SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, For Use of the Commission Only (as Permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
A.B. WATLEY GROUP INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
A.B. WATLEY GROUP INC.
40 Wall Street
New York, New York 10005
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD *, 2003
New York, New York
, 2003
An Annual Meeting of Stockholders (the "Annual Meeting") of A.B. Watley Group
Inc., a Delaware corporation (the "Company"), will be
held at * on *, 2003 at 10:00 AM (local time) for the following purposes:
1. To elect three directors to the Corporation's Board of Directors, to hold
office until their successors are elected and qualified or until their earlier
resignation or removal (Proposal No. 1);
2. To ratify financing transactions requiring potential stock issuances in
excess of currently authorized capital stock (Proposal 2);
3. To amend the Company's certificate of incorporation to increase the
authorized number of common stock from 20,000,000 shares to 50,000,000 shares
(Proposal No. 3);
4. To adopt the 2003 Stock Option Plan (Proposal No. 4);
5. To consider and act upon a proposal to ratify the Board of Directors'
selection of Marcum & Kliegman LLP as the Corporation's independent auditors for
the fiscal years ending September 30, 2003 and September 30, 2002 (Proposal No.
5);
6. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
BECAUSE OF THE SIGNIFICANCE OF THESE PROPOSALS TO THE COMPANY AND ITS
SHAREHOLDERS, IT IS VITAL THAT EVERY SHAREHOLDER VOTES AT THE ANNUAL MEETING IN
PERSON OR BY PROXY.
The foregoing items of business are more fully described in the Proxy Statement
that is attached and made a part of this Notice.
The Board of Directors has fixed the close of business on o, 2003 as the record
date for determining the stockholders entitled to notice of and to vote at the
Annual Meeting and any adjournment or postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in person.
Your vote is important regardless of the number of shares you own. Whether or
not you plan to attend the meeting, please take the time to vote by mail. Fill
in, sign and date the enclosed proxy card and return it promptly in the
postage-paid envelope.
You may attend the meeting and vote in person even if you have previously voted
by proxy by mailing in your proxy. Your proxy is revocable in accordance with
the procedures set forth in the Proxy Statement.
By Order of the Board of Directors,
Steven Malin, Chairman
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE OF
RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU
MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY
1
A.B. WATLEY GROUP INC.
40 Wall Street
New York, New York 10005
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of A.B. Watley Group Inc., a Delaware
corporation (the "Company"), of proxies in the enclosed form for use in voting
at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at * on
*, 2003 at 10:00 AM (local time), and any adjournment or postponement thereof.
Only holders of record of the Company's common stock, $.001 par value per share
(the "Common Stock"), on *, 2003 (the "Record Date") will be entitled to vote at
the Meeting. At the close of business on the Record Date, the Company had issued
and outstanding o shares of Common Stock.
In accordance with the Company's bylaws, the presence of a majority of the
shares entitled to vote, whether present in person or represented by proxy, will
constitute a quorum at the meeting. Abstentions will be treated as shares that
are present and entitled to vote but against any proposal submitted to
stockholders. Executed proxies returned by a broker holding shares of the
Company's Common Stock in street name which indicate that the broker does not
have discretionary authority as to certain shares to vote on one or more matters
("broker non-votes") will be considered present but not entitled to vote on any
proposal submitted to stockholders
Any person giving a proxy in the form accompanying this Proxy Statement has the
power to revoke it prior to its exercise. Any proxy given is revocable prior to
the Meeting by an instrument revoking it or by a duly executed proxy bearing a
later date delivered to the Secretary of the Company. Such proxy is also revoked
if the stockholder is present at the Meeting and elects to vote in person.
The Company will bear the entire cost of preparing, assembling, printing and
mailing the proxy materials furnished by the Board of Directors to stockholders.
Copies of the proxy materials will be furnished to brokerage houses, fiduciaries
and custodians to be forwarded to the beneficial owners of the Common Stock. In
addition to the solicitation of proxies by use of the mail, some of the
officers, directors and regular employees of the Company may (without additional
compensation) solicit proxies by telephone or personal interview, the costs of
which the Company will bear.
This Proxy Statement and the accompanying form of proxy is being sent or given
to stockholders on or about *, 2003.
Stockholders of the Company's Common Stock are entitled to one vote for each
share held. Such shares may not be voted cumulatively.
Each validly returned proxy (including proxies for which no specific instruction
is given) which is not revoked will be voted "FOR" each of the proposals as
described in this Proxy Statement and, at the proxy holders' discretion, on such
other matters, if any, which may come before the Meeting (including any proposal
to adjourn the Meeting).
Determination of whether a matter specified in the Notice of Annual Meeting of
Stockholders has been approved will be determined as follows. The affirmative
vote of the holders of a plurality of the shares of the Company cast at the
Annual Meeting is required for the election of directors (Proposal No.
1). The affirmative vote of the holders of a majority of the outstanding shares
of the Company present or represented by proxy and entitled to vote on the
matter is required to:
o ratify financing transaction requiring potential stock issuances in excess of
currently authorized capital stock (Proposal No. 2);
o adopt the 2003 Stock Option Plan (Proposal No. 4); and
o consider and act upon a proposal to ratify the Board of Directors' selection
of Marcum & Kliegman LLP as the Corporation's independent auditors for the
fiscal years ending September 30, 2003 and September 30, 2002 (Proposal No. 5).
2
The affirmative vote of the holders of a majority of the outstanding shares of
the Company is required to amend the Company's certificate of incorporation to
increase the number of authorized shares of common stock from 20,000,000 to
50,000,000 (Proposal No. 3).
3
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The board of directors (the "Board") proposes the election of Steven Malin,
Robert Malin and Mark Chambre for a term of one year. Following is information
about each nominee, including biographical data for at least the last five
years. Should one or more of these nominees become unavailable to accept
nomination or election as a director, the individuals named as proxies on the
enclosed proxy card will vote the shares that they represent for the election of
such other persons as the Board may recommend, unless the Board reduces the
number of directors.
The Board has long adhered to governance principles designed to assure the
continued vitality of the Board and excellence in the execution of its duties.
Accordingly, directors are compensated for their service to the Company pursuant
to the terms of their employment agreements. The Board is responsible for
supervision of the overall affairs of the Company. In fiscal 2002, the Board's
business was conducted at five meetings of the board of directors. Following the
Annual Meeting, the Board will consist of three directors. The term of each
director continues until the next annual meeting or until successors are
elected. The nominees for director are:
o Steven Malin, Chairman of the Board and Director
o Robert Malin, Vice Chairman, President of A.B. Watley, Inc. and Director
o Mark Chambre, Director
The biographies of each of the nominees are located immediately after
Proposal No. 5.
RECOMMENDATION OF THE BOARD:
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF ALL THE ABOVE NOMINEES.
4
GENERAL INFORMATION REGARDING PROPOSALS 2 AND 3
Overview
The Company currently has authorized capital stock consisting of 20,000,000
common shares, $.001 par value, of which 12,508,852 shares are issued and
outstanding and 1,000,000 preferred shares, $.001 par value, of which 630 Series
A Redeemable Convertible Preferred Stock are issued and outstanding. Shares
"outstanding" include only shares held by shareholders of the Company, while
shares "issued" also include treasury shares held by the Company itself.
Since November 29, 2001, the Company issued warrants and options that may
potentially require an issuance of shares greater than the number of shares that
the Company currently is authorized to issue. By issuing these securities, the
Company has exhausted its 20,000,000 authorized shares of common stock and
cannot meet any equity-based obligations entered into after November 2001
without shareholder approval for an increase in the number of authorized shares.
Management of the Company, which is responsible for these issuances of
securities, discovered that it may potentially exceed its authorized shares of
common stock in August 2002. Upon discovery of this situation, the Company has
taken affirmative steps to ensure that this does not occur again. Such steps
include (i) ceasing to issue any new common shares, (ii) conducting a complete
review of all securities of the Company currently outstanding, (iii) proceeding
to seek shareholder approval to increase the number of authorized shares so as
to satisfy the shares that may potentially be required to be issued should the
holders of the Company's options, warrants and other convertible securities
elect to exercise and/or convert such securities into common stock, (iv)
proceeding to seek shareholder ratification of the issuances of securities that
may cause the Company to exceed its authorized share limit, (v) instituting
controls and procedures to prevent the issuance of securities in excess of its
authorized capitalization and (vi) appointing an individual responsible for
ensuring that the Company does not issue securities in excess of its
capitalization in the future.
For a complete description of the terms of the transaction, see "Proposal No. 2
- - Ratification Of Financing Transaction Requiring Potential Stock Issuances In
Excess Of Currently Authorized Capital Stock Proposal" below.
Transactional Effects on Capitalization of the Company
As previously stated, performance of the Company's obligations pursuant to the
transaction entered into since November 29, 2001, contemplates the issuance of
shares of its common stock beyond its authorized capital. The following table
describes its capitalization (i) prior to the transaction entered since March
2002, (ii) after giving effect to the transaction entered into since November
29, 2001, and (iii) as adjusted to give effect to the changes that would result
to the Company's capitalization assuming approval of Proposal 2 and Proposal 3:
- ------------------------------------------------------------------------------------------------------------------------------------
As Adjusted to Give
Effect to the As Adjusted to Reflect
Prior to Transactions Since Approval of Proposal 2
Securities Authorized and Outstanding November 29, 2001 November 29, 2001 and Proposal 3
- ------------------------------------------------------------------------------------------------------------------------------------
Common Shares Authorized 20,000,000 20,000,000 50,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Common Shares Outstanding 12,508,852 12,508,852 12,508,852
- ------------------------------------------------------------------------------------------------------------------------------------
Employee Stock Option Plan 3,600,000 3,600,000 3,600,000
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants Outstanding 1,211,974 1,211,974 1,211,974
- ------------------------------------------------------------------------------------------------------------------------------------
Common Shares Reserved - Conversion of Series A 2,135,700 2,135,700 2,135,700
Preferred Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants Issued to Series A Preferred Stock Holders -- 1,629,069 1,629,069
- ------------------------------------------------------------------------------------------------------------------------------------
Common Shares Reserved - Dividend Pursuant to Series A -- 2,065,000 2,065,000
Preferred Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants Issued to SDS Merchant Fund, L.P. -- 83,362 83,362
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants Issued to Keefe, Bruyette & Woods, Inc. -- 150,000 150,000
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants Issued - Line of Credit -- 1,050,000 1,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants Issued in Exchange for the forgiveness of debt -- 2,402,631 2,402,631
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants Issued - Receipt of Subordinated Loan -- 500,000 500,000
- ------------------------------------------------------------------------------------------------------------------------------------
Options Issued to Michael Picone -- 100,000 100,000
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total Excess (Deficit) of Common Shares Authorized 543,474 (7,436,588) 27,436,588
- ------------------------------------------------------------------------------------------------------------------------------------
5
As the table above illustrates, performance of the Company's obligations
pursuant to the transaction entered into since November 29, 2001, contemplates
the issuance of 7,436,588 shares of the Company's common stock beyond its
authorized capital. The Board of Directors of the Company have approved
presentation of proposals to ratify the above transaction in light of the fact
that it did not have sufficient share capital to enter in the agreements
(Proposal 2), and to authorize sufficient capital to fully perform its
obligations under the agreements (Proposal 3). Unless its shareholders approve
both Proposal 2 and Proposal 3, the Company will be unable to perform its
obligations under the agreements and will be in default pursuant to the terms of
the agreements. Management of the Company believes that it is highly likely that
such default will require the Company to substantially curtail or cease its
operations, and may result in a total loss of your investment in the Company.
Potential Effect of Approval or Denial of Proposal 2 and Proposal 3
The Company's commitments to issue shares beyond our authorized capital as
required by the exercise of the aforementioned securities requires authorization
by the Company shareholders (Proposal 2) and can only be met if the Company's
shareholders approve its proposed increase in authorized shares (Proposal 3).
Unless the Company's shareholders approve these transactions (Proposal 2) and
approve an amendment to the Company's certificate of incorporation to increase
the number of authorized shares of common stock from 20,000,000 to 50,000,000
(Proposal 3), the Company will be unable to perform its obligations under the
options and warrants and will be in default pursuant to the terms of the options
and the warrants. Management of the Company believes that it is highly likely
that such default will require the Company to substantially curtail or cease its
operations, and may result in a total loss of your investment in the Company.
Approval of Proposal 2 and Proposal 3 will allow the Company to perform its
obligations under the agreements described above, but may involve the following
negative effects:
o The issuance of shares upon exercise of the warrants may result in substantial
dilution to the interests of other stockholders. This risk of dilution is
especially great in light of the fact that the exercise prices of the warrants
issued in connection with the warrants are subject to adjustment upon the
occurrence of certain events, including:
o subdivisions or combinations of the common stock;
o reclassifications, consolidations or mergers; and
o the issuance of common stock as a dividend on shares of common
stock.
o The sale of the underlying shares of common stock or even the potential of
such exercise or sale may have a depressive effect on the market price of our
securities;
6
o The sale of the large number of shares to be issued pursuant to the agreements
described in Proposal 2 may adversely affect the market price of the Company's
common stock; and
o The terms upon which the Company will be able to obtain additional equity
capital may be adversely affected since the holders of outstanding options and
warrants can be expected to exercise them, to the extent they are able, at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to it than those provided in the options or
warrants.
The potential dilutive effect of the conversion or exercise of the securities
that would require issuances of shares of common stock in excess of the
Company's authorized capitalization, without taking into account the conversion
or exercise of the Company's additional outstanding securities that do not
exceed the authorized capitalization, to existing shareholders is as follows:
Dilutive Security Exercisable/Convertible Quantity
Stock Options 100,000 (priced at $.35)
Warrants 5,271,588 (priced between $.75-$3.00)
Common Shares
Reserved for Dividends
of Preferred Stock 2,065,000 (payable in stock on a semi-annual basis)
---------
7,436,588
=========
The total number of shares of common stock outstanding as of May 28, 2003 was
12,508,852. The Company's current stock price is $.35 per share. Upon the
conversion or exercise of the convertible securities that require the issuance
of 7,436,588 shares of common stock in excess of the Company's authorized
capitalization, as presented above, the Company's total outstanding common
shares would be 19,945,440. This would result in an overall dilutive effect of
59% and does not take into account the conversion or exercise of additional
warrants, options or other convertible securities currently outstanding that do
not exceed the Company's authorized capitalization.
7
PROPOSAL NO. 2
RATIFICATION OF FINANCING TRANSACTIONS
REQUIRING POTENTIAL STOCK ISSUANCES
IN EXCESS OF CURRENTLY AUTHORIZED CAPITAL STOCK
As described above in the preceding section General Information Regarding
Proposals 2 and 3, the Company has entered into financing agreements since
November 2001, that potentially require an issuance of shares greater than the
number of shares that the Company is currently authorized to issue. The
Company's commitment to issue shares as may be required by these agreements can
only be met if the Company's shareholders approve its proposed increase in
authorized shares (Proposal 3). This Proposal seeks ratification of this
financing transaction in light of their requirement of potential issuances of
common stock beyond the Company's authorized capital. The following table and
subsequent narrative describes the material terms of each of this transaction.
SHARES TO BE ISSUED PURSUANT TO AGREEMENTS
ENTERED INTO WITH INADEQUATE
AUTHORIZED SHARE CAPITAL
Warrants - Series A Preferred Stock Holders 1,629,069
Reserve - Series A Preferred Stock Dividend 2,065,000
Warrants - SDS Merchant Fund, L.P. 83,362
Warrants - Keefe, Bruyette & Woods, Inc. 150,000
Warrants - Notes Payable to Officers 2,402,631
Warrants - Receipt of Subordinated Loan 500,000
Warrants - Line of Credit 1,050,000
Options - Michael Picone 100,000
Warrants Issued to Series A Preferred Stock Holders and Shares of Common Stock
Reserved for Issuance Pursuant Series A Preferred Stock Dividend
On November 29, 2001, the Company entered into a Preferred Stock Purchase
Agreement (the "Agreement") with SDS Merchant Fund, L.P., DMG Legacy
International LTD., DMG Legacy Institutional Fund LLC and DMG Legacy Fund LLC
(the "Purchasers"), which agreement required that the Company issue an aggregate
of 1,629,060 warrants to purchase shares of common stock that are exercisable at
$2.95 per share for a period of five years. The Agreement also provides that the
Purchasers are entitled to a dividend in the form of common stock payable
semi-annually. As of the date hereof, the Company has reserved 2,065,000 shares
of common stock to be issued pursuant to the dividend.
Warrants Issued to SDS Merchant Fund, L.P.
On November 30, 2001, the Company issued 83,362 warrants to purchase shares of
common stock to SDS Merchant Fund, L.P. in connection with the senior
subordinated demand note in the amount of $2,500,000 issued to SDS Merchant
Fund, L.P. on August 30, 2001. The warrants are exercisable at $3.00 per share
for a period of five years.
Warrants Issued to Keefe, Bruyette & Woods, Inc.
In February 2002, the Company issued 150,000 warrants to Keefe, Bruyette &
Woods, Inc. in consideration for investment banking consulting services provided
to the Company in connection with the granting of E*TRADE a non-exclusive
perpetual license of the Company's proprietary software. The warrants granted to
Keefe, Bruyette & Woods, Inc. are exercisable February 14, 2002 and will expire
in February 2012. Such warrants are exercisable at a price of $1.15 per share.
Warrants Issued to Officers in Consideration of Forgiveness of Notes Payable
In September 2002, in consideration of the forgiveness of notes payable to
Anthony Huston, Linda Malin and Eric Steinberg, former officers of the Company,
aggregating $2,400,000, the Company issued warrants to purchase 1,479,486 and
923,145 shares of common stock, exercisable at $0 and $1.80 per share
respectively. The warrants are immediately exercisable and will expire in
September 2007.
Warrants Issued in Consideration of Receipt of a Subordinated Loan
On January 15, 2003, the Company entered into a secured demand note agreement
with Litchfield Capital, LLC ("Litchfield") for $5,000,000 with a maturity date
of June 30, 2004. The loan bears an interest rate of 7% per annum, payable
monthly. In connection with the agreement, the Company issued warrants to
Litchfield to purchase 500,000 shares of common stock at $0.75 per share. The
warrants are immediately exercisable and will expire in January 2008.
8
Warrants Issued in Consideration of Receipt of a Line of Credit
In March 2002, the Company was granted a line of credit of $4,200,000 from
Pension Financial Services and SDS Merchant Fund, L.P., which was subsequently
increased to $4,350,000. Borrowings under the line of credit were payable on
demand after June 18, 2002, with interest payable at 10%. Additionally, Penson
Worldwide, Inc. was granted warrants to purchase 1,000,000 shares of the
Company's common stock at an exercise price of $.918 per share in connection
with the loan facility, and Andy Koslow, a consultant retained by a member of
the group, was also granted warrants to purchase 50,000 shares of the Company's
Common Stock at an exercise price of $.918 per share. These warrants expire on
March 27, 2012.
Options Issued to Michael Picone
On December 2, 2002, the Company issued 100,000 options to purchase shares of
common stock to Michael Picone in consideration for Mr. Picone's entering into
an employment agreement with the Company. Such options are exercisable at $.35
per share. The options are exercisable on December 2, 2002 and expire on
December 2, 2012.
Each of the above transactions were exempt from registration under the
Securities Act by reason of Section 4(2) of the Securities Act, or Regulation D
promulgated thereunder, as transactions by an issuer not involving a public
offering. There were no opinion issued to the Company with respect to these
transactions.
With the exception of the transactions involving (i) the issuance of warrants to
officers in consideration of forgiveness of notes payable and (ii) the issuance
of warrants in consideration of receipt of a line of credit, each of the
transactions was entered into after negotiations with unaffiliated third parties
on an arms length basis. As such, the Board was able to determine that the terms
of the transactions were fair to the Company and unaffiliated shareholders.
With respect to the transaction involving the issuance of warrants to former
officers in consideration of forgiveness of notes payable, the Board was able to
determine that the transaction was on terms that were no less favorable than the
Company could have obtained from unaffiliated third parties based upon the fact
that the transaction effectively resulted in the Company being relieved from the
repayment of approximately $2,400,000 of debt and interest in consideration for
the issuance of warrants to purchase approximately 2,400,000 shares, thereby
yielding an average effective conversion rate of $1.00 per share, which price
was substantially above the Company's market price of $.45 per share during the
three months ended September 30, 2002. When looked at more specifically, the
Company actually was relieved of approximately $2,400,000 of debt and interest
in consideration for (i) the issuance of warrants to purchase 1,479,486 shares,
thereby yielding an effective conversion rate of $1.62 per share, and (ii) the
issuance of warrants to purchase an additional 923,145 shares, which warrants
are exercisable at $1.80 per share and could potentially result in the Company
receiving an additional $1,661,661 should such warrants be exercised.
With respect to the transaction involving the issuance of warrants in connection
with the receipt of the line of credit of up to $4,200,000, the Board was able
to determine that the transaction was on terms that were no less favorable than
the Company could have obtained from unaffiliated third parties based upon the
fact that (i) the exercise price of the warrants was equal to the average
closing price of our common stock for the month of March 2002; (ii) the benefit
of receiving funds in the amount of $4,200,000 to be used in the development of
the Company's business, in comparison to other financing arrangements
potentially available to the Company at this time, outweighed the cost
associated with the line of credit including the repayment of the principal upon
maturity, the payment of 10% interest and the issuance of warrants; and (iii) it
was necessary for the Company to enter into this financing agreement in order to
sustain the Company's operations and retain the Company's value. Additionally,
the exercise of the warrants could possibly result in an additional $918,046 in
funding should such warrants be exercised.
Unless the Company's shareholders approve these transactions by approval of this
Proposal 2, the Company will be in default pursuant to the terms of these
agreements. Management of the Company believes that it is highly likely that
such default will require the Company to substantially curtail or cease its
operations, and may result in a total loss of your investment in the Company. In
addition, the Company may be liable for extensive damages in the event that it
is unable to issue shares to security holders seeking conversion or exercise of
their outstanding securities.
Approval of this proposal requires the affirmative vote of the majority of the
shares present in person or represented by proxy and entitled to vote at the
Annual Meeting.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE FINANCING TRANSACTIONS
REQUIRING POTENTIAL STOCK ISSUANCES IN EXCESS OF CURRENTLY AUTHORIZED CAPITAL
STOCK
9
PROPOSAL NO. 3
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
TO INCREASE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK
FROM 20,000,000 TO 50,000,000 SHARES
The Board of Directors has approved an amendment to the Certificate of
Incorporation to increase the number of authorized shares of common stock from
20,000,000 to 50,000,000. The Company has authorized capital stock consisting of
20,000,000 common shares, $.001 par value, of which 12,508,852 shares are issued
and outstanding, and 1,000,000 preferred shares, $.001 par value, of which 630
Series A Redeemable Convertible Preferred Stock are issued and outstanding. As
described above in the preceding section (General Information Regarding
Proposals 2 and 3), the Company currently has additional outstanding securities
and agreements that allow for rights exercise that would require the issuance of
up to 7,436,588 additional shares of its common stock. The Company currently
authorized shares can only satisfy the exercise of securities that the Company
issued prior to November 2001. The Company's commitments to issue shares in the
future as required by the securities issued after March 2002 can only be met if
the Company's shareholders approve this proposed increase in authorized shares
(Proposal 3).
When issued, the additional shares of common stock authorized by the amendment
will have the same rights and privileges as the shares of common stock currently
authorized and outstanding. Holders of common stock have no preemptive rights
and, accordingly, shareholders would not have any preferential rights to
purchase any of the additional shares of common stock when such shares are
issued. If the shareholders vote to approve the increase in the number of
authorized shares of common stock, 7,436,588 of the 30,000,000 newly authorized
shares of common stock will be immediately reserved for issuance to cover the
warrants and options that could cause the Company to exceed its authorized share
limit that are described in Proposal No. 2. The Company does not presently have
any plans, arrangements or understandings with respect to the issuance of any of
the remaining newly authorized shares of common stock.
Having a substantial number of authorized but unissued shares of common stock
that are not reserved for specific purposes will allow us to take prompt action
with respect to corporate opportunities that develop, without the delay and
expense of convening an annual meeting of shareholders for the purpose of
approving an increase in the Company's capitalization. The issuance of
additional shares of common stock may, depending upon the circumstances under
which such shares are issued, reduce shareholders' equity per share and may
reduce the percentage ownership of common stock by existing shareholders. It is
not the present intention of the Board of Directors to seek shareholder approval
prior to any issuance of shares of common stock that would become authorized by
the amendment unless otherwise required by law or regulation. Frequently,
opportunities arise that require prompt action, and it is the belief of the
Board of Directors that the delay necessitated for shareholder approval of a
specific issuance could be to the detriment of the Company and its shareholders.
The increase in the authorized number of shares of the Company's common stock
under the proposed amendment could be used by its Board of Directors to make
more difficult, and thereby discourage, delay or prevent, an attempt to acquire
control of the Company. For example, the shares could be privately placed with
purchasers who might support the Company's Board of Directors in opposing a
hostile takeover bid. The issuance of the new shares also could be used to
dilute the stock ownership and voting power of a third party seeking to remove
directors, replace incumbent directors, accomplish certain business combinations
or alter, amend or repeal provisions of the Company's articles of incorporation
or bylaws. To the extent that it impedes any such attempts, the issuance of
shares following the adoption of the proposed amendment may serve to perpetuate
existing management. While the proposed amendment may have potential
antitakeover effects, this proposal is not prompted by any specific effort or
takeover threat currently perceived by the Company's Board of Directors or
management. Although under Delaware law our Board of Directors is required to
make any determination to issue such stock based on its judgment as to the best
interests of its shareholders, its Board of Directors could act in a manner that
would discourage an acquisition attempt or other transaction that some, or a
majority, of its shareholders might believe to be in their best interests or in
which shareholders might receive a premium for their stock over the then market
price of such stock.
Unless the Company's shareholders approve an amendment to its certificate of
incorporation to increase the number of authorized shares of common stock from
20,000,000 to 50,000,000 through this Proposal 3, the Company will be unable to
perform its obligations under the agreements described in Proposal 2 and will be
in default pursuant to the terms of those agreements. Management of the Company
believes that it is highly likely that such default will require the Company to
substantially curtail or cease its operations, and may result in a total loss of
your investment in the Company.
Approval of this proposal requires the affirmative vote of a majority of the
shares of the Company's outstanding stock.
10
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT OF THE CERTIFICATE OF
INCORPORATION TO INCREASE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK.
11
PROPOSAL NO. 4
APPROVAL OF THE 2003 EMPLOYEE STOCK OPTION PLAN
At the Annual Meeting, the Company's stockholders are being asked to approve the
2003 Employee Stock Option Plan (the "2003 Option Plan") and to authorize
2,000,000 shares of Common Stock for issuance thereunder. The following is a
summary of principal features of the 2003 Option Plan. The summary, however,
does not purport to be a complete description of all the provisions of the 2003
Option Plan. Any stockholder of the Company who wishes to obtain a copy of the
actual plan document may do so upon written request to the Company's Secretary,
Robert Malin, at the Company's principal offices 40 Wall Street, New York, New
York 10005.
GENERAL
The 2003 Option Plan was adopted by the Board of Directors. The Board of
Directors has initially reserved 2,000,000 shares of Common Stock for issuance
under the 2003 Option Plan. Under the Plan, options may be granted which are
intended to qualify as Incentive Stock Options ("ISOs") under Section 422 of the
Internal Revenue Code of 1986 (the "Code") or which are not ("Non-ISOs")
intended to qualify as Incentive Stock Options thereunder.
The 2003 Option Plan and the right of participants to make purchases thereunder
are intended to qualify as an "employee stock purchase plan" under Section 423
of the Internal Revenue Code of 1986, as amended (the "Code"). The 2003 Option
Plan is not a qualified deferred compensation plan under Section 401(a) of the
Internal Revenue Code and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA").
PURPOSE
The primary purpose of the 2003 Option Plan is to attract and retain the best
available personnel for the Company in order to promote the success of the
Company's business and to facilitate the ownership of the Company's stock by
employees. In the event that the 2003 Option Plan is not adopted the Company may
have considerable difficulty in attracting and retaining qualified personnel,
officers, directors and consultants.
ADMINISTRATION
The 2003 Option Plan, when approved, will be administered by the Company's Board
of Directors, as the Board of Directors may be composed from time to time. All
questions of interpretation of the 2003 Option Plan are determined by the Board,
and its decisions are final and binding upon all participants. Any determination
by a majority of the members of the Board of Directors at any meeting, or by
written consent in lieu of a meeting, shall be deemed to have been made by the
whole Board of Directors.
Notwithstanding the foregoing, the Board of Directors may at any time, or from
time to time, appoint a committee (the "Committee") of at least two members of
the Board of Directors, and delegate to the Committee the authority of the Board
of Directors to administer the Plan. Upon such appointment and delegation, the
Committee shall have all the powers, privileges and duties of the Board of
Directors, and shall be substituted for the Board of Directors, in the
administration of the Plan, subject to certain limitations.
Members of the Board of Directors who are eligible employees are permitted to
participate in the 2003 Option Plan, provided that any such eligible member may
not vote on any matter affecting the administration of the 2003 Option Plan or
the grant of any option pursuant to it, or serve on a committee appointed to
administer the 2003 Option Plan. In the event that any member of the Board of
Directors is at any time not a "disinterested person", as defined in Rule
16b-3(c)(3)(i) promulgated pursuant to the Securities Exchange Act of 1934, the
Plan shall not be administered by the Board of Directors, and may only by
administered by a Committee, all the members of which are disinterested persons,
as so defined.
ELIGIBILITY
Under the 2003 Option Plan, options may be granted to key employees, officers,
directors or consultants of the Company, as provided in the 2003 Option Plan.
12
TERMS OF OPTIONS
The term of each Option granted under the Plan shall be contained in a stock
option agreement between the Optionee and the Company and such terms shall be
determined by the Board of Directors consistent with the provisions of the Plan,
including the following:
(a) PURCHASE PRICE. The purchase price of the Common Shares subject to each ISO
shall not be less than the fair market value (as set forth in the 2003 Option
Plan), or in the case of the grant of an ISO to a Principal Stockholder, not
less that 110% of fair market value of such Common Shares at the time such
Option is granted. The purchase price of the Common Shares subject to each
Non-ISO shall be determined at the time such Option is granted, but in no case
less than 85% of the fair market value of such Common Shares at the time such
Option is granted.
(b) VESTING. The dates on which each Option (or portion thereof) shall be
exercisable and the conditions precedent to such exercise, if any, shall be
fixed by the Board of Directors, in its discretion, at the time such Option is
granted.
(c) EXPIRATION. The expiration of each Option shall be fixed by the Board of
Directors, in its discretion, at the time such Option is granted; however,
unless otherwise determined by the Board of Directors at the time such Option is
granted, an Option shall be exercisable for ten (10) years after the date on
which it was granted (the "Grant Date"). Each Option shall be subject to earlier
termination as expressly provided in the 2003 Option Plan or as determined by
the Board of Directors, in its discretion, at the time such Option is granted.
(d) TRANSFERABILITY. No Option shall be transferable, except by will or the laws
of descent and distribution, and any Option may be exercised during the lifetime
of the Optionee only by him. No Option granted under the Plan shall be subject
to execution, attachment or other process.
(e) OPTION ADJUSTMENTS. The aggregate number and class of shares as to which
Options may be granted under the Plan, the number and class shares covered by
each outstanding Option and the exercise price per share thereof (but not the
total price), and all such Options, shall each be proportionately adjusted for
any increase decrease in the number of issued Common Shares resulting from
split-up spin-off or consolidation of shares or any like Capital adjustment or
the payment of any stock dividend.
Except as otherwise provided in the 2003 Option Plan, any Option granted
hereunder shall terminate in the event of a merger, consolidation, acquisition
of property or stock, separation, reorganization or liquidation of the Company.
However, the Optionee shall have the right immediately prior to any such
transaction to exercise his Option in whole or in part notwithstanding any
otherwise applicable vesting requirements.
(f) TERMINATION, MODIFICATION AND AMENDMENT. The 2003 Option Plan (but not
Options previously granted under the Plan) shall terminate ten (10) years from
the earlier of the date of its adoption by the Board of Directors or the date on
which the Plan is approved by the affirmative vote of the holders of a majority
of the outstanding shares of capital stock of the Company entitled to vote
thereon, and no Option shall be granted after termination of the Plan. Subject
to certain restrictions, the Plan may at any time be terminated and from time to
time be modified or amended by the affirmative vote of the holders of a majority
of the outstanding shares of the capital stock of the Company present, or
represented, and entitled to vote at a meeting duly held in accordance with the
applicable laws of the State of Delaware.
FEDERAL INCOME TAX ASPECTS OF THE 2003 OPTION PLAN
THE FOLLOWING IS A BRIEF SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON
THE PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE PURCHASE OF SHARES UNDER
THE 2003 OPTON PLAN. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND DOES NOT
ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES TO TAXPAYERS WITH SPECIAL TAX
STATUS. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE PROVISIONS OF THE INCOME
TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT
MAY RESIDE, AND DOES NOT DISCUSS ESTATE, GIFT OR OTHER TAX CONSEQUENCES OTHER
THAN INCOME TAX CONSEQUENCES. THE COMPANY ADVISES EACH PARTICIPANT TO CONSULT
HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN
THE 2003 OPTION PLAN AND FOR REFERENCE TO APPLICABLE PROVISIONS OF THE CODE.
The 2003 Option Plan and the right of participants to make purchases thereunder
are intended to qualify under the provisions of Sections 421, 422 and
13
423 of the Code. Under these provisions, no income will be recognized by a
participant prior to disposition of shares acquired under the 2003 Option Plan.
If the shares are sold or otherwise disposed of (including by way of gift) more
than two years after the first day of the offering period during which shares
were purchased (the "Offering Date"), a participant will recognize as ordinary
income at the time of such disposition the lesser of (a) the excess of the fair
market value of the shares at the time of such disposition over the purchase
price of the shares or (b) 15% of the fair market value of the shares on the
first day of the offering period. Any further gain or loss upon such disposition
will be treated as long-term capital gain or loss. If the shares are sold for a
sale price less than the purchase price, there is no ordinary income and the
participant has a capital loss for the difference.
If the shares are sold or otherwise disposed of (including by way of gift)
before the expiration of the two-year holding period described above, the excess
of the fair market value of the shares on the purchase date over the purchase
price will be treated as ordinary income to the participant. This excess will
constitute ordinary income in the year of sale or other disposition even if no
gain is realized on the sale or a gift of the shares is made. The balance of any
gain or loss will be treated as capital gain or loss and will be treated as
long-term capital gain or loss if the shares have been held more than one year.
In the case of a participant who is subject to Section 16(b) of the Exchange
Act, the purchase date for purposes of calculating such participant's
compensation income and beginning of the capital gain holding period may be
deferred for up to six months under certain circumstances. Such individuals
should consult with their personal tax advisors prior to buying or selling
shares under the 2003 Option Plan.
The ordinary income reported under the rules described above, added to the
actual purchase price of the shares, determines the tax basis of the shares for
the purpose of determining capital gain or loss on a sale or exchange of the
shares.
The Company is entitled to a deduction for amounts taxed as ordinary income to a
participant only to the extent that ordinary income must be reported upon
disposition of shares by the participant before the expiration of the two-year
holding period described above.
RESTRICTIONS ON RESALE
Certain officers and directors of the Company may be deemed to be "affiliates"
of the Company as that term is defined under the Securities Act. The Common
Stock acquired under the 2003 Option Plan by an affiliate may be reoffered or
resold only pursuant to an effective registration statement or pursuant to Rule
144 under the Securities Act or another exemption from the registration
requirements of the Securities Act.
REQUIRED VOTE
The approval of the 2003 Option Plan and the reservation of 2,000,000 shares for
issuance requires the affirmative vote of the holders of a majority of the
shares of the Company's Common Stock present at the Annual Meeting in person or
by proxy and entitled to vote and constituting at least a majority of the
required quorum.
The proxy holders intend to vote the shares represented by proxies to approve,
the 2003 Stock Option Plan.
RECOMMENDATION OF THE BOARD:
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE 2003 STOCK OPTION PLAN.
14
PROPOSAL NO. 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Marcum & Kliegman LLP has served as the Company's independent auditors since
October 11, 2002. Marcum & Kliegman LLP has been approved by the Board to act as
the Company's independent auditors for the fiscal year ending September 30, 2000
and has been appointed by the Board to continue as the Company's independent
auditors for the fiscal year ending September 30, 2003. In the event that
ratification of this selection of auditors is not approved by a majority of the
shares of Common Stock voting at the Annual Meeting in person or by proxy, the
Board will reconsider its selection of auditors. Marcum & Kliegman LLP has no
interest, financial or otherwise, in the Company.
A representative of Marcum & Kliegman LLP is not expected to be present at the
Annual Meeting.
The proxy holders intend to vote the shares represented by proxies to ratify and
approve the Board of Directors' selection of Marcum & Kliegman LLP as the
Company's independent auditors for the fiscal years ending September 30, 2003
and September 30, 2002.
Audit Fees
Fees related to the services performed by Marcum & Kliegman LLP for the year
ended September 30, 2002 was $336,000.
All Other Fees
The aggregate fees billed by Marcum & Kliegman LLP for services rendered to the
Company, other than the services covered in "Audit Fees" for the fiscal year
ended September 30, 2002 were $-0-.
Approval of this proposal requires the affirmative vote of the majority of the
shares present in person or represented by proxy and entitled to vote at the
Annual Meeting.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF Marcum &
Kliegman LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEARS ENDING
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2003.
15
EXECUTIVE COMPENSATION
Directors are elected at each meeting of stockholders and hold office until the
next annual meeting of stockholders and the election and qualifications of their
successors. Executive officers are elected by and serve at the discretion of the
board of directors.
Our executive officers and directors are as follows:
Name Age Position
- ------- ----- ----------
Steven Malin 45 Chairman of the Board and Director
John J. Amore 40 Chief Executive Officer
Robert Malin 37 Vice Chairman, President of A.B. Watley, Inc.
and Director
Mark Chambre 41 Director
Steven Malin. Mr. Malin co-founded the Company in May 1996 and has been its
Chairman of the Board since inception. Mr. Malin also served as Chief Executive
Officer from May 1996 to September 2002. From August 1993 to December 1996, Mr.
Malin served as a consultant to the Company. From 1987 to 1993, he was a Senior
Foreign Exchange Options Broker for Tullett and Tokyo Forex, Inc., a global
inter-bank money brokering firm with its primary offices located in London, New
York and Tokyo. Mr. Malin attended the Fletcher School of Law and Diplomacy from
1982 to 1984. He received a bachelor of arts degree from Vassar College in 1980.
John J. Amore. Mr. Amore has been the Company's Chief Executive Officer since
September 10, 2002. Most recently, Mr. Amore formed and operated VA Advisors
LLC, his own hedge fund until June 2000. This included creating and executing a
successful trading strategy, risk management, raising capital, and running the
day-to-day operations. From 1993 to 1994, Mr. Amore was a manager of the global
"repo" fixed income portfolio for Investment Management Services, Inc., which
provided exclusive execution, financing, technology and back office services for
a $3.5 billion hedge fund. In 1992, Mr. Amore managed international "repo"
correspondent relationships for Bear Stearns & Co. Earlier in his career, Mr.
Amore was an Associate Director at Hamberg & Associates, Inc. in Chicago. He
began his career as a Corporate Operations Analyst at Bear Stearns & Co. in
1982.
Robert Malin. Mr. Malin is a co-founder of the Company and has served as a
director since inception. He has been associated with the Company since August
1993, initially as General Securities Principal and director of day-to-day
operations and, most recently, serving as President. His earlier experience
includes managing equity trading, client services and brokerage operations. Mr.
Malin and Steven Malin are brothers.
Mark Chambre. Mr. Chambre has served as a director of the Company since April
1999. Since June 1993, he has served as Senior Broker in the Yen Swaps Division
of the Tokyo Forex Co., Inc. in Tokyo, Japan. From April 1988 to March 1993, Mr.
Chambre served as Manager of the Tokyo Forex Co.'s Financial Futures Division.
Mr. Chambre joined its parent company, Tullett and Tokyo, Inc., in New York in
1983. Mr. Chambre received a bachelor of arts degree from Drew University in
1982.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
During the fiscal year ended September 30, 2002, based upon an examination of
the public filings, all of our company's officers and directors timely filed
reports on Forms 3 and 4, except for Steven Malin (2 late reports); Robert Malin
(2 late reports); and John Amore (1 late report).
The following table sets forth for the fiscal year indicated the compensation
paid by our company to our Chief Executive Officer and other executive officers
with annual compensation exceeding $100,000:
16
Summary Compensation Table:
Long-Term
Compensation
Annual Compensation -------------
Name and Principal Position Fiscal Year Salary Bonus Awards Underlying
Options/SARs (#)
-------------------------- ---------------------------------------------------------------------------------
Steven Malin, 2002 $33,846 $0 800,000
Chairman 2001 110,000 0 30,000
2000 110,000 22,000 0
John J. Amore, 2002 155,766 (1) - 1,300,000
Chief Executive Officer 2001 - - -
2000 - - -
Robert Malin 2002 88,846 0 1,300,000
Vice Chairman, President of 2001 0 0 0
A.B. Watley, Inc. and Director 2000 0 0 0
--------------
(1) Mr. Amore was appointed as an officer of the Company in September 2002. All
consideration received by Mr. Amore during the year ended September 2002, was
received as a consultant of the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into a four-year employment agreement with Steven Malin
and three-year employment agreements with John J. Amore and Robert Malin, all of
which are automatically renewable for additional one-year terms. The employment
agreements provide for annual base compensation of $150,000 for Steven Malin,
$200,000 Robert Malin, and $250,000 for Mr. Amore. Each agreement provides for a
discretionary bonus based upon the performance of the Company, payable
semi-annually, as may be approved by the board of directors or a committee of
the board.
Each of the employment agreements requires the officer to devote his full time
and efforts to our business and contains non-competition and non-disclosure
covenants of the officer for the term of his employment and for a period of two
years thereafter. Each employment agreement provides that the Company may
terminate the agreement for cause. In addition, each employment agreement
provides for termination by either party without cause upon at least 180 days
written notice prior to the end of the original term or any renewal term. In the
event that either John Amore, Steven Malin or Robert Malin terminate their
employment agreement for good reason or the Company terminates the employment
agreement without cause, then the applicable officer is entitled to the
following:
o annual base salary accrued and a prorated annual bonus prior to the date of
termination; o annual base salary multiplied by the greater of two (2) (the
"Applicable Factor") or the number of years remaining in the employee's
employment agreement; o annual bonus multiplied by the greater of Applicable
Factor or the number of years remaining in the employee's employment agreement;
o continuing health benefits; and
o all outstanding options and other equity shall vest and become immediately
exercisable.
In the event that John Amore, Steven Malin or Robert Malin is terminated within
six (6) months of a change of control within the Company, then the Applicable
Factor shall be three (3).
DIRECTORS' COMPENSATION
All directors are reimbursed for their reasonable expenses incurred in attending
meetings of the board of directors and its committees. Directors who are
employees receive no additional compensation for service as members of the board
of directors or committees. All of our non-employee directors are compensated
annually for their services at $1,000 and granted non-qualified options to
acquire 1,500 shares of our common stock at the end of each year of service.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning options granted to executive
officers named in the Summary Compensation Table during the fiscal year ended
September 30, 2002:
17
Individual Grants
Number of % of Total Options
Securities Granted to
Name Underlying Employees in Fiscal
Options Granted Year Exercise Expiration Date
(#) Price ($/sh)
- --------- ----------------------------------------------------------------------------
Steven Malin 800,000 23.0% .10 September 9, 2012
John J. Amore 1,300,000 37.4% .10 September 9, 2012
Robert Malin 1,300,000 37.4% .10 September 9, 2012
18
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table contains information concerning the number and value, at
September 30, 2002, of unexercised options held by executive officers named in
the Summary Compensation Table:
Number of Securities Underlying Unexercised Options at Value of Unexercised In-the-Money
Name FY-End (#) (Exercisable/Unexercisable) Options at FY-End ($)
(Exercisable/Unexercisable) (1)
- ------- ------------------------------------------------------------------------------------------------
Steven Malin 250,000 / 550,000 0 / 0
John J. Amore 500,000 / 800,000 0 / 0
Robert Malin 500,000 / 800,000 0 / 0
(1) Fair market value of underlying securities (the closing price of the
Company's common stock at fiscal year end (September 30, 2002) minus the
exercise price.
STOCK OPTION PLANS
On January 27, 1997, the board of directors and stockholders adopted our 1997
stock option plan, on March 16, 1998, our board of directors and stockholders
adopted our 1998 stock option plan and on November 1, 1999 and March 14, 2000,
the board of directors and stockholders, respectively, adopted our 1999 stock
option plan. The Company reserved 400,000 shares of common stock for issuance
upon exercise of options granted from time to time under the 1997 stock option
plan and 800,000 shares of common stock for issuance upon exercise of options
granted from time to time under each of the 1998 and 1999 stock option plans.
The 1997, 1998 and 1999 stock option plans are intended to assist us in securing
and retaining key employees, directors and consultants by allowing them to
participate in our ownership and growth through the grant of incentive and
non-qualified options.
Under each of the stock option plans the Company may grant incentive stock
options only to key employees and employee directors, or the Company may grant
non-qualified options to our employees, officers, directors and consultants. The
1997 stock option plan is administered by a committee, appointed by our board of
directors, consisting of from one to three directors. The 1998 and 1999 stock
option plans are administered directly by our board of directors.
Subject to the provisions of each of the stock option plans, either the board or
the committee will determine who shall receive options, the number of shares of
common stock that may be purchased under the options, the time and manner of
exercise of options and exercise prices. The term of options granted under each
of the stock option plans may not exceed ten years or five years for an
incentive stock option granted to an optionee owning more than 10% of our voting
stock. The exercise price for incentive stock options shall be equal to or
greater than 100% of the fair market value of the shares of the common stock at
the time granted; provided that incentive stock options granted to a 10% holder
of our voting stock shall be exercisable at a price equal to or greater than
110% of the fair market value of the common stock on the date of the grant. The
exercise price for non-qualified options will be set by the board or the
committee, in its discretion, but in no event shall the exercise price of
options granted under the 1997 or 1998 stock option plans be less than the fair
market value of the shares of common stock on the date of grant. The exercise
price may be payable in cash or, with the approval of the board or the
committee, by delivery of shares or by a combination of cash and shares. Shares
of common stock received upon exercise of options granted under each of the
plans will be subject to restrictions on sale or transfer.
As of September 30, 2002, the Company has granted options to purchase 3,579,387
shares of common stock under our stock options plans at an exercise price
ranging from $.10 to $21.50 per share. Of these options, options to purchase
3,400,000 shares have been granted to our officers and directors. All of the
options granted to such officers and directors terminate on the ten year
anniversary of their grant date.
On October 24, 2000 and July 17, 2001, the board of directors, and stockholders,
respectively, adopted our 2000 stock option plan. The Company has reserved
1,600,000 shares of common stock for issuance upon exercise of options granted
from time to time under the 2000 stock option plan. The 2000 stock option plan
is intended to assist us in securing and retaining key employees, directors and
consultants by allowing them to participate in our ownership and growth through
the grant of incentive and non-qualified options.
Under the 2000 stock option plan the Company may grant incentive stock options
only to key employees and employee directors, or the Company may grant
non-qualified options to our employees, officers, directors and consultants. The
2000 stock option plan will be administered directly by our board of directors.
19
Subject to the provisions of the 2000 stock option plan, the board will
determine who shall receive options, the number of shares of common stock that
may be purchased under the options, the time and manner of exercise of options
and exercise prices. The term of options granted under the 2000 stock option
plan may not exceed ten years or five years for an incentive stock option
granted to an optionee owning more than 10% of our voting stock. The exercise
price for incentive stock options shall be equal to or greater than 100% of the
fair market value of the shares of the common stock at the time granted;
provided that incentive stock options granted to a 10% holder of our voting
stock shall be exercisable at a price equal to or greater than 110% of the fair
market value of the common stock on the date of the grant. The exercise price
for non-qualified options will be set by the board, in its discretion. The
exercise price may be payable in cash or, with the approval of the board, by
delivery of shares or by a combination of cash and shares. Shares of common
stock received upon exercise of options granted under the 2000 stock option plan
will be subject to restrictions on sale or transfer.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables sets forth, as of April 7, 2003, the number of and percent
of the Company's common stock beneficially owned by
o all directors and nominees, naming them,
o our executive officers,
o our directors and executive officers as a group, without naming them, and o
persons or groups known by us to own beneficially 5% or more of our common
stock:
Unless otherwise indicated, the address of each beneficial owner in the table
set forth below is care of A.B. Watley Group Inc., 40 Wall Street, New York, New
York 10005.
The Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.
A person is deemed to be the beneficial owner of securities that can be acquired
by him within 60 days from April 7, 2002 upon the exercise of options, warrants
or convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities that are
held by him, but not those held by any other person, and which are exercisable
within 60 days of April 7, 2002 have been exercised and converted.
NUMBER OF SHARES
PERCENTAGE OF SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED(9)
NAME AND ADDRESS OF BENEFICIAL OWNER
- ------------------------------------ ------------------ ----------------------
Steven Malin 2,902,369(1)(2) 23.2%
Penson Financial Services 1,359,052(3) 10.9
On-Site Trading, Inc. 1,513,056 12.1
Franklin Mutual Advisers, LLC 738,999(3) 5.9
DMG Legacy International Ltd. 1,368,600(4) 10.9
DMG Legacy Institutional Fund 1,368,600(4) 10.9
DMG Legacy Fund 1,368,600(4) 10.9
SDS Merchant Fund, L.P. 1,481,047(5) 10.9
Linda Malin 2,162,567(1) 17.3
Robert Malin 1,509,000(1)(6) 12.1
Mark Chambre 107,787(7) *
Eric Steinberg 1,525,415 12.2
Anthony Houston 1,048,624 8.4
John J. Amore 500,000(8) 4.0
All directors and executive officers as a group (4 7,181,723 57.4%
persons)
* Less than 1%.
20
(1) The number of shares beneficially owned by Steven, Linda and Robert Malin
include shares held in irrevocable family and charitable trusts for which they
are trustees. In addition, the number of shares held by Steven Malin includes
shares held by a family partnership for which Steven Malin is the general
partner.
(2) The number of shares beneficially owned by Steven Malin includes 250,000
shares of common stock issuable upon exercise of options but does not include
550,000 shares of common stock issuable upon exercise of options which are not
currently exercisable.
(3) The number of shares beneficially owned by Franklin Mutual Advisers, LLC
includes 425,445 shares of common stock issuable upon exercise of currently
exercisable warrants.
(4) The number of shares beneficially owned by DMG Legacy International Ltd.,
DMG Legacy Institutional Fund LLC and DMG Legacy Fund LLC (collectively, the
"DMG Group") are aggregated since such entities are affiliates and includes (i)
796,650 shares of common stock issuable upon the conversion of shares of series
A convertible preferred stock owned by the DMG Group and (ii) 597,370 shares of
common stock issuable upon the exercise of currently exercisable warrants.
(5) The number of shares beneficially owned by SDS Merchant Fund, L.P. ("SDS")
includes (i) 1,169,550 shares of common stock issuable upon the conversion of
shares of series A convertible preferred stock owned by SDS and (ii) 311,497
shares of common stock issuable upon the exercise of currently exercisable
warrants. The number of shares beneficially owned by SDS does not include
1,169,550 shares of common stock issuable upon exercise of warrants which are
not currently exercisable. Under the terms of the convertible preferred stock
purchase agreement, SDS is not entitled to convert any portion of the series A
convertible preferred stock or exercise any portion of the warrants or to
dispose of any portion of the series A convertible preferred stock or warrants
to the extent that the right to effect the conversion, exercise or disposition
would result in SDS or any of its affiliates owning more than 4.95% of the
outstanding shares of common stock of our company.
(6)The number of shares beneficially owned by Robert Malin includes 500,000
shares of common stock issuable upon exercise of options but does not include
800,000 shares of common stock issuable upon exercise of options which are not
currently exercisable.
(7) The number of shares beneficially owned by Mark Chambre does not include
2,000 shares of common stock owned by his wife, as to which he disclaims
beneficial ownership.
(8) The number of shares beneficially owned by John J. Amore includes 500,000
shares of common stock issuable upon exercise of options but does not include
800,000 shares of common stock issuable upon exercise of options which are not
currently exercisable.
(9) Based on 12,508,852 shares of common stock currently outstanding.
The address of all of the foregoing parties is c/o our company at 40 Wall
Street, New York, NY 10005 except for On-Site Trading, Inc. whose address is 98
Cutter Mill Road, Great Neck, New York 11021, Franklin Mutual Advisers, LLC
whose address in 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078, SDS
Merchant Fund, L.P. whose address is c/o SDS Capital Partners, One Sound Shore
Drive, Greenwich, Connecticut 06830 and each member of the DMG Group, whose
address is c/o DMG Advisors LLC, One Sound Shore Drive, Greenwich, Connecticut
06830.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During fiscal year 2000, the Company borrowed $3,500,000 from officers and major
stockholders. Such loans were comprised of (i) a $3,200,000 loan from Steven
Malin; (ii) a $150,000 loan from a corporation controlled by Steven Malin; (iii)
a $75,000 loan from a corporation controlled by Linda Malin; and (iv) a $75,000
loan from a corporation controlled by Eric Steinberg. The notes bear interest
ranging from 7% to 10% maturing in two years from the effective date. In fiscal
2000, Steven Malin had subordinated loans to our company of $125,000 and
$55,000. On April 30, 2000, the subordinated borrowing of $125,000 matured,
however Mr. Malin continued to loan our company $125,000 at an interest rate of
12% with no stated maturity date. The subordinated borrowing of $55,000 bears no
interest and is due on October 31, 2002. Our company had a note receivable in
the amount of $128,071 from an officer. The note receivable bears interst at 6%
and is due on demand.
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During fiscal year 2001, the Company borrowed an additional $850,000 from
officers and major stockholders. Total borrowings from officers and stockholders
were: (i) aggregate loans of $1,375,000 from a corporation controlled by Steven
Malin; (ii) aggregate loans of $1,075,000 from a corporation controlled by
Robert Malin; (iii) a $950,000 loan from a corporation controlled by Linda
Malin; and (iv) a $950,000 loan from a corporation controlled by Eric Steinberg.
The notes bear interest ranging from 7% to 10% maturing in one or two years from
the effective date. In fiscal 2001, Steven Malin had subordinated loans to our
company of $125,000 and $55,000. The subordination agreement for the $125,000
loan was renewed and the $55,000 loan continued as a subordinated loan maturing
in October 2002. Our company had notes receivable of $103,000 and $131,059 from
officers. The notes receivable bear interest at 6% and are due on demand.
During the fiscal year 2002, in September 2002, in consideration of the
forgiveness of notes payable to officers aggregating $2,400,000, the Company
issued warrants to purchase 1,479,486 and 923,145 shares of common stock to
officers, exercisable at $0 and $1.80 per share, respectively. The warrants were
exercisable as of September 2002 and expire in September 2007. As of the year
ending September 30, 2002, the Company had notes payable to officers in the
amount of $700,000 that bear interest at the rate of 10%. In April 2002,
$2,150,000 of notes payable to officers were assigned to one of the Company's
clearing brokers. Interest in payable at the rate of 10%. The loans expire on
March 2003. In July 2002, this amount was subsequently forgiven as part of the
sale of the Company's software to the clearing broker.
In April 2002, $2,150,000 of notes payable to officers were assigned to Penson
Financial Services, Inc. ("Penson"), which owns approximately 11% of the
Company's outstanding common stock and is a clearing broker for the Company.
Interest was payable on these notes at a rate of 10% per annum and the notes
matured through March 2003. In July 2002, these amounts were subsequently
forgiven as part of the sale of the Company's proprietary software programs (the
"Software") and related intellectual property, to Integrated Trading Solutions,
Inc. ("Integrated"), an affiliate of Penson, pursuant to an Asset Purchase
Agreement dated July 31, 2002 (the "Agreement"). Pursuant to the Agreement, the
Company sold to Integrated, and Integrated purchased and assumed from the
Company all of the Software, certain related intellectual property and contract
rights and certain other assets in exchange for the following consideration:
(i) an immediate reduction of $3,418,015 of debt owed by the Company to Penson;
(ii) a contingent reduction of additional debt owed by the Company to Penson of
up to $2,150,994 on the earlier of: (a) the date that Penson receives no less
than $5,000,000 in revenues under its clearing agreement with the Company
(provided that such revenues are received during the thirty-six months after the
closing date of the Agreement), or (b) in the event that the Company raises at
least $4,000,000 in new equity capital, which may include forgiveness of various
types of debt;
(iii) the assumption of certain additional identified and to be identified
liabilities of the Company by Integrated;
(iv) the granting of a license by Integrated to the Company that allows the
Company to utilize the Software at favorable rates. The license also provides
for the Company to receive a percentage of future royalties from the licensing
of the Software; and
(v) an amendment to the Company's clearing agreement with Penson.
The amount of consideration received by the Company from Integrated was
determined through arms-length negotiations between the parties. In addition,
prior to consummating the transaction, the Company obtained fairness and
valuation opinions from Appleby Capital, Inc., which opinions stated that the
consideration received by the Company was fair from a financial point of view,
and that the fair market value of the assets being sold, immediately prior to
the sale, were not more than $3,400,000.
The Company believes that prior transactions with our officers, directors and
principal stockholders were on terms that were no less favorable than the
Company could have obtained from unaffiliated third parties. All future
transactions, including loans and advances, between us and our officers,
directors and stockholders beneficially owning 5% or more of our outstanding
voting securities, or their affiliates, will be for bona fide business purposes
and on terms not less favorable to us than the Company could have obtained in
arm's length transactions from unaffiliated third parties.
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OTHER BUSINESS
The Board of Directors is not aware of any other business that will come before
the Meeting, but if any such matters are properly presented, the proxies
solicited hereby will be voted in accordance with the best judgment of the
persons holding the proxies. All shares represented by duly executed proxies
will be voted at the Meeting.
STOCKHOLDER PROPOSALS
Stockholders who wish to submit proposals pursuant to Rule 14a-8 of the 1934 Act
for inclusion in the Proxy Statement for the Company's 2004 Annual Meeting of
Stockholders must submit the same to Robert Malin, the Vice Chairman of A.B.
Watley Group, Inc. on or before October 31, 2003 at the Company's principal
executive office, 40 Wall Street, New York, New York 10005.
AVAILABILITY OF CERTAIN DOCUMENTS REFERRED TO HEREIN
This proxy statement refers to certain documents of the company that are not
presented herein or delivered herewith. Such documents are available to any
person, including any beneficial owner, to whom this proxy statement is
delivered, upon oral or written request, without charge, directed to Robert
Malin, the Vice Chairman, A.B. Watley Group Inc., 40 Wall Street, New York, New
York 10005, (212) 422-1100. In order to ensure timely delivery of the documents,
such requests should be made by o, 2003.
It is important that the proxies be returned promptly and that your shares be
represented. Stockholders are urged to mark, date, execute and promptly return
the accompanying proxy card in the enclosed envelope.
By Order of the Board of Directors,
/s/ Steven Malin
Steven Malin
Chairman of the Board of Directors
New York, New York
June o, 2003
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PROXY
A.B. WATLEY GROUP INC.
PROXY FOR ANNUAL MEETING TO BE HELD ON o, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert Malin, the Vice Chairman, as proxy, with
the power to appoint his substitute, to represent and to vote all the shares of
common stock of A.B. Watley Group Inc. (the "Company"), which the undersigned
would be entitled to vote, at the Company's Annual Meeting of Stockholders to be
held on o, 2003 and at any adjournments thereof, subject to the directions
indicated on the reverse side hereof.
In their discretion, the proxy is authorized to vote upon any other matter that
may properly come before the meeting or any adjournments thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE, BUT IF NO
CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES
AND FOR THE PROPOSALS LISTED ON THE REVERSE SIDE.
IMPORTANT--This Proxy must be signed and dated on the reverse side.
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THIS IS YOUR PROXY
YOUR VOTE IS IMPORTANT!
Dear Stockholder:
We cordially invite you to attend the Annual Meeting of Stockholders of
A.B. Watley Group Inc. to be held at o, on o, 2003 at 10:00 a.m. (local time).
Please read the proxy statement which describes the proposals and presents other
important information, and complete, sign and return your proxy promptly in the
enclosed envelope.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1-5
1. Election of Directors -- FOR WITHHOLD
NOMINEES:
---------
Steven Malin [_] [_]
Robert Malin [_] [_]
Mark Chambre [_] [_]
(Except nominee(s) written above)
FOR AGAINST ABSTAIN
2. Proposal to ratify financing transactions [_] [_] [_]
requiring potential
stock issuances in excess of currently
authorized capital stock
FOR AGAINST ABSTAIN
3. Proposal to approve an amendment to [_] [_] [_]
the Articles of Incorporation to increase
the number of authorized shares of
common stock
FOR AGAINST ABSTAIN
4. Proposal to adopt the 2003 Stock Option [_] [_] [_]
Plan
FOR AGAINST ABSTAIN
5. Proposal to ratify Marcum & [_] [_] [_]
Kliegman LLP as independent
auditors
If you plan to attend the Annual Meeting please mark this box [_]
Dated:________________, 2003
Signature ____________________________________________________________________
Name (printed) _______________________________________________________________
Title ________________________________________________________________________
Important: Please sign exactly as name appears on this proxy. When signing as
attorney, executor, trustee, guardian, corporate officer, etc., please indicate
full title.
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FOLD AND DETACH HERE
26
EXHIBIT A
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
A.B. WATLEY GROUP INC.
The undersigned, being the President of A.B. Watley Group Inc., a corporation
existing under the laws of the State of Delaware, does hereby certify under the
seal of the said corporation as follows:
1. The certificate of incorporation of the Corporation is hereby amended by
replacing Article Fourth, in its entirety, with the following:
"FOURTH: 1. The total number of shares which the corporation shall have
authority to issue is 51,000,000, all of which have a par value of $0.001;
50,000,000 of said shares are Common Stock and 1,000,000 of said shares are
Preferred Stock.
2. The powers, preferences and rights, and the qualifications, limitations and
restrictions of the Corporation's Common Stock and Preferred Stock are as
follows:
(a) holders of the Corporation's Common Stock as a class, have equal ratable
rights to receive dividends when, as and if declared by the Board of Directors,
out of funds legally available therefor and are entitled upon liquidation of the
Company to share ratably in the net assets available for distribution, are not
redeemable and have no pre-emptive or similar rights; and holders of the
Corporation's Common Stock have one non-cumulative vote for each share held of
record on all matters to be voted on by the Corporation's stockholders.
(b) the shares of Preferred Stock may be issued in series, and shall have such
voting powers, full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issuance of such
stock adopted from time to time by the Board of Directors. The Board of
Directors is hereby expressly vested with the authority to determine and fix in
the resolution or resolutions providing for the issuances of Preferred Stock the
voting powers, designations, preferences and rights, and the qualifications,
limitations or restrictions thereof, of each such series to the full extent now
or hereafter permitted by the laws of the State of Delaware."
3. The amendment of the certificate of incorporation herein certified has been
duly adopted by the unanimous written consent of the Corporation's Board of
Directors and a majority of the Corporation's stockholders in accordance with
the provisions of Sections 141(f), 228 and 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be hereunto
affixed and this Certificate of Amendment of the Corporation's Certificate of
Incorporation, as amended, to be signed by Steven Malin, its Chairman of the
Board of Directors, this __ day of ______ 2003.
A.B. WATLEY GROUP INC.
By:_/S/ ____________________
Steven Malin, Chairman of the Board
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