<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 2000
REGISTRATION NO. 333-42062
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
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 (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code 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
NEW YORK, NEW YORK 10003
(212) 253-4400
CURTIS L. MO, ESQ. STEPHEN E. GILLETTE, ESQ.
DAVID P. MCLEAN, ESQ. WILSON, SONSINI, GOODRICH & ROSATI
JOSEPH K. WYATT, ESQ. 650 PAGE MILL ROAD
BROBECK, PHLEGER & HARRISON LLP PALO ALTO, CA 94303-0913
TWO EMBARCADERO PLACE (650) 493-9300
2200 GENG ROAD
PALO ALTO, CA 94304-1050
(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 post-effective
amendment to the registration statement and after the effective date of 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, as amended as of September 26, 2000,
by and 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. /X/ Registration No. 333-42062.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 1 to the Registration Statement includes a
proxy statement/ prospectus supplement, which amends and supplements the proxy
statement/prospectus dated August 11, 2000 of Wit SoundView Group, Inc. The
supplement to the proxy statement/prospectus contains information about the
amendments to the Merger Agreement and the Amended and Restated Strategic
Alliance Agreement, dated as of September 26, 2000 by and between Wit SoundView
and E*TRADE Group, Inc. (together, the "Parties"), which amends and restates the
Strategic Alliance Agreement, dated as of May 15, 2000 by and between the
Parties. The supplement to the proxy statement/prospectus also contains the
opinion of Goldman, Sachs & Co. with respect to the fairness from a financial
point of view of the total consideration to be issued by Wit SoundView pursuant
to the Merger Agreement and the Amended and Restated Strategic Alliance
Agreement, taken as a unitary transaction. The Registration Statement, as filed
with the Securities and Exchange Commission on August 7, 2000, is incorporated
herein by reference.
<PAGE>
[LOGO]
October 6, 2000
Dear Wit SoundView Group, Inc. Stockholder:
On August 17, 2000, we mailed to you a proxy statement /prospectus relating
to a special meeting of stockholders of Wit SoundView Group, Inc. that was
scheduled for September 26, 2000. The meeting was adjourned and will be
reconvened on October 16, 2000 at 9:30 a.m., New York City time at the offices
of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, 37th Floor, New
York, New York 10036. The purpose of the special meeting is to consider and vote
upon our proposed acquisition of E*OFFERING Corp.
On September 26, 2000, Wit SoundView, E*OFFERING and Wit SoundView
Corporation entered into an amendment agreement which modifies some provisions
of the merger agreement the parties had previously entered into on May 15, 2000.
The amendments principally relate to the indemnification of Wit SoundView by the
stockholders of E*OFFERING for certain matters not subject to the $3 million
threshold otherwise applicable to indemnification claims.
On September 26, 2000, Wit SoundView and E*TRADE entered into an amended and
restated strategic alliance agreement, which amends and restates the strategic
alliance agreement, dated as of May 15, 2000, by and between such parties. As a
result of this amendment, the period during which Wit SoundView will act as
E*TRADE's exclusive source of equity and equity related securities offered to
retail customers in initial public offerings and follow-on offerings in the
United States was extended from three years to five years. Subject to E*TRADE's
fiduciary obligations to its customers, E*TRADE has agreed to use its
commercially reasonable efforts to direct all secondary market orders in
securities in which Wit SoundView is a market maker to Wit SoundView and has
granted Wit SoundView a non-exclusive right to distribute equity securities
offerings in foreign countries through E*TRADE.
We are enclosing a supplement to the proxy statement/prospectus previously
mailed to you on August 17, 2000. The supplement provides you with a summary of
the amendments to the merger agreement and strategic alliance agreement and a
summary of the material financial analyses performed by Goldman, Sachs & Co. in
rendering its opinion with respect to the fairness from a financial point of
view of the total consideration proposed to be paid by Wit SoundView pursuant to
the amended merger agreement and the amended and restated strategic alliance
agreement, taken as a unitary transaction. The opinion of Goldman, Sachs is
attached to the supplement as Annex S-A.
The board of directors of Wit SoundView has unanimously approved the terms
of the amended and restated strategic alliance agreement 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 on page
S-6 of this supplement and beginning on page 13 of the proxy
statement/prospectus of which this supplement forms a part.
If you were a stockholder of record on August 10, 2000, you may vote at the
reconvened meeting which will be held on October 16, 2000, 9:30 a.m., New York
City time.
We have enclosed a proxy card with the supplement. If you already have
delivered a properly executed proxy, you do not have to do anything further
unless you wish to change your vote. If you have not previously voted or if you
wish to revoke or change your vote, 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.
Thank you for your continued support.
[SIG]
ROBERT H. LESSIN
Chief Executive Officer
This supplement is dated October 6, 2000 and is first being mailed to
stockholders on or about October 6, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INTRODUCTION................................................ S-1
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... S-1
CHANGES TO INFORMATION IN PROXY STATEMENT/PROSPECTUS........ S-3
RISK FACTORS................................................ S-6
RECENT DEVELOPMENTS......................................... S-6
SELECTED HISTORICAL FINANCIAL DATA OF E*OFFERING............ S-12
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA........ S-13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF E*OFFERING................... S-18
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... S-25
EXPERTS..................................................... S-33
WHERE YOU CAN FIND MORE INFORMATION......................... S-33
ANNEX S-A
</TABLE>
ii
<PAGE>
INTRODUCTION
This proxy statement/prospectus supplement is furnished by the board of
directors of Wit SoundView Group, Inc. Except as described in this supplement,
the information we provided in the proxy statement/prospectus that we previously
mailed to you continues to apply. This supplement is being mailed to
stockholders on or about October 6, 2000 and should be read in conjunction with
the proxy statement/prospectus. The registration statement, as filed with the
SEC on August 7, 2000, that contains the proxy statement/prospectus is
incorporated in this supplement by reference. To the extent information in this
supplement differs from or conflicts with information contained in the proxy
statement/prospectus, this supplement supersedes and replaces the information in
the proxy statement/ prospectus. If you need another copy of the proxy
statement/prospectus or this supplement, please call our proxy solicitors,
Georgeson Shareholder Communications Inc., at 1-800-223-2064.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT HAS CHANGED IN THE STRATEGIC ALLIANCE AGREEMENT?
A: Significant changes to the strategic alliance agreement include the
following:
- The period during which Wit SoundView will act as E*TRADE's exclusive
source of equity and equity related securities offered to retail customers
in initial public offerings and follow-on offerings and private placements
in the United States has been extended from three years to five years
without Wit SoundView being required to satisfy the performance criteria
previously included in the strategic alliance agreement.
- With respect to securities for which Wit SoundView acts as market maker
and subject to E*TRADE's fiduciary obligations to its customers, E*TRADE
has agreed to use its commercially reasonable efforts to direct all
secondary market orders to Wit SoundView for a period of at least
36 months after the closing of the merger with E*OFFERING. Order flow
arrangements during the one-year period following an offering in which Wit
SoundView was the lead manager and the six-month period following an
offering in which Wit SoundView was a co-manager will remain in place
throughout the term of the agreement, as provided for in the original
strategic alliance agreement.
- Each of Wit SoundView and E*TRADE have agreed, in furtherance of the
strategic alliance, to include the others' logos and brand names on its
Website at no additional cost.
- Wit SoundView directly or through its affiliates has been granted a
non-exclusive right to distribute equity securities offerings originating
in foreign countries through E*TRADE and its affiliates and the parties
have agreed to use their commercially reasonable efforts to negotiate an
extension of the exclusivity provisions of the strategic alliance to the
comparable activities of Wit SoundView and E*TRADE in foreign countries.
- In the event of a change of control of E*TRADE during the period in which
the exclusivity provisions are in effect and if the person or entity that
acquires control of E*TRADE either breaches its obligations as a successor
to E*TRADE or materially breaches Wit SoundView's exclusivity right with
respect to equity securities offerings, E*TRADE will be obligated to pay
Wit SoundView $120 million, which amount will be reduced by $3.33 million
at the end of each calendar month, commencing with the month during which
the first anniversary of the merger closing occurs, to a minimum of
$80 million. Prior to the amendment, E*TRADE was obligated to pay Wit
SoundView $160 million, reduced by $5 million per calendar month to a
minimum of $80 million.
- The warrant to purchase 2,000,000 shares of Wit SoundView common stock has
been modified to reflect the elimination of the performance criteria for
extending the exclusivity period. The
S-1
<PAGE>
only condition to exercisability of the warrant is that the exclusivity
provisions of the amended and restated strategic alliance agreement remain
in effect during the fourth and fifth years of the amended and restated
strategic alliance agreement.
Q: WHAT HAS CHANGED IN THE MERGER AGREEMENT?
A: The indemnification of Wit SoundView by the stockholders of E*OFFERING has
been modified to cover certain matters not subject to the $3 million
threshold otherwise applicable to indemnification claims.
Q: HAS ANYTHING MATERIALLY CHANGED IN OTHER RELATED AGREEMENTS?
A: No.
Q: HAS THE RECORD DATE FOR THE WIT SOUNDVIEW SPECIAL MEETING OF STOCKHOLDERS
CHANGED?
A: No. The record date for the meeting remains August 10, 2000.
Q: WHAT DO I NEED TO DO NOW?
A: First, carefully read this document. If you already have delivered a
properly executed proxy, you do not need to do anything further unless you
wish to change your vote. If you are a registered holder and you have not
already delivered a properly executed proxy, or you wish to change your
vote, please complete, sign and date the enclosed proxy card and return it
in the accompanying prepaid envelope to assure that your shares will be
represented at the special meeting. If your shares are held in "street name"
by your broker, and you have not already delivered a properly executed
proxy, or wish to change your vote, please instruct your broker in the
manner described on page 2 of the proxy statement/prospectus mailed to you
on August 17, 2000.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: You can change your vote by:
- following the procedures described on page 21 of the
proxystatement/prospectus mailed to you on August 17, 2000;
- sending a later-dated, signed proxy card before the special meeting; or
- attending the meeting in person and voting.
Q: WHEN WILL THE MERGER BE COMPLETED?
A: Wit SoundView and E*OFFERING are working toward completing the merger as
soon as possible and expect to complete the merger shortly after the
reconvened Wit SoundView special meeting if stockholders approve the merger
proposal.
Q: WHOM CAN I CALL WITH QUESTIONS?
A: If you have any questions about the merger, or if you need additional copies
of this supplement or the proxy statement/prospectus or the enclosed proxy
card, 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)
S-2
<PAGE>
CHANGES TO INFORMATION IN PROXY STATEMENT/PROSPECTUS
AMENDMENTS TO THE STRATEGIC ALLIANCE AGREEMENT
The following is a summary of the significant differences between the
strategic alliance agreement, dated as of May 15, 2000 by and between Wit
SoundView and E*TRADE, and the amended and restated strategic alliance
agreement, dated as of September 26, 2000 by and between Wit SoundView and
E*TRADE.
MODIFICATION OF EXCLUSIVITY TERM. Under the exclusivity provisions of both
the original strategic alliance agreement and the amended strategic alliance
agreement, 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 and private placements of United States
companies in the United States, and Wit SoundView must make available
exclusively to customers of E*TRADE all securities allocated by Wit SoundView
for retail distribution in any United States public or private offering of
equity and equity related securities in which it participates as an underwriter,
dealer or placement agent. Under the original strategic alliance agreement, the
exclusivity provisions were to last for three years and could be extended
automatically for up to two additional years upon the satisfaction of certain
performance standards by Wit SoundView or upon mutual agreement of the parties.
Under the amended and restated strategic alliance agreement, these exclusivity
provisions will last for five years and will not be subject to the satisfaction
of any performance standards by Wit SoundView.
MARKET MAKING. The amended and restated strategic alliance agreement
provides that, subject to E*TRADE's fiduciary obligations to its customers,
E*TRADE will use its commercially reasonable efforts to direct all secondary
market orders with respect to each security for which Wit SoundView acts as
market maker to Wit SoundView. Wit SoundView will be required to pay a
competitive market rate, reviewed and adjusted periodically, if appropriate, for
this order flow. This provision, however, is not applicable to secondary market
trading of securities issued in offerings in which Wit SoundView participates as
a lead manager or a co-manager during the one-year period or six-month period,
respectively, after the offering. Direction of order flow in these securities
during the applicable period is subject to existing provisions of the strategic
alliance agreement.
SALES AND MARKETING. Both the original strategic alliance agreement and the
amended strategic alliance agreement contain similar provisions with respect to
the parties' mutual agreement to negotiate in good faith to promote and market
the strategic alliance. These provisions have been revised in the amended and
restated strategic alliance agreement to specifically provide that each of Wit
SoundView and E*TRADE will include the others' logos and brand names on its
Website at no charge to the other party.
INTERNATIONAL ALLIANCE. Both the original strategic alliance agreement and
the amended and restated strategic alliance agreement provide that the parties
will use their respective commercially reasonable efforts to negotiate
extensions of the strategic alliance to activities in countries other than the
United States. Under the amended and restated strategic alliance agreement, Wit
SoundView, directly or through its affiliates, has a non-exclusive right to
distribute equity securities offerings originating in foreign countries through
E*TRADE and its affiliates and the parties have agreed to use commercially
reasonable efforts to negotiate an extension of the exclusivity provisions of
the strategic alliance to the comparable activities of Wit SoundView and E*TRADE
in foreign countries.
CHANGE OF CONTROL. Under the amended and restated strategic alliance
agreement, in the event of a change of control of E*TRADE during the period in
which the exclusivity provisions are in effect, and if the person or entity that
acquires control of E*TRADE either breaches its obligations as a successor to
E*TRADE or materially breaches its obligations with respect to Wit SoundView's
exclusivity rights in connection with equity or equity related securities
offerings, E*TRADE will be obligated to pay Wit SoundView $120 million, which
amount will be reduced by $3.33 million at the
S-3
<PAGE>
end of each calendar month, commencing with the month during which the first
anniversary of the merger closing occurs, to a minimum of $80 million. In the
original strategic alliance agreement, in this circumstance E*TRADE would have
been obligated to pay Wit SoundView $160 million, reduced by $5 million per
calendar month to a minimum of $80 million.
AMENDMENTS TO THE MERGER AGREEMENT
The following is a summary of the amendments to the merger agreement
effected by the amendment agreement, dated as of September 26, 2000, by and
among Wit SoundView, Wit SoundView Corporation and E*OFFERING.
WIT SOUNDVIEW'S INDEMNIFICATION RIGHTS. Under the original merger
agreement, E*OFFERING shareholders were obligated to indemnify and hold
harmless, jointly and severally, Wit SoundView and its officers, directors,
agents and employees and each controlling person or entity of Wit SoundView from
damages and other losses and liabilities in excess of $3 million 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 or any attached exhibits or schedules. Under
the amendment, certain matters will be covered by this indemnification without
being subject to the $3 million threshold. Wit SoundView and Wit SoundView
Corporation have agreed to waive failures to satisfy any conditions to the
closing of the merger if any such failure is attributable to these specified
matters and Wit SoundView and Wit SoundView Corporation have also agreed to
waive the right to terminate the amended merger agreement on account of any of
such matters.
EVENTS PRECEDING THE AMENDMENTS TO THE STRATEGIC ALLIANCE AGREEMENT AND MERGER
AGREEMENT
Starting in mid-August 2000, Wit SoundView began to examine the financial
results of E*OFFERING for the quarter ending June 30, 2000. In this connection,
Wit SoundView analyzed and discussed with E*OFFERING whether a material adverse
change in various aspects of the business of E*OFFERING had occurred since
March 31, 2000 and whether there had been any breaches of certain
representations and covenants made by E*OFFERING in the merger agreement.
E*OFFERING has informed Wit SoundView that it does not believe that a material
adverse change, as defined in the merger agreement, or any breaches of its
representations or covenants, had occurred.
After analyzing the preliminary results of its review, Wit SoundView
commenced discussions with E*TRADE, with whom it had begun working in
preparation for the full implementation of the strategic alliance with E*TRADE.
As a result of those discussions, and in order to avoid any unnecessary delays
to the implementation of the strategic alliance, E*TRADE agreed to certain
changes in the strategic alliance. In addition, E*OFFERING agreed to changes in
the merger agreement to provide supplemental indemnification to Wit SoundView.
See "Amendments to the Merger Agreement."
The board of directors of Wit SoundView considered the new information at
meetings on September 12, 19, and 21, 2000. In particular, the board considered
the information developed by Wit SoundView's management relating to the
financial performance of E*OFFERING and the issues raised by Wit SoundView with
E*OFFERING. At the September 12, 2000 meeting, the board received advice from
its accounting, legal and financial advisers. Following these presentations, the
board engaged in a full discussion of the issues presented and the alternatives
available to the company. The board asked its financial adviser, Goldman,
Sachs & Co., to prepare a new analysis of the fairness of the transactions in
light of the decline in the financial results of E*OFFERING for the second
quarter of 2000 and the changes to the strategic alliance under discussion with
E*TRADE.
At the September 19, 2000 meeting, Wit SoundView's management reported on
developments during the preceding week, including the discussions with E*TRADE
relating to the amendment of the strategic alliance. At this meeting, management
presented revised financial projections factoring in the
S-4
<PAGE>
decline in E*OFFERING's revenue for the quarter ending June 30, 2000 and
Goldman, Sachs & Co. discussed its preliminary analysis of the fairness of the
merger and strategic alliance transactions, taken as a unitary transaction. No
decision was reached at this meeting and management was asked to conduct further
due diligence on certain of the issues raised at the meeting.
At the September 21, 2000 meeting, Wit SoundView's management and legal
adviser reported back to the board on the questions raised at the September 19,
2000 meeting and the results of their discussions with E*TRADE, as well as on
the status of the documentation of the proposed changes to the strategic
alliance and the other agreements. After considering the reports from its
advisers, the board discussed open issues and considered management's
recommendations. At the meeting, Goldman, Sachs & Co. indicated that, assuming
the amended merger agreement and amended and restated strategic alliance
agreement were executed substantially in the form presented to the board, and
based upon and subject to various considerations, it was prepared to deliver an
opinion to the effect that the total consideration proposed to be paid by Wit
SoundView pursuant to the amended merger agreement and the amended and restated
strategic alliance agreement, taken as a unitary transaction, was fair from a
financial point of view to Wit SoundView. The opinion of Goldman, Sachs & Co. is
attached as Annex S-A. We encourage you to read it in its entirety. At the
conclusion of the meeting, the board reaffirmed its approval of the merger
agreement subject to completion of the various agreements and receipt of a
fairness opinion.
On September 26, 2000, Wit SoundView and E*TRADE executed an amended and
restated strategic alliance agreement and the parties to the merger agreement
executed the amendment to the merger agreement relating to indemnification and
waivers. On September 26, 2000 Wit SoundView announced the changes that had been
negotiated and indicated that it would adjourn the previously scheduled
stockholder meeting until October 16, 2000 to permit its stockholders to receive
the new information prior to the stockholder meeting.
S-5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS SUPPLEMENT, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTOR IN DETERMINING HOW TO VOTE, IN ADDITION TO THE RISK FACTORS
CONTAINED IN THE PROXY STATEMENT/PROSPECTUS TO WHICH THIS SUPPLEMENT RELATES.
THESE MATTERS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION
INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS SUPPLEMENT AND IN THE PROXY
STATEMENT/PROSPECTUS TO WHICH THIS SUPPLEMENT RELATES.
THE TRANSFER OF RETAIL BROKERAGE ACCOUNTS FROM WIT SOUNDVIEW TO E*TRADE
COULD NEGATIVELY AFFECT THE BUSINESS OF WIT SOUNDVIEW IF THE MERGER IS NOT
COMPLETED.
In order to satisfy one of the conditions to the merger and strategic
alliance, on September 29, 2000, Wit SoundView transferred to E*TRADE
substantially all of Wit SoundView's retail brokerage accounts pursuant to the
account transfer agreement entered into between E*TRADE and Wit SoundView on
May 15, 2000. If the merger is not completed, Wit SoundView may not be able to
utilize these retail brokerage accounts as a means to distribute securities it
is allocated in offerings in which it participates without first reacquiring
these accounts from E*TRADE. Even if E*TRADE agrees to transfer the accounts
back to Wit SoundView, the customers who own these accounts may not agree to
have their accounts transferred back to Wit SoundView. Loss of these accounts
may disrupt Wit SoundView's business by eliminating a major channel for
distributing securities Wit SoundView is allocated in offerings in which it
participates. Procuring new channels for distributing securities may cause Wit
SoundView to incur significant expenses and may take a significant amount of
time. There can be no assurance that Wit SoundView would be able to obtain
substitute channels for distributing securities in a timely manner and on terms
as economically beneficial to Wit SoundView. See "Recent Developments."
RECENT DEVELOPMENTS
On September 29, 2000, Wit SoundView transferred to E*TRADE 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, pursuant to the account transfer agreement entered into
between E*TRADE and Wit SoundView on May 15, 2000. Wit SoundView transferred
these retail brokerage accounts to E*TRADE as additional consideration for the
exclusivity rights under the strategic alliance. Wit SoundView transferred, or
caused to be transferred, to the custody of E*TRADE all fully-paid securities of
each customer who maintained a Wit SoundView retail brokerage account prior to
the transfer and who had not objected to the transfer.
OPINION OF FINANCIAL ADVISOR TO WIT SOUNDVIEW
On September 21, 2000, Goldman Sachs indicated to the board of directors of
Wit SoundView that, assuming the amended merger agreement and amended and
restated strategic alliance agreement were executed substantially in the form
presented to the board on that date and based upon and subject to various
considerations, Goldman Sachs was prepared to deliver an opinion to the effect
that the total consideration proposed to be paid by Wit SoundView pursuant to
the amended merger agreement and the amended and restated strategic alliance
agreement, taken as a unitary transaction, was fair from a financial point of
view to Wit SoundView. Following the execution of definitive agreements on
September 26, 2000, Goldman Sachs delivered its written opinion, dated
September 26, 2000.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED SEPTEMBER 26,
2000, WHICH IDENTIFIES ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX S-A
TO THIS DOCUMENT. STOCKHOLDERS OF WIT SOUNDVIEW ARE URGED TO, AND SHOULD, READ
THIS OPINION IN ITS ENTIRETY.
S-6
<PAGE>
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the amended merger agreement,
- the amended and restated 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 Report on Form 10-K of Wit SoundView for the year ended
December 31, 1999,
- the Annual Report on Form 10-K of E*TRADE for the year ended December 31,
1999,
- audited historical financial statements of E*OFFERING for the fiscal year
ended September 30, 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, including
both audited annual and unaudited quarterly financial statements,
- 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 and certain pro
forma projections for the combined company 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 transaction contemplated by the
amended merger agreement, the amended and restated strategic alliance
agreement and the account transfer agreement.
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, the transaction
contemplated by the amended merger agreement, the amended and restated strategic
alliance agreement and the account transfer agreement 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,
- 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 forecasts and
synergies have been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of Wit SoundView and that the forecasts and
synergies will be realized in the amounts
S-7
<PAGE>
and time periods contemplated thereby. In addition, Goldman Sachs did not make
an independent evaluation or appraisal of the assets and liabilities, contingent
or otherwise, 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 amended
merger agreement, the amended and restated strategic alliance agreement and the
account transfer agreement and its opinion does not constitute a recommendation
as to how any holder of Wit SoundView shares should vote with respect to any
such transaction.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its written opinion dated as of
September 26, 2000, attached as Annex S-A 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, market
value, revenue, operating cash flow and cash net income for Wit SoundView,
E*OFFERING and the pro forma combined company resulting from the merger as of
September 2000 based on:
- management forecasts for Wit SoundView,
- forecasts for E*OFFERING based on Wit SoundView's management projections,
- potential benefits of the transactions contemplated by the amended merger
agreement, the amended and restated strategic alliance agreement and the
account transfer agreement, or synergies, based on Wit SoundView's
management projections, and
- pro forma projections for the combined company, prepared by the management
of Wit SoundView.
Goldman Sachs also analyzed the relative market value, revenue, operating
cash flow, and cash net income 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 and full pretax operating income
synergies in estimated fiscal year 2001, as estimated by the management of Wit
SoundView, of approximately $30 million as of September 2000. The results of the
analyses are summarized as follows:
<TABLE>
<CAPTION>
E*OFFERING PLUS SYNERGIES CONTRIBUTION TO COMBINED: 2001E**
--------------------------------------------------- --------
<S> <C>
Value*...................................................... 25%
Revenue..................................................... 17%
Cash Net Income............................................. 33%
</TABLE>
------------------------
* Includes retention pool.
** Based on projections for Wit SoundView and E*OFFERING as of September 2000
prepared by the management of Wit SoundView and full pretax operating income
synergies of approximately $30 million in estimated fiscal year 2001
prepared by the management of Wit SoundView.
Goldman Sachs then analyzed the relative revenue, net income and cash net
income 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 and full pretax operating
S-8
<PAGE>
income synergies for each of estimated fiscal years 2001, 2002, 2003 and 2004.
The results of the analyses are summarized as follows:
<TABLE>
<CAPTION>
E*OFFERING PLUS SYNERGIES CONTRIBUTION TO COMBINED: 2001E 2002E 2003E 2004E
--------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income........................................ 44% 50% 53% 56%
Cash Net Income................................... 33% 41% 45% 49%
Revenue........................................... 17% 19% 22% 25%
</TABLE>
PRO FORMA MERGER ANALYSIS. Goldman Sachs prepared pro forma analyses of the
financial impact of the merger using revenue, earnings and cash net income
estimates as of September 2000 for Wit SoundView and E*OFFERING prepared by the
management of Wit SoundView. Goldman Sachs compared the estimated revenue, net
income and cash net income per share of Wit SoundView common stock in estimated
fiscal years 2001, 2002, 2003 and 2004 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 full pretax
operating income synergies, an aggregate consideration of $303 million and
excluding any retention pool.
Based on September 2000 management estimates, the proposed transaction would
be:
- accretive to Wit SoundView's stockholders on a net income per share basis
(including amortization of goodwill) in estimated fiscal year 2004, but
dilutive to Wit SoundView's stockholders on a net income per share basis
in each of estimated fiscal year 2001, 2002, 2003,
- accretive to Wit SoundView's stockholders on a cash net income per share
basis (excluding amortization of goodwill) in each of estimated fiscal
year 2001, 2002, 2003 and 2004, and
- accretive to Wit SoundView's stockholders on a revenue per share basis in
estimated fiscal years 2003 and 2004, but dilutive to Wit SoundView's
stockholders on a revenue per share basis in estimated fiscal years 2001
and 2002.
TRANSACTION MULTIPLES ANALYSIS. Goldman Sachs calculated the ratio of the
aggregate consideration offered in the transaction, excluding the retention
pool, to each of the revenue and net income of the combined company for
estimated fiscal year 2001.
Goldman Sachs performed these analyses for Wit SoundView as a combined
company, excluding the retention pool, as of September 2000 assuming:
- an implied aggregate consideration of $303 million,
- no synergies,
- full pretax operating income synergies described above, as estimated by
the management of Wit SoundView, excluding brokerage synergies, and
- full pretax operating income synergies as estimated by the management of
Wit SoundView.
S-9
<PAGE>
The results of these analyses are summarized as follows:
<TABLE>
<CAPTION>
RATIO OF IMPLIED AGGREGATE CONSIDERATION TO ESTIMATED FISCAL YEAR 2001:
-----------------------------------------------------------------------
<S> <C>
REVENUES:
No Synergies................................................... 5.4x
Full Synergies, Excluding Brokerage Synergies.................. 2.9x
Full Synergies................................................. 3.4x
NET INCOME:
No Synergies................................................... 95.6x
Full Synergies, Excluding Brokerage Synergies.................. 20.0x
Full Synergies................................................. 13.2x
</TABLE>
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 proposed to be paid by Wit
SoundView pursuant to the amended merger agreement and the amended and restated
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
amended 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 S-A to
this document.
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 financial advisor in its
acquisition of SoundView Technology Group, Inc. in October 1999 and having acted
as Wit SoundView's financial advisor in connection with, and participating in
the negotiations leading to the amended merger agreement, the amended and
restated strategic alliance agreement and the account transfer agreement.
As of September 26, 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,
S-10
<PAGE>
together representing approximately 15% 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, Goldman Sachs Group, Inc. and
Wit SoundView are parties to an agreement that, among other things, gives
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, 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 September 26, 2000, Goldman Sachs held a long position of
52,304 shares of E*TRADE common stock and $725,254 aggregate principal amount of
E*TRADE 6.0% convertible subordinated notes, against which Goldman Sachs is
short 186,891 shares of E*TRADE common stock, and options to purchase
$11,987,261 aggregate principal amount of E*TRADE 6.0% convertible subordinated
notes.
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 Capital
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 consummation 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.
S-11
<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 supplement to the proxy/statement prospectus. The selected
historical financial data for the nine months ended June 30, 2000 and for the
period from November 13, 1998 (Inception) to June 30, 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 herein. The results of operations for the nine months ended June 30, 2000
(unaudited) and for the period from November 13, 1998 (Inception) to June 30,
1999 (unaudited) 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
supplement to the proxy statement/prospectus.
<TABLE>
<CAPTION>
NINE MONTHS PERIOD FROM PERIOD FROM
ENDED NOVEMBER 13, 1998 NOVEMBER 13, 1998
JUNE 30, (INCEPTION) TO (INCEPTION) TO
2000 JUNE 30, 1999 SEPTEMBER 30, 1999
----------- ------------------ -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
REVENUES:
Investment banking............................ $ 22,325 $ 1,696 $ 7,312
Brokerage..................................... 16,343 2,547 1,208
Interest and other............................ 1,388 387 338
--------- --------- ---------
Total revenues.............................. 40,056 4,630 8,858
--------- --------- ---------
EXPENSES:
Compensation and benefits..................... 29,913 6,609 10,973
Professional services......................... 4,900 499 1,862
Brokerage and clearance....................... 2,065 358 1,005
Data processing and communications............ 2,294 551 1,158
Other expenses................................ 17,625 4,013 7,193
--------- --------- ---------
Total expenses.............................. 56,797 12,030 22,191
--------- --------- ---------
Net loss.................................... (16,741) (7,400) (13,333)
Accretion related to Series B preferred
stock....................................... -- -- 291
--------- --------- ---------
Net loss applicable to common
shareholders.............................. $ (16,741) $ (7,400) $ (13,624)
========= ========= =========
NET LOSS PER COMMON SHARE:
Basic....................................... $ (3.89) $ (1.69) $ (3.04)
Diluted..................................... (3.89) (1.69) (3.04)
WEIGHTED AVERAGE SHARES USED IN THE
COMPUTATION OF NET LOSS PER COMMON SHARE:
Basic....................................... 4,300,007 4,382,161 4,484,005
Diluted..................................... 4,300,007 4,382,161 4,484,005
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 2000 SEPTEMBER 30, 1999
-------------- -------------------
<S> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents and securities readily convertible to
cash...................................................... $21,237 $1,735
Total assets................................................ 45,911 14,025
Total debt-related parties.................................. 5,192 10,500
Stockholders' equity (deficit).............................. 31,466 (1,235)
</TABLE>
S-12
<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 six month period ended June 30, 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 amended and restated strategic alliance agreement, the account
transfer agreement and the stock purchase agreement, each of which is discussed
in the 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 amended and restated 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
and in certain private placements 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 if the exclusivity provisions of the amended and
restated strategic alliance agreement have remained in effect during the fourth
and fifth years of the term of the amended and restated strategic alliance
agreement, and has transferred 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 amended and restated 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 amended strategic
and restated alliance agreement. Those revenues include order flow from
customers of E*TRADE in the stocks we make markets in, increased participation
in public equity offerings, increased economics on public equity offerings and
commission and trading revenue from our customers. It is not expected that the
combined company will continue E*OFFERING's relationships with most of its
institutional brokerage clients. Accordingly, actual brokerage revenue and the
related expenses will differ from the amounts reflected in the pro forma results
of operations.
In addition to the amended and restated 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. On September 29,
2000, Wit SoundView transferred to E*TRADE all right, title and
S-13
<PAGE>
interest in and to substantially all of Wit SoundView's approximately 120,000
retail brokerage accounts and all related properties and rights in and to such
retail brokerage accounts, pursuant to the account transfer agreement.
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 and payments associated
with severance of Wit SoundView and E*OFFERING employees and termination of
related brokerage contracts have been reflected in the pro forma statement of
financial condition on a pre-tax basis.
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 in the proxy statement/ prospectus or
incorporated by reference therein, 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 the 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 in the proxy statement/prospectus.
S-14
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
--------------------- ----------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
REVENUES:
Investment banking................................... $ 130,555 $ 102,785
Brokerage............................................ 79,676 99,773
Asset management fees................................ 7,648 12,857
Interest and investment income....................... 5,530 6,577
Gains from firm investments.......................... 647 15,331
Gain on joint venture................................ -- 943
Other................................................ 198 1,165
------------ -----------
Total revenues..................................... 224,254 239,431
------------ -----------
EXPENSES:
Compensation and benefits............................ 141,544 166,559
Brokerage and clearance.............................. 14,324 21,184
Professional services................................ 7,998 12,007
Marketing and business development................... 9,621 12,503
Amortization of intangible assets.................... 29,598 60,941
Other operating expenses............................. 26,520 33,021
------------ -----------
Total expenses..................................... 229,605 306,215
------------ -----------
Net loss before income tax provision and
equity in net loss of affiliates................... (5,351) (66,784)
Provision (benefit) for income taxes................. 5,132 (5,892)
------------ -----------
Net loss before equity in net loss of affiliates..... (10,483) (60,892)
Equity in net loss of affiliates..................... (6,191) (560)
------------ -----------
Net Loss........................................... $ (16,674) $ (61,452)
============ ===========
NET LOSS PER SHARE:
Basic.............................................. $ (0.16) $ (0.76)
Diluted............................................ (0.16) (0.76)
WEIGHTED AVERAGE SHARES USED IN THE COMPUTATION OF
NET LOSS PER SHARE:
Basic.............................................. 106,108,730 81,179,200
Diluted............................................ 106,108,730 81,179,200
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 2000
(UNAUDITED)
-------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA
Cash, cash equivalents and securities readily convertible
to cash................................................. $ 158,722
Total assets.............................................. 993,930
Stockholders' equity...................................... 810,639
</TABLE>
S-15
<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
supplement 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
JUNE 30, 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)................ $0.13 $(0.48) $(0.52) $(1.23) $(0.41) $(0.33)
Diluted net income (loss) per share(2).............. 0.10 (0.48) (0.52) (1.23) (0.41) (0.33)
Historical book value per share(1).................. 5.43 2.00 1.97 0.68 0.40 0.26
Historical book value per share--diluted(3)......... 5.36 2.24 2.66 0.87 0.68 0.51
</TABLE>
<TABLE>
<CAPTION>
PERIODS ENDED
JUNE 30,
------------------- 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)............................. $(3.89) $(1.69) $(3.04)
Diluted net loss per share(2)........................... (3.89) (1.69) (3.04)
Historical book value per share(1)...................... 1.34 0.53 (0.13)
Historical book value per share--diluted(3)............. 1.19 0.60 0.13
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
JUNE 30, 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)................. $(0.16) $(0.76)
Basic net loss per equivalent E*OFFERING share(4)......... (0.11) (0.51)
Diluted net loss per Wit SoundView share(2)............... (0.16) (0.76)
Diluted net loss per equivalent E*OFFERING share(4)....... (0.11) (0.51)
Book value per Wit SoundView share(1)..................... 6.71 3.93
Book value per equivalent E*OFFERING share(4)............. 4.49 2.63
Book value per Wit SoundView share--diluted(3)............ 6.21 3.87
Book value per equivalent E*OFFERING share(4)............. 4.15 2.59
</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.
S-16
<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 whether or not dilutive.
(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 0.668878865 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 June 30, 1999 for
E*OFFERING.
S-17
<PAGE>
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.
The following analysis of financial condition and results of operations of
E*OFFERING for the period from November 13, 1998 (Inception) to September 30,
1999 have been derived from E*OFFERING's audited consolidated financial
statements. The financial information for the nine months ended June 30, 2000
and for the period from November 13, 1998 (Inception) to June 30, 1999 have been
derived from E*OFFERING's unaudited consolidated financial statements and should
be read in conjunction with the consolidated financial statements and the
related notes thereto included elsewhere in this supplement to the proxy
statement prospectus.
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
NINE MONTHS ENDED (INCEPTION) TO (INCEPTION) TO
JUNE 30, 2000 JUNE 30, 1999 SEPTEMBER 30, 1999
----------------- ----------------- ------------------
<S> <C> <C> <C>
REVENUES:
Investment banking......................... $ 22,325 $ 1,696 $ 7,312
Brokerage.................................. 16,343 2,547 1,208
Interest income............................ 970 174 272
Other...................................... 418 213 66
--------- --------- ---------
Total revenues........................... 40,056 4,630 8,858
--------- --------- ---------
EXPENSES:
Compensation and benefits.................. 29,913 6,609 10,973
Brokerage and clearance.................... 2,065 358 1,005
Marketing and business development......... 2,859 1,748 3,080
Amortization of intangible assets and
goodwill................................. 662 66 132
Professional services...................... 4,900 499 1,862
Data processing and communications......... 2,294 551 1,158
Depreciation and amortization.............. 2,702 105 903
Technology development..................... 4,564 973 993
Occupancy.................................. 2,386 309 528
Other expenses............................. 4,452 812 1,557
--------- --------- ---------
Total expenses........................... 56,797 12,030 22,191
--------- --------- ---------
Net loss................................. (16,741) (7,400) (13,333)
Accretion related to Series B preferred
stock.................................... 0 0 291
--------- --------- ---------
Net loss applicable to common
shareholders............................. $ (16,741) $ (7,400) $ (13,624)
========= ========= =========
NET LOSS PER COMMON SHARE:
Basic.................................... $ (3.89) $ (1.69) $ (3.04)
Diluted.................................. (3.89) (1.69) (3.04)
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
NOVEMBER 13, 1998 NOVEMBER 13, 1998
NINE MONTHS ENDED (INCEPTION) TO (INCEPTION) TO
JUNE 30, 2000 JUNE 30, 1999 SEPTEMBER 30, 1999
----------------- ----------------- ------------------
<S> <C> <C> <C>
WEIGHTED AVERAGE SHARES USED IN THE
COMPUTATION OF NET LOSS PER COMMON SHARE:
Basic.................................... 4,300,007 4,382,161 4,484,005
Diluted.................................. 4,300,007 4,382,161 4,484,005
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 2000 SEPTEMBER 30, 1999
------------- ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities readily convertible
to cash................................................. $21,237 $1,735
Total assets.............................................. 45,911 14,025
Total debt-related parties................................ 5,192 10,500
Stockholders' equity (deficit)............................ 31,466 (1,235)
</TABLE>
On May 15, 2000, E*OFFERING signed an Agreement and Plan of Merger with Wit
SoundView. Under the terms of the merger agreement, Wit SoundView will issue up
to 28,486,247 shares of its common stock to acquire all the outstanding shares
and assume all the outstanding options and warrants of E*OFFERING. The maximum
number of Wit SoundView shares had a value of approximately $292 million, 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 board of directors of Wit SoundView
and E*OFFERING's shareholders have approved the transaction, which is expected
to close in October 2000. Completion is contingent on Wit SoundView
shareholders' approval and other customary closing conditions.
RESULTS OF OPERATIONS
The period from November 13, 1998 (Inception) to June 30, 1999 primarily
reflects E*OFFERING's start up phase. E*OFFERING obtained its broker/dealer
license in April 1999 and accordingly, had just begun to engage in the
investment banking and brokerage activities. By June 30, 1999, the Company
underwrote one offering as the lead manager and participated in a number of
other offerings as an underwriting or syndicate member. Expenses for this period
are primarily comprised of compensation, benefits, technology development,
professional services, marketing and business development, typically indicative
of a business start-up phase and are not considered material compared to the
other periods presented. The management's discussion and analysis that follows
will focus on the periods from November 13, 1998 (Inception) to September 30,
1999 and from October 1, 1999 to June 30, 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 205% from $7.3 million for the period from
November 13, 1998 (Inception) to September 30, 1999 to $22.3 million for the
period from October 1, 1999 to June 30, 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 1,253% from
S-19
<PAGE>
$1.2 million for the period from November 13, 1998 (Inception) to September 30,
1999 to $16.3 million for the period from October 1, 1999 to June 30, 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 securities 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 investments, cash balances
maintained with E*OFFERING's clearing broker and from interest bearing accounts
and cash equivalents at the bank. Interest income increased 257% from $272,000
for the period from November 13, 1998 (Inception) to September 30, 1999 to
$970,000 for the period from October 1, 1999 to June 30, 2000. The increase
resulted from increased short-term investments and cash balances resulting from
the issuance of the Series C preferred stock in January 2000 and from the growth
in E*OFFERING's investment banking and brokerage revenues.
Other income increased 533% from $66,000 for the period from November 13,
1998 (Inception) to September 30, 1999 to $418,000 for the period from
October 1, 1999 to June 30, 2000. The increase was primarily due to account
referral fees which E*OFFERING received for new customer accounts referred to
E*TRADE.
EXPENSES
Compensation and benefits expenses consist of salaries, bonuses and
commissions and benefits E*OFFERING pays and provides to its employees.
Compensation and benefits expenses increased 173% from $11.0 million for the
period from November 13, 1998 (Inception) to September 30, 1999 to
$29.9 million for the period from October 1, 1999 to June 30, 2000. The increase
in compensation primarily reflects the increase in E*OFFERING's commission based
revenues, bonus payments and the increase in number of employees. It also
reflects the one time severance costs associated with the closing of one of
E*OFFERING's Newport Beach, California 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 105% from $1.0 million for
the period from November 13, 1998 (Inception) to September 30, 1999 to
$2.1 million for the period from October 1, 1999 to June 30, 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 slightly decreased 7% from $3.1 million for the
period from November 13, 1998 (Inception) to September 30, 1999 to $2.9 million
for the period from October 1, 1999 to June 30, 2000. The decrease in
promotional and advertising expenses was due to the fact that during the period
from November 13, 1998 (Inception) to September 30, 1999, E*OFFERING launched
significant branding, promotional and advertising activities 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 relating 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 163% from
$1.9 million for the period from November 13, 1998 (Inception) to September 30,
1999 to $4.9 million for the period from October 1, 1999 to June 30, 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 E*OFFERING was
going to be the lead manager. The increase in accounting fees was attributable
to the general ledger system conversion,
S-20
<PAGE>
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 98% from $1.2 million for the period from November 13, 1998
(Inception) to September 30, 1999 to $2.3 million for the period from
October 1, 1999 to June 30, 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. Depreciation and amortization expenses increased 199%
from $903,000 for the period from November 13, 1998 (Inception) to
September 30, 1999 to $2.7 million for the period from October 1, 1999 to
June 30, 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 E*OFFERING's San Francisco office.
Technology development expenses primarily reflect the costs to develop
online products and the technology infrastructure required to support them.
Technology development expenses increased 360% from $993,000 for the period from
November 13, 1998 (Inception) to September 30, 1999 to $4.6 million for the
period from October 1, 1999 to June 30, 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.
Occupancy expenses include costs relating to E*OFFERING's leasing of office
space, furniture and equipment in E*OFFERING's San Francisco and Newport Beach
offices. Occupancy expenses increased 352% from $528,000 for the period from
November 13, 1998 (Inception) to September 30, 1999 to $2.4 million for the
period from October 1, 1999 to June 30, 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,
office supplies, and other miscellaneous expense. Other operating expenses
increased 186% from $1.6 million for the period from November 13, 1998
(Inception) to September 30, 1999 to $4.5 million for the period from
October 1, 1999 to June 30, 2000. The increase in other operating expenses is
primarily attributable to bad debt on uncollectible receivables and certain
other nonrecurring costs, including without limitation, the leasehold
improvements write-off in connection with the closing of one of E*OFFERING's
Newport Beach offices, and settlement of customer complaints.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, E*OFFERING had $21.2 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 12 months.
For the nine months ended June 30, 2000, net cash of $15.6 million used in
operating activities was primarily attributable to the net operating loss and
the decrease in receivables from clearing broker, partially offset by increases
in accounts payable, compensation payable and other liabilities. E*OFFERING's
brokerage revenues are collected and deposited at E*OFFERING's clearing broker
S-21
<PAGE>
and withdrawn as needed for its operations or investments. Net cash of
$23.9 million used in investing activities 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
$42.9 million provided by financing activities was primarily from the proceeds
of the Series C preferred stock financing that was completed in January 2000,
net of the pay down of subordinated debt.
For the period from November 13, 1998 (Inception) to June 30, 1999, net cash
of $15.4 million used in operating activities was primarily attributable to the
net operating loss and an increase in receivables from E*OFFERING's clearing
broker, partially offset by increases in securities sold not yet purchased, due
to clearing broker, accounts payable, compensation payable and other
liabilities. Net cash of $3.8 million used in investing activities was for the
acquisition of Meridian Capital Group, Inc. and the purchase of network and
computer equipment as well as the build-out of leasehold improvements for one of
the Newport Beach, California offices. Net cash of $21.7 million provided by
financing activities was primarily from the proceeds of the issuance of the
Series A and B preferred stock and subordinated debt.
For the period from November 13, 1998 (Inception) to September 30, 1999, net
cash of $13.2 million used in operating activities was as a result of the net
operating loss, increase in receivables from E*OFFERING's 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 as well as the build-out of
leasehold improvements for one of the Newport Beach, California offices. Net
cash of $21.7 million provided from financing activities was primarily from the
proceeds of the issuance of the Series A and B preferred stock and subordinated
debt.
RECENT DEVELOPMENTS
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" and amended by
SFAS No. 138. SFAS No. 133 established accounting and reporting standards for
derivative instruments, including certain instruments embedded in other
contracts and for hedging activities. E*OFFERING has determined that the
adoption of SFAS No. 133 will not have a material impact on its consolidated
financial statements.
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 (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 staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. E*OFFERING has not determined the
effect, if any, of SAB 101 on E*OFFERING's consolidated financial statements.
SUBSEQUENT EVENTS
At the completion of the merger with Wit SoundView, E*OFFERING'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.
S-22
<PAGE>
On July 26, 2000, Wit SoundView announced the plan to terminate
approximately 40% of E*OFFERING's employees effective at the close of the
merger. In August 2000, approximately 20 employees elected the early termination
option and received severance payments of approximately $1.1 million. The
remaining employees will receive severance payments from Wit SoundView
subsequent to the close of the merger.
Since June 2000, in consultation with Wit SoundView, E*OFFERING has taken
the following actions, among others, prior to the close of the merger to promote
the achievement of synergies from E*OFFERING's and Wit SoundView's post-closing
combined business:
- froze hiring in the corporate finance and research departments;
- eliminated the institutional sales and trading department, resulting in
the early termination of approximately 20 employees;
- re-directed co-managed underwriting and private placement opportunities to
Wit SoundView; and
- re-directed the development of expanded functionality and products for
E*OFFERING's web site to reflect the strategic direction of the
post-closing combined business, resulting in a delay in the planned launch
date.
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
counter party 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
June 30, 2000, E*OFFERING did not have material assets and liabilities that 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
counter party 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
S-23
<PAGE>
its trading activities by monitoring the creditworthiness of counter parties 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. See
also notes 12 and 15 to E*OFFERING's consolidated financial statements which are
included elsewhere in this supplement to the proxy statement/prospectus.
S-24
<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 six month period ended June 30, 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 amended and restated strategic alliance agreement, account transfer
agreement and the stock purchase agreement, each of which is discussed in the
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 amended and restated 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
and in certain private placements 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 if the exclusivity provisions of the amended and
restated strategic alliance agreement have remained in effect during the fourth
and fifth years of the term of the amended and restated strategic alliance
agreement, and has transferred 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 amended and restated 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 amended and
restated strategic alliance agreement. Those revenues include order flow from
customers of E*TRADE in the stocks we make markets in, increased participation
in public equity offerings, increased economics on public equity offerings and
commission and trading revenue from our customers. It is not expected that the
combined company will continue E*OFFERING's relationships with most of its
institutional brokerage clients. Accordingly, actual brokerage revenue and the
related expenses will differ from the amounts reflected in the pro forma results
of operations.
In addition to the amended and restated 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. On September 29,
2000, Wit SoundView transferred to E*TRADE all right, title and
S-25
<PAGE>
interest in and to substantially all of Wit SoundView's approximately 120,000
retail brokerage accounts and all related properties and rights in and to such
retail brokerage accounts, pursuant to the account transfer agreement.
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 and payments associated
with severance of Wit SoundView and E*OFFERING employees and termination of
related brokerage contracts have been reflected in the pro forma statement of
financial condition on a pre-tax basis.
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 in the proxy statement/ prospectus or
incorporated by reference therein, 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 the 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 the proxy statement/prospectus.
S-26
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
AS OF JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
WIT SOUNDVIEW E*OFFERING ADJUSTMENTS COMBINED
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.............................. $101,683,112 $ 5,205,121 $ (4,850,000)(A) $131,220,913
41,000,000 (B)
(4,817,320)(C)
(7,000,000)(DD)
Receivable from clearing broker........................ 64,716,088 11,750,312 76,466,400
Securities owned, at market value...................... 40,631,449 16,561,877 57,193,326
Investment banking fees receivable..................... 24,013,602 780,117 24,793,719
Investments............................................ 62,350,382 -- 62,350,382
Investments in affiliates.............................. 21,280,463 -- 21,280,463
Intangible assets...................................... 268,983,970 989,442 275,047,837 (D) 544,031,807
(989,442)(E)
Furniture, equipment, and leasehold improvements, 14,225,481 6,898,507 21,123,988
net..................................................
Computer software, net................................. 3,742,266 2,799,675 (2,300,000)(F) 4,241,941
Deferred tax assets.................................... -- -- 10,627,927 (CC) 10,627,927
Prepaid expenses....................................... 2,542,941 112,720 2,655,661
Other assets........................................... 37,130,523 812,957 37,943,480
------------ ----------- ------------ ------------
Total assets........................................... $641,300,277 $45,910,728 $306,719,002 $993,930,007
============ =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Securities sold, but not yet purchased, at market $ 1,066,814 $ 167,815 $ 1,234,629
value................................................
Accounts payable and accrued expenses.................. 10,093,831 4,002,405 14,096,236
Accrued compensation................................... 103,194,374 3,560,936 5,000,000 (G) 114,980,310
1,900,000 (H)
1,325,000 (H)
Deferred tax liabilities............................... 31,304,300 -- 15,532,196 (I) 46,836,496
Other liabilities...................................... 4,246,914 1,896,237 6,143,151
------------ ----------- ------------ ------------
Total liabilities...................................... 149,906,233 9,627,393 23,757,196 183,290,822
Notes payable.......................................... -- 4,817,320 (4,817,320)(C) --
STOCKHOLDERS' EQUITY:
Total stockholders' equity............................. 491,394,044 31,466,015 (31,466,015)(J) 810,639,185
41,000,000 (B)
(12,162,959)(K)
(5,000,000)(G)
(1,900,000)(H)
(2,300,000)(F)
(989,442)(E)
(7,000,000)(DD)
307,597,542 (L)
------------ ----------- ------------ ------------
Total liabilities and stockholders' equity............. $641,300,277 $45,910,728 $306,719,002 $993,930,007
============ =========== ============ ============
</TABLE>
See notes to pro forma condensed combined financial statements
S-27
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
WIT SOUNDVIEW E*OFFERING(X) ADJUSTMENTS COMBINED
-------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Investment banking.................................. $114,506,995 $ 16,047,869 $130,554,864
Brokerage........................................... 75,427,117 10,879,316 (6,630,517)(N) 79,675,916
Asset management fees............................... 7,647,863 -- 7,647,863
Interest and investment income...................... 4,647,512 882,449 5,529,961
Gains from firm investments......................... 647,317 -- 647,317
Other............................................... (155,140) 352,838 197,698
------------ ------------ ------------ ------------
Total revenues.................................... 202,721,664 28,162,472 (6,630,517) 224,253,619
------------ ------------ ------------ ------------
EXPENSES:
Compensation and benefits........................... 120,647,125 23,107,440 760,417 (O)(i) 141,543,847
2,052,263 (O)(ii)
(5,023,398)(O)(iii)
Brokerage and clearance............................. 12,758,456 1,423,503 (3,532,456)(P) 14,323,727
3,674,224 (M)
Marketing and business development.................. 7,621,634 1,999,812 9,621,446
Amortization of intangible assets................... 6,873,500 603,610 22,120,560 (T) 29,597,670
Professional services............................... 4,478,359 3,626,912 (107,104)(Q) 7,998,167
Data processing and communications.................. 4,341,020 1,795,450 (957,599)(R) 5,178,871
Write-off of computer software and equipment........ 1,339,772 -- 1,339,772
Depreciation and amortization....................... 2,777,536 2,202,520 (78,728)(S) 4,901,328
Technology development.............................. 2,590,201 3,524,082 (1,168,653)(AA) 4,945,630
Occupancy........................................... 1,869,570 1,398,248 3,267,818
Other operating expenses............................ 4,159,134 3,239,970 (325,090)(U) 6,886,622
(187,392)(BB)
------------ ------------ ------------ ------------
Total expenses.................................... 169,456,307 42,921,547 17,227,044 229,604,898
------------ ------------ ------------ ------------
Income (loss) before income taxes................... 33,265,357 (14,759,075) (23,857,561) (5,351,279)
Income tax expense (benefit)........................ 17,291,555 -- (12,159,607)(V) 5,131,948
------------ ------------ ------------ ------------
Income (loss) before equity in net loss of 15,973,802 (14,759,075) (11,697,954) (10,483,227)
affiliates........................................
Equity in net loss of affiliates.................... (6,190,759) -- -- (6,190,759)
------------ ------------ ------------ ------------
Net income (loss)................................... $ 9,783,043 $(14,759,075) $(11,697,954) $(16,673,986)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE
Basic............................................. $ 0.13 $ (0.16)
Diluted........................................... 0.10 (0.16)
WEIGHTED AVERAGE SHARES USED IN THE COMPUTATION OF
NET INCOME (LOSS) PER SHARE
Basic............................................. 76,204,016 106,108,730
Diluted........................................... 98,443,344 106,108,730 (Z)
</TABLE>
See notes to pro forma condensed combined financial statements
S-28
<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 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 1,520,833 (O)(i)
4,104,527 (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 2,594,222 5,969,200 3,939,187
development.....................
Data processing and 3,449,259 3,866,200 1,656,200 (1,691,519)(R)
communications..................
Depreciation and amortization..... 1,609,492 1,697,700 1,401,651 (330,782)(S)
Amortization of intangible -- -- 16,509,092 (Y) 190,530 44,241,120 (T)
assets..........................
Write-down of computer software 5,565,247 -- --
and equipment...................
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 41,275,978
------------ ------------ ----------- ------------ ------------
Income (loss) before income (20,343,476) 39,300,100 (22,061,796) (15,315,273) (48,363,678)
taxes...........................
Income tax expense (benefit)...... -- 16,570,800 (13,833,787)(V) -- (8,629,421)(V)
------------ ------------ ----------- ------------ ------------
Income (loss) before equity in net (20,343,476) 22,729,300 (8,228,009) (15,315,273) (39,734,257)
loss of affiliates..............
Equity in net loss of (560,439) -- -- -- --
affiliates......................
------------ ------------ ----------- ------------ ------------
Net income (loss)............... $(20,903,915) $ 22,729,300 $(8,228,009) $(15,315,273) $(39,734,257)
============ ============ =========== ============ ============
NET LOSS PER SHARE
Basic........................... $ (0.52)
Diluted......................... $ (0.52)
WEIGHTED AVERAGE SHARES USED IN
THE COMPUTATION OF NET 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 on joint venture............. 942,400
Other............................. 1,165,234
------------
Total revenues.................. 239,430,941
------------
EXPENSES:
Compensation and benefits......... 166,559,301
Brokerage and clearance........... 21,183,715
Occupancy......................... 4,882,460
Technology development............ 3,888,135
Professional services............. 12,006,921
Marketing and business 12,502,609
development.....................
Data processing and 7,280,140
communications..................
Depreciation and amortization..... 4,378,061
Amortization of intangible 60,940,742
assets..........................
Write-down of computer software 5,565,247
and equipment...................
Other operating expenses.......... 7,027,733
------------
Total expenses.................. 306,215,064
------------
Income (loss) before income (66,784,123)
taxes...........................
Income tax expense (benefit)...... (5,892,408)
------------
Income (loss) before equity in net (60,891,715)
loss of affiliates..............
Equity in net loss of (560,439)
affiliates......................
------------
Net income (loss)............... $(61,452,154)
============
NET LOSS PER SHARE
Basic........................... $ (0.76)
Diluted......................... $ (0.76)
WEIGHTED AVERAGE SHARES USED IN
THE COMPUTATION OF NET LOSS PER
SHARE
Basic........................... 81,179,200
Diluted......................... 81,179,200 (Z)
</TABLE>
See notes to pro forma condensed combined financial statements
S-29
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
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.......................... $ 86,600,000 5 years
Goodwill.............................................. 188,447,837 7 years
------------
$275,047,837
============
</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 by 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 difference between the book and tax basis of intangible
assets 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.
Deferred taxes have not been recorded for any tax benefit Wit SoundView may
receive upon exercise of non-qualified stock options.
(L) For purposes of determining consideration paid for the pro forma financial
statements, 25,904,714 shares of Wit SoundView's common stock, including
4,025,948 shares issuable to E*TRADE under the amended and restated
strategic alliance agreement, and options and warrants to purchase 6,607,479
shares of common stock, pursuant to the formula for the exchange ratio, were
assumed to be issued and granted at a market price of $9.33. 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
September 19, 2000, the date the parties agreed to amend the merger
agreement.
(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 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.
S-30
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(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 $9.125, the
closing market price of Wit SoundView's stock on September 28, 2000, the
latest practical date before the filing of the 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 $9.125, the closing price of Wit SoundView's common stock
on September 28, 2000, the latest practical date before the filing of the
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.
(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
S-31
<PAGE>
WIT SOUNDVIEW GROUP, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 six months ended June 30, 2000 and calendar year ended December 31,
1999, as derived from E*OFFERING's unaudited consolidated financial
statements.
(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 the valuation allowance for E*OFFERING's deferred
tax assets related to its federal net operating loss carryforwards based
upon the filing of consolidated tax returns for the combined company.
(DD) To adjust for amounts paid and to be paid by Wit SoundView to terminate a
contract related to its retail brokerage operations.
S-32
<PAGE>
EXPERTS
The financial statements of E*OFFERING for the period from November 13, 1998
(Inception) to September 30, 1999 included in this proxy statement/prospectus
supplement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The audited financial statements and schedule of Wit SoundView Group, Inc.
incorporated by reference in this proxy statement/prospectus supplement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are incorporated by
reference in reliance upon the authority of said firm 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. The proxy statement/prospectus as supplemented by this document
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 supplement 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 document, 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 document, except for any information superseded by
information contained directly in this document. The proxy statement/
prospectus, as supplemented by this document, incorporates by reference the
documents set forth at page 92 of the proxy statement/prospectus and those set
forth below, including the exhibits that these documents specifically
incorporated by reference, 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>
Quarterly Report on Form 10-Q................... Quarter ended June 30, 2000
Registration Statement on Form S-8.............. Filed on July 27, 2000
</TABLE>
Wit SoundView also incorporates by reference any additional documents that
may be filed with the SEC from the date of this document 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 supplement 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 the proxy
statement/prospectus. Stockholders may obtain documents incorporated by
reference in the 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
S-33
<PAGE>
If you would like to request documents from us, please do so promptly 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 the 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 the proxy statement/prospectus that is available on the
Web site, none of the information on Wit SoundView's Web site is part of the
proxy statement/prospectus or this supplement.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus supplement to vote on the
transactions. We have not authorized anyone to provide you with information that
is different from what is contained in this document. This proxy
statement/prospectus supplement is dated October 6, 2000. You should not assume
that the information contained in this document is accurate as of any date other
than that date, and neither the mailing of this proxy statement/prospectus
supplement to stockholders nor the issuance of Wit SoundView common stock in the
merger shall create any implication to the contrary.
S-34
<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 June
30, 2000 (Unaudited)
and September 30, 1999.................................... F-3
Consolidated Statements of Operations for the Nine Months
Ended June 30, 2000 (Unaudited), for the Period from
November 13, 1998 (Inception) to June 30, 1999
(Unaudited), and for the Period from November 13, 1998
(Inception) to September 30, 1999......................... F-4
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 2000 (Unaudited), for the Period from
November 13, 1998 (Inception) to June 30, 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 Nine Months Ended June 30, 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 June 30, 2000 and for the Period
from November 13, 1998 (Inception) to June 30, 1999 and
for the Nine Months Ended June 30, 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 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 JUNE 30, 2000 (UNAUDITED) AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
JUNE 30, 2000 SEPTEMBER 30, 1999
ASSETS ------------- ------------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 5,205,121 $ 1,734,966
Short-term investments...................................... 16,031,422
Receivable from clearing broker............................. 11,750,311 4,118,873
Securities owned, at market value........................... 530,455 260,539
Investment banking fees receivable.......................... 480,117 648,584
Intangible assets, less accumulated amortization of $329,820
at June 30, 2000 (unaudited) and $131,928 at September 30,
1999...................................................... 989,442 1,187,334
Furniture, equipment and leasehold improvements, net........ 6,898,506 4,363,808
Computer software and internally developed software, less
accumulated amortization of $519,454 at June 30, 2000
(unaudited) and $99,779 at September 30, 1999............. 2,799,675 498,894
Prepaid expenses............................................ 112,720 126,633
Other assets................................................ 1,112,959 1,085,265
----------- ------------
Total assets................................................ $45,910,728 $ 14,024,896
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Securities sold but not yet purchased, at market value...... $ 167,815 $ 327,998
Due to clearing brokers..................................... 397,369
Accounts payable............................................ 4,002,405 2,700,768
Compensation payable........................................ 3,560,936 713,641
Other liabilities........................................... 1,123,868 1,017,891
Notes payable--related parties.............................. 5,192,320 500,000
Subordinated debt--related party............................ -- 10,000,000
----------- ------------
Total liabilities........................................... 14,444,713 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 June 30, 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, 15,468,442 shares authorized,
15,112,067 shares issued and outstanding, liquidation
preference $52,608,665 (unaudited)........................ 48,103,767 --
Common stock, no par value, 42,578,347 and 27,175,000 shares
authorized, 4,394,153 and 4,806,678 shares issued and
outstanding at June 30, 2000 (unaudited) and September 30,
1999, respectively........................................ 862,582 248,054
Additional paid-in capital.................................. 1,382,592 654,840
Stock subscription receivable............................... (117,421) (114,088)
Accumulated deficit......................................... (30,365,505) (13,624,208)
----------- ------------
Stockholders' equity (deficit).............................. 31,466,015 (1,235,402)
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)........ $45,910,728 $ 14,024,896
=========== ============
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 2000 (UNAUDITED), FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999 (UNAUDITED), AND FOR THE PERIOD
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NOVEMBER 13, 1998 NOVEMBER 13, 1998
NINE MONTHS ENDED (INCEPTION) TO (INCEPTION) TO
JUNE 30, 2000 JUNE 30, 1999 SEPTEMBER 30, 1999
----------------- ------------------ -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Investment banking....................... $ 22,325,195 $ 1,695,982 $ 7,312,144
Brokerage................................ 16,342,992 2,547,305 1,208,067
Interest income.......................... 969,276 173,877 271,730
Other.................................... 418,087 212,414 65,571
------------ ----------- ------------
Total revenues......................... 40,055,550 4,629,578 8,857,512
------------ ----------- ------------
EXPENSES:
Compensation and benefits................ 29,913,000 6,609,159 10,973,191
Brokerage and clearance.................. 2,064,782 357,517 1,004,885
Marketing and business development....... 2,859,334 1,748,382 3,079,665
Amortization of intangible assets and
goodwill............................... 662,212 65,964 131,928
Professional services.................... 4,899,975 499,229 1,861,664
Data processing and communications....... 2,293,691 551,106 1,157,959
Depreciation and amortization............ 2,701,553 104,454 902,618
Technology development................... 4,564,318 972,792 993,246
Occupancy................................ 2,385,696 308,539 528,341
Other expenses........................... 4,452,286 812,377 1,557,066
------------ ----------- ------------
Total expenses......................... 56,796,847 12,029,519 22,190,563
------------ ----------- ------------
Net loss................................. (16,741,297) (7,399,941) (13,333,051)
Series B Preferred Stock Accretion......... 0 0 291,157
------------ ----------- ------------
Net loss applicable to common
shareholders........................... $(16,741,297) $(7,399,941) $(13,624,208)
============ =========== ============
NET LOSS PER COMMON SHARE:
Basic................................ $ (3.89) $ (1.69) $ (3.04)
Diluted.............................. $ (3.89) $ (1.69) $ (3.04)
WEIGHTED AVERAGE SHARES USED IN THE
COMPUTATION OF NET LOSS PER COMMON
SHARE:
Basic................................ 4,300,007 4,382,161 4,484,005
Diluted.............................. 4,300,007 4,382,161 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 NINE MONTHS ENDED JUNE 30, 2000 (UNAUDITED), FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999 (UNAUDITED), AND FOR THE PERIOD
FROM
NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NOVEMBER 13, 1998 NOVEMBER 13, 1998
NINE MONTHS ENDED (INCEPTION) TO (INCEPTION) TO
JUNE 30, 2000 JUNE 30, 1999 SEPTEMBER 30, 1999
----------------- ------------------ -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (before Series B preferred stock accretion)........ $(16,741,297) $ (7,399,941) $(13,333,051)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 2,899,445 170,418 1,034,546
Bad debt provision........................................ 1,311,057
Compensation expense related to stock options and warrant
grants.................................................. 632,752 363,683 363,683
Accrued not to compete.................................... 464,320
Issuance of stock for professional services received...... 2,025 2,025
Contributed salary paid by related party.................. 95,000
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 clearing broker........................... (7,631,439) (23,902,101) (3,873,831)
Securities owned.......................................... (269,916) (24,992) 38,066
Investment banking fees receivable........................ 168,467 (543,260) (648,584)
Prepaid expenses.......................................... 13,913 403,293 326,253
Other assets.............................................. (1,338,751) (908,807) (1,085,265)
Securities sold but not yet purchased..................... (160,183) 11,864,840 324,388
Due to clearing broker.................................... 397,369 1,681,250
Accounts payable.......................................... 1,232,954 1,946,549 1,994,030
Compensation payable...................................... 2,847,295 623,879 617,654
Other liabilities......................................... 105,976 331,923 1,017,891
------------ ------------ ------------
Net cash used in operating activities..................... (15,563,044) (15,391,241) (13,222,195)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Meridian Capital Group Inc., net of cash
acquired of $1,540...................................... (1,009,460) (1,009,460)
Purchase of furniture, equipment, leasehold improvements
and computer software................................... (7,878,342) (2,785,253) (5,765,320)
Purchase of short-term investments........................ (16,031,422)
------------ ------------ ------------
Net cash used in investing activities..................... (23,909,764) (3,794,713) (6,774,780)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subordinated debt............... 5,000,000 10,000,000 10,000,000
Pay-down of subordinated debt............................. (5,000,000)
Pay-down of note payable.................................. (125,000)
Proceeds from issuance of common stock and related
warrants................................................ 53,378 129,378
Proceeds from issuance of preferred stock, Series A....... 1,600,000 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........................................ 42,437,161
Proceeds from exercise of stock options................... 634,135 30,000 5,541
Interest earned on subordinated debt and stockholders
notes receivable........................................ (3,333) (1,296) (2,978)
------------ ------------ ------------
Net cash provided by financing activities................. 42,942,963 21,682,082 21,731,941
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 3,470,155 2,496,128 1,734,966
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,734,966 0 0
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 5,205,121 $ 2,496,128 $ 1,734,966
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
E*OFFERING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED JUNE 30, 2000 (UNAUDITED), FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999 (UNAUDITED), AND FOR THE PERIOD
FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
NOVEMBER 13, 1998 NOVEMBER 13, 1998
NINE MONTHS ENDED (INCEPTION) TO (INCEPTION) TO
JUNE 30, 2000 JUNE 30, 1999 SEPTEMBER 30, 1999
----------------- ----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Income taxes paid.......................... $ 3,200 $ 1,600
Interest paid.............................. 293,628 $ 16,995 426,776
SUPPLEMENTAL DISCLOSURES OF NON-CASH
FINANCING AND INVESTING ACTIVITIES:
Detail of business acquired in purchase
transaction:
Fair value of assets acquired............ 2,317,335 2,317,335
Cash paid for acquisition, net of cash
acquired of $1,540..................... (1,009,460) (1,009,460)
Issuance of note payable................. (500,000) (500,000)
----------- -----------
Liabilities assumed........................ $ 807,875 $ 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
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
Issuance of notes payable in conjunction
with preferred stock, Series C
financing................................ 4,353,000
</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 NINE MONTHS ENDED JUNE 30, 2000 (UNAUDITED) AND
FOR THE PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) TO SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PREFERRED
COMMON STOCK STOCK
--------------------- ------------------------ ADDITIONAL STOCK
PAID IN ACCUMULATED SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE
---------- -------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 13, 1998
(INCEPTION)...................... -- $ 0 -- $ 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 (114,088)
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
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) (114,088)
(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, net of offering costs..... 12,239,561 38,084,160
Issuance of common stock through
exercise of stock options........ 1,038,475 634,135
Accrued interest on stock
subscription receivable.......... (3,333)
Compensation expense on stock
options issued................... 632,752
Contributed salary paid by related
party............................ 95,000
Net loss for the nine months ended
June 30, 2000.................... (16,741,297)
---------- -------- ---------- ----------- ---------- ------------ ---------
BALANCE, JUNE 30, 2000
(UNAUDITED)...................... 4,394,153 $862,582 19,212,067 $59,703,767 $1,382,592 $(30,365,505) $(117,421)
========== ======== ========== =========== ========== ============ =========
<CAPTION>
STOCKHOLDERS'S
EQUITY (DEFICIT)
----------------
<S> <C>
BALANCE, NOVEMBER 13, 1998
(INCEPTION)...................... $ 0
Issuance of common stock........... 84,178
Issuance of common stock through
exercise of stock options........ 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
Net loss from November 13, 1998
(Inception) to September 30,
1999............................. (13,333,051)
------------
BALANCE, SEPTEMBER 30, 1999........ (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, net of offering costs..... 38,084,160
Issuance of common stock through
exercise of stock options........ 634,135
Accrued interest on stock
subscription receivable.......... (3,333)
Compensation expense on stock
options issued................... 632,752
Contributed salary paid by related
party............................ 95,000
Net loss for the nine months ended
June 30, 2000.................... (16,741,297)
------------
BALANCE, JUNE 30, 2000
(UNAUDITED)...................... $ 31,466,015
============
</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 JUNE 30, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999 AND FOR THE NINE MONTHS ENDED
JUNE 30, 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 June 30, 2000 and for
the period from November 13, 1998 (Inception) to June 30, 1999 and for the nine
months ended June 30, 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 nine months ended June 30, 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 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. The Company purchased Meridian Capital Group, Inc. (Meridian), a
securities broker/dealer, in March 1999. 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 June 30, 2000
(unaudited) due to the related party nature of the underlying transactions with
the shareholders of the Company.
CASH EQUIVALENTS--The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
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 JUNE 30, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999 AND FOR THE NINE MONTHS ENDED
JUNE 30, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHORT-TERM INVESTMENTS--Short-term investments consist 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 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 and June 30, 2000 (unaudited) that were not readily
marketable.
INVESTMENT BANKING--Investment banking revenues consisting of corporate
finance revenues are recognized and recorded upon closure of the financing
effort. Such revenues are accrued for in investment banking fee receivable 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 brokers/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 and related interpretations.
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 JUNE 30, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999 AND FOR THE NINE MONTHS ENDED
JUNE 30, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES--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 consisting of goodwill, resulting from
the acquisition of Meridian, are 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 consolidated 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 nine months ended
June 30, 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, as amended by SFAS No. 138, established
accounting and reporting standards for derivative instruments, including certain
instruments embedded in other contracts, and for hedging activities. The Company
has determined that the adoption of this standard, as amended by SFAS No. 138,
will not have a material affect on the Company's consolidated financial
statements.
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
nine months ended June 30, 2000 (unaudited) and for the period from
November 13, 1998 (Inception) to September 30, 1999.
In December 1999, the Securities Exchange Commission (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, of SAB 101 on the Company's
consolidated financial statements.
CONCENTRATION OF CREDIT RISK--The Company is engaged in various trading and
brokerage activities. Counterparties to these activities primarily include
brokers/dealers, banks, and other financial institutions. In the event that
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
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 JUNE 30, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999 AND FOR THE NINE MONTHS ENDED
JUNE 30, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
issuer of the instrument. It is the 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
PERIOD NOVEMBER 13,
NOVEMBER 13, 1998
1998 (INCEPTION) TO
NINE MONTHS ENDED (INCEPTION) TO SEPTEMBER 30,
JUNE 30, 2000 JUNE 30, 1999 1999
----------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net loss applicable to common stockholders
(numerator), basic and diluted.................. $(16,741,297) $(7,399,941) $(13,624,208)
============ =========== ============
Shares (denominator):
Weighted average common shares outstanding used
in computation, basic and diluted............... 4,300,007 4,382,161 4,484,005
============ =========== ============
Net loss per common share, basic and diluted...... $ (3.89) $ (1.69) $ (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 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
PERIOD NOVEMBER 13,
NOVEMBER 13, 1998
1998 (INCEPTION) TO
NINE MONTHS ENDED (INCEPTION) TO SEPTEMBER 30,
JUNE 30, 2000 JUNE 30, 1999 1999
----------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Convertible preferred stock.................... 19,212,067 4,100,000 4,100,000
Options outstanding............................ 3,793,775 4,408,999 4,097,624
Warrants....................................... 4,525,894 2,875,000 2,875,000
----------- ----------- -----------
Total.......................................... 27,531,736 11,383,999 11,072,624
=========== =========== ===========
Weighted average exercise price of options..... $ 0.62 $ 0.39 $ 0.46
=========== =========== ===========
Weighted average exercise price of warrants.... $ 0.95 $ 1.12 $ 1.12
=========== =========== ===========
</TABLE>
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 JUNE 30, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999 AND FOR THE NINE MONTHS ENDED
JUNE 30, 2000)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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
consolidated financial statements from the date of acquisition.
The following unaudited pro forma information presents the consolidated
statements of operations of the Company as if the acquisition had taken place
for the fiscal 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 accompanying
consolidated statement of financial condition, at September 30, 1999, consists
of $257,864 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).
F-12
<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 JUNE 30, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999 AND FOR THE NINE MONTHS ENDED
JUNE 30, 2000)
4. FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Furniture, equipment, and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
JUNE 30,2000 SEPTEMBER 30, 1999
------------ ------------------
(UNAUDITED)
<S> <C> <C>
Computer and office equipment............................... $8,234,365 $4,078,887
Furniture and fixtures...................................... 351,289 351,289
Leasehold improvements...................................... 1,319,198 736,471
---------- ----------
9,904,852 5,166,647
Less accumulated depreciation and amortization.............. (3,006,346) (802,839)
---------- ----------
Total furniture, equipment, and leasehold improvements,
net....................................................... $6,898,506 $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 November 13, 1998 (Inception) to
September 30, 1999, is recorded as interest expense in the accompanying
consolidated statement of operations. On October 13, 1999, with the approval of
the National Association of Securities Dealers, Inc. (NASD) and E*TRADE, the
Company agreed to exchange the debt 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.
On January 12, 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 (unaudited). Interest on such note, which
amounted to $189,593, was recorded as interest expense in the accompanying
consolidated statement of operations for the nine months ended June 30, 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 on April 20, 2000 and 2001. Of the first $250,000 installment, $125,000
was paid in April 2000 (unaudited), and the remaining $125,000 has been withheld
to offset against liabilities not disclosed on Meridian's closing balance sheet
(Note 12).
In connection with the issuance of the Series C preferred stock on
January 12, 2000 (unaudited), the Company issued notes payable totaling
$4,353,000 to certain founding shareholders for the
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 JUNE 30, 2000 AND FOR THE PERIOD FROM
NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999 AND FOR THE NINE MONTHS ENDED
JUNE 30, 2000)
6. NOTE PAYABLE--RELATED PARTIES (CONTINUED)
redemption of 1,451,000 shares of common stock. The notes bear interest at 8%
per annum, compounded semi-annually. Interest on such notes, which amounted to
$187,392 for the nine months ended June 30, 2000 (unaudited), was recorded as
interest expense in the accompanying consolidated statement of operations. 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 shares 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 of Directors 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 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 nine months ended June 30, 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.
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 JUNE 30, 2000
AND FOR THE PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000)
7. RELATED PARTIES (CONTINUED)
During the nine month period ended June 30, 2000 (unaudited), the Company
paid $200,000 for advertising to E*TRADE. E*TRADE paid the compensation for the
interim president without reimbursement from the Company. Such services, which
were computed to be $95,000, were recorded as salary expenses and an increase in
additional paid-in-capital in the accompanying consolidated financial
statements.
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
at September 30, 1999 are as follows:
<TABLE>
<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>
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 June 30, 2000 (unaudited) and September 30, 1999, the Company had
approximately $27,260,000 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 had 27,175,000 shares of common stock and
15,200,000 shares of preferred stock authorized. Of the preferred stock, the
Company designated 1,600,000 shares
F-15
<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 JUNE 30, 2000
AND FOR THE PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000)
9. STOCKHOLDERS' EQUITY (CONTINUED)
as Series A preferred stock, 3,300,000 shares as Series B preferred stock, and
the remaining 10,300,000 shares 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 June 30, 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 were declared as of
June 30, 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.
On December 22, 1998, the Company issued a warrant to a common shareholder
to purchase 2,075,000 shares of common stock. At the option of the warrant
holder, the warrant may be exercised at $0.0135132 per common share. The value
ascribed to such warrant was $21,425 and was recorded in the accompanying
consolidated financial statements. Such warrant expires on December 22, 2003.
On February 10, 1999, the Company issued Class A warrants to the Series B
preferred shareholder 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 Series B
preferred stock. The value ascribed to the Class A and B warrants were $28,947
and $262,210, respectively, and were 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 on 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.
On October 14, 1999, the Company filed the second Amended and Restated
Articles of Incorporation. The amendment authorized 29,675,000 shares of common
stock and 17,700,000 shares of
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 JUNE 30, 2000
AND FOR THE PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000)
9. STOCKHOLDERS' EQUITY (CONTINUED)
preferred stock. Of the preferred stock, the Company designated 1,600,000 shares
as Series A preferred stock, 5,800,000 shares as Series B preferred stock, and
the remaining 10,300,000 shares to be used for additional preferred series.
In May 2000 (unaudited), the Company filed the fifth Amended and Restated
Articles of Incorporation. The amendment updated the number of common stock and
Series A, B and C preferred stock to be 42,578,347, 1,600,000, 5,800,000, and
15,468,442 shares, 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 on
January 12, 2000 (unaudited) the following transactions occurred: i) the warrant
for the purchase of 2,075,000 shares of common stock was amended to reduce the
number of shares of common stock that is purchasable thereunder to 1,000,000
shares; 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 stock
at $0.40 per share-such warrant expires on January 13, 2005; iii) the Company
redeemed 1,451,000 shares from certain founding shareholders of the Company; and
iv) certain founders from which the common stock had been redeemed entered into
non-compete agreements which expire on January 13, 2001.
10. STOCK OPTION PLANS
The Company's stock option plans provide 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 Option
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. The
Company ceased to grant options under the 1998 Plan on September 30, 1999.
On April 18, 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
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.
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 JUNE 30, 2000
AND FOR THE PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000)
10. STOCK OPTION PLANS (CONTINUED)
A summary of stock option activity under the 1998 Plan and the 2000 Plan are
as follows:
<TABLE>
<CAPTION>
PERIOD
NOVEMBER 13, 1998
NINE MONTHS ENDED (INCEPTION) TO
JUNE 30, 2000 SEPTEMBER 30, 1999
----------------------------- --------------------------
(UNAUDITED) WEIGHTED
WEIGHTED AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- ---------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding options at beginning of
period................................... 4,097,624 $0.46 -- $ --
Options granted............................ 2,181,500 0.80 5,049,277 0.45
Less options cancelled..................... (1,446,874) (0.45) (544,975) (0.35)
Less options exercised..................... (1,038,475) (0.62) (406,678) (0.39)
---------- ---------
Outstanding options at end of period....... 3,793,775 0.62 4,097,624 0.46
========== =========
</TABLE>
The following table summarizes information on outstanding and exercisable
options as of June 30, 2000 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
RANGE OF EXERCISABLE PRICES OUTSTANDING LIFE (IN MONTHS) EXERCISE PRICE EXERCISABLE PRICE
--------------------------- ----------- ---------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10-$0.40........ 2,157,650 49.99 $0.40 601,225 $0.39
$0.80.............. 1,530,000 55.99 0.80 2,750 0.80
$2.28.............. 59,975 48.87 2.28 9,060 2.28
$2.59.............. 46,150 49.90 2.59 6,375 2.59
--------- -------
$0.10-$2.59........ 3,793,775 52.39 0.62 619,410 0.45
========= =======
</TABLE>
The following table summarizes information on outstanding and exercisable
options as of September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
RANGE OF EXERCISABLE PRICES OUTSTANDING LIFE (IN MONTHS) EXERCISE 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>
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 JUNE 30, 2000
AND FOR THE PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000)
10. STOCK OPTION PLANS (CONTINUED)
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
of $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.
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 $17,087,793 and $13,399,889 for the nine months
ended June 30, 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 June 30, 1999 (unaudited) and
for the period November 13, 1998 (Inception) to September 30, 1999 was $0.68 and
$0.80 per share, respectively.
F-19
<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 JUNE 30, 2000
AND FOR THE PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000)
10. STOCK OPTION PLANS (CONTINUED)
Two shareholders exercised their stock options in the form of unsecured
notes receivable. Such shareholders' notes, which include principal and interest
of $117,421 and $114,088 as of June 30, 2000 (unaudited) and September 30, 1999,
respectively, bear interest at 6% per annum and mature in April 2001.
11. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) 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 and for the nine months ended June 30, 2000
(unaudited), the Company did not contribute to the 401(k) Plan.
The Company also has a Cafeteria Plan (the 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.
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. As discussed in Note 6, any settlement that arises
from these actions will be offset against the remaining $375,000 note payable to
Meridian.
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
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 JUNE 30, 2000
AND FOR THE PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000)
12. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
financial statements. In addition, the note payable to Meridian is in excess of
such claims brought against the former Meridian.
On April 3, 2000 (unaudited), a former officer of the Company filed a
complaint against the Company. The complaint alleges that the employee was
entitled to accelerated vesting of his remaining options to purchase 106,250
shares of the Company common stock based upon certain triggering conditions. The
Company denies the employee's claims and has raised affirmative defenses.
Also, see Note 15, Subsequent Events.
LEASES--The Company leases three office facilities, which expire at various
dates through August 2001. At September 30, 1999, aggregate minimum commitments
under these leases, and two equipment leases which will expire at various dates
through September 2004, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30:
-------------------------
<S> <C>
2000........................................................ $1,548,174
2001........................................................ 605,401
2002........................................................ 46,676
2003........................................................ 46,676
2004........................................................ 42,152
----------
$2,289,079
==========
</TABLE>
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 nine months ended June 30, 2000 (unaudited). The
second lease is from E*TRADE, which expired on November 30, 1999. Future
commitments under this lease amount to $21,200, which are included in the
schedule above. Total rent paid from November 13, 1998 (Inception) to
September 30, 1999 amounted to $127,200. In addition, at September 30, 1999, 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.
The Company closed one of its Newport Beach offices in November 1999. 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 had 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 included services performed
through September 30, 1999, and paid $920,303 during the nine months ended
June 30, 2000 (unaudited).
The Company had an agreement with an employee which provided for 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 accrued for such bonus on a straight-line method,
over the life of the employment contract. At September 30, 1999, the Company
recorded
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 JUNE 30, 2000
AND FOR THE PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000)
12. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
$500,000 in salaries, commissions and bonuses payable in the accompanying
consolidated statements of financial condition and the related expense in
employee compensation and benefits in the accompanying consolidated statements
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
June 30, 2000 (unaudited), the Company had net capital of $18,920,921, which was
$17,995,620 in excess of the required net capital. The Company's aggregate
indebtedness to net capital ratio was .73 to 1 at June 30, 2000 (unaudited).
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/dealer that carries no customer 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/dealers.
15. SUBSEQUENT EVENTS
The Company was in the process of negotiating with outside parties for an
equity investment in the Series C preferred stock for an approximate amount of
$40,000,000, which was expected to close in January 2000 (See Note 9).
Meanwhile, effective October 13, 1999, E*TRADE provided to the Company an
additional temporary subordinated debt agreement in the amount of $5,000,000
maturing on November 28, 1999. The subordinated debt, bearing interest at 15%
per annum, can be renewed for up to a 45-day period.
In October 1999, the Company paid $50,000 for legal services provided to a
common shareholder of the Company.
The Company closed one of its Newport Beach offices in November 1999,
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 (the
Agreement) with Wit SoundView Group, Inc. (Wit SoundView) Under the terms of the
Agreement, Wit SoundView will
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 JUNE 30, 2000
AND FOR THE PERIOD FROM NOVEMBER 13, 1998 (INCEPTION) TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 2000)
15. SUBSEQUENT EVENTS (CONTINUED)
issue up to 28,486,247 shares of its common stock to acquire all the outstanding
shares and assume all the outstanding options and warrants of the Company. The
maximum number of Wit SoundView shares had a value of approximately
$292 million, or $10.25 per share, at the close of trading on May 12, 2000, the
last trading day before the Agreement was signed. The board of directors of Wit
SoundView and the Company's shareholders have approved the transaction, which is
expected to close in October 2000. Completion is contingent on Wit SoundView
shareholders' approval and other customary closing conditions.
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.
On September 26, 2000, several terms of the Agreement and Plan of Merger
with Wit SoundView were modified, including certain terms of the 10%, one-year
escrow arrangement. The Company is currently reviewing, with the assistance of
outside legal counsel, whether the levels of commissions paid by customers of
the Company in certain secondary market transactions were in compliance with
applicable regulatory standards. The $3 million threshold before which claims
made by Wit SoundView will be indemnified will not be applicable to any
indemnification claims related to this matter. As of October 4, 2000, the
Company had not determined whether any of the commissions paid did not comply
with such standards, or whether any liabilities would result from this matter,
and its review is continuing. Accordingly, no provision for this matter was made
in the accompanying financial statements.
On July 26, 2000, Wit SoundView announced the plan to terminate
approximately 40% of the Company's employees effective at the close of the
merger. In August 2000, approximately 20 employees elected the early termination
option and received severance payments of approximately $1,100,000. The
remaining employees will receive severance payments from Wit SoundView
subsequent to the close of the merger.
Since June 2000, in consultation with Wit SoundView, E*OFFERING has taken
the following actions, among others, prior to the close of the merger to promote
the achievement of synergies from E*OFFERING's and Wit SoundView's post-closing
combined business:
- froze hiring in the corporate finance and research departments;
- eliminated the institutional sales and trading department, resulting in
the early termination of approximately 20 employees;
- re-directed co-managed underwriting and private placement opportunities to
Wit SoundView; and
- re-directed the development of expanded functionality and products for the
Company's web site to reflect the strategic direction of the post-closing
combined business, resulting in a delay in the planned launch date.
F-23
<PAGE>
ANNEX S-A
[LOGO]
PERSONAL AND CONFIDENTIAL
September 26, 2000
Board of Directors
Wit SoundView Group, Inc.
826 Broadway
New York, NY 10003
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to Wit SoundView Group, Inc. (the "Company") of the Total Consideration (as
defined below) proposed to be paid by the Company pursuant to the Agreement and
Plan of Merger, dated as of May 15, 2000, as amended as of September 26, 2000
(the "Merger Agreement"), among the Company, Wit SoundView Corp., a wholly-
owned subsidiary of the Company, and E*Offering Corp. ("E*Offering"), and the
related Amended and Restated Strategic Alliance Agreement, dated as of
September 26, 2000 (the "Strategic Alliance Agreement"), among the Company and
E*Trade Group, Inc. ("E*Trade"). Pursuant to the Merger Agreement and the
Strategic Alliance Agreement, Wit SoundView Corp. will merge with and into
E*Offering (the "Merger") and the Company will issue (or reserve for issuance)
32,512,195 shares (the "Stock Consideration") of Common Stock, par value $0.01
per share, of the Company (the "Shares") and 2,000,000 warrants to purchase
Shares (the "Warrant Consideration" and, collectively with the Stock
Consideration, the "Total Consideration"). We understand that all of the
Warrants and 4,025,948 of the Shares comprising the Stock Consideration have
been allocated for issuance to E*Trade pursuant to the Strategic Alliance
Agreement, as to which allocation we are expressing no opinion.
Goldman, Sachs & Co. ("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. We are familiar with the Company, having provided various
investment banking services to the Company from time to time, including having
acted as the Company's financial advisor in its acquisition of SoundView
Technology Group, Inc. in October 1999, and having acted as the Company's
financial advisor in connection with, and having participated in certain of the
negotiations leading to, the Merger Agreement, the Strategic Alliance Agreement
and the Account Transfer Agreement, dated as of May 15, 2000, between the
Company and E*Trade (the "Account Transfer Agreement" and, collectively with the
Merger Agreement and the Strategic Alliance Agreement, the "Agreements"). As of
the date hereof, an affiliate of Goldman Sachs, The Goldman Sachs Group, Inc.,
owned approximately 11,666,666 shares of the Company's Class B
S-A-1
<PAGE>
Wit SoundView Group, Inc.
September 26, 2000
Page Two
Common Stock, par value $0.01 per share (the "Class B Common Stock"), and
warrants to purchase approximately 5,637,295 shares of the Company's Class B
Common Stock, together representing approximately 15% of the fully diluted
capital stock of the Company. The warrants may be exercised beginning in
October 2000. In connection with its investment in the Company, the Company and
Goldman Sachs Group, Inc. are parties to an agreement that, among other things,
gives Goldman Sachs Group, Inc. a right of first refusal to purchase additional
shares of common equity before the Company sells 5.0% of its fully diluted
common equity to certain designated competitors of Goldman Sachs. Moreover,
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 the Company's fully diluted common
equity. Goldman Sachs may provide investment banking services to the Company or
E*Trade in the future. Goldman Sachs provides a full range of financial advisory
and securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of the Company or E*Trade for its own account and for the accounts
of customers. As of the date hereof, Goldman Sachs held a long position of
52,304 shares of E*Trade common stock and $725,254 aggregate principal amount of
E*Trade 6.0% convertible subordinated notes, against which Goldman Sachs is
short 186,891 shares of E*Trade common stock and $11,987,261 aggregate principal
amount of E*Trade 6.0% convertible subordinated notes.
In connection with this opinion, we have reviewed, among other things, the
Agreements; the Registration Statement on Form S-1 of the Company relating to
the initial public offering of the Company, including the Prospectus contained
therein dated June 4, 1999; the Annual Report on Form 10-K of the Company for
the year ended December 31, 1999; the Annual Report on Form 10-K of E*Trade for
the year ended December 31, 1999; audited historical financial statements of
E*Offering for the fiscal year ended September 31, 1999; certain interim reports
to stockholders and Quarterly Reports on Form 10-Q of the Company and E*Trade;
certain other communications from the Company to its stockholders; certain
financial and other information related to E*Offering including both audited and
unaudited quarterly financial statements; certain internal financial analyses
and forecasts for E*Offering prepared by the management of E*Offering; certain
internal financial analyses and forecasts for the Company prepared by the
management of the Company; certain internal financial analysis and forecasts for
E*Offering and certain pro forma projections for the combined company prepared
by the management of the Company (the "Forecasts"); and certain cost savings and
operating synergies (the "Synergies") projected by the management of the Company
to result from the transaction contemplated by the Agreements. We also have held
discussions with members of the senior managements of the Company, E*Trade and
E*Offering regarding their assessment of the strategic rationale for, and the
potential benefits of, the transaction contemplated by the Agreements and the
current business operations, financial condition and future prospects of their
respective companies. In addition, we have compared certain financial and other
information for E*Offering and certain financial and stock market information
for the Company with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the brokerage and internet industries
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed with your consent that the Forecasts and Synergies have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the Company and that the Forecasts and the Synergies
will be realized in the amounts and time periods contemplated thereby. In
addition, we have not made an independent evaluation or appraisal of the assets
S-A-2
<PAGE>
Wit SoundView Group, Inc.
September 26, 2000
Page Three
and liabilities, contingent or otherwise, of the Company or E*Offering or any of
their subsidiaries and we have not been furnished with any such evaluation or
appraisal. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreements and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to any such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Total
Consideration proposed to be paid by the Company pursuant to the Merger
Agreement and the Strategic Alliance Agreement, taken as a unitary transaction,
is fair from a financial point of view to the Company.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
---------------------------------------
GOLDMAN, SACHS & CO.
S-A-3
<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).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
2.2+ Amendment Agreement by and among Wit SoundView Group, Inc.,
Wit SoundView Corporation and E*OFFERING Corp., dated as of
September 26, 2000.
3.1 Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Wit SoundView Group, Inc. (Incorporated
by reference to Exhibit 3.1 to the proxy
statement/prospectus)
3.2 By-Laws of Wit SoundView Group, Inc. (Incorporated by
reference to Exhibit 3.2 to the proxy statement/prospectus).
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. (Incorporated by reference to Exhibit 4.2
to the proxy statement/prospectus).
5.1 Opinion of Skadden, Arps, Slate, Meagher and Flom LLP
regarding the legality of the securities being issued.
(Incorporated by reference to Exhibit 5.1 to the proxy
statement/ prospectus).
8.1 Opinion of Skadden, Arps, Slate, Meagher and Flom LLP
regarding certain tax matters. (Incorporated by reference to
Exhibit 8.1 to the proxy statement/prospectus).
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. (Incorporated by
reference to Exhibit 10.2(a) to the proxy
statement/prospectus).
10.2(b) E*OFFERING Corp. 2000 Stock/Stock Issuance Option Plan.
(Incorporated by reference to Exhibit 10.2(b) to the proxy
statement/prospectus).
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. (Incorporated by reference to Exhibit 10.5
to the proxy statement/prospectus).
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.).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
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.).
10.14(a)++ Strategic Alliance Agreement, dated as of May 15, 2000, by
and between E*TRADE Group, Inc. (Incorporated by reference
to Exhibit 10.14 to the proxy statement/ prospectus).
10.14(b)+ Amended and Restated Strategic Alliance Agreement, dated as
++ of September 26, 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.
(Incorporated by reference to Exhibit 10.15 to the proxy
statement/prospectus).
10.16 Standstill Agreement, dated as of May 15, 2000, by and
between E*TRADE Group Inc. and Wit SoundView Group, Inc.
(Incorporated by reference to Exhibit 10.16 to the proxy
statement/prospectus).
10.17 Form of Escrow Agreement by and among E*TRADE Group Inc.,
Wit SoundView Group, Inc. and Escrow Agent. (Incorporated by
reference to Exhibit 10.17 to the proxy
statement/prospectus).
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. (Incorporated by reference to Exhibit 10.18 to the
proxy statement/ prospectus).
10.19 E*OFFERING Corp. 2000 Restricted Stock Plan. (Incorporated
by reference to Exhibit 10.19 to the proxy
statement/prospectus).
10.20 E*OFFERING Corp. 2000 Restricted Stock Plan Restricted Stock
Agreement (Incorporated by reference to Exhibit 10.20 to the
proxy statement/prospectus.)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<C> <S>
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 Annex S-A to
the proxy statement/ prospectus supplement contained in this
post-effective amendment).
99.2 Form of Proxy Card (Incorporated by reference to
Exhibit 99.2 to the proxy statement/ prospectus).
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).
99.5 Press Release (Incorporated by reference to Wit SoundView's
filing under Rule 425, dated September 28, 2000).
</TABLE>
------------------------
+ Filed herewith.
++ Confidential treatment has been requested for certain portions of this
document.
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 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.
II-4
<PAGE>
(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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this post-effective amendment 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 5th day of October, 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 October 5, 2000
Robert H. Lessin and Director
/s/ RONALD READMOND
------------------------------------------- Director October 5, 2000
Ronald Readmond
/s/ ANDREW D. KLEIN
------------------------------------------- Director October 5, 2000
Andrew D. Klein
/s/ JOHN H. N. FISHER
------------------------------------------- Director October 5, 2000
John H. N. Fisher
/s/ EDWARD H. FLEISCHMAN
------------------------------------------- Director October 5, 2000
Edward H. Fleischman
------------------------------------------- Director October 5, 2000
Steven M. Gluckstern
/s/ JOSEPH R. HARDIMAN
------------------------------------------- Director October 5, 2000
Joseph R. Hardiman
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GILBERT C. MAURER
------------------------------------------- Director October 5, 2000
Gilbert C. Maurer
/s/ RUSSELL D. CRABS
------------------------------------------- Director October 5, 2000
Russell D. Crabs
/s/ CURTIS L. SNYDER
------------------------------------------- Chief Financial Officer October 5, 2000
Curtis L. Snyder
</TABLE>
II-7
<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).
2.2+ Amendment Agreement by and among Wit SoundView Group, Inc.,
Wit SoundView Corporation and E*OFFERING Corp., dated as of
September 26, 2000.
3.1 Certificate of Amendment of Amended and Restated Certificate
of Incorporation of Wit SoundView Group, Inc. (Incorporated
by reference to Exhibit 3.1 to the proxy statement/
prospectus)
3.2 By-Laws of Wit SoundView Group, Inc. (Incorporated by
reference to Exhibit 3.2 to the proxy statement/prospectus).
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. (Incorporated by reference to Exhibit 4.2
to the proxy statement/prospectus).
5.1 Opinion of Skadden, Arps, Slate, Meagher and Flom LLP
regarding the legality of the securities being issued.
(Incorporated by reference to Exhibit 5.1 to the proxy
statement/ prospectus).
8.1 Opinion of Skadden, Arps, Slate, Meagher and Flom LLP
regarding certain tax matters. (Incorporated by reference to
Exhibit 8.1 to the proxy statement/prospectus).
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. (Incorporated by
reference to Exhibit 10.2(a) to the proxy
statement/prospectus).
10.2(b) E*OFFERING Corp. 2000 Stock/Stock Issuance Option Plan.
(Incorporated by reference to Exhibit 10.2(b) to the proxy
statement/prospectus).
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. (Incorporated by reference to Exhibit 10.5
to the proxy statement/prospectus).
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.).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------------------------------- -----------
<C> <S>
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.).
10.14(a)++ Strategic Alliance Agreement, dated as of May 15, 2000, by
and between E*TRADE Group, Inc. (Incorporated by reference
to Exhibit 10.14 to the proxy statement/ prospectus).
10.14(b)+ Amended and Restated Strategic Alliance Agreement, dated as
++ of September 26, 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.
(Incorporated by reference to Exhibit 10.15 to the proxy
statement/prospectus).
10.16 Standstill Agreement, dated as of May 15, 2000, by and
between E*TRADE Group Inc. and Wit SoundView Group, Inc.
(Incorporated by reference to Exhibit 10.16 to the proxy
statement/prospectus).
10.17 Form of Escrow Agreement by and among E*TRADE Group Inc.,
Wit SoundView Group, Inc. and Escrow Agent. (Incorporated by
reference to Exhibit 10.17 to the proxy
statement/prospectus).
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. (Incorporated by reference to Exhibit 10.18 to the
proxy statement/ prospectus).
10.19 E*OFFERING Corp. 2000 Restricted Stock Plan. (Incorporated
by reference to Exhibit 10.19 to the proxy
statement/prospectus).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------------------------------- -----------
<C> <S>
10.20 E*OFFERING Corp. 2000 Restricted Stock Plan Restricted Stock
Agreement (Incorporated by reference to Exhibit 10.20 to the
proxy statement/prospectus.)
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 Annex S-A to
the proxy statement/ prospectus supplement contained in this
post-effective amendment).
99.2 Form of Proxy Card (Incorporated by reference to
Exhibit 99.2 to the proxy statement/ prospectus).
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).
99.5 Press Release (Incorporated by reference to Wit SoundView's
filing under Rule 425, dated September 28, 2000).
</TABLE>
------------------------
+ Filed herewith.
++ Confidential treatment has been requested for certain portions of this
document.
