<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-28191
eSpeed, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-4063515
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(State or Other (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation or
Organization)
One World Trade Center, 103rd Floor
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(Address of Principal Executive Offices)
New York, New York 10048
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(City, State, Zip Code)
(212) 938-3773
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(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
-----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 5, 2000
- ----- --------------------------
Class A Common Stock, par value $.01 per share 10,350,000 shares
Class B Common Stock, par value $.01 per share 40,650,000 shares
<PAGE>
Part I-FINANCIAL INFORMATION
ITEM 1. Financial Statements Page
Consolidated Statements of Financial Condition-- 1
March 31, 2000 (unaudited) and December 31, 1999
Consolidated Statements of Operations (unaudited)-Three Months 2
Ended March 31, 2000 and Period Ended March 26, 1999
Consolidated Statements of Cash Flows (unaudited)-Three Months 3
Ended March 31, 2000 and Period Ended March 26, 1999
Notes to Consolidated Financial Statements (unaudited) 4
ITEM 2. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II--OTHER INFORMATION
ITEM 1. Legal Proceedings 19
ITEM 2. Changes in Securities and Use of Proceeds 19
ITEM 3. Defaults Upon Senior Securities 20
ITEM 4. Submission of Matters to a Vote of 20
Security Holders
ITEM 5. Other Information 20
ITEM 6. Exhibits and Reports on Form 8-K 22
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
eSpeed, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of March 31, 2000 and December 31, 1999
Assets
March 31, December 31,
2000 1999
(unaudited)
------------ ------------
Cash.............................................. $ 45,995 $ 201,001
Securities purchased under agreements to resell... 128,493,533 134,644,521
------------ ------------
Fixed assets, at cost............................. 17,593,033 12,556,627
Less accumulated depreciation and amortization.... (4,018,890) (3,086,555)
------------ ------------
Fixed assets, net................................. 13,574,143 9,470,072
Prepaid expenses, principally computer maintenance
agreements 1,704,626 11,495
------------ ------------
Total assets...................................... $143,818,297 $144,327,089
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Payable to affiliates, net........................ $ 6,906,849 $ 6,743,929
Accounts payable and accrued liabilities.......... 6,325,551 2,071,347
------------ ------------
Total liabilities................................. 13,232,400 8,815,276
------------ ------------
Stockholders' Equity:
Preferred stock, par value $.01 per share;
50,000,000 shares authorized, no shares issued or
outstanding....................................... ---- ----
Class A common stock, par value $.01 per share;
200,000,000 shares authorized; 10,350,000 shares
issued and outstanding............................ 103,500 103,500
Class B common stock, par value $.01 per share;
100,000,000 shares authorized; 40,650,000 shares
issued and outstanding............................ 406,500 406,500
Additional paid in capital........................ 147,588,726 147,588,726
Accumulated deficit............................... (17,512,829) (12,586,913)
------------ ------------
Total stockholders' equity........................ 130,585,897 135,511,813
------------ ------------
Total liabilities and stockholders' equity........ $143,818,297 $144,327,089
============ ============
See notes to consolidated financial statements
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eSpeed, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended March 31, 2000 and the period from March 10, 1999
(date of commencement of operations) to March 26, 1999 (unaudited)
For the three For the
months ended period ended
March 31, March 26,
Revenues: 2000 1999
------------ ------------
Transaction revenues.............................. $ 19,246,396 $ 1,120,534
Interest income................................... 1,842,774 ----
System services fees from affiliates.............. 3,161,057 827,716
------------ ------------
Total revenues.................................... 24,250,227 1,948,250
------------ ------------
Expenses:
Compensation and employee benefits................ 11,337,786 1,267,838
Occupancy and equipment........................... 4,699,749 676,023
Professional and consulting fees.................. 2,459,088 185,985
Communications and client networks................ 839,694 221,159
Fulfillment fees paid to affiliates............... 5,075,801 26,817
Administrative fees paid to affiliates............ 1,604,151 93,701
Advertising....................................... 1,129,073 ----
Other............................................. 1,938,301 15,235
------------ ------------
Total expenses.................................... 29,083,643 2,486,758
------------ ------------
Loss before provision (benefit) for income taxes.. (4,833,416) (538,508)
------------ ------------
Provision (benefit) for income taxes:
Federal........................................... ---- ----
State and local................................... 92,500 (13,470)
------------ ------------
Total taxes....................................... 92,500 (13,470)
------------ ------------
Net loss.......................................... $ (4,925,916) $ (525,038)
============ ============
Per Share Data
Basic and diluted net loss per share.............. $ (.10) $ (.01)
Weighted average shares of common stock
outstanding....................................... 51,000,000 44,000,000
See notes to consolidated financial statements
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eSpeed, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 2000 and the period from March 10, 1999
(date of commencement of operations) to March 26, 1999 (unaudited)
For the three For the
months ended period ended
March 31, March 26,
Cash flows from operating activities: 2000 1999
------------ ------------
Net loss.......................................... $ (4,925,916) $ (525,038)
Non-cash item included in net loss:
Depreciation and amortization................. 932,335 163,050
Increase in operating assets:
Prepaid expenses.............................. (1,693,131) (74,225)
Increase (decrease) in operating liabilities:
Payable to affiliates, net.................... 162,920 546,136
Accounts payable and accrued liabilities...... 4,254,204 307,570
------------ ------------
Cash (used in)/provided by operating
activities............................. (1,269,588) 417,493
------------ ------------
Cash flows from investing activities:
Decrease in securities purchased under agreements
to resell......................................... 6,150,988 ----
Purchases of fixed assets......................... (5,036,406) (417,493)
------------ ------------
Cash provided by (used in)/investing activities 1,114,582 (417,493)
------------ ------------
Net decrease in cash.............................. (155,006) ----
------------ ------------
Cash balance, beginning of period................. 201,001 ----
------------ ------------
Cash balance, end of period....................... $ 45,995 $ ----
============ ============
See notes to consolidated financial statements
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<PAGE>
eSpeed, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the three months ended March 31, 2000 (unaudited)
1. Introduction and Basis of Presentation
eSpeed, Inc. (eSpeed or, together with its wholly owned subsidiaries, the
Company) is a leading provider of interactive business-to-business electronic
marketplace solutions designed to enable market participants to trade financial
and non-financial products more efficiently and at a lower cost than traditional
trading environments permit. eSpeed commenced operations on March 10, 1999 as a
division of Cantor Fitzgerald Securities (CFS). eSpeed is a Delaware corporation
that was incorporated on June 3, 1999. In December 1999, the Company completed
its initial public offering (the Offering). eSpeed is a majority owned
subsidiary of CFS, which in turn is a 99.5% owned subsidiary of Cantor
Fitzgerald, L.P. (CFLP, or together with its subsidiaries, Cantor). The
accompanying financial statements include activities of the Company while
operating as a division of CFS from March 10, 1999 to the Offering.
The Company's financial statements have been prepared in accordance with
the rules and regulations of the Securities Exchange Commission (the SEC) with
respect to the Form 10-Q and reflect all normal recurring adjustments which are,
in the opinion of management, necessary for a fair presentation of the results
for the interim periods presented. Pursuant to such rules and regulations,
certain footnote disclosures which are normally required under generally
accepted accounting principles have been omitted. It is recommended that these
consolidated financial statements be read in conjunction with the audited
consolidated financial statements included the Company's Annual Report on Form
10-K for the period ended December 31, 1999 (the Form 10-K). The Consolidated
Statement of Financial Condition at December 31, 1999 was derived from audited
financial statements. The results of operations for any interim period are not
necessarily indicative of results for the full year.
2. Fixed Assets
Fixed assets consist of the following:
March 31, December 31,
2000 1999
------------ ------------
Computer and communication equipment............ $ 12,827,566 $ 9,544,265
Software, including software development costs.. 4,765,467 3,012,362
------------ ------------
17,593,033 12,556,627
Less accumulated depreciation and amortization.. (4,018,890) (3,086,555)
------------ ------------
Fixed assets, net............................... $ 13,574,143 $ 9,470,072
============ ============
3. Income Taxes
Since the commencement date of the Offering, the Company has been subject
to income tax as a corporation. The net operating losses from that date, in the
amount of $9,137,997, will be available to the Company on a carry-forward basis
through 2015 to offset future operating income of the Company.
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eSpeed, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the three months ended March 31, 2000 (unaudited)
4. Commitments and Contingencies
Legal Matters: On May 5, 1999, CFLP, The Board of Trade of the City of
Chicago, The New York Mercantile Exchange and The Chicago Mercantile Exchange
were sued by Electronic Trading Systems Corporation in the United States
District Court for the Northern District of Texas (Dallas Division) for alleged
infringement of Wagner United States patent 4,903,201, entitled "Automated
Futures Trade Exchange." The patent relates to a system and method for
implementing an electronic, computer-automated futures exchange. On July 1,
1999, Cantor answered the complaint, asserting, among other things, that the
`201 patent was invalid and not infringed by Cantor and that Cantor was not the
real party in interest. Although not identified by the complaint, Cantor
believes that the system being charged with infringement is a version of the
electronic trading system used by the Cantor ExchangeSM, which Cantor
contributed to the Company in December 1999. Electronic Trading Systems
Corporation executed a Covenant Not to Sue, Release and Settlement Agreement,
dated February 18, 2000, pursuant to which it agreed not to sue CFLP or any of
its affiliates or successors, including the Company, or any customers, for
infringement of the `201 patent by the Cantor ExchangeSM. On March 22, 2000,
counsel to the parties filed with the court a Joint Stipulation and (proposed)
Order of Dismissal requesting that CFLP be dismissed from the case without
prejudice by Electronic Trading Systems Corporation. On March 23, 2000, the
Court signed an Agreed Order of Dismissal and on March 24, 2000 CFLP was
dismissed from the case.
In February 1998, Market Data Corporation contracted with Chicago Board
Brokerage (a company controlled by the Chicago Board of Trade and Prebon Yamane)
to provide the technology for an electronic trading system to compete with
Cantor's United States Treasury brokerage business. Market Data Corporation is
controlled by Iris Cantor and Rodney Fisher, her nephew-in-law. Iris Cantor, a
company under the control of Iris Cantor referred to herein as CFI, and Rodney
Fisher are limited partners of CFLP.
In April 1998, CFLP filed a complaint in the Delaware Court of Chancery
against Market Data Corporation, Iris Cantor, CFI, Rodney Fisher and Chicago
Board Brokerage seeking an injunction and other remedies. The complaint alleges
that Iris Cantor, CFI and Rodney Fisher violated certain duties, including
fiduciary duties under Cantor's partnership agreement due to their competition
with CFLP with respect to the electronic trading system mentioned above. The
complaint further alleges that Market Data Corporation and Chicago Board
Brokerage tortiously interfered with Cantor's partnership agreement and aided
and abetted Iris Cantor's, CFI's and Rodney Fisher's breaches of fiduciary duty.
Iris Cantor, CFI and Rodney Fisher counterclaimed seeking, among other things,
(1) to reform agreements they have with CFLP and (2) a declaration that CFLP
breached the implied covenant of good faith and fair dealing. Cantor has agreed
to indemnify the Company for any liabilities that are incurred with respect to
any current or future litigation involving (1) Market Data Corporation, (2) Iris
Cantor, (3) CFI or (4) Rodney Fisher.
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<PAGE>
eSpeed, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the three months ended March 31, 2000 (unaudited)
CFLP settled its dispute with Chicago Board Brokerage in April 1999, and
Chicago Board Brokerage subsequently announced it was disbanding its operations.
On March 17, 2000, the Delaware Court of Chancery ruled in favor of CFLP,
finding that Iris Cantor, CFI and Rodney Fisher had breached the Partnership
Agreement of CFLP, and that Market Data Corporation had aided and abetted that
breach. The court awarded CFLP declaratory judgment relief and court costs and
attorneys' fees. Counsel for the defendants have expressed their intentions to
appeal this result. Final judgment has not yet been entered, but Iris Cantor,
CFI, Rodney Fisher and MDC filed a notice of appeal on April 12, 2000. On April
14, 2000, CFLP moved to dismiss the appeal as premature, but as a protective
measure filed a notice of cross-appeal on April 27, 2000. On May 8, 2000, the
Delaware Supreme Court issued an order dismissing the appeal and cross-appeal as
premature because the Chancery Court has not entered final judgment. The Company
believes Market Data Corporation's technology for electronic trading systems
would be of substantial assistance to competitors in the wholesale market if
provided to them.
Two related actions are pending in New York. In a case pending in the
Supreme Court of New York, New York County, plaintiff CFLP alleges, among other
things, that defendants Market Data Corporation, CFI, Iris Cantor and Rodney
Fisher misused confidential information of CFLP in connection with the
above-mentioned provision of technology to Chicago Board Brokerage. In a case
pending in the United States District Court for the Southern District of New
York, CFI and Iris Cantor allege, among other things, that certain senior
officers of CFLP breached fiduciary duties they owed to CFI. The allegations in
this lawsuit relate to several of the same events underlying the court
proceedings in Delaware. Neither of these two cases has been pursued during the
pendency of the court proceedings in Delaware. On April 24, 2000, the defendants
received an order from the Court granting permission to move to dismiss the
federal action and providing that briefing on the motion to dismiss should be
completed by June 15, 2000.
In addition to the allegations set forth in the pending lawsuits, Cantor
has received correspondence from the attorneys representing Iris Cantor, CFI,
Market Data Corporation and Rodney Fisher in the proceedings in Delaware,
expressing a purported concern that Cantor and/or certain of its partners may be
in breach of Cantor's partnership agreement (including, among other things, the
partnership agreement's provisions relating to competition with the partnership)
and the general partnership agreement of CFS with respect to the Company's
initial public offering. Generally, these attorneys have alleged that various
purported conflicts of interest will exist arising from the fact that certain of
the Company's directors and officers will simultaneously hold positions with
CFLP. Moreover, these attorneys have asserted that the Company's business plan
may not be consistent with certain purported rights of Market Data Corporation
(including purported intellectual property rights) and other parties and they
requested more information regarding the Company's initial public offering.
Although the Company does not expect to incur any losses with respect to
the pending lawsuits or supplemental allegations surrounding Cantor's
partnership agreement, Cantor has agreed to indemnify the Company with respect
to any liabilities the Company incurs as a result of such lawsuits or
allegations.
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<PAGE>
eSpeed, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the three months ended March 31, 2000 (unaudited)
On June 21, 1999, Cantor and its affiliate CFPH, LLC, brought suit against
Liberty Brokerage Investment Corporation and Liberty Brokerage Inc. in the
United States District Court for the District of Delaware for infringement of
the Fraser et al. U.S. patent 5,905,974, entitled "Automated Auction Protocol
Processor." Cantor alleged in the complaint that Liberty was infringing the `974
patent by making, using, selling and/or offering for sale systems and methods
that embody or use the inventions claimed in the `974 patent. On August 10,
1999, Cantor and CFPH, L.L.C. voluntarily dismissed the suit without prejudice.
Subsequently, on August 10, 1999, Liberty filed an action for declaratory
judgment in the United States District Court for the District of Delaware
against Cantor and two of its affiliates, CFS and CFPH, LLC, claiming that the
`974 patent was invalid, unenforceable and not infringed by Liberty. On October
12, 1999, Cantor, CFS and CFPH, LLC moved (1) to dismiss all claims against CFS
for failure to state a claim upon which relief can be granted and (2) to dismiss
the action as against Cantor, CFS and CFPH, LLC for lack of an actual case or
controversy within the meaning of 28 U.S.C. Section 2201. On November 22, 1999,
the Court granted the motion to dismiss the action as against CFS, and denied
the motion to dismiss the action as against Cantor and its affiliate CFPH, LLC.
On January 5, 2000, Liberty filed an Amended Complaint naming the Company as a
defendant. On January 19, 2000, Cantor and CFPH, LLC filed a Second Renewed
Motion to Dismiss the action. On March 8, 2000, oral arguments took place on the
Second Renewed Motion to Dismiss. No decision has been rendered. The Company has
assumed responsibility for defending this suit on behalf of Cantor and its
affiliates and the risk of loss associated with it.
Although the ultimate outcome of these actions cannot be ascertained at
this time and the results of legal proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of these matters
will not have a material adverse effect on the financial condition or results of
operations of the Company.
5. Related Party Transactions
The Company had overnight securities purchased under agreements to resell
(Resale, or Reverse Repurchase agreements) with CFS totaling $128,493,533, and
$134,644,521, including accrued interest, at March 31, 2000 and December 31,
1999, respectively. Under the terms of the agreement, the securities
collateralizing the Resale Agreements are held under a custodial arrangement
with a third party bank.
Under a Joint Services Agreement between the Company and Cantor, the
Company earns transaction revenues equal to a percentage of Cantor's commission
revenues on customer transactions for services provided by the Company. The
percentage of the transaction revenues range from 2.5% to 100%, depending on the
type of electronic services provided for the transaction. Revenues from such
transactions during the periods ended March 31, 2000 and March 26, 1999 totaled
$19,246,396 and $1,120,534, respectively.
On certain transactions (those in which the Company receives 100% of the
commission revenue share), Cantor provides the Company with fulfillment services
for which Cantor is paid a fee of 20% or 35% of the transaction revenues earned
on the transaction. Charges to the Company from Cantor for such fulfillment
services during the periods ended March 31, 2000 and March 26, 1999 totaled
$5,075,801 and $26,817, respectively.
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<PAGE>
eSpeed, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the three months ended March 31, 2000 (unaudited)
Under an Administrative Services Agreement between the Company and Cantor,
the Company provides network, data center and server administration support and
other technology services to Cantor. The Company charges Cantor for these
services commensurate with its costs of providing these services. System
services fees received from Cantor during the periods ended March 31, 2000 and
March 26, 1999, totaled $3,161,057 and $827,716, respectively.
Under an Administrative Services Agreement, Cantor provides various
administrative services to the Company, including accounting, tax, sales and
marketing, legal and facilities management. The Company is required to reimburse
Cantor for the cost of providing such services. The costs represent the direct
and indirect costs of providing such services and are determined based upon the
time incurred by the individual performing such services. Management believes
that this allocation methodology is reasonable. The Administrative Services
Agreement has a three-year term which will renew automatically for successive
one-year terms unless cancelled upon six month's prior notice by either the
Company or Cantor. The Company incurred administrative fees for such services
during the periods ended March 31, 2000 and March 26, 1999 totaled $1,604,151
and $93,701, respectively.
6. Regulatory Capital Requirements
Through its subsidiary, eSpeed Government Securities, Inc., effective
December 2, 1999, the Company is subject to SEC broker-dealer regulation under
Section 15C of the Securities Exchange Act of 1934, which requires the
maintenance of minimum liquid capital, as defined. At March 31, 2000, eSpeed
Government Securities, Inc.'s liquid capital of $6,999,520 was in excess of
minimum requirements by $6,974,520.
Additionally, the Company's subsidiary, eSpeed Securities, Inc., effective
December 1, 1999, is subject to SEC broker-dealer regulation under Rule 17a-5 of
the Securities Exchange Act of 1934, which requires the maintenance of minimum
net capital and requires that the ratio of aggregate indebtness to net capital,
both as defined, shall not exceed 8 to 1. At March 31, 2000, eSpeed Securities,
Inc. had net capital of $1,522,624, which was $1,450,561 in excess of its
required net capital of $72,063, and eSpeed Securities, Inc.'s net capital ratio
was 0.38 to 1.
7. Options and Warrants
During the three months ended March 31, 2000, the Company issued 114,738
options to employees. The options vest ratably over the four successive
anniversaries of the grant date. The options had an estimated fair value of
$3,231,116 as of the grant date. No options or warrants were exercised or
expired and 32,611 options were forfeited during the three months ended March
31, 2000.
Had the Company accounted for its options granted in its stock-based
compensation plan based on the fair value of awards at grant date in a manner
consistent with the methodology of SFAS 123, the Company's net loss and loss per
common share for the three months ended March 31, 2000 would have increased by
$5,852,244 and $0.11, respectively. As of March 31, 2000, the weighted average
remaining contractual life of options and warrants outstanding was approximately
9 years; and options for 510,000 shares were currently exercisable.
-8-
<PAGE>
eSpeed, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the three months ended March 31, 2000 (unaudited)
8. Segment and Geographic Data
Segment Information: The Company currently operates its business in one
segment, that of operating interactive electronic business-to-business vertical
marketplaces for the trading of financial and non-financial products. This
segment comprised approximately 79% of revenues for the period ended March 31,
2000 and 58% of revenues for the period ended March 26, 1999. The remainder of
the Company's revenues was derived from system services fees from Cantor and
interest income.
Geographic Information: The Company operates in the Americas, Europe, and
Asia. Revenue attribution for purposes of preparing geographic data is
principally based upon the marketplace where the financial product is traded,
which, as a result of regulatory jurisdiction constraints in most circumstances,
is also representative of the location of the client generating the transaction
resulting in commissionable revenue. The information that follows, in
management's judgment, provides a reasonable representation of the activities of
each region as of and for the three months ended March 31, 2000 and the period
from March 10, 1999 to March 26, 1999.
For the three For the
months ended period ended
TRANSACTION REVENUES March 31, 2000 March 26, 1999
--------------- ----------------
Europe................................... $ 3,142,845 $ 385,447
Asia..................................... 315,200 32,179
------------ ------------
Total Non-Americas....................... 3,458,045 417,626
Americas................................. 15,788,351 702,908
------------ ------------
TOTAL.................................... $ 19,246,396 $ 1,120,534
============ ============
AVERAGE LONG-LIVED ASSETS................. March 31, 2000 Dec. 31, 1999
-------------- -------------
Europe................................... $ 1,859,226 $ 2,257,914
Asia..................................... 832,057 925,790
------------ ------------
Total Non-Americas....................... 2,691,283 3,183,704
Americas................................. 8,830,824 5,236,613
------------ ------------
TOTAL.................................... $ 11,522,107 $ 8,420,317
============ ============
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<PAGE>
eSpeed, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the three months ended March 31, 2000 (unaudited)
9. Subsequent Event
On April 26, 2000, the Company entered into a Subscription Agreement (a
"Subscription Agreement") with each of The Williams Companies, Inc. ("Williams")
and Dynegy, Inc. ("Dynegy") for the purchase by each of a Unit consisting of (i)
789,071 shares (the "Shares") of the Company's Class A Common Stock, par value
$0.01 per share (the "Class A Stock"), and (ii) warrants (the "Warrants")
exercisable for the purchase of up to 666,666 shares of Class A Stock, for an
aggregate purchase price for the Unit of $25.0 million. The Warrants will have a
per share exercise price of $35.203125, will have a ten year term and will be
exercisable during the last 4 1/2 years of the term, subject to acceleration
under certain prescribed circumstances intended to provide incentives to
Williams and Dynegy to invest in four Qualified Verticals as described below. It
is expected that the purchase and sale of the Units will be consummated (the
"Closing") during the second quarter of fiscal 2000. The Closing is subject to
the satisfaction of certain customary conditions, including the receipt of all
approvals required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (or all applicable waiting periods, and any extensions thereof,
under such Act shall have expired or otherwise been terminated). The Shares will
not be transferable prior to the first anniversary of the Closing. As required
by GAAP accounting, the Company will record a one-time, non-cash charge of
approximately $29.8 million at the time of the Closing to reflect the cost of
the Warrants.
Each of Williams and Dynegy agreed in its Subscription Agreement that,
subject to the satisfaction of certain conditions, it will invest $2.5 million
in at least four entities (the "Qualified Verticals") to be formed by the
Company and Cantor within 12 months of the Closing (subject to extension for a
period not to exceed six months under certain prescribed circumstances, the
"Investment Period"). It is expected that each Qualified Vertical will be
jointly owned by industry market participants, the Company and Cantor and will
establish a new vertical electronic and telephonic marketplace with the Company
in which such Qualified Vertical will broker and possibly clear transactions for
the industry market participants and other clients. It is anticipated that the
first Qualified Vertical to be so formed will be an electronic and telephonic
marketplace for North American wholesale transactions in natural gas,
electricity, coal and sulfur dioxide and nitrogen dioxide emissions. Products
that may be traded on other Qualified Verticals include natural gas liquids,
petrochemicals, crude oil and bandwidth. Each of Williams and Dynegy will not
necessarily invest in the same Qualified Verticals as the other. The
Subscription Agreements further provide that, in connection with up to four
additional Qualified Verticals (the "Additional Investment Right"), Williams
and, subject to certain limitations, Dynegy, will be entitled to invest $25.0
million in shares of the Class A Stock at a 10% discount to the average trading
price for the 10 trading days preceding the date of such party's investment in
such new Qualified Vertical, or, under certain circumstances, the public
announcement of the formation of such Qualified Vertical. The Additional
Investment Right is subject to stockholder approval if required, and in such
event, the Company has agreed to submit for a vote of its common stockholders,
at its next annual meeting of stockholders, the approval of the issuance of any
such shares and Cantor has agreed to vote the shares of common stock of the
Company beneficially owned by it in favor of such issuance. Any shares of Class
A Stock purchased pursuant to the Additional Investment Right will not be
transferable prior to the first anniversary of issuance.
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eSpeed, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the three months ended March 31, 2000 (unaudited)
Contemporaneously with the execution of the Subscription Agreements, the
Company entered into a stock purchase agreement with Cantor providing for the
purchase by the Company from Cantor (i) at the Closing, of 789,071 shares of
Class B Common Stock of the Company, par value $.01 per share, representing half
of the number of shares of the Class A Stock being sold by the Company to
Williams and Dynegy pursuant to the Subscription Agreements, for a purchase
price of $25.0 million and (ii) of half of the number of shares purchased by
Williams and Dynegy, in the aggregate, each time an Additional Investment Right
is exercised for the same purchase price per share as is paid by Williams and
Dynegy at the time.
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<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information in this report contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, 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 under "Risk Factors" in our Annual Report on Form 10-K for the year
ended December 31, 1999. The following discussion is qualified in its entirety
by, and should be read in conjunction with, the more detailed information set
forth in our financial statements and the notes thereto appearing elsewhere in
this filing.
Overview
eSpeed, Inc. was incorporated on June 3, 1999 as a Delaware corporation.
Our wholly-owned subsidiaries are eSpeed Securities, Inc., eSpeed Government
Securities, Inc., eSpeed Markets, Inc. and eSpeed International Limited. Prior
to our initial public offering, we were a wholly-owned subsidiary of, and we
conducted our operations as a division of, Cantor Fitzgerald Securities, which
in turn is a 99.5%-owned subsidiary of Cantor Fitzgerald, L.P. (collectively
with its affiliates, "Cantor"). We commenced operations as a division of Cantor
on March 10, 1999, the date the first fully electronic transaction using our
eSpeedSM system was executed. Cantor has been developing systems to promote
fully electronic marketplaces since the early 1990s. Since January 1996, Cantor
has used our eSpeed system internally to conduct electronic trading.
Concurrent with our initial public offering in December 1999, Cantor
contributed to us, and we acquired from Cantor, certain of our assets. These
assets primarily consist of proprietary software, network distribution systems,
technologies and other related contractual rights that comprise our eSpeed
system.
For the three months ended March 31, 2000, we had a net loss of
$4,925,916. This loss primarily resulted from expenditures on our technology
and infrastructure incurred in building our revenue base. 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. In light of the rapidly changing nature of our
business and our limited operating history, we believe that period-to-period
comparisons of our operating results will not necessarily be meaningful and
should not be relied upon as an indication of future performance. In addition,
because the three month period ended March 31, 2000 was a full quarter as
compared to the abbreviated period ended March 26, 1999, we do not believe that
a comparison of our operating results are meaningful.
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<PAGE>
Results of Operations
The following table sets forth statement of operations data for the three
months ended March 31, 2000 and the period from March 10, 1999 (date of
commencement of operations) to March 26, 1999.
Revenues: March 31, March 26,
Transaction Revenues: 2000 1999
------------- -------------
Fully electronic transactions............. $ 14,502,288 $ 76,621
Voice-assisted brokerage transactions..... 3,861,240 664,597
Screen assisted open outcry transactions.. 882,868 379,316
------------- -------------
Total transaction revenues....... 19,246,396 1,120,534
Interest income................................ 1,842,774
System services fees........................... 3,161,057 827,716
------------- -------------
Total revenues................... 24,250,227 1,948,250
------------- -------------
Expenses:
Compensation and employee benefits........ 11,337,786 1,267,838
Occupancy and equipment................... 4,699,749 676,023
Professional and consulting fees.......... 2,459,088 185,985
Communications and client networks........ 839,694 221,159
Fulfillment services fees................. 5,075,801 26,817
Administrative fees....................... 1,604,151 93,701
Advertising............................... 1,129,073
Other..................................... 1,938,301 15,235
------------- -------------
Total expenses................... 29,083,643 2,486,758
------------- -------------
Loss before provision (benefit) for income
taxes........................................ $ (4,833,416) $ (538,508)
============= =============
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<PAGE>
Revenues
Transaction Revenues
We operate interactive electronic marketplaces. We have entered into a
Joint Services Agreement with Cantor under which we and Cantor agreed to
collaborate to provide brokerage and related services to clients in multiple
electronic markets for transactions in securities and other financial products.
In addition, we may, in our discretion, collaborate on operating markets for
non-financial products. Under the Joint Services Agreement, we own and operate
the electronic trading systems and are responsible for providing electronic
brokerage services, and Cantor provides voice-assisted brokerage services,
fulfillment services such as clearance and settlement, and related services
such as credit risk management services, oversight of client suitability and
regulatory compliance, sales positioning of products and other services
customary to marketplace intermediary operations. Under this agreement, we and
Cantor have agreed to share revenues derived from transactions effected in the
marketplaces in which we collaborate and other specified markets.
Generally, if the transactions:
o are effected in a marketplace in which we collaborate with Cantor, are
fully electronic transactions and relate to financial products, such as
fixed income securities, futures contracts, derivatives and commodities,
that are not traded on the Cantor ExchangeSM, or products that are traded
on the Cantor Exchange, then we receive the aggregate transaction
revenues and pay to Cantor service fees equal to 35% and 20% of the
transaction revenues, respectively.
o are effected in a marketplace in which we collaborate with Cantor, involve
voice-assisted brokerage services that Cantor provides and the
transactions relate to (1) financial products that are not traded on the
Cantor Exchange, or (2) products that are traded on the Cantor
Exchange, then, in the case of a transaction described in (1), Cantor
receives the aggregate transaction revenues and pays to us a service fee
equal to 7% of the transaction revenues, and, in the case of a transaction
described in (2), we receive the aggregate transaction revenues and pay to
Cantor a service fee equal to 55% of the transaction revenues.
o are effected in a marketplace in which we do not collaborate with Cantor,
but in which we do provide electronic brokerage services, and (1) the
transaction relates to a financial product, then we will receive the
aggregate transaction revenues and pay to Cantor a fulfillment service fee
equal to 20% of the transaction and data revenues paid to or received by
us or (2) the transaction relates to a non-financial product, then we will
receive all of the transaction revenues.
o are not effected through an electronic marketplace, but are electronically
assisted, such as screen-assisted open outcry transactions, then Cantor
receives the aggregate transaction revenues and pays to us a service fee
equal to 2.5% of the transaction revenues.
We are pursuing an aggressive strategy to convert most of Cantor's
financial marketplace products to our eSpeed system and, with the assistance of
Cantor, to continue to create new markets and convert new clients to our eSpeed
system. Other than Cantor, no client of ours accounted for more than 10% of our
transaction revenues from our date of inception through March 31, 2000.
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<PAGE>
The process of converting these marketplaces includes modifying existing
Cantor trading systems to allow for transactions to be entered directly from a
client location, signing an agreement with the client, installing the hardware
and software at the client location and establishing lines between us and the
client.
For the three months ended March 31, 2000, we earned $19,246,396 in
transaction revenues, as compared to transaction revenues of $1,120,534 for the
period from March 10, 1999 to March 26, 1999. The growth in revenue was
attributable to the addition of electronic marketplaces and clients to our
eSpeed system. In addition, revenues for the three months ended March 31, 2000
were positively impacted by the unusually high level of volatility in the fixed
income markets around the world. It is anticipated that as more marketplaces are
converted to our eSpeed system and more clients are added to our eSpeed system,
more of our income will be generated from marketplaces around the world. Our
revenues are currently highly dependent on transaction volume in the fixed
income markets globally. Accordingly, revenues are dependent on the volume of
transactions in marketplaces that we operate, which can be affected by, among
other things, economic and political conditions in the United States and
elsewhere in the world, concerns over inflation and wavering
institutional/consumer confidence levels, the availability of cash for
investment by mutual funds and other wholesale and retail investors, rising
interest rates, fluctuating exchange rates, legislative and regulatory changes
and currency values.
Interest Income
The proceeds of our initial public offering on December 10, 1999 have been
invested by us in reverse repurchase agreements which are fully collateralized
by U.S. Government securities held in a custodial account at The Chase Manhattan
Bank. For the three months ended March 31, 2000, these investments generated
interest income of $1,842,774 at an average interest rate of 5.6%. We had no
interest income for the period from March 10, 1999 to March 26, 1999.
System Services Fees
We have agreed to provide to Cantor technology support services at cost,
including (1) systems administration, (2) internal network support, (3) support
and procurement for desktops of end-user equipment, (4) operations and disaster
recovery services, (5) voice and data communications, (6) support and
development of systems for clearance and settlement services, (7) systems
support for Cantor brokers, (8) electronic applications systems and network
support for Cantor's unrelated dealer businesses with respect to which we will
not collaborate with Cantor and (9) provision and/or implementation of existing
electronic applications systems, including improvements and upgrades thereto,
and use of the related intellectual property rights, having potential
application in a gaming business. System services fees from Cantor for the three
months ended March 31, 2000 were $3,161,057 and represented 13% of total
revenues for the quarter, as compared with system services fees from March 10,
1999 to March 26, 1999 of $827,716, which represented 42% of total revenues for
that period. Although the increase in revenues for system services fees was
attributable to the shortened period in 1999, system services fees as a percent
of revenues have decreased as a result of our increased transaction revenues in
the three months ended March 31, 2000.
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<PAGE>
Expenses
Compensation and employee benefits
At March 31, 2000, we had approximately 415 professionals, as compared to
approximately 310 employees at March 26, 1999. Substantially all of our
employees are full time employees located predominantly in New York and London.
Compensation costs include salaries, bonus accruals, payroll taxes and costs of
employer-provided medical benefits for our employees. For the quarter ended
March 31, 2000, we had compensation costs of $11,337,786, as compared to
$1,267,838 for the period from March 10, 1999 to March 26, 1999. This increase
in compensation expense was attributable to the increased number of
professionals we employed during the period ended March 31, 2000 and to the
shortness of the period from March 10, 1999 to March 26, 1999. We intend to hire
additional technical, sales and marketing, product development and
administrative personnel, including personnel from Cantor, in order to expand
our business. As a result, we anticipate that compensation expense may increase
significantly in subsequent periods.
Occupancy and equipment
Occupancy and equipment costs of $4,699,749 for the three months ended
March 31, 2000 included depreciation on computer and communications equipment
and amortization of software owned by us, lease costs of other fixed assets
leased by us from Cantor and a charge for premises costs from Cantor. Occupancy
and equipment costs for the period March 10, 1999 to March 26, 1999 totaled
$676,023. Cantor leases from third parties under operating lease arrangements
certain computer-related fixed assets that we have the right to use at rates
intended to equal costs incurred by Cantor. Our equipment expenses should
increase as we continue to invest in technology and related equipment. Occupancy
expenditures are comprised principally of our rent and facilities costs of our
New York and London offices.
Professional and consulting fees
Professional and consulting fees of $2,459,088 for the three months ended
March 31, 2000 consisted primarily of legal fees and consultant costs paid to
outside computer professionals who performed specialized enhancement activities
for us. Professional and consulting fees totaled $185,985 for the period March
10, 1999 to March 26, 1999. We currently have approximately 20 contracted
consultants and additional outside services providers working under short-term
contracts costing approximately $500,000 per month in the aggregate. Our
professional and consulting expenses will likely increase over the foreseeable
future.
Communications and client networks
Communications costs of $839,694 for the three months ended March 31, 2000
included the costs of local and wide area network infrastructure, the cost of
establishing the client network linking clients to us, data and telephone lines,
data and telephone usage and other related costs. Communications costs totaled
$221,159 for the period March 10, 1999 to March 26, 1999. We expect such costs
to increase as we continue to expand into new marketplaces and geographic
locations and establish additional communication links with clients. However,
certain communications costs are decreasing globally due to increased
competition in the communications industry. This may or may not result in a
decrease in our communications costs.
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<PAGE>
Fulfillment services fees
Under the Joint Service Agreement, we are required to pay to Cantor a
fulfillment services fee of 20%, 35% or 55%, depending on the type of
transaction, of commissions paid by clients related to fully electronic
transactions. Such costs were $5,075,801 for the three months ended March 31,
2000 as compared to $26,817 for the period March 10 to March 26, 1999. As we
continue to sign up new clients, in conjunction with Cantor, and the volume of
business processed in the fully electronic brokerage channel increases, this
expense will likely increase commensurately with our revenues.
Administrative fees
Under an Administrative Services Agreement with Cantor, Cantor has agreed
to provide various administrative services to us, including, but not limited to,
accounting, tax, legal and human resources, and we have agreed to provide sales
and marketing services at cost to Cantor. We are required to reimburse Cantor
for its costs of providing these services plus allocation of overhead. We have
provided for the cost of such services in our financial statements under the
terms set forth in the Administrative Services Agreement as if it was effective
March 10, 1999. Administrative fees amounted to $1,604,151 for the three months
ended March 31, 2000, as compared to administrative fees of $93,701 for the
period March 10, 1999 to March 26, 1999. As we expand our business, the services
provided by Cantor, and accordingly the expense, will likely also increase. As
circumstances warrant, we will consider adding employees to take over these
services from Cantor.
Advertising Expenses
During the three months ended March 31, 2000, we launched a national
advertising campaign. We incurred advertising expenses of $1,129,073 during the
quarter, as compared to no advertising expenses during the period from March 10,
1999 to March 26, 1999. We anticipate that our advertising program and expenses
will continue to increase.
Other expenses
Other expenses for the three months ended March 31, 2000 were of
$1,938,301, as compared to $15,235 for the period from March 10, 1999 to March
26, 1999, and consisted primarily of recruitment fees, travel, promotional and
entertainment expenditures. We expect that these expenses will also continue to
increase over the foreseeable future as we seek to expand our business.
Liquidity and Capital Resources
Our cash flows are comprised of transaction revenues and systems services
fees from Cantor, various fees paid to Cantor, occupancy costs and other
expenses paid by Cantor on our behalf and investment income. In its capacity as
a fulfillment service provider, Cantor processes and settles transactions and,
as such, collects and pays the funds necessary to clear transactions with the
counterparty. In doing so, Cantor receives our portion of the transaction fee
and, in accordance with the Joint Services Agreement, remits the gross amount
owed to us. Under the Administrative Services Agreement and the Joint Services
Agreement, any net receivable or payable is settled monthly, at the discretion
of the parties.
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<PAGE>
Our ability to withdraw capital from our regulated 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.
Although we have no material commitments for capital expenditures, we
anticipate that we will experience a substantial increase in our capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and personnel. We currently anticipate that we will
continue to experience significant growth in our operating expenses for the
foreseeable future and that our operating expenses will be a material use of our
cash resources.
Under the current operating structure, our cash flows from operations and
the net proceeds from our initial public offering should be sufficient to fund
our current working capital and current 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, strategic alliances and joint
ventures potentially involving all types and combinations of equity, debt,
acquisition and recapitalization alternatives. We are continually considering
such options and their effect on our liquidity and capital resources.
On April 26, 2000, we entered into Subscription Agreements (the
"Subscription Agreement") with each of The Williams Companies, Inc. ("Williams")
and Dynegy, Inc. ("Dynegy") for the purchase by each of a Unit consisting of (i)
789,071 shares (the "Shares") of our Class A Common Stock, par value $0.01 per
share (the "Class A Stock"), and (ii) warrants exercisable to purchase up to
666,666 shares of Class A Stock, for an aggregate purchase price for the two
Units of $50.0 million. The purchase of the Units by Williams and Dynegy is
subject to the satisfaction of certain customary conditions, including the
receipt of all approvals required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (or all applicable waiting periods, and any
extensions thereof, under such Act shall have expired or otherwise been
terminated). We expect that the purchase and sale of the Units will be
consummated (the "Closing") during the second quarter of fiscal 2000.
Contemporaneously with the execution of the Subscription Agreements, we entered
into a stock purchase agreement with Cantor providing for the purchase by eSpeed
from Cantor, at the Closing, of 789,071 shares of Class B Common Stock of
eSpeed, par value $.01 per share, representing half of the number of shares of
the Class A Stock being sold to Williams and Dynegy, for a purchase price of
$25.0 million and resulting in eSpeed receiving a net amount of $25.0 million at
the Closing from the sale of the Units. For a more detailed description of this
transaction, see Part II, Item 5 of this report under the heading, "Other
Information".
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
We have invested $128,493,533 of our excess cash in securities purchased
under reverse repurchase agreements which are fully collateralized by U.S.
Government securities held in a custodial account at The Chase Manhattan Bank.
These reverse repurchase agreements have an overnight maturity and, as such, are
highly liquid. We do not use derivative financial instruments, derivative
commodity instruments or other market risk sensitive instruments, positions or
transactions. Accordingly, we believe that we are not subject to any material
risks arising from changes in interest rates, foreign currency exchange rates,
commodity prices, equity prices or other market changes that affect market risk
sensitive
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<PAGE>
instruments. Our policy is to invest our excess cash in a manner that provides
us with the appropriate level of liquidity to enable us to meet our current
obligations, primarily accounts payable, capital expenditures and payroll,
recognizing that we do not currently have outside bank funding.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
The information required by this Item is incorporated by reference to Note
4 of the Notes to Consolidated Financial Statements for the three months ended
March 31, 2000 (unaudited) contained elsewhere in this report.
ITEM 2. Changes in Securities and Use of Proceeds.
(d) Use of Proceeds. The effective date of our registration statement
(Registration No. 333-87475) filed on Form S-1 relating to our initial public
offering of Class A common stock was December 9, 1999. In our initial public
offering, we sold 7,000,000 shares of Class A common stock at a price of $22.00
per share and CFS, the selling stockholder, sold 3,350,000 shares of Class A
common stock at a price of $22.00 per share. Our initial public offering was
managed on behalf of the underwriters by Warburg Dillon Read LLC, Hambrecht &
Quist, Thomas Weisel Partners LLC and Cantor Fitzgerald & Co. The offering
commenced on December 10, 1999 and closed on December 15, 1999. Proceeds to us
from our initial public offering, after deduction of the underwriting discounts
and commissions of approximately $10.0 million and offering costs of $4.4
million, totaled approximately $139.6 million. None of the expenses incurred in
our initial public offering were direct or indirect payments to our directors,
officers, general partners or their associates, to persons owning 10% or more of
any class of our equity securities or to our affiliates. Of the $139.6 million
raised, approximately $11.1 million has been used for working capital purposes
and the balance of $128.5 million has been invested in reverse repurchase
agreements which are fully collateralized by U.S. Government Securities held in
a custodial account at a third-party bank. We intend to use the amount invested
in the reverse repurchase agreements as follows:
o Approximately $25 million will be invested in hardware and software for
entry into new product segments, expansion of our current markets and
an increase in communication links to our clients;
o Approximately $25 million will be for hiring of technology and other
professionals to develop new markets in both financial and
non-financial sectors;
o Approximately $25 million will be for marketing to current and new
institutional clients and to promote general awareness and acceptance
of the retail trading of fixed income securities and other financial
instruments; and
o The balance of the net proceeds will be used for working capital and
general corporate purposes, including possible acquisitions and
strategic alliances.
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<PAGE>
Of the amount of proceeds spent through March 31, 2000, approximately
$11.1 million has been paid to Cantor under the Administrative Services
Agreement between us and Cantor.
The occurrence of unforeseen events, opportunities or changed business
conditions, however, could cause us to use the net proceeds of our initial
public offering in a manner other than as described above.
ITEM 3. Defaults Upon Senior Securities.
Not Applicable.
ITEM 4. Submission of Matters to a Vote of Securities Holders.
Not Applicable.
ITEM 5. Other Information.
On April 26, 2000, we entered into a Subscription Agreement (a
"Subscription Agreement") with each of The Williams Companies, Inc. ("Williams")
and Dynegy, Inc. ("Dynegy") for the purchase by each of a Unit consisting of (i)
789,071 shares (the "Shares") of our Class A Common Stock, par value $0.01 per
share (the "Class A Stock"), and (ii) warrants (the "Warrants") exercisable for
the purchase of up to 666,666 shares of Class A Stock, for an aggregate purchase
price for the Unit of $25.0 million. The Warrants will have a per share exercise
price of $35.203125, will have a ten year term and will be exercisable during
the last 4 1/2 years of the term, subject to acceleration under certain
prescribed circumstances intended to provide incentives to Williams and Dynegy
to invest in four Qualified Verticals as described below. We expect that the
purchase and sale of the Units will be consummated (the "Closing") during the
second quarter of fiscal 2000. The Closing is subject to the satisfaction of
certain customary conditions, including the receipt of all approvals required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (or
all applicable waiting periods, and any extensions thereof, under such Act shall
have expired or otherwise been terminated). The Shares will not be transferable
prior to the first anniversary of the Closing.
Each of Williams and Dynegy agreed in its Subscription Agreement that,
subject to the satisfaction of certain conditions, it will invest $2.5 million
in at least four entities (the "Qualified Verticals") to be formed by eSpeed and
Cantor within 12 months of the Closing (subject to extension for a period not to
exceed six months under certain prescribed circumstances, the "Investment
Period"). We expect that each Qualified Vertical will be jointly owned by
industry market participants, eSpeed and Cantor and will establish a new
vertical electronic and telephonic marketplace with eSpeed in which such
Qualified Vertical will broker and possibly clear transactions for the industry
market participants and other clients. We anticipate that the first Qualified
Vertical to be so formed will be an electronic and telephonic marketplace for
North American wholesale transactions in natural gas, electricity, coal and
sulfur dioxide and nitrogen dioxide emissions. Products that may be traded on
other Qualified Verticals include natural gas liquids, petrochemicals, crude oil
and bandwidth. Each of Williams and Dynegy will not necessarily invest in the
same Qualified Verticals as the other. The Subscription Agreements further
provide that, in connection with up to four additional Qualified Verticals (the
"Additional Investment Right"), Williams and, subject to certain limitations,
Dynegy, will be entitled to invest $25.0 million in
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<PAGE>
shares of the Class A Stock at a 10% discount to the average trading price for
the 10 trading days preceding the date of such party's investment in such new
Qualified Vertical, or, under certain circumstances, the public announcement of
the formation of such Qualified Vertical. The Additional Investment Right is
subject to stockholder approval if required, and in such event, we have agreed
to submit for a vote of our common stockholders, at our next annual meeting of
stockholders, the approval of the issuance of any such shares, and Cantor has
agreed to vote the shares of common stock of eSpeed beneficially owned by it in
favor of such issuance. Any shares of Class A Stock purchased pursuant to the
Additional Investment Right will not be transferable prior to the first
anniversary of issuance.
The Subscription Agreements also provide that, at such time as when
Williams and Dynegy (or their permitted affiliate assignees) have made an
aggregate equity investment in eSpeed of an amount equal to at least $100.0
million valued on a cost basis (and for so long as such parties maintain
ownership of equity securities having such cost basis), Cantor will use its best
efforts to cause one designee jointly selected by Williams and Dynegy to be
nominated to the eSpeed Board of Directors and to vote its shares of common
stock of eSpeed in favor of such designee.
Contemporaneously with the execution of the Subscription Agreements, we
entered into a stock purchase agreement (the "Stock Purchase Agreement") with
Cantor providing for the purchase by eSpeed from Cantor (i) at the Closing, of
789,071 shares of Class B Common Stock of eSpeed, par value $.01 per share (the
"Class B Stock"), representing half of the number of shares of the Class A Stock
being sold by eSpeed to Williams and Dynegy pursuant to the Subscription
Agreements, for a purchase price of $25.0 million and (ii) of half of the number
of shares purchased by Williams and Dynegy, in the aggregate, each time an
Additional Investment Right is exercised for the same purchase price per share
as is paid by Williams and Dynegy at the time.
Warburg Dillon Read LLC delivered an opinion dated April 26, 2000 to the
eSpeed Board of Directors to the effect that, as of such date, the transaction,
as described in the Subscription Agreements and the exhibits thereto and the
Stock Purchase Agreement, is fair, from a financial point of view, to the
stockholders of eSpeed other than Cantor.
Immediately following the Closing, it is expected that Cantor will
beneficially own approximately 77% of the outstanding voting securities of
eSpeed, and Williams and Dynegy will each beneficially own approximately 1.7%
of the outstanding voting securities and will each beneficially own not more
than 4.9% of the outstanding Class A Stock (in each case after giving effect to
the conversion by Cantor prior to the Closing of certain shares of Class B Stock
into Class A Stock, as required under the Subscription Agreements).
It is intended that the sale of the Shares and Warrants will be exempt
from registration under the Securities Act of 1933 in reliance on Section 4(2)
of such Act, as a transaction by an issuer not involving a public offering.
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<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 3(ii) - Second Amended and Restated By-Laws of eSpeed, Inc.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
eSpeed, Inc.
(Registrant)
Date: May 10, 2000 /s/ Howard W. Lutnick
---------------------
Howard W. Lutnick
Chairman and Chief Executive Officer
Date: May 10, 2000 /s/ Kevin C. Piccoli
--------------------
Kevin C. Piccoli
Senior Vice President
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
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<PAGE>
SECOND AMENDED AND RESTATED
BY-LAWS
OF
eSPEED, INC.
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders
of the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Chairman of the Board, or, if the
Chairman of the Board is unavailable, by the Vice Chairman acting jointly with
the President. Any special meeting of the stockholders shall be held on such
date, at such time and at such place within or without the State of Delaware as
the Board of Directors or the officer calling the meeting may designate. At a
special meeting of the stockholders, no business shall be transacted and no
corporate action shall be taken other than
<PAGE>
that stated in the notice of the meeting unless all of the stockholders are
present in person or by proxy, in which case any and all business may be
transacted at the meeting even though the meeting is held without notice.
SECTION 3. Notice of Stockholder Business and Nominations.
Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders by or at the
direction of the Board of Directors or by any stockholder of the Corporation who
was a stockholder of record on the record date established for the giving of
notice of such meeting, who is entitled to vote at the meeting and who complies
with the notice procedures set forth in these By-Laws.
In the event the Corporation calls a special meeting of
stockholders for the purpose of electing Directors, nominations of persons for
election to the Board of Directors may be made by or at the direction of the
Board of Directors or by any stockholder of the Corporation who was a
stockholder of record at the record date for the giving of notice of such
meeting, who was a stockholder of record on the record date established for the
giving of notice of such meeting, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in these By-Laws.
For nominations or other business to be properly brought by a
stockholder, the stockholder must have given timely advance notice in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to, or mailed and received at, the principal executive offices of the
Corporation (i) with respect to an annual meeting of the
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stockholders of the Corporation, not later than the close of business on the
120th day prior to the first anniversary of the date of the Corporation's proxy
statement for the preceding year's annual meeting; provided, however, that with
respect to the annual meeting of stockholders to be held in 2000 or in the event
that the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, notice by the stockholder to be timely must be
so delivered not later than the close of business on the later of the 120th day
prior to the date of such proxy statement or the 10th day following the day on
which public announcement of the date of such meeting is first made by the
Corporation; and (ii) with respect to a special meeting of stockholders of the
Corporation for the election of Directors, not later than the close of business
on the 10th day following the day on which notice of the date of the special
meeting was mailed to stockholders of the Corporation as provided in Article 1,
Section 3 hereof or public disclosure of the date of the special meeting was
made, whichever first occurs. Any such notice to be given by a stockholder shall
set forth: (a) as to each person whom the stockholder proposes to nominate for
election as a Director, all information relating to such person that is required
to be disclosed in solicitations of proxies for election of Directors in an
election contest, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934 and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a Director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of such business, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on
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whose behalf the nomination or proposal is made, (i) the name and address of
such stockholder, as they appear on the Corporation's books, and of such
beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
Only such persons who are nominated in accordance with the
procedures set forth in these By-Laws shall be eligible to serve as Directors
and only such business shall be conducted at a meeting of the stockholders as
shall have been brought before the meeting in accordance with these By-Laws.
Except as otherwise provided by law, the Certificate of Incorporation or these
By-Laws, the Chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth herein and, if any proposed nomination or business is not in compliance
with procedures set forth herein, to declare that such defective proposal or
nomination shall be disregarded.
Nothing herein shall be deemed to limit or restrict the procedures
required to be followed in connection with stockholder proposals to be brought
before a meeting of stockholders pursuant to Regulation 14A under the Securities
Exchange Act of 1934 and Rule 14a-8 thereunder.
SECTION 4. Notice of Meetings. Except as otherwise provided in
these By-Laws or by law, a written notice of each meeting of the stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of the Corporation entitled to vote at
such meeting at his or her address as it appears on the records of
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the Corporation. The notice shall state the place, date and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, directed to a stockholder
at his or her address as it appears on the records of the Corporation.
SECTION 5. Quorum. At any meeting of the stockholders, the holders
of a majority of the voting power of all outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes, unless
the representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority of the voting power of all outstanding shares
of such class, present in person or represented by proxy, shall constitute a
quorum for purposes of such class vote unless the representation of a larger
number of shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
SECTION 6. Adjourned Meetings. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the holders
of a majority of the voting power of all outstanding shares of stock of the
Corporation present in person or represented by proxy and entitled to vote at
such meeting may adjourn from time to time; provided, however, that if the
holders of any class of stock of the Corporation are entitled to vote separately
as a
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class upon any matter at such meeting, any adjournment of the meeting in respect
of action by such class upon such matter shall be determined by the holders of a
majority of the voting power of all outstanding shares of such class present in
person or represented by proxy and entitled to vote at such meeting. When a
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At the adjourned meeting the stockholders, or
the holder of any class of stock entitled to vote separately as a class, as the
case may be, may transact any business which might have been transacted by them
at the original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the adjourned meeting.
SECTION 7. Organization. The Chairman of the Board, or, in his
absence, the Chief Executive Officer, or, in their absence, the President, or,
in the absence of the Chairman of the Board, the Chief Executive Officer and the
President, the Vice Chairman, the Chief Operating Officer, or a Vice President
shall call all meetings of the stockholders to order, and shall act as Chairman
of such meetings. In the absence of the Chairman of the Board, the Chief
Executive Officer, the President, the Vice Chairman, the Chief Operating Officer
and all of the Vice Presidents, the holders of a majority in number of the
shares of stock of the Corporation present in person or represented by proxy and
entitled to vote at such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as
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Secretary of the meeting. It shall be the duty of the Secretary to prepare and
make, at least ten days before every meeting of stockholders, a complete list of
stockholders entitled to vote at such meeting, arranged in alphabetical order
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting or, if not so specified, at the place where the
meeting is to be held, for the ten days next preceding the meeting, to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, and shall be produced and kept at the time and place of
the meeting during the whole time thereof and subject to the inspection of any
stockholder who may be present.
SECTION 8. Voting. Except as otherwise provided in the Certificate
of Incorporation or by law, each stockholder shall be entitled to one vote for
each share of the capital stock of the Corporation registered in the name of
such stockholder upon the books of the Corporation. Each stockholder entitled to
vote at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him or her by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
When directed by the presiding officer or upon the demand of any stockholder,
the vote upon any matter before a meeting of stockholders shall be by ballot.
Except as otherwise provided by law or by the Certificate of Incorporation, (a)
Directors shall be elected by a plurality of the votes cast at a meeting of
stockholders by the stockholders entitled to vote in the election, and (b)
whenever any corporate action, other than
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the election of Directors is to be taken, it shall be authorized by a majority
of the votes cast at a meeting of stockholders by the stockholders entitled to
vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of Directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 9. Inspectors of Election; Opening and Closing the Polls.
When required by law or directed by the presiding officer or upon the demand of
any stockholder entitled to vote, but not otherwise, the polls shall be opened
and closed, the proxies and ballots shall be received and taken in charge, and
all questions touching the qualification of voters, the validity of proxies and
the acceptance or rejection of votes shall be decided at any meeting of the
stockholders by one or more Inspectors who may be appointed by the Board of
Directors before the meeting, or if not so appointed, shall be appointed by the
presiding officer at the meeting. If any person so appointed fails to appear or
act, the vacancy may be filled by appointment in like manner. The Chairman of
the meeting may fix and announce at the meeting the date and time of the opening
and the closing of the polls for each matter upon which the stockholders will
vote at a meeting.
SECTION 10. No Stockholder Action by Written Consent. Any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of the stockholders, upon
due notice and in accordance with the other
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provisions of these By-Laws and may not be effected by any consent in writing by
the stockholders, unless such taking of any such corporate action without a
meeting is by unanimous written consent.
ARTICLE II
Board of Directors
SECTION 1. Number, Classification and Tenure. The powers of the
Corporation shall be exercised by or under the authority of, and the business
and affairs of the Corporation shall be managed under the direction of, the
Board of Directors. Each Director shall be elected at the annual meeting of the
stockholders, and shall hold office for the full term for which such Director is
elected and until such Director's successor shall have been duly elected and
qualified or until his earlier death or resignation or removal in accordance
with the Certificate of Incorporation or these By-Laws.
The number of Directors that shall constitute the whole Board of
Directors shall be fixed by, and may be increased or decreased from time to time
by, the Board of Directors. Newly created Directorships resulting from any
increase in the number of Directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or other cause
shall be filled by the affirmative vote of a majority of the remaining Directors
then in office, even though less than a quorum of the Board of Directors. Any
Director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the class of Directors in which the new
Directorship was created or the vacancy occurred and until
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such Director's successor shall have been elected and qualified or until his
earlier death, resignation or removal. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent
Director.
SECTION 2. Qualifications. Directors need not be residents of the
State of Delaware or stockholders of the Corporation.
SECTION 3. Removal, Vacancies and Additional Directors. The
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any Director and fill
the vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created Directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created Directorship shall
hold office until his or her successor is elected and qualified or until his or
her earlier resignation or removal.
When one or more Directors shall resign effective at a future date,
a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such
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vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Director so chosen shall hold
office as herein provided in connection with the filling of other vacancies.
SECTION 4. Place of Meeting. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board from time to time shall determine.
SECTION 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every Director
at least five days before the first meeting held in pursuance thereof.
SECTION 6. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board, or, if the Chairman of the Board is unavailable, by the Vice Chairman
acting jointly with the President. The person or persons authorized to call
special meetings of the Board of Directors may fix the place and time of the
meetings.
Notice of the day, hour and place of holding of each special
meeting shall be given by mailing the same at least two days before the meeting
or by causing the same to be transmitted
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by facsimile, telegram or telephone at least one day before the meeting to each
Director. Unless otherwise indicated in the notice thereof, any and all business
other than an amendment of these By-Laws may be transacted at any special
meeting, and an amendment of these By-Laws may be acted upon if the notice of
the meeting shall have stated that the amendment of these By-Laws is one of the
purposes of the meeting. At any meeting at which every Director shall be
present, even though without any notice, any business may be transacted,
including the amendment of these By-Laws.
SECTION 7. Quorum. Subject to the provisions of Section 4 of this
Article II, a majority of the members of the Board of Directors in office (but,
unless the Board shall consist solely of one Director, in no case less than
one-third of the total number of Directors nor less than two Directors) shall
constitute a quorum for the transaction of business and the vote of the majority
of the Directors present at any meeting of the Board of Directors at which a
quorum is present shall be the act of the Board of Directors. If at any meeting
of the Board there is less than a quorum present, a majority of those present
may adjourn the meeting from time to time.
SECTION 8. Organization. The Chairman of the Board, or, in his
absence, the President shall preside at all meetings of the Board of Directors.
In the absence of both the Chairman of the Board and the President, a Chairman
shall be elected from the Directors present. The Secretary of the Corporation
shall act as Secretary of all meetings of the Directors; but in the absence of
the Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
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SECTION 9. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided by resolution passed by a majority of the
whole Board, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and the affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending these By-Laws; and unless such
resolution, these By-laws, or the Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
A majority of any committee may determine its action and fix the
time and place of its meetings, unless the Board shall otherwise provide. Notice
of such meetings shall be given to each member of the committee in the manner
provided for in this Article II of these By-Laws.
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The Board shall have power at any time to fill vacancies in, to change the
membership of, or to dissolve any such committee. Nothing herein shall be deemed
to prevent the Board from appointing one or more committees consisting in whole
or in part of persons who are not Directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority of the
Board.
Each Committee shall keep regular minutes of its meetings and, on
no less than a quarterly basis, report such minutes to the Board of Directors.
SECTION 10. Conference Telephone Meetings. Unless otherwise
restricted by the Certificate of Incorporation or by these By-Laws, the members
of the Board of Directors or any committee designated by the Board, may
participate in a meeting of the Board or such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
SECTION 11. Consent of Directors or Committee in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, any action required or permitted to be taken at any meeting of the
Board Directors, or of any committee thereof, may be taken without a meeting if
all members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
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ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, a Vice Chairman,
a Chief Operating Officer, a Chief Financial Officer, one or more Vice
Presidents, and a Secretary, and such additional officers, if any, as shall be
elected by the Board of Directors pursuant to the provisions of Section 10 of
this Article III. The Chairman of the Board, the Chief Executive Officer, the
President, the Vice Chairman, the Chief Operating Officer, the Chief Financial
Officer, one or more Vice Presidents and the Secretary shall be elected by the
Board of Directors at its first meeting after each annual meeting of the
stockholders. The failure to hold such election shall not of itself terminate
the term of office of any officer. All officers shall hold office at the
pleasure of the Board of Directors. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be Directors. Any
number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal,
with or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to his or her contract rights,
if any. The election or appointment of an officer shall not of itself create
contract rights. All agents and employees other than officers elected by the
Board of Directors shall also be subject to removal, with or without cause, at
any time by the officers appointing them.
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Any vacancy caused by the death, resignation or removal of any
officer, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. Powers and Duties of the Chairman of the Board. The
Chairman of the Board shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned by these By-Laws
or by the Board of Directors.
SECTION 3. Powers and Duties of the Chief Executive Officer. The
Chief Executive Officer shall be the chief executive officer of the Corporation,
have general charge and control of all the Corporation's business and affairs
and, subject to the control of the Board of Directors, shall have all powers and
shall perform all duties incident to the office of Chief Executive Officer. In
the absence of the Chairman of the Board, the Chief Executive Officer shall
preside at all meetings of the stockholders and at all meetings of the Board of
Directors. The Chief Executive Officer may appoint such officers of the
Corporation, other than "executive officers" as such term is defined in the
Securities Exchange Act of 1934, as the Chief Executive Officer shall deem in
the best interests of the Corporation. In addition, the Chief Executive Officer
shall
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have such other powers and perform such other duties as may from time to time be
assigned by these By-Laws or by the Board of Directors.
SECTION 4. Powers and Duties of the President. The President shall,
subject to the control of the Board of Directors, have all powers and shall
perform all duties incident to the office of President. In the absence of the
Chairman of the Board and the Chief Executive Officer, the President shall
preside at all meetings of the stockholders and at all meetings of the Board of
Directors. In the absence of the Chief Executive Officer, the President shall be
the chief executive officer of the Corporation, have general charge and control
of all the Corporation's business and affairs and shall have such other powers
and perform such other duties as may from time to time be assigned by these
By-Laws or by the Board of Directors.
SECTION 5. Powers and Duties of the Vice Chairman. The Vice
Chairman shall have such powers and perform such duties as may from time to time
be assigned by these By- Laws or by the Chairman of the Board or the Board of
Directors.
SECTION 6. Powers and Duties of the Chief Operating Officer. The
Chief Operating Officer shall, subject to the control of the Board of Directors,
have all powers and shall perform all duties incident to the office of Chief
Operating Officer. In addition, the Chief Operating Officer shall have such
other powers and perform such other duties as may from time to time be assigned
by these By-Laws or by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer or the President.
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SECTION 7. Powers and Duties of the Chief Financial Officer. The
Chief Financial Officer shall, subject to the control of the Board of Directors,
have all powers and shall perform all duties incident to the office of Chief
Financial Officer. In addition, the Chief Financial Officer shall have such
other powers and perform such other duties as may from time to time be assigned
by these By-Laws or by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer or the President.
SECTION 8. Powers and Duties of the Vice Presidents. Each Vice
President shall have all powers and shall perform all duties incident to the
office of Vice President and shall have such other powers and perform such other
duties as may from time to time be assigned by these By-Laws or by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President.
SECTION 9. Powers and Duties of the Secretary. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose. The
Secretary shall attend to the giving or serving of all notices of the
Corporation; shall have custody of the corporate seal of the Corporation and
shall affix the same to such documents and other papers as the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President shall authorize and direct; shall have charge of the stock certificate
books, transfer books and stock ledgers and such other books and papers as the
Board of Directors, the Chairman of the Board,
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the Chief Executive Officer or the President shall direct, all of which shall at
all reasonable times be open to the examination of any Director, upon
application, at the office of the Corporation during business hours. The
Secretary shall have all powers and shall perform all duties incident to the
office of Secretary and shall also have such other powers and shall perform such
other duties as may from time to time be assigned by these By-Laws or by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President.
SECTION 10. Additional Officers. The Board of Directors may from
time to time elect such other officers (who may but need not be Directors),
including a Controller, Treasurer, Assistant Treasurers, Assistant Secretaries
and Assistant Controllers, as the Board may deem advisable and such officers
shall have such authority and shall perform such duties as may from time to time
be assigned by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President.
The Board of Directors may from time to time by resolution delegate
to any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 11. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
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SECTION 12. Voting Upon Stocks. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or any Vice President shall have full power and authority on behalf of
the Corporation to attend and to act and to vote, or in the name of the
Corporation to execute proxies to vote, at any meeting of stockholders of any
corporation in which the Corporation may hold stock, and at any such meeting
shall possess and may exercise, in person or by proxy, any and all rights,
powers and privileges incident to the ownership of such stock. The Board of
Directors may from time to time, by resolution, confer like powers upon any
other person or persons.
SECTION 13. Compensation of Officers. The officers of the
Corporation shall be entitled to receive such compensation for their services as
shall from time to time be determined by the Board of Directors.
ARTICLE IV
Indemnification of Directors and Officers
Section 1. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a Director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
Director or
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officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, and may indemnify any person who was or is a party or is
threatened to be made a party to such an action, suit or proceeding by reason of
the fact that he or she is or was or has agreed to become an employee or agent
of the Corporation, or is or was serving or has agreed to serve at the request
of the Corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person or on his or her behalf in connection with such action,
suit or proceeding and any appeal therefrom, if the person acted in good faith
and in a manner he or she 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 reasonable cause to believe his or her conduct was unlawful;
except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall be
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit, and (2) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
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The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she 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 reasonable cause to believe that his or
her conduct was unlawful.
Section 2. Successful Defense. To the extent that a Director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
1 of this Article IV or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Section 3. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by the Board of Directors by a majority vote of a
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<PAGE>
quorum consisting of Directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 4. Advance Payment of Expenses. Unless the Board of
Directors otherwise determines in a specific case, expenses incurred by a
Director or officer in defending a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
Director or officer to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Corporation as
authorized in this Article IV. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate. The Board of Directors may authorize the
Corporation's legal counsel to represent such Director, officer, employee or
agent in any action, suit or proceeding, whether or not the Corporation is a
party to such action, suit or proceeding.
Section 5. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a
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<PAGE>
contract right may not be modified retroactively without the consent of such
Director, officer, employee or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which a person indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
Section 6. Severability. If this Article IV or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
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<PAGE>
Section 7. Subrogation. In the event of payment of indemnification
to a person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
Section 8. No Duplication of Payments. The Corporation shall not be
liable under this Article IV to make any payment in connection with any claim
made against a person described in Section 1 of this Article IV to the extent
such person has otherwise received payment (under any insurance policy, by-law
or otherwise) of the amounts otherwise payable as indemnity hereunder.
ARTICLE V
Stock-Seal-Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
Chief Executive Officer, the President, the Vice Chairman, the Chief Operating
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<PAGE>
Officer or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and shall not be valid unless so
signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively
numbered as the same are issued. The name of the person owning the shares
represented thereby with the number of such shares and the date of issue thereof
shall be entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a
person owning a certificate for shares of stock of the Corporation alleges that
it has been lost, stolen or destroyed, he or she shall file in the office of the
Corporation an affidavit setting forth, to the best of his or her knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to indemnify
the Corporation and its agents against any claim that may be made against it or
them on account of the alleged loss, theft or destruction of
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<PAGE>
any such certificate or the issuance of a new certificate in replacement
therefor. Thereupon the Corporation may cause to be issued to such person a new
certificate in replacement for the certificate alleged to have been lost, stolen
or destroyed. Upon the stub of every new certificate so issued shall be noted
the fact of such issue and the number, date and the name of the registered owner
of the lost, stolen or destroyed certificate in lieu of which the new
certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his or her attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in Section 2 of this Article IV.
SECTION 4. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii)
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<PAGE>
in the case of corporate action to be taken by consent in writing without a
meeting, prior to, or more than ten (10) days after, the date upon which the
resolution fixing the record date is adopted by the Board of Directors, or (iii)
more than sixty (60) days prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is delivered to the Corporation; and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall
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<PAGE>
upon a legal holiday, then the dividend payable on such date shall be paid on
the next day not a legal holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be used
by any officer of the Corporation designated by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
Miscellaneous Provisions.
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations
and orders for the payment of money made payable to the Corporation may be
endorsed for deposit to the credit of the Corporation with a duly authorized
depository by the Treasurer and/or such other officers or persons as the Board
of Directors from time to time may designate.
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<PAGE>
SECTION 2. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Contracts. Except as otherwise provided in these By-Laws
or by law or as otherwise directed by the Board of Directors, the Chairman of
the Board, the Chief Executive Officer, the President, the Vice Chairman, the
Chief Operating Officer or any Vice President shall be authorized to execute and
deliver, in the name and on behalf of the Corporation, all agreements, bonds,
contracts, deeds, mortgages, and other instruments, either for the Corporation's
own account or in a fiduciary or other capacity, and the seal of the
Corporation, if appropriate, shall be affixed thereto by any of such officers or
the Secretary or an Assistant Secretary. The Board of Directors, the Chairman of
the Board, the Chief Executive Officer, the President, the Vice Chairman, the
Chief Operating Officer or any Vice President designated by the Board of
Directors may authorize any other officer, employee or agent to execute and
deliver, in the name and on behalf of the Corporation, agreements, bonds,
contracts, deeds, mortgages,
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<PAGE>
and other instruments, either for the Corporation's own account or in a
fiduciary or other capacity, and, if appropriate, to affix the seal of the
Corporation thereto. The grant of such authority by the Board or any such
officer may be general or confined to specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is
required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
SECTION 5. Offices Outside of Delaware. Except as otherwise
required by the laws of the State of Delaware, the Corporation may have an
office or offices and keep its books, documents and papers outside of the State
of Delaware at such place or places as from time to time may be determined by
the Board of Directors, the Chairman of the Board, the Chief Executive Officer
or the President.
ARTICLE VII
Amendments
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such
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<PAGE>
meeting shall have stated that the amendment of these By-Laws was one of the
purposes of the meeting; but, except as otherwise provided in the Certificate of
Incorporation, these By-Laws and any amendment thereof may be altered, amended
or repealed or new By-Laws may be adopted by the holders of a majority of the
voting power of all outstanding stock of the Corporation, present in person or
by proxy and entitled to vote at any annual meeting or at any special meeting,
provided, in the case of any special meeting, that notice of such proposed
alteration, amendment, repeal or adoption is included in the notice of the
meeting.
-32-
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