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As filed with the Securities and Exchange Commission on December 19, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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eSPEED, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
Delaware One World Trade Center, 103rd Floor 13-4063515
(State or other jurisdiction New York, New York 10048 (I.R.S. Employer
of incorporation or organization) (212) 938-3773 Identification Number)
</TABLE>
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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Stephen M. Merkel, Esq.
Senior Vice President, General Counsel and Secretary
eSpeed, Inc.
One World Trade Center, 103rd Floor
New York, New York 10048
(212) 938-3773
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Christopher T. Jensen, Esq.
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
(212) 309-6000
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class Of Amount To Be Offering Aggregate Offering Registration
Securities To Be Registered Registered Price Per Share (1) Price (1) Fee
------------------------------------------------- ----------------- ----------------------- ------------------------ ---------------
<S> <C> <C> <C> <C>
Class A common stock, par value $.01 per share 500,000 shares $17.4375(2) $8,718,750.00 $2,301.75
================================================= ================= ======================= ======================== ===============
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Estimated pursuant to Rule 457(g).
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
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The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell securities, and we are not soliciting offers to buy these securities, in
any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS Subject to Completion, dated December 19, 2000
500,000 Shares
Class A Common Stock
eSPEED, INC.
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This prospectus relates to the offer and sale pursuant to our
Non-Qualified Employee Stock Purchase Plan of up to 500,000 shares of our Class
A common stock to employees of our affiliates who may not be eligible to be
covered under a Form S-8 registration statement. Our principal executive offices
are located at One World Trade Center, 103rd Floor, New York, New York 10048 and
our telephone number is (212) 938-3773.
Our Class A common stock is listed on the Nasdaq National Market under
the symbol "ESPD". On December 18, 2000, the last reported sale price of our
Class A common stock on the Nasdaq National Market was $15 7/8 per share.
This investment involves risk. Please consider carefully the risk
factors beginning on page 10.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is December , 2000
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WHERE YOU CAN GET MORE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
registration statement (of which this prospectus forms a part) on Form S-3 with
respect to the Class A common stock being offered by this prospectus. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further information with
respect to us and the shares of Class A common stock offered hereby, reference
is made to the registration statement, including the exhibits and schedules
thereto. Statements contained in this prospectus as to the contents of any
contract or other document referred to herein are not necessarily complete and,
where any contract is an exhibit to the registration statement, each statement
with respect to the contract is qualified in all respects by the provisions of
the relevant exhibit to which reference is hereby made. You may read and copy
any document we file at the Public Reference Section of the SEC, 450 Fifth
Street, NW, Room 1024, Washington, D.C. 20549, and the SEC'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. You may call the SEC at
800-SEC-0330 for further information about the operation of the public reference
rooms.
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, file periodic
reports, proxy statements and other information with the SEC. Such reports,
proxy and information statements and other information may also be inspected at
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The SEC maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC. The address of the SEC's Web site is
http://www.sec.gov.
DOCUMENTS INCORPORATED BY REFERENCE
SEC rules allow us to include some of the information required to be in
the registration statements by incorporating that information by reference to
other documents we file with them. That means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is an important part of this prospectus, and
information that we file later with the SEC (before the termination of this
offering) automatically will update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
by us with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until all of the securities covered by this prospectus are
sold:
o Annual Report on Form 10-K for the fiscal year ended December 31, 1999
filed with the SEC on March 29, 2000;
o Quarterly Report on Form 10-Q for the quarter ended March 31, 2000
filed with the SEC on May 11, 2000;
o Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 filed
with the SEC on August 14, 2000;
o Quarterly Report on Form 10-Q for the quarter ended September 30, 2000
filed with the SEC on November 13, 2000; and
<PAGE>
o The description of our Class A common stock contained in our
registration statement on Form 8-A (File No. 000-28191) filed with the
SEC on November 17, 1999, including any amendment or report filed for
the purpose of updating this description.
You may request a copy of these filings, which we will provide to you
at no cost, by writing or calling us at the following address: eSpeed, Inc., One
World Trade Center, 103rd Floor, New York, New York 10048, telephone: (212)
938-3773, Attention: Secretary.
This prospectus may contain information that updates, modifies or is
contrary to information in one or more of the documents incorporated by
reference in this prospectus. Reports which we file with the SEC after the date
of this prospectus may also contain information that updates, modifies or is
contrary to information in this prospectus or in documents incorporated by
reference in this prospectus. Investors should review these reports as they may
disclose a change in the business, prospects, financial condition or our other
affairs after the date of this prospectus.
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GENERAL INFORMATION ABOUT OUR NON-QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
OVERVIEW
On October 26, 2000, our board of directors adopted the eSpeed, Inc.
Nonqualified Employee Stock Purchase Plan (the "Plan"). The Plan gives our
eligible employees and those of our affiliates, including Cantor Fitzgerald,
L.P., which beneficially owns approximately 74.1% of our outstanding voting
stock, and its subsidiaries other than eSpeed (collectively, "Cantor"), the
opportunity to purchase shares of our Class A common stock ("Shares") at a
discount. The Plan is not subject either to the U.S. Employee Retirement Income
Security Act of 1974 or Section 401(a) of the U.S. Internal Revenue
Code of 1986, as amended.
The following description of the Plan, in the form of questions and
answers, is intended to outline for you and help you to better understand the
provisions of the Plan. It does not purport to be a complete statement of the
Plan or its operation and is qualified in its entirety by reference to the
provisions of the Plan, which are attached as Annex A. All capitalized terms
below not defined elsewhere in this summary have the meanings set forth in the
Plan.
1. What is the purpose of the Plan?
The Plan, by offering eligible employees the opportunity to purchase
Shares at a discount through payroll deductions, is intended to encourage
employee participation in the ownership of eSpeed.
2. Who is eligible to participate in the Plan?
Participation under the Plan is voluntary and is open to all
individuals who are employed on a full-time basis on the first day of an
Offering Period by us, or any our affiliates (including a Cantor company) that
has adopted the Plan.
3. How do I enroll in the Plan?
You may enroll in the Plan for any Offering Period by completing an
enrollment form and delivering it to us at such times as may be prescribed by
us. Offering Periods are predetermined periods of time in which your payroll
deductions accumulate in order to purchase Shares under the Plan. Offering
Periods generally will be for 12 month periods commencing on or about December
21st of each year and include four interim Purchase Dates that generally will
occur on the 20th of each of March, June, September and December (or, if the
20th is not a business day, the next following business day). Enrollment forms
are available from us, and will authorize us to deduct that amount of your
paycheck elected by you.
4. How much may I contribute to the Plan?
You decide what portion of your net base salary you wish to contribute.
The amount you elect to contribute will be deducted from your regular paychecks
on an after-tax basis. However, your contributions cannot exceed 25% of your
gross paycheck, and on an annual basis cannot exceed $100,000. Amounts
contributed in currency other than U.S. dollars will be converted to U.S.
dollars prior to the purchase of Shares in accordance with methods and
procedures established by us.
5. May I later increase, decrease or suspend my payroll deductions?
You may increase, decrease, suspend or re-commence your payroll
deductions during an Offering Period only at such times as may be permitted by
us.
6. May I contribute other than through payroll deduction?
Participation in the Plan is permitted through payroll deduction only.
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7. What happens to the money deducted from my paycheck?
Payroll deductions will be credited to a Stock Purchase Account set up
on your behalf. This is merely a bookkeeping account and does not accrue any
interest. On each Purchase Date, the amount then credited to your Stock Purchase
Account (subject to certain limitations) will be applied to the purchase of
Shares.
8. What will be the price of Shares purchased under the Plan?
The Purchase Price per Share will be at a 15% discount from the lower
of the Market Value at the beginning of the Offering Period (i.e., the last
trading day prior to the first day of the Offering Period), or the Market Value
on the applicable Purchase Date. Market Value means the closing price for a
Share on the Nasdaq National Market for the applicable day, or if unavailable,
the average of the closing bid and asked prices per Share at the end of regular
trading on such date.
9. How many Shares can I purchase?
The number of Shares that will be purchased on your behalf on each
Purchase Date will equal the amount then credited to your Stock Purchase
Account, divided by the applicable Purchase Price.
Example
Assume that for the Offering Period commencing December 21, 2000, an
employee accumulates $2,720 in his Stock Purchase Account during the first
quarter. If the Market Value of a Share were $16 on the day before the first day
of the Offering Period (for example, December 20, 2000) and $20 on the first
interim Purchase Date (for example March 20, 2001), the Purchase Price would be
15% less than $16 ($16 less $2.40), or $13.60 per Share. Therefore, the $2,720
in the employee's Stock Purchase Account would be applied to purchase 200 Shares
of our Class A common stock ($2,720 divided by $13.60).
10. How will tax withholding obligations be satisfied?
In most cases, the purchase of Shares will result in taxable income to
you in an amount equal to the difference between the fair market value of the
Shares on the Purchase Date and the Purchase Price (see Tax Information below).
In certain jurisdictions (including the U.S.), this taxable income is treated as
wages subject to wage-based withholding. In order to satisfy this withholding
obligation, the amount required to be withheld will be deducted from your next
paycheck, and if such amount exceeds your next paycheck, you must remit a check
to your employer for any shortfall as a condition to receiving or retaining the
Shares.
Example
Referring back to the example in Question 9, the employee would have
taxable income of $1,280 (200 Shares x ($20 - $13.60)). Assuming a withholding
rate of 35%, $448 would be withheld from the employee's next paycheck.
11. What happens if I terminate employment or otherwise become ineligible to
participate?
Your participation in the Plan ceases automatically when your
employment with us and our affiliates terminates for any reason or you remain
employed but in a class not eligible to participate in the Plan. If you
terminate employment, the entire amount in your Stock Purchase Account, if any,
will be returned to you. If you remain with us or our affiliate but cease to be
an eligible employee under the Plan, your payroll deductions will cease and any
amounts then credited to your Stock Purchase Account will be applied to the
purchase of Shares on the next Purchase Date.
12. Will my participation in the Plan automatically extend from one Offering
Period to the next?
For each new Offering Period, you must re-enroll.
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13. When do I become an owner of the Shares?
You will become an owner of the Shares when the Shares are delivered to
your Stockholder Account, which will occur on or as soon as practicable after
the applicable Purchase Date. Prior to that time you will not have any rights or
privileges of a stockholder as to any Shares which may be purchased on that
Purchase Date. Shares purchased on your behalf may be acquired from us, any of
our affiliates or in the open market.
14. What happens to the Shares I purchase?
Your Shares will be held in a Stockholder Account maintained on your
behalf by a broker or custodian selected by us.
15. May I direct that the stock certificates be delivered to me or a broker of
my choice?
Yes, so long as all withholding taxes relating to your purchase of
Shares have been collected (see Question 10). To effect a delivery of the stock
certificates, you will need to contact the broker or custodian that maintains
your Stockholder Account.
16. What happens to my dividend and voting rights?
As one of our stockholders, you will have the right to vote your Shares
and will receive any dividends as are declared. You also will receive all
reports issued to the stockholders, including annual reports, interim reports
and proxy solicitation material.
17. When may I sell my Shares?
The federal securities laws prohibit sales of Shares by persons who
possess material, non-public information about us. Therefore, Shares acquired
under the Plan should not be resold by a participant or other person who
possesses such information. Sales are also subject to our employee trading
policies. If you are not in possession of material, non-public information about
us, you comply with our employee trading policies, you are not an "affiliate" of
ours, as such term is defined in Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act"), and you follow the procedures set out in
Question 18, you may freely resell Shares acquired by you under the Plan,
provided that for so long as you are an employee of us or any of our affiliates
you will be subject to our trading policies, which include a prohibition on
sales except during certain "window" periods announced by us.
18. How do I sell my Shares?
To sell some or all of your Shares credited to your Stockholder
Account, you must contact the custodian of your Stockholder Account. Bear in
mind that you may only sell your Shares during applicable trading windows, and
that you are subject to our approval process. Shares are traded on the Nasdaq
National Market and price quotations are listed in the financial section of most
newspapers. The Shares trade under the symbol "ESPD".
19. What reports do I receive?
Payroll deductions made under the Plan will appear on your regular
paycheck stub. You will also receive or have access to periodic statements
relating to activity in your Stockholder Account.
20. Who administers the Plan?
The Plan is administered by us or a committee appointed by us. We (or
this committee) have the power and authority to administer the Plan and to make,
adopt and construe rules and regulations not inconsistent with the provisions of
the Plan. Our determination as to the interpretation of the provisions of the
Plan and the operation of the Plan are final and conclusive. We may engage
outside administrators to perform certain ministerial and recordkeeping
functions related to the operation of the Plan. All costs and expenses in
respect of the administration of the Plan will be paid by us or an affiliate of
ours. However, you will be responsible for any sales commission charged when you
sell your Shares.
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21. What is the effect of a stock split, stock dividend, etc.?
Proportional changes in the number of Shares subject to the Plan and in
the calculation of the Purchase Price per Share on Purchase Date may be made in
the event of a stock dividend or stock split or certain other increases or
decreases of or changes to outstanding Shares during an Offering Period.
22. How may the Plan be changed?
Our board of directors may amend, suspend or terminate the Plan at any
time and in any respect, and any affiliate of ours that has adopted the Plan
may, at any time, suspend or terminate the participation in the Plan by its
employees.
23. Should I participate in the Plan?
The decision is up to you. Management personnel are not authorized to
suggest what your personal decision should be. Accordingly, you should consider
your own personal financial goals to determine whether buying Shares fits in
with your long-range personal financial plans.
24. When does the Plan end?
The Plan will end if and when the Shares cease to be listed on a
nationally recognized stock exchange or quotation system, and at any other time
determined by our board of directors. Upon termination of the Plan, any cash
balance remaining in your Stock Purchase Account will be refunded to you.
25. How may I obtain additional information about the Plan?
You may obtain additional information regarding the Plan by contacting
the Human Resources department at the address below:
eSpeed, Inc.
One World Trade Center
New York, New York 10048
(212) 938-5159
26. Are my rights under the Plan transferable?
During your lifetime, your rights under the Plan are exercisable only
by you. Upon your death, title to your Stockholder Account will pass in
accordance with your will or the laws of descent and distribution.
TAX INFORMATION
The following is a general description of the material income tax
consequences of Awards granted under the Plan. It does not purport to be
complete. The following tax analysis is intended to summarize certain relevant
income tax consequences of the Plan in effect as of the date of this
description. Legislation may be enacted and regulations may be issued in the
future which create different tax consequences. In view of the individual nature
of tax consequences, participants are urged to consult their own tax advisors
regarding the application of the tax laws to their particular situations.
United States
Upon allocation of shares of Class A common stock to an employee under
the Plan, the employee will recognize ordinary income to the extent that the
Market Value of the Class A common stock on the date of purchase exceeds the
Purchase Price (the "Discounted Value"). Payroll withholding (including
withholding for FICA taxes) on the Discounted Value is required. If the employee
holds and later sells such shares, any additional gain (or loss) over (or below)
the fair market value of the shares on the
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Purchase Date will be a capital gain (or loss). The holding period for the
purposes of determining whether such capital gain or loss will be short term or
long term will generally be measured starting with the Purchase Date. At
present, capital gain on the sale of property held for more than one year is
taxable at a maximum rate of 20%, and capital gain on the sale of property held
for one year or less is taxable at ordinary income rates.
United Kingdom
Upon an allocation of shares of Class A common stock to an employee
under the Plan, the employee will recognize taxable income (at the employee's
marginal rate) on the Discounted Value. The employer and the employee are liable
for social security contributions on the Discounted Value at rates of 12.2% and
10%, respectively, up to current annual salary of (pound)27,820 (limit on
employee contribution only). Withholding of income tax and social security
contributions on the Discounted Value is required by the employer. The employer
is required to make a report to Inland Revenue reflecting the Discounted Value
recognized by each employee and identifying the employees involved. In addition,
the subscription for Shares must be reported by the employer on its P11D (annual
benefit statements), P35 (employer's annual return) and P14 (individual end of
year returns) reportings.
Canada
Upon an allocation of Class A common stock to an employee under the
Plan, the employee will recognize taxable income on the Discounted Value. The
Discounted Value is treated as income for social security tax purposes as well
as for purposes of contributions to the Canadian national pension system
(Revenue Canada). No payroll tax withholding is required.
France
Upon an allocation of Class A common stock to an employee under the
Plan, the employee will recognize taxable income to the extent that (i) the
average of the daily closing prices of the shares in the month up to the date of
acquisition exceeds (ii) the Purchase Price (the "Normal Value"). There is no
income tax withholding requirement imposed on the employer. The employer and the
employee are liable for social security taxes, including CSG and CRDS surtaxes,
on the Normal Value at a rate of up to 22%. The employee portion of such social
security taxes is withheld by the employer and deposited, together with the
employer portion, to the social authorities. The employer is required to report
the Normal Value (i) on the employee's payslips during the month of allocation
and (ii) on its annual Declaration of Salaries.
Germany
Upon an allocation of Class A common stock to an employee under the
Plan, the employee will recognize taxable income on the Discounted Value. The
employer is required to withhold income tax and social security contributions on
the Discounted Value and deposit such withholdings with its regular
withholdings. The employer is required to report the Discounted Value on the
employee's Lohnsteuerkarte (annual pay report).
Hong Kong
Upon an allocation of Class A common stock to an employee under the
Plan, the employee will recognize taxable income on the Discounted Value. The
employee must report the income on his annual tax return and pay tax at the
lower of (i) 15% (with no deduction for personal allowances) or (ii) progressive
rates from 2 - 17% (after deduction for personal allowances). The employer is
required to
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report the Discounted Value on its annual return (IR56B) for the year in which
the Class A common stock is transferred to the employee.
Italy
Upon an allocation of Class A common stock to an employee under the
Plan, the employee may recognize taxable income to the extent that the Normal
Value is Lit 4 million or more in a fiscal year. Income tax liability can be
avoided if (i) the Plan is offered to all employees, (ii) the shares are held
for at least three years from date of acquisition, (iii) the shares are not
repurchased by the employer (or by the issuing company), and (iv) the shares are
issued by the employer (or a company related to the employer). The employer and
the employee are liable for social security taxes on the Normal Value at rates
equal to approximately 30-31% (employer) and 9% (employee). The Normal Value, to
the extent taxable to the employee, is subject to income and social security tax
withholding by the employer together with the employee's regular compensation.
The employer is required to report the Normal Value (i) on the employee's annual
CUD (annual pay report) and (ii) on its annual Withholding Agent's Tax Return,
Form 770.
Japan
Upon an allocation of Class A common stock to an employee under the
Plan, the employee will recognize taxable income on the Discounted Value. The
employer and employee are subject to social taxes on the Discounted Value. The
Discounted Value is subject to income and social security tax withholding by the
employer together with the employee's regular compensation. The employer is
required to report the Discounted Value (i) on the employee's annual wage and
withholding certificate (Gensenchoshu-hyo) and (ii) on its annual Withholding
Agent's Tax Return, Form 770.
Other Jurisdictions
If you are a taxpayer in state, local or non-U.S jurisdictions other
than those specified above, you should consult with your personal tax adviser.
As a general rule, the difference between the value of the Class A common stock
allocated to you (which, in some jurisdictions, may be other than the trading
price at such time) over the Purchase Price will be taxable, although this may
not be true in all jurisdictions.
Employer Deduction
As a general rule, your employer will be entitled to a deduction
against its taxable income equal to the difference between the value of the
Class A common stock allocated to you over the Purchase Price, although this may
not be true in all jurisdictions.
Withholding Taxes
We or any of our affiliates is authorized to satisfy any tax
withholding obligation that may arise with respect to the purchase or we or
disposition of Class A common stock under the Plan through any means it deems
appropriate. If you are subject to tax in a jurisdiction that imposes a
withholding tax at the time of purchase of Class A common stock (such as the
U.S.), then withholding taxes due will be withheld from your next paycheck. If
such paycheck is insufficient to cover the withholding taxes, you must remit a
check to your employer for any shortfall as a condition to receiving or
retaining Class A common stock.
Your income tax liability is your responsibility.
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GENERAL INFORMATION ABOUT OUR COMPANY
OVERVIEW OF OUR BUSINESS
We are a leading provider of business-to-business electronic
marketplace solutions for the trading of products via the Internet or over our
global privately managed network. Our eSpeed(Servicemark) system enables us to
operate an integrated trading network engaged in electronic trading in multiple
products and marketplaces on a global basis. Today, our global systems execute
in excess of $45 trillion in annual transaction volume in over 40 financial
marketplaces. Our existing client base comprises more than 500 leading dealers,
banks, other financial institutions and energy and other trading companies,
including the 25 largest bond trading firms in the world. We have offices in the
U.S., Canada, Europe and Asia.
Our eSpeed(Servicemark) system employs our international high-speed
private electronic network and proprietary transaction processing software,
enabling significant capacity for fully electronic trading by our clients. We
believe these components form one of the most robust large scale, instantaneous
trading systems in the world. Our network is internationally distributed and
permits market participants to view information and execute trades in a fraction
of a second from locations around the globe. Our system operates a fully
regulated U.S. futures exchange currently known as the Cantor
Exchange(Servicemark), the first fully electronic futures exchange in the U.S.
Our eSpeed(Servicemark) system includes our proprietary trading
application engine, which currently processes 150 transactions per second per
tradable instrument, our proprietary credit and risk module, which provides
real-time credit analysis and oversight, and our back-office and clearance
modules, which provide straight-through processing. Our eSpeed(Servicemark)
system is accessible to our clients in four ways: through our proprietary
application programming interface (or API), through a dedicated software
application, via the Internet through a browser interface or Java applet, or
through front-end trading systems developed by third-party software companies.
Our revenues are primarily driven by trading activity and volumes in
the marketplaces we operate. eSpeed Online(Servicemark) offers
business-to-business or business-to-consumer connections to our marketplaces and
gives our clients the ability to execute retail, small and "odd-lot" orders with
our business-to-business markets. eSpeed Private Label(Servicemark) enables our
clients through licensing agreements to create a customized version of our
eSpeed(Servicemark) system for the dissemination of their products to their
customers, quickly and easily.
Our objective is to provide our global trading solutions to leading
business-to-business marketplaces across various industry verticals, including
financial products, energy and bandwidth, by deploying our suite of products and
our marketplace expertise. We believe our proven eSpeed suite of products
enables us to introduce and distribute a broad mix of financial products and
services more quickly, cost effectively and seamlessly than our competitors.
RISK FACTORS
The purchase of our Class A common stock involves substantial
investment risks. You should carefully consider the following risk factors,
together with the other information in this prospectus, before purchasing our
Class A common stock. If any of the following risks actually occurs, our
business, financial condition or results of operations could be materially
adversely affected, the trading price of our Class A common stock could decline
and you may lose all or part of your investment.
RISKS RELATED TO OUR COMPANY AND OUR BUSINESS
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Because we have a limited operating history, you may not be able to accurately
evaluate us.
We have had limited operations to date and, as a result, we have a
limited operating history upon which to evaluate the merits of investing in our
Class A common stock. As an early stage company, we are subject to risks,
expenses and difficulties associated with implementing our business plan that
are not typically encountered by more mature companies. In particular, our
prospects are subject to risks, expenses and uncertainties encountered by
companies in the new and rapidly evolving market for electronic commerce
products and services. These risks include our failure or inability to:
o provide services to our clients that are reliable and
cost-effective;
o expand our sales structure and marketing programs;
o increase awareness of our brand or market positioning;
o respond to technological developments or service offerings by
competitors; and
o expand into other non-financial markets.
We may not be able to implement our business plan successfully, or at all.
Because we have a history of losses, we expect to continue to incur losses and
generate negative cash flow from operations for the foreseeable future.
Since our inception, we have incurred substantial costs to develop our
technology and infrastructure. As a result, from our inception through September
30, 2000, we have sustained cumulative net losses of approximately $67.8
million. We expect that we will continue to incur losses and generate negative
cash flow from operations for the foreseeable future as we continue to develop
our systems and infrastructure and expand our brand recognition and client base
through increased marketing efforts.
If we do not expand the use of our electronic systems, or if our and Cantor's
clients do not use our marketplaces or services, our revenues and profitability
will be adversely affected.
The use of electronic marketplaces is relatively new. The success of
our business plan depends, in part, on our ability to maintain and expand the
network of brokers, dealers, banks and other financial and non-financial
institutions that will use our interactive electronic marketplaces. We cannot
assure you that we will be able to continue to expand our vertical marketplaces,
or that we will be able to retain the current participants in our marketplaces.
None of our agreements with market participants require them to use our
electronic marketplaces.
If we are unable to enter into additional marketing and strategic alliances or
our current strategic alliances are not successful, we may not generate
increased trading in our electronic marketplaces.
We expect to continue to enter into strategic alliances with other
market participants, such as retail brokers, exchanges, energy companies,
communication companies, market makers, consortia, clearinghouses, major market
participants and technology companies, in order to increase client access to and
use of our electronic marketplaces. We cannot assure you that we will be able to
continue to enter into these strategic alliances on terms that are favorable to
us, or at all. In addition, we cannot assure you that our current strategic
alliances, such as TradeSpark, will be successful. The success of our current
and future relationships will depend on the level of increased trading in our
electronic marketplaces by the
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customers of these strategic alliance partners. These arrangements may not
generate the number of new clients or increased trading volume we are seeking.
To increase awareness of our electronic marketplaces, we may need to incur
significant marketing expenses.
To successfully execute our business plan, we must build awareness and
understanding of our electronic marketplace services, products, brand and the
adaptability of our electronic marketplaces for non-financial vertical markets.
In order to build this awareness, our marketing efforts must succeed and we must
provide high quality services. These efforts may require us to incur significant
expenses. We cannot assure you that our marketing efforts will be successful or
that the allocation of funds to these marketing efforts will be the most
effective use of those funds.
If we experience computer systems failures or capacity constraints, our ability
to conduct our operations could be harmed.
We internally support and maintain many of our computer systems and
networks. Our failure to monitor or maintain these systems and networks or, if
necessary, to find a replacement for this technology in a timely and
cost-effective manner would have a material adverse effect on our ability to
conduct our operations.
We also rely and expect to rely on third parties for various computer
and communications systems, such as telephone companies, online service
providers, data processors, clearance organizations and software and hardware
vendors. Our systems, or those of our third-party providers, may fail or operate
slowly, causing one or more of the following:
o unanticipated disruptions in service to our clients;
o slower response times;
o delays in our clients' trade execution;
o failed settlement of trades;
o incomplete or inaccurate accounting, recording or processing of
trades;
o financial losses;
o litigation or other client claims; and
o regulatory sanctions.
We cannot assure you that we will not experience systems failures from
power or telecommunications failure, acts of God or war, human error, natural
disasters, fire, power loss, sabotage, hardware or software malfunctions or
defects, computer viruses, intentional acts of vandalism and similar events. The
assets acquired by us from Cantor in the formation transactions have been
acquired by us "as is." Although Cantor used in its business the systems and
technology it transferred to us in connection with the formation transactions,
there can be no assurance that such systems and technology were or are entirely
free from defects. To the extent any defects are discovered, we will not have
any recourse against Cantor. Any system failure that causes an interruption in
service or decreases the responsiveness of our
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service, including failures caused by client error or misuse of our systems,
could damage our reputation, business and brand name.
If we do not effectively manage our growth, our existing personnel and systems
may be strained and our business may not operate efficiently.
In order to execute our business plan, we must grow significantly. This
growth will place significant strain on our personnel, management systems and
resources. We expect that the number of our employees, including technical and
management-level employees, may continue to increase for the foreseeable future.
We must continue to improve our operational and financial systems and managerial
controls and procedures, and we will need to continue to expand, train and
manage our technical workforce. We must also maintain close coordination among
our technical, compliance, accounting, finance and marketing and sales
organizations. We cannot assure you that we will manage our growth effectively,
and failure to do so could result in our business operating inefficiently.
If we are unable to keep up with rapid technological changes, we may not be able
to compete effectively.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality, accessibility and features of our proprietary
software, network distribution systems and technologies. The financial services
and e-commerce industries are characterized by rapid technological change,
changes in use and client requirements and preferences, frequent product and
service introductions embodying new technologies and the emergence of new
industry standards and practices that could render our existing proprietary
technology and systems obsolete. Our success will depend, in part, on our
ability to:
o develop and license leading technologies useful in our business;
o enhance our existing services;
o develop new services and technologies that address the
increasingly sophisticated and varied needs of our existing and
prospective clients; and
o respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
The development of proprietary electronic trading technology entails
significant technical, financial and business risks. Further, the adoption of
new Internet, networking or telecommunications technologies may require us to
devote substantial resources to modify and adapt our services. We cannot assure
you that we will successfully implement new technologies or adapt our
proprietary technology and transaction-processing systems to client requirements
or emerging industry standards. We cannot assure you that we will be able to
respond in a timely manner to changing market conditions or client requirements.
If we were to lose the services of members of management and employees who
possess specialized market knowledge and technology skills, we may not be able
to manage our operations effectively or develop new electronic marketplaces.
Our future success depends, in significant part, on the continued
service of Howard Lutnick, our Chairman and Chief Executive Officer, Frederick
Varacchi, our President and Chief Operating Officer, and our other executive
officers and managers and sales and technical personnel who possess extensive
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knowledge and technology skills in our markets. We cannot assure you that we
would be able to find an appropriate replacement for Mr. Lutnick or Mr. Varacchi
if the need should arise. Any loss or interruption of Mr. Lutnick's or Mr.
Varacchi's services could result in our inability to manage our operations
effectively and/or develop new electronic marketplaces. We have not entered into
employment agreements with and we do not have "key person" life insurance
policies on any of our executive officers or other personnel. All of the members
of our senior management team are also officers or key employees of Cantor. As a
result, they dedicate only a portion of their professional efforts to our
business and operations. We cannot assure you that the time these persons devote
to our business and operations in the future will be adequate and that we will
not experience an adverse effect on our operations due to the demands placed on
our management team by their other professional obligations. We intend to strive
to provide high quality services that will allow us to establish and maintain
long-term relationships with our clients. Our ability to do so will depend, in
large part, upon the individual employees who represent us in our dealings with
clients. The market for qualified programmers, technicians and sales persons is
extremely competitive and has grown more so in recent periods as electronic
commerce has experienced growth. We cannot assure you that we will be successful
in our efforts to recruit and retain the required personnel.
If Cantor or we are unable to protect the intellectual property rights we
license from Cantor or own, our ability to operate electronic marketplaces may
be materially adversely affected.
Our business is dependent on proprietary technology and other
intellectual property rights. We license our patented technology from Cantor.
The license arrangement is exclusive, except in the event that (1) we are
unwilling to provide to Cantor any requested services covered by the patents
with respect to a marketplace and Cantor elects not to require us to do so, or
we are unable to provide such services or (2) we do not exercise our right of
first refusal to provide to Cantor electronic brokerage services with respect to
a marketplace, in which case Cantor retains a limited right to use the patents
and patent applications solely in connection with the operation of that
marketplace. We cannot guarantee that the concepts which are the subject of the
patents and patent applications covered by the license from Cantor are
patentable or that issued patents are or will be valid and enforceable. Where
patents are granted in the U.S., we can give no assurance that equivalent
patents will be granted in Europe or elsewhere, as a result of differences in
local laws affecting patentability and validity. Moreover, we cannot guarantee
that Cantor's issued patents are valid and enforceable, or that third parties
competing or intending to compete with us will not infringe any of these
patents. Despite precautions we or Cantor has taken or may take to protect our
intellectual property rights, it is possible that third parties may copy or
otherwise obtain and use our proprietary technology without authorization. It is
also possible that third parties may independently develop technologies similar
to ours. It may be difficult for us to monitor unauthorized use of our
proprietary technology and intellectual property rights. We cannot assure you
that the steps we have taken will prevent misappropriation of our technology or
intellectual property rights.
We intend to use our eSpeed service mark for the services described
herein and have applied to register that service mark in a number of
jurisdictions around the world. Although several existing third-party
registrations and applications for trademarks consisting of designations similar
to ours in certain countries have recently come to light, they are for goods and
services that are different from those being offered under our eSpeed service
mark. Although we are not presently aware of any third party objections to our
use or registration of our eSpeed service mark in these countries, and believe
we could defend against any third-party claims asserted in these countries, such
registrations and applications could potentially affect the registration, and/or
limit our use, of our eSpeed service mark in these countries, thereby requiring
us to adopt and use another service mark for our services in such countries.
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If it becomes necessary to protect or defend our intellectual property rights,
we may have to resort to costly litigation.
We may have to resort to litigation to enforce our intellectual
property rights, protect our trade secrets, determine the validity and scope of
the proprietary rights of others or defend ourselves from claims of
infringement, invalidity or unenforceability. We may incur substantial costs and
diversion of resources as a result of litigation, even if we win. In the event
we do not win, we may have to enter into royalty or licensing agreements. We
cannot assure you that an agreement would be available to us on reasonable
terms, if at all.
If our software licenses from third parties are terminated, our ability to
operate our business may be materially adversely affected.
We license software from third parties, much of which is integral to
our systems and our business. The licenses are terminable if we breach our
obligations under the license agreements. If any of these relationships were
terminated or if any of these third parties were to cease doing business, we may
be forced to spend significant time and money to replace the licensed software.
However, we cannot assure you that the necessary replacements will be available
on reasonable terms, if at all.
If the strength of our domain names is diluted, the value of our proprietary
rights may decrease.
We own many Internet domain names, including "www.espeed.com." The
regulation of domain names in the U.S. and in foreign countries may change and
the strength of our names could be diluted. We may not be able to prevent third
parties from acquiring domain names that infringe or otherwise decrease the
value of our trademarks and other proprietary rights.
If we infringe on patent rights or copyrights of others, we could become
involved in costly litigation.
Patents or copyrights of third parties may have an important bearing on
our ability to offer certain of our products and services. We cannot assure you
that we are or will be aware of all patents or copyrights containing claims that
may pose a risk of infringement by our products and services. In addition,
patent applications in the U.S. are generally confidential until a patent is
issued. As a result, we cannot evaluate the extent to which our products and
services may be covered or asserted to be covered by claims contained in pending
patent applications. In general, if one or more of our products or services were
to infringe patents held by others, we may be required to stop developing or
marketing the products or services, to obtain licenses to develop and market the
services from the holders of the patents or to redesign the products or services
in such a way as to avoid infringing on the patent claims, which could limit the
manner in which we conduct our operations.
Due to intense competition in the financial vertical market, our market share
and financial performance could suffer.
The electronic trading and Internet-based financial services markets
are highly competitive and many of our competitors are more established and have
greater financial resources than us. We expect that competition will intensify
in the future. Many of our competitors also have greater market presence,
engineering and marketing capabilities and technological and personnel resources
than we do. As a result, as compared to us, our competitors may:
o develop and expand their network infrastructures and service
offerings more efficiently or more quickly;
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o adapt more swiftly to new or emerging technologies and changes in
client requirements;
o take advantage of acquisitions and other opportunities more
effectively;
o devote greater resources to the marketing and sale of their
products and services; and
o more effectively leverage existing relationships with clients and
strategic partners or exploit more recognized brand names to
market and sell their services.
Our current and prospective competitors in the financial vertical market
are numerous and include:
o Interdealer brokerage firms, including Tullet & Tokyo Liberty plc
and Garban-Intercapital plc;
o Technology companies and market data and information vendors,
including Reuters Group plc, Bloomberg L.P. and Bridge
Information Systems, Inc.;
o Securities, futures exchanges or similar entities, including the
Chicago Board of Trade, the Chicago Mercantile Exchange, the
Chicago Board of Options Exchange, Eurex, the New York Stock
Exchange and the Nasdaq National Market;
o Electronic communications networks, crossing systems and similar
entities such as Investment Technology Group and Optimark
Technologies Inc.;
o Software companies such as OM Gruppen; and
o Consortia such as BrokerTec Global LLC and EuroMTS.
In the business-to-business sector in general, we compete with
business-to-business marketplace infrastructure companies like Ariba and
CommerceOne, as well as with other Internet-based marketplace trading and
infrastructure platforms. In the energy business-to-business sector, we compete
with niche market Internet-based trading systems, including AltraEnergy Trading,
InterContinental Exchange, OM Gruppen and HoustonStreet.
We believe that we may also face competition from large computer
software companies, media and technology companies and some securities brokerage
firms that are currently our clients. In addition, Market Data Corporation,
which is controlled by Iris Cantor and Rodney Fisher, has technology for
electronic trading systems that, if provided to our competitors in the wholesale
market, will be of substantial assistance to them in competing with us. Iris
Cantor and Rod Fisher are limited partners of Cantor.
The number of businesses providing Internet-based financial services is
rapidly growing, and other companies, in addition to those named above, have
entered into or are forming joint ventures or consortia to provide services
similar to those provided by us. Others may acquire the capabilities necessary
to compete with us through acquisitions.
In the event we extend the application of our Interactive
Matching(Servicemark)
technology to conducting or facilitating auctions of consumer goods and services
over the Internet, we expect to compete with both online and traditional sellers
of these products and services. The market for selling products and services
over the Internet is new, rapidly evolving and intensely competitive. Current
and new competitors can launch new sites at a relatively low cost. We expect we
will potentially compete with a variety of
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companies with respect to each product or service we offer. We may face
competition from e-Bay, priceline.com, Amazon.com and a number of other large
Internet companies that have expertise in developing online commerce and in
facilitating Internet traffic, including America Online, Microsoft and Yahoo!,
which could choose to compete with us either directly or indirectly through
affiliations with other e-commerce companies. We cannot assure you that we will
be able to compete effectively with such companies.
Because some of our clients may develop electronic trading networks, we could
compete with them in aspects of our business.
Consortia owned by some of our clients have announced their intention
to explore the development of electronic trading networks. BrokerTec Global LLC,
an electronic inter-dealer fixed income broker whose members include many of the
largest financial services institutions, has opened a facility for electronic
trading of certain fixed income securities and may develop or acquire a facility
for electronic trading of other fixed income securities and futures-related
products in the future. All of the members of BrokerTec Global LLC are currently
clients of Cantor and ours. Consortia such as BrokerTec Global LLC may compete
with us and our electronic marketplaces in the future. We currently compete with
a similar consortium called EuroMTS in Europe. The members of EuroMTS include
the leading fixed income dealers in European government securities, which are
clients of Cantor and ours.
If we experience low trading volume in securities and financial products, our
profitability could suffer.
We have experienced significant fluctuations in the aggregate trading
volume of securities and financial products being traded in our marketplaces. We
expect that fluctuations in the trading volume of securities and financial
products traded in our marketplaces will occur in the future from time to time
and have a direct impact on our future operating results. This may cause
significant fluctuations in our profitability when the trading volumes are low.
If adverse economic and political conditions occur, substantial declines in the
U.S. and global financial services markets may result and our profitability
could suffer.
The global financial services business is, by its nature, risky and
volatile and is directly affected by many national and international factors
that are beyond our control. Any one of these factors may cause a substantial
decline in the U.S. and global financial services markets, resulting in reduced
trading volume and turnover. These events could materially adversely affect our
profitability. These factors include:
o economic and political conditions in the U.S. and elsewhere in
the world;
o concerns over inflation and wavering institutional/consumer
confidence levels;
o the availability of cash for investment by mutual funds and other
wholesale and retail investors;
o rising interest rates;
o fluctuating exchange rates;
o legislative and regulatory changes; and
o currency values.
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In the past several years, the U.S. financial markets have achieved
historic highs. We do not believe these strong markets can continue
indefinitely. Our revenues and profitability are likely to decline significantly
during periods of stagnant economic conditions or low trading volume in the U.S.
and global financial markets.
Because we expect to continue to expand our operations outside North America, we
may face special economic and regulatory challenges that we may not be able to
meet.
We operate electronic marketplaces throughout Europe and Asia and we
plan to further expand our operations throughout these regions in the future.
There are certain risks inherent in doing business in international markets,
particularly in the regulated brokerage industry. These risks include:
o less developed automation in exchanges, depositories and national
clearing systems;
o unexpected changes in regulatory requirements, tariffs and other
trade barriers;
o difficulties in staffing and managing foreign operations;
o fluctuations in currency exchange rates;
o reduced protection for intellectual property rights;
o seasonal reductions in business activity during the summer
months; and
o potentially adverse tax consequences.
We are required to comply with the laws and regulations of foreign
governmental and regulatory authorities of each country in which we conduct
business. These may include laws, rules and regulations relating to any aspect
of the securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of clients' funds and securities, capital
structure, record-keeping, the financing of clients' purchases, broker-dealer
and employee registration requirements and the conduct of directors, officers
and employees. Any failure to develop effective compliance and reporting systems
could result in regulatory penalties in the applicable jurisdiction.
The growth of the Internet as a means of conducting international
business has also raised many legal issues regarding, among other things, the
circumstances in which countries or other jurisdictions have the right to
regulate Internet services that may be available to their citizens from service
providers located elsewhere. In many cases, there are no laws, regulations,
judicial decisions or governmental interpretations that clearly resolve these
issues. This uncertainty may adversely affect our ability to use the Internet to
expand our international operations, and creates the risk that we could be
subject to disciplinary sanctions or other penalties for failure to comply with
applicable laws or regulations.
If we enter new markets, we may not be able to successfully adapt our technology
and marketing strategy for use in those markets.
We intend to leverage our eSpeed(Servicemark) system and Cantor's
relationships to enter new markets. We cannot assure you that we will be able to
successfully adapt our proprietary software, electronic distribution networks
and technology for use in other markets. Even if we do adapt our software,
networks and technology, we cannot assure you that we will be able to attract
clients and compete successfully in any such new markets. We cannot assure you
that our marketing efforts or our pursuit of any of these opportunities will be
successful. If these efforts are not successful, we could suffer losses
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while developing new marketplaces or realize less than expected earnings, which
in turn could result in a decrease in the market value of our Class A common
stock. Furthermore, these efforts may divert management attention or
inefficiently utilize our resources. We intend to create electronic marketplaces
for many vertical markets and extend into others, but there is no guarantee that
we will be able to do so.
If we acquire other companies, we may not be able to integrate their operations
effectively.
Our business strategy contemplates expansion through the acquisition of
exchanges and other companies providing services or having technologies and
operations that are complementary to ours. Acquisitions entail numerous risks,
including:
o difficulties in the assimilation of acquired operations and
products;
o diversion of management's attention from other business concerns;
o assumption of unknown material liabilities of acquired companies;
o amortization of acquired intangible assets, which would reduce
future reported earnings; and
o potential loss of clients or key employees of acquired companies.
We cannot assure you that we will be able to integrate successfully any
operations, personnel, services or products that might be acquired in the
future, and our failure to do so could adversely affect our profitability and
the value of our Class A common stock.
Because our business is subject to extensive government and other regulation, we
may face restrictions with respect to the way we conduct our operations.
The SEC, NASD Regulation, Inc., Commodity Futures Trading Commission
and other agencies extensively regulate the U.S. financial industry. Our
international operations may be subject to similar regulations in specific
jurisdictions. Certain of our U.S. subsidiaries are required to comply strictly
with the rules and regulations of these agencies. As a matter of public policy,
these regulatory bodies are responsible for safeguarding the integrity of the
securities and other financial markets and protecting the interests of investors
in those markets. Most aspects of our U.S. broker-dealer subsidiaries are highly
regulated, including:
o the way we deal with our clients;
o our capital requirements;
o our financial and SEC reporting practices;
o required record keeping and record retention procedures;
o the licensing of our employees; and
o the conduct of our directors, officers, employees and affiliates.
If we fail to comply with any of these laws, rules or regulations, we
may be subject to censure, fines, cease-and-desist orders, suspension of our
business, suspensions of personnel or other sanctions, including revocation of
registration as a broker-dealer. Changes in laws or regulations or in
governmental
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policies could have a material adverse effect on the conduct of our business.
These agencies have broad powers to investigate and enforce compliance and
punish non-compliance with their rules and regulations. We cannot assure you
that we and/or our directors, officers and employees will be able to fully
comply with, and will not be subject to, claims or actions by these agencies.
Our activities in the Energy Vertical may be subject to regulation by
the Federal Energy Regulatory Commission under the Federal Power Act. It is
possible that TradeSpark will be considered a public utility under the Federal
Power Act and will therefore be subject to regulatory burdens with respect
thereto.
The consumer products and services we anticipate offering through our
electronic marketplaces are likely to be regulated by federal, state and foreign
governments. Our ability to provide such services will be affected by these
regulations. In addition, as we expand our business to other vertical markets,
it is likely that we will be subject to additional federal, state and foreign
regulations. The implementation of unfavorable regulations or unfavorable
interpretations of existing regulations by courts or regulatory bodies could
require us to incur significant compliance costs or cause the development of
affected markets to become impractical.
Because we are subject to risks associated with net capital requirements, we may
not be able to engage in operations that require significant capital.
The SEC, Commodity Futures Trading Commission and various other
regulatory agencies have stringent rules and regulations with respect to the
maintenance of specific levels of net capital by broker-dealers. Net capital,
which is assets minus liabilities, is the net worth of a broker or dealer, less
deductions for certain types of assets. If a firm fails to maintain the required
net capital, it may be subject to suspension or revocation of registration by
the Securities and Exchange Commission or Commodity Futures Trading Commission,
and suspension or expulsion by these regulators could ultimately lead to the
firm's liquidation. If these net capital rules are changed or expanded, or if
there is an unusually large charge against net capital, operations that require
the intensive use of capital would be limited. Also, our ability to withdraw
capital from broker-dealer subsidiaries could be restricted, which in turn could
limit our ability to pay dividends, repay debt and redeem or purchase shares of
our outstanding stock. A large operating loss or charge against net capital
could adversely affect our ability to expand or even maintain our present levels
of business, which could have a material adverse effect on our business. In
addition, we may be subject to net capital requirements in foreign
jurisdictions.
Because we intend to offer access to some of our marketplaces to online retail
brokers and others, we are subject to risks relating to uncertainty in the
regulation of the Internet.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing,
taxation and the characteristics and quality of products and services. For
example, the Telecommunications Act sought to prohibit transmitting various
types of information and content over the Internet. Several telecommunications
companies have petitioned the Federal Communications Commission to regulate
Internet service providers and other online service providers in a manner
similar to long distance telephone carriers and to impose access fees on those
companies. This could increase the cost of transmitting data over the Internet.
Moreover, it may take years to determine the extent to which existing laws
relating to issues such as property ownership, libel and personal privacy are
applicable to the Internet. Any new laws or regulations relating to the Internet
could adversely affect our business.
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Because brokerage services involve substantial risks of liability, we may become
subject to risks of litigation.
Many aspects of our business, and the businesses of our clients,
involve substantial risks of liability. Dissatisfied clients frequently make
claims regarding quality of trade execution, improperly settled trades,
mismanagement or even fraud against their service providers. We and our clients
may become subject to these claims as the result of failures or malfunctions of
systems and services provided by us and may seek recourse against us. We could
incur significant legal expenses defending claims, even those without merit. An
adverse resolution of any lawsuits or claims against us could result in our
obligation to pay substantial damages.
In addition, we may also become subject to legal proceedings and claims
against Cantor and its affiliates as a result of the formation transactions.
Although Cantor has agreed to indemnify us against claims or liabilities arising
from our assets or operations prior to the formation transactions, we cannot
assure you that such claims or litigation will not harm our business.
If we cannot deter employee misconduct, we may be harmed.
There have been a number of highly publicized cases involving fraud or
other misconduct by employees in the financial services industry in recent
years, and we run the risk that employee misconduct could occur. Misconduct by
employees could include hiding unauthorized or unsuccessful activities from us.
In either case, this type of conduct could result in unknown and unmanaged risks
or losses. Employee misconduct could also involve the improper use of
confidential information, which could result in regulatory sanctions and serious
reputational harm. It is not always possible to deter employee misconduct, and
the precautions we take to prevent and detect this activity may not be effective
in all cases.
Because our business is developing, we cannot predict our future capital needs
or our ability to secure additional financing.
We anticipate, based on management's experience and current industry
trends, that our existing cash resources, combined with the net proceeds we
received from our initial public offering, will be sufficient to meet our
anticipated working capital and capital expenditure requirements for at least
the next 12 months. However, we believe that there are a significant number of
capital intensive opportunities for us to maximize our growth and strategic
position, including, among other things, acquisitions, joint ventures, strategic
alliances or other investments. As a result, we may need to raise additional
funds to:
o increase the regulatory net capital necessary to support our
operations;
o support more rapid growth in our business;
o develop new or enhanced services and products;
o respond to competitive pressures;
o acquire complementary technologies;
o enter into strategic alliances;
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o acquire companies with marketplace or other specific domain
expertise; and
o respond to unanticipated requirements.
We cannot assure you that we will be able to obtain additional
financing when needed on terms that are acceptable, if at all.
The market price of our Class A common stock may fluctuate.
The market price of our Class A common stock may fluctuate widely,
depending upon many factors, including our perceived prospects, and the
prospects of the financial and other business-to-business marketplaces in
general, differences between our actual financial and operating results and
those expected by investors and analysts, changes in analysts' recommendations
or projections, changes in general valuations for Internet and
e-commerce-related companies, changes in general economic or market conditions
and broad market fluctuations.
Future sales of our shares also could adversely affect the market price
of our Class A common stock. If our existing stockholders sell a large number of
shares, or if we issue a large number of shares of our common stock in
connection with future acquisitions, strategic alliances or otherwise, the
market price of our Class A common stock could decline significantly. Moreover,
the perception in the public market that these stockholders might sell shares of
Class A common stock could depress the market price of our Class A common stock.
We have registered under the Securities Act on Form S-8 10,200,000
shares of our Class A common stock, which are reserved for issuance upon
exercise of options granted under our Long-Term Incentive Plan. If we increase
our total outstanding shares of common stock, we will register additional shares
of Class A common stock so that the stock available for issuance under our
Long-Term Incentive Plan will be registered. We also have registered under the
Securities Act on Form S-8 425,000 shares of our Class A common stock issuable
under our Employee Stock Purchase Plan, 1,000,000 shares of our Class A common
stock issuable under the Plan and 500,000 shares of our Class A common stock
issuable under our Deferral Plan for Employees of Cantor Fitzgerald and its
Affiliates. We also are in the process of registering under the Securities Act
on Form S-3 430,000 shares of our Class A common stock issuable under our
Long-Term Incentive Plan to employees of Cantor who may not be eligible to be
covered under a Form S-8 registration statement. Once registered, all of these
shares can be sold in the public market upon issuance, subject to restrictions
under the securities laws applicable to resales by affiliates. We may register
additional shares of Class A common stock pursuant to other employee benefit
plans.
RISKS RELATED TO OUR RELATIONSHIP WITH CANTOR
Because we currently depend on Cantor's business, events which impact Cantor's
operating results may have a material adverse effect on our revenues.
We recognized over 66% of our revenues for the period from March 10,
1999 to December 31, 1999 and over 81% for the nine months ended September 30,
2000 from transactions in which we received amounts based on fixed percentages
of commissions paid to Cantor. Consequently, any reductions in the amount of
commissions paid to Cantor, including events which impact Cantor's business or
operating results, could have a material adverse effect on our most significant
source of revenues.
In addition, fees paid to us by Cantor for system services represented
32.6% of our revenues for the period from March 10, 1999 to December 31, 1999
and over 10% for the nine months ended September 30, 2000. These fee revenues
are remitted to us on a monthly basis.
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We are a general creditor of Cantor to the extent that there are
transaction revenues and system service fees owing to us from Cantor. Events
that negatively impact Cantor's financial position and ability to remit our
share of transaction revenues and system service fees could have a material
adverse effect on our revenues.
Conflicts of interest and competition with Cantor may arise.
Various conflicts of interest between us and Cantor may arise in the
future in a number of areas relating to our past and ongoing relationships,
including competitive business activities, potential acquisitions of businesses
or properties, the election of new directors, payment of dividends, incurrence
of indebtedness, tax matters, financial commitments, marketing functions,
indemnity arrangements, service arrangements, issuances of our capital stock,
sales or distributions by Cantor of its shares of our common stock and the
exercise by Cantor of control over our management and affairs. Our Joint
Services Agreement with Cantor provides that in some circumstances Cantor can
unilaterally determine the commissions that will be charged to clients for
effecting trades in marketplaces in which we collaborate with Cantor. The
determination of the nature of commissions charged to clients does not affect
the allocation of revenues that Cantor and we share with respect to those
transactions. However, in circumstances in which Cantor determines to charge
clients lower commissions, the amount that we receive in respect of our share of
the commissions will correspondingly be decreased. A majority of our directors
and officers also serve as directors and/or officers of Cantor. Simultaneous
service as an eSpeed director or officer and service as a director or officer,
or status as a partner, of Cantor could create, or appear to create, potential
conflicts of interest when such directors, officers and/or partners are faced
with decisions that could have different implications for us and for Cantor. Mr.
Lutnick, our Chairman and Chief Executive Officer, is the sole stockholder of
the managing general partner of Cantor. As a result, Mr. Lutnick controls
Cantor. Cantor owns all of the outstanding shares of our Class B common stock,
representing approximately 96.4% of the combined voting power of all classes of
our voting stock. Mr. Lutnick's simultaneous service as our Chairman and Chief
Executive Officer and his control of Cantor could create or appear to create
potential conflicts of interest when Mr. Lutnick is faced with decisions that
could have different implications for us and for Cantor.
Because our Joint Services Agreement with Cantor has a perpetual term and
contains non-competition provisions and restrictions on our ability to pursue
strategic transactions, this agreement may become burdensome to our business.
As part of the formation transactions, Cantor contributed substantially
all of our assets to us. Although Cantor has agreed, subject to certain
conditions, not to compete with us in providing electronic brokerage services,
Cantor is currently engaged in securities transaction and other financial
instruments execution and processing operations and other activities that are
related to the electronic trading services we provide. Our Joint Services
Agreement obligates us to perform technology support and other services for
Cantor at cost, whether or not related to our electronic brokerage services,
sets forth the ongoing revenue sharing arrangements between Cantor and us and
subjects us and Cantor to non-competition obligations. The Joint Services
Agreement precludes us from entering into lines of business in which Cantor now
or in the future may engage, or providing, or assisting any third party in
providing, voice-assisted brokerage services, clearance, settlement and
fulfillment services and related services, except under certain limited
circumstances in the Joint Services Agreement. Although we believe Cantor has no
plans to form, acquire or commence any other operations similar to ours, the
Joint Services Agreement permits Cantor to perform, in limited circumstances,
electronic brokerage operations. In addition, the Joint Services Agreement
imposes limitations on our ability to pursue strategic alliances, joint
ventures, partnerships, business combinations, acquisitions and similar
transactions. Because the Joint Services Agreement has a perpetual term, even in
the event of a breach by one of the parties, and does not provide for
modification under its terms, this agreement may become burdensome for us, may
distract us from
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focusing on our internal operations, may deter or discourage a takeover of our
company and may limit our ability to expand our operations.
Because agreements between us and Cantor are not the result of arm's-length
negotiations, we may receive lower commissions from, and pay higher service fees
to, Cantor than we would with respect to third party service providers.
In connection with the formation transactions, we entered into
Assignment and Assumption Agreements, an Administrative Services Agreement, a
Joint Services Agreement and several other agreements with Cantor relating to
the provision of services to each other and third parties. These agreements are
not the result of arm's-length negotiations because Cantor owns and controls us.
As a result, the prices charged to us or by us for services provided under the
agreements may be higher or lower than prices that may be charged by third
parties and the terms of these agreements may be generally less favorable to us
than those that we could have negotiated with third parties.
Because we depend on services and access to operating assets provided by third
parties to Cantor, we may not have recourse against those third parties.
Many of the assets and services provided by Cantor under the terms of
the Administrative Services Agreement are leased or provided to Cantor by third
party vendors. As a result, in the event of a dispute between Cantor and a third
party vendor, we could lose access to, or the right to use, as applicable,
office space, personnel, corporate services and operating assets. In such a
case, we would have no recourse with respect to the third party vendor. Our
inability to use these services and operating assets for any reason, including
any termination of the Administrative Services Agreement between us and Cantor
or the agreements between Cantor and third party vendors, could result in
serious interruptions of our operations.
Our reputation may be affected by actions taken by Cantor and entities that are
related to Cantor.
Cantor currently is our most significant client. Cantor holds direct
and indirect ownership and management interests in numerous other entities that
engage in a broad range of financial services and securities-related activities.
Actions taken by, and events involving, Cantor or these related companies which
are perceived negatively by the securities markets, or the public generally,
could have a material adverse effect on us and could affect the price of our
Class A common stock. In addition, events which negatively affect the financial
condition of Cantor may negatively affect us. These events could cause Cantor to
lose clients that may trade in our marketplaces, could impair Cantor's ability
to perform its obligations under the Joint Services Agreement, the
Administrative Services Agreement and other agreements Cantor enters into with
us and could cause Cantor to liquidate investments, including by selling or
otherwise transferring shares of our common stock.
If we become subject to litigation and other legal proceedings, we may be
harmed.
From time to time, we and Cantor may become involved in litigation and
other legal proceedings relating to claims arising from our and their operations
in the normal course of business. Cantor is currently subject to a number of
legal proceedings that could affect us. We cannot assure you that these or other
litigation or legal proceedings will not materially affect our ability to
conduct our business in the manner that we expect or otherwise adversely affect
us.
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RISKS RELATED TO E-COMMERCE AND THE INTERNET
If electronic marketplaces for securities and financial and non-financial
products do not continue to grow, we will not be able to achieve our business
objectives.
The success of our business plan depends on our ability to create
interactive electronic marketplaces in a wide range of securities and financial
and non-financial products. Historically, securities and commodities markets
operated through an open outcry format which have recently begun to be
supplanted by new systems that match buyers and sellers electronically.
Currently, the energy markets we participate in through TradeSpark operate
through phone-based and bulletin-board formats. The utilization of our
interactive electronic marketplaces depends on the continued acceptance and
utilization of these electronic markets for securities and financial and
non-financial products. We cannot assure you that the growth and acceptance of
the use of electronic markets will continue.
If e-commerce and Internet usage does not continue to grow, we will not be able
to achieve our business objectives.
Our strategic and financial objectives would be adversely impacted if
Internet usage does not continue to grow. Business-to-business use of the
Internet as a medium of commerce is a recent phenomenon and is subject to a high
level of uncertainty. Internet usage may be inhibited for a number of reasons,
including:
o access costs;
o inadequate network infrastructure;
o security concerns;
o uncertainty of legal, regulatory and tax issues concerning the
use of the Internet;
o concerns regarding ease of use, accessibility and reliability;
o inconsistent quality of service; and
o lack of availability of cost-effective, high-speed service.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it, or the Internet's performance and reliability
may decline. Similarly, Web sites have experienced interruptions in their
service as a result of outages and other delays occurring throughout the
Internet network infrastructure. If these outages or delays occur frequently,
use of the Internet as a commercial or business medium could grow more slowly or
decline. Even if Internet usage continues to grow, online trading in the
wholesale securities markets, and in particular the fixed income securities and
futures markets, may not be accepted by retail customers. This could negatively
affect the growth of our business.
Our networks and those of our third party service providers may be vulnerable to
security risks, which could make our clients hesitant to use our electronic
marketplaces.
We expect the secure transmission of confidential information over
public networks to be a critical element of our operations. Our networks and
those of our third party service providers, including Cantor and associated
clearing corporations, and our clients may be vulnerable to unauthorized access,
computer viruses and other security problems. Persons who circumvent security
measures could
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wrongfully use our information or cause interruptions or malfunctions in our
operations, which could make our clients hesitant to use our electronic
marketplaces. We may be required to expend significant resources to protect
against the threat of security breaches or to alleviate problems, including
reputational harm and litigation, caused by any breaches. Although we intend to
continue to implement industry-standard security measures, we cannot assure you
that those measures will be sufficient.
RISKS RELATED TO OUR CAPITAL STRUCTURE
Because the voting control of our common stock is concentrated among the holders
of our Class B common stock, the market price of our Class A common stock may be
adversely affected by disparate voting rights.
Cantor beneficially owns approximately 96.4% of the combined voting
power of all classes of our voting stock. As long as Cantor beneficially owns a
majority of the combined voting power of our common stock, it will have the
ability, without the consent of the public stockholders, to elect all of the
members of our board of directors and to control our management and affairs. In
addition, it will be able to determine the outcome of matters submitted to a
vote of our stockholders for approval and will be able to cause or prevent a
change in control of our company. In certain circumstances, the shares of our
Class B common stock issued to Cantor upon consummation of the formation
transactions may be transferred without conversion to our Class A common stock.
The holders of our Class A common stock and Class B common stock have
substantially identical rights, except that holders of our Class A common stock
are entitled to one vote per share, while holders of our Class B common stock
are entitled to ten (10) votes per share on all matters to be voted on by
stockholders in general. This differential in the voting rights and our ability
to issue additional Class B common stock could adversely affect the market price
of our Class A common stock.
Delaware law and our charter may make a takeover of our company more difficult
and dilute your percentage of ownership of our common stock.
Provisions of Delaware law, such as its business combination statute,
may have the effect of delaying, deferring or preventing a change in control of
our company. In addition, our Amended and Restated Certificate of Incorporation
authorizes the issuance of preferred stock, which our board of directors can
create and issue without prior stockholder approval and with rights senior to
those of our common stock, as well as additional shares of our Class B common
stock and warrants to purchase our common stock. Any such issuances would make a
takeover of our company more difficult and dilute your percentage ownership of
our common stock. Our Amended and Restated Certificate of Incorporation and our
Second Amended and Restated By-Laws include provisions which restrict the
ability of our stockholders to take action by written consent and provide for
advance notice for stockholder proposals and director nominations. These
provisions may have the effect of delaying or preventing changes of control or
management of our company, even if such transactions would have significant
benefits to our stockholders. As a result, these provisions could limit the
price some investors might be willing to pay in the future for shares of our
Class A common stock.
Delaware law may protect decisions of our board of directors that have a
different effect on holders of our Class A and Class B common stock.
Stockholders may not be able to challenge decisions that have an
adverse effect upon holders of our Class A common stock if our board of
directors acts in a disinterested, informed manner with respect to these
decisions, in good faith and in the belief that it is acting in the best
interests of our stockholders. Delaware law generally provides that a board of
directors owes an equal duty to all stockholders, regardless of class or series,
and does not have separate or additional duties to either group of stockholders,
subject to applicable provisions set forth in a company's charter.
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FORWARD-LOOKING STATEMENTS
The information in this prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements are based upon
current expectations that involve risks and uncertainties. Any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. For example, words such as "may," "will," "should,"
"estimates," "predicts," "potential," "continue," "strategy," "believes,"
"anticipates," "plans," "expects," "intends" and similar expressions are
intended to identify forward-looking statements. Our actual results and the
timing of certain events may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause or contribute to such a
discrepancy include, but are not limited to, those discussed elsewhere in this
prospectus in the section entitled "Risk Factors."
USE OF PROCEEDS
Any proceeds that we receive from the sale of shares offered by this
propsectus will be used for working capital and general corporate purposes.
EXPERTS
The financial statements as of December 31, 1999 have been audited by
Deloitte & Touche LLP, independent auditors, whose report is incorporated herein
by reference to our Annual Report on Form 10-K for our fiscal year ended
December 31, 1999. These financial statements are incorporated herein by
reference in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Class A common stock offered by this
prospectus is being passed upon by Morgan, Lewis & Bockius LLP, New York, New
York.
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Annex A
eSPEED, INC.
NON-QUALIFIED EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the eSpeed, Inc. Non-Qualified Employee
Stock Purchase Plan (the "Plan") is to provide eligible employees of eSpeed,
Inc. (the "Company") and its Affiliates who are not eligible to participate in
the eSpeed, Inc. Employee Stock Purchase Plan (the "Qualified Plan"), or wish to
participate to a greater extent than permitted thereunder, an opportunity to
purchase Class A common stock of the Company. The Board of Directors of the
Company (the "Board") believes that employee participation in ownership will be
to the mutual benefit of the employees and the Company. The Plan is not intended
to constitute an "employee stock purchase plan" within the meaning of section
423 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Definitions. Terms not otherwise defined herein shall have the
meaning set forth below:
(a) "Affiliate" means any entity that directly or indirectly controls,
is controlled by or is under common control with the Company, and has, with the
permission of the Board, become a participating employer in the Plan.
(b) "CFLP" means Cantor Fitzgerald, L.P., and its affiliates, other
than the Company and its direct or indirect subsidiaries.
(c) "Committee" means the Board or a committee appointed by the Board
to administer the Plan.
(d) "Compensation" means, with respect to any paycheck, either (i) the
portion thereof representing the gross remuneration paid for services rendered,
net of applicable withholdings and deductions or (ii) the portion thereof
representing base salary or regular wages, net of applicable withholdings and
deductions, as determined by the Committee.
(e) "Custodian" shall mean the independent stock brokerage firm or
other custodian designated by the Committee to accept and hold, on behalf of
Participants, Shares purchased under the Plan.
(f) "Eligible Employee" means an Employee who is eligible to
participate pursuant to Section 4(a).
(g) "Employee" means each individual who is an employee of the Company
or an Affiliate of the Company for purposes of payroll tax withholding;
provided, however, that the term Employee shall not include any individual who
is on an approved leave of absence that has exceeded 90 days and whose right to
reemployment is not guaranteed either by statute or by contract unless the
Committee determines otherwise, in its sole discretion.
(h) "Enrollment Form" means the document prescribed by the Committee
pursuant to which an Eligible Employee has enrolled to be a Participant.
(i) "Market Value" means the last sale price of a Share or, if
unavailable, the average of the closing bid and asked prices per Share at the
end of regular trading on such date (or, if there was no trading or
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quotation in the Shares on such date, on the next preceding date on which there
was trading or quotation) as provided by the national securities exchange or
interdealer quotation system on which the Shares are listed or quoted.
(j) "Offering" means each separate offering of Shares under the Plan
that occurs during each Offering Period.
(k) "Offering Date" means the date on which each Offering Period is to
commence, as determined by the Committee.
(l) "Offering Period" means a period of such duration as determined by
the Committee. Offering Periods may run consecutively or may overlap, as
determined by the Committee.
(m) "Participant" means each Eligible Employee who elects to
participate in the Plan.
(n) "Purchase Date" means the last day of each Offering Period, and
such interim dates, as determined by the Committee, on which Shares are
purchased pursuant to the Plan.
(o) "Purchase Price" shall mean the price at which a Share shall be
purchased on each Purchase Date, the method for determining which shall be set
in advance of each Offering by the Committee; provided, however, that the
Purchase Price shall not be less than 85% of the lower of (i) the Market Value
on the Offering Date, or (ii) the Market Value on the Purchase Date.
(p) "Share" means a share of Class A common stock of the Company, par
value $0.01 per share.
(q) "Stockholder Account" means the account maintained by the Custodian
to record the number of Shares allocated to each Participant under the Plan.
(r) "Stock Purchase Account" means a noninterest bearing bookkeeping
entry established by the Company or an Affiliate, which shall record all amounts
deducted from a Participant's Compensation for the purpose of purchasing Shares
for such Participant under the Plan, reduced by all amounts applied to the
purchase of Shares for such Participant under the Plan. Neither the Company nor
any Affiliate shall be required to segregate or set aside any amounts so
deducted, and such bookkeeping entry shall not represent an interest in any
assets of the Company. All deducted amounts shall remain part of the general
assets of the Company or an Affiliate until they are applied to purchase Shares
under the Plan, and until such time may be used by the Company or an Affiliate
for any corporate purpose.
3. Administration.
(a) The Plan shall be administered by the Committee, which shall have
the authority and power to adopt, construe and enforce rules and regulations not
inconsistent with the provisions of the Plan. Any action of the Committee with
respect to the Plan shall be final, conclusive and binding on all persons,
including any Affiliate of the Company, Participants and any person claiming any
rights under the Plan from or through any Participant, except to the extent the
Committee may subsequently modify, or take further action not consistent with,
its prior action. The Committee may delegate to officers or managers of the
Company or any Affiliate the authority, subject to such terms as the Committee
shall determine, to perform such functions as the Committee may determine, to
the extent permitted under applicable law.
(b) Each member of the Committee shall be entitled to, in good faith,
rely or act upon any report or other information furnished to him by any officer
or other employee of the Company or any of its Affiliates, the Company's
independent certified public accountants or any compensation consultant, legal
counsel or other professional retained by the Company or any of its Affiliates
to assist in the
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administration of the Plan. No member of the Committee, or any officer or
employee of the Company or any of its Affiliates acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and each
member of the Committee and any officer or employee of the Company or any of its
Affiliates acting on its behalf shall, to the extent permitted by law, be fully
indemnified and protected by his employer with respect to any such action,
determination or interpretation.
(c) The Committee shall designate a Custodian to accept and hold, on
behalf of Participants, Shares purchased under the Plan and allocated to their
Stockholder Accounts.
4. Eligibility and Participation.
(a) During each Offering, Employees of the Company and each Affiliate
employed on the Offering Date shall be eligible to participate in the Plan;
provided, however, that (i) Employees who are also eligible to participate in an
offering under the Qualified Plan that coincides with such Offering must first
elect to participate in the offering under the Qualified Plan to the maximum
extent permitted therein, and (ii) Employees described in section 423(b)(4) of
the Code may be excluded from participation in any Offering.
(b) Each Eligible Employee may elect to participate in an Offering by
completing an Enrollment Form at such time in advance of the commencement of the
Offering as determined by the Committee.
(c) Unless otherwise determined by the Committee, the purchase of
Shares under the Plan shall be funded solely through payroll deductions
accumulated during the Offering Period. In an Enrollment Form, an Eligible
Employee shall designate the percentage or amount of Compensation to be deducted
from each paycheck, subject to such maximum amount as may be set by the
Committee. Such payroll deductions shall be credited to the Participant's Stock
Purchase Account. Increases or decreases to a Participant's rate of payroll
deduction during an Offering Period may be permitted based on uniform rules to
be established by the Committee.
(d) Any Participant may voluntarily withdraw from the Plan by filing a
notice of withdrawal with the Committee at such time in advance as the Committee
may specify. Within a reasonable time following such withdrawal, there shall be
paid to the Participant the amount, if any, standing to his credit in his Stock
Purchase Account.
(e) If a Participant ceases to be employed by the Company or an
Affiliate, participation in the Plan shall cease and, unless otherwise
determined by the Committee, the entire amount, if any, standing to the
Participant's credit in his Stock Purchase Account shall be refunded to him. If
a Participant remains employed by the Company or an Affiliate but ceases to be
an Eligible Employee, unless otherwise determined by the Committee, he may
continue to participate in the Plan through the end of the Offering Period in
which such cessation occurs, but may participate thereafter only pursuant to
Section 4(a).
5. Purchase of Shares. On any Purchase Date, there shall be purchased
on behalf of each Participant that number of Shares which equals the amount then
credited to each Participant's Stock Purchase Account divided by the Purchase
Price. Upon or as soon as soon as practicable following the Purchase Date, such
number of Shares shall be allocated to each Participant's Stockholder Account.
Shares may be purchased from the Company, any Affiliate or in the open market.
6. Restrictions on Shares. Prior to the time that Shares are allocated
to a Participant's Stockholder Account, none of the rights or privileges of a
stockholder of the Company shall inure to the Participant with respect to such
Shares. The Committee shall have the authority to determine the
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restrictions, if any, to which Shares shall be subject (including lock-ups and
other transfer restrictions), and may condition the delivery of the Shares upon
the execution by the Participant of any agreement providing for such
restrictions and/or require that the Shares be held in a brokerage or custodial
account established with a broker or other custodian selected by the Committee
in order to enforce such restrictions.
7. Adjustments.
(a) In the event that the Committee shall determine that any
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Shares or other
securities, stock dividend or other special, large and non-recurring dividend or
distribution (whether in the form of cash, securities or other property),
liquidation, dissolution, or other similar corporate transaction or event,
affects the Shares such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust the kind of
Shares reserved for purchase under the Plan, and/or the calculation of the
Purchase Price.
(b) If the Shares shall cease for any reason to be listed on any
nationally recognized stock exchange or quotation system, the Plan and any
Offering hereunder shall thereupon terminate, and the balance then standing to
the credit of each Participant in his Stock Purchase Account shall be returned
to him.
8. General Provisions.
(a) Compliance With Laws and Obligations. The Company shall not be
obligated to issue or deliver Shares under the Plan in a transaction subject to
the requirements of any applicable securities law, any requirement under any
listing agreement between the Company and any national securities exchange or
automated quotation system or any other law, regulation or contractual
obligation of the Company or any Affiliate of the Company until the Company or
such Affiliate is satisfied that such laws, regulations and other obligations
have been complied with in full. Certificates representing Shares issued under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be applicable under such laws, regulations and other obligations of the
Company or any Affiliate of the Company, including any requirement that a legend
or legends be placed thereon.
(b) Nonalienation. The right to purchase Shares under the Plan is
personal to the Participant, is exercisable only by the Participant during his
lifetime except as hereinafter set forth, and may not be assigned or otherwise
transferred by the Participant. Notwithstanding the foregoing, there shall be
delivered to the executor, administrator or other personal representative of a
deceased Participant such residual balance as may remain in the Participant's
Stock Purchase Account as of the date the Participant's death occurs. However,
such representative shall be bound by the terms and conditions of the Plan as if
such representative were a Participant.
(c) Taxes. The Company and any Affiliate by whom a Participant is
employed shall be entitled to require any Participant to remit, through payroll
withholding, withholding of Shares otherwise deliverable, requiring a sale of
such Shares, or otherwise, any tax that it determines it is so obligated to
collect with respect to the purchase of Shares or their subsequent sale, and the
Committee shall institute such procedures as shall insure the collection of such
taxes.
(d) No Right to Continued Employment or Service. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee, director
or other person the right to be retained in the employ or service of the Company
or any Affiliate nor shall it interfere in any way with the right of
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the Company or any Affiliate to terminate any Employee's employment or other
person's service at any time or with the right of CFLP to terminate any of its
partners.
(e) Changes to the Plan. The Board may amend, alter, suspend,
discontinue or terminate the Plan without the consent of stockholders or
Participants, except that any such action shall be subject to the approval of
the Company's stockholders at or before the next annual meeting of stockholders
for which the record date is after such Board action if such stockholder
approval is required by any federal or state law or regulation or the rules of
any stock exchange or automated quotation system on which the Shares may then be
listed or quoted, and the Board may otherwise, in its discretion, determine to
submit other such changes to the Plan to stockholders for approval; provided,
however, that, without the consent of an affected Participant, no such action
may materially impair the rights of such Participant with respect to any Shares
previously purchased by the Participant. Upon termination of the Plan, any
amounts then credited to a Participant's Stock Purchase Account shall be
returned to the Participant. The Board or the Committee shall also have the
authority to establish separate sub-plans under the Plan with respect to
Participants resident in a particular jurisdiction (the terms of which shall not
be inconsistent with those of the Plan) if necessary or desirable to comply with
the applicable laws of such jurisdiction.
(f) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor any submission of the Plan or amendments thereto to the stockholders
of the Company for approval shall be construed as creating any limitations on
the power of the Board to adopt such other compensatory arrangements as it may
deem desirable, including, without limitation, the granting of stock options or
purchase rights otherwise than under the Plan, and such arrangements may be
either applicable generally or only in specific cases.
(g) Governing Law. The validity, construction and effect of the Plan,
and any rules and regulations relating to the Plan, shall be determined in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws, and applicable federal law.
(h) Expenses. Expenses of the Plan related to participation by
Employees of CFLP shall be borne by CFLP and expenses related to participation
by Employees of the Company and its subsidiaries shall be borne by the Company.
CFLP shall fulfill the obligation to deliver the number of Shares required to be
purchased pursuant to Section 5 on behalf of each CFLP Employee from either
Shares that it owns or Shares acquired in the open market. The Company shall
fulfill the obligation to deliver the number of Shares required to be purchased
pursuant to Section 5 on behalf of each Employee of the Company and its
subsidiaries from either newly issued Shares or Shares acquired in the open
market.
(i) Currency. The Purchase Price shall be denominated in U.S. dollars.
Any amounts credited to a Participant's Stock Purchase Account that are
denominated in any other currency shall be converted to U.S. dollars at such
times and using such exchange rates as determined under procedures established
by the Committee.
A-V
<PAGE>
================================================================================
No person has been authorized to give any information or to make any, or
incorporated by reference into, representations other than those contained in,
or incorporated by reference into, this prospectus and, if given or made, such
information or representations must not be relied upon as having been
authorized. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities
described in this prospectus or an offer to sell or the solicitation of an offer
to buy such securities in any circumstances in which such offer or solicitation
is unlawful. Neither the delivery of this prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein or therein is correct as of any time subsequent to the date of
such information.
TABLE OF CONTENTS
PROSPECTUS
Page
WHERE YOU CAN GET MORE INFORMATION......................2
DOCUMENTS INCORPORATED BY REFERENCE.....................2
GENERAL INFORMATION ABOUT OUR NON-QUALIFIED
EMPLOYEE STOCK PURCHASE PLAN .........................4
GENERAL INFORMATION ABOUT OUR COMPANY..................10
RISK FACTORS...........................................10
FORWARD-LOOKING STATEMENTS.............................27
USE OF PROCEEDS........................................27
EXPERTS................................................27
LEGAL MATTERS..........................................27
Annex A...............................................A-I
eSPEED, INC.
Class A common stock
PROSPECTUS
December __, 2000
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses to be borne by us in connection with the registration and
distribution of the securities being registered are as follows:
SEC registration fee...................... $ 2,301.75
Legal fees and expenses................... 15,000.00
Accounting fees and expenses.............. 5,000.00
Printing expenses......................... 100.00*
Miscellaneous............................. 500.00*
-------------
Total.............................. $ 22,901.75
-----------
* Estimated
Item 15. Indemnification of Directors and Officers.
Our Second Amended and Restated By-Laws provide that we shall, to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware (the "DGCL"), as amended from time to time, indemnify all
persons whom we may indemnify pursuant thereto.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agents in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnity for such expenses despite
such adjudication of liability.
II-1
<PAGE>
Item 16. Exhibits
Exhibit Index
Exhibit Description
------- -----------
2.1 Assignment and Assumption Agreement, dated as of December 9,
1999, by and among Cantor Fitzgerald, L.P., Cantor
Fitzgerald Securities, CFFE, LLC, Cantor Fitzgerald L.L.C.,
CFPH, LLC, Cantor Fitzgerald & Co. and eSpeed, Inc.
(Incorporated by reference to Exhibit 2.1 to eSpeed's Annual
Report on Form 10-K for the year ended December 31, 1999
filed with the SEC on March 29, 2000).
2.2 Assignment and Assumption, dated as of December 9, 1999, by
and among Cantor Fitzgerald International, eSpeed Securities
International Limited and Cantor Fitzgerald International
Holdings, L.P. (Incorporated by reference to Exhibit 2.2 to
eSpeed's Annual Report on Form 10-K for the year ended
December 31, 1999 filed with the SEC on March 29, 2000).
4.1 Amended and Restated Certificate of Incorporation of eSpeed,
Inc. (Incorporated by reference to Exhibit 3.1 to Amendment
No. 3 to eSpeed, Inc.'s Registration Statement on Form S-1
(Registration No. 333-87475)).
4.2 Second Amended and Restated By-Laws of eSpeed, Inc.
(Incorporated by reference to Exhibit 3(ii) to eSpeed,
Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2000 filed with the SEC on May 11,
2000).
4.3 eSpeed, Inc. Non-Qualified Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 4.3 to eSpeed's
Registration Statement on Form S-8 (Registration No.
333-49056) filed with the SEC on November 1, 2000.
4.4 Specimen Class A Common Stock Certificate (Incorporated by
reference to Exhibit 4 to Amendment No. 1 to eSpeed, Inc.'s
Registration Statement on Form S-1 (Registration No.
333-87475)).
5 Opinion of Morgan, Lewis & Bockius.
II-2
<PAGE>
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit
5).
24 Powers of Attorney (included on page II-5 of this
Registration Statement).
II-3
<PAGE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions 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 us of expenses incurred or
paid by a director, officer or controlling person of us 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.
(A) The undersigned 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;
(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;
(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;
provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose 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.
(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.
(B) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, if applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement
II-4
<PAGE>
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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 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 14th
day of December, 2000.
eSPEED, INC.
By: /s/ Howard W. Lutnick
---------------------------------
Name: Howard W. Lutnick
Title: Chairman of the Board and
Chief Executive Officer
POWERS OF ATTORNEY
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Howard W. Lutnick, Frederick T. Varacchi
and Douglas B. Gardner, and each of them, with full power to act without the
other, such person's true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign this registration statement, any and
all amendments thereto (including post-effective amendments), any subsequent
registration statements pursuant to rule 462 of the Securities Act of 1933, as
amended, and any amendments thereto and to file the same, with exhibits and
schedules thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing necessary or desirable to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Howard W. Lutnick Chairman of the Board and Chief December 14, 2000
------------------------------------- Executive Officer (Principal Executive Officer)
Howard W. Lutnick
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Frederick T. Varacchi President and Chief Operating Officer; December 14, 2000
------------------------------------- Director
Frederick T. Varacchi
/s/ Douglas B. Gardner Vice Chairman; Director December 15, 2000
------------------------------------
Douglas B. Gardner
/s/ Jeffrey G. Goldflam Senior Vice President and Chief Financial December 14, 2000
------------------------------------- Officer (Principal Financial and Accounting
Jeffrey G. Goldflam Officer)
/s/ Richard C. Breeden Director December 19, 2000
------------------------------------
Richard C. Breeden
/s/ Larry R. Carter Director December 13, 2000
------------------------------------
Larry R. Carter
/s/ William J. Moran Director December 14, 2000
------------------------------------
William J. Moran
/s/ Joseph P. Shea Director December 14, 2000
------------------------------------
Joseph P. Shea
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
2.1 Assignment and Assumption Agreement, dated as of December 9,
1999, by and among Cantor Fitzgerald, L.P., Cantor
Fitzgerald Securities, CFFE, LLC, Cantor Fitzgerald L.L.C.,
CFPH, LLC, Cantor Fitzgerald & Co. and eSpeed, Inc.
(Incorporated by reference to Exhibit 2.1 to eSpeed's Annual
Report on Form 10-K for the year ended December 31, 1999
filed with the SEC on March 29, 2000).
2.2 Assignment and Assumption, dated as of December 9, 1999, by
and among Cantor Fitzgerald International, eSpeed Securities
International Limited and Cantor Fitzgerald International
Holdings, L.P. (Incorporated by reference to Exhibit 2.2 to
eSpeed's Annual Report on Form 10-K for the year ended
December 31, 1999 filed with the SEC on March 29, 2000).
4.1 Amended and Restated Certificate of Incorporation of eSpeed,
Inc. (Incorporated by reference to Exhibit 3.1 to Amendment
No. 3 to eSpeed, Inc.'s Registration Statement on Form S-1
(Registration No. 333-87475)).
4.2 Second Amended and Restated By-Laws of eSpeed, Inc.
(Incorporated by reference to Exhibit 3(ii) to eSpeed,
Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2000 filed with the SEC on May 11,
2000).
4.3 eSpeed, Inc. Non-Qualified Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 4.3 to eSpeed's
Registration Statement on Form S-8 (Registration No.
333-49056) filed with the SEC on November 1, 2000.
4.4 Specimen Class A Common Stock Certificate (Incorporated by
reference to Exhibit 4 to Amendment No. 1 to eSpeed, Inc.'s
Registration Statement on Form S-1 (Registration No.
333-87475)).
5 Opinion of Morgan, Lewis & Bockius.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit
5).
24 Powers of Attorney (included on page II-5 of this
Registration Statement).
