SCHEDULE 14A
Information Required in Proxy Statement
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as Permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
Knight Trading Group, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: ____
(2) Aggregate number of securities to which transaction applies: _______
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined): _____
(4) Proposed maximum aggregate value of transaction: ___________________
(5) Total fee paid: ____________________________________________________
[_] Fee paid previously with preliminary materials: _______________________
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ____________________________________________
(2) Form, Schedule or Registration Statement No.: ______________________
(3)Filing Party: _______________________________________________________
(4) Date Filed: ________________________________________________________
KNIGHT TRADING GROUP, INC.
Newport Tower, 23rd Floor
525 Washington Boulevard
Jersey City, New Jersey 07310
(201) 222-9400
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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To the Stockholders of Knight Trading Group, Inc.:
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders (including any
adjournments or postponements thereof, the "Annual Meeting") of Knight Trading
Group, Inc., a Delaware corporation ("Knight Trading" or the "Company"), will
be held at Courtyard by Marriott Jersey City/Newport, 540 Washington
Boulevard, Jersey City, New Jersey 07310 on Wednesday, May 16, 2001 at 1:00
p.m., for the following purposes, which are more fully described in the
accompanying Proxy Statement:
1. To elect 13 members of the Company's Board of Directors to serve until
the Company's next annual meeting and until such directors' successors
are duly elected and shall have qualified;
2. To approve the Knight Trading Group, Inc. Executive Incentive Plan;
3. To approve an amendment to the Company's 1998 Long-Term Incentive Plan
to increase the number of shares of the Company's Class A Common Stock
authorized for issuance thereunder from 24,291,000 to 27,291,000;
4. To approve an additional amendment to the Company's 1998 Long-Term
Incentive Plan to increase the maximum amount of restricted stock and
restricted stock units which may be issued thereunder from 1,000,000
shares each to 3,000,000 shares each;
5. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent auditors for 2001; and
6. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
A proxy statement describing the matters to be considered at the Annual
Meeting is attached to this notice. Only holders of record of shares of Knight
Trading Class A Common Stock at the close of business on April 2, 2001 are
entitled to notice of, and to vote at, the Annual Meeting. On that day,
123,650,480 million shares of Knight Trading Class A Common Stock were
outstanding. A complete list of stockholders entitled to vote at the Annual
Meeting will be available for examination, for proper purposes, during
ordinary business hours at Knight Trading's corporate offices, Newport Tower,
23rd Floor, 525 Washington Boulevard, Jersey City, New Jersey 07310, and at
Mellon Investor Services LLC, 44 Wall Street, 6th Floor, New York, New York
10005, during the 10 days before the Annual Meeting.
Your vote is very important regardless of how many shares of Knight Trading
Class A Common Stock you own. Regardless of whether you plan to attend the
Annual Meeting, you are requested to sign, date and return the enclosed proxy
without delay in the enclosed postage-paid envelope. You may revoke your proxy
at any time before its exercise by: (1) attending and voting in person at the
Annual Meeting; (2) giving notice of revocation of the Proxy at the Annual
Meeting; or (3) delivering to the Secretary of Knight Trading (a) a written
notice of revocation or (b) a duly executed proxy relating to the same shares
and matters to be considered at the Annual Meeting, bearing a date later than
the proxy previously executed.
By order of the Board of Directors,
/s/ Kenneth D. Pasternak
Kenneth D. Pasternak
Chairman of the Board
April 11, 2001
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
KNIGHT TRADING GROUP, INC.
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ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 16, 2001
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PROXY STATEMENT
This Proxy Statement (the "Proxy Statement") is being furnished to
stockholders of Knight Trading Group, Inc., a Delaware corporation (together
with its subsidiaries, except where the context otherwise requires, "Knight
Trading" or the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company (the "Board of Directors" or the
"Board") for use at the Annual Meeting of Stockholders, which will be held at
Courtyard by Marriott Jersey City/Newport, 540 Washington Boulevard, Jersey
City, New Jersey 07310 on May 16, 2001 at 1:00 p.m. (the "Annual Meeting").
This Proxy Statement, the accompanying form of proxy (the "Proxy") and the
other enclosed documents are first being mailed to stockholders on or about
April 16, 2001.
At the Annual Meeting, the Knight Trading stockholders will be asked to
consider and vote on proposals to: (i) elect 13 members of the Company's Board
of Directors to serve until the Company's next annual meeting and until such
directors' successors are duly elected and shall have qualified; (ii) approve
the Knight Trading Group, Inc. Executive Incentive Plan; (iii) approve an
amendment to the Company's 1998 Long-Term Incentive Plan to increase the
number of shares of the Company's Class A Common Stock authorized for issuance
thereunder from 24,291,000 to 27,291,000; (iv) approve an additional amendment
to the Company's 1998 Long-Term Incentive Plan to increase the maximum amount
of restricted stock and restricted stock units which may be issued thereunder
from 1,000,000 shares each to 3,000,000 shares each; (v) ratify the selection
of PricewaterhouseCoopers LLP as the Company's independent auditors for 2001;
and (vi) transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Beneficial owners of stock held by banks, brokers or investment plans (in
"street name") will need proof of ownership to be admitted to the meeting. A
recent brokerage statement or letter from your broker or bank are examples of
proof of ownership.
The principal executive offices of the Company are located at Newport Tower,
23rd Floor, 525 Washington Boulevard, Jersey City, New Jersey 07310, and the
telephone number is (201) 222-9400.
Solicitation and Voting of Proxies; Revocation
As described in more detail below, you may vote in any of the four following
ways: (1) by attending the 2001 Annual Meeting; (2) by calling the toll-free
telephone number listed on the proxy card (only for shares held in street
name); (3) by voting on the Internet at the address listed on the proxy card
(only for shares held in street name); or (4) by marking, signing, dating and
mailing your proxy card in the postage-paid envelope provided.
If your shares are held in street name, you will be able to vote by
telephone or on the Internet by following the instructions on the proxy form
you receive from your bank or broker. If your bank or brokerage firm provides
this service, your voting form will provide instructions. If your voting form
does not provide for voting via the Internet or by telephone, please complete
and return the paper Proxy in the self-addressed postage paid envelope
provided.
Shares of Knight Trading Class A Common Stock that are entitled to vote and
are represented by a Proxy properly signed and received at or before the
Annual Meeting, unless subsequently properly revoked, will be voted in
accordance with the instructions indicated thereon. If a Proxy is signed and
returned without indicating
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any voting instructions for all matters, or a particular matter or matters,
shares of Knight Trading Class A Common Stock represented by such Proxy will
be voted for all matters, or the particular unvoted matter(s), as follows:
FOR the election of each of the 13 nominees to the Company's Board of
Directors;
FOR the proposal to adopt the Knight Trading Group, Inc. Executive
Incentive Plan;
FOR the proposal to amend the Company's 1998 Long-Term Incentive Plan to
increase the number of shares of the Company's Class A Common Stock
authorized for issuance thereunder from 24,291,000 to 27,291,000;
FOR the proposal to amend the Company's 1998 Long-Term Incentive Plan to
increase the maximum amount of restricted stock and restricted stock units
which may be issued from 1,000,000 shares each to 3,000,000 shares each;
and
FOR the ratification of the selection of PricewaterhouseCoopers LLP as the
Company's independent auditors for 2001.
The Board of Directors is not currently aware of any business to be acted
upon at the Annual Meeting other than as described herein. If, however, other
matters are properly brought before the Annual Meeting or any adjournments or
postponements thereof, the persons appointed as proxies will have the
discretion to vote or act thereon in accordance with their best judgment,
unless authority to do so is withheld in the Proxy.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such Proxy are voted at
the Annual Meeting by: (i) attending and voting in person at the Annual
Meeting; (ii) giving notice of revocation of the Proxy at the Annual Meeting;
or (iii) delivering to the Secretary of Knight Trading (a) a written notice of
revocation or (b) a duly executed Proxy relating to the same shares and
matters to be considered at the Annual Meeting, bearing a date later than the
Proxy previously executed. Attendance at the Annual Meeting will not in and of
itself constitute a revocation of a Proxy. All written notices of revocation
and other communications with respect to revocation of proxies should be
addressed as follows: Knight Trading Group, Inc., Newport Tower, 23rd Floor,
525 Washington Boulevard, Jersey City, New Jersey 07310, Attention: Secretary,
and must be received before the taking of the votes at the Annual Meeting.
The Company will bear the entire cost of the solicitation of Proxies and the
cost of printing and mailing this Proxy Statement. The Company has retained
the services of Mellon Investor Services LLC ("Mellon") to assist in the
solicitation of Proxies. Mellon will receive a fee from the Company for
services rendered of approximately $5,500, plus out-of-pocket expenses. In
addition to solicitation by mail, the directors, officers and employees of the
Company may solicit Proxies from stockholders of the Company by telephone,
telegram or by personal interview. Such directors, officers and employees will
not be additionally compensated for any such solicitation but may be
reimbursed for reasonable out-of-pocket expenses in connection therewith.
Arrangements will also be made with brokerage houses and other custodians,
nominees and fiduciaries for the forwarding of solicitation material to the
beneficial owners of shares held of record by such persons and the Company
will reimburse such custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in connection therewith.
You can save the Company additional expense by receiving future proxy
statements and annual reports electronically. If you would like to request
this electronic delivery, please enroll after you complete your voting process
at www.ProxyVote.com.
Record Date; Outstanding Shares; Voting at the Annual Meeting
Only holders of Knight Trading Class A Common Stock at the close of business
on April 2, 2001 will be entitled to receive notice of and to vote at the
Annual Meeting. At the close of business on April 2, 2001, the Company had
outstanding and entitled to vote 123,650,480 shares of Knight Trading Class A
Common Stock.
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Shares of Knight Trading Class A Common Stock represented by Proxies which are
marked "abstain" for all or a particular matter(s) will be counted as shares
present for purposes of determining the presence of a quorum on all matters,
but will not be counted as votes cast in favor of the "abstained" matters
brought before the stockholders at the Annual Meeting. Proxies relating to
street name shares that are voted by brokers will be counted as shares present
for purposes of determining the presence of a quorum on all matters, but will
not be treated as shares having voted at the Annual Meeting as to any proposal
as to which authority to vote is withheld by the broker.
The presence, in person or by proxy, at the Annual Meeting of the holders of
at least a majority of the votes entitled to be cast at the Annual Meeting is
necessary to constitute a quorum for the transaction of business. Because the
adoption of the Knight Trading Group, Inc. Executive Incentive Plan, the two
amendments to the 1998 Long-Term Incentive Plan and the ratification of
PricewaterhouseCoopers LLP require the approval of a majority of the shares
present, in person or by proxy, and entitled to vote at the Annual Meeting,
abstentions and broker non-votes will have the same effect as a negative vote
on this proposal. However, abstentions from voting on the election of
directors (including broker non-votes) will have no effect on the outcome of
the vote.
PROPOSAL 1--ELECTION OF DIRECTORS
Directors of the Company will be elected by a plurality vote of the
outstanding shares of Knight Trading Class A Common Stock present in person or
represented by proxy at the Annual Meeting. Under applicable Delaware law, in
tabulating the votes, abstentions from voting on the election of Directors
(including broker non-votes) will be disregarded and have no effect on the
outcome of the vote.
Knight Trading currently has twelve directors on its Board of Directors, all
of whom have been nominated for election this year and have agreed to serve if
elected. Each of the twelve current directors nominated for election this year
was elected by the stockholders at the 2000 Annual Meeting of Stockholders.
Mr. Lazarowitz, elected at the 2000 Annual Meeting of Stockholders, resigned
as a director in November 2000 and has been nominated for election this year.
J. Joe Ricketts resigned as a director in February 2001 and Gene L. Finn
retired as a director in February 2001. These three vacancies have not been
filled. As a result, the Board of Directors has elected to reduce the size of
our Board from fifteen to thirteen.
The Board of Directors has been informed that all persons listed below are
willing to serve as Directors, but if any of them should decline or be unable
to act as a Director, the individuals named in the proxies will vote for the
election of such other person or persons as they, in their discretion, may
choose. The Board of Directors has no reason to believe that any such nominees
will be unable or unwilling to serve.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF
EACH OF THE NOMINEES LISTED HEREIN FOR DIRECTOR.
Nominees for Election as Directors
The name, age (as of March 31, 2001), principal occupation for the last five
years, selected biographical information and period of service as a Director
of the Company of each of the nominees for Director are set forth hereafter.
Kenneth D. Pasternak (47), Chairman of the Board, President and Chief
Executive Officer of the Company, has over 22 years of experience in the
securities industry. Mr. Pasternak was named Chairman of the Board of the
Company in October 2000 and has been a director since the Company's initial
public offering. For the past six years, Mr. Pasternak has been the Chief
Executive Officer and a trading room supervisor for the Company's wholly-owned
subsidiary Knight Securities, L.P. ("Knight Securities"). For the four years
prior to June 1999, he also served as the President of Knight Securities.
Before co-founding Roundtable Partners, L.L.C., the Company's predecessor (the
"LLC"), and Knight Securities, Mr. Pasternak served as Senior Vice President,
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Limited Partner and Trading Room Manager for Spear Leeds & Kellogg/Troster
Singer, a trading firm, from July 1979 to July 1994. Mr. Pasternak received
his B.A. degree from the State University of New York at New Paltz in 1976.
Walter F. Raquet (56), Executive Vice President and Director of the Company,
has over 30 years of experience in the securities industry. Mr. Raquet was one
of the co-founders of the LLC and Knight Securities and has been a director
since the Company's initial public offering. Prior to April 2000, Mr. Raquet
was the Chief Operating Officer of Knight Securities since its inception. From
1992 to 1994, he was a Senior Vice President with Spear, Leeds &
Kellogg/Troster Singer managing their technology and marketing functions. From
1982 to 1992, Mr. Raquet was a partner at Herzog Heine & Geduld, Inc., a
trading firm, where he directed the firm's technology and marketing efforts.
Mr. Raquet was also Corporate Controller for PaineWebber Incorporated between
1980 and 1982. He was Executive Vice President of Cantor Fitzgerald from 1977
to 1980 and Controller for Weeden & Co. from 1968 to 1976. He is a CPA and
practiced at the accounting firm of Price Waterhouse. Mr. Raquet received a
B.S. degree in Accounting from New York University in 1966.
Robert I. Turner (48), Executive Vice President, Chief Financial Officer,
Treasurer and Director of the Company and Chief Financial Officer of Knight
Securities, has over 20 years of experience in the securities and financial
services industries. For the past six years, Mr. Turner has served as the
Chief Financial Officer for Knight Securities and in April 1996 he was elected
to the advisory board of the LLC on which he served until the Company's
initial public offering, at which time he joined the Board of Directors of the
Company. From 1988 to 1995, Mr. Turner was a Corporate Vice President at
PaineWebber Incorporated, serving in a variety of financial management
positions in the fixed income, financial services, merchant banking and
commodities trading divisions. From 1982 to 1987, Mr. Turner worked for
Citibank, N.A. in the treasury and investment banking divisions. From 1979 to
1981, Mr. Turner practiced at the accounting firm of Price Waterhouse where he
became a CPA. Mr. Turner received his B.A. from the State University of New
York at Binghamton in 1973 and his M.S.B.A. from the University of
Massachusetts at Amherst in 1976.
Anthony M. Sanfilippo (44), Executive Vice President and Director of the
Company and President of Knight Capital Markets LLC ("Knight Capital
Markets"), has over 25 years of experience in the securities industry. For the
past three years, he has been the President of Knight Capital Markets. Mr.
Sanfilippo has been a director of the Company since the Company's initial
public offering. From 1993 to 1997, Mr. Sanfilippo was President and Chief
Executive Officer of Tradetech Securities, a market maker in the Nasdaq Inter-
Market, which he founded in 1993 and which was subsequently acquired by Knight
Capital Markets in 1997. From 1988 to 1993, he served as Executive Vice
President at Mesirow Financial, managing the Institutional Equity Division and
Regional Exchange Specialist Operations. From 1980 to 1986, he was Vice
President of Jefferies & Co., an investment bank, where he co-managed the
firm's capital commitments in listed securities. Mr. Sanfilippo is a member of
the National Organization of Investment Professionals. He has also served as
President of the Security Traders Association in Chicago and has chaired the
NASDR Business District Conduct Committee. Mr. Sanfilippo attended DePaul
University.
Peter S. Hajas (40), Director of the Company and Chief Executive Officer of
Knight Financial Products LLC ("Knight Financial Products"), has almost 20
years experience in the securities industry. For the past three years, Mr.
Hajas has served first as a member and then as Chief Executive Officer of
Knight Financial Products. Mr. Hajas joined the Board in January 2000. From
1990 to 1998, Mr. Hajas was Managing Director of Global Fixed Income and
Derivatives for Swiss Bank Corporation. From 1989 through October 1990, Mr.
Hajas was a partner at O'Connor & Associates in charge of fixed income
trading. Mr. Hajas was the Chairman and Head of Trading for Arbitech AB from
1987 to 1989. Before that, he was employed at O'Connor & Associates from 1983
to 1987. Mr. Hajas received a B.S. degree in Physics, Mathematics and Computer
Science from Loyola University in Chicago in 1982.
John G. Hewitt (50), Director of the Company and President of Knight
Securities, has over 20 years experience in the securities industry. Since
June 1999, Mr. Hewitt has served as President of Knight Securities. Mr. Hewitt
joined the Board in May 2000. From 1987 to 1999, Mr. Hewitt worked at Goldman
Sachs
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& Company, where he most recently was Vice President of Electronic Trading &
Arbitrage Administration. Before that, he was a Senior Vice President and
Chief Operating Officer of the New York Futures Exchange at the New York Stock
Exchange from 1978 to 1987. Mr. Hewitt received his B.A. from the University
of Rochester in 1973, his J.D. from Boston University Law School in 1978 and
his LL.M. from New York University in 1984.
Charles V. Doherty (67), Director of the Company, has served on the Board of
the Company since the Company's initial public offering, and before that, as
an advisory board member of the LLC since March 1995. He has been a Managing
Director of Madison Asset Group, an investment advisory firm, since 1993. From
1986 to 1992, Mr. Doherty was President and Chief Operating Officer of the
Chicago Stock Exchange. He is a CPA and founder of Doherty, Zable & Company,
an accounting firm, where he served as President between 1974 and 1985. Mr.
Doherty received his B.A. in Accounting, magna cum laude, from the University
of Notre Dame in 1955 and his M.B.A. from the University of Chicago in 1967.
Robert Greifeld (43), has been a Senior Vice President of SunGard Data
Systems ("SunGard") since February 2000. He is also the Chief Executive
Officer of SunGard's Trading System division. Mr. Greifeld joined the Board in
May 2000. From August 1999 to February 2000, Mr. Greifeld was Vice President
of SunGard, and from May 1999 to August 1999, he was Chief Executive Officer
of the SunGard Brokerage Systems Group. From 1993 to 1999, Mr. Greifeld was
President of Automated Securities Clearance, Ltd., which was acquired by
SunGard in March 1999. Mr. Greifeld is chairman of the advisory committee of
the BRUT Utility LLC. Mr. Greifeld holds a B.A. from Iona College and an
M.B.A. from New York University.
Gary R. Griffith (61), Director of the Company, has served on the Board of
the Company since the Company's initial public offering and, before that, as
an advisory board member of the LLC since March 1995. He has been an
independent financial consultant since 1990 and has worked in investment
banking and financial consulting since 1980. Before 1980, Mr. Griffith was
with CBS, Inc. and Price Waterhouse. Mr. Griffith is a CPA. Mr. Griffith
received a B.S. in Business Administration from Ohio State University in 1963.
Robert M. Lazarowitz (44), is a former Executive Vice President and Director
of the Company and Chief Operating Officer of Knight Capital Markets. He
resigned from the Company and as a director in November 2000. Prior thereto,
Mr. Lazarowitz was a director of the Board since its inception. Mr. Lazarowitz
was also a co-founder of the LLC. Mr. Lazarowitz has over 20 years of
experience in the securities and financial services industries. Prior to
November 2000, Mr. Lazarowitz served for the past 12 years as Chief Financial
Officer and then as Chief Operating Officer of Knight Capital Markets. From
1985 to 1987, he served as Chief Financial Officer of Bach
Management/Investment Banking and, from 1984 to 1985, as Chief Operating
Officer of Traubner Bach Co. Inc. Mr. Lazarowitz received his B.S. in
Accounting from the University of South Florida in 1978.
Bruce R. McMaken (41), Director of the Company, has served on the Board of
the Company since the Company's initial public offering and, before that, as
an advisory board member of the LLC since March 1995. He also has been
employed by Sanders Morris Harris Inc. ("SMH"), an investment banking firm,
since 1992, where he currently serves as a Senior Vice President. Mr. McMaken
serves as one of the managers of Environmental Opportunities Fund, Ltd. and
Environmental Opportunities Funds II, two private equity funds managed by
affiliates of SMH. He is also a director of IESI Corporation, a private solid
waste collection and disposal company. He received his B.A. degree from
Cornell University in 1981.
Rodger O. Riney (55), Director of the Company, has served on the Board of
the Company since the Company's initial public offering and, before that, as
an advisory board member of the LLC since March 1995. He is the President of
Scottrade, Inc., a discount brokerage firm he founded in 1980. In 1969, he
joined Edward Jones & Co., a brokerage firm, and in 1975 became a General
Partner of that firm. Mr. Riney received a B.S. degree in Civil Engineering in
1968 and an M.B.A. in 1969, both from the University of Missouri-Columbia.
V. Eric Roach (38), Director of the Company, has served on the Board of the
Company since the Company's initial public offering and, before that, as an
advisory board member of the LLC since 1995. In 2000,
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he joined eLance Inc., as its Chairman and Chief Executive Officer. Mr. Roach
founded Lombard Brokerage, a brokerage firm, in 1992 and was Chairman and
Chief Executive Officer until Dean Witter, Discover & Co. acquired the company
in 1997. Until July 1998, he was President of Discover Brokerage Direct, Inc.,
a wholly-owned subsidiary of Morgan Stanley, Dean Witter & Co., managing the
company's strategy, marketing and public relations areas. In July 1998, Mr.
Roach joined the direct business group of Morgan Stanley Dean Witter. He
attended Brigham Young University and also attended the Executive M.B.A.
program of Pepperdine University.
Board of Directors and its Committees
During 2000, the Company's Board of Directors met seven times and took
action by unanimous written consent on one other occasion.
The Company has, as standing committees, a Finance and Audit Committee, a
Compensation Committee and a Nominating and Corporate Governance Committee.
All members of the Board of Directors attended at least 75% of its meetings
and the meetings of any Committees of the Board of Directors of which they
were members in 2000, other than Mr. Roach who attended 57% of the Board
meetings.
The current members of the Finance and Audit Committee are Messrs. Griffith,
Doherty and McMaken. The Finance and Audit Committee provides assistance to
the Board of Directors in fulfilling its legal and fiduciary obligations with
respect to monitoring: (1) the integrity of the financial statements; (2) the
risk and control environment of the Company; and (3) the independence and
performance of the Company's independent auditors. The Finance and Audit
Committee also reviews and makes recommendations to the Board regarding: (i)
all proposed material new capital formation plans, including planned issuances
of equity securities and debt instruments; and (ii) certain material
acquisitions, divestments and investments by the Company.
The current members of the Compensation Committee are Messrs. Doherty and
Riney. Mr. Finn retired from the Compensation Committee in February 2001. The
Compensation Committee provides assistance to the Board of Directors to ensure
that the Company's officers, key executives and Directors are compensated in
accordance with the Company's total compensation objectives and executive
compensation policies, strategies and pay levels necessary to support
organizational objectives.
The current members of the Nominating and Corporate Governance Committee are
Messrs. Doherty, Greifeld, Pasternak and Sanfilippo. Mr. Greifeld joined the
Nominating and Corporate Governance Committee in January 2001. Mr. Finn
retired from the Nominating and Corporate Governance Committee in February
2001. The Nominating and Corporate Governance Committee makes recommendations
to the Board of Directors on whom to nominate as Directors of the Company. The
Nominating and Corporate Governance Committee also considers nominee
recommendations from stockholders of the Company.
In 2000, the Finance and Audit Committee and the Compensation Committee met
for regularly scheduled meetings as well as special meetings. The Nominating
and Corporate Governance Committee acted once by unanimous written consent and
once by special meeting.
Compensation of Directors
Messrs. Pasternak, Raquet, Sanfilippo, Hajas, Hewitt and Turner, officers of
the Company, receive no remuneration for serving on the Board of Directors.
Each of the independent Directors receive an annual fee of $18,000 and a
meeting fee of $1,000 for each of the Board of Directors and Committee
meetings attended, except for the Finance and Audit Committee meetings where
attendees receive $3,000 per meeting. Committee chairpersons receive an
additional fee of $10,000 per year. All directors are reimbursed for out-of-
pocket expenses. Each newly elected independent director is granted an option
to purchase 16,000 shares of Class A
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Common Stock. In addition, on the first business day following each annual
meeting of our stockholders, each continuing independent director will be
granted an option to purchase 8,000 shares of Class A Common Stock. For the
fiscal year ended December 31, 2000, directors of the Company who were not
officers received the above-described directors' fees from the Company
aggregating $319,000.
Executive Officers
The executive officers serve at the discretion of the Board of Directors.
The following table sets forth certain information concerning the executive
officers of the Company as of March 31, 2001 (none of whom has a family
relationship with another executive officer):
Name Age Position
---- --- --------
Kenneth D. Pasternak... 47 Chairman of the Board, President and Chief
Executive Officer
Walter F. Raquet....... 56 Executive Vice President and Director
Robert I. Turner....... 48 Executive Vice President, Chief Financial Officer,
Treasurer and Director
Anthony M. Sanfilippo.. 44 Executive Vice President and Director, President,
Knight Capital Markets
David Shpilberg........ 50 Executive Vice President, Chief Operating Officer
and Chief Technology Officer
Peter S. Hajas......... 40 Director, Chief Executive Officer, Knight
Financial Products
John G. Hewitt......... 50 Director, President, Knight Securities
Irvin Kessler.......... 45 Chief Executive Officer, Deephaven Capital
Management
Michael T. Dorsey...... 45 Senior Vice President, General Counsel and
Secretary
For selected biographical information with respect to certain of the
executive officers, please see "Nominees For Election as Directors" beginning
on page 3. Selected biographical information with respect to all other
executive officers is set forth hereafter.
David Shpilberg (50), Executive Vice President, Chief Operating Officer and
Chief Technology Officer of the Company, joined the Company in April 2000.
From 1991 to 2000, Dr. Shpilberg was a partner in the Management Consulting
Services Division of Ernst & Young where he most recently served as Vice
Chairman and Chief Technology Officer. Prior to that, he was Vice President of
Information Technology in the Equities and Asset Management Divisions
Worldwide at Goldman Sachs & Company from 1989 to 1991. From 1983 to 1989, Dr.
Shpilberg was a partner in the Management Consulting Services division of
Coopers & Lybrand. Dr. Shpilberg received his B.S. in Aeronautics and
Astronautics in 1972, his M.S. in Operations Research in 1973, and his Ph.D.
in Management Science in 1976, all from the Massachusetts Institute of
Technology.
Irvin Kessler (45), Chief Executive Officer of Deephaven Capital Management
LLC ("Deephaven Capital Management"), has over 23 years experience in the
securities industry. Mr. Kessler founded Deephaven Capital Management in 1994
and also co-founded Arbitrade Holdings LLC in 1995. Prior thereto, Mr. Kessler
traded as a proprietary options market-maker, trained and financed over 75
other options market-makers, started a clearing firm for floor traders,
established a Chicago Board of Options Exchange (the "CBOE") specialist post,
and served on the board of the CBOE and the Chicago Stock Exchange. Mr.
Kessler attended the University of Minnesota.
Michael T. Dorsey (45), Senior Vice President, General Counsel and
Secretary, has been with the Company since March 1998. From June 1994 to March
1998, Mr. Dorsey served as the Chief Legal Officer to Prudential Investment
Management Services LLC and its predecessor, in the institutional money
management unit of The Prudential Insurance Company of America. From 1986
until June 1994, Mr. Dorsey served as an attorney in the SEC's Division of
Market Regulation, holding various posts including Special Counsel to the
Assistant Director and then Branch Chief of the Office of Compliance
Inspections and Oversight. Mr. Dorsey received a B.S.B.A. in Finance from the
St. Louis University in 1981, a J.D. from the University of Missouri-Columbia
in 1984 and an LL.M. in Securities Regulations from Georgetown University Law
Center in 1989. Mr. Dorsey is admitted to the Missouri and Illinois state
bars.
7
Executive Compensation
The following table sets forth information regarding compensation paid for
each of the last three completed fiscal years for Kenneth D. Pasternak, the
Company's Chairman, President and Chief Executive Officer, and the company's
five other most highly paid executive officers (together with the Chief
Executive Officer, the "Named Executive Officers"):
Summary Compensation Table
Long-Term
Annual Compensation Compensation
--------------------------------------- ------------
Securities
All Other Underlying
Name and Principal Year Salary Bonus(1) Compensation(2) Options(3)
------------------ ---- -------- ----------- --------------- ------------
Kenneth D. Pasternak.... 2000 $250,000 $26,212,659(4) $ 25,113 --
Chairman, President and 1999 250,000 19,155,017(4) 24,244 --
Chief Executive Officer 1998 250,000 5,081,905(4) 3,714,990 2,000,000
Walter F. Raquet........ 2000 250,000 7,015,836 6,476 --
Executive Vice 1999 250,000 6,859,466 6,269 --
President 1998 250,000 1,829,588 3,714,990 750,000
John G. Hewitt.......... 2000 250,000 5,883,667 7,948 --
President, Knight 1999(5) 127,885 2,218,606 7,379 300,000
Securities 1998 -- -- -- --
David Shpilberg......... 2000(5) 192,468 5,840,409 5,250 250,000
Executive Vice 1999 -- -- -- --
President, 1998 -- -- -- --
Chief Operating Officer
and
Chief Technology
Officer
Robert I. Turner........ 2000 200,000 2,582,104 9,657 --
Executive Vice 1999 200,000 2,610,947 4,871,710 --
President, 1998 195,422 766,587 5,000 550,000
Chief Financial Officer
and
Treasurer
Anthony M. Sanfilippo... 2000 250,000 1,955,392 5,809 --
Executive Vice 1999 250,000 1,200,152 5,533 --
President 1998 250,000 496,399 385,457 350,000
- --------
(1) Includes discretionary incentive cash bonuses paid pursuant to the
Incentive Plan described below. Also includes amounts which may have been
deferred under the Company's Nonqualified Deferred Compensation Plan.
(2) Includes self-employment earnings reported for the LLC, contributions by
the Company on behalf of each of the executive officers by the Company
under the Company's 401(k) defined contribution plan, taxable income from
the exercise of nonqualified employee stock options and taxable fringe
benefits.
(3) The number of shares covered by options to purchase the Company's Class A
Common Stock granted during the applicable year, adjusted for the
Company's two-for-one stock split during May 1999. See further discussion
below.
(4) Includes $10,581,217, $4,238,732 and $1,273,709 paid as trading
compensation to Mr. Pasternak for the years ended December 31, 2000, 1999
and 1998, respectively.
(5) Executive Officer was only an employee with the Company for part of that
year.
8
Option Grants During Fiscal 2000
The following table sets forth grants of stock options to each of the Named
Executive Officers during the year ended December 31, 2000.
Individual Grants Potential Realizable
--------------------------------------------- Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Exercise Price Appreciation for
Underlying Granted to or Base Option Term(1)
Options Employees in Price Per Expiration ----------------------
Name Granted Fiscal Year Share Date 5% 10%
---- ---------- ------------- --------- ---------- ---------- -----------
David Shpilberg......... 250,000 5.8% $39.75 04/05/10 $6,249,640 $15,837,816
Executive Vice
President,
Chief Operating Officer
and
Chief Technology
Officer
- --------
(1) Amounts that may be realized upon exercise of the options immediately
before the expiration of their term, assuming the specified compound rates
of appreciation (5% and 10%) on the market value of the Class A Common
Stock on the date of option grant over the term of the options. These
numbers are calculated based on rules promulgated by the SEC and do not
reflect the Company's estimate of future stock price growth. Actual gains,
if any, on stock option exercises and common stock holdings are dependent
on the timing of exercise and the future performance of the common stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by
the individuals.
Year-End Option Values
The following table sets forth certain information concerning stock options
exercised and the number and value of unexercised options held by each of the
Named Executive Officers on December 31, 2000. All share and per share amounts
have been adjusted for the Company's two-for-one stock split during May 1999.
Aggregated Options Exercised in 2000 and Option Values at December 31, 2000
Value of
Number of Shares Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Shares December 31, 2000 December 31, 2000(1)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
Kenneth D. Pasternak.... -- -- 1,000,000 1,000,000 $6,687,500 $6,687,500
Walter F. Raquet........ -- -- 375,000 375,000 2,507,813 2,507,813
John G. Hewitt.......... -- -- 75,000 225,000 -- --
David Shpilberg......... -- -- -- 250,000 -- --
Robert I. Turner........ -- -- 137,500 275,000 919,531 1,839,063
Anthony M. Sanfilippo... -- -- 175,000 175,000 1,170,313 1,170,313
- --------
(1) Computed by subtracting the option exercise price from the closing price
per share of the Company's Class A Common Stock of $13.9375 as reported by
the National Market System of the Nasdaq Stock Market and multiplying this
amount by the number of exercisable and unexercisable options. This may
not represent the amounts that will actually be realized by the Named
Executive Officers.
9
Management Contracts
Shortly before the Company's initial public offering, the Company entered
into a new employment agreement substantially the same as the prior LLC
employment agreement with Mr. Pasternak and amended the LLC agreements of Mr.
Raquet and other former officers, as well as the prior employment agreement
with Mr. Sanfilippo (collectively, the "Executives"). The term of Mr.
Pasternak's agreement (the "Current Agreement") is four years, beginning on
the date of the consummation of the Company's initial public offering, with
annual, automatic one-year extensions beginning on the fourth anniversary of
such date unless either party gives notice of nonrenewal at least 60 days
before such anniversary. The term of the amended agreements of the remaining
Executives (the "Amended Agreements") ended on March 23, 2000, and such
agreements were not renewed.
Mr. Pasternak's Current Agreement provides that he is President and Chief
Executive Officer of the Company and President and Chief Executive Officer of
Knight Securities. Mr. Pasternak subsequently relinquished the title of
President of Knight Securities in June 1999. Mr. Pasternak receives an annual
salary of $250,000, which may be, from time to time, increased by the Board of
Directors.
The Current Agreement and each of the Amended Agreements provides, or
provided, for the payment of an annual bonus pursuant to the Company's
Incentive Plan (defined below) and for participation in current and future
employee benefit plans. In addition, the Current Agreement of Mr. Pasternak
provides, and the Amended Agreement of Mr. Sanfilippo provided, for the
payment of profit sharing equal to a percentage (in the case of Mr. Pasternak,
35%; in the case of Mr. Sanfilippo, a percentage consistent with the Company's
other traders) of the net, before-tax trading profits of the Executive's
personal trading account.
If Proposal 2 is approved by the stockholders, the Company will amend the
Current Agreement. The key changes to the Current Agreement would be an
increase in Mr. Pasternak's annual base salary from $250,000 to $750,000,
participation in the Knight Trading Group, Inc. Executive Incentive Plan, and
the establishment of a cap of $6 million for compensation arising from trading
activities that may be paid to Mr. Pasternak. In addition, Mr. Pasternak's
trading compensation would be payable through a combination of cash,
restricted stock and/or stock options.
In connection with our merger with Arbitrade Holdings LLC in January 2000,
we also entered into employment agreements with, among others, Mr. Hajas and
Mr. Kessler. The term of these agreements is three years, beginning on the
date of the completion of the merger, with annual, automatic one-year
extensions beginning on the third anniversary of such date unless either party
gives notice of nonrenewal at least 60 days before such anniversary.
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee was formed in April 1998. Set forth below is a
description of the policies and practices that the Compensation Committee
implemented in 2000 and will implement with respect to future compensation
determinations.
Compensation Philosophy. The Company's compensation program is designed to
attract, reward and retain highly qualified executives and to encourage the
achievement of business objectives and superior corporate performance. The
program ensures the Board of Directors and stockholders that: (1) the
achievement of the overall goals and objectives of the Company can be
supported by adopting an appropriate executive compensation policy and
implementing it through an effective total compensation program; and (2) the
total compensation program and practices of the Company are designed with full
consideration of all accounting, tax, securities law and other regulatory
requirements and are of the highest quality.
10
The Company's executive compensation program currently consists of two key
elements: (1) an annual compensation component composed of base salary and
bonus; and (2) a long-term compensation component composed of equity-based
awards pursuant to the 1998 Long-Term Incentive Plan.
Annual Compensation. Base salaries will be determined by evaluating the
responsibilities associated with the position being evaluated and the
individual's overall level of experience. In addition, the compensation of the
Chief Executive Officer determined by the Compensation Committee is subject to
the terms of his then current employment agreement. Annual salary adjustments
will be determined by giving consideration to the Company's performance and
the individual's contribution to that performance.
In 1998, the Company established a profit-pool incentive plan (the
"Incentive Plan"), currently consisting of four sub-profit pools, one for the
Company (disregarding its subsidiary companies) (the "Company Sub-Pool"), one
for Knight Securities (the "Knight Securities Sub-Pool"), one for Knight
Capital Markets (the "Knight Capital Markets Sub-Pool") and one for Knight
Financial Products (the "Knight Financial Products Sub-Pool"). The Incentive
Plan also provided for the creation of a new sub-pool at the time of each
future formation or acquisition of a new Company subsidiary, to be allocated
by such person or persons as determined by a committee of the Board of
Directors consisting of its executive officers.
The annual Company Sub-Pool equals 15% of the before-tax profits of the
Company (on an unconsolidated basis) earned by the Company during each fiscal
quarter (not taking into account amounts paid out pursuant to the Incentive
Plan) and is allocated on a quarterly basis by the Chief Executive Officer of
the Company. The annual Knight Securities Sub-Pool equals 15% of the before-
tax profits earned by Knight Securities during each fiscal quarter (not taking
into account amounts paid out pursuant to the Incentive Plan), and is
allocated on a quarterly basis by the Chief Executive Officer, President and
Chief Operating Officer of Knight Securities. The annual Knight Capital
Markets Sub-Pool equals 15% of the before-tax profits earned by Knight Capital
Markets during each fiscal quarter (not taking into account amounts paid out
pursuant to the Incentive Plan), and is allocated on a quarterly basis by the
Chief Executive Officer, President and Chief Operating Officer of Knight
Capital Markets. The annual Knight Financial Products Sub-Pool equals 15% of
the before-tax profits earned by Knight Financial Products, including
Deephaven Capital Management, during each fiscal quarter (not taking into
account amounts paid out pursuant to the Incentive Plan), and is allocated on
a quarterly basis by the Chief Executive Officer, President and Chief
Operating Officer of Knight Financial Products. Such officers may not
themselves receive an allocation from any sub-profit pool in any year unless
the entire Company, on a consolidated basis, earns a before-tax profit. All
allocations are subject to the approval of the Chief Executive Officer of the
Company.
If the Executive Incentive Plan (described in Proposal 2) is adopted by the
stockholders, the bonus component related to the Incentive Plan, consisting of
the four sub-profit pools, will be terminated. Please refer to Proposal 2 for
further discussion.
Mr. Pasternak is the only Company Named Executive Officer currently under an
employment contract. See "Management Contracts and Change in Control
Agreements." Increases in the base salaries of the Named Executive Officers
and the bonus portion of their annual compensation will be based upon the
considerations noted above.
Long-term Compensation. To align stockholder and executive officer
interests, the long-term component of the Company's executive compensation
program utilizes equity-based awards whose value is directly related to the
value of the Knight Trading Class A Common Stock. These equity-based awards
are granted by the Compensation Committee pursuant to the 1998 Long-Term
Incentive Plan. Individuals to whom equity-based awards are granted and the
amount of Knight Trading Class A Common Stock related to such equity-based
awards are determined at the discretion of the Board of Directors. Because
individual equity-based award levels will be based on a subjective evaluation
of each individual's overall past and expected future contribution, no
specific formula is used to determine such awards for any executive.
11
Compensation of Chief Executive Officer. In 2000, Mr. Pasternak's
compensation consisted of three components: (1) his base salary under his
Current Agreement ($250,000); (2) 35% of profits from his personal trading
account in calendar 2000, as provided by his Current Agreement ($10,581,217);
and (3) his share of the Knight Securities Sub-Pool for calendar 2000
($15,631,442). The Knight Securities Sub-Pool was allocated by Mr. Pasternak,
as Chief Executive Officer of Knight Securities. No bonuses were paid out of
the Company Sub-Pool in 2000. Mr. Pasternak received no compensation in 2000
that was within the discretion of the Board of Directors or the Compensation
Committee, as his compensation was controlled by the Current Agreement.
If Proposal 2 is approved by the stockholders, the Company will amend Mr.
Pasternak's compensation for 2001 by: (1) increasing his annual base salary to
$750,000; (2) establishing a cap of $6 million for compensation arising from
trading activities that may be paid to Mr. Pasternak (such amounts to be
payable in cash, restricted stock and/or stock options); and (3) eliminating
Mr. Pasternak's participation in the Knight Securities Sub-Pool and replacing
it with participation in the Executive Incentive Plan. The proposed changes to
Mr. Pasternak's compensation reflect an extensive review during 2000 and 2001
on industry compensation practices for executive officers. The Compensation
Committee recognizes that the opportunity to earn compensation from trading
activities is not typical for a Chief Executive Officer, but strongly believes
that this feature, with the introduction of a cap, is a continuing positive
for Knight Trading and its stockholders. If Proposal 2 is not approved by the
stockholders, Mr. Pasternak's 2001 compensation will be governed by the
Current Agreement.
Compensation Committee
Charles V. Doherty, Chairman
Rodger O. Riney
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, and before the formation of the Compensation Committee,
decisions concerning the compensation of executive officers were made by the
entire Board of Directors, or its predecessor, the advisory board of the LLC.
Since the Company's initial public offering, decisions concerning executive
compensation have been made by the Compensation Committee. The Compensation
Committee currently consists of Messrs. Doherty and Riney, none of whom has
ever been an officer or employee of the Company. No executive officer of the
Company serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
the Company's Board of Directors or Compensation Committee. Certain members of
the Company's Board of Directors are parties to transactions with the Company.
12
COMPARATIVE STOCK PERFORMANCE GRAPH
The graph below compares the total cumulative return of the Knight Trading
Class A Common Stock from July 8, 1998 (the date trading of the Knight Trading
Class A Common Stock commenced) through December 31, 2000, to the Standard &
Poor's 500 Index, the SNL All Broker/Dealer Index and two industry peer groups.
The graph assumes that dividends were reinvested and is based on an investment
of $100 on July 8, 1998.
Period Ending
-----------------------------------------------------
Index 07/08/98 12/31/98 06/30/99 12/31/99 06/30/00 12/31/00
----- -------- -------- -------- -------- -------- --------
Knight Trading Group,
Inc.................... 100.00 150.79 759.84 579.53 375.59 175.59
S&P 500................. 100.00 106.11 119.25 128.44 127.90 116.74
SNL All Broker/Dealer
Index.................. 100.00 83.73 136.91 141.55 159.51 166.62
Old Peer Group.......... 100.00 101.61 178.70 143.17 177.94 175.17
New Peer Group.......... 100.00 101.36 177.61 142.88 177.47 175.31
The Company included the following companies in its New Peer Group:
Ameritrade Holding Corporation
E*TRADE Group, Inc.
Merrill Lynch & Co. Inc.
The Charles Schwab Corporation
LaBranche & Co., Inc.
The Company included the following companies in the Old Peer Group:
Ameritrade Holding Corporation
E*TRADE Group, Inc.
Merrill Lynch & Co. Inc.
The Charles Schwab Corporation
National Discount Brokers Group (acquired by Deutsche Bank AG. Performance
through December 1, 2000.)
13
Section 16(a) Beneficial Ownership Reporting Compliance
The Company's executive officers, directors and ten percent stockholders are
required under Section 16(a) of the Securities Exchange Act of 1934, to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Commission and the The Nasdaq Stock Market, Inc. Copies of these reports must
also be furnished to the Company. Based solely upon its review of copies of
such reports furnished to the Company through the date hereof, or written
representations that no reports were required to be filed, the Company
believes that during the fiscal year ended December 31, 2000, all filing
requirements applicable to its officers, directors and ten percent
stockholders were complied within a timely manner.
FINANCE AND AUDIT COMMITTEE REPORT
The Finance and Audit Committee of the Board of Directors (the "Committee")
provides assistance to the Company's Board of Directors in fulfilling its
oversight responsibilities with respect to monitoring the quality and
integrity of the financial statements, the risk and control environment of the
Company, and the independence and performance of the Company's independent
auditors. The Committee also recommends to the Board the selection of the
Company's independent auditors. The Committee operates under a written charter
adopted and approved by the Board of Directors. A copy of the Charter is
attached to this Proxy Statement as Exhibit A.
The Committee is composed of three directors, who are not officers or
employees of the Company. The Board of Directors has determined in its
business judgement that each Committee member is in compliance with the
independence, experience and financial literacy requirements as defined by the
listing standards of The Nasdaq Stock Market, Inc.
Management is responsible for the financial reporting process, including the
system of internal control and the preparation, presentation and integrity of
the consolidated financial statements in accordance with generally accepted
accounting principles. The independent auditors are responsible for conducting
an independent audit of the financial statements in accordance with generally
accepted auditing standards. The Committee is responsible for monitoring and
reviewing these processes. However, we are not professionally engaged in the
practice of accounting or auditing and are not experts in the fields of
accounting or auditing, including with respect to auditor independence. We
rely, without independent verification, on the information provided to us and
on the representations made by management and independent auditors.
In performing its oversight responsibilities, the Committee held ten
meetings during the year 2000. These meetings were designed, among other
things, to encourage free and open communications among the Committee,
management and independent auditors. During the course of these meetings, the
Committee discussed with the independent auditor, with and without management
present, the overall scope and plan for their annual audit, the results of
their examination and their evaluation of the Company's internal controls.
Additionally, the Committee discussed matters related to the conduct of the
audit and other matters required to be discussed by Statements on Auditing
Standards No. 61, as amended (Communication with Audit Committees). The
Committee also reviewed and discussed the audited consolidated financial
statements for the year ended December 31, 2000 with management and the
independent auditor.
The Committee received and reviewed the written disclosures and the letter
from PricewaterhouseCoopers LLP required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees) regarding
auditor independence, and we held discussions with the independent auditors
regarding their independence. When considering the independence of the
Company's independent auditors, we considered whether their provision of
services to the Company beyond those rendered in connection with their audit
and review of the Company's consolidated financial statements was compatible
with maintaining their independence. We reviewed, among other matters, the
amount of fees paid to PricewaterhouseCoopers LLP for audit and non-audit
services.
14
Based on the Committee's discussions with management and the independent
auditors, review of the representations of management and the report of the
independent auditors to the Committee, and subject to the limitations on the
role of the Committee referred to above and in the Finance and Audit Committee
Charter, we recommended to the Board of Directors that the Company's audited
consolidated financial statements for the year ended December 31, 2000 be
included in the Company's Annual Report on Form 10-K. We also recommended the
selection of the Company's independent auditors, and based on our
recommendation, the Board selected PricewaterhouseCoopers LLP as the Company's
independent auditors for the fiscal year ended December 31, 2001, subject to
stockholder approval.
Finance and Audit Committee
Gary R. Griffith, Chairman
Charles V. Doherty
Bruce R. McMaken
PROPOSAL 2--TO ACT UPON A PROPOSAL TO ADOPT THE EXECUTIVE INCENTIVE PLAN
On April 11, 2001, we adopted the Knight Trading Group, Inc. Executive
Incentive Plan (the "EIP"), subject to approval by stockholders. The purpose
of the EIP is to advance the interests of the Company and its stockholders by
providing incentives in the form of periodic bonus awards to certain key
employees who contribute significantly to the strategic and long-term
performance objectives and growth of the Company. The Company believes that
the adoption of the EIP would further align the Company's key employees with
the stockholders since payment of bonus awards under the EIP will be based on
Company or subsidiary performance criteria. Currently, key employees
participate in the Incentive Plan which provides for payment to the key
employees of 15% of the before-tax profits of the Company or its specified
subsidiaries (on an unconsolidated basis) earned by the Company or the
specified subsidiary during each fiscal quarter (See "Compensation Committee
Report on Executive Compensation" for further information regarding the
Incentive Plan). The Compensation Committee believes that moving from a
predominantly cash compensation bonus payout to one with a greater mix of cash
and equity compensation is in the Company's and stockholders' interest. As a
result, if the EIP is adopted, the Incentive Plan will be terminated and
replaced by the EIP.
The EIP was developed after an extensive review during 2000 and 2001 that
focused on both external market practices and the Company's business direction
and culture. The Board of Directors believes the flexibility inherent in the
EIP will allow for the establishment of annual performance goals and measures
that are consistent with a more diversified company. If the proposed
amendments to the 1998 Long-Term Incentive Plan (as detailed in Proposals 3
and 4) are adopted, a greater proportion of executive and senior professional
compensation paid from the EIP over time will be delivered in Company equity
awards. We believe this shift to increased equity awards is in line with
industry best practices. If the stockholders do not approve the EIP, the
Company's key employees will continue to participate in the Incentive Plan.
The EIP will be administered by a committee of two or more "outside
directors" within the meaning of Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"). The committee will have the authority to
determine who will participate in the EIP and to determine the terms and
conditions of awards granted thereunder. Awards under the EIP may be paid in
the form of cash, restricted stock, restricted stock units, stock options or a
combination of the foregoing. As a result, the committee administering the EIP
may, at times, determine that cash based awards are in the best interests of
the Company, primarily in instances where equity grants would be excessively
dilutive to the stockholders. Awards of restricted stock, restricted stock
units and stock options will be granted under the Company's 1998 Long-Term
Incentive Plan. The payment of awards under the EIP will be based on the
achievement during an annual performance period determined by the committee of
certain objective performance goals set by the committee, which may include
any or all or none of the following:
15
. before or after tax net income;
. book value per share;
. stock price;
. return on shareholders' equity;
. relative performance versus peers;
. expense management;
. return on investment;
. improvements in capital structure;
. profitability of an identifiable business unit or product;
. profit margins;
. budget comparisons;
. total return to shareholders;
. revenue; or
. any increase or decrease of one or more of the foregoing over a specified
period.
The committee may reduce or eliminate any award under the EIP, but in no
event may the committee increase the amount of an award payable to a
participant unless specified performance goals are met. Unless otherwise
provided by the committee in connection with specified terminations of
employment, if a participant's employment terminates for any reason prior to
the end of a performance period, no award shall be payable to such participant
for that performance period. A participant who is terminated for gross
misconduct after the end of the performance period shall forfeit participation
in the EIP, and no award shall be payable to such a participant. In no event
shall payment in respect of awards granted for an annual performance period be
made to a participant in an amount that exceeds $22,500,000.
Under applicable law, the affirmative vote of a majority of the shares
present, in person or by proxy, and entitled to vote at the Annual Meeting is
required to adopt the proposed amendment. As a result, abstentions and broker
non-votes are effectively equivalent to votes against this proposal. Unless
otherwise instructed, properly executed proxies that are timely received and
not subsequently revoked, but not marked, will be voted in favor of the
proposed amendment.
The Board recommends that stockholders at the Annual Meeting approve the
EIP. The full text of the EIP is set forth in Exhibit B to this Proxy
Statement, and the description of the EIP set forth herein is qualified in its
entirety by reference to the text of such plan.
THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF THE EXECUTIVE INCENTIVE
PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND
RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL 3--TO ACT UPON A PROPOSAL TO ADOPT AMENDMENT NUMBER TWO TO THE KNIGHT
TRADING GROUP, INC. 1998 LONG-TERM INCENTIVE PLAN
The Board of Directors of the Company has unanimously approved and
recommends that the stockholders approve an amendment ("Amendment Two") to the
Company's 1998 Long-Term Incentive Plan (the "1998 Plan") to increase the
number of shares of the Company's Class A Common Stock authorized for issuance
thereunder from 24,291,000 shares to 27,291,000 shares. The Board adopted
Amendment Two since the number of shares currently available under the 1998
Plan are insufficient to satisfy the Company's anticipated incentive
compensation needs for current and future employees as it moves from cash
based bonus awards to greater equity
16
based bonus awards with the adoption of the EIP. The Board believes that the
adoption of Amendment Two would, among other things, enhance the long-term
stockholder value of the Company by offering opportunities to the Company's
employees, directors, officers, and other service providers to participate in
the Company's growth and success, and to encourage them to remain in the
service of the Company and its subsidiaries and to acquire and maintain stock
ownership in the Company. The Board believes that existing option grants and
stock awards have contributed substantially to the successful achievement of
the Company and that the granting of stock options and stock awards for these
purposes is comparable with the practices of other high-technology and
financial services companies. In addition, the failure to adopt Amendment Two
would unnecessarily restrict the Company's ability to pursue opportunities for
future acquisitions, mergers, and other corporate transactions. The Board
believes that Amendment Two is necessary to provide the Company with the
flexibility to pursue the types of opportunities described above without the
added delay and expense of obtaining stockholder approval each time an
opportunity requiring the issuance of shares under the 1998 Plan may arise.
If Amendment Two is approved, the Company will have additional authorized
shares of Class A Common Stock available for future grants over the next two
years, including grants under the EIP, for new hires and to retain existing
employees. Approval of the additional authorization for grants proposed in
this Proposal 3 will enable the Company to effectuate the intent of the EIP,
that is to provide for more equity based ownership by its senior officers so
that their interests are further aligned with those of the stockholders.
Should stockholders not approve this Proposal 3, the authorized shares will
not be increased, and when the number of shares currently remaining authorized
for issuance under the 1998 Plan is exhausted, the Company will not be able to
grant additional awards under the 1998 Plan absent further stockholder action.
This would also have the effect of defeating the intent of the EIP and would
increase the portion of executive compensation that is paid in cash.
Under applicable law, the affirmative vote of the holders of a majority of
the shares present, in person or by proxy, and entitled to vote at the Annual
Meeting is required to adopt the proposed amendment. As a result, abstentions
and broker non-votes are effectively equivalent to votes against this
proposal.
SUMMARY OF PLAN
The Company adopted the 1998 Plan, and it took effect, immediately before
its initial public offering. As of the date of the 1998 Plan's effectiveness,
a maximum of 7,145,500 shares of Class A Common Stock were available for
issuance thereunder. Subsequently, the Company effected a 2-for-1 stock split
by means of a 100% stock dividend as of the close of business on May 14, 1999,
resulting in an equitable adjustment in the share limitation under the 1998
Plan to 14,291,000 shares. The number of shares available for issuance under
the 1998 Plan was then increased to 24,291,000 pursuant to Amendment Number
One to the 1998 Plan, which became effective on May 17, 2000 upon its approval
by the Company's stockholders. If this Proposal 3 is adopted, a maximum of
27,291,000 shares of Class A Common Stock will be reserved for issuance under
the 1998 Plan, subject to equitable adjustment in the event of a change in the
Company's capitalization.
The 1998 Plan is administered by a committee established by the Board of
Directors, the composition of which will at all times satisfy the provisions
of Rule 16b-3 of the Securities Exchange Act of 1934, as in effect from time
to time, including any successor thereof. This committee has full authority,
subject to the provisions of the 1998 Plan, to determine, among other things,
the persons to whom awards under the 1998 Plan will be made, the size of these
awards, and the specific terms and conditions applicable to awards, including,
but not limited to, the duration, vesting and exercise or other realization
periods, the circumstances for forfeiture and the form and timing of payment.
The 1998 Plan limits the number of shares of Class A Common Stock that may
be the subject of awards to any grantee in any calendar year to 2,000,000
shares (reflecting the two-for-one stock split in May 1999). Awards, including
stock options, restricted stock and restricted stock units may be made under
the 1998 Plan to selected employees and independent contractors of the Company
and its present or future subsidiaries and affiliates, in the discretion of
the committee. Currently, all employees and independent contractors of the
17
Company and its subsidiaries are eligible to receive awards under the 1998
Plan. Stock options may be either "incentive stock options," as that term is
defined in Section 422 of the Code, or nonqualified stock options. The
exercise price of an option will not be less than the fair market value per
share of Class A Common Stock on the date of grant. Fair market value is
defined by the 1998 Plan as the average of the high and low sales prices on
the date prior to the grant date. The exercise price of an option may be paid
in cash or Class A Common Stock or by way of a "broker's cashless exercise" or
other similar arrangement approved by the committee. Options that have a term
of not more than 10 years will become exercisable at that time and upon such
terms as the committee may determine, and may be exercised following
termination of employment as determined by the committee in the document
evidencing the award.
Restricted stock is Class A Common Stock transferred to the grantee,
generally without payment to the Company, which shares are subject to certain
restrictions and to a risk of forfeiture. A restricted stock unit is a right
to receive shares of Class A Common Stock or cash at the end of a specified
period, subject to a risk of forfeiture. The vesting of restricted stock and
restricted stock units may be conditioned upon the satisfaction of specified
performance criteria. As amended by Proposal 4, the 1998 Plan would limit the
maximum number of shares of Class A Common Stock that may be the subject of
restricted share or restricted share unit awards to 3,000,000 shares each.
In the event of a "change of control," as defined in the 1998 Plan, (1) any
award carrying a right to exercise that was not previously exercisable and
vested will become fully exercisable and vested, (2) the restrictions,
deferral limitations, payment conditions and forfeiture conditions applicable
to any other award granted under the 1998 Plan will lapse and that award will
fully vest and (3) any performance conditions imposed with respect to awards
will have been deemed met.
The 1998 Plan may, at any time and from time to time, be altered, amended,
suspended, or terminated by the Board, in whole or in part, provided that no
amendment that, in the opinion of counsel, requires stockholder approval will
be effective unless such amendment has received the requisite approval of
stockholders. In addition, no amendment may be made that adversely affects any
of the rights of a grantee under any award theretofore granted, without such
grantee's consent.
Certain Federal Income Tax Consequences
Set forth below is a brief discussion of certain federal income tax
consequences relating to awards that may be granted pursuant to the 1998 Plan.
Nonqualified Stock Options. In the case of a nonqualified stock option, an
option holder generally will not be taxed upon the grant of the option.
Rather, at the time of exercise of that nonqualified stock option, the option
holder will generally recognize ordinary income for federal income tax
purposes in an amount equal to the excess of the then fair market value of the
shares purchased over the option price, which is referred to as the spread.
The Company will generally be entitled to a tax deduction at the time and in
the amount that the holder recognizes ordinary income.
Incentive Stock Options. In the case of an incentive stock option, the tax
recognition event will generally occur upon the disposition of the shares
acquired upon exercise of the incentive stock option, rather than upon the
grant of the incentive stock option or upon its exercise within the
employment-related period prescribed by the Code for this purpose, which is
referred to as timely exercise. The spread will, however, be an item of tax
adjustment for purposes of the "alternative minimum tax" imposed by Section 55
of the Code. If, upon disposition of the shares acquired upon exercise, the
special holding period requirements in the Code with respect to incentive
stock options have been satisfied, which is referred to as a qualifying
disposition, any taxable income will constitute capital gain in an amount
equal to the excess of the sale proceeds over the exercise price. The Company
will not be entitled to a tax deduction with respect to the timely exercise of
an incentive stock option or the subsequent qualifying disposition of shares
so acquired. The tax consequences of any untimely exercise of
18
an incentive stock option or non-qualifying disposition of acquired shares
will be determined in accordance with the rules applicable to nonqualified
stock options, as described in the preceding paragraph, except that, in the
case of a non-qualified disposition, the tax recognition event will occur upon
that disposition.
Exercise with Shares. An option holder who pays the option price upon
exercise of an option, in whole or in part, by delivering already-owned shares
of stock will generally not recognize gain or loss on the shares surrendered
at the time of such delivery, except under certain circumstances. Rather,
recognition of that gain or loss will generally occur upon disposition of the
shares acquired in substitution for the shares surrendered.
Restricted Stock. Generally, the grant of restricted stock has no federal
income tax consequences at the time of grant. Rather, at the time the shares
are no longer subject to a substantial risk of forfeiture (as defined in the
Code), the holder will recognize ordinary income in an amount equal to the
fair market value of those shares. A holder may, however, elect to be taxed at
the time of the grant. The Company generally will be entitled to a deduction
at the time and in the amount that the holder recognizes ordinary income.
Restricted Stock Units. In the case of restricted stock units, a holder
generally will not be taxed upon the grant of such units or upon the lapse of
restrictions on such units but, rather, will recognize ordinary income in an
amount equal to the value of the shares and cash received at the time of such
receipt. The Company will be entitled to a deduction at the time and in the
amount that the holder recognizes ordinary income.
The foregoing summary constitutes a brief overview of the principal federal
income tax consequences relating to the above-described awards based upon
current federal income tax laws. This summary is not intended to be exhaustive
and does not describe state, local or foreign tax consequences.
The Board recommends that stockholders at the Annual Meeting approve
Amendment Two. The full text of Amendment Two, Amendment Three (discussed
below) and the 1998 Plan are set forth in Exhibit C to this Proxy Statement,
and the description of the 1998 Plan set forth herein is qualified in its
entirety by reference to the text of such plan.
THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF AMENDMENT TWO IS IN THE
BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE FOR
THIS PROPOSAL.
PROPOSAL 4--TO ACT UPON A PROPOSAL TO ADOPT AMENDMENT NUMBER THREE TO THE
KNIGHT TRADING GROUP, INC. 1998 LONG-TERM INCENTIVE PLAN
The 1998 Plan currently provides that the maximum number of restricted stock
and restricted stock units that may be issued under the 1998 Plan is 1,000,000
shares each (reflecting the two-for-one stock split in May 1999). The Board of
Directors of the Company has unanimously approved and recommends that the
stockholders approve an additional amendment ("Amendment Three") to the 1998
Plan to increase the maximum number of restricted stock and restricted stock
units which may be issued under the 1998 Plan from 1,000,000 shares each to
3,000,000 shares each.
The Board adopted Amendment Three because the maximum restricted stock and
restricted stock unit awards are insufficient to satisfy the Company's
anticipated incentive compensation needs for current and future employees.
Approval of Amendment Three will enable the Company to effectuate the intent
of the EIP. In addition, such approval will allow the Company to continue to
recruit, hire and retain highly-skilled employees and executive officers who
are critical to the Company's long term growth and success. Amendment Three
has been duly adopted by the Board of Directors effective April 11, 2001. A
summary of the 1998 Plan, including the federal income tax consequences to the
Company and to participants, is set forth under Proposal 3 above.
The Board recommends that stockholders at the Annual Meeting approve
Amendment Three. The full text of Amendment Two, Amendment Three and the 1998
Plan are set forth in Exhibit C to this Proxy Statement.
19
Under applicable law, the affirmative vote of a majority of the shares
present, in person or represented by proxy, and entitled to vote at the Annual
Meeting is required for approval of Amendment Three.
THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF AMENDMENT THREE IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE
FOR THIS PROPOSAL.
PROPOSAL 5--RATIFICATION OF SELECTION OF AUDITORS
The Finance and Audit Committee and the Board of Directors of the Company
has appointed PricewaterhouseCoopers LLP as the Company's independent auditors
for the fiscal year ending December 31, 2001. Although stockholder action on
this matter is not required, this appointment is being recommended to the
stockholders for ratification. Pursuant to applicable Delaware law, the
ratification of the selection of PricewaterhouseCoopers LLP requires the
affirmative vote of the holders of a majority of the votes cast at the Annual
Meeting, in person or by proxy, and entitled to vote. Abstentions and broker
non-votes will be counted and will have the same effect as a vote against the
proposal.
PricewaterhouseCoopers LLP representatives will be present at the Annual
Meeting and will have an opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions.
THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE
SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT AUDITORS
FOR 2001.
Fees Paid To Our Independent Auditors
In addition to retaining PricewaterhouseCoopers LLP to audit the
consolidated financial statements for 2000, the Company and its affiliates
retained PricewaterhouseCoopers LLP, as well as other accounting and
consulting firms, to provide various consulting services in 2000, and expects
to continue to do so in the future. The aggregate fees billed for professional
services by PricewaterhouseCoopers LLP in 2000 for these various services
were:
Audit Fees: $507,250 for services rendered for the annual audit of the
Company's consolidated financial statements for 2000 and the quarterly reviews
of the financial statements included in the Company's Form 10-Q.
Financial Information Systems Design and Implementation Fees: There were no
fees billed for information technology services relating to financial
information systems design and implementation for the fiscal year ended
December 31, 2000.
All Other Fees: $1,341,057 for non-financial statement audit services, such
as due diligence, procedures associated with mergers and acquisitions, tax and
other services.
The Finance and Audit Committee has considered whether the provision of non-
audit services rendered by our independent auditors with respect to the
foregoing fees are compatible with maintaining their independence and has
concluded that such independence has been maintained.
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
The following table sets forth, as of March 31, 2001, certain information
regarding the beneficial ownership of Knight Trading Common Stock by: (i) each
of the Company's executive officers; (ii) each Director of the Company; (iii)
each nominee for election as a Director of the Company; (iv) each person who
is known to the Company to own beneficially more than 5% of the Common Stock;
and (v) all officers and Directors of the Company as a group. Such information
is based, in part, upon information provided by certain stockholders of the
Company. In the case of persons other than the officers and Directors of the
Company, such information is based solely on a review of Schedules 13D and 13G
filed with the SEC. As of March 31, 2001 there were 457 holders of record of
Knight Trading Class A Common Stock.
Number of Percentage
Shares of Shares
Beneficially Beneficially
Name and Address of Beneficial Owner Owned(1)(2) Owned(1)
- ------------------------------------ ------------ ------------
Kenneth D. Pasternak................................ 7,209,288 5.83
Walter F. Raquet(3)................................. 7,380,996 5.97
Robert I. Turner.................................... -- --
Anthony M. Sanfilippo............................... 547,742 *
Peter S. Hajas...................................... 2,291,300 1.85
John G. Hewitt...................................... -- --
David Shpilberg..................................... -- --
Irvin Kessler....................................... 3,352,315 2.71
Michael T. Dorsey................................... 2,400 *
Charles V. Doherty.................................. 7,000 *
Robert Greifeld..................................... 20,000 *
Gary R. Griffith.................................... 16,800 *
Robert M. Lazarowitz(4)............................. 6,123,888 4.95
Bruce R. McMaken.................................... 3,000 *
Rodger O. Riney(5).................................. 1,636,212 1.32
V. Eric Roach....................................... -- --
Ameritrade Holding Corporation(6)................... 7,907,350 6.39
All executive officers and directors (inlcuding
nominees) as a group (16 persons).................. 28,590,941 23.12%
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to the shares.
(2) Unless otherwise indicated, the address for each beneficial owner is c/o
Knight Trading Group, Inc., Newport Tower, 23rd Floor, 525 Washington
Boulevard, Jersey City, New Jersey 07310.
(3) Two million of the shares listed in the table above as being owned by Mr.
Raquet are subject to a zero-cost collar arrangement.
(4) Mr. Lazarowitz owns a nominal amount of the Company's Class A Common
Stock, and the remainder of the shares attributed to him are owned by
Lazarowitz Family Associates, L.P., a Delaware limited partnership, in
which he is the general partner and the limited partners are his wife and
a trust for the benefit of certain members of his immediate family.
(5) The shares attributed to Mr. Riney are owned by four trusts for the
benefit of Mr. Riney and his immediate family. Mr. Riney has voting power
over all of these shares.
(6) The address of Ameritrade Holding Corporation is Fourteen Wall Street, New
York, NY 10005-2176.
21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Ameritrade. At March 31, 2001, Ameritrade Holding Corporation owned
7,907,350 shares of our Class A Common Stock. Mr. J. Joe Ricketts, the
chairman and chief executive officer of Ameritrade, resigned as a director of
Knight Trading in February 2001. For the year ended December 31, 2000,
Ameritrade was the source of 8.2% of our order flow. During the same period,
aggregate payments by us to Ameritrade for order flow equaled approximately
$26.5 million.
Discover Brokerage Direct. At March 31, 2001, Discover Brokerage Direct,
Inc. did not own any shares of our Class A Common Stock. Mr. V. Eric Roach,
the former president of Discover and employee until January 2000, is a
director of Knight Trading. For the year ended December 31, 2000, Discover was
the source of less than 1% of our order flow. During the same period,
aggregate payments by us to Discover for order flow equaled approximately
$2.25 million. Mr. Roach's current employer, eLance Inc., did not send any
order flow, or receive any payment for order flow, from the Company in 2000.
Sanders Morris Harris. At March 31, 2001, Sanders Morris Harris Inc. did not
own any shares of our Class A Common Stock. Mr. Bruce R. McMaken, a Senior
Vice President at Sanders Morris Harris, is a director of Knight Trading. For
the years ended December 31, 2000, Sanders Morris Harris was the source of
less than 1% of our order flow. During the same period, aggregate payments by
us to Sanders Morris Harris for order flow equaled $36,500.
Scottrade. At March 31, 2001, Scottrade owned 1,636,212 shares of our
Class A Common Stock. Mr. Rodger O. Riney, the president of Scottrade, is a
director of Knight Trading, and has beneficial ownership of 1,636,212 of such
shares. For the year ended December 31, 2000, Scottrade was the source of 1.9%
of our order flow. During the same period, aggregate payments by us to
Scottrade for order flow equaled approximately $3.0 million.
SunGard Data Systems. The Company has entered into technology license and
service agreements in the ordinary course of business with SunGard Data
Systems. These contracts were negotiated on an arms-length basis and contain
customary terms and conditions. Mr. Robert Greifeld, Senior Vice President, is
a director of Knight Trading and owns 20,000 shares of our stock. During 2000,
we paid SunGard Data Systems for these licenses and services rendered in the
amount of $1,316,037.
ADDITIONAL INFORMATION
The Company will make available a copy of its Annual Report on Form 10-K for
the fiscal year ended December 31, 2000 and any Quarterly Reports on Form 10-Q
filed thereafter, without charge, upon written request to the Secretary,
Knight Trading Group, Inc., Newport Tower, 23rd Floor, 525 Washington
Boulevard, Jersey City, New Jersey 07310. Each such request must set forth a
good faith representation that, as of the Record Date, April 2, 2001, the
person making the request was a beneficial owner of Common Stock entitled to
vote.
To ensure timely delivery of such documents before the Annual Meeting, any
request should be received by the Company promptly.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Company's 2002 Annual
Meeting must be received by the Company not later than December 14, 2001 for
inclusion in the proxy materials for such meeting. Such proposals should be
sent by Certified Mail--Return Receipt Requested to the attention of the
Secretary of the Company, Knight Trading Group, Inc., Newport Tower, 23rd
Floor, 525 Washington Boulevard, Jersey City, New Jersey 07310.
22
OTHER BUSINESS
Management of the Company knows of no other matters that may properly be, or
which are likely to be, brought before the Annual Meeting. However, if any
other matters are properly brought before such Annual Meeting, the persons
named in the enclosed Proxy or their substitutes intend to vote the Proxies in
accordance with their judgment with respect to such matters, unless authority
to do so is withheld in the Proxy.
23
EXHIBIT A
KNIGHT TRADING GROUP, INC.
FINANCE AND AUDIT COMMITTEE CHARTER
REVISED JANUARY 16, 2001
The Finance and Audit Committee (the "Committee") of the Board of Directors
(the "Board") of Knight Trading Group, Inc. (the "Company") is established to
provide assistance to the Board in fulfilling its legal and fiduciary
obligations with respect to monitoring the integrity of the financial
statements and the risk and control environment of the Company and the
independence and performance of the Company's independent auditors. The
Finance and Audit Committee also reviews and makes recommendations to the
Board regarding: (i) all proposed material new capital formation plans,
including planned issuances of equity securities and debt instruments; and
(ii) certain acquisitions, investments, new business ventures and divestitures
proposed by the management of the Company. It is the objective of the
Committee to maintain free and open means of communication among the Board,
the independent auditors, and the financial and senior management of the
Company.
The members of the Committee shall meet the independence, experience and
financial literacy requirements as defined by The Nasdaq Stock Market, Inc.,
and the Board shall review these requirements on an annual basis to insure
continued compliance by the members of the Committee. The members of the
Committee shall be appointed by the Board. The Committee shall have a minimum
of three members, with the Chairman appointed by the Chairman of the Board of
the Company. Committee members shall serve until replaced by the Board.
The presence in person of a majority of the members of the Committee shall
be necessary to constitute a quorum of the Committee and at the discretion of
the Committee Chairman, participation in a meeting by means of a conference
telephone call allowing all persons participating to hear each other at the
same time shall constitute presence in person at a meeting.
The Committee shall have the authority to retain special legal, accounting
or other consultants to advise the Committee. The Committee may request any
officer or employee of the Company or the Company's outside counsel or
independent auditor to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Committee shall meet at least four times per year or more frequently as
circumstances require. Meetings may be called by the Committee Chairman, or by
a majority of its members, or by the Chief Financial Officer, and notice of
meetings shall be given to each member of the Committee by the Secretary of
the Company; and a person designated by the Committee Chairman shall be
responsible for keeping the minutes of the meetings.
The Committee shall make regular reports to the Board.
The Committee shall:
1. Review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval.
2. Recommend to the Board of Directors the retention or non-retention of
the independent auditor. The Committee and the Board have the ultimate
authority to select, evaluate, and when appropriate, replace the
independent auditor. The independent auditor is ultimately accountable
to the Committee and the Board of Directors.
3. Approve the proposed and final fees paid to the independent auditor.
4. Pre-approve material non-audit services to be provided by the
independent auditor and determine that such services are compatible with
maintaining the auditor's independence.
A-1
5. Meet with the independent auditor before the audit to review the
independent auditor's engagement letter, and the planning and staffing
of the audit.
6. Meet at least annually with the Chief Financial Officer and the
independent auditor in separate private sessions.
7. Meet periodically with management to review the Company's major
financial risk exposures as determined by management, and the steps
management has taken to monitor and control such exposures.
8. Determine that the independent auditor has reviewed the Company's
quarterly financial statements and earnings reports and issued its
quarterly review opinion before the filing of the Company's Form 10-Q
with the Securities and Exchange Commission (the "SEC").
9. Review in connection with the annual audit a report prepared by
management and the independent auditor of significant financial
reporting issues and judgements made in connection with the preparation
of the Company's annual financial statements.
10. Review major changes to the Company's accounting principles and
practices when and as suggested by the independent auditor or
management.
11. Review the annual audited financial statements with management and the
independent auditor, including major issues disclosed to the Committee
regarding: (i) accounting principles and practices; and (ii) the
adequacy of internal controls that could significantly affect the
Company's financial statements, and if so determined by the Committee,
recommend to the Board that the annual audited financial statements
prepared by management be included in the Company's Annual Report on
Form 10-K to be filed with the SEC.
12. Review with the independent auditor any problems, difficulties or
restrictions the auditor may have encountered in the course of the
audit work, and any management letter provided by the auditor and the
Company's response to that letter.
13. Receive periodic written reports from the independent auditor regarding
the auditor's independence consistent with Independence Standards Board
Standard 1 and delineating all relationships between the independent
auditor and the Company, and discuss such reports with the independent
auditor, and if so determined by the Committee, recommend that the
Board take appropriate action to satisfy itself of the independence of
the auditor.
14. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit.
15. Obtain from the independent auditor any information pursuant to Section
10A of the Securities Exchange Act of 1934.
16. Review periodically with the Company's General Counsel legal matters,
material reports or inquiries received from regulators or governmental
agencies that may, as determined by management and the General Counsel,
have a material impact on the Company's financial condition, results of
operations or compliance policies.
17. Review reports from management and the independent auditor regarding
compliance with applicable legal and accounting rules and regulations
by the Company's subsidiaries.
18. Review and make a recommendation to the Board regarding all material
proposed new capital formation plans of the Company including planned
issuances of equity securities and debt instruments.
19. Review and make a recommendation to the Board regarding each
acquisition, investment, new business venture and divestiture proposed
by management of the Company which involves consideration in excess of
$10,000,000.
A-2
20. Prepare the report required by the rules of the SEC to be included in
the Company's annual proxy statement.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. Nor is it
the duty of the Committee to conduct investigations, to resolve disagreements,
if any, between management and the independent auditor or to assure compliance
with laws and regulations and Company policy. These matters are the
responsibilities of management or the independent auditor or both.
A-3
EXHIBIT B
KNIGHT TRADING GROUP, INC.
EXECUTIVE INCENTIVE PLAN
1. Purpose.
The purpose of the Knight Trading Group, Inc. Executive Incentive Plan (the
"Plan") is to advance the interests of the Company and its stockholders by
providing incentives in the form of periodic bonus awards to certain key
employees who contribute significantly to the strategic and long-term
performance objectives and growth of the Company.
2. Definitions.
The following terms, as used herein, shall have the following meanings:
(a) "Award" shall mean an annual incentive compensation award, granted
pursuant to the Plan, which is contingent upon the attainment of
Performance Factors with respect to a Performance Period.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the Committee of two or more "outside directors"
(within the meaning of Section 162(m) of the Code) appointed to
administer the Plan in accordance with Section 3.
(e) "Common Stock" shall mean common stock of the Company.
(f) "Company" shall mean collectively Knight Trading Group, Inc. and its
subsidiaries.
(g) "Covered Employee" shall have the meaning set forth in Section
162(m)(3) of the Code.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Executive Officer" shall mean an officer of the Company who is an
"executive officer" within the meaning of Rule 3b-7 promulgated under
the Exchange Act.
(j) "LTIP" shall mean the Knight Trading Group, Inc. 1998 Long-Term
Incentive Plan, as amended, or a successor plan.
(k) "Participant" shall mean an officer or other key employee of the
Company who is, pursuant to Section 4 of the Plan, selected to
participate herein.
(l) "Performance Factors" shall mean the criteria and objectives,
determined by the Committee, which must be met during the applicable
Performance Period as a condition of the Participant's receipt of
payment with respect to an Award. Performance Factors may include any
or all of the following: before or after tax net income; book value per
share; stock price; return on stockholders' equity; relative
performance versus peers; expense management; return on investment;
improvements in capital structure; profitability of an identifiable
business unit or product; profit margins; budget comparisons; total
return to stockholders; revenue; or any increase or decrease of one or
more of the foregoing over a specified period. Such Performance Factors
may relate to the performance of the Company, a business unit, product
line, territory, or any combination thereof and may include other
objective measures determined by the Committee to contribute
significantly to shareholder value creation. With respect to
Participants who are not Executive Officers, Performance Factors may
also include such objective or subjective performance goals as the
Committee may, from time to time, establish. Subject to Section 5(b)
hereof, the Committee shall have the sole discretion to determine
whether, or to what extent, Performance Factors are achieved.
B-1
(m) "Performance Period" shall mean the Company's fiscal year, or such
other period as the Committee may determine.
(n) "Plan" shall mean the Knight Trading Group, Inc. Executive Incentive
Plan.
(o) "Stock Option" shall mean a right to purchase shares of Common Stock.
3. Administration.
The Plan shall be administered by the Committee. The Committee shall have
the authority in its sole discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Awards; to determine the persons to whom
Awards shall be granted; to determine the time or times at which Awards shall
be granted; to determine the terms, conditions, restrictions and performance
criteria, including Performance Factors, relating to any Award; to modify the
size, timing and terms of any Award; to determine whether, to what extent, and
under what circumstances an Award may be settled, cancelled, forfeited, or
surrendered; to establish the Performance Factors; to make adjustments in the
Performance Factors in recognition of unusual or non-recurring events
affecting the Company or the financial statements of the Company, or in
response to changes in applicable laws, regulations, or accounting principles;
to confirm the attainment of the Performance Factors in accordance with
Section 162(m) of the Code; to construe, interpret and amend the Plan and any
Award; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of Awards; to require that payment
an Award or a portion thereof be deferred for a specific period; and to make
all other determinations deemed necessary or advisable for the administration
of the Plan.
The Committee shall consist of two or more persons each of whom shall be an
"outside director" within the meaning of Section 162(m) of the Code. All
decisions, determinations and interpretations of the Committee shall be final
and binding on all persons, including the Company and the Participant (or any
person claiming any rights under the Plan from or through any Participant).
No member of the Board or the Committee shall be liable for any action taken
or determination made in good faith with respect to the Plan or any Award
granted hereunder.
4. Eligibility.
Awards may be granted to officers and other key employees of the Company in
the sole discretion of the Committee. Subject to Section 5(b) below, in
determining the persons to whom Awards shall be granted and the Performance
Factors relating to each Award, the Committee shall take into account such
factors as the Committee shall deem relevant in connection with accomplishing
the purposes of the Plan.
5. Terms of Awards.
Awards granted pursuant to the Plan shall be communicated to Participants in
such form as the Committee shall from time to time approve and the terms and
conditions of such Awards shall be set forth therein.
(a) In General. The Committee shall specify with respect to a Performance
Period the Performance Factors applicable to each Award. Performance
Factors may include a level of performance below which no payment shall be
made and levels of performance at which specified percentages of the Award
shall be paid. Unless otherwise provided by the Committee in connection
with specified terminations of employment, payment in respect of Awards
shall be made only if and to the extent the Performance Factors with
respect to such Performance Period are attained.
(b) Special Provisions Regarding Awards. Notwithstanding anything to the
contrary contained in this Section 5, in no event shall payment in respect
of Awards granted for a Performance Period be made to a
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Participant in an amount that exceeds $22,500,000 (twenty two million five
hundred thousand dollars). The Committee may reduce or eliminate any Award
under the Plan, but in no event may the Committee increase the amount of an
Award payable to a Covered Employee unless specified Performance Factors
are met.
(c) Performance Period; Timing For Establishing Performance
Factors. Achievement of Performance Factors in respect of Performance
Awards shall be measured over a Performance Period. The Committee shall
establish applicable Performance Factors not later than ninety (90) days
after the beginning of any Performance Period applicable to such
Performance Awards, or at such other date as may be required or permitted
for "performance-based compensation" under Section 162(m) of the Code.
(d) Performance Award Pool. The Committee may establish a Performance
Award pool, which shall be an unfunded pool, for purposes of measuring
Company performance in connection with Performance Awards. The amount of
such Performance Award pool shall be based upon the achievement of one or
more Performance Factors during the applicable Performance Period. The
Committee may specify the amount of the Performance Award pool as a
percentage of any Performance Factor, a percentage thereof in excess of a
threshold amount, or another amount which need not bear a strictly
mathematical relationship to such Performance Factor.
(e) Time and Form of Payment. Unless otherwise determined by the
Committee, all payments in respect of Awards granted under this Plan shall
be made within a reasonable period after the end of the Performance Period.
In the case of Participants who are Covered Employees, unless otherwise
determined by the Committee, such payments shall be made only after
achievement of the Performance Factors has been certified by the Committee.
All payments with respect to Awards shall be made, in the sole discretion
of the Committee, in the form of (i) cash, (ii) an award of shares of
restricted Common Stock or restricted Common Stock units, subject to the
terms of the LTIP, (iii) an award of Stock Options subject to the terms of
the LTIP or (iv) a combination of the foregoing. For purposes of the
preceding sentence, the value of shares of Common Stock represented by the
restricted Common Stock, restricted Common Stock units or Stock Options
shall be determined based upon the Fair Market Value per share of Common
Stock, as defined in the LTIP, net of any discounts that may be approved by
the Committee. The Committee may permit or require, in its discretion, that
amounts otherwise payable in cash under this Plan be deferred in accordance
with such terms and conditions as may be established by the Committee from
time to time.
6. General Provisions.
(a) Compliance with Legal Requirements. The Plan and the granting and
payment of Awards, and the other obligations of the Company under the Plan
shall be subject to all applicable federal and state laws, rules and
regulations, and to such approvals by any regulatory or governmental agency
as may be required.
(b) Nontransferability. Awards shall not be transferable by a Participant
except upon the Participant's death following the end of the Performance
Period but prior to the date payment is made, in which case the Award shall
be transferable by will or the laws of descent and distribution.
(c) No Right To Continued Employment. Nothing in the Plan or in any Award
granted pursuant hereto shall confer upon any Participant the right to
continue in the employ of the Company or to be entitled to any remuneration
or benefits not set forth in the Plan or to interfere with or limit in any
way the right of the Company to terminate such Participant's employment.
(d) Withholding Taxes. Where a Participant or other person is entitled to
receive a payment pursuant to an Award hereunder, the Company shall have
the right to require the Participant or such other person to pay to the
Company the amount of any taxes that the Company may be required to
withhold before delivery to such Participant or other person of such
payment.
(e) Amendment, Termination and Duration of the Plan. The Board or the
Committee may at any time and from time to time alter, amend, suspend, or
terminate the Plan in whole or in part; provided that, no amendment that
requires shareholder approval in order for the Plan to continue to comply
with Code
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Section 162(m) shall be effective unless the same shall be approved by the
requisite vote of the stockholders of the Company. Notwithstanding the
foregoing, no amendment shall affect adversely any of the rights of any
Participant under any Award following the end of the Performance Period to
which such Award relates.
(f) Participant Rights. No Participant shall have any claim to be granted
any Award under the Plan, and there is no obligation for uniformity of
treatment for Participants.
(g) Termination of Employment. Unless otherwise provided by the Committee
in connection with specified terminations of employment, if a Participant's
employment terminates for any reason prior to the end of a Performance
Period, no Award shall be payable to such Participant for that Performance
Period. A Participant who is terminated for gross misconduct after the end
of the Performance Period shall forfeit participation in the Plan, and no
Award shall be payable to such a Participant.
(h) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to
any payments not yet made to a Participant pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company.
(i) Governing Law. The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware
without giving effect to the conflict of laws principles thereof.
(j) Effective Date. The Plan shall take effect upon its adoption by the
Board; provided, however, that the Plan shall be subject to the requisite
approval of the stockholders of the Company in order to comply with Section
162(m) of the Code. In the absence of such approval, the Plan (and any
Awards made pursuant to the Plan prior to the date of such approval) shall
be null and void.
(k) Beneficiary. A Participant may file with the Committee a written
designation of a beneficiary on such form as may be prescribed by the
Committee and may, from time to time, amend or revoke such designation. If
no designated beneficiary survives the Participant and an Award is payable
to the Participant's beneficiary pursuant to Section 6(b), the executor or
administrator of the Participant's estate shall be deemed to be the
grantee's beneficiary.
(l) Interpretation. The Plan is designed and intended to comply, to the
extent applicable, with Section 162(m) of the Code, and all provisions
hereof shall be construed in a manner to so comply.
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EXHIBIT C
KNIGHT TRADING GROUP, INC.
1998 Long-Term Incentive Plan
1. PURPOSE
The purpose of the Knight Trading Group, Inc., 1998 Long-Term Incentive Plan
(the "Plan") is to provide long-term incentive compensation opportunities to
selected employees, independent contractors, and non-employee directors of
Knight Trading Group, Inc., (the "Company"), or any Subsidiary or Affiliate
which now exists or hereafter is organized or acquired, to help retain their
services as employees or independent contractors, as the case may be, to
increase their efforts on behalf of the Company and to promote the success of
the Company's business in the interest of its stockholders.
2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Affiliate" means, with respect to any individual, entity or group, any
other individual, entity or group that controls, is controlled by or is
under common control with, such individual, entity or group. For
purposes of this definition, the term "control" (and its correlative
terms) means the possession, directly or indirectly, of the power to
direct or cause the direction of management and policies, whether
through the ownership of voting securities, by contract or otherwise.
(b) "Award" means any Option, Restricted Stock or Restricted Stock Unit
granted under the Plan.
(c) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(d) "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Grantee in his or her most recent written
beneficiary designation filed with the Company to receive the benefits
specified under the Plan upon his or her death, or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the
person, persons, trust or trusts entitled by will or the laws of
descent and distribution to receive such benefits.
(e) "Board" means the Board of Directors of the Company.
(f) "Change in Control" means:
(i) the acquisition by any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) of "beneficial ownership"
(within the meaning of Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of the Company representing twenty
percent (20%) or more of either the then outstanding Stock or the
combined voting power of the Company's then outstanding voting
securities entitled to vote generally in the election of directors;
provided, however, that for purposes of this subsection (i), the
following transactions shall not constitute a Change in Control:
(A) an acquisition by the Company, (B) an acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company, (C) an acquisition by an entity owned, directly or
indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of Stock or (D) an acquisition
by an entity pursuant to a Business Combination (as defined in
subsection (iii) of this Section 2(f)) that satisfies clauses (A),
(B) and (C) of such subsection;
(ii) the following individuals cease for any reason to constitute a
majority of the Company's directors then serving: individuals who
as of the date hereof constitute the Board (the "Initial
Directors") and any new director (a "New Director") whose
appointment or election by the Board or nomination for election by
the Company's stockholders was approved or recommended by a vote
of at least two-thirds of the directors then in office who either
are Initial Directors or New
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Directors; provided, however, that a director whose initial
assumption of office is in connection with an actual or threatened
election contest (including but not limited to a consent
solicitation) relating to the election of directors of the Company
shall not be considered a New Director;
(iii) the stockholders of the Company approve a reorganization, merger
or consolidation or a sale or disposition of all or substantially
all of the Company's assets (a "Business Combination"), other than
a Business Combination in which (A) the voting securities of the
Company outstanding immediately prior thereto and entitled to vote
generally in the election of directors continue to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof) more
than fifty percent (50%) of the combined voting power of the
voting securities of the Company or such surviving entity or
parent outstanding immediately after such Business Combination and
entitled to vote generally in the election of directors; (B) no
"person" (as hereinabove defined), other than the Company, an
employee benefit plan (or related trust) sponsored or maintained
by the Company, or an entity resulting from such Business
Combination, acquires more than twenty percent (20%) of the
combined voting power of the Company's then outstanding securities
entitled to vote generally in the election of directors and (C) at
least a majority of the members of the board of directors of the
entity resulting from such Business Combination were Initial
Directors or New Directors at the time of the execution of the
initial agreement, or action of the Board, providing for such
Business Combination; or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(h) "Committee" means the committee established by the Board to administer
the Plan.
(i) "Company" means Knight Trading Group, Inc., or any successor
corporation.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(k) "Fair Market Value" means, with respect to Stock or other property, the
fair market value of such Stock or other property determined by such
methods or procedures as shall be established from time to time by the
Committee. Unless otherwise determined by the Committee in good faith,
the per share Fair Market Value of Stock as of a particular date shall
mean (i) the average of the high and low sales prices per share of
Stock on the national securities exchange on which the Stock is
principally traded, for the last preceding date on which there was a
sale of such Stock on such exchange, or (ii) if the shares of Stock are
then traded in an over-the-counter market, the average of the high and
low prices for the shares of Stock in such over-the-counter market for
the last preceding date on which there was a sale of such Stock in such
market, or (iii) if the shares of Stock are not then listed on a
national securities exchange or traded in an over-the-counter market,
such value as the Committee, in its sole discretion, shall determine.
(l) "Grantee" means a person who, as an employee, or independent contractor
of the Company, a Subsidiary or an Affiliate, has been granted an Award
under the Plan.
(m) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(n) "NQSO" means any Option that is designated as a nonqualified stock
option.
(o) "Option" means a right, granted to a Grantee under Section 6(b) to
purchase shares of Stock. An Option may be either an ISO or an NQSO,
provided that ISO's may be granted only to employees of the Company or
a Subsidiary.
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(p) "Plan" means this Knight Trading Group, Inc., 1998 Long-Term Incentive
Plan, as amended from time to time.
(q) "Restricted Stock" means an Award of shares of Stock to a Grantee under
Section 6(c) that are subject to certain restrictions and to a risk of
forfeiture.
(r) "Restricted Stock Unit" means an Award of cash based on the Fair Market
Value of one share of Stock made to a Grantee under section 6(d) that
are subject to certain restriction and to a risk of forfeiture.
(s) "Stock" means shares of the common stock of the Company.
(t) "Subsidiary" means any corporation or other legal entity in an unbroken
chain of corporations or other legal entities beginning with the
Company if, at the time of granting of an Award, each of the
corporations or other legal entities (other than the last corporation
or other legal entity in the unbroken chain) owns securities possessing
50% or more of the total combined voting power of all classes of
securities in one of the other corporations or other legal entities in
the chain.
3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have
the authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Awards; to determine the persons to whom
and the time or times at which Awards shall be granted; to determine the type
and number of Awards to be granted; the number of shares of Stock to which an
Award may relate and the terms, conditions, restrictions and performance
criteria relating to any Award; and to determine whether, to what extent, and
under what circumstances an Award may be settled, canceled, forfeited,
exchanged, or surrendered; to make adjustments in the terms and conditions of,
and the criteria and performance objectives (if any) included in, Awards in
recognition of unusual or non-recurring events affecting the Company or any
Subsidiary or Affiliate or the financial statements of the Company or any
Subsidiary or Affiliate, or in response to changes in applicable laws,
regulations, or accounting principles; to designate Affiliates; to construe
and interpret the Plan and any Award; to prescribe, amend and rescind rules
and regulations relating to the Plan; to determine the terms and provisions of
the Award Agreements (which need not be identical for each Grantee); and to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
No member of the Board or Committee or any person to whom it has delegated
duties as aforesaid shall be liable for any action taken or determination made
in good faith with respect to the Plan or any Award granted hereunder.
4. ELIGIBILITY
Subject to the conditions set forth below, Awards may be granted to selected
employees and independent contractors of the Company and its present or future
Subsidiaries and Affiliates, in the discretion of the Committee. In
determining the persons to whom Awards shall be granted and the type of any
Award (including the number of shares to be covered by such Award), the
Committee shall take into account such factors as the Committee shall deem
relevant in connection with accomplishing the purposes of the Plan.
5. STOCK SUBJECT TO THE PLAN
The maximum number of shares of Stock reserved for the grant of Awards under
the Plan shall be 27,291,000 shares of Stock, subject to adjustment as
provided herein. No more than 2,000,000 of the total shares available for
grant may be awarded to a single individual in a single year, and no more than
3,000,000 of the total shares available for grant may be awarded in total as
Restricted Stock.
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Such shares may, in whole or in part, be authorized but unissued shares or
shares that shall have been or may be reacquired by the Company in the open
market, in private transactions or otherwise. If any shares subject to an
Award are forfeited, canceled, exchanged or surrendered or if an Award
otherwise terminates or expires without a distribution of shares to the
Grantee, the shares of Stock with respect to such Award shall, to the extent
of any such forfeiture, cancellation, exchange, surrender, termination or
expiration, again be available for Awards under the Plan. Upon the exercise of
any Award granted in tandem with any other Awards, such related Awards shall
be canceled to the extent of the number of shares of Stock as to which the
Award is exercised and, notwithstanding the foregoing, such number of shares
shall no longer be available for Awards under the Plan.
In the event that the Committee shall determine that any dividend or other
distribution (whether in the form of cash, Stock, or other property),
recapitalization, Stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Grantees under the Plan, then the Committee shall make such
equitable changes or adjustments as it deems necessary or appropriate to any
or all of (i) the number and kind of shares of Stock which may thereafter be
issued in connection with Awards, (ii) the number and kind of shares of Stock
issued or issuable in respect of outstanding Awards, and (iii) the exercise
price, grant price, or purchase price relating to any Award; provided that,
with respect to ISOs, such adjustment shall be made in accordance with Section
424(h) of the Code.
6. SPECIFIC TERMS OF AWARDS
(a) General. The term of each Award shall be for such period as may be
determined by the Committee. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a
Subsidiary or Affiliate upon the grant, maturation, or exercise of an
Award may be made in such forms as the Committee shall determine at the
date of grant or thereafter, including, without limitation, cash,
Stock, or other property. In addition to the foregoing, the Committee
may impose on any Award or the exercise thereof, at the date of grant
or thereafter, such additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee shall determine.
(b) Options. The Committee is authorized to grant Options to Grantees on
the following terms and conditions:
(i) Type of Award. The Award Agreement evidencing the grant of an
Option under the Plan shall designate the Option as an ISO or an
NQSO.
(ii) Exercise Price. The exercise price per share of Stock purchasable
under an Option shall be determined by the Committee; provided
that such exercise price shall be not less than the Fair Market
Value of a share on the date of grant of such Option. The exercise
price for Stock subject to an Option may be paid in cash or by an
exchange of Stock previously owned by the Grantee, or a
combination of both, in an amount having a combined value equal to
such exercise price. The Grantee may also simultaneously exercise
Options and sell the shares of Stock thereby acquired, pursuant to
a brokerage or similar arrangement approved in advance by the
Committee, and use the proceeds from such sale as payment of the
Exercise Price and any applicable withholding taxes.
(iii) Term and Exercisability of Options. Options shall be exercisable
over the option term (which shall not exceed ten years from the
date of grant), at such times and upon such conditions as the
Committee may determine, as reflected in the Award Agreement;
provided that, the Committee shall have the authority to
accelerate the exercisability of any outstanding Option at such
time and under such circumstances as it, in its sole discretion,
deems appropriate. An Option may be exercised to the extent of
any or all full shares of Stock as to which the Option has become
exercisable, by giving written notice of such exercise to the
Committee or its designated agent.
(iv) Termination of Employment, etc. An Option may not be exercised
unless the Grantee is then in the employ of, or then maintains an
independent contractor relationship with, the Company or
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a Subsidiary or an Affiliate (or a company or a parent or subsidiary
company of such company issuing or assuming the Option in a
transaction to which Section 424(a) of the Code applies), and unless
the Grantee has remained continuously so employed, or continuously
maintained such relationship, since the date of grant of the Option;
provided that, the Award Agreement may contain provisions extending
the exercisability of Options, in the event of specified
terminations, to a date not later than the expiration date of such
Option.
(v) Other Provisions. Options may be subject to such other conditions
including, but not limited to, restrictions on transferability of
the shares acquired upon exercise of such Options, as the Committee
may prescribe in its discretion or as may be required by applicable
law.
(c) Restricted Stock. The Committee is authorized to grant Restricted Stock
to Grantees on the following terms and conditions:
(i) Issuance and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions, if any, as
the Committee may impose at the date of grant, which restrictions
may lapse separately or in combination at such times, under such
circumstances, in such installments, or otherwise, as the Committee
may determine. Such restrictions may include factors relating to the
increase in the value of the Stock or to individual or Company
performance such as the attainment of certain specified individual,
divisional or Company-wide performance goals, sales volume increases
or increases in earnings per share. Except to the extent restricted
under the Award Agreement relating to the Restricted Stock, a
Grantee granted Restricted Stock shall have all of the rights of a
stockholder including, without limitation, the right to vote
Restricted Stock and the right to receive dividends thereon.
(ii) Forfeiture. Upon termination of employment with or service to the
Company, or upon termination of the independent contractor
relationship, as the case may be, during the applicable restriction
period, Restricted Stock and any accrued but unpaid dividends that
are at that time subject to restrictions shall be forfeited;
provided that, the Committee may provide, by rule or regulation or
in any Award Agreement, or may determine in any individual case,
that restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may
in other cases waive in whole or in part the forfeiture of
Restricted Stock.
(iii) Certificates for Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine.
If certificates representing Restricted Stock are registered in
the name of the Grantee, such certificates shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock, and the Company
shall retain physical possession of the certificate.
(iv) Dividends. Dividends paid on Restricted Stock shall be either paid
at the dividend payment date, or deferred for payment to such date
as determined by the Committee, in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount
of such dividends. Stock distributed in connection with a stock
split or stock dividend, and other property distributed as a
dividend, shall be subject to restrictions and a risk of forfeiture
to the same extent as the Restricted Stock with respect to which
such Stock or other property has been distributed.
(d) Restricted Stock Units. The Committee is authorized to grant Restricted
Stock Units to Grantees on the following terms and conditions:
(i) Issuance and Restrictions. Restricted Stock Units shall be subject
to such restrictions on transferability and other restrictions, if
any, as the Committee may impose at the date of grant, which
restrictions may lapse separately or in combination at such times,
under such circumstances, in such installments, or otherwise, as the
Committee may determine. Such restrictions may include factors
relating to the increase in the value of the Stock or to individual
or Company performance such as the attainment of certain specified
individual, divisional or Company-wide performance
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goals, sales volume increases or increases in earnings per share. A
Grantee granted Restricted Stock Units shall have the right to
receive dividends thereon equal to the number and value of dividends
that would be paid on an equal number of Restricted Stock shares. No
more than 3,000,000 Restricted Stock Units may be awarded under the
Plan.
(ii) Forfeiture. Upon termination of employment with or service to the
Company, or upon termination of the independent contractor
relationship, as the case may be, during the applicable restriction
period, Restricted Stock Units and any accrued but unpaid dividends
that are at that time subject to restrictions shall be forfeited;
provided that, the Committee may provide, by rule or regulation or
in any Award Agreement, or may determine in any individual case,
that restrictions or forfeiture conditions relating to Restricted
Stock Units will be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may
in other cases waive in whole or in part the forfeiture of
Restricted Stock Units.
(iii) Dividends. Dividends paid on Restricted Stock Units shall be
either paid at the dividend payment date, or deferred for payment
to such date as determined by the Committee, in cash.
7. CHANGE IN CONTROL PROVISIONS
The following provisions shall apply in the event of a Change in Control
unless otherwise determined by the Committee or the Board in writing at or
after the grant of an Award, but prior to the occurrence of such Change in
Control:
(a) Any Award carrying a right to exercise that was not previously
exercisable and vested shall become fully exercisable and vested;
(b) The restrictions, deferral limitations, payment conditions, and
forfeiture conditions applicable to any other Award granted under the
Plan shall lapse and such Awards shall be deemed fully vested, and any
performance conditions imposed with respect to Awards shall be deemed
to be fully achieved; and
(c) If the Company's shares of stock are not listed on a national
securities exchange or traded in an over-the-counter market at the time
of the Change in Control, the value of all outstanding Awards shall, to
the extent determined by the Committee at or after grant, be cashed out
on the basis of the Change in Control Price as of the date the Change
in Control occurs or such other date as the Committee may determine
prior to the Change in Control.
8. GENERAL PROVISIONS
(a) Approval of Shareholders; Effective Date. The Plan shall take effect
upon its adoption by the Board, but the Plan (and any grants of Awards
made prior to the shareholder approval mentioned herein) shall be
subject to ratification by the holder(s) of a majority of the issued
and outstanding shares of voting securities of the Company entitled to
vote, which ratification must occur within twelve (12) months of the
date that the Plan is adopted by the Board. In the event that the
shareholders of the Company do not ratify the Plan at a meeting of the
shareholders at which such issue is considered and voted upon, then
upon such event the Plan and all rights hereunder shall immediately
terminate and no Grantee (or any permitted transferee thereof) shall
have any remaining rights under the Plan or any Award Agreement entered
into in connection herewith.
(b) Nontransferability. Except as otherwise determined by the Committee,
awards shall not be transferable by a Grantee except by will or the
laws of descent and distribution and shall be exercisable during the
lifetime of a Grantee only by such Grantee or his guardian or legal
representative.
(c) No Right to Continued Employment. Nothing in the Plan or in any Award
granted or any Award Agreement or other agreement entered into pursuant
hereto shall confer upon any Grantee the right to continue in the
employ of or to continue as an independent contractor of the Company,
any Subsidiary
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or any Affiliate or to be entitled to any remuneration or benefits not
set forth in the Plan or such Award Agreement or other agreement or to
interfere with or limit in any way the right of the Company or any such
Subsidiary or Affiliate to terminate such Grantee's employment or
independent contractor relationship.
(d) Taxes. The Company or any Subsidiary or Affiliate is authorized to
withhold from any Award granted, any payment relating to an Award under
the Plan, including from a distribution of Stock, or any other payment
to a Grantee, amounts of withholding and other taxes due in connection
with any transaction involving an Award, and to take such other action
as the Committee may deem advisable to enable the Company and Grantees
to satisfy obligations for the payment of withholding taxes and other
tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make
cash payments in respect thereof in satisfaction of a Grantee's tax
obligations.
(e) Amendment and Termination of the Plan. The Board may at any time and
from time-to-time alter, amend, suspend, or terminate the Plan in whole
or in part; provided that, no amendment which, in the opinion of
counsel for the Company, requires stockholder approval, shall be
effective unless the same shall be approved by the requisite vote of
the stockholders of the Company entitled to vote thereon.
Notwithstanding the foregoing, no amendment shall affect adversely any
of the rights of any Grantee, without such Grantee's consent, under any
Award theretofore granted under the Plan.
(f) No Rights to Awards; No Stockholder Rights. No Grantee shall have any
claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Grantees. Except as provided
specifically herein, a Grantee or a transferee of an Award shall have
no rights as a stockholder with respect to any shares covered by the
Award until the date of the issuance of a stock certificate to the
Grantee or transferee for such shares.
(g) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect
to any payments not yet made to a Grantee pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Grantee any
rights that are greater than those of a general creditor of the
Company.
(h) No Fractional Shares. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards, or other property shall be issued
or paid in lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise
eliminated.
(i) Regulations and Other Approvals.
(i) The obligation of the Company to sell or deliver Common Stock with
respect to any Award granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such
approvals by governmental agencies as may be deemed necessary or
appropriate by the Committee.
(ii) Each Award is subject to the requirement that, if at any time the
Committee determines, in its absolute discretion, that the listing,
registration or qualification of Common Stock issuable pursuant to
the Plan is required by any securities exchange or under any state
or federal law, or the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in
connection with, the grant of an Award or the issuance of Common
Stock, no such Award shall be granted or payment made or Common
Stock issued, in whole or in part, unless listing, registration,
qualification, consent or approval has been effected or obtained
free of any conditions not acceptable to the Committee.
(iii) In the event that the disposition of Common Stock acquired
pursuant to the Plan is not covered by a then current registration
statement under the Securities Act and is not otherwise exempt
from such registration, such Common Stock shall be restricted
against transfer to the extent required by
C-7
the Securities Act or regulations thereunder, and the Committee may
require a Grantee receiving Common Stock pursuant to the Plan, as a
condition precedent to receipt of such Common Stock, to represent to
the Company in writing that the Common Stock acquired by such Grantee
is acquired for investment only and not with a view to distribution.
(j) Governing Law. The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware
without giving effect to the conflict of laws principles thereof.
C-8
THE BOARD OF DIRECTOR UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL OF
THE PROPOSALS
Please mark
your votes as [X]
indicated in
this example
1. To elect 13 members of the Company's Board of Directors to serve until the
Company's next annual meeting and until such directors' successors are duly
elected and shall have qualified;
FOR all nominees WITHHOLD
listed below AUTHORITY
(except as marked to vote for all nominees
to the contrary) listed below
[ ] [ ]
Charles V. Doherty Robert Greifeld Gary R. Griffith
Peter S. Hajas John G. Hewitt Robert M. Lazarowitz
Bruce R. McMaken Kenneth D. Pasternak Walter F. Raquet
Rodger O. Riney V. Eric Roach Anthony M. Sanfilippo
Robert I. Turner
(Instructions: To withhold authority to vote for any nominee, strike a line
through that nominee's name in the list above.
2. To approve the Knight Trading Group, Inc. Executive Incentive Plan;
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve an amendment to the Company's 1998 Long-Term Incentive Plan to
increase the number of shares of the Company's Class A Common Stock
authorized for issuance thereunder from 24,291,000 to 27,291,000;
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To approve an additional amendment to the Company's 1998 Long-Term Incentive
Plan to increase the maximum amount of restricted stock and restricted stock
units which may be issued thereunder from 1,000,000 shares each to 3,000,000
shares each;
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent auditors for 2001; and
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
Signature Signature Date
--------------------- --------------------- ---------
(Signatures should correspond exactly with the name or names appearing above.
Attorneys, trustees, Executors, administrators, guardians and others signing in
a representative capacity should designate their full titles. If the signer is a
corporation, please sign the full corporate name by duly authorized officer.)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
KNIGHT TRADING GROUP, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 2001
The undersigned hereby appoints Kenneth D. Pasternak and Walter F. Raquet and
each of them, the true and lawful attorneys and proxies, with full power of
substitution, to attend the Annual Meeting of Stockholders of Knight Trading
Group, Inc. (the "Company") to be held on May 16, 2001 at 1:00 p.m. at Courtyard
by Marriott Jersey City/Newport, 540 Washington Boulevard, Jersey City, New
Jersey 07310, and at any adjournment thereof, and to vote all shares of common
stock held of record which the undersigned could vote, with all the powers the
undersigned would possess if personally present at such meeting, as designated
below.
All shares of Company common stock that are represented at the Annual Meeting by
properly executed proxies received prior to or at the Annual Meeting and not
revoked will be voted at the Annual Meeting in accordance with the instructions
indicated herein. If no instructions are indicated, such proxies will be voted
in accordance with the Board of Directors' recommendations as set forth herein
with respect to such proposal(s).
FOLD AND DETACH HERE