purchased, at market value...... $ 1,031,084 $ 53,269 $ 1,084,353
Accounts payable and accrued
expenses........................ 11,160,630 4,309,995 15,470,625
Accrued compensation.............. 93,008,142 5,070,576 5,000,000 (G) 106,303,718
3,225,000 (H)
Deferred taxes payable............ 32,000,720 -- 23,940,000 (I) 55,940,720
Other liabilities................. 5,884,212 5,416,506 11,300,718
------------ ----------- ------------ --------------
Total Liabilities................. 143,084,788 14,850,346 32,165,000 190,100,134
SUBORDINATED DEBT................. -- 4,527,120 (4,527,120)(C) --
STOCKHOLDERS' EQUITY:
Total stockholders' equity........ 484,162,318 30,686,760 (30,686,760)(J) 831,192,979
41,000,000 (B)
(14,667,975)(K)
(5,000,000)(G)
(1,900,000)(H)
(2,300,000)(F)
(1,055,406)(E)
330,954,042 (L)
------------ ----------- ------------ --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY............ $627,247,106 $50,064,226 $343,981,781 $1,021,293,113
============ =========== ============ ==============
</TABLE>
See notes to pro forma condensed combined financial statements
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<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
WIT SOUNDVIEW E*OFFERING(X) ADJUSTMENTS COMBINED
-------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Investment banking.............................. $ 60,349,094 $13,388,167 $ 73,737,261
Brokerage....................................... 36,524,953 8,976,710 (4,037,553)(N) 41,464,110
Asset management fees........................... 7,833,034 -- 7,833,034
Interest and investment income.................. 1,819,213 325,594 2,144,807
Gains from firm investments..................... 61,880 -- 61,880
Other........................................... -- 327,091 327,091
------------ ----------- ----------- ------------
Total revenues................................ 106,588,174 23,017,562 (4,037,553) 125,568,183
------------ ----------- ----------- ------------
EXPENSES:
Compensation and benefits....................... 64,942,356 17,467,433 447,250 (O)(i) 81,946,684
1,236,385 (O)(ii)
(2,146,740)(O)(iii)
Brokerage and clearance......................... 6,196,706 894,090 (1,990,806)(P) 7,702,076
2,602,086 (M)
Marketing and business development.............. 3,047,030 1,123,945 4,170,975
Amortization of intangible assets............... 2,749,400 247,446 12,089,797 (T) 15,086,643
Professional services........................... 2,277,121 2,090,256 (74,682)(Q) 4,292,695
Data processing and communications.............. 1,772,263 859,241 (497,714)(R) 2,133,790
Write-off of computer software and equipment.... 1,339,772 -- 1,339,772
Depreciation and amortization................... 1,275,834 868,401 (39,195)(S) 2,105,040
Technology development.......................... 1,042,801 1,784,692 (824,716)(AA) 2,002,777
Occupancy....................................... 792,115 645,952 1,438,067
Other operating expenses........................ 1,334,292 1,513,775 (150,973)(U) 2,610,692
(86,402)(BB)
------------ ----------- ----------- ------------
Total expenses................................ 86,769,690 27,495,231 10,564,290 124,829,211
------------ ----------- ----------- ------------
Income(loss) before income taxes................ 19,818,484 (4,477,669) (14,601,843) 738,972
Series C preferred dividends.................... -- 689,468 (689,468)(CC) --
Income tax expense (benefit).................... 10,608,166 -- (6,593,248)(V) 4,014,918
------------ ----------- ----------- ------------
Income (loss) before equity in net loss of
affiliates.................................... 9,210,318 (5,167,137) (7,319,127) (3,275,946)
Equity in net loss of affiliates................ (1,709,689) -- -- (1,709,689)
------------ ----------- ----------- ------------
Net income(loss)................................ $ 7,500,629 $(5,167,137) $(7,319,127) $ (4,985,635)
============ =========== =========== ============
NET INCOME (LOSS) PER SHARE
Basic......................................... $ 0.10 $ (0.05)
Diluted....................................... 0.08 (0.05)
WEIGHTED AVERAGE SHARES USED IN THE COMPUTATION
OF NET INCOME (LOSS) PER SHARE
Basic......................................... 72,997,204 102,852,991
Diluted....................................... 98,085,755 102,852,991 (Z)
</TABLE>
See notes to pro forma condensed combined financial statements
91
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
FOR FOR
SOUNDVIEW E* OFFERING
WIT CAPITAL SOUNDVIEW(W) MERGER E* OFFERING(X) MERGER
------------ ------------- ----------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Investment banking......... $ 30,269,532 $ 58,926,400 $ 13,589,470
Brokerage.................. 7,087,700 93,100,800 6,671,743 (7,087,700)(N)
Gains from firm
investments.............. 5,509,080 9,822,000 --
Asset management fees...... -- 12,856,900 --
Interest and investment
income................... 4,716,824 1,502,000 358,558
Gain (loss) on joint
venture.................. -- 942,400 --
Other...................... 1,034,415 -- 130,819
------------ ------------ ------------ ------------
Total revenues....... 48,617,551 177,150,500 20,750,590 (7,087,700)
------------ ------------ ------------ ------------
EXPENSES:
Compensation and benefits.. 39,013,625 101,789,600 5,552,704 (O)(iv) 17,778,751 1,789,000 (O)(i)
4,945,541 (O)(ii)
(3,200,739)(O)(iii)
Brokerage and clearance.... 5,346,959 15,192,200 1,646,163 (5,346,959)(P)
4,345,352 (M)
Occupancy.................. 1,108,770 2,257,900 1,515,790
Technology development..... 2,771,792 -- 2,033,482 (917,139)(AA)
Professional services...... 4,952,832 5,057,700 3,134,727 (1,138,338)(Q)
Marketing and business
development.............. 2,594,222 5,969,200 3,939,187
Data processing and
communications........... 3,449,259 3,866,200 1,656,200 (1,691,519)(R)
Depreciation and
amortization............. 1,609,492 1,697,700 1,401,651 (330,782)(S)
Amortization of intangible
assets................... -- -- 16,509,092 (Y) 190,530 48,359,187 (T)
Write-down of computer
software and equipment... 5,565,247 -- --
Other operating expenses... 2,548,829 2,019,900 2,769,382 (310,378)(U)
------------ ------------ ----------- ------------ ------------
Total expenses............. 68,961,027 137,850,400 22,061,796 36,065,863 46,503,226
------------ ------------ ----------- ------------ ------------
Income (loss) before income
taxes.................... (20,343,476) 39,300,100 (22,061,796) (15,315,273) (53,590,926)
Income tax expense
(benefit)................ 16,570,800 (13,833,787)(V) -- (10,310,981)(V)
------------ ------------ ----------- ------------ ------------
Income before equity in net
loss of affiliates....... (20,343,476) 22,729,300 (8,228,009) (15,315,273) (43,279,945)
Equity in net loss of
affiliates............... (560,439) -- -- -- --
------------ ------------ ----------- ------------ ------------
Net Income (loss).......... $(20,903,915) $ 22,729,300 $(8,228,009) $(15,315,273) $(43,279,945)
============ ============ =========== ============ ============
NET INCOME (LOSS) PER SHARE
Basic...................... $ (0.52)
Diluted.................... $ (0.52)
WEIGHTED AVERAGE SHARES
USED IN THE COMPUTATION
OF NET INCOME (LOSS) PER
SHARE
Basic...................... 39,909,794
Diluted.................... 39,909,794
<CAPTION>
PRO FORMA
COMBINED
------------
<S> <C>
REVENUES:
Investment banking......... $102,785,402
Brokerage.................. 99,772,543
Gains from firm
investments.............. 15,331,080
Asset management fees...... 12,856,900
Interest and investment
income................... 6,577,382
Gain (loss) on joint
venture.................. 942,400
Other...................... 1,165,234
------------
Total revenues....... 239,430,941
------------
EXPENSES:
Compensation and benefits.. 167,668,482
Brokerage and clearance.... 21,183,715
Occupancy.................. 4,882,460
Technology development..... 3,888,135
Professional services...... 12,006,921
Marketing and business
development.............. 12,502,609
Data processing and
communications........... 7,280,140
Depreciation and
amortization............. 4,378,061
Amortization of intangible
assets................... 65,058,809
Write-down of computer
software and equipment... 5,565,247
Other operating expenses... 7,027,733
------------
Total expenses............. 311,442,312
------------
Income (loss) before income
taxes.................... (72,011,371)
Income tax expense
(benefit)................ (7,573,968)
------------
Income before equity in net
loss of affiliates....... (64,437,403)
Equity in net loss of
affiliates............... (560,439)
------------
Net Income (loss).......... $(64,997,842)
============
NET INCOME (LOSS) PER SHARE
Basic...................... $ (0.80)
Diluted.................... $ (0.80)
WEIGHTED AVERAGE SHARES
USED IN THE COMPUTATION
OF NET INCOME (LOSS) PER
SHARE
Basic...................... 81,130,273
Diluted.................... 81,130,273 (Z)
</TABLE>
See notes to pro forma condensed combined financial statements
92
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS:
(A) Represents estimated costs of approximately $4,850,000 that primarily
represent investment banking and professional fees to be incurred in
connection with the merger.
(B) Adjustment to reflect the sale of an aggregate of 4 million shares of
common stock to both E*TRADE and General Atlantic Partners at a price of
$10.25.
(C) Adjustment to reflect the repayment of E*OFFERING's subordinated
liabilities.
(D) The excess of purchase price is allocated to intangible assets with
corresponding respective lives as follows:
<TABLE>
<CAPTION>
INTANGIBLE ASSETS AMOUNT LIFE
----------------- ------------ --------
<S> <C> <C>
Strategic Alliance Agreement.......................... $ 57,000,000 5 years
Goodwill.............................................. 258,714,307 7 years
------------
$315,714,307
</TABLE>
The allocation of the purchase price and the determination of the useful
lives of the intangible assets was based on an independent appraisal as of a
preliminary date.
(E) Adjustment to eliminate goodwill from a prior acquisition of E*OFFERING.
(F) Adjustment to reflect the write-off of computer software used to process
Wit SoundView's online retail brokerage transactions that will no longer
be used by the Company.
(G) Adjustment to record the liability related to the $5 million cash
retention pool to be paid to designated E*OFFERING employees no later
than March 31, 2001.
(H) Adjustment to record the liability for severance payments to be made to
employees of Wit SoundView and E*OFFERING that will no longer be employed
by the combined company.
(I) Adjustment to record deferred tax liabilities at an assumed rate of 42%
related to the excess of the purchase price allocated to intangibles,
other than goodwill.
(J) Adjustment to eliminate E*OFFERING's historical equity.
(K) Adjustment to reflect the deferred compensation related to the portion
of the intrinsic value of unvested Wit SoundView replacement options
granted to employees of E*OFFERING at closing for which future service is
required.
(L) The measurement date for valuing the shares to be issued for accounting
purposes will be the last date the number of shares to be issued becomes
fixed without subsequent revision. For purposes of determining
consideration paid for the pro forma financial statements, 25,855,787
shares of Wit SoundView's common stock, including 4,025,948 shares
issuable to E*TRADE under the strategic alliance agreement, and options
and warrants to purchase 6,656,407 shares of common stock, pursuant to
the formula for the exchange ratio, were assumed to be issued and granted
at a market price of $10.47. The market price was calculated using an
average of the closing bid and asked price of the stock for a period of
2 days before and after the measurement date of May 15, 2000, the date
the number of shares to be issued became fixed without subsequent
revision.
(M) Adjustment to reflect the portion of dealer selling concessions
allocated to E*TRADE under the Strategic Alliance Agreement. The
percentage of revenue allocated to E*TRADE on offerings in which Wit
SoundView participated as a co-managing underwriter was calculated as a
formula based upon the total number of shares allocated to customers of
Wit SoundView as a percentage of the total securities offered to the
public in each offering. In offerings in which Wit SoundView did not
participate as a co-managing underwriter, the percentage of revenue
allocated to
93
<PAGE>
E*TRADE was calculated by applying a percentage based on the number of
shares allocated to E*TRADE's customers to the revenue received by Wit
SoundView.
(N) Adjustment to reflect the elimination of commissions received by Wit
SoundView on secondary market transactions executed by its online retail
brokerage account holders and to eliminate income Wit SoundView receives
from its clearing agent related to balances maintained in its retail
customer's accounts. This revenue will no longer be received by Wit
SoundView pursuant to the Account Transfer Agreement.
(O) The adjustment for compensation and benefits reflects the following
adjustments:
(i) the period expense related to the issuance of 500,000 shares of Wit
SoundView restricted common stock to designated E*OFFERING employees
for the stock retention bonus pool, at an assumed price of $10.734,
the closing market price of Wit SoundView's stock on June 30, 2000,
the latest practical date before the filing of this proxy
statement/prospectus. One-third of the shares will vest 12 months
after the closing of the merger, the second third will vest
24 months after the closing of the merger and the remaining third
will vest 36 months after the closing of the merger. Compensation
expense will be recorded ratably over the vesting period.
(ii) the amortization of the deferred compensation related to the portion
of the intrinsic value of Wit SoundView unvested options replacing
E*OFFERING options at the closing of the merger for which future
service by the employee is required. For purposes of calculating this
amount a stock price of $10.734, the closing price of Wit SoundView's
common stock on June 30, 2000, the latest practical date before the
filing of this proxy statement/prospectus.
(iii) the reduction of salary, bonus and benefits paid or provided to
specified employees of Wit SoundView whose services in the online
retail brokerage operation will no longer be required as a result of
the provisions of the Account Transfer Agreement
(iv) the period expense related to the issuance of 1,509,473 shares of
restricted common stock to designated SoundView employees for the
retention bonus pool, pursuant to the formula for the exchange ratio
in the SoundView merger, at a price of $12.875, the closing market
price of Wit SoundView's stock on January 31, 2000. Half of the
shares will vest 30 months after the closing of the merger and the
remaining half will vest 42 months after the merger closes.
Compensation expense is being recorded ratably over the vesting
period.
(P) Reflects the elimination of costs paid to Wit SoundView's clearing agent
for processing and clearing its online retail customer's trades
(Q) Adjustment to eliminate amounts paid to outside operational consulting
firms that Wit SoundView used to assist in the daily operations and
structuring of its online retail brokerage operations
(R) Reflects the elimination of data processing and communication charges
related to maintaining Wit SoundView's online retail brokerage
operations.
(S) Adjustment to reflect the elimination of depreciation and amortization
expense related to assets that will no longer be employed by the Company.
(T) Reflects the amortization of intangible assets and goodwill related to
the acquisition of E*OFFERING on a straight-line basis over the estimated
useful lives.
(U) Adjustment to eliminate costs associated with state licensing and
registration of Wit SoundView's brokerage personnel.
94
<PAGE>
(V) Reflects the combined federal and state and local taxes for the combined
company at an estimated tax rate of 42% and includes the deferred tax
benefit related to the amortization of the deferred tax liabilities
established in connection with the recording of intangible assets
utilizing the respective estimated life of the intangible asset.
(W) Represents the actual historical results of operations of SoundView
Technology Group, Inc.
(X) Represents the actual historical results of operations of E*OFFERING
Corp. for the three months ended March 31, 2000 and calendar year ended
December 31, 1999 as derived from E*OFFERING'S audited financial
statements and unaudited quarterly data.
(Y) Reflects the amortization of intangible assets and goodwill related to
the acquisition of SoundView on a straight line basis over the estimated
useful lives.
(Z) Because the combined company reported a net loss in each of the periods
above, the calculation of pro forma diluted earnings per share does not
include the restricted common stock issued to designated E*OFFERING
employees related to the retention pool and options issued to E*OFFERING
employees to replace existing E*OFFERING options or any Wit SoundView
common stock equivalents as they are anti-dilutive and would result in a
reduction of net loss per share.
(AA)Adjustment to eliminate costs to enhance the functionality of Wit
SoundView's website related to its online retail brokerage operations and
costs of enhancing Wit SoundView's existing online brokerage platform
including e-mail communications with customers, allocation of shares in
initial public offerings and interfaces with systems of Wit SoundView's
clearing agent.
(BB)Adjustment to eliminate interest expense on E*OFFERING's subordinated
debt which will be repaid immediately prior to closing.
(CC)Adjustment to eliminate dividends on E*OFFERING's Series C Preferred
Stock which will be exchanged for Wit SoundView Common Stock at closing.
95
<PAGE>
LEGAL OPINIONS
The validity of the shares of Wit SoundView common stock offered by this
proxy statement/prospectus and the federal income tax consequences in connection
with the merger will be passed upon by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
EXPERTS
Wit SoundView has incorporated by reference in this proxy
statement/prospectus its audited financial statements as of December 31, 1999
and for the years ended December 31, 1998 and 1997 and for the period from
March 27, 1996 (inception) to December 31, 1996 along with the audit report of
Arthur Andersen LLP on these financial statements. Arthur Andersen LLP issued
the report as independent auditors and as experts in auditing and accounting.
The financial statements of E*OFFERING for the period from November 13, 1998
(Inception) to September 30, 1999 included in this prospectus have been audited
by Deloitte and Touche LLP, independent auditors, as stated in their report
appearing herein the registration statement, and are included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
Wit SoundView files periodic reports, proxy statements and other information
with the Securities and Exchange Commission. It has filed with the SEC a
registration statement on Form S-4 with respect to the common stock being issued
in the merger. This proxy statement/prospectus is a part of that registration
statement and constitutes a proxy statement and prospectus of Wit SoundView for
use at its special meeting. As allowed by SEC rules, this proxy
statement/prospectus does not contain all the information you can find in the
Wit SoundView registration statement or the exhibits to the Wit SoundView
registration statement. The SEC allows us to "incorporate by reference"
information into this proxy statement/prospectus, which means that we can
disclose important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this proxy statement/prospectus, except for any information
superseded by information contained directly in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents set
forth below that we have previously filed with the SEC. These documents contain
important information about Wit SoundView and its financial condition.
<TABLE>
<CAPTION>
WIT SOUNDVIEW SEC FILINGS PERIOD
------------------------- ----------------------------
<S> <C>
Annual Report on Form 10-K.................... Year ended December 31, 1999
Quarterly Report on Form 10-Q................. Quarter ended March 31, 2000
Current Reports on Form 8-K................... Filed on May 26, 2000
Proxy Statement............................... Dated May 1, 2000
</TABLE>
Wit SoundView also incorporates by reference into this proxy
statement/prospectus additional documents that may be filed with the SEC from
the date of this proxy statement/prospectus to the date of the special meeting
of Wit SoundView stockholders. These include periodic reports, such as Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
Statements contained in this proxy statement/prospectus as to the contents
of any contract or other document referred to herein are not necessarily
complete and, where such contract is an exhibit to the registration statement,
each such statement is qualified in all respects by the provisions of such
exhibit, to which such reference is hereby made. Documents incorporated by
reference are available from us without charge, excluding all exhibits unless we
have specifically incorporated by reference an exhibit to this proxy
96
<PAGE>
statement/prospectus. Stockholders may obtain documents incorporated by
reference in this proxy statement/prospectus by requesting them in writing or by
telephone from Wit SoundView at the following address:
Wit SoundView Group, Inc.
826 Broadway
New York, NY 10003
(212) 253-4400
If you would like to request documents from us, please do so by ,
2000 in order to receive them before the special meeting.
You may also read and copy any document Wit SoundView files at the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and the Securities and Exchange
Commission's Regional Offices located at 500 West Madison Street, Suite 1400,
Chicago, IL 60661, and 7 World Trade Center, 13th Floor, New York, NY 10048. Wit
SoundView's filings are also available to the public at the Web site maintained
by the Securities and Exchange Commission at http://www.sec.gov. Wit SoundView's
filings may also be inspected at the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
In addition, an electronic version of this proxy statement/prospectus is
available on Wit SoundView's Web site at
http://www.witcapital.com/merger/filings/s4eoffering.html. Other than the
electronic version of this proxy statement/prospectus that is available on the
Web site, none of the information on Wit SoundView's Web site is part of this
proxy statement/prospectus.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote on the transactions. We
have not authorized anyone to provide you with information that is different
from what is contained in this proxy statement/prospectus. This proxy
statement/prospectus is dated , 2000. You should not assume that the
information contained in this proxy statement/prospectus is accurate as of any
date other than that date, and neither the mailing of this proxy
statement/prospectus to stockholders nor the issuance of Wit SoundView common
stock in the merger shall create any implication to the contrary.
97
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Statements of Financial Condition as of
March 31, 2000 (Unaudited) and September 30, 1999......... F-3
Consolidated Statements of Operations for the Six Months
Ended March 31, 2000 (Unaudited), for the Period from
November 13, 1998 (Inception) to March 31, 1999
(Unaudited), and for the Period from November 13, 1998
(Inception) to September 30, 1999......................... F-4
Consolidated Statements of Cash Flows for the Six Months
Ended March 31, 2000 (Unaudited), for the Period from
November 13, 1998 (Inception) to March 31, 1999
(Unaudited), and for the Period from November 13, 1998
(Inception) to September 30, 1999......................... F-5
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Six Months Ended March 31, 2000
(Unaudited) and for the Period from November 13, 1998
(Inception) to September 30, 1999......................... F-7
Notes to Consolidated Financial Statements from
November 13, 1998 (Inception) to September 30, 1999
(Unaudited with Respect to Data as of March 31, 2000 and
for the Period from November 13, 1998 (Inception) to
March 31, 1999 and for the Six Months Ended March 31,
2000)..................................................... F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of
E*OFFERING Corp.
We have audited the accompanying consolidated statement of financial
condition of E*OFFERING Corp. and subsidiary (the Company) as of September 30,
1999, and the related consolidated statements of operations, cash flows, and
changes in stockholders' equity (deficit) from November 13, 1998, (Inception) to
September 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of
September 30, 1999, and the results of its operations and its cash flows from
November 13, 1998 (Inception) to September 30, 1999, in conformity with
accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
November 22, 1999
F-2
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF MARCH 31, 2000 (UNAUDITED) AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 4,463,170 $ 1,734,966
Short term investments...................................... 14,588,700
Receivable from clearing brokers............................ 15,303,590 4,118,873
Securities owned, at market value........................... 793,530 260,539
Investment banking fees receivable.......................... 5,223,374 648,584
Intangible assets, less accumulated amortization of $263,856
at March 31, 2000 (unaudited) and $131,928 at September
30, 1999.................................................. 1,055,406 1,187,334
Furniture, equipment and leasehold improvements, net........ 6,349,701 4,363,808
Computer software and internally developed software, less
accumulated amortization of $187,119 March 31, 2000
(unaudited) and $99,779 at September 30, 1999............. 1,217,709 498,894
Prepaid expenses............................................ 120,738 126,633
Other assets................................................ 948,308 1,085,265
----------- -----------
TOTAL ASSETS................................................ $50,064,226 $14,024,896
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Securities sold but not yet purchased, at market value...... $ 53,269 $ 327,998
Due to clearing brokers..................................... 594,214
Accounts payable............................................ 4,309,995 2,700,768
Compensation payable........................................ 5,070,576 713,641
Other liabilities........................................... 4,322,292 1,017,891
Notes payable--related parties.............................. 5,027,120 500,000
Subordinated debt--related party............................ -- 10,000,000
----------- -----------
Total liabilities........................................... 19,377,466 15,260,298
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 12)
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible preferred stock:
Undesignated series, no par value, 10,300,000 shares
authorized at September 30, 1999, no shares issued or
outstanding
Series A, no par value, 1,600,000 shares
authorized, issued and outstanding, liquidation
preference $1,600,000................................... 1,600,000 1,600,000
Series B, no par value, 5,800,000
and 3,300,000 shares authorized at March 31, 2000
(unaudited) and September 30, 1999, respectively,
2,500,000 shares issued and outstanding;
liquidation preference $10,000,000...................... 10,000,000 10,000,000
Series C, no par value, 14,968,442
shares authorized, issued and outstanding, liquidation
preference $52,109,345 (unaudited)...................... 47,647,469 --
Common stock, no par value, 41,078,347 and 27,175,000 shares
authorized, 3,724,603 and 4,806,678 shares issued and
outstanding at March 31, 2000 (unaudited) and September
30, 1999, respectively.................................... 374,762 248,054
Additional paid-in capital.................................. 654,840 654,840
Stock subscription receivable............................... (8,816,743) (114,088)
Accumulated deficit......................................... (20,773,568) (13,624,208)
----------- -----------
Stockholders' equity (deficit).............................. 30,686,760 (1,235,402)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)........ $50,064,226 $14,024,896
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED), FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999 (UNAUDITED), AND FOR THE
PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NOVEMBER 13,
SIX MONTHS 1998
ENDED (INCEPTION) TO NOVEMBER 13, 1998
MARCH 31, MARCH 31, (INCEPTION) TO
2000 1999 SEPTEMBER 30, 1999
------------ -------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Investment banking.............................. $ 19,665,493 $ -- $ 7,312,144
Brokerage....................................... 14,440,386 -- 1,208,067
Interest income................................. 412,422 60,664 271,730
Other........................................... 392,339 -- 65,571
------------ ----------- ------------
Total Revenues................................ 34,910,640 60,664 8,857,512
------------ ----------- ------------
EXPENSES:
Compensation and benefits....................... 24,260,713 347,426 10,973,191
Brokerage and clearance......................... 1,535,368 -- 1,004,885
Marketing and business developments............. 1,983,467 371,591 3,079,665
Amortization of intangible assets............... 306,048 -- 131,928
Professional services........................... 3,375,600 58,426 1,861,664
Data processing and communications.............. 1,357,481 9,273 1,157,959
Depreciation and amortization................... 1,367,434 10,780 902,618
Technology development.......................... 2,824,928 14,517 993,246
Occupancy....................................... 1,633,401 17,607 528,341
Other expenses.................................. 2,726,092 36,854 1,557,066
------------ ----------- ------------
Total Expenses................................ 41,370,532 866,474 22,190,563
------------ ----------- ------------
NET LOSS.......................................... (6,459,892) (805,810) (13,333,051)
SERIES B PREFERRED STOCK ACCRETION................ -- -- 291,157
SERIES C PREFERRED STOCK DIVIDEND................. 689,468 -- --
------------ ----------- ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS........ $ (7,149,360) $ (805,810) $(13,624,208)
============ =========== ============
Net Loss Per Common Share:
Basic........................................... $ (1.68) $ (0.19) $ (3.04)
Diluted......................................... $ (1.68) $ (0.19) $ (3.04)
Weighted Average Shares Used in the
Computation of Net Loss Per Common Share:
Basic........................................... 4,248,509 4,142,050 4,484,005
Diluted......................................... 4,248,509 4,142,050 4,484,005
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED), FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999 (UNAUDITED), AND FOR THE PERIOD
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NOVEMBER 13, NOVEMBER 13,
SIX MONTHS 1998 1998
ENDED (INCEPTION) TO (INCEPTION) TO
MARCH 31, MARCH 31, SEPTEMBER 30,
2000 1999 1999
------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (before Series B preferred stock accretion and
Series C preferred stock dividend)........................ $(6,459,892) $ (805,810) $(13,333,051)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 1,495,595 16,117 1,034,546
Compensation expense related to stock options and warrant
grants.................................................. 363,683
Issuance of stock for professional services received...... 2,025
Dividends accrued on Series C preferred stock............. (689,468)
Loss on disposal of assets................................ 409,994
Changes in operating assets and liabilities, (net of the
effect of
acquisition for the period from November 13, 1998
(inception) to September 30, 1999):
Receivable from Meridian Capital Group Inc.............. (250,000)
Receivable from clearing broker......................... (11,184,717) (3,873,831)
Securities owned........................................ (532,991) 38,066
Investment banking fees receivable...................... (4,574,790) (648,584)
Prepaid expenses........................................ 5,895 (2,479) 326,253
Other assets............................................ 136,954 (179,421) (1,085,265)
Securities sold but not yet purchased................... (274,729) 324,388
Due to clearing broker.................................. 594,214
Accounts payable........................................ 1,609,227 110,020 1,994,030
Compensation payable.................................... 4,356,935 617,654
Other liabilities....................................... 3,478,524 1,017,891
------------ ------------ ------------
Net cash used in operating activities................... (11,629,249) (1,111,573) (13,222,195)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Meridian Capital Group Inc., net of cash
acquired of $1,540...................................... (1,009,460)
Purchase of furniture, equipment, leasehold improvements
and computer software................................... (4,478,369) (456,808) (5,765,320)
Purchase of short-term investments........................ (14,588,700)
------------ ------------ ------------
Net cash used in investing activities................... (19,067,069) (456,808) (6,774,780)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subordinated debt............... 5,000,000 10,000,000
Pay-down of subordinated debt............................. (5,000,000)
Proceeds from issuance of common stock and related
warrants................................................ 129,378
Proceeds from issuance of preferred stock, Series A....... 1,500,000 1,600,000
Proceeds from issuance of preferred stock, Series B and
related warrants........................................ 10,000,000 10,000,000
Proceeds from issuance of preferred stock, Series C and
related warrants........................................ 33,281,540
Proceeds from exercise of stock options................... 146,315 83,378 5,541
Interest earned on subordinated debt and stockholders
notes receivable........................................ (3,333) (2,978)
------------ ------------ ------------
Net cash provided by financing activities............... 33,424,522 11,583,378 21,731,941
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 2,728,204 10,014,997 1,734,966
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,734,966 0 0
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 4,463,170 $ 10,014,997 $ 1,734,966
============ ============ ============
(CONTINUED)
</TABLE>
F-5
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED), FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999 (UNAUDITED), AND FOR THE PERIOD
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NOVEMBER 13, NOVEMBER 13,
SIX MONTHS 1998 1998
ENDED (INCEPTION) TO (INCEPTION) TO
MARCH 31, MARCH 31, SEPTEMBER 30,
2000 1999 1999
------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Income taxes paid......................................... $ 3,200 $ 1,600
Interest paid............................................. 293,628 426,776
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING
ACTIVITIES:
Detail of business acquired in purchase transaction:
Fair value of assets acquired........................... 2,317,335
Cash paid for acquisition, net of cash acquired of
$1,540................................................ (1,009,460)
Issuance of note payable................................ (500,000)
------------
Liabilities assumed..................................... 807,875
============
Common stock issued in consideration of contributed
assets.................................................. 231,419
Notes receivable issued to stockholders in lieu of cash
received from the exercise of stock options............. 111,110
Stock subscriptions receivable issued for purchase of
preferred stock, Series C............................... 8,699,322
Conversion of subordinated debt to preferred stock, Series
C....................................................... 10,000,000
Redemption of common stock in exchange for $4,353,000 in
notes payable as part of issuance of preferred stock,
Series C................................................ 19,607
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED) AND
FOR THE PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
--------------------- ------------------------ PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- -------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
November 13, 1998 (inception)......... -- $ 0 -- $ 0 $ 0 $ 0
Issuance of common stock................ 4,400,000 84,178
Issuance of common stock through
exercise of stock options............. 406,678 163,876
Issuance of Series A preferred stock.... 1,600,000 1,600,000
Issuance of Series B preferred stock and
warrants.............................. 2,500,000 9,708,843 291,157
Accretion of Series B preferred stock... 291,157 (291,157)
Issuance of warrants to purchase
2,075,000 shares of common stock...... 21,425
Compensation expense on stock options
issued................................ 342,258
Issuance of subordinated debt...........
Net loss from November 13, 1998
(inception) to September 30, 1999..... (13,333,051)
---------- -------- ---------- ----------- ----------- ------------
BALANCE,
September 30, 1999.................... 4,806,678 248,054 4,100,000 11,600,000 654,840 (13,624,208)
(Unaudited):
Conversion of subordinated debt to
Series C preferred stock.............. 2,872,506 10,000,000
Redemption of common stock for note
payable related to issuance of
Series C preferred stock.............. (1,451,000) (19,607) 19,607
Issuance of Series C preferred stock.... 12,095,936 37,627,862
Issuance of common stock through
exercise of stock options............. 368,925 146,315
Series C preferred stock dividend....... (689,468)
Net loss for the six months ended March
31, 2000.............................. (6,459,892)
---------- -------- ---------- ----------- ----------- ------------
BALANCE,
March 31, 2000 (unaudited)............ 3,724,603 $374,762 19,068,442 $59,247,469 $ 654,840 $(20,773,568)
========== ======== ========== =========== =========== ============
<CAPTION>
STOCK
SUBSCRIPTION STOCKHOLDERS'
RECEIVABLE EQUITY (DEFICIT)
------------ ----------------
<S> <C> <C>
BALANCE,
November 13, 1998 (inception)......... $ 0 $ 0
Issuance of common stock................ 84,178
Issuance of common stock through
exercise of stock options............. (114,088) 49,788
Issuance of Series A preferred stock.... 1,600,000
Issuance of Series B preferred stock and
warrants.............................. 10,000,000
Accretion of Series B preferred stock... 0
Issuance of warrants to purchase
2,075,000 shares of common stock...... 21,425
Compensation expense on stock options
issued................................ 342,258
Issuance of subordinated debt...........
Net loss from November 13, 1998
(inception) to September 30, 1999..... (13,333,051)
----------- ------------
BALANCE,
September 30, 1999.................... (114,088) (1,235,402)
(Unaudited):
Conversion of subordinated debt to
Series C preferred stock.............. 10,000,000
Redemption of common stock for note
payable related to issuance of
Series C preferred stock.............. 0
Issuance of Series C preferred stock.... (8,702,655) 28,925,207
Issuance of common stock through
exercise of stock options............. 146,315
Series C preferred stock dividend....... (689,468)
Net loss for the six months ended March
31, 2000.............................. (6,459,892)
----------- ------------
BALANCE,
March 31, 2000 (unaudited)............ $(8,816,743) $ 30,686,760
=========== ============
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS--E*OFFERING Corp. is a registered
broker/dealer, and all securities transactions for the accounts of the Company
and its customers are cleared by another broker/ dealer on a fully disclosed
basis. E*OFFERING Corp. is a full-service, Internet-based investment bank, which
provides individual and institutional investors greater access to public
offerings. E*OFFERING Corp. plans to leverage the internet to improve the
process of raising capital for companies by reducing time to market and
underwriting costs traditionally associated with the registration process, while
broadening capital distribution. Additionally, E*OFFERING Corp. provides
after-market support and shareholder communication services. The Company has
office locations in Newport Beach and San Francisco, California.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
INFORMATION--The accompanying interim information as of March 31, 2000 and for
the period from November 13, 1998 (Inception) to March 31, 1999 and for the six
months ended March 31, 2000 is unaudited. Such unaudited financial statements
and information have been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited financial information
includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the interim information. Operating results
for the six months ended March 31, 2000 are not necessarily indicative of the
results that may be expected for a full fiscal year.
BASIS OF PRESENTATION--The consolidated financial statements include
E*OFFERING Corp. and its wholly owned subsidiary (formerly the Meridian Capital
Group, Inc.), collectively, the Company. The consolidated financial statements
of the Company have been prepared in conformity with accounting principles
generally accepted in the United States of America and prevalent in industry
practice. During March 1999, the Company purchased the Meridian Capital
Group, Inc., a securities broker-dealer. Significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of cash and cash
equivalents, short term investments, receivables from clearing broker, notes
receivable, due to clearing brokers, accounts payable, commissions payable and
other liabilities approximate fair value because of the short maturities of
these instruments. Securities owned and securities sold but not yet purchased
are recorded at market value. The fair value of the note payable of
approximately $498,000 as of September 30, 1999 is based on the present value of
the future cash flows, discounted at a rate available for similar notes with a
comparable maturity. It is not practical to estimate the fair value of the
subordinated debt at September 30, 1999 or the notes payable at March 31, 2000
(unaudited) due to the related party nature of the underlying transactions with
the shareholders of the Company.
F-8
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS--The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
SHORT-TERM INVESTMENTS--Short-term investments consists of six-month U.S.
Treasury bills. Such investments are carried at amortized cost, which
approximates market value.
PROPERTY AND EQUIPMENT--Property and equipment are carried at cost and are
depreciated on a straight-line basis over their estimated useful lives,
generally three to five years. Leasehold improvements are stated at cost and are
amortized over the lesser of their estimated useful lives or the lease term. The
cost of internally developed software is capitalized and included in property
and equipment.
The costs to develop such software are capitalized in accordance with
Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. Capitalization begins when management
authorizes and commits to funding a project it believes will be completed and
used to perform the functions intended and the conceptual formulation, design,
and testing of possible software project alternatives have been completed.
Capitalized costs relating to internally developed or purchased software
relating to the Company's website for the period from November 13, 1998
(Inception) to September 30, 1999, amounted to $598,673.
SECURITIES OWNED AND SECURITIES SOLD BUT NOT YET PURCHASED--Marketable
securities owned and securities sold but not yet purchased are comprised
primarily of common stock and are valued at current market prices. The fair
value of securities not traded on an exchange or reported in the National
Association of Securities Dealers Automated Quotation system has been reflected
at market bid prices. The amounts realized from future transactions may differ
materially from the market bid prices reflected in the consolidated statements
of financial condition. Securities not readily marketable are primarily warrants
that are exchangeable into investment securities that cannot be publicly offered
or sold unless registration has been effected under the Securities Act of 1933
or cannot be currently sold because of other arrangements, restrictions, or
conditions applicable to the securities. To the extent the underlying stock
value exceeds the exercise price of the warrants, the warrants are valued as the
difference of the underlying stock price and exercise price, which is then
discounted for the period of time the warrants are not exercisable or for the
restrictive nature of the underlying common stock. There were no securities at
September 30, 1999 that were not readily marketable.
INVESTMENT BANKING--Investment banking revenues consist of corporate finance
revenues are recognized and recorded upon closure of the financing effort. Such
revenues are accrued for in trade receivables in the accompanying consolidated
statements of financial condition.
BROKERAGE--Brokerage revenue consists of commissions related to customer
transactions in equity and debt securities and realized and unrealized gains and
losses on trading activities. Securities transactions are recorded on a trade
date basis and are executed by independent broker-dealers.
STOCK-BASED COMPENSATION--The Company grants stock options to its employees
and associates using the intrinsic method in accordance with the provisions of
Accounting Principles Board Opinion No. 25,
F-9
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations.
Compensation expense related to employee stock options is recorded only if, on
the date of grant, the fair value of the underlying stock exceeds the exercise
price. Compensation expense related to non-employees is accounted for using the
fair value method in accordance with Statement of Financial Accounting Standards
(SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
INTANGIBLE ASSETS--Intangible assets consist primarily of goodwill,
resulting from the acquisition of Meridian Capital Group, Inc., is amortized
over 60 months on a straight-line basis.
INCOME TAXES--Income taxes are provided for current taxes payable or
refundable, and temporary differences arising from the future tax consequences
of events that have been recognized in the Company's financial statements or
income tax returns. The effect of income taxes is measured based on currently
enacted tax laws and rates in accordance with SFAS No. 109, ACCOUNTING FOR
INCOME TAXES. Future tax benefits are recognized to the extent that realization
of such benefits is more likely than not.
LONG-LIVED ASSETS--The Company assesses the facts and circumstances to
determine whether property and equipment, and intangible or other assets, may be
impaired and whether or not an evaluation of recoverability would be performed
as required under SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. For the six months ended
March 31, 2000 (unaudited) and for the period from November 13, 1998 (inception)
to September 30, 1999, there were no adjustments to the carrying value of the
Company's long-lived assets.
RECENT ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES. SFAS No. 133 established accounting and reporting standards
for derivative instruments, including certain instruments embedded in other
contracts, and for hedging activities. The effective date of SFAS No. 133 was
delayed for fiscal years beginning after June 15, 2000 by the issuance of SFAS
No. 137 and amended by SFAS No. 138. The Company has not yet determined the
effect, if any, of adopting this new standard.
The Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which
requires that an enterprise report, by major components and as a single total,
the change in net assets. There were no other comprehensive income items for the
six months ended March 31, 2000 (unaudited) and for the period from
November 13, 1998 (Inception) to September 30, 1999.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS ("SAB 101"). SAB 101 summarizes certain of
the SEC staffs' views in applying generally accepted accounting principles to
revenue recognition in financial statements. E*OFFERING has not determined the
effect, if any, on SAB 101 on the Company's financial statements.
CONCENTRATION OF CREDIT RISK--The Company is engaged in various trading and
brokerage activities. Counterparties to these activities primarily include
broker/dealers, banks, and other financial institutions. In the event
counterparties do not fulfill their obligations, the Company may be exposed to
risk. The risk of default depends on the creditworthiness of the counterparty or
issuer of the instrument. It is the
F-10
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company's policy to review, as necessary, the credit standing of each
counterparty with which it conducts business.
NET LOSS PER COMMON SHARE--Basic net loss per common share excludes dilution
and is computed by dividing net loss by the weighted average number of common
shares outstanding for the period (excluding shares subject to repurchase).
Diluted net loss per common share was the same as basic net loss per common
share for all periods presented since the effect of any potential dilutive
securities is excluded as they are anti-dilutive because of the Company's net
losses.
The following is a reconciliation of the numerators and denominators used in
computing basic and diluted net loss per common share:
<TABLE>
<CAPTION>
PERIOD NOVEMBER 13, PERIOD NOVEMBER 13,
1998 1998
SIX MONTHS ENDED (INCEPTION) TO (INCEPTION) TO
MARCH 31, 2000 MARCH 31, 1999 SEPTEMBER 30, 1999
---------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net loss applicable to common
stockholders (numerator), basic and
diluted.............................. $(7,149,360) $(805,810) $(13,624,208)
=========== ========= ============
Shares (denominator):
Weighted average common shares
outstanding used in computation,
basic and diluted.................. 4,248,509 4,142,050 4,484,005
=========== ========= ============
Net loss per common share, basic and
diluted.............................. $ (1.68) $ (0.19) $ (3.04)
=========== ========= ============
</TABLE>
For the above mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss
F-11
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
per common share in the periods presented, as their effect would have been
anti-dilutive. Such outstanding securities consist of the following:
<TABLE>
<CAPTION>
PERIOD NOVEMBER 13, PERIOD NOVEMBER 13, 1998
SIX MONTHS ENDED 1998 (INCEPTION) TO (INCEPTION) TO
MARCH 31, 2000 MARCH 31, 1999 SEPTEMBER 30, 1999
---------------- ------------------- ------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Convertible preferred stock............ 19,068,442 4,100,000 4,100,000
Options outstanding.................... 2,478,925 2,015,000 4,097,624
Warrants............................... 4,525,894 2,875,000 2,875,000
---------- --------- ----------
Total.................................. 26,073,261 8,990,000 11,072,624
========== ========= ==========
Weighted average exercise price of
options.............................. $ 0.49 $ 0.38 $ 0.46
========== ========= ==========
Weighted average price of warrants..... $ 0.95 $ 1.12 $ 1.12
========== ========= ==========
</TABLE>
RECLASSIFICATIONS--Certain 1999 amounts have been reclassified to conform to
the 2000 presentation.
2. ACQUISITION
During March 1999, the Company acquired the net assets of the Meridian
Capital Group, Inc. (Meridian), a securities broker-dealer, pursuant to a stock
purchase agreement. The acquisition was accounted for under the purchase method
of accounting and the purchase price of $1,511,000, less cash acquired of
$1,540, was allocated as follows:
<TABLE>
<S> <C>
Broker-dealer related receivables........................... $ 667,459
Marketable securities, at market value...................... 298,605
Prepaids and other.......................................... 32,009
Goodwill.................................................... 1,319,262
Securities sold, but not yet purchased...................... (3,610)
Accounts payable and accrued expenses....................... (804,265)
----------
$1,509,460
==========
</TABLE>
Meridian's operating results have been included in the accompanying
financial statements from the date of acquisition.
F-12
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
2. ACQUISITION (CONTINUED)
The following unaudited pro forma information presents the consolidated
results of operations of the Company as if the acquisition had taken place for
the year ended September 30, 1999:
<TABLE>
<CAPTION>
COMBINED
------------
(UNAUDITED)
<S> <C>
Net sales................................................... $ 11,932,750
Net loss.................................................... $(13,390,418)
Net loss per common share................................... $ (2.99)
</TABLE>
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the dates
indicated, or which may result in the future.
3. NOTES RECEIVABLE
Notes receivable, included in "Other Assets" in the accompany consolidated
statement of financial condition, at September 30, 1999 consists of $257,86 in
unsecured notes receivable primarily from certain employees, which are generally
forgivable once the employee completes 12 months of employment with the Company
(amount shown is net of amortized forgiveness).
4. FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Furniture, equipment, and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
Computer and office equipment....................... $6,707,336 $4,078,887
Furniture and fixtures.............................. 351,289 351,289
Leasehold improvements.............................. 1,297,312 736,471
---------- ----------
8,355,937 5,166,647
Less accumulated depreciation and amortization...... (2,006,236) (802,839)
---------- ----------
Total furniture, equipment, and leasehold
improvements, net............................... $6,349,701 $4,363,808
========== ==========
</TABLE>
5. SUBORDINATED DEBT--RELATED PARTY
During June 1999, the Company entered into a temporary subordinated debt
agreement with E*TRADE Group, Inc. (E*TRADE), a significant shareholder, in the
amount of $10,000,000, bearing interest at 15% per annum. Interest on such note,
which amounted to $418,574 for the period from
F-13
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
5. SUBORDINATED DEBT--RELATED PARTY (CONTINUED)
November 13, 1998 (Inception) to September 30, 1999, is recorded as interest
expense in the accompanying consolidated statement of operations. At
September 30, 1999, the Company, with the approval of the National Association
of Securities Dealers, Inc. (NASD) and E*TRADE, agreed to exchange the debt as
of October 13, 1999 for shares of an undesignated series of preferred stock. The
subordinated borrowings are covered by agreements approved by the NASD and are
thus available to be included in net capital in accordance with
Rule 15c-3(1)(d) of the Securities Exchange Act of 1934.
In January 2000 (unaudited) the undesignated series of preferred stock from
the conversion of the $10,000,000 temporary subordinated debt was converted to
2,872,506 shares of Series C preferred stock. The Company also entered into an
additional temporary subordinated agreement with E*TRADE in the amount of
$5,000,000, bearing interest at 15% per annum which was repaid on January 14,
2000. Interest on such note, which amounted to $189,593, is recorded as interest
expense in the accompanying consolidated statement of operations for the six
months ended March 31, 2000 (unaudited).
6. NOTE PAYABLE--RELATED PARTIES
As part of the Company's acquisition of Meridian (Note 2), the Company
issued to the parent company of Meridian a $500,000 note payable, bearing
interest at 6% per annum. This amount is due in two $250,000 installments
payable during April 2000 and 2001. The agreement stipulates that any
liabilities not disclosed on Meridian's closing balance sheet will offset this
note. At September 30, 1999, no liabilities were offset against this note
(Note 12).
In connection with the issuance of the Series C preferred stock in
January 2000 (unaudited), the Company issued notes payable totaling $4,353,000
to certain founding shareholders for the redemption of 1,451,000 shares of
common stock. The notes bear interest at 8% per annum, compounded semi-annually.
The notes will mature on the earliest occurrence of (1) the closing date of the
initial public offering of the Company's common shares; (2) the date upon which
the Company has a class of its securities registered pursuant to the Securities
Exchange Act of 1934 or (3) the closing date of (a) a sale of all or
substantially all of its assets, or (b) a merger, tender offer or other business
combination.
7. RELATED PARTIES
During the period from November 13, 1998 (Inception) to September 30, 1999,
the Company received contributed assets, primarily consisting of fixed assets,
from a significant shareholder, with a basis of $231,419. In consideration for
these assets, the Company issued 2,325,000 of common stock, valued at $31,419,
and 200,000 shares of Series A preferred stock, valued at $1.00 per share.
Accrued consulting fees due to a Board member of $30,000 are included in
accounts payable and accrued liabilities in the accompanying consolidated
statement of financial condition at September 30, 1999.
The Company has an operating agreement with E*TRADE which stipulates, among
other items, that for each and every public offering the Company participates in
as an underwriter, the amount of retail
F-14
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
7. RELATED PARTIES (CONTINUED)
shares, as defined, provided to E*TRADE, shall not be less than 50% of the total
shares available to the Company. In January 2000 (unaudited), the share
allocation percentage increased to 70%, unless the issuer provides specific
written instruction to the Company that the number of shares distributed must be
less than 70% of the total shares offered by the Company.
The draft operating agreement also stipulates that the Company shall
provide, at a minimum, $100,000 per calendar quarter for advertising on
E*TRADE's website and the Company is entitled to receive $100 for each new
customer the Company refers to E*TRADE. At September 30, 1999, these provisions
have not been implemented and, as such, are not reflected in the accompanying
financial statements. For the six months ended March 31, 2000 (unaudited), the
Company recorded $229,400 in "Other Revenue" in the accompanying consolidated
statement of operations for new customer accounts referred to E*TRADE.
E*TRADE also provided limited back office accounting support services for
which it was not reimbursed by the Company (see Note 13 for related party
operating lease transaction). The value of such services was not material to the
Company's operations. The Company intends to enter into a service agreement with
E*TRADE, which will allow the Company to share certain E*TRADE systems. In
consideration of the services, the Company will pay a monthly usage amount of
$12,000.
During the six month period ended March 31, 2000 (unaudited), the Company
paid $72,000 to E*TRADE for various administrative expenses and for the use of
E*TRADE's general ledger system. The Company also paid $200,000 for advertising
to E*TRADE. E*TRADE paid the compensation for the interim president without
reimbursement from the Company, such services were not material to the
operations of the Company.
8. INCOME TAXES
Other expenses for the period November 13, 1998 (Inception) to
September 30, 1999 includes the current minimum state franchise tax expense of
$1,600.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Deferred tax assets:
Federal net operating loss carryforwards.................. $3,934,863
Depreciation and amortization............................. 770,734
State net operating loss carryforwards.................... 645,992
Accrued compensation and other............................ 283,408
----------
Gross deferred tax assets................................... 5,634,997
Valuation allowance......................................... (5,634,997)
----------
Net deferred tax assets................................. $ --
==========
</TABLE>
F-15
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
8. INCOME TAXES (CONTINUED)
The Company has recorded a full valuation allowance against the gross
deferred tax assets because it is more likely than not that the deferred tax
assets will not be realized.
The difference between the federal statutory tax rate and the Company's
effective tax rate was primarily due to the establishment of the Company's
valuation allowance.
At March 31, 2000 (unaudited) and September 30, 1999, the Company had
approximately $15,848,000 and $11,242,000, respectively, in net operating loss
carryforwards for federal and state income tax purposes, respectively. Any
federal and state net operating losses not utilized will expire in 2018 and
2003, respectively, for federal and state income tax purposes. Utilization of
the net operating losses and credits may be subject to an annual limitation due
to ownership change limitations provided by the Internal Revenue Code and
similar state provisions. The annual limitation may result in the expiration of
net operating losses and credits before utilization.
9. STOCKHOLDERS' EQUITY
At September 30, 1999, the Company has authorized 27,175,000 shares of
common stock and 15,200,000 of preferred stock. Of the preferred stock, the
Company has authorized 1,600,000 shares as Series A preferred stock, 3,300,000
as Series B preferred stock, and the remaining 10,300,000 to be used for
additional preferred series.
Series A preferred stock is convertible, at the option of the holder, into
common stock on a one-for-one basis. Each share of Series A preferred stock
shall entitle the holder to vote on shareholder matters and shall receive
dividends, if and when declared, on the same basis as holders of common stock on
an as-converted basis. No dividends have been declared as of March 31, 2000
(unaudited) or as of September 30, 1999. Each share of Series A preferred stock
shall automatically be converted into shares of common stock, if at any time,
shares of Series B preferred stock convert into common stock. Series A preferred
stock has a liquidation preference equal to $1.00 per share, as adjusted for any
stock dividends, combinations, splits, recapitalization or other capital
reorganization transactions.
Series B preferred stock is convertible, at the option of the holder, into
common stock on a one-for-one basis. Each share of Series B preferred stock
shall entitle the holder to vote on shareholder matters and shall receive
dividends at the rate of $0.32 per share, if and when declared by the Board of
Directors and shall be non cumulative. No dividends have been declared as of
March 31, 2000 (unaudited) or as of September 30, 1999. Series B preferred stock
has a liquidation preference equal to $4.00 per share, subject to certain
adjustments.
Shortly after inception, the Company issued a warrant to a common stock
shareholder to purchase 2,075,000 shares of common stock. At the option of the
warrant holder, this warrant may be exercised at $0.0135132 per common stock
share. The value ascribed to such warrant is $21,425 and is recorded in the
accompanying financial statements. Such warrant expires December 22, 2003.
F-16
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
9. STOCKHOLDERS' EQUITY (CONTINUED)
The Company issued Class A warrants to the Series B preferred stockholder to
purchase 800,000 shares of Series B preferred stock at $4.00 per share and
Class B warrants to purchase additional shares of an undesignated preferred
stock which will have the same rights, preferences and privileges senior to or
pari-passu with such rights, preferences and privileges of the Company's
Series B convertible preferred stock. The number of shares and exercise price
vary and are defined in the Class B Warrant to Purchase Convertible Preferred
Stock certificate and are principally based upon issuing sufficient shares to
obtain a majority ownership in the Company at a price outstanding at the time of
conversion, taking into consideration dilutive effects of the Series B preferred
stock and warrants relating to the preferred Series B stock. The value ascribed
to the Class A and B warrants are $28,947 and $262,210 and are recorded in the
accompanying consolidated financial statements for the period November 13, 1998
(Inception) to September 30, 1999. The Class A and B warrants expire
February 10, 2001 and February 10, 2003, respectively. Accretion of $291,157 has
been recorded in the accompanying consolidated statement of operations for the
period November 13, 1998 (Inception) to September 30, 1999 to increase the loss
applicable to common shareholders and increase the value of Series B preferred
stock to its liquidation preference.
Subsequent to September 30, 1999, the Company filed a second amended and
restated articles of incorporation. This change authorizes 29,675,000 shares of
common stock and 17,700,000 of preferred stock. Of the preferred stock, the
Company has authorized 1,600,000 shares as Series A preferred stock, 5,800,000
as Series B preferred stock, and the remaining 10,300,000 to be used for
additional preferred series.
During the six months ended March 31, 2000 (unaudited) the Company filed the
fourth Amended and Restated Articles of Incorporation. This change updated the
number of common stock shares and Series B and C preferred stock to be
41,078,347, 5,800,000 and 14,968,442, respectively. The Series C preferred
stock, at the option of the holder, is convertible into common stock on a
one-for-one basis. Each share of Series C preferred stock shall entitle the
holder to vote on shareholder matters and shall receive dividends at a rate
equal to 8%, compounded on a semi annual basis. The Series C preferred stock has
a liquidation preference equal to $3.481280502 per share, as adjusted for any
stock dividends, combinations, splits, recapitalization or other capital
reorganization transactions.
In connection with the issuance of the Series C preferred stock in the six
month period ended March 31, 2000 (unaudited) the following transactions
occurred: i) the warrant for the purchase of 2,075,000 shares of common stock
was restructured to reduce the conversion to 1,000,000 shares of common stock;
ii) the Class B warrant was converted to a Class C warrant; the new Class C
warrant allows the holder to purchase 2,725,894 shares of common shares at $0.40
per share. Such warrant expires in January 2005; iii) the Company bought back
1,451,000 shares from certain founding shareholders of the Company; and
iv) certain founders from which the common stock had been repurchased entered
into a non compete agreement which expires in January 2001.
F-17
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
10. STOCK OPTION PLAN
The Company's stock option plan provides for the granting of nonqualified or
incentive stock options to officers, directors, employees, and consultants for
the purchase of shares of the Company's common stock at either a price
determined by the Board of Directors at the date the option is granted or at
fair market value. The options are generally exercisable ratably over a
five-year period from the date the option is granted and expire within ten years
from the date of grant. The Board of Directors approved the 1998 Stock Incentive
Plan (the 1998 Plan) and authorized 5,000,0000 shares of common stock for future
grants. For the period from November 13, 1998 (Inception) to September 30, 1999,
the Company granted options in excess of the total shares authorized. For the
six months ended March 31, 2000 (unaudited) no additional options were granted
under the 1998 Plan.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED NOVEMBER 13, 1998
MARCH 31, (INCEPTION) TO
2000 SEPTEMBER 30, 1999
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
---------- -------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding options at beginning of period.......... 4,097,624 $ 0.46
Options granted................................... 5,049,277 $ 0.45
Less options cancelled............................ (1,249,724) (0.42) (544,975) (0.35)
Less options exercised............................ (368,975) (0.40) (406,678) (0.39)
---------- ----------
Outstanding options at end of period................ 2,478,925 0.49 4,097,624 0.46
========== ==========
</TABLE>
The following table summarizes information on outstanding and exercisable
options as of March 31, 2000 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISABLE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10-$0.40................................ 2,363,725 52.61 $0.40 560,675 $0.40
$2.28...................................... 67,650 51.90 2.28 7,890 2.28
$2.59...................................... 47,550 52.93 2.59 4,800 2.59
--------- -------
$0.10-$2.59................................ 2,478,925 52.60 0.49 573,365 0.44
========= =======
</TABLE>
F-18
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
10. STOCK OPTION PLAN (CONTINUED)
The following table summarizes information on outstanding and exercisable
options as of September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISABLE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10-$0.40................................ 3,963,124 57.28 $0.40 594,328 $0.40
$2.28...................................... 86,000 57.97 2.28 4,325 2.28
$2.59...................................... 48,500 59.00 2.59 2,425 2.59
--------- -------
$0.10-$2.59................................ 4,097,624 57.31 0.46 601,078 0.41
========= =======
</TABLE>
From November 13, 1998 (Inception) to September 30, 1999, options were
granted to employees for the purchase of up to 4,561,777 common shares at prices
$0.10 to $2.59 per share, which the Company's Board of Directors deemed the fair
market value of the common stock at the date of grant. The Company records
compensation expense resulting from the difference between the option price per
share and the estimated fair market value of the common stock at the grant date;
the common stock has been valued at a range of $2.70 and $3.10 per share, as of
September 30, 1999 by an independent, third-party appraiser. For the period from
November 13, 1998 (Inception) to September 30, 1999, the Company recorded
$225,861 of deferred compensation expense associated with these stock option
grants. This amount is recorded ratably over the vesting period of the
respective options.
From November 13, 1998 (Inception) to September 30, 1999, options were
granted to non-employees for the purchase of up to 487,500 common shares at
$0.40 per share. For the period from November 13, 1998 (Inception) to
September 30, 1999, the Company recorded $116,397 of deferred compensation
expense related to stock options granted to non-employees. This amount was
calculated using the Black-Scholes option-pricing model using 100% volatility
and the weighted average assumptions defined below.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires the
disclosure of pro forma net income had the Company adopted the fair value method
for employee stock option grants. Under SFAS No. 123, the fair value of
stock-based grants to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values.
F-19
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
10. STOCK OPTION PLAN (CONTINUED)
The Company's calculations were made using the minimum value method with the
following weighted average assumptions:
<TABLE>
<S> <C>
Expected life............................................... 60 Months
Risk-free interest rate..................................... 4.45%-5.84%
Dividend yield.............................................. 0%
</TABLE>
The Company's calculations are based on a single option valuation approach
and forfeitures are recognized as they occur. If the computed fair values of the
awards had been amortized to expense over the vesting period of the grants, pro
forma net loss would have been $7,429,018 and $13,399,889 for the six months
ended March 31, 2000 (unaudited) and for the period from November 13, 1998
(Inception) to September 30, 1999, respectively. Based upon the above
assumptions, the weighted average fair value of employee stock options granted
for the period November 13, 1998 (Inception) to March 31, 1999 (unaudited) and
for the period November 13, 1998 (Inception) to September 30, 1999 was $0.38 and
$0.30 per share, respectively. There were no options granted during the six
months ended March 31, 2000 (unaudited).
Two stockholders exercised their stock options in the form of unsecured
notes receivable. Such stockholders' notes, which include principal and interest
of $117,421 and $114,088 as of March 31, 2000 (unaudited) and September 30,
1999, respectively, bear interest of 6% per annum and mature in April 2001.
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) employee savings plan that covers all full-time
employees who are at least age 21 with one month of service. The Company may
match employee contributions at its sole discretion. For the period from
November 13, 1998 (Inception) to September 30, 1999, the Company did not
contribute to the 401(k) employee savings plan.
The Company also has a Cafeteria Plan that is available to all eligible
full-time employees. Under this plan, employees can defer up to $1,500 for
health care reimbursements and up to $5,000 for dependent care assistance. Any
unused amount is forfeited and participants of the plan cannot receive
reimbursements in excess of their deferrals. At September 30, 1999, the Company
has $15,972 of restricted cash and a reciprocal liability related to pay
participants' claims.
12. COMMITMENTS AND CONTINGENT LIABILITIES
SECURITIES SOLD BUT NOT YET PURCHASED--In the normal course of business, the
Company sells equity securities not yet purchased, which are recorded as
liabilities in the consolidated statements of financial condition. The Company
is exposed to the risk that market price increases cause the ultimate obligation
for such commitments to exceed the amount recorded in the consolidated
statements of financial condition.
F-20
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
12. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
SETTLEMENT OF SECURITIES TRANSACTIONS--The Company is obligated to settle
transactions with brokers and other financial institutions even if its customers
fail to meet their obligations to the Company. Customers are required to
complete their transactions on settlement date, generally three business days
after trade date. If customers do not fulfill their contractual obligations, the
Company may incur losses. The Company has established procedures to reduce this
risk by requiring deposits from customers for certain types of trades.
UNDERWRITING TRANSACTIONS--In the normal course of business, the Company
enters into various underwriting commitments. In the opinion of management, the
settlement of transactions relating to such commitments will have no material
impact on the Company's financial condition.
LITIGATION--The Company has been named as a defendant in several pending or
threatened lawsuits. Certain matters that are currently in arbitration are
against the former Meridian Capital Group, Inc. As discussed in Note 6, any
settlement that arises from these actions will be offset against the $500,000
note payable to the Meridian Capital Group, Inc.
Management of the Company, after consultation with outside legal counsel,
believes that the resolution of these various lawsuits will not result in a
material adverse effect on the Company's financial statements. In addition, the
note payable to the Meridian Capital Group, Inc. is in excess of such claims
brought against the former Meridian Capital Group, Inc.
During the six months ended March 31, 2000 (unaudited), a former officer of
the Company filed a complaint against the Company, alleging the employee was
entitled under an agreement with the Company to accelerate the vesting of
125,000 shares of common stock underlying his stock options in the Company. The
complaint alleges the acceleration of such options resulted from the "change in
control" provisions of the stock option agreement that were evoked as a result
of the change in the chief executive officer. The employee seeks delivery of
106,250 shares of the Company's common stock for a purchase price of $0.40 per
share plus damages. The Company denies the employees' claims and has raised
affirmative defenses.
LEASES--The Company leases three office facilities, which expire at various
dates through August 2001. Aggregate minimum commitments under these leases, and
two equipment leases which expire through September 2004, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
2000........................................................ $1,548,174
2001........................................................ 605,401
2002........................................................ 46,676
2003........................................................ 46,676
2004........................................................ 42,152
----------
$2,289,079
==========
</TABLE>
F-21
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
12. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Total rental expense amounted to $528,341 form the period November 13, 1998
(Inception) to September 30, 1999.
The Company has two operating leases with related parties. The first lease
is on a month-to-month basis from one of the Company's shareholders. Total rent
paid from November 13, 1998 (Inception) to September 30, 1999 amounted to
$81,860 and $36,340 for the six months ended March 31, 2000 (unaudited). The
second lease is from E*TRADE, which expired November 30, 1999. Future
commitments under this lease amount to $21,200, which is included in the
schedule above. Total rent paid from November 13, 1998 (Inception) to
September 30, 1999 amounted to $127,200. In addition, the Company has a deposit
held by E*TRADE in the amount of $10,600. The deposit has been included in the
accompanying consolidated statements of financial condition and the related rent
expenses with affiliates are included in occupancy expense in the accompanying
consolidated statements of operations.
During September 1999, the Company announced the closing of certain of its
Newport Beach operations. The Company provided severance agreements to certain
employees to either remain with the Company until November 30, 1999 or to move
to the Company's San Francisco office. The Company has accounted for severance
costs in accordance with EITF Issue 94-3, LIABILITY RECOGNITION FOR CERTAIN
EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY. At
September 30, 1999, the Company recorded a severance liability in the amount of
$486,649, which includes services performed through September 30, 1999 and paid
$920,303 during the six months ended March 31, 2000 (unaudited).
The Company has agreed to pay an employee a guaranteed bonus in the amount
of $3,250,000 to be paid over a two-year employment period, payable in equal
one-quarter installments in February and June of each year. The Company accrues
for such bonus on a straight-line method, over the life of the employment
contact. At September 30, 1999, the Company recorded $500,000 in salaries,
commissions and bonuses payable in the accompanying consolidated statement of
financial condition and the related expense in employee compensation and
benefits in the accompanying consolidated statement of operations. The employee
terminated employment with the Company in January 2000 resulting in the
cancellation of the bonus guarantee.
13. NET CAPITAL REQUIREMENTS
NET CAPITAL REQUIREMENTS--The Company is subject to the Securities and
Exchange Commission's Uniform Net Capital Rule (Rule 15c3-1), which requires the
maintenance of minimum net capital and requires that the ratio of aggregate
indebtedness to net capital, both as defined, shall not exceed 15 to 1. At
September 30, 1999, the Company had net capital of $1,050,317, which was
$721,497 in excess of its required net capital. The Company's aggregate
indebtedness to net capital ratio was 4.70 to 1 at September 30, 1999. At
March 31, 2000 (unaudited), the Company had net capital of $16,617,855, which
was $15,670,998 in excess of the required net capital. The Company's aggregate
indebtedness to net capital ratio was 0.85 to 1 at March 31, 2000 (unaudited).
F-22
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
14. RESERVE REQUIREMENTS FOR BROKERS OR DEALERS
The Company is exempt from the provisions of Rule 15c3-3 (pursuant to
paragraph (k)(2)(ii) of such rule) of the Securities Exchange Act of 1934 as an
introducing broker or dealer that carries no customers' accounts, promptly
transmits all customer funds and delivers all customer securities received to
the clearing broker, and does not otherwise hold funds or securities of
customers or dealers. Because of such exemption, the Company is not required to
prepare a determination of reserve requirement for brokers or dealers.
15. SUBSEQUENT EVENTS
The Company is negotiating with outside parties for an equity investment
utilizing a new series of preferred stock for an amount ranging from $35,000,000
to $40,000,000 which is expected to settle sometime in the first quarter
following September 30, 1999. (The transaction was subsequently completed See
Note 9). In the meantime, E*TRADE has provided an additional temporary
subordinated debt agreement in the amount of $5,000,000 effective October 13,
1999 and maturing on November 28, 1999. The subordinated debt note can be
renewed for up to a 45-day period. The subordinated debt bears interest of 15%
per annum. It is management's expectation that if the negotiations with the
outside parties do not result in new equity funding, the Company believes its
shareholders would continue to provide the necessary funding to continue as a
going concern for a reasonable period of time.
In October 1999, the Company approved and paid $50,000 in legal services
provided to a common stockholder of the Company.
In November 1999, the Company decided to close one of its Newport Beach
offices, resulting in the abandonment of approximately $380,000 of capitalized
leasehold improvements, which was recorded in the first quarter of the next
fiscal year.
The following unaudited events occurred subsequent to the report date of the
independent auditors' report on the Company's consolidated financial statements
for the period November 13, 1998 (Inception) to September 30, 1999:
On May 15, 2000, the Company signed an Agreement and Plan of Merger with Wit
SoundView Group, Inc. ("Wit SoundView"). Under the terms of the Agreement, Wit
SoundView will acquire the outstanding shares of the Company in exchange for up
to 28,486,247 shares of WitSound View common stock. The maximum number of Wit
SoundView shares had a value of approximately $292,000,000, or $10.25 per share
at May 15, 2000. The board of directors of Wit SoundView and the Company's
stockholders have approved the transaction, which is expected to close in August
or September 2000. Completion is contingent on Wit SoundView stockholder
approval, regulatory approval and other customary closing conditions.
The Company ceased to grant stock options under the 1998 Stock Option Plan
on September 30, 1999. In April 2000, the Company's board of directors adopted
the 2000 Stock Option/Stock Issuance Plan. The Plan permits the plan
administrator under the authority of the board of directors, to grant options or
issue common shares to employees, non-employee board members, consultants and
other independent
F-23
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED WITH
RESPECT TO DATA AS OF MARCH 31, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO MARCH 31, 1999
AND FOR THE SIX MONTHS ENDED MARCH 31, 2000)
15. SUBSEQUENT EVENTS (CONTINUED)
advisors of the Company. No option will have a term in excess of ten years as
measured from the date of grant. The options may be granted as incentive stock
options or nonqualified stock options. Stock awards may also be issued under the
Plan. The plan administrator has the discretion to grant options and to issue
stock that is fully vested upon issuance or in one or more installments,
however, the vesting schedule may not be more restrictive than 20% per year
vesting, with the initial vesting to occur more than one year after the vesting
commencement date.
At the completion of the merger with Wit SoundView, the Company's 1998 Stock
Option Plan and 2000 Stock Option/Stock Issuance Plan will be assumed by Wit
SoundView and no additional options to purchase common stock or issuances of
common stock will be granted under the 2000 Stock Option/Stock Issuance Plan.
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APPENDIX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
WIT CAPITAL GROUP, INC.
WIT SOUNDVIEW CORPORATION
AND
E*OFFERING CORP.
DATED AS OF: MAY 15, 2000
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TABLE OF CONTENTS
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AGREEMENT AND PLAN OF MERGER......................................... I-1
ARTICLE I THE MERGER; CLOSING; EFFECTIVE TIME........................ I-1
1.1 The Merger.................................................. I-1
1.2 Closing..................................................... I-2
1.3 Effective Time.............................................. I-2
ARTICLE II ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING I-2
CORPORATION..........................................................
2.1 Articles of Incorporation................................... I-2
2.2 Bylaws...................................................... I-2
ARTICLE III DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION...... I-2
3.1 Directors................................................... I-2
3.2 Officers.................................................... I-2
ARTICLE IV MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES I-2
IN THE MERGER........................................................
4.1 Share Consideration for the Merger; Conversion or
Cancellation of Shares in the Merger........................ I-2
4.2 Exchange of Shares in the Merger............................ I-6
4.3 Fractional Shares........................................... I-8
ARTICLE V OTHER AGREEMENTS........................................... I-8
5.1 Certain Company Shareholder Actions and Agreements.......... I-8
5.2 Certain Parent Stockholder Actions and Agreements........... I-9
5.3 Employment Agreements....................................... I-9
5.4 Strategic Alliance Agreement................................ I-9
5.5 Retention Pool.............................................. I-9
5.6 Standstill Agreement........................................ I-10
5.7 The Company Stock and Option Arrangements................... I-10
5.8 Indemnification of Company Directors and Officers........... I-10
5.9 Employee Benefit Plans...................................... I-11
Technical Support........................................... I-11
5.10
Consent of the Company...................................... I-11
5.11
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY............. I-11
6.1 Organization; Qualification................................. I-11
6.2 Subsidiaries and Affiliates................................. I-12
6.3 Capitalization.............................................. I-12
6.4 Authorization; Validity of Agreement; The Company Action.... I-13
6.5 Board Approvals Regarding Transactions...................... I-13
6.6 Vote Required............................................... I-13
6.7 Consents and Approvals; No Violations....................... I-13
6.8 Governmental Documents and Financial Statements............. I-14
6.9 Compliance with Applicable Law.............................. I-14
Books and Records........................................... I-15
6.10
Ineligible Persons.......................................... I-16
6.11
No Undisclosed Liabilities.................................. I-16
6.12
Interim Operations.......................................... I-16
6.13
Absence of Certain Changes.................................. I-16
6.14
Technology and Intellectual Property........................ I-17
6.15
Legal Proceedings........................................... I-17
6.16
Employee Benefit Plans...................................... I-18
6.17
Tax Matters; Government Benefits............................ I-19
6.18
Labor and Employment Matters................................ I-20
6.19
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Contracts and Commitments................................... I-20
6.20
Insurance................................................... I-20
6.21
Personnel................................................... I-20
6.22
Insider Interests........................................... I-21
6.23
Brokers or Finders.......................................... I-21
6.24
Information Supplied........................................ I-21
6.25
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PARENT................. I-21
7.1 Organization; Qualification................................. I-21
7.2 Subsidiaries and Affiliates................................. I-21
7.3 Capitalization.............................................. I-22
7.4 Authorization; Validity of Agreement; Parent Action......... I-22
7.5 Board Approvals Regarding Transactions...................... I-23
7.6 Vote Required............................................... I-23
7.7 Consents and Approvals; No Violations....................... I-23
7.8 Governmental Documents and Financial Statements............. I-23
7.9 Compliance with Applicable Law.............................. I-24
Books and Records........................................... I-25
7.10
Ineligible Persons.......................................... I-25
7.11
No Undisclosed Liabilities.................................. I-25
7.12
Interim Operations.......................................... I-25
7.13
Absence of Certain Changes.................................. I-26
7.14
Technology and Intellectual Property........................ I-26
7.15
Legal Proceedings........................................... I-27
7.16
Employee Benefit Plans...................................... I-27
7.17
Tax Matters; Government Benefits............................ I-29
7.18
Labor and Employment Matters................................ I-30
7.19
Contracts and Commitments................................... I-30
7.20
Insurance................................................... I-30
7.21
Insider Interests........................................... I-30
7.22
Brokers or Finders.......................................... I-30
7.23
Information Supplied........................................ I-30
7.24
ARTICLE VIII COVENANTS............................................... I-31
8.1 Interim Operations of the Company........................... I-31
8.2 Interim Operations of Parent................................ I-33
8.3 Access; Confidentiality..................................... I-34
8.4 Reasonable Best Efforts..................................... I-34
8.5 Shareholders Meeting; Proxy Statement/Registration
Statement................................................... I-35
8.6 No Solicitation of Competing Transaction.................... I-35
8.7 Publicity................................................... I-36
8.8 Notification of Certain Matters............................. I-36
8.9 State Takeover Laws......................................... I-36
Merger Sub Compliance....................................... I-36
8.10
Expenses.................................................... I-36
8.11
Tax-Free Reorganization..................................... I-36
8.12
ARTICLE IX CONDITIONS................................................ I-37
9.1 Conditions to the Obligations of Parent and Merger Sub...... I-37
9.2 Conditions to the Obligations of the Company................ I-38
ARTICLE X ESCROW AND INDEMNIFICATION................................. I-39
Escrow Fund................................................. I-39
10.1
Parent's Indemnification Rights............................. I-39
10.2
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Escrow Period............................................... I-40
10.3
Claims upon Escrow Fund..................................... I-40
10.4
Objections to Claims........................................ I-40
10.5
Resolution of Conflicts; Arbitration........................ I-41
10.6
Shareholders' Agent......................................... I-41
10.7
Actions of the Shareholders' Agent.......................... I-42
10.8
Third-Party Claims.......................................... I-42
10.9
Shareholders' Indemnification Rights........................ I-42
10.10
Claims against Parent....................................... I-43
10.11
Objections to Claims Against Parent......................... I-43
10.12
Resolution of Conflicts; Arbitration........................ I-44
10.13
Third Party Claims.......................................... I-44
10.14
Survival.................................................... I-44
10.15
ARTICLE XI TERMINATION/SURVIVAL...................................... I-44
Termination................................................. I-44
11.1
Effect of Termination....................................... I-46
11.2
No Survival of Representations and Warranties and
11.3 Covenants................................................... I-46
ARTICLE XII DEFINITIONS.............................................. I-46
Definitions................................................. I-46
12.1
Additional Definitions...................................... I-51
12.2
ARTICLE XIII MISCELLANEOUS........................................... I-51
Disputes.................................................... I-51
13.1
Amendments; Extension; Waiver............................... I-52
13.2
Entire Agreement............................................ I-52
13.3
Specific Performance; Injunctive Relief..................... I-52
13.4
Interpretation.............................................. I-52
13.5
Severability................................................ I-52
13.6
Related Agreements.......................................... I-52
13.7
Notices..................................................... I-53
13.8
Binding Effect; Persons Benefiting; No Assignment........... I-54
13.9
Counterparts................................................ I-54
13.10
Governing Law............................................... I-54
13.11
Jurisdiction; Waiver of Jury Trial and Certain Damages...... I-54
13.12
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of May 15, 2000,
among Wit Capital Group, Inc., a Delaware corporation ("Parent"), Wit Soundview
Corporation, a Delaware corporation and a direct wholly owned subsidiary of
Parent ("Merger Sub"), and E*OFFERING Corp., a California corporation (the
"Company").
RECITALS
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company each
have determined that it is in the best interests of their respective
stockholders for the Company to merge with and into Merger Sub subject to the
terms and conditions of this Agreement; and
WHEREAS, the Boards of Directors of each of Parent, Merger Sub, and the
Company have approved this Agreement and the transactions contemplated by this
Agreement in accordance with the provisions of the California General
Corporation Law ("California Law") and the Delaware General Corporation Law
("Delaware Law"); and
WHEREAS, Parent's Board of Directors has resolved to recommend to its
shareholders the approval of this Agreement and the consummation of the
transactions subject to the terms and conditions set forth in this Agreement;
and
WHEREAS, Parent has approved this Agreement as the sole stockholder of
Merger Sub; and
WHEREAS, for federal income tax purposes, it is intended that the Merger (as
defined in Section 1.1) qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, covenants and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the representations, covenants and
agreements set forth in this Agreement, Parent, Merger Sub and the Company agree
as follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME
1.1 THE MERGER.
At the Effective Time (as defined in Section 1.3) and subject to the terms
and conditions of this Agreement and the applicable provisions of California Law
and Delaware Law, the Company shall be merged with and into Merger Sub, the
separate corporate existence of the Company shall cease and Merger Sub shall
continue as the surviving corporation and a wholly owned subsidiary of Parent.
Merger Sub, as the surviving corporation after the Merger, is sometimes referred
to in this Agreement as the "Surviving Corporation."
1.2 CLOSING.
The closing of the Merger (the "Closing") shall take place (a) at the
offices of Skadden, Arps, Slate, Meagher & Flom LLP, 525 University Avenue, Palo
Alto, CA 94301, at 10:00 a.m. on the first business day following the date on
which the last of the conditions set forth in Article IX are fulfilled or waived
in accordance with this Agreement or (b) at such other place, time and date as
Parent and the Company may agree.
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1.3 EFFECTIVE TIME.
Subject to the terms and conditions of Article IX, the parties shall file an
Agreement of Merger, together at the Closing with the related officers'
certificates required by section 1103 of California Law, each in form and
substance reasonably acceptable to each of the parties hereto, with the
Secretary of State of the State of California, whereupon Merger Sub shall be
merged with and into the Company pursuant to Sections 1100 et seq. of California
Law. Concurrently with the filing of the Agreement of Merger with the Secretary
of State of the State of California and subject to the terms and conditions set
forth in Article IX of this Agreement, the parties shall file a Certificate of
Merger in form and substance reasonably acceptable to each of the parties hereto
with the Secretary of State of the State of Delaware in accordance with Delaware
Law. The parties shall make all other filings, recordings or publications
required by California Law and Delaware Law in connection with the Merger. The
Merger shall become effective at the time specified in the Agreement of Merger
and Certificate of Merger, which specified time shall be a time on the Closing
Date and shall be the same in each of the Agreement of Merger and Certificate of
Merger (the time at which the Merger becomes effective being the "Effective
Time").
ARTICLE II
ARTICLES OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
2.1 ARTICLES OF INCORPORATION.
At the Effective Time, the Articles of Incorporation of the Merger Sub shall
be the Articles of Incorporation of the Surviving Corporation.
2.2 BYLAWS.
At the Effective Time, and without any further action on the part of the
Company, Merger Sub or the Surviving Corporation, the Bylaws of Merger Sub shall
be the Bylaws of the Surviving Corporation.
ARTICLE III
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
3.1 DIRECTORS.
Ronald Readmond, Mark Loehr and Russell Crabs shall be, from and after the
Effective Time, the directors of the Surviving Corporation until their
successors have been duly elected or appointed and qualified.
3.2 OFFICERS.
The officers of Merger Sub at the Effective Time shall be, from and after
the Effective Time, the officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified.
ARTICLE IV
MERGER CONSIDERATION; CONVERSION OR CANCELLATION OF SHARES IN THE MERGER
4.1 SHARE CONSIDERATION FOR THE MERGER; CONVERSION OR CANCELLATION OF
SHARES IN THE MERGER
(a) Conversion of Company Capital Stock. The maximum number of shares of
Common Stock, $0.01 par value per share, of Parent ("Parent Common Stock")
together with the associated rights (the "Parent Rights") to purchase shares
of Series A Junior Participating Preferred Stock of Parent issued pursuant
to the Rights Agreement dated June 7, 1999 between Parent and American Stock
Transfer Company as Rights Agent (the "Parent Rights Agreement") (the shares
of Parent Common Stock
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together with the Parent Rights being referred to herein as the "Parent
Shares") to be issued in exchange for the acquisition by Parent of the
Company Capital Stock and to be reserved for issuance upon exercise of all
unexpired and unexercised outstanding options, warrants and other rights
(whether vested, unvested or contingent) to acquire Company Capital Stock
shall be 28,486,247 (the "Aggregate Consideration").
For purposes of this Agreement, "Company Capital Stock" means, collectively,
all Company Common Stock; all shares of Series A Preferred Stock, no par value
per share, Series B Preferred Stock, no par value per share, and Series C
Preferred Stock, no par value per share of the Company (collectively "Company
Preferred Stock"), and shares of Common Stock, no par value, per share, of the
Company ("Company Common Stock").
Subject to the terms and conditions of this Agreement, the Certificate of
Merger, the Agreement of Merger, and the Escrow Agreement referenced in
Article X, as of the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any shares of Company Common Stock or
Company Preferred Stock:
(i) each share of Series C Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than such shares, if any,
which are Dissenting Shares) shall be converted into and exchanged for
the right to receive the sum of (A) the number of fully paid and
unassessable Parent Shares, rounded to the nearest thousandth of a share
(with "5" being rounded upward), equal to the quotient derived by
dividing the sum of $3.481280502 plus any accrued but unpaid dividends in
respect of such share since the date of issuance thereof, by $10.25 (the
"Stock Price") plus (B) the Exchange Ratio (as defined below).
(ii) each share of Series B Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than such shares, if any,
which are Dissenting Shares) shall be converted into and exchanged for
the right to receive the number of fully paid and nonassessable Parent
Shares, rounded to the nearest thousandth of a share (with "5" being
rounded upward), equal to the sum of (A) the quotient derived by dividing
the sum of $4.00 plus any declared but unpaid dividends in respect of
such share by the Stock Price plus (B) the Exchange Ratio (as defined
below).
(iii) each share of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than such shares, if any,
which are Dissenting Shares) shall be converted into and exchanged for
the right to receive the number of fully paid and nonassessable Parent
Shares, rounded to the nearest thousandth of a share (with "5" being
rounded upward), equal to the sum of (A) the quotient derived by dividing
the sum of $1.00 plus any declared but unpaid dividends in respect of
such share by the Stock Price plus (B) the Exchange Ratio.
(iv) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than such shares, if any,
which are Dissenting Shares) shall be converted into and exchanged for
the right to receive the number of fully paid and nonassessable Parent
Shares, rounded to the nearest thousandth of a share (with "5" being
rounded upward), equal to 0.674237515 (as modified to take into account
the additional accrued but unpaid dividends with respect to Series C
Preferred Stock between the date hereof and the Effective Time) (the
"Exchange Ratio"), which is the quotient derived by dividing (A) the
excess of (1) the number of Parent Shares constituting the Aggregate
Consideration over (2) the 500,000 Parent Shares to be issued in exchange
for the Retention Pool Shares as defined in Section 5.5(c) and the sum of
the number of Parent Shares that would be exchanged pursuant to
Section 4.1(a)(i), (ii) and (iii) above if none of the shares of Company
Capital Stock outstanding immediately prior to the Effective Time are
Dissenting Shares by (B) the sum of (1) the number of shares of Company
Common Stock issued and outstanding immediately prior to the Effective
Time plus (2) the number of shares of Company Common Stock that would be
issuable at that time upon the
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conversion of all shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock outstanding immediately prior to the
Effective Time plus (3) the number of shares of Company Common Stock that
would be issuable at that time upon the exercise of all options, warrants
and other rights to acquire shares of Company Common Stock from the
Company (other than the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock) if all such options, warrants and
other rights were fully exercisable at such time. Each share of Company
Common Stock issued and outstanding immediately prior to the Effective
Time that is restricted or not fully vested shall, except as provided for
herein, upon such conversion and exchange have the same restrictions or
vesting arrangements applicable to those shares prior to the conversion.
Attached as Exhibit A is a schedule (the "Preliminary Allocation Schedule")
showing an allocation of Aggregate Consideration among holders of Company
Capital Stock and StockEquivalents, including the number of Parent Shares to be
deposited in the Escrow Fund (defined in Section 10.1), as of the execution of
this Agreement as if the Effective Time and the issuance and deposit of Parent
Shares pursuant to the Transactions had occurred as of the date of the execution
of this Agreement. Two (2) days prior to the scheduled Closing, the Company
shall prepare an updated allocation schedule based on an allocation of Aggregate
Consideration as of that date. As soon as practicable after Closing, the
Shareholders' Agent shall prepare a final allocation as of the Effective Time.
(This final allocation as of the Effective Time is referred to as the "Final
Allocation Schedule.")
(b) Dissenters' Rights. "Dissenting Shares" means any shares of Company
Common Stock or Company Preferred Stock outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger
or consented to the Merger in writing, and who has demanded appraisal for
the shares of Company Common Stock or Company Preferred Stock in accordance
with Section 1300 of California Law, if Section 1300 provides for appraisal
rights for the Shares in the Merger.
(i) Subject to (ii) below, notwithstanding any provision of this
Agreement to the contrary, Dissenting Shares shall not be converted into
or represent a right to receive the applicable consideration set forth
for such shares in Section 4.1(a), or cash in lieu of fractional shares
of Parent Common Stock pursuant to Section 4.3, but the holder of the
Shares shall be entitled to only those rights granted by California Law.
(ii) Notwithstanding the provisions of Section 4.1(a)(i), if any
holder of shares of Company Common Stock or Company Preferred Stock who
demands appraisal of the holder's shares of Company Common Stock or
Company Preferred Stock under California Law effectively withdraws or
loses (through failure to perfect or otherwise) his right to appraisal,
then as of the Effective Time or the occurrence of the event that causes
such effective withdrawal or loss, whichever earlier occurs, that
holder's shares of Company Common Stock or Company Preferred Stock shall
automatically be converted into and represent only the right to receive
the applicable consideration set forth for such shares in
Section 4.1(a), and cash in lieu of fractional shares of Parent Common
Stock as provided in Section 4.3, without interest, upon surrender of the
certificate or certificates representing the shares of Company Common
Stock or Company Preferred Stock (each such certificate, a "Company
Certificate").
(iii) The Company shall give Parent (A) prompt notice of any written
demands for appraisal or payment of the fair value of any shares of
Company Common Stock or Company Preferred Stock, withdrawals of such
demands, and any other instruments served on the Company pursuant to
California Law received by the Company, and (B) from and after the
Effective Time, the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under California Law.
Except with the prior written consent of Parent, the Company shall not
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voluntarily make any payment with respect to any demands for appraisal or
settle, or offer to settle, any such demands.
(c) Parent Holdings. At the Effective Time, each share of Company
Capital Stock issued and outstanding and owned by Parent or any Parent
Subsidiary immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder, cease to be
outstanding and be canceled and retired without payment of any consideration
for the Share.
(d) Merger Sub Shares. At the Effective Time, each share of Common Stock
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of Merger
Sub or the holder of the share remain outstanding.
(e) Company Stock Options and Warrants. Except as set forth below, the
terms and provisions of the Company Stock Option Plan (as defined below)
shall continue in full force and effect and shall govern each option (or
portion of the option, as the case may be) outstanding immediately prior to
the Effective Time under the Company Stock Option Plan, whether vested,
unvested, exercisable or unexercisable (a "Company Stock Option"). At the
Effective Time, each Company Stock Option then outstanding and each warrant
or other right (other than the Company Preferred Stock) to receive Company
Common Stock then outstanding (together with Company Stock Options, "Company
Rights") shall be automatically converted, without any further action, into
an option, warrant or right to purchase or acquire Parent Shares (a "Parent
Common Stock Right"). The number of Parent Shares for which each Company
Right shall be exercisable shall be equal to the number of shares of Company
Common Stock that were subject to the Company Right immediately prior to the
Effective Time multiplied by the Exchange Ratio rounded down to the nearest
whole number of Parent Shares, at an exercise price per Parent Share equal
to the per share exercise price of each Company Right immediately prior to
the Effective Time divided by the Exchange Ratio rounded up to the nearest
whole cent, subject to the receipt of consent from each holder of Company
Options. Any Company Stock Options converted into options to purchase Parent
Shares, other than Company Stock Options held by persons who are not
employees of the Company as of the date of this Agreement and who are
identified on Schedule 4.1(e), together with the number of options held by
each such person (the "Non-Employee Company Stock Options"), shall be
adjusted to vest in sixteen (16) equal quarterly installments at the end of
each calendar quarter over forty-eight (48) months from date of grant to the
extent the optionee has been continuously employed by Parent until such
vesting date, subject, in the case of each such Company Stock Option, to the
receipt of consent from its holder. All Non-Employee Company Stock Options
shall accelerate and become fully vested immediately upon the Effective
Time, subject, in the case of each such Non-Employee Company Stock Option,
to the receipt of consent from its holder. For purposes of this Agreement,
the term "Company Stock Option Plan" means the Company's 1998 Stock Option
Plan and the Company's 2000 Stock Option Plan. Parent shall use all
reasonable efforts to cause to be reserved for issuance the number of Parent
Shares issuable upon exercise of the Parent Common Stock Options and rights
to acquire Parent Common Stock issued in exchange for Company Rights
referred to in this Section 4.1(e) and, Parent shall cause to be filed, as
soon as reasonably practicable after the Effective Time but in no event
later than sixty (60) days after the Effective Time, a registration
statement on Form S-8 (or any successor or other appropriate form) under the
Securities Act, or an amendment to an existing registration statement of
Form S-8, to register the Parent Shares issuable upon exercise of the Parent
Common Stock Options.
(f) Changes in Capitalization. If between the date of this Agreement and
the Effective Time, the outstanding Parent Shares or Company Capital Stock
shall be changed into a different number of shares or a different class by
reason of any reclassification, reorganization, consolidation, merger,
recapitalization, split-up, combination or exchange of shares or if a stock
dividend is declared with a record date within that period, the number of
Parent Shares to be issued in the Merger shall be
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appropriately adjusted. Nothing in this Section 4.1(f) shall be deemed to
constitute a waiver by the Company of the provisions of Section 8.2 hereof.
4.2 EXCHANGE OF SHARES IN THE MERGER.
The manner of making exchange of shares in the Merger shall be as follows:
(a) Promptly upon receipt of the Final Allocation Schedule, Parent shall
make available to American Stock Transfer Company or another exchange agent
selected by Parent (the "Exchange Agent") for the benefit of the holders of
shares of Company Capital Stock, a sufficient number of certificates
representing the aggregate number of Parent Shares issuable pursuant to
Section 4.1 (the certificates representing such aggregate number of Parent
Shares being hereinafter referred to as the "Stock Merger Exchange Fund").
The Exchange Agent shall, pursuant to irrevocable written instructions,
deliver the Parent Shares contemplated to be issued pursuant to Section 4.1
out of the Stock Merger Exchange Fund. The Stock Merger Exchange Fund shall
not be used for any other purpose.
(b) Promptly upon receipt of the Final Allocation Schedule, the Exchange
Agent shall mail and make available to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Capital Stock (the "Certificates")
(i) a form of letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon proper delivery of the Certificates to the Exchange Agent) and
(ii) instructions for use in effecting the surrender of the Certificates for
payment in exchange. All Parent Shares received by Company shareholders in
respect of the Retention Pool Shares shall, in addition to the forfeiture
provisions of the grant of such Retention Pool Shares, be subject to
prohibitions on transfer for twelve (12) months as to one-third of such
Retention Pool Shares, for twenty-four (24) months as to one-third of such
Retention Pool and for thirty-six (36) months as to the remaining one-third
of such Retention Pool Shares. All Parent Shares received by E*TRADE
Group, Inc. ("E*TRADE") and its Subsidiaries, General Atlantic Partners,
LLC, and entities controlled by it, and SOFTBANK Corp., and entities
controlled by it, including the portion thereof to be deposited in the
Special Escrow Fund established pursuant to Section 4.2(d), shall be, to the
extent each such shareholder agrees thereto, subject to prohibitions on
transfer for a three (3)-year period from the Effective Time (the "Strategic
Investor Lock-up Period"). The Company shall use its reasonable best efforts
to obtain the consent of the shareholders to the restrictions described in
the preceding sentence. Parent Shares subject to the Strategic Investor
Lock-up Period are referred to as the "Strategic Investor Lock-up Shares."
All Parent Shares received in the Merger by each Company shareholder listed
on Schedule 4.2(b) shall be, to the extent such shareholder agrees thereto,
subject to prohibitions on transfer until one hundred eighty (180) days
following the Effective Time. The Company shall use its reasonable best
efforts to obtain the consent of the shareholders to the restrictions
described in the preceding sentence. Parent Shares subject to such 180-day
restriction on transfer are referred to as the "Base Lock-up Shares." Upon
surrender of Certificates for cancellation to the Exchange Agent, together
with such letter of transmittal duly executed and any other required
documents, the holder of such Certificates shall be entitled to receive for
the shares represented by such Certificates the consideration applicable to
such shares and the Certificates so surrendered shall be canceled. Upon such
surrender, the Exchange Agent shall issue to each holder of Retention Pool
Shares three certificates for the Parent Shares issuable to such holder, one
of which shall be for a number of Parent Shares as nearly as practicable to
one-third of such Parent Shares and shall be subject to a restrictive legend
substantially in the form set forth in Exhibit B providing for a twelve
(12)-month prohibition on transfer, the second of which shall be for a
number of Parent Shares as nearly as practicable to one-third of such Parent
Shares and shall be subject to a restrictive legend substantially in the
form set forth in Exhibit B providing for a twenty-four (24) month
prohibition on transfer and the other of which shall be for the remainder of
such Parent Shares and shall be subject to a restrictive legend
substantially in the form of Exhibit B providing for a thirty-six
(36) month restriction on transfer. Upon such surrender, the Exchange Agent
shall issue to each holder entitled to
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receive Base Lock-up Shares a certificate for the Parent Shares issuable to
such holder, which shall be subject to a restrictive legend substantially in
the form set forth in Exhibit B providing for a one hundred eighty (180)-day
prohibition on transfer. Upon such surrender, the Exchange Agent shall issue
to each holder entitled to receive Strategic Investor Lock-up Shares a
certificate for the Parent Shares issuable to such holder, net of the number
of shares to be deposited into the Special Escrow Fund described in
Section 4.2(d), subject to a restrictive legend substantially in the form
set forth in Exhibit B providing for a three(3)-year prohibition on
transfer.
(c) The transfer restrictions on the Strategic Investor Lock-up Shares
and Base Lock-up Shares pursuant to Section 4.2(b) shall cease upon a Change
in Control with respect to Parent. For purposes of this Section, a Change in
Control with respect to Parent has the same meaning as a Change in Control
of Wit in the Strategic Alliance Agreement dated as of the date of this
Agreement between Parent and E*TRADE (the "Strategic Alliance Agreement").
Notwithstanding anything to the contrary, at any time upon written notice,
affiliates of General Atlantic Partners 61, L.P., may designate other shares
of Parent Stock (the "Substitute Shares") as being subject to the
restrictions on transfer set forth herein, and upon receipt of such notice
and deposit of such Substitute Shares, Parent shall release an equal number
of shares of Parent Stock (the "Released Shares") held by General Atlantic
Partners 61, L.P., and Capital GAP Co-Investment Partners II, L.P. (as
specified in such written notice) from the restrictions on transfer set
forth herein.
(d) Within five (5) business days after the Effective Time, the Parent
Shares comprising the Special Escrow Fund (as defined below) shall be
registered in the name of, and deposited with an escrow agent selected by
Parent with the reasonable consent of the Company (the "Special Escrow Fund
Agent"), such deposit (together with interest and other income thereon) to
constitute the special escrow fund (the "Special Escrow Fund") and to be
governed by the terms set forth in this Section 4.2(d) and an escrow
agreement, in form and substance reasonably satisfactory to the parties,
embodying the terms hereof, and except as the terms set forth in this
Section 4.2(d) may differ, substantially in the form of the Escrow Agreement
attached as Exhibit H. The Special Escrow Fund shall consist of twenty-five
percent (25%) of the Strategic Investor Lock-up Shares (the "Special Escrow
Shares"). One thirty-sixth of the Special Escrow Shares shall be released
from the Special Escrow Fund on the last business day of each calendar month
following the month in which the Effective Time occurs; PROVIDED, HOWEVER,
that in the event of a Change in Control (as defined in the Strategic
Alliance Agreement) with respect to E*TRADE and a non-assumption of the
Strategic Alliance Agreement by the acquiring or successor entity, all
Special Escrow Shares then remaining in the Special Escrow Fund shall be
surrendered to Parent for cancellation; and provided further, however, that
in the event of a Change in Control (as defined in the Strategic Alliance
Agreement) with respect to Wit, all Special Escrow Shares then remaining in
the Special Escrow Fund shall be released to the Company shareholders that
originally contributed such shares to the Special Escrow Fund. Any Parent
Shares released from the Special Escrow Fund shall continue to bear the
legend on prohibition of transfer pursuant to Section 4.2(b).
(e) Until surrendered, such Certificates shall represent solely the
right to receive the consideration applicable to such Share. No dividends or
other distributions that are declared after the Effective Time on Parent
Shares and payable to the holders of record thereof after the Effective Time
will be paid to Persons entitled by reason of the Merger to receive Parent
Shares until Certificates representing the right to receive such Parent
Shares are surrendered in appropriate form. Upon such surrender, there shall
be paid to the Person in whose name the Parent Shares are issued any
dividends or other distributions having a record date after the Effective
Time and a payment date prior to the time of such surrender. After such
surrender there shall be paid to the Person in whose name the Parent Shares
are issued any dividends or other distributions on such Parent Shares which
shall have a record date after the Effective Time and prior to such
surrender and a payment date after such surrender. In no event shall the
Persons entitled to receive such dividends or other distributions be
entitled to
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receive interest on such dividends or other distributions. If any
certificate representing Parent Shares is to be issued or cash payment in
lieu of fractional share interests is to be made to a Person other than the
one in whose name the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for
transfer and that the Person requesting such exchange shall pay to the
Exchange Agent any applicable transfer or other similar taxes, or shall
establish to the satisfaction of the Exchange Agent that any such tax has
been paid or is not applicable. Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to a holder of Shares
for any Parent Shares or dividends thereon, or, in accordance with
Section 4.3, cash in lieu of fractional Parent Shares, delivered to a public
official when and if required by applicable law. The Exchange Agent shall
not be entitled to vote or exercise any rights of ownership with respect to
the Parent Shares held by it from time to time hereunder, except that the
Exchange Agent shall receive and hold all dividends or other distributions
paid or distributed with respect to such Parent Shares for the account of
the Persons entitled to the dividends or distributions. If any Certificate
shall have been lost, stolen or destroyed, Parent may, in its discretion and
as a condition precedent to the issuance of any certificate representing
Parent Shares or the payment of cash in lieu of fractional shares, require
the owner of such lost, stolen or destroyed Stock Certificate to provide an
appropriate affidavit and to indemnify Parent against any claim that may be
made against Parent or the Surviving Corporation with respect to such
Certificate.
(f) Any portion of the Stock Merger Exchange Fund and the Fractional
Securities Fund (as hereinafter defined in Section 4.3) which remains
unclaimed by the former stockholders of the Company for six (6) months after
the Effective Time shall be delivered to Parent, upon demand of Parent, and
any former stockholders of the Company shall thereafter look only to Parent
for payment of their claim for the consideration for the Shares, including
any cash in lieu of fractional Parent Shares.
4.3 FRACTIONAL SHARES.
No fractional Parent Shares shall be issued in the Merger. In lieu of any
fractional securities, each holder of Shares of Company Capital Stock who would
otherwise be entitled to a fraction of a Parent Share upon surrender of
Certificates for exchange pursuant to this Article IV shall be paid an amount in
cash (without interest) determined by multiplying (i) the Stock Price by
(ii) the fraction of a Parent Share to which the holder would otherwise be
entitled. Parent shall make available to the Exchange Agent sufficient funds
(referred to as the "Fractional Securities Fund") as and when necessary to
enable the Exchange Agent to make the cash payments contemplated by
Section 4.3. In no event shall interest be paid or accrued on any cash payments.
ARTICLE V
OTHER AGREEMENTS
5.1 CERTAIN COMPANY SHAREHOLDER ACTIONS AND AGREEMENTS.
On the date of this Agreement, each of the holders of shares named on
Schedule 5.1, (a) has executed and delivered to the Company and Parent a written
consent with respect to all of his or her shares of Company Common Stock,
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
approving the Merger and this Agreement and each of the matters set forth
herein; and (b) has executed and delivered to Parent a Voting Agreement
(including an irrevocable proxy) in the form set forth as Exhibit C. The Company
and each such holder hereby consent and agree to the giving of each such consent
and the entering into of each such Voting Agreement and granting of each such
irrevocable proxy.
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5.2 CERTAIN PARENT STOCKHOLDER ACTIONS AND AGREEMENTS.
On the date of this Agreement, each of the holders of Parent Common Stock
named on Schedule 5.2 has executed and delivered to the Company a Voting
Agreement (including an irrevocable proxy) in the form set forth as Exhibit D.
5.3 EMPLOYMENT AGREEMENTS.
The parties intend that each of the individuals named on Schedule 5.3 has
entered or will enter, on or about the date of this Agreement, into an
Employment Agreement with Parent in substantially the form attached as
Exhibit E, the term of which shall commence at the Effective Time.
5.4 STRATEGIC ALLIANCE AGREEMENT.
Simultaneously with the execution of this Agreement, Parent and E*TRADE
shall execute and deliver the Strategic Alliance Agreement attached as
Exhibit F.
5.5 RETENTION POOL.
(a) At the Effective Time, Parent shall establish a stock option pool to
purchase an aggregate of not less than 500,000 Parent Shares to retain
Company employees following the Closing. As soon as practicable after
Closing, Parent shall issue to the employees of the Company named on a
retention schedule (the "Retention Schedule") to be determined by Parent and
the Company as soon as practicable, but in no event later than twenty
(20) days from the date of this Agreement, options to purchase all of the
Parent Shares reserved pursuant to the preceding sentence at a per share
exercise price equal to the market price of the Parent Shares on the date of
the grant for purposes of Parent's stock option plan (the "Retention Parent
Stock Options"). Each Retention Parent Stock Option shall vest in sixteen
(16) equal quarterly installments at the end of each calendar quarter over
forty-eight (48) months from the date of grant.
(b) At the Effective Time, Parent shall establish a cash bonus pool of
$5,000,000 (the "Retention Cash") to retain Company employees following the
Closing. At a time or times to be mutually agreed between the Company and
Parent, but in no event later than March 31, 2001, Parent shall pay the
Retention Cash to the Company employees named on the Retention Schedule, in
the respective amounts set forth on the Retention Schedule. If the
employment of any such employee ceases as a result of a termination without
Cause by Parent or one of its Subsidiaries or if there is a Change in
Control of Parent, all of the Retention Cash allocated for such employee
shall immediately vest and be paid to such employee.
(c) Prior to the Effective Time, pursuant to a restricted stock plan
reasonably acceptable to Parent, the Company shall issue to employees of the
Company and its Subsidiaries named on the Retention Schedule to be agreed
upon by the Company and Parent in writing prior to the Effective Time an
aggregate number of shares of Company Common Stock (the "Retention Pool
Shares") equal to the quotient obtained by dividing 500,000 by the Exchange
Ratio. The Retention Pool Shares shall be allocated among the employees
listed on the Retention Schedule in the amounts set forth in the Retention
Schedule for each such employee. The restricted stock plan governing the
Retention Pool Shares shall provide for vesting of share awards in equal
installments at the end of the twelfth (12(th)), twenty-fourth (24(th)), and
thirty-sixth (36(th)) months after the later of the date of award or the
Effective Time of the Merger, for forfeiture if the employee seeks to
exercise dissenter's rights with respect to any Company Capital Stock owned
by such employee or if the employment of such employee ceases for any reason
other than a result of termination without Cause by the Company or any
successor, for immediate vesting in the event of termination without Cause
and for other normal provisions of restricted stock plans. Subject to
applicable income tax withholding requirements, one-third of the Parent
Shares issued in respect of the Retention Pool Shares allocated for an
employee who is, other than as a result of termination without Cause by
Parent or one of its
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Subsidiaries, continuously employed by Parent and its Subsidiaries
(including the Company and its subsidiaries) from the Effective Time through
the end of the twelfth (12(th)) month after and including the month in which
the Effective Time occurs, shall, on the last day of such twelfth (12(th))
month, be vested in and released for such employee, one-third of the Parent
Shares issued in respect of the Retention Pool Shares allocated for an
employee who is, other than as a result of termination without Cause by
Parent or one of its Subsidiaries, continuously employed by Parent and its
Subsidiaries (including the Company and its subsidiaries) from the Effective
Time through the end of the twenty-fourth (24(th)) month after and including
the month in which the Effective Time occurs, shall, on the last day of such
twenty-fourth (24(th)) month, be vested in and released for such employee,
and the remaining one-third of the Parent Shares issued in respect of the
Retention Pool Shares allocated to an employee who is continuously so
employed, other than as a result of termination without Cause by Parent or
one of its Subsidiaries, from the Effective Time through the end of the
thirty-sixth (36(th)) month after and including the month in which the
Effective Time occurs shall, on the last day of such thirty-sixth (36(th))
month, be vested in and released to such employee. If the employment by
Parent or any of its Subsidiaries of an employee to whom any Retention Pool
Shares have been allocated ceases for any reason other than termination by
Parent or such Subsidiary without Cause, all of the Parent Shares issued in
respect of the Retention Pool Shares allocated to such employee that have
not vested as of the date of such cessation shall be forfeited and become
treasury stock of Parent. If the employment of any such employee ceases as a
result of termination without Cause by Parent or one of its Subsidiaries or
if there is a Change in Control of Parent, all of the Parent Shares issued
in respect of the Retention Pool Shares allocated to such employee shall
immediately vest and be released to such employee.
5.6 STANDSTILL AGREEMENT.
On the date of this Agreement, E*TRADE and Parent shall enter into the
Standstill Agreement in the form attached as Exhibit G.
5.7 THE COMPANY STOCK AND OPTION ARRANGEMENTS.
The Company shall use its reasonable best efforts to complete each of the
following actions at the earliest practicable date: (a) to amend, effective
immediately prior to the Effective Time, the Company Stock Option Plan to
implement the matters set forth in Section 4.1(e) of this Agreement; and (b) to
amend, effective immediately prior to the Effective Time, each Company Stock
Option outstanding at that time (other than Non-Employee Stock Options) to
adjust the vesting schedule to vest quarterly over forty-eight (48) months from
the date of grant. In addition, subject, in the case of each Non-Employee Stock
Option, to the Company's receipt of consent from its holder, the Company shall
cause the amendment of each such Non-Employee Stock Option to provide for
acceleration of vesting upon the Effective Time of the Merger so that the
holders of Non-Employee Company Stock Options may exercise all options covered
thereby (including theretofore unvested options) at any time during the original
term of such options, irrespective of their term of service with the Company and
irrespective of whether or not they continue to provide services to the Company
in any capacity.
5.8 INDEMNIFICATION OF COMPANY DIRECTORS AND OFFICERS.
From and after the Effective Time, Parent will, or will cause the Surviving
Corporation to, fulfill and honor in all respects the obligations of the Company
pursuant to its Articles of Incorporation and Bylaws.
(a) From and after the Effective Time, the Surviving Corporation will,
to the fullest extent permitted under Delaware Law, indemnify and hold
harmless each current and former director or officer of the Company
(collectively, the "Indemnified D&Os") against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, to the extent arising out of or pertaining
to any
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action or omission in his or her capacity as a director or officer of the
Company on or prior to the date hereof for a period of six (6) years after
the date hereof.
This Section 5.8 will survive the consummation of the Merger at the
Effective Time, is intended to benefit Parent, the Surviving Corporation and the
Indemnified D&Os, and will be binding on all successors and assign of the
Surviving Corporation. Nothing contained in this Section 5.8 shall be construed
as or have the effect of impeding Parent's ability to proceed against the Escrow
Fund in the event of a breach of any of the Company's representations,
warranties or covenants contained in this Agreement in accordance with
Article X hereof.
5.9 EMPLOYEE BENEFIT PLANS.
Immediately following the Effective Time, it is anticipated that each
employee of the Company will continue to participate in the Plans described in
the Company Disclosure Schedule pursuant to Section 6.17(a) until December 31,
2000. Following such date, it is anticipated that employees of the Company who
become or remain employees of Parent or the Surviving Corporation shall become
entitled to participate in Plans sponsored by, maintained by or contributed to
by Parent (or its applicable Subsidiary). The benefits to be provided to such
employees pursuant the first sentence of this paragraph, including, without
limitation, credit for any co-payments, deductibles, and offsets (or similar
payments) made by each of them prior to the Effective Time for purposes of
satisfying any applicable deductible, out-of-pocket, or similar requirements,
shall be no less favorable than the benefits currently provided to employees of
the Company as of the date hereof.
5.10 TECHNICAL SUPPORT.
Parent will provide E*TRADE with all technical support necessary for it to
satisfy the Vostock(SM) condition referenced in Section 9.1(k).
5.11 CONSENT OF THE COMPANY.
The Company consents to the transactions between E*TRADE and Wit Group (as
defined in the Strategic Alliance Agreement) as if the parties had entered into
the Strategic Alliance Agreement on a non-exclusive basis.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule prepared and signed by the
Company and delivered to Parent prior to the execution hereof (provided that the
listing of an item in one section of the Disclosure Schedule shall be deemed to
be a listing in another section of such Disclosure Schedule and apply to any
other representation and warranty of such party in this Agreement but only to
the extent that it is reasonably apparent from a reading of such disclosure
item), the Company represents and warrants to Parent and Merger Sub that all of
the statements contained in this Article VI are true and correct as of the date
of this Agreement (or, if made as of a specified date, as of such date).
6.1 ORGANIZATION; QUALIFICATION.
The Company (i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of California; (ii) has full corporate
power and authority to carry on its business as it is now being conducted and to
own, lease or operate the properties and assets it now owns, leases or operates;
and (iii) is duly qualified or licensed to do business as a foreign corporation
in good standing in every jurisdiction in which ownership of property or the
conduct of its business requires such licensing or qualification or, if the
Company is not so licensed or qualified in any such jurisdiction, it can become
so qualified in such jurisdiction without any material adverse effect upon its
business and properties. The
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Company has heretofore delivered to Parent complete and correct copies of the
Articles of Incorporation and Bylaws of the Company, as presently in effect.
6.2 SUBSIDIARIES AND AFFILIATES.
Schedule 6.2 sets forth the name, jurisdiction of incorporation and
authorized and outstanding capital stock of each Company Subsidiary and the
jurisdictions in which each Company Subsidiary is licensed or qualified to do
business. The Company does not own, directly or indirectly, any capital stock or
other equity securities of any corporation or have any direct or indirect equity
or ownership interest in any business other than securities constituting less
than five percent (5%) of the outstanding equity of the issuing entity. All the
outstanding capital stock of each Company Subsidiary is owned directly or
indirectly by the Company free and clear of all liens, options or encumbrances
of any kind and all material claims or charges of any kind, and is validly
issued, fully paid and nonassessable, and there are no outstanding options,
rights or agreements of any kind relating to the issuance, sale or transfer of
any capital stock or other equity securities of any such Company Subsidiary to
any person except the Company or another Company Subsidiary. Each Company
Subsidiary (i) is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation; (ii) has full corporate
power and authority to carry on its business as it is now being conducted and to
own, lease or operate the properties and assets it now owns, leases or operates;
and (iii) is duly qualified or licensed to do business as a foreign corporation
in good standing in every jurisdiction in which ownership of property or the
conduct of its business requires such licensing or qualification or, if a
Company Subsidiary is not so licensed or qualified in any such jurisdiction, it
can become so licensed or qualified in such jurisdiction without any material
adverse effect upon its business and properties. The Company has heretofore
delivered to Parent complete and correct copies of the Articles of Incorporation
and Bylaws of each Company Subsidiary, as presently in effect.
6.3 CAPITALIZATION.
The authorized capital stock of the Company consists of 41,078,347 shares of
Common Stock, no par value per share, 1,600,000 shares of Series A Convertible
Preferred Stock, 5,800,000 shares of Series B Convertible Preferred Stock and
14,968,442 shares of Series C Convertible Preferred Stock. As of the date
hereof, (i) 3,724,603 shares of Common Stock are issued and outstanding,
(ii) 1,600,000 shares of Series A Preferred are issued and outstanding,
(iii) 2,500,000 shares of Series B Preferred are issued and outstanding,
(iv) 14,968,442 shares of Series C Preferred are issued and outstanding, and
(v) 32,394,335 shares of Company Common Stock are reserved for issuance upon
exercise of the Company Stock Options and warrants and other rights to acquire
Company Common Stock. All the outstanding shares of Company Capital Stock are,
and all shares which may be issued pursuant to the exercise of outstanding
Company Stock Options shall be, when issued in accordance with the respective
terms thereof, duly authorized, validly issued, fully paid and nonassessable.
There is no Voting Debt of the Company or any Company Subsidiary issued and
outstanding. Except as set forth above and except for the Transactions, as of
the date of this Agreement, (i) there are no shares of capital stock of the
Company authorized, issued or outstanding; (ii) there are no existing options,
warrants, calls, pre-emptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the issued or unissued
capital stock of the Company or any Company Subsidiary, obligating the Company
or any Company Subsidiary to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock or Voting Debt of, or other
equity interest in, the Company or any Company Subsidiary or securities
convertible into or exchangeable for such shares or equity interests, or
obligating the Company or any Company Subsidiary to grant, extend or enter into
any such option, warrant, call, subscription or other right, agreement,
arrangement or commitment and (iii) there are no outstanding contractual
obligations of the Company or any Company Subsidiary to repurchase, redeem or
otherwise acquire any shares or any of the Capital Stock of the Company or any
Company Subsidiary or to provide funds to make any investment (in the form of a
loan, capital contribution or otherwise) in any the Company Subsidiary or any
other entity. Schedule 6.3 sets forth a complete list of each Company Stock
Option, warrant or other right (other than the conversion rights of the Company
Preferred Stock) to acquire Company Common Stock or any
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security convertible into or exchangeable or exercisable for any such warrants
or other right outstanding as of the date of this Agreement, including the name
of the optionee, number of shares, exercise price, date of grant and vesting
schedule.
(a) There are no voting trusts or other agreements or understandings to
which the Company or any Company Subsidiary is a party with respect to the
voting of the Capital Stock of the Company or any of the Company
Subsidiaries.
(b) No Indebtedness of the Company or any Company Subsidiary contains
any restriction upon (i) the prepayment of any Indebtedness of the Company
or any Company Subsidiary, (ii) the incurrence of Indebtedness by the
Company or any Company Subsidiary or (iii) the ability of the Company or any
Company Subsidiary to grant any lien on the properties or assets of the
Company or any Company Subsidiary.
6.4 AUTHORIZATION; VALIDITY OF AGREEMENT; THE COMPANY ACTION.
The Company has full corporate power and authority to execute and deliver
this Agreement and the Related Agreements to which it is a party, and to
consummate the Transactions. The execution, delivery and performance by the
Company of this Agreement and the Related Agreements to which it is a party, and
the consummation by it of the Transactions have been duly authorized by the
Company Board of Directors and by written consent of holders of the Company
Capital Stock representing the Required Shareholder Approval (as defined in
Section 6.6) and no other corporate action on the part of the Company or any of
its shareholders is necessary to authorize the execution and delivery by the
Company of this Agreement and the Related Agreements to which it is a party or
the consummation by the Company of the Transactions. This Agreement and the
Related Agreements to which the Company is a party have been duly executed and
delivered by the Company and, assuming due and valid authorization, execution
and delivery thereof by the other parties thereto, this Agreement and the
Related Agreements to which the Company is a party are valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms.
6.5 BOARD APPROVALS REGARDING TRANSACTIONS.
The Company's Board of Directors, at a meeting duly called and held, has
(i) unanimously determined that each of this Agreement, the Related Agreements
to which it is a party, and the Merger are fair to and in the best interests of
the shareholders of the Company and (ii) approved the Transactions, and none of
the aforesaid actions by the Company's Board of Directors has been amended,
rescinded or modified. The action taken by the Company's Board of Directors
constitutes approval of the Merger Agreement, the Related Agreements to which
the Company is a party, the Merger, and the other Transactions by the Company's
Board of Directors under California Law.
6.6 VOTE REQUIRED.
The affirmative vote of shareholders of the Company required to approve this
Agreement and the Merger in accordance with California Law and the Company
Articles consists of the approval of the holders of a majority of the
outstanding shares of Company Capital Stock, voting together as a single class
on an as-converted basis, the holders of a majority of the outstanding shares of
Company Common Stock, voting as a separate class, the holders of a majority of
the outstanding shares of each of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock, each voting as a separate
series, and the holders of at least two-thirds of the outstanding shares of
Series B Preferred Stock and Series C Preferred Stock, voting together as a
single class on an as-converted basis ("the Required Shareholder Approval").
6.7 CONSENTS AND APPROVALS; NO VIOLATIONS.
Except for the filings, permits, authorizations, consents and approvals as
may be required under, and other applicable requirements of, the Advisers Act,
the Exchange Act, the Securities Act, the rules and
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regulations of the NASD, the HSR Act, state securities or Blue Sky laws,
Delaware Law and California Law, none of the execution, delivery or performance
of this Agreement by the Company, the consummation by the Company of the
Transactions or compliance by the Company with any of the provisions hereof
shall (i) conflict with or result in any breach of any provision of the Articles
of Incorporation, the Bylaws or similar organizational documents of the Company
or any the Company Subsidiary, (ii) require any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, (iii) result in
a violation or breach of, or constitute (with or without due notice or the
passage of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration) under any of the terms, conditions or
provisions of any of the Company Agreements, or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
Company Subsidiary, any to which the Company or any the Company Subsidiary is a
party or by which any of the assets of any of them is bound, excluding from the
foregoing clauses (ii), (iii) and (iv) such violations, breaches or defaults
which would not, individually or in the aggregate, have a material adverse
effect on the Company and the Company Subsidiaries, taken as a whole. There are
no third party consents or approvals required to be obtained under any of the
Company Agreements prior to the consummation of the Transactions, except for
such consents and approvals the failure of which to be obtained would not,
individually or in the aggregate, have a material adverse effect on the Company
and the Company Subsidiaries, taken as a whole.
6.8 GOVERNMENTAL DOCUMENTS AND FINANCIAL STATEMENTS.
The Company and each Company Subsidiary has filed with the appropriate
Governmental Entity, and has heretofore made available to Parent, true and
complete copies of, the Governmental Documents of the Company and each Company
Subsidiary. As of their respective dates or, if amended, as of the date of the
last such amendment filed prior to the date hereof, the Governmental Documents
of the Company and each Company Subsidiary, including, without limitation, any
financial statements or schedules included therein (a) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading and
(b) complied in all material respects with the requirements of applicable law.
The Company has previously delivered to Parent copies of the audited
consolidated balance sheet of the Company and the Company Subsidiaries as of the
fiscal year ended September 30, 1999, and the related audited statements of
income, changes in shareholders' equity and cash flows for the fiscal year ended
September 30, 1999, together with the related notes thereto, accompanied by the
audit report of the independent public accountants with respect thereto, and the
unaudited balance sheets of each of them as of March 31, 2000 and the related
unaudited statements of income, changes in shareholders' equity and cash flows
for the period then ended (collectively, the balance sheets and the statements
above being referred to as "the Company Financial Statements" and the March 31,
2000 balance sheet as "the Company Balance Sheet"). The audited balance sheets
of the Company as of September 30, 1999 (including the related notes) fairly
present in accordance with GAAP the consolidated financial position of the
Company and the Company Subsidiaries as of the dates thereof, and the other
Company Financial Statements fairly present in accordance with GAAP (subject, in
the case of the unaudited statements, to adjustments normal in nature and amount
and the addition of footnotes) the consolidated results of the operations, cash
flows and changes in shareholders' equity of the Company and the Company
Subsidiaries for the respective fiscal periods therein set forth; and such
balance sheets and statements (including the related notes, where applicable)
have been prepared in accordance with GAAP consistently applied throughout the
periods involved except as noted therein.
6.9 COMPLIANCE WITH APPLICABLE LAW.
(a) The Company and each Company Subsidiary is duly registered with the
SEC as a broker-dealer.
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(b) The Company and each Company Subsidiary and each employee of each of
them holds, and has at all pertinent times held, all material licenses,
franchises, permits, qualifications and authorizations (collectively, the
"Company Permits") necessary for the lawful ownership and use of the
respective properties and assets of the Company, the Company Subsidiaries
and the conduct of their respective businesses under and pursuant to every,
and have complied with each, and are not in default in any material respect
under any, applicable law relating to any of them or any of their respective
assets, properties or operations, and the Company does not know of any
violations of any of the above and has not received notice asserting any
such violation. To the Company's knowledge, all such Company Permits are
valid and in good standing and are not subject to any proceeding for the
suspension, modification or revocation thereof.
(c) Except for normal examinations conducted by any Governmental Entity
in the regular course of the business of the Company and the Company
Subsidiaries, no Governmental Entity has at any time initiated or, to the
Company's knowledge, threatened any proceeding or investigation into the
business or operations of any of them or any of their officers, directors or
employees or equity holders in their capacity as such. There is no
unresolved violation, criticism, or exception by any Governmental Entity
with respect to any examination of the Company, the Company Subsidiaries.
(d) The Company and each of the Company Subsidiaries has at all times
since December 31, 1996 or its date of formation, whichever is later,
rendered investment advisory services to investment advisory clients with
whom such entity is or was a party to an investment advisory agreement or
similar arrangement in material compliance with all applicable requirements
as to portfolio composition and portfolio management including, but not
limited to, the terms of such investment advisory agreements, written
instructions from such investment advisory clients, prospectuses or other
offering materials, board of director or trustee directives and applicable
law.
(e) Each of the Company and the Company Subsidiaries has timely filed
all reports, registration statements and other documents, together with any
amendments required to be made with respect thereto, that it was required to
file with any Governmental Entity, in a form which was accurate in all
material respects and has paid all fees and assessments due and payable in
connection therewith.
(f) As of their respective dates, the Governmental Documents of the
Company and the Company Subsidiaries complied in all material respects with
the requirements of the Securities Laws applicable to such Governmental
Documents. The Company has previously delivered or made available to the
Parent a complete copy of each Governmental Document filed by any of the
foregoing entities or any of their employees since April 9, 1999 and prior
to the date hereof and shall deliver or by notice make available to the
Parent at the same time as the filing thereof a complete copy of each
Governmental Document filed after the date hereof and prior to the Closing
Date by or on behalf of any of them.
(g) Neither the Company nor any Company Subsidiary has any Pooled
Products.
6.10 BOOKS AND RECORDS.
Each of the Company and the Company Subsidiaries has at all times since
formation maintained Records which accurately reflect its material transactions
in reasonable detail, and have at all times maintained accounting controls,
policies and procedures reasonably designed to provide that such transactions
are executed in accordance with its management's general or specific
authorization, as applicable, and recorded in a manner which permits the
preparation of financial statements in accordance with GAAP and applicable
regulatory accounting requirements and other account and financial data, and the
documentation pertaining thereto is retained, protected and duplicated in
accordance with applicable regulatory requirements.
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6.11 INELIGIBLE PERSONS.
None of the Company or any Company Subsidiary, or any "associated person"
(as defined in the Advisers Act or the Exchange Act) of any thereof, is
ineligible pursuant to Section 203 of the Advisers Act or Section 15(b) of the
Exchange Act to serve as a registered investment adviser or broker-dealer or as
an associated person of a registered investment adviser or broker-dealer.
6.12 NO UNDISCLOSED LIABILITIES.
Except for liabilities and obligations (a) disclosed in the Financial
Statements, (b) incurred in the ordinary course of business and consistent with
past practice since the Balance Sheet Date or (c) incurred in accordance with
the terms of this Agreement or with the prior written consent of Parent, neither
the Company nor any Company Subsidiary has, to the best of the Company's
knowledge, any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that have, or would be reasonably likely to have,
material adverse effect on the Company and the Company Subsidiaries, taken as a
whole. The reserves reflected in the Financial Statements are adequate,
appropriate and reasonable and have been calculated in a consistent manner.
6.13 INTERIM OPERATIONS.
Since the Company Balance Sheet Date, the business of the Company and each
Company Subsidiary has been conducted only in the ordinary and usual course
consistent with past practice. Since the Company Balance Sheet Date, there have
not been any material adverse changes in the financial condition, assets or
results of operations of the Company and the Company Subsidiaries, taken as a
whole. Since the Company Balance Sheet Date such assets have not been affected
in any way as a result of flood, fire, explosion or other casualty (whether or
not covered by insurance). The Company is not aware of any circumstances which
may cause it or any of the Company Subsidiaries to suffer any material adverse
change in the business or operations of the Company and the Company
Subsidiaries, taken as a whole.
6.14 ABSENCE OF CERTAIN CHANGES.
Since the Balance Sheet Date, except as contemplated by this Agreement or
the Related Agreements, neither the Company nor any Company Subsidiary has:
(a) suffered any material adverse change in its working capital,
financial condition, assets, liabilities (absolute, accrued, contingent or
otherwise), reserves, business or operations;
(b) incurred any liabilities or obligations (absolute, accrued,
contingent or otherwise) except in the ordinary course of business, or
increased, or experienced any change in any assumptions underlying or
methods of calculating, any bad debt, contingency or other reserves;
(c) paid, discharged or satisfied any claim, liability or obligation
(whether absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business and of
liabilities and obligations reflected or reserved against in the Company
Balance Sheet or incurred in the ordinary course of business and consistent
with past practice since the Balance Sheet Date;
(d) permitted or allowed any of its property or assets (real, personal
or mixed, tangible or intangible) to be subjected to any mortgage, pledge,
lien, security interest, encumbrance, restriction or charge of any kind,
other than in the ordinary course of its business and except for liens for
current taxes not yet due;
(e) sold, transferred, or otherwise disposed of any of its properties or
assets (real, personal or mixed, tangible or intangible), except in the
ordinary course of business;
(f) disposed of or permitted to lapse any rights to the use of any
Intellectual Property, or disposed of or disclosed (except as necessary in
the conduct of its business) to any person other than
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representatives of Parent any trade secret, formula, process, know-how or
other Intellectual Property not theretofore a matter of public knowledge;
(g) granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension,
profit- sharing or other plan or commitment) or any increase in the
compensation payable or to become payable to any officer or employee, except
in the ordinary course of business;
(h) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or redeemed, purchased or
otherwise acquired, directly or indirectly, any shares of capital stock or
other securities of the Company or any Company Subsidiary;
(i) made any change in any method of accounting or accounting practice;
or
(j) agreed, whether in writing or otherwise, to take any action
described in this section.
6.15 TECHNOLOGY AND INTELLECTUAL PROPERTY.
(a) The electronic data processing, information, record keeping,
communications, telecommunications, portfolio trading and computer systems
and Intellectual Property (including Software) which are used by the Company
and the Company Subsidiaries in their businesses (collectively, the
"Technology Systems") are adequate for the operation of the business of the
Company and the Company Subsidiaries as currently operated. The Company owns
or has the right to use all components of the Company Technology Systems
that are reasonably necessary to the normal operations of the business of
the Company as currently conducted by it. The Company has good title to all
the Company Technology Systems owned by it. There has not been any material
malfunction with respect to any of the Company Technology Systems since
December 31, 1998 that has not been remedied or replaced in all material
respects, in each case without material disruption to the businesses of the
Company and the Company Subsidiaries. The completion of the Transactions
shall not materially alter or impair the right of the Company and the
Company Subsidiaries to use each of the components of the Company Technology
Systems. No database included in the Intellectual Property of the Company
and the Company Subsidiaries has been disclosed or authorized to be
disclosed to any third-party other than pursuant to a confidentiality or
non-disclosure agreement that reasonably protects the Company's and the
Company Subsidiaries' interest in and to such database.
(b) The conduct of the business of the Company and its Subsidiaries does
not infringe upon any intellectual property right owned or controlled by any
third-party. There are no claims, proceedings or actions pending or, to the
Company's knowledge, threatened in writing, and the Company has not received
any notice of any claim or suit (i) alleging that the Company's or any
Company Subsidiary's activities infringes upon or constitutes the
unauthorized use of the proprietary rights of any third-party or
(ii) challenging the ownership, use, validity or enforceability of any
Intellectual Property owned or controlled by the Company or any Company
Subsidiary, nor is there a valid basis for any such claim or suit. No
third-party is, to the Company's knowledge, infringing upon any Intellectual
Property owned or controlled by the Company or any the Company Subsidiary,
and no such claims have been made by the Company or any the Company
Subsidiary.
6.16 LEGAL PROCEEDINGS.
Neither the Company nor any Company Subsidiary nor, to the Company's
knowledge, the directors, officers or employees of the Company or any Company
Subsidiary is a party to any, and there are no, legal, administrative, arbitral
or other proceedings, claims, actions or governmental or regulatory
investigations of any nature pending or, to the Company's knowledge, threatened
in writing against any of them or any of their respective properties or assets
relating to the business of the Company or any Company Subsidiary or any Company
Pooled Product, or that challenges any of the Transactions, and there is no
injunction, order, judgment, decree, or regulatory restriction imposed
specifically upon any of them or any of their respective
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properties, assets, directors, officers or employees relating to the business of
the Company, any Company Subsidiary or any Company Pooled Product, in each case,
that would have a material adverse effect on the Company's assets, financial
condition, business or operations if such proceeding, claim, action or
investigation is determined adversely to the Company, any Company Subsidiary or
any Company Pooled Product business or properties.
6.17 EMPLOYEE BENEFIT PLANS.
(a) Schedule 6.17 contains a true and complete list of each deferred
compensation and each incentive compensation, stock purchase, stock option
and other equity compensation plan, program, agreement or arrangement; each
severance or termination pay, medical, surgical, hospitalization, life
insurance and other "welfare" plan, fund or program (within the meaning of
Section 3(1) of ERISA); each profit-sharing, stock bonus or other "pension"
plan, fund or program (within the meaning of Section 3(2) of ERISA); each
employment, termination or severance agreement; and each other employee
benefit plan, fund, program, agreement or arrangement, in each case, that is
sponsored, maintained or contributed to or required to be contributed to by
the Company or by any ERISA Affiliate of the Company, or to which the
Company or an ERISA Affiliate of the Company is party, whether written or
oral, for the benefit of any director, former director, employee or former
employee of the Company or any Company Subsidiary. None of the Company, any
Company Subsidiary or any ERISA Affiliate of the Company has any commitment
or formal plan, whether legally binding or not, to create any additional
employee benefit plan or modify or change any existing Plan that would
affect any employee or former employee of the Company or any Company
Subsidiary.
(b) The Company has heretofore delivered to Parent true and complete
copies of each Plan and any amendments thereto (or if a Plan is not a
written Plan, a description thereof), any related trust or other funding
vehicle, any reports or summaries required under ERISA or the Code and the
most recent determination letter received from the Internal Revenue Service
with respect to each Plan intended to qualify under Section 401 of the Code.
(c) No Plan is a Title IV Plan.
(d) Neither the Company, any Company Subsidiary, any Plan or any trust
created thereunder, nor any trustee or administrator of any thereof, has
engaged in a transaction in connection with which the Company, any Company
Subsidiary, any Plan, any such trust, or any trustee or administrator
thereof, or any party dealing with any Plan or any such trust could be
subject to either a civil penalty assessed pursuant to Section 409 or
502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the
Code.
(e) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code.
(f) Each Plan within the meaning of Section 3(2) of ERISA intended to be
"qualified" within the meaning of Section 401(a) of the Code are so
qualified, and the trusts maintained thereunder are exempt from taxation
under Section 501(a) of the Code. Each Plan intended to satisfy the
requirements of Section 501(c)(9) has satisfied such requirements.
(g) No Plan provides medical, surgical or hospitalization, death or
similar benefits (whether or not insured) for employees or former employees
of the Company or any Company Subsidiary for periods extending beyond their
retirement or other termination of service, other than (i) coverage mandated
by applicable law, (ii) death benefits under any life insurance plan or
"pension plan," or (iii) benefits the full cost of which is borne by the
current or former employee (or his beneficiary).
(h) No amounts payable under the Plans shall fail to be deductible by
Parent or the Surviving Corporation for federal income tax purposes by
virtue of Section 280G of the Code.
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(i) The consummation of the Transactions shall not, either alone or in
combination with another event, (i) entitle any current or former employee
or officer of the Company or any ERISA Affiliate of the Company to severance
pay, unemployment compensation or any other payment, except as expressly
provided in this Agreement, or (ii) accelerate the time of payment or
vesting other than as a result of partial or full termination of a tax
qualified plan by the Surviving Corporation after the Effective Time, or
increase the amount of compensation due any such employee or officer.
(j) There are no pending, or, to the knowledge of the Company,
threatened or anticipated claims by or on behalf of any Plan, by any
employee or beneficiary covered under any such Plan, or otherwise involving
any such Plan (other than routine claims for benefits).
6.18 TAX MATTERS; GOVERNMENT BENEFITS.
(a) The Company and each of its Subsidiaries have duly filed all Tax
Returns that are required to be filed excluding only such Tax Returns as to
which any failure to file shall not have a material adverse effect on the
Company and the Company Subsidiaries, taken as a whole, and have duly paid
or caused to be duly paid in full or made provision in accordance with GAAP
(or there has been paid or provision has been made on their behalf) for the
payment of all Taxes (as hereinafter defined) for all periods or portions
thereof ending through the date hereof. All such Tax Returns are correct and
complete in all material respects and accurately reflect all liability for
Taxes for the periods covered thereby. All Taxes owed and due by the Company
and all the Company Subsidiaries relating to operations on or prior to the
Balance Sheet Date (whether or not shown on any Tax Return) have been paid
or have been adequately reflected on the Financial Statements. Since the
Balance Sheet Date, the Company has not incurred liability for any Taxes
other than in the ordinary course of business. Neither the Company nor any
Company Subsidiary has received written notice of any claim made by an
authority in a jurisdiction where neither the Company nor any the Company
Subsidiary file Tax Returns, that the Company or any such Company Subsidiary
is or may be subject to taxation by that jurisdiction.
(b) The federal income Tax Returns of the Company and the Company
Subsidiaries have not been examined by the Internal Revenue Service. Neither
the Company nor any Company Subsidiary has waived any statute of limitations
in any jurisdiction in respect of Taxes or Tax Returns or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(c) No federal, state, local or foreign audits, examinations or other
administrative proceedings have been commenced or, to the Company's
knowledge, are pending with regard to any Taxes or Tax Returns of the
Company or of any Company Subsidiary. No written notification has been
received by the Company or by any Company Subsidiary that such an audit,
examination or other proceeding is pending or threatened with respect to any
Taxes due from or with respect to or attributable to the Company or any
Company Subsidiary or any Tax Return filed by or with respect to the Company
or any Company Subsidiary. To the Company's knowledge, there is no dispute
or claim concerning any Tax liability of the Company, or any Company
Subsidiary either claimed or raised by any taxing authority in writing.
(d) Neither the Company nor any Company Subsidiary is a party to any
agreement, plan, contract or arrangement that could result, separately or in
the aggregate, in a payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.
(e) Neither the Company nor any Company Subsidiary has filed a consent
pursuant to Section 341(f) of the Code (or any predecessor provision)
concerning collapsible corporations, or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a "subsection (f) asset" (as such term
is defined in Section 341(f)(4) of the Code) owned by the Company or any the
Company Subsidiary.
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(f) No taxing authority is asserting or threatening to assert a claim
against the Company or any the Company Subsidiary under or as a result of
Section 482 of the Code or any similar provision of state, local or foreign
law.
(g) Neither the Company nor any Company Subsidiary is a party to any tax
sharing, tax indemnity or other agreement or arrangement with any entity not
included in the Company's Financial Statements which could result in a
material liability.
(h) None of the Company or any Company Subsidiary has been a member of
any affiliated group within the meaning of Section 1504(a) of the Code, or
any similar affiliated or consolidated group for tax purposes under state,
local or foreign law (other than a group the common parent of which is the
Company), or has any liability for Taxes of any person (other than the
Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6 or
any similar provision of state, local or foreign law as a transferee or
successor, by contract or otherwise.
6.19 LABOR AND EMPLOYMENT MATTERS.
(a) Neither the Company nor any Company Subsidiary is delinquent in any
material respect in payments to any of its current or former officers,
directors, employees, consultants, or agents for any wages, salaries,
commissions, bonuses, benefits, expenses or other compensation for any
services performed by them or amounts required to be reimbursed to them; and
in the event of termination of the employment of any employee of the Company
or any Company Subsidiary, neither the Company nor any Company Subsidiary
shall be liable to any such employee under any agreement in effect at the
Closing (other than any agreement that will be superseded by an agreement
entered into between Parent and such employee at or prior to the Effective
Time) for so-called "severance pay," incentive pay, liquidated damages or
any other payments or benefits, including, without limitation,
post-employment health care, pension or insurance benefits.
(b) Since its inception, the Company has not had any claim made against
it or any Company Subsidiary by any Person before any Governmental Entity in
respect of employment with the Company for discrimination or harassment on
account of sex, race and other characteristic protected by law and there are
no pending or threatened proceedings in relation thereto.
6.20 CONTRACTS AND COMMITMENTS.
(a) Schedule 6.20 sets forth a list of all agreements, contracts or
commitments which are material to the Company and its Company Subsidiaries'
business or operations.
(b) Neither the Company nor any Company Subsidiary is in default, nor is
there any known basis for any valid claim of default, under any contract
made or obligation owed by it which are material to its business or
operations.
6.21 INSURANCE.
The Company maintains with reputable insurers the worker's compensation,
comprehensive property and casualty, liability, fidelity and other insurance
policies described on Schedule 6.21, which insurance is, in the reasonable
opinion of the Company, sufficient for the operation of the businesses operated
by the Company and the Company Subsidiaries.
6.22 PERSONNEL.
Schedule 6.22 sets forth a true and complete list of: the names and current
salaries of all directors and elected and appointed officers of each of the
Company and the Company Subsidiaries, the number of shares owned beneficially or
of record, or both, by each such person and the family relationships, if any,
among such persons; and, in response to Section 6.17, all group insurance
programs in effect for employees of each of the Company and the Company
Subsidiaries. The Company has made available to Parent true
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and accurate information relating to the wage rates for non-salaried and
non-executive salaried employees of each of the Company and the Company
Subsidiaries and all labor union contracts.
6.23 INSIDER INTERESTS.
No officer or director of the Company or any Company Subsidiary has any
material interest in any property, real or personal, tangible or intangible,
including without limitation, office space, fixtures, equipment, inventions,
patents, trademarks or trade names, used in or pertaining to the business of the
Company or any Company Subsidiary.
6.24 BROKERS OR FINDERS.
No agent, broker, investment banker, financial advisor or other firm or
person is or shall be entitled to any brokers or finders fee or any other
commission or similar fee in connection with any of the Transactions.
6.25 INFORMATION SUPPLIED.
None of the information supplied by the Company for inclusion or
incorporation by reference in the S-4 Registration Statement will, at the time
the S-4 Registration Statement is filed with the SEC, at any time it is amended
or supplemented or at the time it becomes effective under the Securities Act,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary, to make the statements therein not
misleading.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the Disclosure Schedule prepared and signed by Parent
and delivered to the Company prior to the execution hereof (provided that the
listing of an item in one section of the Disclosure Schedule shall be deemed to
be a listing in another section of such Disclosure Schedule and apply to any
other representation and warranty of such party in this Agreement but only to
the extent that it is reasonably apparent from a reading of such disclosure
item), Parent represents and warrants to the Company that all of the statements
contained in this Article VII are true and correct as of the date of this
Agreement (or, if made as of a specified date, as of such date).
7.1 ORGANIZATION; QUALIFICATION.
Parent (i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware; (ii) has full corporate power
and authority to carry on its business as it is now being conducted and to own,
lease or operate the properties and assets it now owns, leases or operates; and
(iii) is duly qualified or licensed to do business as a foreign corporation in
good standing in every jurisdiction in which ownership of property or the
conduct of its business requires such licensing or qualification or, if Parent
is not so licensed or qualified in any such jurisdiction, it can become so
qualified in such jurisdiction without any material adverse effect (including
assessment of state taxes for prior years) upon its business and properties.
Parent has heretofore delivered to the Company complete and correct copies of
the Certificate of Incorporation and Bylaws of Parent, as presently in effect.
7.2 SUBSIDIARIES AND AFFILIATES.
Other than the Parent Subsidiaries, Parent does not own, directly or
indirectly, any capital stock or other equity securities of any corporation or
have any direct or indirect equity or ownership interest in any business other
than securities constituting less than five percent (5%)of the outstanding
equity of the issuing entity. All the outstanding capital stock of each Parent
Subsidiary is owned directly or indirectly by Parent free and clear of all
liens, options or encumbrances of any kind and all material claims or charges of
any kind, and is validly issued, fully paid and nonassessable, and there are no
outstanding options, rights or agreements of any kind relating to the issuance,
sale or transfer of any capital stock or other equity
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securities of any such Parent Subsidiary to any person except Parent or another
Parent Subsidiary. Each Parent Subsidiary (i) is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation; (ii) has full corporate power and authority to carry on its
business as it is now being conducted and to own, lease or operate the
properties and assets it now owns, leases or operates; and (iii) is duly
qualified or licensed to do business as a foreign corporation in good standing
in every jurisdiction in which ownership of property or the conduct of its
business requires such licensing or qualification or, if a Parent Subsidiary is
not so licensed or qualified in any such jurisdiction, it can become so licensed
or qualified in such jurisdiction without any material adverse effect upon its
business and properties. Parent has heretofore delivered to the Company complete
and correct copies of the Certificate of Incorporation and Bylaws of each Parent
Subsidiary, as presently in effect.
7.3 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of 500,000,000
shares of Parent Common Stock, 75,000,000 shares of Class B Common Stock,
par value. $.01 per share ("Class B Shares"), 159,000,000 shares of Class C
Common Stock, par value $.01 per share ("Class C Shares") and 30,000,000
shares of preferred stock, par value $.001 per share. As of the date of this
Agreement, (i) 78,408,001 shares of Parent Common Stock, 11,666,666 Class B
Shares and no Class C Shares are issued and outstanding, (ii) no Parent
Shares, no Class B Shares and no Class C Shares are held in the treasury of
Parent, (iii) 30,000,000 shares of preferred stock are designated as
Series A Junior Participating Preferred Stock, none of which are issued and
outstanding, and (iv) 18,145,018 shares of Parent Common Stock are reserved
for issuance upon exercise of Parent Stock Options. All the outstanding
shares of Parent's capital stock are, and all Parent Shares which may be
issued pursuant to the exercise of outstanding Parent Stock Options shall
be, when issued in accordance with the respective terms thereof, duly
authorized, validly issued, fully paid and nonassessable. There is no Voting
Debt of Parent or any Parent Subsidiary issued and outstanding. Except as
set forth above and except for the Transactions, as of the date of this
Agreement, (i) there are no shares of capital stock of Parent authorized,
issued or outstanding; (ii) there are no existing options, warrants, calls,
pre-emptive rights, subscriptions or other rights, agreements, arrangements
or commitments of any character, relating to the issued or unissued capital
stock of Parent or any Parent Subsidiary, obligating Parent or any Parent
Subsidiary to issue, transfer or sell or cause to be issued, transferred or
sold any shares of capital stock or Voting Debt of, or other equity interest
in, Parent or any Parent Subsidiary or securities convertible into or
exchange-able for such shares or equity interests, or obligating Parent or
any Parent Subsidiary to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement, arrangement or
commitment and (iii) there are no outstanding contractual obligations of
Parent or any Parent Subsidiary to repurchase, redeem or otherwise acquire
any shares of the capital stock of Parent or any Parent Subsidiary or to
provide funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any Parent Subsidiary or any other entity.
(b) There are no voting trusts or other agreements or understandings to
which Parent or any Parent Subsidiary is a party with respect to the voting
of the capital stock of Parent or any of the Parent Subsidiaries.
7.4 AUTHORIZATION; VALIDITY OF AGREEMENT; PARENT ACTION.
Each of Parent and Merger Sub has full corporate power and authority to
execute and deliver this Agreement and the Related Agreements to which it is a
party, and to consummate the Transactions. The execution, delivery and
performance by each of Parent and Merger Sub of this Agreement and the Related
Agreements to which it is a party and the consummation by it of the Transactions
have been duly authorized by its respective Board of Directors and by written
consent of the sole stockholder of Merger Sub, and except for obtaining the
approval of Parent's stockholders as contemplated by Section 9.2(b), no other
corporate action on its part is necessary to authorize its execution and
delivery of this Agreement or
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the Related Agreements to which it is a party or the consummation by it of the
Transactions. This Agreement has been duly executed and delivered by each of
Parent and Merger Sub, and the Related Agreements to which Parent and/or Merger
Sub are parties have been duly executed and delivered by Parent and/or Merger
sub, as applicable, and, assuming due and valid authorization, execution and
delivery thereof by the other parties hereto and thereto, this Agreement and
such Related Agreements are a valid and binding obligations of Parent and/or
Merger Sub, as applicable, enforceable against Parent and/or Merger Sub, as
applicable, in accordance with their terms.
7.5 BOARD APPROVALS REGARDING TRANSACTIONS.
Each of Parent's and Merger Sub's Board of Directors, at a meeting duly
called and held, has (i) unanimously determined that each of this Agreement and
the Merger and the Transactions are fair to and in the best interests of the
shareholders of Parent and (ii) approved the Transactions, and none of the
aforesaid actions by its Board of Directors has been amended, rescinded or
modified. The action taken by each of Parent's and Merger Subs' Board of
Directors constitutes approval of the Merger, the Related Agreements to which
Parent and/or Merger Sub are parties and the Transactions by Parent's and Merger
Sub's Boards of Directors under Delaware Law. In addition, Parent has approved
the Merger Agreement as the sole stockholder of Merger Sub.
7.6 VOTE REQUIRED.
Except for the requirement of the affirmative vote of the holders of a
majority of the shares of Parent Common Stock voting thereon under the
shareholder voting policy of the NASD (the "Parent Required Stockholder
Consent"), no action by the holders of any class or series of Parent's capital
stock is necessary to approve the Merger or any of the other Transactions.
7.7 CONSENTS AND APPROVALS; NO VIOLATIONS.
Except for the filings, permits, authorizations, consents and approvals as
may be required under, and other applicable requirements of, the Exchange Act,
the Securities Act, the rules and regulations of the NASD, the HSR Act, state
securities or Blue Sky laws and California Law and Delaware Law, none of the
execution, delivery or performance of this Agreement by each of Parent and
Merger Sub, the consummation by each of Parent and Merger Sub of the
Transactions or compliance by each of Parent and Merger Sub with any of the
provisions hereof shall (i) conflict with or result in any breach of any
provision of the Certificate of Incorporation, the Bylaws or similar
organizational documents of Parent or any Parent Subsidiary, (ii) require any
filing with, or permit, authorization, consent or approval of, any Governmental
Entity, (iii) result in a violation or breach of, or constitute (with or without
due notice or the passage of time or both) any default (or give rise to any
right of termination or amendment or result in the creation of a lien on the
properties or assets of Parent or any Parent Subsidiary) under any of the terms,
conditions or provisions of any Parent Agreement, or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Parent or
any Parent Subsidiary, any to which Parent or any Parent Subsidiary is a party
or by which any of the assets of any of them is bound, excluding from the
foregoing clauses, (ii), (iii) and (iv) such violations, breaches or defaults
(or rights or liens) which would not, individually or in the aggregate, have a
material adverse effect on Parent and the Parent Subsidiaries, taken as a whole
or on the ability of Parent to perform its obligations under this Agreement, the
Related Agreements or the ability of Parent to consummate the Merger and the
other Transactions. There are no third party consents or approvals required to
be obtained under any Parent Agreement prior to the consummation of the
Transactions, except for such consents and approvals the failure of which to be
obtained, would not, individually or in the aggregate, have a material adverse
effect on Parent and the Parent Subsidiaries, taken as a whole.
7.8 GOVERNMENTAL DOCUMENTS AND FINANCIAL STATEMENTS.
Parent and each Parent Subsidiary has filed with the appropriate
Governmental Entity, and has heretofore made available to the Company, true and
complete copies of, the Governmental Documents of
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Parent and each Parent Subsidiary. As of their respective dates or, if amended,
as of the date of the last such amendment filed prior to the date hereof, the
Governmental Documents of Parent and each Parent Subsidiary, including, without
limitation, any financial statements or schedules included therein (a) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading and (b) complied in all material respects with the requirements of
applicable law. Parent's audited consolidated balance sheet as of December 31,
1999 (the "Parent Balance Sheet"), and the related audited consolidated
statements of income, changes in stockholders' equity and cash flows for the
year ended December 31, 1999 and the related notes (the Parent Balance Sheet and
such other statements and notes, the "Financial Statements") have been prepared
from, and are in accordance with, the books and records of Parent and the Parent
Subsidiaries, comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the period involved (except as may be stated in the
notes thereto) and fairly present in accordance with GAAP the consolidated
financial position and the consolidated results of operations and cash flows
(and changes in financial position, if any) and changes in stockholders' equity
of Parent and its consolidated Subsidiaries (subject, in the case of the
unaudited statements, to recurring adjustments normal in nature and amount and
the addition of footnotes) as of the times and for the periods referred to
therein.
7.9 COMPLIANCE WITH APPLICABLE LAW.
(a) Parent and each Parent Subsidiary is, if so required by the nature
of its business or assets, duly registered with the SEC as a broker- dealer
and to be duly registered with the SEC as an investment adviser or with the
Commodity Futures Trading Commission as a commodity pool operator or
commodity trading adviser.
(b) Parent, each Parent Subsidiary, each Parent Pooled Product and each
employee of each of them holds, and has at all pertinent times held, all
material licenses, franchises, permits, qualifications and authorizations
(collectively, "Parent Permits") necessary for the lawful ownership and use
of the respective properties and assets of Parent, the Parent Subsidiaries
and the Parent Pooled Products and the conduct of their respective
businesses under and pursuant to every, and have complied with each, and are
not in default in any material respect under any applicable law relating to
any of them or any of their respective assets, properties or operations, and
Parent does not know of any violations of any of the above and has not
received notice asserting any such violation. To Parent's knowledge, all
such Parent Permits are valid and in good standing and are not subject to
any proceeding for the suspension, modification or revocation thereof.
(c) Except for normal examinations conducted by any Governmental Entity
in the regular course of the business of Parent, the Parent Subsidiaries and
the Parent Pooled Products, no Governmental Entity has at any time initiated
or, to Parent's knowledge, threatened any proceeding or investigation into
the business or operations of any of them or any of their officers,
directors or employees or (other than Parent Pooled Products) equityholders
in their capacity as such. There is no unresolved violation, criticism, or
exception by any Governmental Entity with respect to any examination of
Parent, the Parent Subsidiaries or the Parent Pooled Products.
(d) Parent and each of the Parent Subsidiaries has at all times since
December 31, 1996 or its date of formation, whichever is later, rendered
investment advisory services to investment advisory clients, including
Parent Pooled Products, with whom such entity is or was a party to an
investment advisory agreement or similar arrangement in material compliance
with all applicable requirements as to portfolio composition and portfolio
management including, but not limited to, the terms of such investment
advisory agreements, written instructions from such investment advisory
clients, the organizational documents of such investment advisory clients
that are Parent Pooled Products, prospectuses or other offering materials,
board of director or trustee directives and applicable law.
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(e) Each of Parent, the Parent Subsidiaries and the Parent Pooled
Products has timely filed all reports, registration statements and other
documents, together with any amendments required to be made with respect
thereto, that it was required to file with any Governmental Entity, in a
form which was accurate in all material respects and has paid all fees and
assessments due and payable in connection therewith.
(f) As of their respective dates, the Governmental Documents of Parent,
the Parent Subsidiaries and the Parent Pooled Products complied in all
material respects with the requirements of the Securities Laws applicable to
such Governmental Documents. Parent has previously delivered or made
available to the Company a complete copy of each Governmental Document filed
by any of the foregoing entities or any of their employees since
December 31, 1998 and prior to the date hereof and shall deliver or by
notice make available to the Company at the same time as the filing thereof
a complete copy of each Governmental Document filed after the date hereof
and prior to the Closing Date by or on behalf of any of them.
(g) Since inception, each Parent Pooled Product has been excluded from
the definition of an investment company under the Investment Company Act by
virtue of Section 3(c)(1) or Section 3(c)(7) thereof.
7.10 BOOKS AND RECORDS.
Each of Parent, the Parent Subsidiaries and the Parent Pooled Products has
at all times since formation maintained records which accurately reflect all its
material transactions in reasonable detail, and have at all times maintained
accounting controls, policies and procedures reasonably designed to provide that
such transactions are executed in accordance with its management's general or
specific authorization, as applicable, and recorded in a manner which permits
the preparation of financial statements in accordance with GAAP and applicable
regulatory accounting requirements and other account and financial data, and the
documentation pertaining thereto is retained, protected and duplicated in
accordance with applicable regulatory requirements.
7.11 INELIGIBLE PERSONS.
None of Parent or any Parent Subsidiary, or any "associated person" (as
defined in the Advisers Act or the Exchange Act) of any thereof, is ineligible
pursuant to Section 203 of the Advisers Act or Section 15(b) of the Exchange Act
to serve as a registered investment adviser or broker-dealer or as an associated
person of a registered investment adviser or broker-dealer.
7.12 NO UNDISCLOSED LIABILITIES.
Except for liabilities and obligations (a) disclosed in the Parent Financial
Statements, (b) incurred in the ordinary course of business and consistent with
past practice since the date of the Parent Balance Sheet (the "Parent Balance
Sheet Date") or (c) incurred in accordance with the terms of this Agreement or
with the prior written consent of the Company, neither Parent nor any Parent
Subsidiary has, to the best of Parent's knowledge, any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, that
have, or would be reasonably likely to have, a material adverse effect on Parent
and the Parent Subsidiaries, taken as a whole. The reserves reflected in the
Parent Financial Statements are adequate, appropriate and reasonable and have
been calculated in a consistent manner.
7.13 INTERIM OPERATIONS.
Since the Parent Balance Sheet Date, the business of Parent and each Parent
Subsidiary has been conducted only in the ordinary and usual course consistent
with past practice. Since the Parent Balance Sheet Date, there have not been any
material adverse changes in the financial condition, assets or results of
operations of Parent and the Parent Subsidiaries, taken as a whole. Since the
Parent Balance Sheet Date such assets have not been affected in any way as a
result of flood, fire, explosion or other casualty (whether or not covered by
insurance). Parent is not aware of any circumstances which may cause it or any
of the
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Parent Subsidiaries to suffer any material adverse change in the business or
operations of Parent and the Parent Subsidiaries taken as a whole.
7.14 ABSENCE OF CERTAIN CHANGES.
Since the Parent Balance Sheet Date, except as contemplated by this
Agreement, neither Parent nor any Parent Subsidiary has:
(a) suffered any material adverse change in its working capital,
financial condition, assets, liabilities (absolute, accrued, contingent or
otherwise), reserves, business or operations;
(b) incurred any liabilities or obligations (absolute, accrued,
contingent or otherwise) except in the ordinary course of business, or
increased, or experienced any change in any assumptions underlying or
methods of calculating, any bad debt, contingency or other reserves;
(c) paid, discharged or satisfied any claim, liability or obligation
(whether absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business of liabilities
and obligations reflected or reserved against in the Parent Balance Sheet or
incurred in the ordinary course of business and consistent with past
practice since the date of the Parent Balance Sheet;
(d) sold, transferred, or otherwise disposed of any of its properties or
assets (real, personal or mixed, tangible or intangible), except in the
ordinary course of business;
(e) disposed of or permitted to lapse any rights to the use of any
Intellectual Property, or disposed of or disclosed (except as necessary in
the conduct of its business) to any person other than representatives of the
Company any trade secret, formula, process, know-how or other Intellectual
Property not theretofore a matter of public knowledge;
(f) granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension,
profit- sharing or other plan or commitment) or any increase in the
compensation payable or to become payable to any officer or employee, except
in the ordinary course of business;
(g) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or redeemed, purchased or
otherwise acquired, directly or indirectly, any shares of capital stock or
other securities of Parent or any Parent Subsidiary;
(h) made any change in any method of accounting or accounting practice;
or
(i) agreed, whether in writing or otherwise, to take any action
described in this section.
7.15 TECHNOLOGY AND INTELLECTUAL PROPERTY.
(a) The electronic data processing, information, record keeping,
communications, telecommunications, portfolio trading and computer systems
and Intellectual Property (including Software) which are used by Parent and
the Parent Subsidiaries in their businesses (collectively, the "Parent
Technology Systems") are adequate for the operation of the business of
Parent and the Parent Subsidiaries as currently operated. Parent owns or has
the right to use all components of the Parent Technology Systems that are
reasonably necessary to the normal operations of the business of Parent as
currently conducted by it. Parent has good title to all Parent Technology
Systems owned by it. There has not been any material malfunction with
respect to any of the Parent Technology Systems since December 31, 1998 that
has not been remedied or replaced in all material respects, in each case
without material disruption to the businesses of Parent and the Parent
Subsidiaries. The completion of the Transactions shall not materially alter
or impair the right of Parent and the Parent Subsidiaries to use each of the
components of the Parent Technology Systems. No database included in the
Intellectual Property of Parent and the Parent Subsidiaries has been
disclosed or authorized to be disclosed to any
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third-party other than pursuant to a confidentiality or non-disclosure
agreement that reasonably protects Parent's and the Parent Subsidiaries'
interest in and to such database.
(b) The conduct of the business of Parent and the Parent Subsidiaries
does not infringe upon any intellectual property right owned or controlled
by any third-party. There are no claims, proceedings or actions pending or,
to Parent's knowledge, threatened in writing, and Parent has not received
any notice of any claim or suit (i) alleging that Parent's or any Parent
Subsidiary's activities infringes upon or constitutes the unauthorized use
of the proprietary rights of any third-party or (ii) challenging the
ownership, use, validity or enforceability of any Intellectual Property
owned or controlled by Parent or any Parent Subsidiary, nor is there a valid
basis for any such claim or suit. No third-party is, to Parent's knowledge,
infringing upon any Intellectual Property owned or controlled by Parent or
any Parent Subsidiary, and no such claims have been made by Parent or any
Parent Subsidiary.
7.16 LEGAL PROCEEDINGS.
Neither Parent, any Parent Subsidiary, any Pooled Product, or the directors,
officers or employees of Parent or any Parent Subsidiary is a party to any, and
there are no, legal, administrative, arbitration or other proceedings, claims,
actions or governmental or regulatory investigations of any nature pending or,
to Parent's knowledge, threatened in writing against any of them or any of their
respective properties or assets relating to the business of Parent or any Parent
Subsidiary or any Parent Pooled Product, or that challenges any of the
Transactions, and there is no injunction, order, judgment, decree, or regulatory
restriction imposed specifically upon any of them or any of their respective
properties, assets, directors, officers or employees relating to the business of
Parent, any Parent Subsidiary or any Parent Pooled Product, in each case, that
would have a material adverse effect on Parent's assets, financial condition,
business or operations if such proceeding, claim, action or investigation, is
determined adversely to Parent, any Parent Subsidiary or any Parent Pooled
Product.
7.17 EMPLOYEE BENEFIT PLANS.
(a) Schedule 7.17 contains a true and complete list of each deferred
compensation and each incentive compensation, stock purchase, stock option
and other equity compensation plan, program, agreement or arrangement; each
severance or termination pay, medical, surgical, hospitalization, life
insurance and other "welfare" plan, fund or program (within the meaning of
Section 3(1) of ERISA); each profit-sharing, stock bonus or other "pension"
plan, fund or program (within the meaning of Section 3(2) of ERISA); each
employment, termination or severance agreement; and each other employee
benefit plan, fund, program, agreement or arrangement, in each case, that is
sponsored, maintained or contributed to or required to be contributed to by
Parent or by any ERISA Affiliate of Parent, or to which Parent or an ERISA
Affiliate of Parent is party, whether written or oral, for the benefit of
any director, former director, employee or former employee of Parent or any
Parent Subsidiary. None of Parent, any Parent Subsidiary or any ERISA
Affiliate of Parent has any commitment or formal plan, whether legally
binding or not, to create any additional employee benefit plan or modify or
change any existing Plan that would affect any employee or former employee
of Parent or any Parent Subsidiary. Schedule 7.17 indicates each Plan that
is Title IV Plan.
(b) Parent has heretofore delivered to the Company true and complete
copies of each Plan and any amendments thereto (or if a Plan is not a
written Plan, a description thereof), any related trust or other funding
vehicle, any reports or summaries required under ERISA or the Code and the
most recent determination letter received from the Internal Revenue Service
with respect to each Plan intended to qualify under Section 401 of the Code
(including but not limited to the forms 5500 and related reports for the two
most recently completed plan years).
(c) No liability under Title IV or Section 302 of ERISA has been
incurred by Parent or any ERISA Affiliate of Parent that has not been
satisfied in full, and no condition exists that presents a material risk to
Parent or any ERISA Affiliate of Parent of incurring any such liability,
other than
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liability for premiums due the PBGC (which premiums have been paid when
due). Insofar as the representation made in this Section 3.16(c) applies to
Sections 4064, 4069 or 4204 of Title IV of ERISA, it is made with respect to
any employee benefit plan, program, agreement or arrangement subject to
Title IV of ERISA to which Parent or any ERISA Affiliate of Parent made, or
was required to make, contributions during the five (5) year period ending
on the last day of the most recent plan year ended prior to the Closing
Date.
(d) The PBGC has not instituted proceedings to terminate any Title IV
Plan and no condition exists that presents a material risk that such
proceedings shall be instituted.
(e) With respect to each Title IV Plan, the present value of accrued
benefits under such plan, based upon the actuarial assumptions used for
funding purposes in the most recent actuarial report prepared by such plan's
actuary with respect to such plan did not exceed, as of its latest valuation
date, then current value of the assets of such plan allocable to such
accrued benefits.
(f) No Title IV Plan or any trust established thereunder has incurred
any "accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, as of the last day of the
most recent fiscal year of each Title IV Plan ended prior to the Closing
Date. All contributions required to be made with respect to any Plan on or
prior to the Closing Date have been timely made.
(g) No Title IV Plan is a "multi-employer pension plan," as defined in
Section 3(37) of ERISA, nor is any Title IV Plan a plan described in
Section 4063(a) of ERISA. Neither Parent nor any ERISA Affiliate of Parent
has made or suffered a "complete withdrawal" or a "partial withdrawal," as
such terms are respectively defined in Sections 4203 and 4205 of ERISA (or
any liability resulting therefrom has been satisfied in full).
(h) Neither Parent, any Parent Subsidiary, any Plan or any trust created
thereunder, nor any trustee or administrator of any thereof, has engaged in
a transaction in connection with which Parent, any Parent Subsidiary, any
Plan, any such trust, or any trustee or administrator thereof, or any party
dealing with any Plan or any such trust could be subject to either a civil
penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed
pursuant to Section 4975 or 4976 of the Code.
(i) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code.
(j) Each Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified, and the trusts maintained
thereunder are exempt from taxation under Section 501(a) of the Code. Each
Plan intended to satisfy the requirements of Section 501(c)(9) has satisfied
such requirements.
(k) No Plan provides medical, surgical, hospitalization, death or
similar benefits (whether or not insured) for employees or former employees
of Parent or any Parent Subsidiary for periods extending beyond their
retirement or other termination of service, other than (i) coverage mandated
by applicable law, (ii) death benefits under any "pension plan," or
(iii) benefits the full cost of which is borne by the current or former
employee (or his beneficiary).
(l) No amounts payable under the Plans shall fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code.
(m) The consummation of the Transactions shall not, either alone or in
combination with another event, (i) entitle any current or former employee
or officer of Parent or any ERISA Affiliate of Parent to severance pay,
unemployment compensation or any other payment, except as expressly provided
in this Agreement, or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or officer.
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(n) There are no pending or, to the knowledge of Parent, threatened or
anticipated claims by or on behalf of any Plan, by any employee or
beneficiary covered under any such Plan, or otherwise involving any such
Plan (other than routine claims for benefits).
7.18 TAX MATTERS; GOVERNMENT BENEFITS.
(a) Parent and each of its Subsidiaries have duly filed all Tax Returns
that are required to be filed excluding only such Tax Returns as to which
any failure to file shall not have a material adverse effect on Parent and
the Parent Subsidiaries, taken as a whole, and have duly paid or caused to
be duly paid in full or made provision in accordance with GAAP (or there has
been paid or provision has been made on their behalf) for the payment of all
Taxes (as hereinafter defined) for all periods or portions thereof ending
through the date hereof. All such Tax Returns are correct, complete and
accurately reflect all liability for Taxes for the periods covered thereby,
except to the extent that any such failure to file or any inaccuracies in
any filed Tax Return would not, individually or in the aggregate, have a
material adverse affect on Parent. All Taxes owed and due by Parent and all
Parent Subsidiaries relating to operations on or prior to the Balance Sheet
Date (whether or not shown on any Tax Return) have been paid or have been
adequately reflected on the Financial Statements. Since the Balance Sheet
Date, Parent has not incurred liability for any Taxes other than in the
ordinary course of business. Neither Parent nor any Parent Subsidiary has
received notice of any claim made by an authority in a jurisdiction where
neither Parent nor any Parent Subsidiary file Tax Returns, that Parent or
any such Parent Subsidiary is or may be subject to taxation by that
jurisdiction.
(b) Neither Parent nor any Parent Subsidiary has waived any statute of
limitations in any jurisdiction in respect of Taxes or Tax Returns or agreed
to any extension of time with respect to a Tax assessment or deficiency.
(c) No federal, state, local or foreign audits, examinations or other
administrative proceedings have ever been commenced or, to Parent's
knowledge, are pending with regard to any Taxes or Tax Returns of Parent or
of any Parent Subsidiary. No notification has been received by Parent or by
any Parent Subsidiary that such an audit, examination or other proceeding is
pending or threatened with respect to any Taxes due from or with respect to
or attributable to Parent or any Parent Subsidiary or any Tax Return filed
by or with respect to Parent or any Parent Subsidiary. To Parent's
knowledge, there is no dispute or claim concerning any Tax liability of
Parent, or any Parent Subsidiary either claimed or raised by any taxing
authority in writing.
(d) Neither Parent nor any of the Parent Subsidiaries is a party to any
agreement, plan, contract or arrangement that could result, separately or in
the aggregate, in a payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.
(e) Neither Parent nor any of the Parent Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code (or any predecessor
provision) concerning collapsible corporations, or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a "subsection
(f) asset" (as such term is defined in Section 341(f)(4) of the Code) owned
by Parent or any Parent Subsidiary.
(f) No taxing authority is asserting or threatening to assert a claim
against Parent or any Parent Subsidiary under or as a result of Section 482
of the Code or any similar provision of state, local or foreign law.
(g) Neither Parent nor any of its Subsidiaries is a party to any tax
sharing, tax indemnity or other agreement or arrangement with any entity not
included in Parent's consolidated financial statements most recently filed
by Parent with the SEC which could result in a material liability.
(h) Parent has no reason to believe that any conditions exist that could
reasonably be expected to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
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(i) None of Parent or any Parent Subsidiary has been a member of any
affiliated group within the meaning of Section 1504(a) of the Code, or any
similar affiliated or consolidated group for tax purposes under state, local
or foreign law (other than a group the common parent of which is Parent), or
has any liability for Taxes of any person (other than Parent and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 or any similar
provision of state, local or foreign law as a transferee or successor, by
contract or otherwise.
7.19 LABOR AND EMPLOYMENT MATTERS.
(a) Neither Parent nor any Parent Subsidiary is delinquent in any
material respect in payments to any of its current or former officers,
directors, employees, consultants, or agents for any wages, salaries,
commissions, bonuses, benefits, expenses or other compensation for any
services performed by them or amounts required to be reimbursed to them; and
in the event of termination of the employment of any employee of Parent or
any Parent Subsidiaries, neither Parent nor any Parent Subsidiary shall be
liable to any such employee under any agreement in effect at the Closing for
so-called "severance pay," incentive pay, liquidated damages or any other
payments or benefits, including, without limitation, post-employment health
care, pension or insurance benefits.
(b) Since December 31, 1996, Parent has not had any claim made against
it or any Parent Subsidiary by any Person before any Governmental Entity in
respect of employment with Parent for discrimination or harassment on
account of sex, race and other characteristic protected by law and there are
no pending or threatened proceedings in relation thereto.
7.20 CONTRACTS AND COMMITMENTS.
(a) Schedule 7.20 sets forth a complete list of all agreements,
contracts or commitments which are material to Parent or its Parent
Subsidiaries' business or operations.
(b) Neither Parent nor any Parent Subsidiary is in default, nor is there
any known basis for any valid claim of default, under any contract made or
obligation owed by it which are material to its business or operations.
7.21 INSURANCE.
Parent maintains with reputable insurers the worker's compensation,
comprehensive property and casualty, liability, errors and omissions, fidelity
and other insurance policies described on Schedule 7.21 hereto, which insurance
is sufficient for the operation of the businesses operated by Parent and the
Parent Subsidiaries.
7.22 INSIDER INTERESTS.
No officer or director of Parent or any Parent Subsidiary has any material
interest in any property, real or personal, tangible or intangible, including
without limitation, office space, fixtures, equipment, inventions, patents,
trademarks or trade names, used in or pertaining to the business of Parent or
any Parent Subsidiary.
7.23 BROKERS OR FINDERS.
No agent, broker, investment banker, financial advisor or other firm or
person is or shall be entitled to any brokers or finders fee or any other
commission or similar fee in connection with any of the Transactions except for
Goldman Sachs & Co., the fees and expenses of which will be paid by Parent.
7.24 INFORMATION SUPPLIED.
None of the information supplied or to be supplied by Parent or Merger Sub
for inclusion or incorporation by reference in the S-4 Registration Statement
will, at the time the S-4 Registration Statement is filed with the SEC, at any
time it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary, to make the
statements therein not misleading.
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ARTICLE VIII
COVENANTS
8.1 INTERIM OPERATIONS OF THE COMPANY.
The Company covenants and agrees that prior to the Effective Date, except
(i) as expressly contemplated by this Agreement or the Related Agreements,
(ii) as set forth in Section 8.1 of the Disclosure Schedule, or (iii) as agreed
in writing by Parent after the date of this Agreement:
(a) the business of the Company and the Company Subsidiaries shall be
conducted only in the usual, regular and ordinary course and substantially
in the same manner as previously conducted, and each of the Company and the
Company Subsidiaries shall use all commercially reasonable efforts to
preserve its business organization intact, keep available the services of
its current officers and employees and maintain its existing relations with
Persons having business dealings with it, to the end that the goodwill and
ongoing business of each of them shall be unimpaired at the Effective Time;
(b) neither the Company nor any Company Subsidiary shall: (i) amend its
Articles of Incorporation or Bylaws or similar organizational documents,
(ii) issue, sell, transfer, pledge, dispose of or encumber any shares of any
class or series of its capital stock or Voting Debt, or securities
convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of any class or
series of its capital stock or any Voting Debt, other than Shares reserved
for issuance on the date of this Agreement pursuant to the exercise of
Company Stock Options outstanding on the date hereof or the conversion of
Company Preferred Stock outstanding on the date hereof, (iii) declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property with respect to any shares of any class or series of its capital
stock except in connection with the conversion of Company Preferred Stock
outstanding on the date hereof; (iv) split, combine or reclassify any shares
of any class or series of its stock; or (v) redeem, purchase or otherwise
acquire directly or indirectly any shares of any class or series of its
capital stock, or any instrument or security which consists of or includes a
right to acquire such shares except in connection with the conversion of
Company Preferred Stock outstanding on the date hereof;
(c) neither the Company nor any Company Subsidiary shall: (i) incur or
modify any indebtedness or other liability, other than in the ordinary and
usual course of business and consistent with past practice; or (ii) modify,
amend or terminate any of its material contracts or waive, release or assign
any material rights or claims, except in the ordinary course of business and
consistent with past practice;
(d) neither the Company nor any Company Subsidiary shall: (i) incur or
assume any long-term debt, or except in the ordinary course of business,
incur or assume any short-term indebtedness in amounts not consistent with
past practice; (ii) modify the terms of any indebtedness or other liability,
other than modifications of short term debt in the ordinary and usual course
of business and consistent with past practice; (iii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, except
in the ordinary course of business and consistent with past practice;
(iv) make any loans, advances or capital contributions to, or investments
in, any other person (other than to or in wholly owned Subsidiaries of the
Company) except in the ordinary course of business and consistent with past
practice; or (v) enter into any material commitment or transaction
(including, but not limited to, any capital expenditure or purchase, sale or
lease of assets or real estate) except in the ordinary course of business;
(e) neither the Company nor any Company Subsidiary shall transfer,
lease, license, sell, mortgage, pledge, dispose of, or encumber any assets
other than in the ordinary course of business and consistent with past
practice;
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(f) neither the Company nor any Company Subsidiary shall make any change
in the compensation payable or to become payable to any of its officers,
directors, employees, agents or consultants or to Persons providing
management services (other than normal increases or decreases reflecting the
performance of the Company and the Company Subsidiaries and of such Persons
in the ordinary course of business consistent with past practice), or enter
into or amend any employment, severance, consulting, termination or other
agreement or employee benefit plan (other than an amendment required to
conform such plan to changes that have occurred or may be made under
applicable law, or to reflect increases or decreases referred to in the
preceding parenthetical) or make any loans to any of its officers,
directors, employees, Affiliates, agents or consultants or make any change
in its existing borrowing or lending arrangements for or on behalf of any of
such Persons pursuant to an employee benefit plan or otherwise (except for
loans to facilitate exercises of the Company Stock Options);
(g) neither the Company nor any Company Subsidiary shall pay or make any
accrual or arrangement for payment of any pension, retirement allowance or
other employee benefit pursuant to any existing plan, agreement or
arrangement to any officer, director, employee or Affiliate or pay or agree
to pay or make any accrual or arrangement for payment to any officers,
directors, employees or Affiliates of the Company of any amount relating to
unused vacation days, except payments and accruals made in the ordinary
course of business consistent with past practice or as required by an
existing Plan, adopt or pay, grant, issue, accelerate or accrue salary or
other payments or benefits pursuant to any pension, profit-sharing, bonus,
extra compensation, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay, retirement
or other employee benefit plan, agreement or arrangement, or any employment
or consulting agreement with or for the benefit of any director, officer,
employee, agent or consultant, whether past or present except in the
ordinary course of business consistent with past practice or as required by
an existing Plan, or amend in any material respect any such existing plan,
agreement or arrangement in a manner inconsistent with the foregoing;
(h) neither the Company nor any Company Subsidiary shall permit any
insurance policy naming it as a beneficiary or a loss payable payee to be
cancelled or terminated without notice to Parent, except policies providing
coverage for losses not in excess of $200,000;
(i) neither the Company nor any Company Subsidiary shall enter into any
contract or transaction relating to the purchase of assets other than in the
ordinary course of business consistent with prior practices;
(j) neither the Company nor any Company Subsidiary shall pay,
repurchase, discharge or satisfy any of its claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice, of claims,
liabilities or obligations reflected or reserved against in, or contemplated
by, the consolidated financial statements (or the notes thereto) of the
Company and the Company Subsidiaries;
(k) neither the Company nor any Company Subsidiary shall adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or
any the Company Subsidiary;
(l) neither the Company nor any Company Subsidiary shall (i) change any
of the accounting methods used by it unless required by GAAP or (ii) make
any material election relating to Taxes, change any material election
relating to Taxes already made, adopt any material accounting method
relating to Taxes, change any material accounting method relating to Taxes
unless required by GAAP, enter into any closing agreement relating to Taxes,
settle any claim or assessment relating to Taxes or consent to any claim or
assessment relating to Taxes or any waiver of the statute of limitations for
any such claim or assessment;
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(m) neither the Company nor any Company Subsidiary shall take, or agree
or commit to take, any action that would or is reasonably likely to result
in any of the conditions to the Merger set forth in Section 9.1 not being
satisfied, or would make any representation or warranty of the Company
contained in this Agreement materially inaccurate in any respect at, or as
of any time prior to the Effective Time, or that would materially impair the
ability of the Company, Parent or Merger Sub to consummate the Merger in
accordance with the terms hereof or materially delay such consummation; and
(n) neither the Company nor any of the Company Subsidiary shall enter
into an agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention to
do any of the foregoing.
8.2 INTERIM OPERATIONS OF PARENT.
Parent covenants and agrees that prior to the Effective Date, except (i) as
expressly contemplated by this Agreement or the Related Agreements, (ii) as set
forth in Section 8.2 of the Disclosure Schedule, or (iii) as agreed in writing
by the Company after the date of this Agreement:
(a) the business of Parent and the Parent Subsidiaries shall be
conducted only in the usual, regular and ordinary course and substantially
in the same manner as previously conducted, and each of Parent and the
Parent Subsidiaries shall use all commercially reasonable efforts to
preserve its business organization intact, keep available the services of
its current officers and employees and maintain its existing relations with
Persons having business dealings with it, to the end that the goodwill and
ongoing business of each of them shall be unimpaired at the Effective Time;
(b) neither Parent nor any Parent Subsidiary shall declare, set aside or
pay any dividend or other distribution payable in cash, stock or property
with respect to any shares of any class or series of its capital stock;
(c) neither Parent nor any Parent Subsidiary shall (i) incur or modify
any indebtedness or other liability, other than in the ordinary and usual
course of business and consistent with past practice; or (ii) modify, amend
or terminate any of its material contracts or waive, release or assign any
material rights or claims, except in the ordinary course of business and
consistent with past practice;
(d) neither Parent nor any Parent Subsidiary shall pay, repurchase,
discharge or satisfy any of its claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice, of claims, liabilities or
obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of Parent and the
Parent Subsidiaries;
(e) neither Parent nor any Parent Subsidiary shall take, or agree or
commit to take, any action that would or is reasonably likely to result in
any of the conditions to the Merger set forth in Section 9.2 not being
satisfied, or would make any representation or warranty of Parent contained
in this Agreement materially inaccurate in any respect at, or as of any time
prior to, the Effective Time, or that would materially impair the ability of
Parent, the Company, Merger Sub to consummate the Merger or materially delay
consummation;
(f) Parent shall not issue any equity securities of Parent or rights to
acquire equity securities of Parent other than (i) Parent Common Stock in an
underwritten or institutional secondary offering, in grants or sales to
employees under Parent's stock plans in the ordinary course of business, in
connection with an acquisition permitted under clause (g) below or in
connection with exercises of rights to acquire Parent Common Stock
outstanding on the date hereof or granted in compliance with clause (ii) of
this Section 8.2(f) or (ii) rights to acquire Parent Common Stock in
connection with stock option grants under Parent's stock option plans in the
ordinary course of business;
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(g) Parent shall not acquire, or permit any Subsidiary to acquire, any
business or assets, whether by merger, consolidation, tender offer, exchange
offer, stock purchase, purchase of assets or otherwise, the aggregate assets
or revenues of which would exceed ten percent (10%) of the assets or
revenues, as the case may be, of Parent on a consolidated basis as of the
end of the most recent fiscal quarter of Parent in the case of assets and on
an annualized basis (including pro forma for the SoundView acquisition for
periods prior to the closing thereof) since January 1, 2000 in the case of
revenues; and
(h) neither Parent nor any Parent Subsidiary shall enter into an
agreement, contract, commitment or arrangement to do any of the foregoing,
or to authorize, recommend, propose or announce an intention to do any of
the foregoing.
8.3 ACCESS; CONFIDENTIALITY.
Each of the Company and Parent shall afford to the officers, employees,
accountants, counsel and other representatives of the other full access to all
properties, books, contracts, commitments and records of itself and its
subsidiaries and each of Parent and the Company shall furnish promptly to the
other (a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of Securities Laws and (b) all other information concerning its business,
properties and personnel as the other may reasonably request. Unless otherwise
required by law, the party receiving such information shall hold any such
information which is nonpublic in confidence in accordance with the provisions
of the Confidentiality Agreement to which the party is subject.
8.4 REASONABLE BEST EFFORTS.
(a) Prior to the Closing, subject to the terms and conditions of this
Agreement, Parent, Merger Sub and the Company agree to use their respective
reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or advisable (subject
to any applicable laws) to consummate and make effective the Merger and the
other Transactions as promptly as practicable including, but not limited to
(i) the preparation and filing of all forms, registrations and notices
required to be filed to consummate the Merger and the other Transactions and
the taking of such actions as are necessary to obtain any requisite
approvals, consents, orders, exemptions or waivers by any third party or
Governmental Entity including notification by Parent to the NASD regarding
the issuance of additional Parent Shares in the Merger, and (ii) the
satisfaction of the other parties' conditions to Closing. In addition, no
party hereto shall take any action after the date of this Agreement that
would reasonably be expected to materially delay the obtaining of, or result
in not obtaining, any permission, approval or consent from any Governmental
Entity necessary to be obtained prior to Closing.
(b) Prior to the Closing, each party shall promptly consult with the
other parties hereto with respect to, provide any necessary information with
respect to, and provide the other parties (or their respective counsel) with
copies of, all filings made by the party with any Governmental Entity or any
other information supplied by such party to a Governmental Entity in
connection with this Agreement, the Merger and the other Transactions. Each
party shall promptly inform the other of any communication from any
Governmental Entity regarding any of the Transactions. If any party or
Affiliate receives a request for additional information or documentary
material from any such Governmental Entity with respect to any of the
Transactions, then the party shall endeavor in good faith to make, or cause
to be made, as soon as reasonably practicable and after consultation with
the other parties, an appropriate response in compliance with such request.
To the extent that transfers, amendments or modifications of permits
(including environmental permits) are required as a result of the execution
of this Agreement or consummation of any of the Transactions, the Company
and Parent shall use its reasonable best efforts to effect such transfers,
amendments or modifications. The Company, Parent and Merger Sub shall make,
subject to the condition that the transactions contemplated herein actually
occur, any undertakings (including undertakings to make divestitures,
provided,
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in any case, that such divestitures need not themselves be effective or made
until after the transactions contemplated hereby actually occur) required in
order to comply with the antitrust requirements or laws of any Governmental
Entity, including the HSR Act, in connection with the transactions
contemplated by this Agreement.
(c) The Company and Parent shall file as soon as practicable
notifications under the HSR Act and respond as promptly as practicable to
any inquiries received from the Federal Trade Commission and the Antitrust
Division of the Department of Justice for additional information or
documentation and respond as promptly as practicable to all inquiries and
requests received from any State Attorney General or other Governmental
Entity in connection with antitrust matters. Concurrently with the filing of
notifications under the HSR Act or as soon thereafter as practicable, the
Company and Parent shall each request early termination of the HSR Act
waiting period.
(d) Notwithstanding the foregoing, nothing in this Agreement shall be
deemed to require the Company, Parent or Merger Sub to commence any
litigation against any entity in order to facilitate the consummation of any
of the Transactions or to defend against any litigation brought by any
Governmental Entity seeking to prevent the consummation of any of the
Transactions.
8.5 SHAREHOLDERS MEETING; PROXY STATEMENT/REGISTRATION STATEMENT.
(a) Parent, acting through its Board of Directors, shall, in accordance
with applicable law: (i) duly call, give notice of, convene and hold a
special meeting of its stockholders as promptly as practicable for the
purpose of obtaining the Required Parent Stockholder Approval; and (ii) use
its reasonable best efforts to obtain the Required Parent Stockholder
Approval and to take all other action necessary or, in the reasonable
opinion of Parent, advisable to secure any vote or consent of stockholders
required under applicable law.
(b) Parent and the Company shall promptly prepare and file with the SEC
under the Act, a Registration Statement on Form S-4 or other appropriate
form (the "S-4 Registration Statement") with respect to the Parent Shares to
be issued in the Merger and will use their reasonable best efforts to have
such S-4 Registration Statement declared effective by the SEC as promptly as
practicable. Each of the Company and E*TRADE shall have the right to approve
the content of the S-4 Registration Statement insofar as it relates to the
Company, E*TRADE, either of their Affiliates or the Transactions and any
amendment of such content, provided that such parties shall not unreasonably
withhold such approval. Parent shall provide drafts of the S-4 Registration
Statement and copies of all SEC correspondence, comment letters and
amendments to both the Company and E*TRADE and their counsel, and shall
obtain the approval of each such party before submitting or filing any of
the foregoing, which approval shall not be unreasonably withheld. The
Company shall furnish Parent with all information and shall take any other
action as may reasonably be requested in connection with the S-4
Registration Statement and shall cooperate with Parent in preparing and
filing the S-4 Registration and any amendment or supplement thereto.
(c) If, at any time prior to the Parent shareholders meeting, any event
should occur relating to or affecting the Company or Parent, or their
respective officers or directors, which event should be described in an
amendment or supplement to the S-4 Registration Statement, the parties shall
promptly prepare, file and clear with the SEC and, if required by applicable
law, mail to the shareholders of the Company or Parent such amendment or
supplement.
8.6 NO SOLICITATION OF COMPETING TRANSACTION.
(a) Neither the Company nor any the Company Subsidiary or Affiliate of
the Company shall (and the Company shall instruct its officers, directors,
employees, representatives and agents of the Company, each Company
Subsidiary and each Affiliate of the Company, including, but not limited to,
investment bankers, attorneys and accountants, not to, and shall not permit
any of them to), directly or indirectly, encourage, solicit, participate in
or initiate discussions or negotiations with, or provide
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any information to, any Person or group (other than Parent, any of its
Affiliates or representatives) concerning any Acquisition Proposal. The
Company shall immediately notify Parent of the existence of any proposal,
discussion, negotiation or inquiry received by the Company or any of its
Affiliates, and the Company shall immediately communicate to Parent the
terms of any proposal, discussion, negotiation or inquiry which it may
receive (and shall immediately provide to Parent copies of any written
materials received by the Company in connection with such proposal,
discussion, negotiation or inquiry) and the identity of the party making
such proposal or inquiry or engaging in such discussion or negotiation. The
Company shall promptly provide to Parent any non-public information
concerning the Company provided to any other party which was not previously
provided to Parent.
(b) The Company's Board of Directors shall not (i) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to Parent or Merger
Sub, the approval or recommendation by such Board of Directors of this
Agreement or the Merger, (ii) approve or recommend or propose to approve or
recommend, any Acquisition Proposal or (iii) enter into any agreement with
respect to any Acquisition Proposal.
8.7 PUBLICITY.
The initial press release with respect to the execution of this Agreement
shall be a joint press release acceptable to both Parent and the Company.
Thereafter, until the Closing, or the date the Transactions are terminated or
abandoned pursuant to Article XI, neither the Company, Parent nor any of their
respective Affiliates shall issue or cause the publication of any press release
or other announcement with respect to the Merger, this Agreement or the other
Transactions without prior consultation with the other party, except as may be
required by law or by any listing agreement with a national securities exchange
or trading market.
8.8 NOTIFICATION OF CERTAIN MATTERS.
Each of the Company and Parent shall give prompt notice to the other, of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at or prior to
the Effective Time and (ii) any material failure of it to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement. However, the delivery of any notice pursuant to this
Section 8.8 shall not limit or otherwise affect the remedies available to the
party receiving such notice.
8.9 STATE TAKEOVER LAWS.
If any state takeover statute becomes or is deemed to become applicable to
the Agreement, the acquisition of Shares pursuant to the Merger or the other
Transactions, the Company shall take all action necessary to render such statute
inapplicable to all of the foregoing.
8.10 MERGER SUB COMPLIANCE.
Parent shall cause Merger Sub to comply with all of its obligations under or
related to this Agreement.
8.11 EXPENSES.
Except as provided elsewhere herein, the Company shall bear the direct and
indirect expenses of the Company and Parent shall bear the direct and indirect
expenses of Parent, incurred in connection with the negotiation and preparation
of this Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby.
8.12 TAX-FREE REORGANIZATION.
Neither the Company nor Parent shall take any action prior to or after the
Effective Time which is likely to cause the Merger to fail to qualify as a
reorganization within the meaning of the Code.
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ARTICLE IX
CONDITIONS
9.1 CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
The respective obligations of Parent and Merger Sub to consummate the Merger
are subject to the fulfillment at or prior to the Effective Time of the
following conditions, any or all of which may be waived in whole or in part by
Parent or Merger Sub, as the case may be, to the extent permitted by applicable
law.
(a) Certificate. The representations and warranties of the Company set
forth in this Agreement shall be true and correct in material respects on
and as of the Effective Time with the same force and effect as though the
same has been made on and as of the Effective Time (except to the extent
they relate to a particular date), except to the extent that all such
failures in the aggregate do not have a material adverse effect on the
working capital, financial condition, assets, liabilities, reserves,
business or operations of the Company and its Subsidiaries taken as a whole,
the Company shall have performed in all material respects all of its
obligations to be performed under this Agreement, and Parent shall have
received at the Effective Time a certificate to that effect dated the
Effective Time and executed by the President of the Company.
(b) Injunction, Regulatory Action. There shall be in effect no
preliminary or permanent injunction or other order of a court or
governmental or regulatory agency of competent jurisdiction directing that
the transactions contemplated not be consummated.
(c) S-4 Registration Statement. The S-4 Registration Statement shall
have become effective and no stop order suspending the effectiveness of the
S-4 Registration Statement shall have been issued and remain in effect and
no proceedings for such purpose shall have been initiated or threatened by
the SEC and any amendment or supplement to the S-4 Registration Statement
required to be prepared, filed and cleared pursuant to Section 8.5 above
shall have been so prepared, filed and cleared.
(d) Government Filings and Consents. The governmental filings and
governmental consents set forth on Schedule 9.1(d) shall have been made or
obtained, and any waiting periods or extensions thereof under HSR Act shall
have expired or been terminated.
(e) Rule 145. Each Affiliate of the Company shall have executed and
delivered to Parent an Affiliate Letter, together with such other documents
and instruments as Parent may reasonably request related to compliance with
the Securities Act.
(f) Opinions of Counsel for the Company. Parent shall have received the
opinion of Wilson Sonsini Goodrich & Rosati, counsel to the Company,
addressed to Parent and dated the Closing Date, as to the organization and
qualification of the Company and the authorization, due execution, validity
and enforceability of the Merger Agreement in form and substance reasonably
satisfactory to Parent.
(g) Tax Opinion. Parent shall have received an opinion of Skadden, Arps,
Slate, Meagher & Flom LLP, dated on or about the date that is either two
(2) business days prior to the date the Proxy Statement is first mailed to
Parent stockholders if a meeting of Parent stockholders is required, and the
date of the Closing, to the effect that (i) the Merger shall be treated for
Federal income tax purposes as a reorganization within the meaning of
Section 368(9) of the Code, and (ii) each of Parent, Merger Sub and the
Company shall be a party to the reorganization within the meaning of
Section 368(b) of the Code. In rendering such opinion, Skadden, Arps, Slate,
Meagher & Flom LLP shall be entitled to rely upon, among other things,
representations contained in certificates of the Company, Merger Sub and
Parent in such form as is reasonably satisfactory to such counsel.
(h) Parent Stockholder Approval. The Required Parent Stockholder
Approval shall have been duly obtained.
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(i) Dissenting Shares. The Dissenting Shares immediately prior to the
Effective Time shall not exceed ten percent (10%) of the sum of the issued
and outstanding shares of Company Capital Stock immediately prior to the
Effective Time.
(j) Strategic Alliance Agreement. E*TRADE shall not have terminated the
Strategic Alliance Agreement attached as Exhibit F.
(k) Readiness to Conduct Business. E*TRADE shall have completed all
procedures necessary, including development of the technical interface, so
that former Parent brokerage account holders whose accounts have been
transferred to E*TRADE can place bids through the Internet to the
Vostock(SM) website and participate in secondary offerings through the
Vostock(SM) auction process.
9.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
The obligation of the Company to consummate the Merger is subject to the
fulfillment at or prior to the Effective Time of the following conditions, any
or all of which may be waived in whole or in part by the Company to the extent
permitted by applicable law.
(a) Certificate. The representations and warranties of Parent and Merger
Sub set forth in this Agreement shall be true and correct in all material
respects on and as of the Effective Time with the same force and effect as
though the same had been made on and as of the Effective Time (except to the
extent they relate to a particular date), except to the extent that all such
failures in the aggregate do not have a material adverse effect on the
working capital, financial condition, assets, liabilities, reserves,
business or operations of Parent and its Subsidiaries taken as a whole,
Parent and Merger Sub shall have performed in all material respects all of
their respective obligations to be performed under this Agreement, and the
Company shall have received at the Effective Time a certificate to that
effect dated the Effective Time and executed by the President of Parent.
(b) Parent Stockholder Approval. The Required Parent Stockholder
Approval shall have been duly obtained.
(c) Injunction, Regulatory Action. There shall be in effect no
preliminary or permanent injunction or other order of a court or
governmental or regulatory agency of competent jurisdiction directing that
the transactions contemplated herein not be consummated.
(d) S-4 Registration Statement. The S-4 Registration Statement shall
have become effective and no stop order suspending the effectiveness of the
S-4 Registration Statement shall have been issued and remain in effect and
no proceedings for such purpose shall have been initiated or threatened by
the SEC and any amendment or supplement to the S-4 Registration Statement
required to be prepared, filed and cleared pursuant to Section 8.5 above
shall have been so prepared, filed and cleared.
(e) Governmental Filings and Consents. The governmental filings and
governmental consents set forth on Schedule 9.2(e) shall have been made or
obtained, and any waiting periods or extensions thereof under HSR Act shall
have expired or been terminated.
(f) Opinions of Counsel for Parent. The Company shall have received the
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Parent,
addressed to the Company and dated the Closing Date as to the organization
and qualification of Parent; authorization, issuance, full payment and
nonassessability of the Parent Shares issuable in the Merger; and the
authorization, due execution, validity and enforceability of the Merger
Agreement in form and substance reasonably acceptable to the Company.
(g) Tax Opinion. The Company shall have received an opinion of Wilson
Sonsini Goodrich & Rosati, dated the date of the Closing, to the effect that
(i) the Merger shall be treated for federal income tax purposes as a
reorganization with the meaning of Section 368(a) of the Code, and
(ii) each
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of Parent, Merger Sub and the Company shall be a party to the reorganization
within the meaning of Section 368(b) of the Code. In rendering such opinion,
Wilson Sonsini Goodrich & Rosati shall be entitled to rely, among other
things, upon representations contained in certificates of the Company,
Parent and Merger Sub in such form as is reasonably satisfactory to such
counsel.
(h) Strategic Alliance Agreement. Parent shall not have terminated the
Strategic Alliance Agreement attached as Exhibit F.
ARTICLE X
ESCROW AND INDEMNIFICATION
10.1 ESCROW FUND.
Within five (5) business days after the Effective Time, the Parent Shares
comprising the Escrow Fund (as defined below) shall be registered in the name
of, and be deposited with an escrow agent selected by Parent with the reasonable
consent of the Company (the "Escrow Agent"), such deposit (together with
interest and other income thereon) to constitute the escrow fund (the "Escrow
Fund") and to be governed by the terms of the Escrow Agreement in substantially
the form attached as Exhibit H. The Escrow Fund shall consist of ten percent
(10%) of the Parent Shares issued in the Merger to compensate Parent pursuant to
the indemnification obligations of the Company for Damages (as defined below).
Except for Damages in respect of fraud, the Escrow Fund shall constitute the
exclusive remedy against the Company or any shareholder with respect to any
misrepresentation or breach of, or default in connection with, any of the
representations, warranties, covenants and agreements given or made by the
Company in this Agreement, the Company Disclosure Schedule or any exhibit or
Schedule to this Agreement. Escrow Shares means the Parent Shares placed in the
Escrow Fund in accordance with this Section 10.1.
10.2 PARENT'S INDEMNIFICATION RIGHTS.
(a) Subject to the limitations set forth in this Article X, from and
after the Effective Time, the shareholders of the Company, jointly and
severally, shall indemnify and hold harmless Parent and its officers,
directors, agents and employees, and each person, if any, who controls or
may control the Parent within the meaning of the Securities Act (referred to
individually as an "Indemnified Person" and collectively as "Indemnified
Persons") from and against any and all losses, costs, damages, liabilities
and expenses arising from claims, demands, actions, causes of action,
including, without limitation, reasonable legal fees, (collectively,
"Damages") arising out of any misrepresentation or breach of, or default in
connection with, any of the representations, warranties, covenants and
agreements given or made by the Company in this Agreement, the Company
Disclosure Schedule or any exhibit or Schedule to this Agreement.
Notwithstanding the foregoing, the indemnification obligations of the
Company shareholders for Damages in respect of fraud shall be several and
not joint, and such obligations shall be distributed among the Company
shareholders pro rata in proportion to the number of Parent Shares issued to
each such shareholder in the Merger.
(b) Parent and the Company each acknowledge that such Damages, if any,
would relate to unresolved contingencies existing at the Effective Time,
which if resolved at the Effective Time would have led to a reduction in the
total number of Parent Shares that Parent would have agreed to issue in
connection with the Merger.
(c) Parent may not receive any Parent Shares from the Escrow Fund unless
and until one or more Officer's Certificates identifying Damages, the
aggregate amount of which exceeds $3,000,000 (the "Indemnity Threshold"),
have been delivered to the Escrow Agent as provided in Section 10.2 and such
amount is determined pursuant to this Article X to be payable, in which
case, Parent shall receive Parent Shares equal in value to the full amount
of Damages. In determining the amount of any Damage attributable to a
breach, any materiality standard contained in a representation, warranty or
covenant of the Company shall be disregarded.
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(d) Prior to asserting any claim for indemnification under this
Agreement, Parent must first seek reimbursement for any and all Damages from
any applicable insurance coverage. The parties agree that any
indemnification provided by this Agreement is not to be deemed insurance
(whether primary, excess, or otherwise) for purposes of seeking
reimbursement from the applicable insurance coverage. Nothing in this
Agreement shall in any way diminish the obligation of Parent and/or the
Surviving Corporation under applicable law to attempt to mitigate Damages.
(e) The parties agree that there shall not be any multiple recovery for
any Damage.
10.3 ESCROW PERIOD.
The escrow period (the "Escrow Period") shall terminate at 11:59 p.m.
Pacific Standard Time twelve (12) months following the Closing Date except that
a portion of the Escrow Fund which may be reasonably necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate delivered to the
Escrow Agent prior to termination of the Escrow Period, with respect to facts
and circumstances existing prior to expiration of the Escrow Period, shall
remain in the Escrow Fund until those claims have been resolved. Parent shall
deliver to the Escrow Agent a certificate specifying the Closing Date.
10.4 CLAIMS UPON ESCROW FUND.
(a) The Escrow Agent shall set aside such Parent Shares or other assets
held in the Escrow Fund as applicable in an amount equal to the potential
Damages for each claim upon receipt by the Escrow Agent on or before the
last day of the Escrow Period of a certificate signed by any officer of
Parent (an "Officer's Certificate"):
(i) stating that actual or potential Damages exist from unreimbursed
claims in an aggregate amount greater than the Indemnity Threshold for
claims against the Escrow Fund; and
(ii) specifying in reasonable detail the individual items included in
the amount of Damages in such claim, the date each such item was paid,
properly accrued or arose and the nature of the misrepresentation, breach
of warranty or claim to which such item is related.
(b) Upon the earliest of: (i) receipt of written authorization from the
Shareholders' Agent or from the Shareholders' Agent jointly with Parent to
make such delivery, (ii) receipt of written notice of a final decision in
arbitration of the claim, or (iii) in the event the claim set forth in the
Officer's Certificate is uncontested by the Shareholders' Agent as of the
close of business on the next business day following the twentieth (20th)
day following receipt by the Shareholders' Agent of the Officer's
Certificate; on the next business day the Escrow Agent shall deliver Parent
Shares or other assets from the Escrow Fund to Parent having a value
equivalent to the Damages.
(c) For the purpose of compensating Parent for its Damages pursuant to
this Agreement, the Parent Shares in the Escrow Fund shall have a deemed
value equal to the average of the mean between the closing bid and ask
prices as reported for the primary trading session (currently ending at
4:00 p.m. on the NNM) during the period comprised of ten (10) consecutive
trading days ending on the second trading day immediately preceding receipt
of such Parent Shares by Parent in satisfaction of such Claim.
(d) No Indemnified Person shall have the right to pursue a claim for
Damages against the Escrow Fund or the Company shareholders other than
through Parent.
10.5 OBJECTIONS TO CLAIMS.
At the time of delivery of any Officer's Certificate to the Escrow Agent, a
duplicate copy of such Officer's Certificate shall be delivered to the
Shareholders' Agent and for a period of twenty (20) days after such delivery to
the Escrow Agent of such Officer's Certificate, the Escrow Agent shall make no
delivery of Parent Shares pursuant to Section 10.4 unless the Escrow Agent shall
have received written authorization from the Shareholders' Agent to make such
delivery. After the expiration of such twenty
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(20) day period, the Escrow Agent shall make delivery of Parent Shares then in
the Escrow Fund in accordance with Section 10.6, provided that no such payment
or delivery may be made if the Shareholders' Agent shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to the Escrow Agent and to Parent prior to the
expiration of the twenty (20) day period.
10.6 RESOLUTION OF CONFLICTS; ARBITRATION.
(a) In case the Shareholders' Agent shall so object in writing to any
claim or claims by Parent made in any Officer's Certificate, Parent shall
have twenty (20) days after receipt by the Escrow Agent of an objection by
the Shareholders' Agent to respond in a written statement to the objection
of the Shareholders' Agent. If after the twenty (20) day period there
remains a dispute as to any claims, the Shareholders' Agent and Parent shall
attempt in good faith for thirty (30) days to agree upon the rights of the
respective parties with respect to each of such claims. If the Shareholders'
Agent and Parent should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties and shall be furnished to the
Escrow Agent. The Escrow Agent shall be entitled to rely on any such
memorandum and shall distribute the Parent Shares from the Escrow Fund in
accordance with the terms of the memorandum.
(b) If no such agreement can be reached after good faith negotiation,
either Parent or the Shareholders' Agent may, by written notice to the
other, demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration in accordance with Section 13.1. The decision of the
arbitrator as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this
Agreement, and notwithstanding anything in this Section 10.6, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance therewith.
(c) Parent, on the one hand, and the Company shareholders, on the other
hand, shall each bear their respective expenses (including, attorneys' fees
and expenses) incurred in connection with any such arbitration. The Company
shareholders' expenses and reasonable attorney's fees shall be paid by the
Shareholders' Agent from the Escrow Fund. If the arbitrator or arbitrators
find in favor of Parent as to the claim in dispute, all fees, costs, and the
reasonable expenses of legal counsel incurred by Parent shall be charged
against the Escrow Fund in addition to the amount of the disputed claim. If
the arbitrator or arbitrators find in favor of the Company shareholders as
to the claim in dispute, all fees, costs and the reasonable expenses of
legal counsel incurred by Shareholders' Agent on behalf of the Company
shareholders shall be paid into the Escrow Fund by Parent for the benefit of
the Company shareholders. The fees and expenses of each arbitrator and the
administrative fee of the American Arbitration Association shall be
allocated by the arbitrator or arbitrators, as the case may be (or, if not
so allocated, shall be borne equally by Parent, on the one hand, and the
Company shareholders, out of the Escrow Fund on the other hand).
10.7 SHAREHOLDERS' AGENT.
(a) E*TRADE shall be constituted and appointed as Shareholders' Agent
for and on behalf of the shareholders of the Company to give and receive
notices and communications, to authorize delivery to Parent of the Parent
Shares from the Escrow Fund in satisfaction of claims by Parent, to object
to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of the Shareholders' Agent for the
accomplishment of the foregoing. This agency may be changed by the holders
of a majority in interest of the Escrow Fund from time to time upon not less
than ten (10) days' prior written notice to all of the Company shareholders
and to Parent. No bond shall be required of the Shareholders' Agent,
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and the Shareholders' Agent shall receive no compensation for his services.
Notices or communications to or from the Shareholders' Agent shall
constitute notice to or from each of the Company shareholders.
(b) The Shareholders' Agent is hereby expressly authorized to take any
and all actions in accordance with the direction of a majority of interest
of the Company shareholders. The Shareholders' Agent shall not be liable for
any act done or omitted hereunder as Shareholders' Agent while acting in
good faith and in the exercise of reasonable judgment, and any act done or
omitted pursuant to the advice of counsel or at the direction of a majority
in interest of the Company shareholders shall be conclusive evidence of such
good faith. The Company shareholders shall severally indemnify the
Shareholders' Agent and hold him harmless against any loss, liability or
expense incurred without gross negligence or bad faith on the part of the
Shareholders' Agent and arising out of or in connection with the acceptance
or administration of his duties.
(c) The Shareholders' Agent shall serve without compensation but shall
be reimbursed from the Escrow Fund for all out of pocket expenses reasonably
incurred, including expenses for lawyers and accountants employed on behalf
of the Company shareholders' interests in the Escrow Fund. The Shareholders'
Agent may cause the Escrow Agent, at his request, to exchange shares of
Parent Shares held, with Parent, for cash for each reimbursement. Parent
shall deliver such cash at a per share price equal to the price of such
shares at the close of market on the next trading day preceding such
exchange. In no event shall the Shareholders' Agent be entitled to incur
expenses reimbursable by the Escrow Fund in excess of $500,000 without first
obtaining the written consent of the holders of a majority in interest of
the Escrow Fund.
10.8 ACTIONS OF THE SHAREHOLDERS' AGENT.
A decision, act, consent or instruction of the Shareholders' Agent shall
constitute a decision of all of the Company shareholders and shall be final,
binding and conclusive upon each and every Company shareholder, and the Escrow
Agent and Parent may rely upon any decision, act, consent or instruction of the
Shareholders' Agent as being the decision, act, consent or instruction of each
and every Company shareholder. The Escrow Agent and Parent are hereby relieved
from any liability to any person for any acts done by them in accordance with
such decision, act, consent or instruction of the Shareholders' Agent.
10.9 THIRD-PARTY CLAIMS.
If Parent becomes aware of a third-party claim which Parent believes may
result in a demand against the Escrow Fund, Parent shall promptly notify the
Shareholders' Agent of that claim, and the Shareholders' Agent and the Company
shareholders shall be entitled, at their expense, to participate in any defense
of that claim. Parent shall have the right in its sole discretion to settle any
claim. However, Parent may not effect the settlement of any claim without the
consent of the Shareholders' Agent, which consent shall not be unreasonably
withheld. In the event that the Shareholders' Agent has consented to any such
settlement, the Shareholders' Agent shall have no power or authority to object
under Section 10.5 or any other provision of this Article X to any claim by
Parent against the Escrow Fund for indemnity in the amount of such settlement.
10.10 SHAREHOLDERS' INDEMNIFICATION RIGHTS.
(a) Subject to the limitations set forth in this Article X, Parent shall
indemnify and hold harmless the Company shareholders, officers, directors,
agents and employees of the Company, and each person, if any, who controls
or may control the Company within the meaning of the Securities Act,
(referred to individually as a "Company Indemnified Person" and together as
"Company Indemnified Persons") from and against any and all Damages arising
out of any misrepresentation or breach of, or default in connection with,
any of the representations, warranties, covenants and agreements given or
made by Parent in this Agreement, the Parent Disclosure Schedule or any
exhibit or Schedule to this Agreement.
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(b) The Company Indemnified Persons may not receive any compensation for
Damages unless and until one or more Shareholder's Certificates identifying
Damages, the aggregate amount of which exceeds the Indemnity Threshold, have
been delivered to Parent Representative as provided in Section 10.11 and
such amount is determined pursuant to this Article X to be payable, in which
case, the Company Indemnified Persons shall be entitled to receive funds
equal in value to the full amount of such Damages. In determining the amount
of any Damage attributable to a breach, any materiality standard contained
in a representation, warranty or covenant of the Company shall be
disregarded.
(c) Prior to asserting any claim for indemnification under this
Agreement, the Company Indemnified Persons must first seek reimbursement for
any and all Damages from any applicable insurance coverage. The parties
agree that any indemnification provided by this Agreement is not to be
deemed insurance (whether primary, excess, or otherwise) for purposes of
seeking reimbursement from the applicable insurance coverage. Nothing in
this Agreement shall in any way diminish the obligation of the Company
Indemnified Persons under applicable law to attempt to mitigate Damages.
(d) The parties agree that there shall not be any multiple recovery for
any Damage.
10.11 CLAIMS AGAINST PARENT.
(a) To register a claim against Parent, the Shareholders' Agent shall
deliver to Parent on or before the last day of the Escrow Period a
certificate signed by the Shareholders' Agent (a "Shareholders'
Certificate"):
(i) stating that actual or potential Damages exist from unrealized
claims in an aggregate amount greater than the Indemnity Threshold for
claims against Parent; and
(ii) specifying in reasonable detail the individual items included in
the amount of Damages in such claim, the date each such item was paid,
properly accrued or arose and the nature of the misrepresentation, breach
of warranty or claim to which such item is related.
(b) Upon the earliest of: (i) receipt of written notice of a final
decision in arbitration of the claim, or (ii) in the event Parent and the
Shareholders' Agent sign a memorandum in resolution of a conflict in
accordance with Section 10.13, or (iii) in the event the claim set forth in
the Shareholders' Certificate is uncontested by Parent as of the close of
business on the next business day following the twentieth (20th) day
following receipt by Parent of the Shareholders' Certificate; on the next
business day Parent shall deliver funds to the Shareholders' Agent having a
value equivalent to the Damages.
(c) No Company Indemnified Person shall have the right to pursue any
claim for Damages against Parent other than through the Shareholders' Agent.
The Escrow Agent may rely upon any decision, act, consent or instruction of
the Shareholders' Agent as the decision act, consent, or instruction of each
and every Company Indemnified Person.
10.12 OBJECTIONS TO CLAIMS AGAINST PARENT.
At the time of delivery of any Shareholders' Certificate, Parent shall have
a period of twenty (20) days after such delivery to confer with the appropriate
officers of Parent regarding the claims on the Shareholders' Certificate. After
the expiration of such twenty (20) day period, Parent shall either make delivery
of funds in accordance with Section 10.11 or object in a written statement to
the claim made in the Shareholders' Certificate.
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10.13 RESOLUTION OF CONFLICTS; ARBITRATION.
(a) In case Parent shall so object in writing to any claim or claims by
the Company Indemnified Persons made in any Shareholders' Certificate, the
Shareholders' Agent shall have twenty (20) days after receipt by Parent to
respond in a written statement to the objection of Parent. If after the
twenty (20) day period there remains a dispute as to any claims, Parent and
the Shareholders' Agent shall attempt in good faith for thirty (30) days to
agree upon the rights of the respective parties with respect to each of such
claims. If Parent and the Shareholders' Agent should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties.
Parent shall promptly make delivery of funds to the Company Indemnified
Persons in accordance with the terms of such memorandum.
(b) If no such agreement can be reached after good faith negotiation,
either the Shareholders' Agent or Parent may, by written notice to the
other, demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration in accordance with Section 13.1. The decision of the
arbitrator as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this
Agreement.
(c) The allocation of expenses incurred in connection with any such
arbitration shall be as set forth in Section 10.6(c).
10.14 THIRD PARTY CLAIMS.
If the Company Indemnified Persons become aware of a third-party claim which
the Company Indemnified Persons believe may result in a demand against Parent,
the Shareholders' Agent shall promptly notify Parent of that claim, and Parent
and the Company Indemnified Persons shall be entitled, at their expense, to
participate in any defense of that claim. However, the Shareholders' Agent may
not effect the settlement of any claim without the consent of Parent, which
consent shall not be unreasonably withheld. In the event that Parent has
consented to any such settlement, Parent shall have no power or authority to
object under Section 10.12 or any other provision of this Article X to any claim
by Company Indemnified Persons for indemnification against Damages in the amount
of such settlement.
10.15 SURVIVAL.
The representations and warranties of the Company and Parent contained in
this Agreement shall survive until the termination of the Escrow Period.
ARTICLE XI
TERMINATION/SURVIVAL
11.1 TERMINATION.
(a) This Agreement may be terminated at any time prior to the Closing as
follows:
(i) by the mutual written consent of Parent and the Company;
(ii) by Parent or the Company if it has become impossible that one or
more of the conditions to the other party's obligation to close the
transactions contemplated by this Agreement shall be satisfied on or
prior to the date set forth in Section 11.1(a)(vii) below and such
condition or conditions has not been waived promptly after such
impossibility has become known;
(iii) by Parent, on the one hand, or by the Company, on the other
hand, if there shall have been a breach of any of the representations and
warranties set forth in this Agreement on the part of the other, which
breach would, under Section 9.1(a) (in the case of a breach of
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representation or warranty by the Company) or Section 9.2(a) (in the case
of a breach of representation or warranty by Parent), entitle the party
receiving such representations and warranties not to consummate the
transactions contemplated hereby and which breach by its nature cannot be
cured prior to the date set forth in Section 11.1(a)(vii) below;
(iv) by the Company, on the one hand, or by Parent, on the other
hand, if there shall have been a material breach of any of the covenants
or agreements set forth in this Agreement on the part of the Company (in
the case of termination by Parent) or on the part of Parent (in the case
of termination by the Company), which breach shall not have been cured
within twenty (20) business days following receipt by the breaching party
of written notice of such breach from the other; and
(v) at the election of Parent or the Company, if the Closing shall
not occur on or before October 31, 2000.
Notwithstanding Section 11.1(a)(ii)-(v) hereof, a party who is in material
breach of any of its obligations or representations and warranties hereunder
shall not have the right to terminate this Agreement pursuant to
Section 11.1(a)(ii)-(v).
(b) The termination of this Agreement shall be effectuated by the
delivery by the party terminating this Agreement to the other party of a
written notice of such termination. If this Agreement so terminates, it
shall become null and void and have no further force or effect, except as
provided in Section 11.2.
(c) If this Agreement is terminated by the Company pursuant to
Section 11.1 (a)(iii) or Section 11.1 (a)(iv), Parent shall pay to the
Company, promptly upon receiving from the Company a written accounting of
all direct and indirect out-of-pocket expenses incurred by it in connection
with the negotiation and preparation of this Agreement and the Related
Agreements and its preparation to consummate the transactions contemplated
hereby and thereby ("Company Expenses"), a cash amount equal to the
aggregate amount of such Company Expenses.
(d) If this Agreement is terminated by Parent pursuant to
Section 11.1(a)(iii) or Section 11.1 (a)(iv), the Company shall pay to
Parent, promptly upon receiving from Parent a written accounting of all
direct and indirect out-of-pocket expenses incurred by it in connection with
the negotiation and preparation of this Agreement and the Related Agreements
and its preparation to consummate the transactions contemplated hereby and
thereby ("Parent Expenses"), a cash amount equal to the aggregate amount of
such Parent Expenses.
(e) If:
(i) this Agreement is terminated by the Company pursuant to
Section 11.1 (a)(ii) on the grounds that it has become impossible that
the condition set forth in Section 9.2(b) will be satisfied on or prior
to the date set forth in Section 11.1 (a)(v);
(ii) this Agreement is terminated by either party pursuant to
Section 11.1 (a)(v) and the condition set forth in Section 9.2(b) shall
not have been satisfied on or prior to the date set forth in
Section 11.1(a)(v);
(iii) the Board of Directors of Parent or Merger Sub withdraws or
modifies its approval or recommendation of this Agreement or the Merger;
or
(iv) the Required Parent Stockholder Approval is not obtained at the
meeting of the stockholders of Parent convened for the purpose of
obtaining such approval (or any adjournment or postponement thereof),
then in any such case, Parent shall pay to the Company, upon the earlier of any
such event or Parent's receipt of notice from the Company that any such event
shall have occurred, a cash penalty in the amount
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of $13,330,000, and shall thereupon be entitled to terminate this Agreement
without further liability by Parent or Merger Sub to the Company or any of its
shareholders, except for Company Expenses arising through the date of
termination. In addition, Parent shall pay to the Company, promptly upon
receiving from the Company a written accounting of its Company Expenses, a cash
amount equal to the aggregate amount of such Company Expenses.
11.2 EFFECT OF TERMINATION.
In the event of termination of this Agreement as provided in Section 11.1,
this Agreement (other than Section 8.3) shall become void and have no effect
except that, notwithstanding anything to the contrary contained in this
Agreement, no party shall be relieved or released from any liabilities or
damages arising out of its breach of any provision of this Agreement. In the
event of termination of this Agreement, Parent and the Company shall continue to
honor the terms of the Confidentiality Agreement, including the return of all
confidential materials.
11.3 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS.
In the event of termination of this Agreement by a party without a breach by
such party, the respective representations and warranties of such party
contained herein and in the certificates of such party to be delivered at the
Closing shall expire.
ARTICLE XII
DEFINITIONS
12.1 DEFINITIONS.
For all purposes of this Agreement, except as otherwise expressly provided
or unless the context clearly requires otherwise:
"Acquisition Proposal" shall mean any proposal or offer to acquire all or a
substantial part of the business or properties of the Company or any Company
Subsidiary or any capital stock of the Company or any Company Subsidiary,
whether by merger, tender offer, exchange offer, stock purchase, purchase, of
assets or similar transactions involving the Company or any Subsidiary, division
or operating or principal business unit of the Company.
"Advisers Act" means the Investment Advisers Act of 1940, as amended, and
all rules and regulations of the SEC thereunder.
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act.
"Affiliate Letter" shall mean a letter for use with respect to sales of
stock by Affiliates of the Company who become Affiliates of Parent which is
executed and delivered by each Affiliate of the Company and delivered to Parent
pursuant to Section 9.1(f) hereof and which complies as to form with the
requirements of SEC Rule 145.
"Agreement" or "this Agreement" shall mean this Agreement and Plan of
Merger, together with the Exhibits and Schedules attached and the Disclosure
Schedule.
"Agreement of Merger" shall mean the Agreement of Merger to be filed with
the Secretary of State of the State of California at the Closing.
"Balance Sheet Date" shall mean the date of the Company Balance Sheet.
"California Law" shall mean the general Corporation Law of the State of
California, as amended.
"Cause" shall mean the relevant employee'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
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representations made in any employment agreement or other agreement with Parent
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 Parent or any of its Subsidiaries or any material general policy
or directive of Parent or any of its Subsidiaries applicable to such employee,
(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 Parent or any of its
Subsidiaries or their clients, (vi) failure to obtain or maintain any
registration, license or other authorization or approval that Parent reasonably
believes is required in order for the employee to perform his duties; or
(vii) habitual abuse of alcohol or drugs.
"Certificate of Merger" shall mean the Certificate of Merger to be filed
with the Secretary of State of the State of Delaware at Closing.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Agreement" shall mean any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which the
Company or any the Company Subsidiary is a party or by which any of them or any
of their properties or assets may be bound.
"Company Board of Directors" shall mean the board of directors of the
Company.
"Company Financial Statements" shall have the meaning given in Section 6.8.
"Company's knowledge" or "best knowledge of the Company" shall mean the
actual knowledge of the President and Chief Executive Officer, Chief Financial
Officer or Controller of the Company.
"Company Subsidiary" shall mean each Person which is a Subsidiary of the
Company.
"Confidentiality Agreement" shall mean the letter agreement regarding
confidentiality between the Company and Parent.
"Delaware Law" shall mean the General Corporation Law of the State of
Delaware, as amended.
"Disclosure Schedule" shall mean the disclosure schedule dated the same date
as this Agreement prepared and signed by the Company or Parent, as the case may
be, and delivered to the other simultaneously with the execution hereof.
"Employment Agreement" means an employment agreement and non-disclosure,
non-competition and assignment of inventions agreement substantially in the form
of Exhibit E.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any trade or business, whether or not
incorporated, that together with the Company or Parent, as applicable, would be
deemed a "single employer" within the meaning of Section 4001(b) of ERISA.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"GAAP" shall mean United States generally accepted accounting principles.
"Governmental Documents" means all reports and registration statements
filed, or required to be filed, by law, by contract or otherwise, by an entity
pursuant to the authority of any Governmental Entity.
"Governmental Entity" shall mean any nation, state, territory, province,
county, city or other unit or subdivision thereof or any entity, authority,
agency, department, board, commission, instrumentality, court or other judicial
body authorized on behalf of any of the foregoing to exercise legislative,
judicial, regulatory or administrative functions of or pertaining to government
and, in the case of the Company, any
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governmental or non-governmental self-regulatory organization of which the
Company or any the Company Subsidiary was or is a member or to whose regulations
any thereof was or is subject or, in the case of Parent, any governmental or
non-governmental self-regulatory organization of which Parent or any Parent
Subsidiary was or is a member or to whose regulations any thereof was or is
subject.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indebtedness" shall mean any loan, promissory note, or other evidence of
debt.
"Intellectual Property" means all domestic and foreign copyrights, patents,
proprietary models, databases, service marks, software, trade names, trademarks
and trade secrets, and all registrations or applications for registration of any
of the foregoing.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and the rules and regulations of the SEC promulgated thereunder.
For purposes of this Agreement, the terms "material adverse effect" and
"material adverse change" shall exclude effects attributable to (a) declines in
the U.S. stock market, (b) the announcement or pendency of the transactions
contemplated by this Agreement, (c) declines in economic activity in the U.S.,
or (d) changes in the industry generally in which the Company operates.
"Merger Sub" shall mean Wit SoundView Corporation, a Delaware corporation
which is a direct wholly owned Subsidiary of Parent.
"Merger Sub Common Stock" shall mean common stock, par value $.01 per share,
of Merger Sub.
"NNM" shall mean the Nasdaq National Market.
"NASD" shall mean the National Association of Securities Dealers, Inc., NASD
Regulation, Inc. or The Nasdaq National Market, Inc., as the context may
require.
"Parent Agreement" shall mean any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Parent
or any Parent Subsidiary is a party or by which any of them or any of their
properties or assets may be bound.
"Parent Balance Sheet" shall mean the most recent balance sheet of Parent
and its consolidated subsidiaries included in the Financial Statements.
"Parent Board of Directors" shall mean the board of directors of Parent.
"Parent Common Stock" shall mean shares of Common Stock, par value $0.01 per
share, of Parent.
"Parent Financial Statements" shall mean the financial statements of Parent
included in the Governmental Documents.
"Parent Pooled Products" means each vehicle for collective investment (in
whatever form of organization, including in the form of a corporation, company,
limited liability company, partnership (limited or general), association, trust
or other entity and including each separate portfolio of any of the foregoing)
but only during the period with respect to which Parent or any Parent Subsidiary
has acted or acts as the sponsor, general partner, managing member, trustee,
investment manager, investment adviser (but excluding for all purposes other
than its investment advisory services any Parent Pooled Product as to which
Parent or such Parent Subsidiary has acted or acts solely in a subadvisory
capacity) or in a similar capacity.
"Parent Subsidiary" shall mean each Person which is a Subsidiary of Parent.
"Parent's knowledge" or "best knowledge of Parent" shall mean the actual
knowledge of the Chairman and Co-Chief Executive Officer, the Vice Chairman,
Co-Chief Executive Officer and President, the Vice Chairman, Founder and Chief
Strategist, the Senior Vice President and Chief Financial Officer, the Director
of Investment Banking or either of the Co-General Counsels.
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<PAGE>
"Person" shall mean a natural person, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity or organization.
"Plan" shall mean, with respect to the Company, a plan, program, agreement,
arrangement or program required to be included in the Disclosure Schedule of the
Company pursuant to Section 6.17(a) and with respect to Parent, a plan, program,
agreement, management or program required to be included in the Disclosure
Schedule of the Company pursuant to Section 7.17(a).
"Proxy Statement" shall mean the proxy statement to be filed by Parent with
the SEC, together with all amendments and supplements thereto and including the
exhibits thereto.
"Records" means all records and original documents in the possession of the
Company or any the Company Subsidiary or Parent or any Parent Subsidiary, as the
case may be, which pertain to or have been or are utilized by the Company or any
the Company Subsidiary or Parent or any Parent Subsidiary, as the case may be,
to administer, reflect, monitor, evidence or record information respecting the
business or conduct of the Company or any the Company Subsidiary including,
without limitation, (1) all such records maintained on electronic or magnetic
media, or in an electronic database system, and (2) all such records as
necessary to comply with any applicable law, including, without limitation, any
and all records kept in accordance with, or documents filed pursuant to, any
Securities Laws.
"Related Agreements" shall mean the Account Transfer Agreement, the
Confidentiality Agreement, the Employment Agreements, the Standstill Agreement,
the Stock Purchase Agreement, the Strategic Alliance Agreement, the Voting
Agreements, and the Warrant.
"S-4 Registration Statement" shall mean the registration statement on
Form S-4 or other appropriate form of Parent contemplated by Article VIII of
this Agreement.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.
"Securities Laws" means the Securities Act; the Exchange Act; the Investment
Company Act; the Advisers Act; the securities or "blue sky" laws of any state or
territory of the United States; the rules and regulations of the NASD; the
Commodity Exchange Act, as amended, and the published rules and regulations of
the Commodity Futures Trading Commission promulgated thereunder; and the
comparable laws, rules and regulations in effect in any other country.
"Software" means (i) any and all computer software programs, including all
source and object code, (ii) databases and compilations, including any and all
data and collections of data, whether machine readable or otherwise, (iii) all
descriptions, flow-charts and other work product used to design, plan, organize
and develop any of the foregoing, (iv) all domain names and the content
contained on the respective Internet site(s), and (v) all documentation,
including user manuals and training materials, relating to any of the foregoing.
"Standstill Agreement" shall mean the Standstill Agreement to be executed by
E*TRADE and Parent simultaneously with the execution of this Agreement.
"Stock Equivalent" shall mean any stock option, warrant, or convertible debt
instrument which may be converted into capital stock.
"Subsidiary" shall mean, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which (a) at least a
majority of the securities or other interests having by their terms ordinary
voting power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its Subsidiaries, or by such party and one or more of its
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Subsidiaries or (b) such party or any other Subsidiary of such party is a
general partner, managing member or Person performing similar functions
(excluding any such partnership or other entity where such party or any
Subsidiary of such party does not have general primary decisional authority in
such partnership or other entity). "Subsidiary" excludes any investment fund
owned by E*TRADE unless E*TRADE owns at least a majority of the securities or
voting interests of the investment fund.
"Surviving Corporation" shall have the meaning given in Section 1.1.
"Tax" or "Taxes" shall mean all taxes, charges, fees, duties, levies,
penalties or other assessments imposed by any federal, state, local or foreign
governmental authority, including, but not limited to, income, gross receipts,
excise, property, sales, gain, use, license, custom duty, unemployment, capital
stock, transfer, franchise, payroll, withholding, social security, minimum
estimated, and other taxes, and shall include interest, penalties or additions
attributable thereto;
"Tax Return" shall mean any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Title IV Plan" shall mean a Plan that is subject to Section 302 or Title IV
of ERISA or Section 412 of the Code.
"Transactions" shall mean the transactions provided for or contemplated by
this Agreement and the Related Agreements.
"Voting Debt" shall mean indebtedness having general voting rights and debt
convertible into securities having such rights.
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12.2 ADDITIONAL DEFINITIONS.
The following terms shall have the meaning specified in the indicated
section of this Agreement.
<TABLE>
<CAPTION>
TERM SECTION
---- -------------------------------
<S> <C>
Agreement................................................... Preamble
Certificates................................................ Section 4.2(b)
Closing..................................................... Section 1.2
Code........................................................ Recitals
Company..................................................... Preamble
Company Balance Sheet....................................... Section 6.8
Company Capital Stock....................................... Section 4.2(a)
Company Common Stock........................................ Section 4.1(a)
Company Financial Statements................................ Section 6.8
Company Permits............................................. Section 6.9(b)
Company Stock Options....................................... Section 4.1(e)
Company Stock Option Plan(s)................................ Section 4.1(e) Company
Technology Systems.......................................... Section 6.15(a)
Damages..................................................... Section 10.2
Dissenting Shares........................................... Section 4.1(b)
Effective Time.............................................. Section 1.3
Exchange Agent.............................................. Section 4.2(a)
Exchange Ratio.............................................. Section 4.1(a)
Fractional Securities Fund.................................. Section 4.3
Indemnified D&Os............................................ Section 5.8
Merger...................................................... Section 1.1
Merger Sub.................................................. Preamble
Parent...................................................... Preamble
Parent Common Stock......................................... Section 4.1(e)
Parent Common Stock Options................................. Section 4.1(e)
Parent Permits.............................................. Section 7.9(b)
Parent Rights............................................... Section 4.1(a)
Parent Rights Agreement..................................... Section 4.1(a)
Parent Shares............................................... Section 4.1(a)
Parent Technology Systems................................... Section 7.15
Retention Options........................................... Section 5.5 S-4
Registration Statement...................................... Section 8.5(a)
Stock Price................................................. Section 4.1
Stock Merger Exchange Fund.................................. Section 4.2(a)
Surviving Corporation....................................... Section 1.1
</TABLE>
ARTICLE XIII
MISCELLANEOUS
13.1 DISPUTES.
Except for requests for injunctive relief, specific performance or
enforcement of the award of an arbitrator, all disputes arising in connection
with this Agreement shall be resolved by binding arbitration in accordance with
the applicable rules of the American Arbitration Association. The arbitration
shall be held in the State of Illinois before a single arbitrator selected in
accordance with Section 12 of the American Arbitration Association Commercial
Arbitration Rules who shall have substantial business experience in the
investment banking industry, and shall otherwise be conducted in accordance with
such
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association's Commercial Arbitration Rules. The award of such arbitrator shall
be enforceable in any court having jurisdiction over the parties to such
arbitration.
13.2 AMENDMENTS; EXTENSION; WAIVER.
Subject to compliance with applicable law this Agreement may be amended,
altered or modified by written instrument executed by E*TRADE and each of the
parties to this Agreement without any requirement that the shareholders of any
party approve any amendment that does not materially decrease the consideration
provided by this Agreement to the shareholders. However, the Company may waive
in writing the performance by Parent of any of its representations, warranties,
covenants or other agreements and that Parent may waive in writing the
performance by the Company of any of its representations, warranties covenants
or other agreements.
13.3 ENTIRE AGREEMENT.
This Agreement (including Exhibits, Schedules, certificates and lists
referred to in this Agreement, and any documents executed by the parties
simultaneously or pursuant to this Agreement) and the Related Agreements
constitute the entire understanding and agreement of the parties hereto, except
as provided herein, and supersedes all prior agreements and understandings,
written and oral, among the parties with respect to the subject matter hereof.
13.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF.
Each party understands and agrees that it shall be irreparably damaged in
the event this Agreement is not specifically enforced. Each party, therefore,
agrees that in the event of a breach of any material provision of this
Agreement, the aggrieved party may elect to institute and prosecute proceedings
in any court of competent jurisdiction to enforce specific performance or to
enjoin the continuing breach of this Agreement. Such remedies shall, however, be
cumulative and not exclusive, and shall be in addition to any other remedy which
a party may have.
13.5 INTERPRETATION.
When a reference is made in this Agreement to a Section, Exhibit, Annex or
Schedule, such reference shall be to a Section of or Exhibit, Annex or Schedule
to this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." Whenever the context
may require, any pronouns used in this Agreement shall include the corresponding
masculine, feminine or neuter forms and the singular form of nouns and pronouns
shall include the plural and vice versa. The phrases "the date of this
Agreement," "the date hereof" and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to the date set forth in the first
paragraph of this Agreement.
13.6 SEVERABILITY.
Any term or provision of this Agreement which is invalid or unenforceable in
any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Agreement or affecting the validity
or enforce ability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
13.7 RELATED AGREEMENTS.
Notwithstanding anything to the contrary herein, the parties hereto agree
that the transactions contemplated by each of this Agreement, the Account
Transfer Agreement, the Stock Purchase Agreement and the Strategic Alliance
Agreement shall not be consummated, and that each such Agreement shall
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immediately be terminated, unless either (a) each of the foregoing agreements is
in full force and effect immediately prior to the Closing of the Merger, or
(b) each of the Company, Parent and E*TRADE shall have consented in writing to
the Closing of the Merger notwithstanding the failure of one or more of such
agreements to be in full force and effect immediately prior thereto. In
addition, each of the parties hereto agrees that each of the Account Transfer
Agreement, the Stock Purchase Agreement and the Strategic Alliance Agreement
shall be terminated immediately upon termination of this Agreement, unless
otherwise agreed in writing by the Company, Parent and E*TRADE.
13.8 NOTICES.
All notices and other communications hereunder shall be in writing and shall
be deemed given if (a) delivered in person, (b) transmitted by facsimile (with
confirmation), (c) mailed by certified or registered mail (return receipt
requested) or (d) delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to Parent:
Wit Capital Group, Inc.
826 Broadway
New York, New York 10003
Facsimile: (212) 253-5289
Attention: Ronald Readmond
Vice Chairman, Co-Chief Executive Officer and President
With copies to:
Wit Capital Group, Inc.
826 Broadway
New York, New York 10003
Facsimile: (212) 253-5289
Attention: Lloyd H. Feller, Esq.
Senior Vice President and Co-General Counsel
And
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square, 30th Floor
New York, New York 10036
Facsimile: (212) 735-2000
Attention: Richard T. Prins, Esq.
And
Skadden, Arps, Slate, Meagher & Flom LLP
525 University Avenue, Suite 220
Palo Alto, California 94301
Facsimile: (650) 470-4570
Attention: Kenton J. King, Esq.
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<PAGE>
If to the Company:
E*OFFERING Corp.
Steuart Street Tower, 4th Floor
One Market Street
San Francisco, California 94107
Facsimile: (415) 618-6202
Attention: Steven R. King, President
With copies to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Facsimile: (650) 461-5380
Attention: Alan K. Austin, Esq.
And
Brobeck Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Facsimile: (650) 496-2885
Attention: Curtis L. Mo, Esq.
13.9 BINDING EFFECT; PERSONS BENEFITING; NO ASSIGNMENT.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and the respective heirs, legal representatives, estates, executors,
successors and permitted assigns of the parties and such persons. Except as
otherwise expressly set forth herein, nothing in this Agreement is intended or
shall be construed to confer upon any entity or person other than the parties
hereto and their respective heirs, legal representatives, estates, executors,
successors and permitted assigns any right, remedy or claim under or by reason
of their Agreement or any part hereof. Without the prior written consent of each
of the other parties hereto, this Agreement and the rights hereunder may not be
assigned by any of the parties hereto.
13.10 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which taken together shall constitute
one and the same agreement, it being understood that all of the parties need not
sign the same counterpart.
13.11 GOVERNING LAW.
THIS AGREEMENT, THE LEGAL RELATIONS BETWEEN THE PARTIES AND THE ADJUDICATION
AND THE ENFORCEMENT THEREOF, SHALL BE GOVERNED BY AND INTERPRETED AND CONSTRUED
IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
13.12 JURISDICTION; WAIVER OF JURY TRIAL AND CERTAIN DAMAGES.
Subject to the arbitration requirements of Section 12.1 hereof, all actions
arising under or relating to this Agreement shall be brought exclusively in the
Federal District Court for Delaware, the Southern District of New York, the
Northern District of California, or in any Delaware, New York or California
State Court sitting in such district and having subject matter jurisdiction over
such matters, and each of the parties hereto consents and agrees to personal
jurisdiction, and waives any objection as to the venue, of
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such courts for purposes of such action. The parties to this Agreement agree to
waive any right to a jury trial as to all disputes and any right to seek
punitive or consequential damages.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger to be executed as of the date first written above.
<TABLE>
<S> <C> <C>
WIT CAPITAL GROUP, INC.
By: /s/ RONALD READMOND
-----------------------------------------
Name: Ronald Readmond
Title: Vice Chairman, Co-Chief Executive
Officer and President
E*OFFERING CORP.
By: /s/ STEVEN R. KING
-----------------------------------------
Steven R. King
Name: Steven R. King
Title: President
WIT SOUNDVIEW CORPORATION
By: /s/ RONALD READMOND
-----------------------------------------
Name: Ronald Readmond
Title: President
</TABLE>
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<PAGE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Preliminary Allocation Schedule
Exhibit B Restrictive Legend
Exhibit C Voting Agreement (Company Shareholders)
Exhibit D Voting Agreement (Parent Stockholders)
Exhibit E Form of Employment Agreement
Exhibit F Strategic Alliance Agreement
Exhibit G Standstill Agreement
Exhibit H Form of Escrow Agreement
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 4.1(e) Non-Employee Company Stock Options
Schedule 4.2(b) Base Lock-up Shares
Schedule 5.1 List of Certain Shareholders
Schedule 5.2 List of Certain Stockholders
Schedule 5.3 List of Employees
Schedule 6.2 Company Subsidiaries and Affiliates
Schedule 6.3 Company Stock Options
Schedule 6.17 Company Employee Benefit Plans
Schedule 6.20 Company Contracts and Commitments
Schedule 6.21 Company Insurance
Schedule 6.22 Company Personnel
Schedule 7.2 Subsidiaries, Affiliates and Investments in Non-Public
Entities
Schedule 7.3 Parent Stock Options
Schedule 7.16 Litigation, Arbitration and Mediation
Schedule 7.17 Parent Employee Benefit Plans
Schedule 7.20 Parent Contracts and Commitments
Schedule 7.21 Parent Insurance
Schedule 8.1 Interim Operations of Company
Schedule 8.2 Interim Operations of Parent
Schedule 9.1(d) Parent Governmental Filings and Consents
Schedule 9.2(e) Company Governmental Filings and Consents
</TABLE>
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APPENDIX II
TO BE FILED BY AMENDMENT.
AII-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROXY STATEMENT/PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Amended and Restated Certificate of Incorporation limits, to the maximum
extent permitted under Delaware law, the personal liability of directors and
officers for monetary damages for breach of their fiduciary duties as directors
and officers, except in certain circumstances involving certain wrongful acts,
such as a breach of the director's duty of loyalty or acts of omission which
involve intentional misconduct or a knowing violation of law.
Section 145 of the DGCL permits us to indemnify officers, directors or
employees against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement in connection with legal proceedings if the officer,
director or employee acted in good faith and in a manner he reasonably believed
to be in or not opposed to our best interests, and, with respect to any criminal
act or proceeding, he had no reasonable cause to believe his conduct was
unlawful. Indemnification is not permitted as to any matter as to which the
person is adjudged to be liable unless, and only to the extent that, the court
in which such action or suit was brought upon application that, despite the
adjudication of liability, but in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper. Individuals who successfully defend such an action are
entitled to indemnification against expenses reasonably incurred in connection
therewith.
Our By-Laws require us to indemnify directors and officers against, to the
fullest extent permitted by law, liabilities which they may incur under the
circumstances described in the preceding paragraph.
We plan to maintain standard policies of insurance under which coverage is
provided (1) to our directors and officers against loss arising from claims made
by reason of breach of duty or other wrongful act and (2) to us with respect to
payments which may be made by us to such officers and directors pursuant to the
above indemnification provision or otherwise as a matter of law.
In addition, we have entered into indemnification agreements with our
directors and executive officers. Under these agreements, we agree to indemnify
each director and officer to the fullest extent permitted by law for any acts
performed, or for failures to act, on our behalf or on behalf of another person
or entity for which that director or officer is performing services at our
request. We will not indemnify a director or officer for any breach of loyalty
to us or to our stockholders, or if the director or officer does not act in good
faith or for acts involving intentional misconduct, or for acts or omissions
falling under Section 174 of the DGCL, or for any transaction for which the
director or officer derives an improper benefit. We agree to indemnify for
expenses related to indemnifiable events, and to pay for these expenses in
advance. Our obligation to indemnify and to provide advances for expenses are
subject to the approval of a review process with a reviewer to be determined by
the Board. The rights of directors and officers will not exclude any rights to
indemnification otherwise available under law or under the Amended and Restated
Certificate of Incorporation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
2.1+ Agreement and Plan of Merger by and among Wit SoundView
Group, Inc., Wit SoundView Corporation and E*OFFERING Corp.,
dated as of May 15, 2000 (attached as Appendix I to the
proxy statement/prospectus contained in this registration
statement).
3.1+ Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Wit SoundView Group, Inc.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
3.2+ By-Laws of Wit SoundView Group, Inc.
4.1 Rights Agreement between Wit SoundView Group, Inc. and
American Stock Transfer & Trust Company, as Rights Agent
(Incorporated by reference to Exhibit 4.1 to the quarterly
report of Wit SoundView Group, Inc. on Form 10-Q for the
period ended June 30, 1999).
4.2+ Voting Agreement, dated as of May 15, 2000, by and among Wit
SoundView Group, Inc. and certain securityholders of
E*OFFERING Corp.
5.1+++ Opinion of Skadden, Arps, Slate, Meagher and Flom LLP
regarding the legality of the securities being issued.
8.1+++ Opinion of Skadden, Arps, Slate, Meagher and Flom LLP
regarding certain tax matters.
10.1 Wit SoundView Group, Inc. Stock Incentive Plan (incorporated
by reference to Exhibit 10.1 to the 1999 Form 10-K Annual
Report (File No. 000-26225) of Wit SoundView Group, Inc.).
10.2(a)+ E*OFFERING Corp. 1998 Stock Option Plan.
10.2(b)+ E*OFFERING Corp. 2000 Stock/Stock Issuance Option Plan.
10.3 Annual Bonus Plan (Incorporated by reference to Exhibit 10.2
to the Registration Statement on Form S-1 (File No.
333-74619) of Wit SoundView Group, Inc.).
10.4 Employment Agreement between Wit SoundView Group, Inc. and
Robert H. Lessin (Incorporated by reference to Exhibit 10.6
to the Registration Statement on Form S-1 (File No.
333-74619) of Wit SoundView Group, Inc.).
10.5+++ Severance Agreement between Wit SoundView Group, Inc. and
Ronald Readmond.
10.6 Employment Agreement between Wit SoundView Group, Inc. and
Andrew D. Klein (Incorporated by reference to Exhibit 10.8
to the Registration Statement on Form S-1 (File No.
333-74619) of Wit SoundView Group, Inc.).
10.7 Employment Agreement between Wit SoundView Group, Inc. and
Mark Loehr (Incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form S-1 (File No. 333-74619) of
Wit SoundView Group, Inc.).
10.8 Employment Agreement between Wit SoundView 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 SoundView Group, Inc.).
10.9 Employment Agreement between Wit SoundView 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 SoundView Group, Inc.).
10.10 Second Amended and Restated Stockholders Agreement, dated
February 23, 1999, between Wit SoundView Group, Inc. and
stockholders named therein (Incorporated by reference to
Exhibit 10.11 to the Registration Statement on Form S-1
(File No. 333-74619) of Wit SoundView Group, Inc.).
10.11 Third Amended and Restated Stockholders Agreement, dated
April 8, 1999, between Wit SoundView Group, Inc. and the
stockholders named therein (Incorporated by reference to
Exhibit 10.13 to the Registration Statement on Form S-1
(File No. 333-74619) of Wit SoundView Group, Inc.).
10.12 Third Amended and Restated Registration Rights Agreement,
dated April 8, 1999, between Wit SoundView Group, Inc. and
the stockholders named therein (Incorporated by reference to
Exhibit 10.14 to the Registration Statement on Form S-1
(File No. 333-74619) of Wit SoundView Group, Inc.).
10.13 Purchase Agreement, dated as of March 29, 1999, by and
between Wit SoundView Group, Inc. and The Goldman Sachs
Group, L.P. (Incorporated by reference to Exhibit 10.15 to
the Registration Statement on Form S-1 (File No. 333-74619)
of Wit SoundView Group, Inc.).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.14++ Strategic Alliance Agreement, dated as of May 15, 2000, by
and between E*TRADE Group Inc. and Wit SoundView Group, Inc.
10.15+ Account Transfer Agreement, dated as of May 15, 2000, by and
between E*TRADE Group Inc. and Wit SoundView Group, Inc.
10.16+ Standstill Agreement, dated as of May 15, 2000, by and
between E*TRADE Group Inc. and Wit SoundView Group, Inc.
10.17+ Form of Escrow Agreement by and among E*TRADE Group Inc.,
Wit SoundView Group, Inc. and Escrow Agent.
10.18+ Stock Purchase Agreement, dated as of May 15, 2000, by and
among E*TRADE Group Inc., Wit SoundView Group, Inc. and
certain entities affiliated with General Atlantic Partners,
LLC.
10.19+ E*OFFERING Corp. 2000 Restricted Stock Plan.
10.20+ E*OFFERING Corp. 2000 Restricted Stock Plan Restricted Stock
Agreement.
21.1 List of subsidiaries of Wit SoundView Group, Inc.
(Incorporated by reference to Exhibit 21.1 to the
Registration Statement on Form S-1 (File No. 333-74619) of
Wit SoundView Group, Inc.).
23.1+ Consent of Arthur Andersen LLP with regard to the financial
statements of Wit SoundView Group, Inc.
23.2+ Consent of Deloitte & Touche LLP with regard to the
financial statements of E*OFFERING Corp.
23.3+++ Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibits 5.1 and 8.1).
24.1+ Powers of Attorney (included on signature page).
99.1+++ Opinion of Goldman, Sachs & Co. (attached as Appendix II to
the proxy statement/ prospectus contained in this
Registration Statement).
99.2+ Form of Proxy Card.
99.3+++ Consent of Goldman, Sachs & Co.
99.4 Press Release (Incorporated by reference to Wit SoundView's
filing under Rule 425, dated July 19, 2000).
</TABLE>
------------------------
+ Filed herewith.
++ Confidential treatment has been requested for certain portions of this
document.
+++ To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than
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<PAGE>
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(5) The undersigned registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (4) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(6) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(7) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(8) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions described in Item 20 or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, the State of
New York, on the 24th day of July, 2000.
<TABLE>
<S> <C> <C>
WIT SOUNDVIEW GROUP, INC.
By: /s/ ROBERT H. LESSIN
-----------------------------------------
Name: Robert H. Lessin
Title: CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT H. LESSIN
------------------------------------------- Chief Executive Officer July 24, 2000
Robert H. Lessin and Director
/s/ RONALD READMOND
------------------------------------------- Director July 24, 2000
Ronald Readmond
/s/ ANDREW D. KLEIN
------------------------------------------- Director July 24, 2000
Andrew D. Klein
/s/ JOHN H. N. FISHER
------------------------------------------- Director July 24, 2000
John H. N. Fisher
/s/ EDWARD H. FLEISCHMAN
------------------------------------------- Director July 24, 2000
Edward H. Fleischman
/s/ STEVEN M. GLUCKSTERN
------------------------------------------- Director July 24, 2000
Steven M. Gluckstern
/s/ JOSEPH R. HARDIMAN
------------------------------------------- Director July 24, 2000
Joseph R. Hardiman
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GILBERT C. MAURER
------------------------------------------- Director July 24, 2000
Gilbert C. Maurer
/s/ RUSSELL D. CRABS
------------------------------------------- Director July 24, 2000
Russell D. Crabs
/s/ CURTIS L. SNYDER
------------------------------------------- Chief Financial Officer July 24, 2000
Curtis L. Snyder
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
2.1+ Agreement and Plan of Merger by and among Wit SoundView
Group, Inc., Wit SoundView Corporation and E*OFFERING Corp.,
dated as of May 15, 2000 (attached as Appendix I to the
proxy statement/prospectus contained in this registration
statement).
3.1+ Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Wit SoundView Group, Inc.
3.2+ Amended and Restated By-Laws of Wit SoundView Group, Inc.
4.1 Rights Agreement between Wit SoundView Group, Inc. and
American Stock Transfer & Trust Company, as Rights Agent
(Incorporated by reference to Exhibit 4.1 to the quarterly
report of Wit SoundView Group, Inc. on Form 10-Q for the
period ended June 30, 1999).
4.2+ Voting Agreement, dated as of May 15, 2000, by and among Wit
SoundView Group, Inc. and certain securityholders of
E*OFFERING Corp.
5.1+++ Opinion of Skadden, Arps, Slate, Meagher and Flom LLP
regarding the legality of the securities being issued.
8.1+++ Opinion of Skadden, Arps, Slate, Meagher and Flom LLP
regarding certain tax matters.
10.1 Wit SoundView Group, Inc. Stock Incentive Plan (incorporated
by reference to Exhibit 10.1 to the 1999 Form 10-K Annual
Report (File No. 000-26225) of Wit SoundView Group, Inc.
10.2(a)+ E*OFFERING Corp. 1998 Stock Option Plan.
10.2(b)+ E*OFFERING Corp. 2000 Stock Option/Stock Issuance Plan.
10.3 Annual Bonus Plan (Incorporated by reference to
Exhibit 10.2 to the Registration Statement on Form S-1 (File
No. 333-74619) of Wit SoundView Group, Inc.).
10.4 Employment Agreement between Wit SoundView Group, Inc. and
Robert H. Lessin (Incorporated by reference to Exhibit 10.6
to the Registration Statement on Form S-1 (File
No. 333-74619) of Wit SoundView Group, Inc.).
10.5+++ Severance Agreement between Wit SoundView Group, Inc. and
Ronald Readmond.
10.6 Employment Agreement between Wit SoundView Group, Inc. and
Andrew D. Klein (Incorporated by reference to Exhibit 10.8
to the Registration Statement on Form S-1 (File
No. 333-74619) of Wit SoundView Group, Inc.).
10.7 Employment Agreement between Wit SoundView Group, Inc. and
Mark Loehr (Incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form S-1 (File No. 333-74619) of
Wit SoundView Group, Inc.).
10.8 Employment Agreement between Wit SoundView 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 SoundView Group, Inc.).
10.9 Employment Agreement between Wit SoundView 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 SoundView Group, Inc.).
10.10 Second Amended and Restated Stockholders Agreement, dated
February 23, 1999, between Wit SoundView Group, Inc. and
stockholders named therein (Incorporated by reference to
Exhibit 10.11 to the Registration Statement on Form S-1
(File No. 333-74619) of Wit SoundView Group, Inc.).
10.11 Third Amended and Restated Stockholders Agreement, dated
April 8, 1999, between Wit SoundView Group, Inc. and the
stockholders named therein (Incorporated by reference to
Exhibit 10.13 to the Registration Statement on Form S-1
(File No. 333-74619) of Wit SoundView Group, Inc.).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.12 Third Amended and Restated Registration Rights Agreement,
dated April 8, 1999, between Wit SoundView Group, Inc. and
the stockholders named therein (Incorporated by reference to
Exhibit 10.14 to the Registration Statement on Form S-1
(File No. 333-74619) of Wit SoundView Group, Inc.).
10.13 Purchase Agreement, dated as of March 29, 1999, by and
between Wit SoundView Group, Inc. and The Goldman Sachs
Group, L.P. (Incorporated by reference to Exhibit 10.15 to
the Registration Statement on Form S-1 (File No. 333-74619)
of Wit SoundView Group, Inc.
10.14++ Strategic Alliance Agreement, dated as of May 15, 2000, by
and between E*TRADE Group Inc. and Wit SoundView Group, Inc.
10.15+ Account Transfer Agreement, dated as of May 15, 2000, by and
between E*TRADE Group Inc. and Wit SoundView Group, Inc.
10.16+ Standstill Agreement, dated as of May 15, 2000, by and
between E*TRADE Group Inc. and Wit SoundView Group, Inc.
10.17+ Form of Escrow Agreement by and among E*TRADE Group Inc.,
Wit SoundView Group, Inc. and Escrow Agent.
10.18+ Stock Purchase Agreement, dated as of May 15, 2000, by and
among E*TRADE Group Inc., Wit SoundView Group, Inc. and
certain entities affiliated with General Atlantic Partners,
LLC.
10.19+ E*OFFERING Corp. 2000 Restricted Stock Plan.
10.20+ E*OFFERING Corp. 2000 Restricted Stock Plan Restricted Stock
Agreement.
21.1 List of subsidiaries of Wit SoundView Group, Inc.
(Incorporated by reference to Exhibit 21.1 to the
Registration Statement on Form S-1 (File No. 333-74619) of
Wit SoundView Group, Inc.).
23.1+ Consent of Arthur Andersen LLP with regard to the financial
statements of Wit SoundView Group, Inc.
23.2+ Consent of Deloitte & Touche LLP with regard to the
financial statements of E*OFFERING Corp.
23.3+++ Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibits 5.1 and 8.1).
24.1+ Powers of Attorney (included on signature page).
99.1+++ Opinion of Goldman, Sachs & Co. (attached as Appendix II to
the proxy statement/ prospectus contained in this
Registration Statement).
99.2+ Form of Proxy Card.
99.3+++ Consent of Goldman, Sachs & Co.
99.4 Press Release (Incorporated by reference to Wit SoundView's
filing under Rule 425, dated July 19, 2000.
</TABLE>
------------------------
+ Filed herewith.
++ Confidential treatment has been requested for certain portions of this
document.
+++ To be filed by amendment.
