<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
WEB STREET, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
SEC 1913 (12/93)
<PAGE>
[LOGO]
510 Lake Cook Road
Deerfield, Illinois 60015
April 11, 2000
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend the
2000 Annual Meeting of Stockholders of Web Street, Inc. to be held at LaSalle
Bank N.A., 43rd Floor, 135 South LaSalle Street, Chicago, Illinois, on
Tuesday, May 9, 2000 at 9:00 a.m., Chicago time. The formal notice of the
Annual Meeting appears on the following page.
The attached Notice of Annual Meeting and Proxy Statement describe the
matters that we expect to be acted upon at the Annual Meeting. Immediately
after the Annual Meeting, stockholders will be able to view a presentation by
the Company and have the opportunity to ask questions.
Whether or not you plan to attend the Annual Meeting, it is important that
your shares be represented. Regardless of the number of shares you own, please
sign and date the enclosed proxy card and promptly return it in the enclosed
postage paid envelope. If you sign and return your proxy card without
specifying your choices, your shares will be voted in accordance with the
recommendations of the Board of Directors contained in the Proxy Statement.
We look forward to seeing you on May 9, 2000 and urge you to return your
proxy card as soon as possible.
Sincerely,
[JOSEPH J. FOX SIGNATURE]
JOSEPH J. FOX
Co-Chairman of the Board of Directors
and Chief Executive Officer
<PAGE>
[LOGO]
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 9, 2000
----------------
To the Stockholders of
Web Street, Inc.:
The Annual Meeting of Stockholders of Web Street, Inc. will be held at 9:00
a.m., Chicago time, on Tuesday, May 9, 2000, at LaSalle Bank N.A., 43rd Floor,
135 South LaSalle Street, Chicago, Illinois, for the following purposes:
(1) To elect two Class I directors to our Board of Directors;
(2) To ratify the appointment by the Board of Directors of Arthur Andersen
LLP as the independent auditors of our financial statements for the
year ending December 31, 2000; and
(3) To transact such other business as may properly come before the meeting
or any adjournments thereof.
These business items are more fully described in the accompanying proxy
statement.
The Board of Directors has fixed the close of business on March 14, 2000 as
the record date for determining stockholders entitled to notice of, and to
vote at, the Annual Meeting.
By order of the Board of Directors,
Stuart A. Cohn
Secretary
Deerfield, Illinois
April 11, 2000
You are urged to attend the meeting in person or by proxy. Whether or not
you expect to be present at the meeting, please complete, sign and date the
enclosed proxy card and return it promptly in the enclosed postage paid
envelope furnished for that purpose.
<PAGE>
Web Street, Inc.
510 Lake Cook Road
Deerfield, Illinois 60015
(847) 444-4700
----------------
PROXY STATEMENT
----------------
The accompanying proxy is solicited by our Board of Directors, for use at
our annual meeting of stockholders to be held at 9:00 a.m., Chicago time,
Tuesday, May 9, 2000, at LaSalle Bank N.A., 43rd Floor, 135 South LaSalle
Street, Chicago, Illinois, and any adjournments of the annual meeting. This
proxy statement and accompanying form of proxy are first being mailed to
stockholders on or about April 11, 2000.
Record Date and Outstanding Shares--Our Board of Directors fixed the close
of business on March 14, 2000 as the record date for the determination of
stockholders entitled to notice of, and to vote at, the annual meeting or any
adjournments of the annual meeting. As of the record date, we had outstanding
25,684,777 shares of common stock. Each outstanding share of common stock is
entitled to one vote on all matters to come before the annual meeting.
Voting of Proxies--We selected Joseph J. Fox, Joseph A. Barr and Stuart A.
Cohn, the persons named on the proxy card accompanying this proxy statement,
to serve as proxies. Each of Messrs. Fox, Barr and Cohn is an executive
officer and Mr. Fox is Co-Chairman of our Board of Directors. The shares
represented by each executed and returned proxy will be voted in accordance
with the directions indicated on the proxy, or, if no direction is indicated,
the proxy will vote the shares represented by the proxy in accordance with the
recommendations of the Board of Directors contained in this proxy statement.
You can revoke a proxy you have given at any time before the shares it
represents are voted by giving our Secretary either (1) an instrument revoking
the proxy or (2) a duly executed proxy bearing a later date. Additionally, you
may change or revoke a previously executed proxy by voting in person at the
annual meeting. However, your attendance at the annual meeting will not, by
itself, revoke your proxy.
Required Vote--The vote of a plurality of the shares of common stock voted
in person or by proxy is required to elect the nominees for Class I directors.
Stockholders will not be allowed to cumulate their votes in the election of
directors. The affirmative vote of a majority of the shares of common stock
present in person or by proxy is required to approve the appointment of Arthur
Andersen LLP as the independent auditors of our financial statements for the
year ending December 31, 2000.
Quorum; Abstentions and Broker Non-Votes--The required quorum for
transaction of business at the annual meeting will be a majority of the shares
of common stock issued and outstanding as of the record date. Votes cast by
proxy or in person at the annual meeting will be tabulated by the election
inspectors appointed for the meeting and will be taken into account in
determining whether or not a quorum is present. Abstentions and broker non-
votes, which occur when a broker does not have the discretionary authority to
vote on a particular matter on the proxy card, will also be included in
determining the presence of a quorum. However, abstentions and broker non-
votes will have no effect on the vote for directors. We will consider
abstentions present and entitled to vote with respect to the proposal to
appoint our independent auditors, and they will have the same effect as votes
"against" that proposal. We will not consider broker non-votes present and
entitled to vote with respect to that proposal and, therefore, they will have
no effect on the voting on that proposal.
Annual Report to Stockholders--We are simultaneously furnishing to you with
this proxy statement our Annual Report to Stockholders for the year ended
December 31, 1999, containing financial and other information pertaining to
us.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Our Board of Directors currently consists of five directors. Article V of
our Certificate of Incorporation provides that our Board of Directors shall be
classified with respect to the terms for which its members shall hold office
by dividing the members into three classes. At the annual meeting, two
directors of Class I will be elected for a term of three years expiring at our
2003 annual meeting of stockholders. Both of the nominees are presently
serving as directors of the Company. See "Nominees" below.
The three directors whose terms of office do not expire in 2000 will
continue to serve after the annual meeting until such time as their respective
terms of office expire or their successors are duly elected and qualified. See
"Other Directors" below.
If at the time of the annual meeting any of the nominees should be unable
or decline to serve, the persons named in the proxy will vote for the
substitute nominee or nominees as the Board of Directors recommends, or vote
to allow the vacancy created by the nominee who is unable or declines to serve
to remain open until filled by the Board of Directors, as the Board of
Directors recommends. The Board of Directors has no reason to believe that any
nominee will be unable or decline to serve as a director if elected.
NOMINEES
The table below presents the names of the nominees for the office of
director, together with certain information concerning these nominees.
<TABLE>
<CAPTION>
Served as
Name Age Position With Company Director Since
---- --- ------------------------------- --------------
<S> <C> <C> <C>
D. Jonathan Rosenberg... 32 Executive Vice President, Chief 1999
Operating Officer and Director
Fredric J. Graber(1)(2). 56 Director 1999
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
D. Jonathan Rosenberg has been one of our directors since August 1999, one
of our executive vice presidents since January 1999 and our chief operating
officer since March 1999. Mr. Rosenberg served as our director of business
development from March 1997 to March 1999. From August 1992 to March 1997, Mr.
Rosenberg was a consultant with Tower Analytics and Investigative Research
Consulting. Mr. Rosenberg also worked with Legal Econometrics, Inc.,
conducting statistical research for members of the Major League Baseball
Players Association in their contract arbitration hearings. Mr. Rosenberg
graduated from DePaul University in 1989 with a B.S. degree in economics.
Fredric J. Graber has been one of our directors since August 1999. From
1992 to 1998, Mr. Graber was principal and general partner of Baker Nye
Greenblat, an investment management partnership with capital in excess of $1
billion, where his responsibilities included trading, portfolio management and
new business development. Mr. Graber was a partner of Lehman Brothers Inc.
from 1968 to 1976. He graduated from Princeton University in 1964 with a B.A.
degree in psychology.
The Board of Directors recommends that stockholders vote FOR both of the
nominees for election as Class I directors.
2
<PAGE>
OTHER DIRECTORS
The following persons will continue to serve as our directors after the
annual meeting until their terms of office expire (as indicated below) or
until their successors are duly elected and qualified.
<TABLE>
<CAPTION>
Served as Term
Name Age Position With Company Director Since Expires
---- --- --------------------- -------------- -------
<S> <C> <C> <C> <C>
Joseph J. Fox........... 32 Co-Chairman of the Board and 1996 2002
Chief Executive Officer
Avi Fox................. 35 Co-Chairman of the Board and 1996 2001
President
Robert F. Bernard(1)(2). 38 Director 1999 2001
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Joseph J. Fox has been our chairman of the board since our inception in
September 1996, sharing the chairman of the board position with Avi Fox since
June 1999, and has been our chief executive officer since June 1999. Joseph
Fox was our president from September 1996 to June 1999. From January 1994 to
September 1996, Joseph Fox was president of Darwin Financial Group, a Chicago-
based private investment banking firm which operated under the name of A.F.
Joseph & Company.
Avi Fox has been one of our directors since our inception in September
1996, sharing the chairman of the board position with Joseph Fox since June
1999, and has been our president since June 1999. Avi Fox was our chief
executive officer from September 1996 to June 1999. From January 1994 to
September 1996, Avi Fox was chief executive officer of Darwin. Avi Fox has
been a licensed stockbroker since 1987. He graduated from the University of
Illinois, Chicago, in 1986 with a B.A. degree in communications.
Robert F. Bernard has been one of our directors since August 1999. In 1984,
Mr. Bernard founded Whittman-Hart, Inc., a leading e-business service
provider, serving as chairman of the board and chief executive officer since
its inception. He was also president of Whittman-Hart until 1997. In March of
2000, Whittman-Hart merged with USWeb/CKS and created marchFIRST, Inc., the
world's largest internet professional services firm. Mr. Bernard is chief
executive officer of marchFIRST. He is also currently a director of divine
interVentures, an internet holding company engaged in business-to-business e-
commerce through a community of associated companies. In 1992 he was elected
as the KPMG Illinois High Tech Entrepreneur of the Year, and in 1998 he was
named the Ernst & Young Illinois and Northwest Indiana Service Entrepreneur of
the Year.
Director Compensation--Upon first being elected to the Board of Directors,
each of our directors who is not one of our employees, officers or consultants
is granted, under the Web Street, Inc. 1999 Stock Incentive Plan, stock
options to purchase 20,000 shares of common stock at the fair market value of
the common stock as of the date of issuance of the stock options, subject to
vesting as described below. Three business days following the date of each
annual meeting of the stockholders of the Company, each outside director who
is re-elected or continues to serve as a director because his or her term has
not expired is automatically granted stock options to purchase 5,000 shares of
common stock pursuant to the stock incentive plan, subject to vesting as
described below. However, no automatic grant is made to an outside director in
the year he or she is first elected to the Board of Directors. The options
granted to outside directors under the stock incentive plan upon joining the
Board of Directors vest in four equal installments: on the date of grant and
each of the first three anniversaries after that date, as long as the director
continues to serve on the Board of Directors. Half of the options granted to
outside directors at each annual meeting will become exercisable on the date
of grant and the other half will become exercisable on the first anniversary
of that date, if, as of that anniversary date, the director continues to serve
on the Board of Directors. All options granted under the stock incentive plan
to outside directors expire upon the earliest of: (1) ten years from the date
of grant, (2) ninety days after termination of services for any reason other
than death, disability or retirement on or after age 65, or (3) one year after
termination due to death, disability or retirement on or after age 65.
3
<PAGE>
We also pay each of the outside directors an annual fee of $5,000. In
addition, we pay each outside director $1,000 for each board meeting attended
and $1,000 for each committee meeting attended. However, we pay only a $500
fee for a committee meeting held the same day as a board meeting. We reimburse
all outside directors for reasonable out-of-pocket expenses incurred in
attending board and committee meetings.
Meetings--During the year ended December 31, 1999, the Board of Directors
held one formal meeting. Each of our current directors attended at least 75%
of the aggregate number of board meetings held (during the period in which he
was a director) and the total number of committee meetings on which he served
that were held (during the period in which he was a member of the committees)
during 1999.
Committees of the Board of Directors--Before August 20, 1999, the Board of
Directors had no committees and its only members were Joseph Fox and Avi Fox.
In connection with our initial public offering, the Board of Directors
established an Audit Committee and a Compensation Committee, each consisting
entirely of outside directors. We do not have a standing nominating committee.
The Audit Committee performs the following roles for us: (1) recommends the
independent public accountants to the Board of Directors for engagement; (2)
reviews the plan, scope and results of the accountants' annual audit; (3)
reviews our internal controls, functions and financial management policies
with the accountants; (4) reviews our insider trading policy; (5) reviews
financial information before public disclosure or filing with the Securities
and Exchange Commission; and (6) reports to the Board of Directors regarding
these matters. The members of the Audit Committee are Robert F. Bernard and
Fredric J. Graber. The Audit Committee held no formal meetings in 1999.
The Compensation Committee performs the following roles for us: (1)
establishes guidelines and standards relating to the determination of
executive and key employee compensation; (2) reviews the Company's executive
compensation policies and recommends to the Board of Directors compensation
for the Company's executive officers and other employees; and (3) administers
the 1999 Stock Incentive Plan, the 1998 Stock Option Plan, the 1999 Employee
Stock Purchase Plan and other stock option agreements, determining the number
of shares covered by, and the terms of, stock awards granted to our executive
officers, other employees and consultants pursuant to, these plans and
agreements. The members of the Compensation Committee are Robert F. Bernard
and Fredric J. Graber. The Compensation Committee held no formal meetings in
1999.
4
<PAGE>
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The table below identifies executive officers and key employees of the
Company who are not identified in the tables under "Nominees" and "Other
Directors."
Executive Officers
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Joseph A. Barr........................... 38 Executive Vice President, Chief
Financial Officer and Treasurer
Stuart A. Cohn........................... 47 Executive Vice President, General
Counsel and Secretary
William J. Mania......................... 38 Executive Vice President and Chief
Technology Officer
Other Key Employees
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John V. Hackett.......................... 34 Senior Vice President,
Global Business Development
Ronald A. Molnar......................... 49 Senior Vice President,
Clearing Operations
Robert W. Lemke.......................... 39 Senior Vice President,
Human Resources
</TABLE>
Joseph A. Barr has been our chief financial officer since July 1998 and one
of our executive vice presidents and our treasurer since February 1999. From
July 1993 to July 1998, Mr. Barr was the director of internal audit and
financial planning for Safety-Kleen Corp., an environmental and industrial
service company listed on the New York Stock Exchange. Previously, Mr. Barr
was an audit and financial consulting manager in the Chicago office of Arthur
Andersen LLP, serving publicly-held, multinational clients. He graduated in
1983 from the University of Illinois at Urbana-Champaign with a B.S. degree in
accountancy. Mr. Barr is a certified public accountant and is our Series 27
financial and operations principal.
Stuart A. Cohn has been our general counsel since February 1998 and one of
our executive vice presidents since January 1999. From February 1994 to
February 1998, Mr. Cohn worked independently at the law offices of Stuart A.
Cohn, Ltd., representing us as a private practitioner. From 1991 to 1994, Mr.
Cohn was a partner with the Chicago law firm Schoenberg, Fisher & Newman, Ltd.
Mr. Cohn graduated from the University of Chicago in 1975 and the University
of Chicago Graduate School of Business in 1977. He graduated from the
University of Chicago Law School in 1980. Mr. Cohn is a certified public
accountant.
William J. Mania has been our chief technology officer since June 1997 and
one of our executive vice presidents since June 1999. From 1993 to 1997, Mr.
Mania worked in Chicago as chief systems manager for ABN AMRO Bank, one of the
world's largest banks. From 1990 to 1993, Mr. Mania worked at Hull Trading
Company as manager of operations and system administration. Mr. Mania received
a B.S. degree in computer science from Michigan Tech University and a master's
degree in computer science from DePaul University.
John V. Hackett has been our senior vice president, global business
development since March 1999. He is responsible for developing new business
opportunities, including international alliances and ventures, product and
service enhancements and other strategic initiatives. From 1998 to March 1999,
Mr. Hackett was vice president of corporate development for Aztec Technology
Partners, where he was involved with corporate strategy and finance
activities. From 1992 to 1998, Mr. Hackett worked at Motorola/ARDIS as manager
of business development, where he was responsible for developing new products
and services for wireless networks. From 1987 to 1992, he was a senior
consultant with Andersen Consulting, providing technology strategy services
5
<PAGE>
to financial services clients. Mr. Hackett received an M.B.A. from the
University of Chicago and B.S. degrees in mathematics and industrial
management from Purdue University.
Ronald A. Molnar has been our senior vice president, clearing operations
since December 1999. During 1999, Mr. Molnar was operations manager for Peters
Securities Company, LP, a broker/dealer for which he established a clearing
and settlement system. From 1988 to 1998, Mr. Molnar was vice president of
trading and operations for Concord Services L.L.C. (formerly The Feldman
Investment Group, Inc.) where he managed over $800 million in assets. From
1984 to 1988, Mr. Molnar was vice president of operations at Rose & Company
Investment Brokers, Inc., where, in addition to overseeing all operational
functions, he directed and implemented a new tax reporting system. Mr. Molnar
received a degree in management from the University of Illinois--Chicago.
Robert W. Lemke has been our senior vice president, human resources since
January 2000. In this capacity, he is responsible for development and
implementation of the firm's human resources strategy and administrative
infrastructure. From 1991 to 1999, Mr. Lemke was senior vice president of
human resources for EVEREN Capital Corporation, where he was responsible for
employee programs and related administrative services. From 1986 to 1991, Mr.
Lemke served as a managing consultant at William M. Mercer, where he was
responsible for developing and managing client human resource engagements. Mr.
Lemke received advanced degrees in industrial and organizational psychology
from Illinois State University and has regularly served as a company
representative to industry and professional associations.
Joseph Fox and Avi Fox are brothers. None of the other executive officers
or directors is related to any other executive officer.
Section 16(a) Beneficial Ownership Reporting Compliance--Section 16 of the
Securities Exchange Act of 1934 requires our officers (as defined under
Section 16) and directors and persons who beneficially own greater than 10% of
a registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Based solely
on our review of the forms we have received and on written representations
from reporting persons that no such forms were required for them, we believe
that, during 1999, all Section 16 filing requirements applicable to our
officers, directors and 10% beneficial owners were complied with by these
persons.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table provides information concerning all compensation paid
and awarded to (1) our chief executive officer and (2) our four other most
highly compensated (based upon combined salary and bonus) executive officers
whose total salary and bonus exceeded $100,000 during 1999 (collectively, with
our chief executive officer, the "Named Officers") for services rendered in
all capacities to us for the years ended December 31, 1999 and 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
--------------- ------------
Awards
------------
Securities
Salary Bonus Underlying
Name and Principal Position Year ($) ($) Options (#)
--------------------------- ---- ------- ------- ------------
<S> <C> <C> <C> <C>
Joseph J. Fox...................... 1999 243,365 180,300 --
Co-Chairman and Chief Executive 1998 181,304 80,000 --
Officer
Avi Fox............................ 1999 243,941 180,300 --
Co-Chairman and President 1998 181,304 80,000 --
Stuart A. Cohn..................... 1999 189,231 65,300 --
Executive Vice President, General 1998(1) 115,865 20,000 356,250
Counsel and Secretary
Joseph A. Barr..................... 1999 169,232 65,300 --
Executive Vice President, Chief 1998(2) 48,884 10,000 225,000
Financial Officer and Treasurer
William J. Mania................... 1999 156,827 65,300 --
Executive Vice President and Chief 1998 115,406 15,000 241,875
Technology Officer
</TABLE>
- --------
(1) Mr. Cohn began working for us in February 1998 and, therefore, his 1998
compensation was for a partial year.
(2) Mr. Barr began working for us in July 1998 and, therefore, his 1998
compensation was for a partial year.
Option Grants in 1999--No stock options or stock appreciation rights were
granted to the Named Officers during 1999.
Aggregated Option Exercises in 1999 and Year-End 1999 Option Values--The
following table provides information regarding each of the Named Officer's
option exercises in 1999 and unexercised options at December 31, 1999. None of
our Named Officers hold stock appreciation rights.
Year-End 1999 Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Shares Unexercised Options In-The-Money Options
Acquired Value at Year-End 1999 (#) at Year-End 1999 ($) (1)
on Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph J. Fox........... -- -- -- -- -- --
Avi Fox................. -- -- -- -- -- --
Stuart A. Cohn.......... 40,000 $437,880 103,751 212,501 $1,278,420 $2,026,387
William J. Mania........ -- -- 76,875 165,000 947,254 1,381,875
Joseph A. Barr.......... -- -- 75,000 150,000 628,125 1,256,250
</TABLE>
- --------
(1) The value per option is calculated by subtracting the exercise price per
option from the closing price of the common stock on the Nasdaq National
Market on December 31, 1999, which was $12.375.
7
<PAGE>
Employment Agreements--Effective October 1999, we entered into employment
agreements with each of the Named Officers. Each of the employment agreements
has a three year term which, at the end of each year of the term, is
automatically extended by one year, unless we notify the employee in that year
that his employment agreement will not be extended. If we give an employee
this notice, his employment will terminate at the end of the then-current
term.
The employment agreements provide for payment of the following initial
annual base salaries: $250,000 for Joseph Fox, with a $100,000 guaranteed
bonus in the first year paid in quarterly installments of $25,000 each;
$250,000 for Avi Fox, with a $100,000 guaranteed bonus in the first year paid
in quarterly installments of $25,000 each; $200,000 for Stuart Cohn; $200,000
for Joseph Barr; and $175,000 for William Mania. The annual salaries are
reviewed each year by the Compensation Committee, but cannot be decreased from
the amount in effect in the previous year. The Compensation Committee in
January 2000 raised Mr. Mania's initial annual base salary to $200,000. The
employment agreements also give each employee the right to be eligible for
annual bonuses determined by the Compensation Committee and to participate in
the 1999 Stock Incentive Plan and other employee benefit programs. The
employment agreements impose on each employee post-termination non-
competition, non-solicitation and confidentiality obligations.
The employment agreements provide for payments and benefits upon
termination of employment in addition to those previously accrued. If the
employee's employment terminates due to death or disability, the employee will
receive, instead of a bonus for that year, an amount equal to the average
annual bonus paid to him in the three previous years, prorated to reflect the
part of the year completed before termination. Also, in case of disability,
the employee will continue to participate in our employee benefit plans until
age 65.
If we terminate the employee's employment other than for cause, including
after a change in control, or if the employee terminates employment for good
reason, the employee will receive a lump sum cash payment equal to (1) the sum
of his then-current annual salary plus an amount equal to the average bonus
paid to him for the three previous years multiplied by (2) 2.5, in the case of
each of Messrs. Fox and 1.25, or 1.75 if there has been a change in control,
in the case of each of Messrs. Cohn, Barr and Mania. Also, instead of a bonus
for that year, the employee will receive a cash payment equal to his average
annual bonus for the previous three years, which, unless the termination
occurs within the period beginning 60 days before a change in control and
ending two years after a change in control, will be prorated to reflect the
part of the year completed before termination. He will also receive continued
health, medical and life insurance coverage for one year and, if payments
under the employment agreement are subject to the golden parachute excise tax,
an additional gross-up amount so that his after-tax benefits are the same as
if no excise tax had applied. In this event, we also agree to use our
reasonable best efforts to register the offer and sale of shares of common
stock that Joseph J. Fox or Avi Fox, as the case may be, beneficially owns.
8
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Before August 20, 1999, all executive officer compensation decisions were
made by Joseph Fox and Avi Fox as the sole members our Board of Directors. The
Compensation Committee currently consists of two outside directors who are not
now, and never have been, officers of ours. The following report summarizes
our executive compensation philosophy and discusses factors considered by the
Compensation Committee when determining the compensation of our Chief
Executive Officer and other executive officers for our 1999 fiscal year.
Executive Compensation Overview
As we continue to develop, it is important that our employee and executive
compensation programs be designed to attract, retain, motivate and
appropriately reward individuals who are responsible for our short-term and
long-term profitability, growth and return to stockholders. To support our
long-term growth, it is also important that our executive compensation
programs are structured in a manner that is flexible, allowing for recognition
of individual, as well as our overall, performance. Finally, the Compensation
Committee believes our various broad-based employee stock ownership programs
are critical to fostering a culture that encourages long-term performance.
Elements of Executive Compensation
Our executive compensation program consists of four elements: base salary,
annual cash bonuses, long term incentives and benefits/perquisites.
Base Salaries
The base salaries of our executive officers, including our chief executive
officer, Joseph J. Fox, for 1999 were set by Joseph J. Fox and Avi Fox, as the
only members of our Board of Directors, after considering the executive's and
our overall performance, relevant labor market adjustments and our financial
condition. Effective October 1999, we have entered into employment agreements
with our executive officers that fix their base salaries for 2000. The
Compensation Committee approved these employment agreements and salaries. The
Compensation Committee will review the base salaries of our executive officers
annually, with any adjustments becoming effective January 1 of the applicable
year.
Cash Bonuses
Discretionary cash bonuses for executive officers are designed to improve
our annual operating performance by rewarding the achievement of progressively
more challenging annual performance objectives. To determine the amount of any
annual bonus the executive will be eligible to receive, the Compensation
Committee considers (a) the nature of the executive's responsibilities, (b)
the executive's performance objectives, and (c) performance achieved with
respect to each performance objective. Based on its assessments of these
factors, the Compensation Committee paid cash bonuses to the executive
officers for 1999 based on their performance, including their efforts to
expand our international operations, attract more customer accounts and guide
us through the initial public offering process. For 1999, Joseph Fox's cash
bonus was based on an amount provided for in his employment agreement plus an
additional $155,300 for completion of these strategic objectives during the
year.
Long Term Incentives
Subject to the general eligibility and vesting provisions of our 1999 Stock
Incentive Plan, and the availability of shares of common stock reserved under
the plan, each executive officer may receive a periodic award of options to
purchase common stock, to more closely align management's interests with
stockholders. These awards are based upon each executive's contribution to our
strategic objectives, including: development of our management team; fostering
long-term planning; development of domestic and international partnerships;
identifying and participating in acquisition opportunities; conceiving and
developing product and marketing
9
<PAGE>
initiatives; identifying and developing systems and technological enhancements
and internal efficiencies; and bringing positive goodwill and repute to us in
the business community and the community at large. No executive officer,
including our chief executive officer, Joseph J. Fox, was granted any options
under this plan in 1999. We decided not to grant any of our executive officers
options in 1999 after considering the number of options that had previously
been granted to our executive officers in prior years and the total number of
shares available for option grants under our 1999 Stock Incentive Plan.
Benefits/Perquisites
The Compensation Committee reviews, from time to time, the appropriateness
of providing certain benefits and perquisites to executive officers.
Executives currently are eligible to participate in all group benefit
programs, as well as our 401(k) Savings Plan.
We have hired compensation consultants to help us evaluate appropriate
executive officer compensation for future years. In addition to the factors
described above, the Compensation Committee, when making compensation
decisions, will also consider the total compensation paid to executives at our
peer companies and at other companies with which we compete for executive
talent.
Compliance with Section 162(m)
The Compensation Committee currently intends for all compensation paid to
the Named Officers to be tax deductible to us pursuant to Section 162(m) of
the Internal Revenue Code of 1986, as amended. Section 162(m) provides that
compensation paid to the Named Officers in excess of $1,000,000 cannot be
deducted by us for Federal income tax purposes unless, in general, (1) the
compensation is performance-based, established by a committee of outside
directors and objective, and (2) the plan or agreement providing for such
performance-based compensation has been approved in advance by stockholders.
However in the future, the Compensation Committee may determine to adopt a
compensation program that does not satisfy the conditions of Section 162(m) if
in its judgment, after considering the additional costs of not satisfying
Section 162(m), that program is appropriate.
COMPENSATION COMMITTEE
(Before August 20, 1999)
Joseph J. Fox
Avi Fox
(Since August 20, 1999)
Robert F. Bernard
Fredric J. Graber
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before August 20, 1999, all of our executive officer compensation decisions
were made by Joseph J. Fox and Avi Fox, as the Board of Directors.
In January 1999, we redeemed 2,000,000 shares of our outstanding series C
preferred stock for an aggregate redemption price of $400,000. In April 1999,
we redeemed all of the 1,000,000 remaining shares of our outstanding series C
preferred stock for an aggregate redemption price of $250,000. All the shares
were held by Darwin Financial Group, of which Joseph Fox and Avi Fox are the
principal stockholders, directors and executive officers.
Under unsecured promissory notes dated March 16, 1999, we loaned each of
Joseph J. Fox and Avi Fox $110,000 at an annual interest rate of 5%, to be
repaid on or before March 16, 2001. As of December 31, 1999, the full
principal amount of each of the notes was outstanding.
In connection with the purchase of our common stock in our initial public
offering, we held a receivable at December 31, 1999 for $110,000 from a
limited liability company of which Robert F. Bernard, one of our directors, is
manager and a member. This amount was paid in full by the limited liability
company in March 2000.
10
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for us,
the Nasdaq Market Composite Index and an index of peer companies selected by
us during the period commencing on November 17, 1999, the date our common
stock began trading, and ending on December 31, 1999. The comparison assumes
$100 was invested on November 17, 1999 in our common stock, the Nasdaq Market
Composite Index and the peer companies selected by us and assumes the
reinvestment of any dividends. The performance graph begins on November 17,
1999, the date the common stock began trading. The closing price of our common
stock on that date was $12.375.
COMPARISON OF CUMULATIVE TOTAL RETURNS
[GRAPH]
The companies in the peer group, all of which are brokerage firms that
offer on-line trading, are: The Charles Schwab Corp., TD Waterhouse Group,
Inc., E*Trade Group, Inc., Ameritrade Holding Corp., DLJ Direct, Inc., WIT
Capital Group, Inc., National Discount Brokers, JB Oxford Holdings, Inc. and
A.B. Watley Group, Inc.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the discussion under "Compensation Committee Interlocks and Insider
Participation" for a description of transactions and relationships involving
us and our executive officers and directors since January 1, 1999.
11
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table shows forth, as of March 31, 2000, information with
respect to the beneficial ownership of the common stock by (1) each person
known by us to own beneficially more than 5% of the outstanding shares of
common stock, (2) each of our directors, (3) each of the Named Officers and
(4) all of our executive officers and directors as a group. Unless otherwise
indicated below, the persons in the table have sole voting and investment
power with respect to all shares shown as beneficially owned by them.
Beneficial ownership is determined in accordance with the Securities and
Exchange Commission's rules.
<TABLE>
<CAPTION>
Number of Shares Percent of Shares
Name and Address Beneficially Owned(1) Beneficially Owned
---------------- --------------------- ------------------
<S> <C> <C>
Avi Fox......................... 5,228,410 20.3%
Joseph J. Fox................... 5,228,410 20.3
D. Jonathan Rosenberg........... 281,250(1) 1.1
Stuart A. Cohn.................. 243,752(2) *
William J. Mania................ 76,975(3) *
Joseph A. Barr.................. 75,000(4) *
Fredric J. Graber............... 12,500(5) *
Robert F. Bernard............... 15,000(6) *
Rodney R. Schoemann............. 2,241,668(7) 8.7
Ambrosio & Sirois Venture
Partners, LLC.................. 1,959,583(8) 7.6
All directors and executive
officers as a group
(8 persons).................... 11,161,297(9) 43.4
</TABLE>
- --------
*Less than 1%.
(1) Includes 93,750 shares of common stock owned by Mr. Rosenberg's spouse and
excludes 186,697 phantom stock units which will convert into an equal
number of shares of common stock on January 2, 2001.
(2) Includes 166,252 shares of common stock issuable upon exercise of options
that are currently exercisable or exercisable by May 31, 2000.
(3) Includes 76,875 shares of common stock issuable upon exercise of options
that are currently exercisable.
(4) Consists of shares of common stock issuable upon exercise of options that
are currently exercisable.
(5) Includes 5,000 shares of common stock issuable upon exercise of options
that are currently exercisable.
(6) Includes 5,000 shares of common stock issuable upon exercise of options
that are currently exercisable. Also includes 10,000 shares of common
stock held by a limited liability company of which Mr. Bernard is manager
and a member. In such capacities, Mr. Bernard may be deemed to
beneficially own these shares. Mr. Bernard disclaims beneficial ownership
in these shares, except to the extent of his pecuniary interest therein.
(7) This number of shares is based on information reported in the Schedule 13G
filed on March 14, 2000 by Rodney Schoemann with the Securities and
Exchange Commission. Mr. Schoemann's address is 3904 Wheat Drive,
Metairie, Louisiana 70002.
(8) This number of shares is based on information reported in two Schedule
13G's, each filed February 15, 2000, by Ambrosio & Sirois Venture
Partners, Series VIII and Ambrosio & Sirois Venture Partners, Series V
with the Securities and Exchange Commission. Consists of 1,333,333 shares
of common stock held by Ambrosio & Sirois Venture Partners, Series V and
626,250 shares of common stock held by Ambrosio & Sirois Venture Partners,
Series VIII. Ambrosio & Sirois Venture Partners, LLC is the general
partner of each of these limited partnerships and in this capacity has
investment and voting control over the shares of common stock held by each
of these limited partnerships. The address of Ambrosio & Sirois Venture
Partners, LLC is 300 Broadway, Suite 201, Lorain, Ohio 44052.
(9) Includes 335,627 shares of common stock issuable upon exercise of options
that are currently exercisable. Excludes 186,697 phantom stock units that
will convert into an equal number of shares of common stock on January 2,
2001.
12
<PAGE>
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF AUDITORS
Our Board of Directors, upon the recommendation of the Audit Committee, has
appointed Arthur Andersen LLP, independent certified public accountants, as
auditors of our financial statements for the year ending December 31, 2000.
Arthur Andersen LLP has acted as our auditors since September 1998.
The Board of Directors has determined to afford stockholders the
opportunity to express their opinions on the matter of auditors and,
accordingly, is submitting to you at the Annual meeting a proposal to ratify
the Board of Directors' appointment of Arthur Andersen LLP. If a majority of
the shares voted at the annual meeting, in person or by proxy, are not voted
in favor of the ratification of the appointment of Arthur Andersen LLP, the
Board of Directors will interpret that as an instruction to seek other
auditors.
It is expected that representatives of Arthur Andersen LLP will be present
at the meeting and will be available to respond to questions. Representatives
of Arthur Andersen LLP will be given an opportunity to make a statement if
they desire to do so.
The Board of Directors recommends that the stockholders vote FOR the
ratification of the appointment of Arthur Andersen LLP as the independent
auditors of our financial statements for the year ending December 31, 2000.
13
<PAGE>
MISCELLANEOUS AND OTHER MATTERS
Solicitation--The cost of this proxy solicitation will be borne by us. We
may request banks, brokers, fiduciaries, custodians, nominees and certain
other record holders to send proxies, proxy statements and other materials to
their principals at our expense. Those banks, brokers, fiduciaries,
custodians, nominees and other record holders will be reimbursed by us for
their reasonable out-of-pocket expenses of solicitation. We do not anticipate
that costs and expenses incurred in connection with this proxy solicitation
will exceed an amount normally expended for a proxy solicitation for an
election of directors in the absence of a contest.
Proposals of Stockholders--Our Secretary must receive proposals of
stockholders intended to be considered at our 2001 annual meeting of
stockholders on or before February 25, 2001. Our Secretary must receive
proposals of stockholders to be considered for inclusion in our proxy
statement and proxy for the 2001 annual meeting on or before December 12,
2000.
Other Business--The Board of Directors is not aware of any other matters to
be presented at the annual meeting other than those mentioned in this proxy
statement and our notice of annual meeting of stockholders which is enclosed.
If any other matters are properly brought before the annual meeting, however,
the persons named in the proxies will vote the proxies as the Board of
Directors directs.
Additional Information--We will furnish, without charge, a copy of our
Annual Report on Form 10-K for our year ended December 31, 1999, as filed with
the SEC, upon the written request of any person who is a stockholder as of the
record date, and will provide copies of the exhibits to the Form 10-K upon
payment of a reasonable fee which shall not exceed our reasonable expenses in
providing the exhibits. You should direct requests for these materials to Web
Street, Inc., 510 Lake Cook Road, Deerfield, Illinois 60015, Attention:
Stuart A. Cohn.
By order of the Board of Directors
Stuart A. Cohn
Secretary
Deerfield, Illinois
April 11, 2000
YOU ARE REQUESTED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY.
14
<PAGE>
WEB STREET, INC.
510 Lake Cook Road
Deerfield, Illinois 60015
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 9, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder(s) hereby appoints Joseph J. Fox, Joseph A. Barr
and Stuart A. Cohn and each of them, with full power of substitution, as
attorneys and proxies for, and in the name and place of, the undersigned, and
hereby authorizes each of them to represent and to vote all of the shares
which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of Web Street, Inc. to be held at LaSalle Bank N.A., 43rd Floor,
135 South LaSalle Street, Chicago, Illinois, on Tuesday, May 9, 2000, at 9:00
a.m., Chicago time, and at any adjournments thereof, upon the matters as set
forth in the Notice of Annual Meeting of Stockholders and Proxy Statement,
receipt of which is hereby acknowledged.
THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL BE
VOTED AT THE ANNUAL MEETING AND AT ANY ADJOURNMENTS THEREOF IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO CONTRARY INDICATION
IS MADE, THE PROXY WILL BE VOTED FOR ALL NOMINEES LISTED IN PROPOSAL 1, FOR
PROPOSAL 2, AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS
PROXIES HEREIN ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL
MEETING.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued, and to be signed and dated, on reverse side)
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
<PAGE>
WEB STREET, INC.
PLEASE MARK VOTE IN OVAL IN THE
FOLLOWING MANNER USING DARK INK ONLY. [X]
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL NOMINEES
LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2.
1. Election of Class I Directors
Nominees: D. Jonathan Rosenberg and Fredric J. Graber
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space below).
-------------------------------------------------------
For Withhold For All
All All Except
[_] [_] [_]
2. Proposal to ratify the appointment of Arthur Andersen LLP as the
independent auditors of the Company's financial statements for the year
ending December 31, 2000.
For Against Abstain
[_] [_] [_]
3. Each of the persons named as proxies herein are authorized, in such
person's discretion, to vote upon such other matters as may properly come
before the Annual Meeting, or any adjournments thereof.
Dated: , 2000
------------------------------------------
Signature(s)
-------------------------------------------------------------------
Signature (if held jointly)
----------------------------------------------------
Please date this Proxy and sign it exactly as your name(s) appears hereon.
When shares are held by joint tenants, both should sign. When signing as an
attorney, executor, administrator, trustee, guardian or other fiduciary,
please indicate your capacity. If you sign for a corporation, please print
full corporate name and indicate capacity of duly authorized officer executing
on behalf of the corporation. If you sign for a partnership, please print full
partnership name and indicate capacity of duly authorized person executing on
behalf of the partnership.
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
PLEASE VOTE, SIGN EXACTLY AS NAME APPEARS ABOVE,
DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE
