<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1999
REGISTRATION NO. 333-75119
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ONLINETRADINGINC.COM CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 6211 65-0607814
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2700 N. MILITARY TRAIL, SUITE 200
BOCA RATON, FLORIDA 33431
(561) 995-1010
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
2700 N. MILITARY TRAIL, SUITE 200, BOCA RATON, FLORIDA 33431
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
------------------------
ANDREW A. ALLEN
CHIEF EXECUTIVE OFFICER
ONLINETRADINGINC.COM CORP.
2700 N. MILITARY TRAIL, SUITE 200
BOCA RATON, FLORIDA 33431
(561) 995-1010
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
DALE S. BERGMAN, P.A. NEIL BARITZ, ESQ.
LEONARD BLOOM, P.A. DREIER & BARITZ, LLP
BROAD AND CASSEL 150 EAST PALMETTO PARK ROAD
201 SOUTH BISCAYNE BOULEVARD, SUITE 3000 SUITE 401
MIAMI, FLORIDA 33131 BOCA RATON, FLORIDA 33432
TELEPHONE NO.: (305) 373-9400 TELEPHONE NO.: (561) 750-0910
FACSIMILE NO.: (305) 373-9443 FACSIMILE NO.: (561) 750-5045
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
SUBJECT TO COMPLETION, DATED JUNE , 1999
INITIAL PUBLIC OFFERING PROSPECTUS
(ONLINE TRADINGINC.COM LOGO)
2,250,000 SHARES OF COMMON STOCK
$7.00 PER SHARE
ONLINETRADINGINC.COM CORP.
2700 North Military Trail, Suite 200
Boca Raton, Florida 33431
(561) 995-1010
<TABLE>
<CAPTION>
PER SHARE TOTAL
THE OFFERING --------- -----------
<S> <C> <C>
Public offering
price.............. $ 7.00 $15,750,000
Underwriting
discounts and
commissions........ $0.595 $ 1,338,750
Proceeds to us....... $6.405 $14,411,250
</TABLE>
We provide financial brokerage services to experienced investors and small to
mid-sized financial institutions through a variety of communication mediums.
This is our initial public offering. Prior to this offering there was no public
market for our shares.
Proposed Nasdaq SmallCap Market Symbol -- LINE
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE RISK FACTORS BEGINNING ON PAGE 4 OF
THIS PROSPECTUS.
THESE SHARES HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES
COMMISSION. THESE ORGANIZATIONS HAVE NOT DETERMINED WHETHER THIS PROSPECTUS IS
COMPLETE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We have entered into a firm commitment underwriting agreement with
Werbel-Roth Securities, Inc. for the sale of the shares in this offering. We
have granted to the underwriter a 45-day option to purchase up to an additional
337,500 shares of common stock to cover over-allotments.
The underwriters expect to deliver the shares to purchasers on
, 1999.
WERBEL-ROTH SECURITIES, INC.
ONLINETRADINGINC.COM CORP. SEABOARD SECURITIES, INC.
THE AGEAN GROUP, INC.
FIRST COLONIAL SECURITIES GROUP, INC. GRADY AND HATCH & CO., INC. NATIONAL
SECURITIES CORPORATION
The date of this prospectus is June , 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY........................... 1
RISK FACTORS...................... 4
FORWARD-LOOKING STATEMENTS........ 8
ONLINETRADINGINC.COM CORP. ....... 8
USE OF PROCEEDS................... 8
DIVIDEND POLICY................... 10
DILUTION.......................... 11
CAPITALIZATION.................... 12
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....... 13
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS.......................... 17
MANAGEMENT........................ 27
PRINCIPAL SHAREHOLDERS............ 31
CERTAIN TRANSACTIONS.............. 32
DESCRIPTION OF CAPITAL STOCK...... 33
SHARES ELIGIBLE FOR FUTURE SALE... 35
UNDERWRITING...................... 36
LEGAL MATTERS..................... 38
EXPERTS........................... 39
WHERE YOU CAN FIND MORE
INFORMATION..................... 39
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
i
<PAGE> 4
SUMMARY
Because this is a summary, it does not contain all of the information that
may be important to you. You should read the more detailed information contained
in this prospectus. Except as otherwise indicated, all information in this
prospectus (1) assumes no exercise of the underwriters' over-allotment option;
(2) does not give effect to 325,000 shares of common stock issuable upon the
exercise of outstanding options under our 1999 Stock Option Plan; and (3) gives
effect to a recapitalization of our capital stock effected in April 1999.
ABOUT US
onlinetradinginc.com provides financial brokerage services to experienced
investors and small to mid-sized financial institutions through a variety of
communication mediums, including the Internet. Unlike our name suggests, we are
not merely a real time online financial brokerage firm which allows clients to
trade directly over the Internet. We are a full-service financial services firm
with direct access to the securities markets via our computerized intranet
infrastructure. This direct access enhances our ability to obtain the simplest,
most direct execution of orders for our clients at the best possible price. In
addition, as a result of the technology we use, our brokers and our clients have
access to the most up-to-date electronic information on stocks, market indices,
analysts' research and news. We provide our clients, through experienced
brokers, the ability to execute orders before and after traditional market
hours. Moreover, we are in the process of upgrading our software and technology
to enable our clients to execute trades more efficiently over the Internet.
Our manner of executing trades using our computerized intranet
infrastructure eliminates middlemen (like market makers and other
broker-dealers) to save costs and increase investing efficiency. We believe we
have a strategic advantage over existing discount, deep discount, and Internet
brokerage firms as a result of:
- our commitment to providing the best stock execution prices directly to
our clients;
- our refusal to accept payment for directing orders to market makers or
other broker-dealers (i.e., accepting payment for order flow); and
- our combination of information and research tools.
ABOUT THE OFFERING
Common stock offered......... 2,250,000 shares
Common stock to be
outstanding after the
offering................... 11,138,888 shares
Use of net proceeds.......... Approximately $13,643,444 for sales and
marketing, website enhancement, potential
acquisitions, net capital, additional personnel,
expansion of client services, branch office
expansion, network expansion, Year 2000
readiness, working capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq Symbol....... LINE
1
<PAGE> 5
Prior to this offering there has been no public market for our common
stock. We cannot assure you that a trading market for the common stock will
develop or how liquid that market might be. You may not be able to resell your
shares at or above the initial public offering price.
2
<PAGE> 6
SUMMARY FINANCIAL INFORMATION
The following is a summary of our Financial Statements for the years ended
January 31, 1998 and 1999, and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements including the notes thereto included in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Commissions................................... $5,525,427 $3,673,728
Total revenues................................ $5,992,064 $3,548,385
Net income (loss)............................. $ 107,943 $ (19,428)
========== ==========
Net income (loss) per share................... $ 0.0122 $ (0.0023)
========== ==========
Weighted average number of common shares
outstanding................................. 8,857,233 8,444,444
========== ==========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1999
--------------------------
ACTUAL PRO FORMA(1)
---------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.............................. $ 988,392 $14,631,836
Cash and cash equivalents.................... $1,005,944 $14,649,388
Total assets................................. $2,154,588 $15,798,032
Total liabilities............................ $1,527,052 $ 1,527,052
Shareholders' equity......................... $ 627,536 $14,270,980
</TABLE>
- -------------------------
(1) Adjusted to reflect the sale of the shares of common stock in this offering
(based on an initial public offering price of $7.00 per share) and the
application of the net proceeds therefrom.
3
<PAGE> 7
RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO EVALUATE OUR PERFORMANCE.
We were incorporated in September 1995. However, we only commenced doing
business in February 1996. Accordingly, we have only a limited operating history
upon which you can evaluate our prospects and future performance. While we
reported net income of $107,943 for the year ended January 31, 1999, we reported
a net loss of $19,428 for the year ended January 31, 1998. You should consider
our prospects based on the risks, expenses and difficulties frequently
encountered in the operation of a new business in a rapidly evolving industry
characterized by intense competition.
WE RELY ON A LIMITED CLIENT BASE FOR A SUBSTANTIAL PORTION OF OUR BUSINESS.
Many of our clients are active investors. Active investors can lose a
significant amount of money quickly and become unable to continue to trade. Our
client base has expanded from approximately 450 accounts at January 31, 1998, to
approximately 730 accounts at January 31, 1999. However, we are still dependent
on a limited client base for a substantial portion of our revenues.
WE DEPEND ON ANDREW ALLEN, FARSHID TAFAZZOLI, STEVEN ZUM TOBEL AND DEREK
HERNQUIST AND THE LOSS OF ANY OF THEIR SERVICES COULD HARM OUR BUSINESS.
Our business is dependent upon a small number of key executive officers,
principally Andrew Allen, our Chairman and Chief Executive Officer; Farshid
Tafazzoli, our Chief Information Officer; Steven zum Tobel, our President and
Chief Financial Officer; and Derek J. Hernquist, our Vice President and Director
of Operations. The loss of services of any of these individuals could harm our
business. We have employment agreements with each of these officers, and we
maintain "key person" life insurance for our benefit on Mr. Allen and Mr.
Tafazzoli. Competition for key personnel and other highly qualified technical
and managerial personnel is intense. The loss of the services of any of the key
personnel or the inability to identify, hire, train and retain other qualified
personnel in the future could harm our business.
THERE ARE SIGNIFICANT COSTS ASSOCIATED WITH OUR PROPOSED NETWORK INFRASTRUCTURE
EXPANSION AND SUCH EXPANSION COULD CAUSE POTENTIAL DISRUPTIONS IN SERVICE.
We will need to expand our network infrastructure and client support
capabilities in anticipation of an expanded client base. Such expansion will
require us to make significant capital expenditures for servers, routers and
computer equipment, to increase bandwidth for internet connectivity, and to hire
and train additional client service personnel. Such expansion must be completed
without system disruptions, slower response times or degradation in speed of
order fulfillment and levels of client service. System disruptions, or
degradation in the level of client service during this process could harm our
business. We anticipate that the costs of expansion over the next 12 months will
be approximately $2,700,000, representing website enhancement and programming,
network expansion and upgrade and Year 2000 readiness and testing.
WE DEPEND HEAVILY ON COMPUTER SYSTEMS AND SYSTEM FAILURES COULD HARM OUR
BUSINESS.
We rely heavily on various electronic mediums. We receive trade orders
using the Internet and telephone. In addition, we process trade orders through
various avenues including, but not limited to, Instinet Corporation, SelectNet,
intranets, floor brokers, and
4
<PAGE> 8
Bear Stearns Securities Corp. These methods of trading are heavily dependent on
the integrity of the electronic systems supporting them. Heavy stress placed on
these systems during peak trading times could cause our systems to operate at
unacceptably low speeds or fail altogether. Any significant degradation or
failures of our computer systems, those of Bear Stearns Securities Corp., or any
other systems in the trading process (e.g., online service providers, record
keeping and data processing functions performed by third parties and third-party
software such as Internet browsers) could cause clients to suffer delays in
trading. These delays could cause substantial losses for our clients and could
subject us to claims from clients for losses, including litigation claiming
fraud or negligence. We have created operating redundancies in our systems and
regularly conduct backups to protect against system failures. In addition, if
one of our offices was not operational, under certain circumstances, some of our
other offices could continue to service clients through their facilities. These
systems and/or safeguards may not be sufficient in all circumstances.
ANY POSSIBLE COMPROMISES OF OUR SYSTEMS OR SECURITY COULD HARM OUR BUSINESS.
The secure transmission of confidential information over public networks is
a critical element of our operations. We rely on encryption and authentication
technology to provide the security and authentication necessary to effect secure
transmission of confidential information over the Internet. To the best of our
knowledge, to date, we have not experienced any security breaches in the
transmission of confidential information. Moreover, we continually evaluate
advanced encryption technology to ensure the continued integrity of our systems.
However, we cannot assure you that advances in computer capabilities, new
discoveries in the field of cryptography or other events or developments will
not result in a compromise of the technology or other algorithms used by us and
our vendors to protect client transaction and other data. Any compromise of our
systems or security could harm our business.
WE RELY VERY HEAVILY ON BEAR STEARNS SECURITIES CORP. AND TERMINATION OF OUR
AGREEMENT WITH BEAR STEARNS COULD HARM OUR BUSINESS.
Our clearing agreement with Bear Stearns may be terminated by either party
upon 60 days prior written notice. Termination of this agreement could harm our
business. Pursuant to our agreement, Bear Stearns, on a fee basis, processes all
securities transactions for our account and the accounts of our clients.
Services of Bear Stearns include billing and credit extension, control and
receipt, custody and delivery of securities, for which we pay a transaction
charge. We are dependent on the operational capacity and the ability of Bear
Stearns for the orderly processing of transactions. In addition, by engaging the
processing services of a clearing firm, we are exempt from certain capital
reserve requirements and other complex regulatory requirements imposed by
federal and state securities laws. Moreover, we have agreed to indemnify and
hold Bear Stearns harmless from certain liabilities or claims, including claims
arising from the transactions of our clients.
WE EXTEND CREDIT TO OUR CLIENTS AND ARE SUBJECT TO RISKS AS A RESULT.
We are subject to the risks inherent in extending credit to the extent that
we permit our clients to purchase securities on a "margin" basis. A portion of
our clients' securities activities are transacted on a margin basis (through the
clearing broker which we have agreed to indemnify), pursuant to which credit is
extended to the client and secured by cash and securities in the client's
account or "short sales" (i.e., the sale of securities not yet purchased). These
risks are increased during periods of volatile markets in which the value of the
collateral held by us could fall below the amount borrowed by the client. If
5
<PAGE> 9
margin requirements are not sufficient to cover losses, we may be required to
sell or buy securities at prevailing market prices and incur losses to satisfy
client obligations. As of January 31, 1999, we had approximately $20,392,000 in
credit extended to our clients through Bear Stearns, our clearing firm.
WE CONDUCT PROPRIETARY TRADING AND ANY POTENTIAL LOSSES WOULD REDUCE OUR ASSET
VALUE AND HARM OUR BUSINESS.
We operate a small proprietary trading department separate and distinct
from all client commission business. Pursuant to an internal policy, the trading
department maintains inventories of only equity securities on both a long and
short basis with no one position constituting greater than 40% of our funds
allocated for proprietary trading. To the extent we have any long positions
(i.e., own assets), a downturn in these markets could result in a decline in the
value of our positions resulting in losses and reduced asset values. Conversely,
to the extent we have short positions (i.e., have sold assets we do not own), an
upturn in those markets could expose us to unlimited losses as we attempt to
cover our short position by acquiring assets in a rising market. As of April 30,
1999, the inventory in our proprietary trading account had a market value of
$172,647 and a cost basis of $168,386.
FAILURE TO COMPLY WITH NET CAPITAL REQUIREMENTS COULD SUBJECT US TO SUSPENSION
OR REVOCATION BY THE SEC OR EXPULSION BY THE NASD.
The SEC, the NASD and various other regulatory agencies have stringent
rules with respect to the maintenance of specific levels of net capital by
securities brokers. Failure to maintain the required net capital may subject a
firm to suspension or revocation of registration by the SEC and suspension or
expulsion by the NASD and other regulatory bodies and ultimately could require
our liquidation. In addition, a change in the net capital rules, the imposition
of new rules or any unusually large charge against net capital could limit our
operations that require the intensive use of capital, such as the financing of
client account balances. A significant operating loss or any unusually large
charge against net capital could adversely affect our ability to expand or even
maintain our present levels of business, which could harm our business.
WE MAY ISSUE PREFERRED STOCK WITH PREFERENTIAL RIGHTS WHICH MAY ADVERSELY AFFECT
YOUR RIGHTS.
The rights of the holders of common stock will be subject to and may be
adversely affected by the rights of holders of any preferred stock that may be
issued in the future. Our Articles of Incorporation authorize our Board of
Directors to issue 1,000,000 shares of "blank check" Preferred Stock and to fix
the rights, preferences, privileges and restrictions, including voting rights,
of these shares, without further shareholder approval. Of the 1,000,000 shares
of Preferred Stock authorized, 300 shares have been designated Series A
Redeemable Preferred Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS INCLUDED IN OUR ARTICLES OF INCORPORATION AND
THE FLORIDA STATUTES MAY DISCOURAGE, DELAY OR PREVENT A CHANGE OF CONTROL WHICH
MIGHT OTHERWISE BE BENEFICIAL TO THE HOLDERS.
Preferred stock could be issued to discourage, delay or prevent a change in
our control. Our Articles of Incorporation authorize the issuance of "blank
check" preferred stock with the designations, rights and preferences determined
by our Board of Directors. Accordingly, the Board of Directors can, without
shareholder approval, issue shares of preferred stock with dividend,
liquidation, conversion, voting or other rights that could
6
<PAGE> 10
adversely affect the voting power or other rights of the holders of our common
stock. As of the date of this prospectus, 300 shares of preferred stock have
been designated Series A Redeemable Preferred Stock and are currently issued and
outstanding. Currently, we do not have any plans to issue any additional series
of our preferred stock.
Additionally, certain provisions of the Florida Business Corporation Act
could delay, defer or impede the removal of incumbent directors and could make
more difficult a merger, tender offer or proxy contest involving us, even if
these events could be beneficial to our shareholders. These provisions could
also limit the price that certain investors might be willing to pay in the
future for our common stock. In addition, Florida has certain laws that may
deter or frustrate takeovers of Florida corporations.
WE MAY NOT BE PREPARED FOR THE YEAR 2000 AND/OR THIRD-PARTIES ON WHICH WE RELY
MAY NOT BE PREPARED WHICH COULD HARM OUR BUSINESS.
Because we depend to a very substantial degree upon the proper functioning
of our computer systems, a failure of our systems to be Year 2000 compliant
could harm our business. Failure of this kind could, for example, cause
settlement of trades to fail, lead to incomplete or inaccurate accounting,
recording or processing of trades in securities, currencies, commodities and
other assets; result in generation of erroneous results; or give rise to
uncertainty about our exposure to trading risks and our need for liquidity. If
not remedied, potential risks include business interruption or shutdown,
financial loss, regulatory actions, reputational harm and legal liability.
In addition, we depend upon the proper functioning of third-party computer
and non-information technology systems. If third parties with whom we interact
have Year 2000 problems that are not remedied, the following problems could
result:
- in the case of vendors, in disruption of important services upon which we
depend, such as telecommunications and electrical power;
- in the case of third-party data providers, in the receipt of inaccurate
or out-of-date information that would impair our ability to perform
critical data functions;
- in the case of financial intermediaries such as exchanges and clearing
agents, in failed trade settlements, an inability to trade in certain
markets and disruption of funding flows;
- in the case of banks and other lenders, in the disruption of capital
flows potentially resulting in liquidity stress; and
- in the case of counterparties and customers, in financial and accounting
difficulties for those parties that expose us to increased credit risk
and lost business.
Disruption or suspension of activity in the world's financial markets is
also possible. In addition, uncertainty about the success of remediation efforts
generally may cause many market participants to reduce the level of their market
activities temporarily as they assess the effectiveness of these efforts during
a "phase-in" period beginning in late 1999. This in turn could result in a
general reduction in trading and other market activities (and lost revenues) as
well as reduced funding availability in late 1999 and early 2000. We cannot
predict the impact that any reduction would have on our business.
7
<PAGE> 11
FORWARD-LOOKING STATEMENTS
Certain important factors may affect our actual results and could cause
those results to differ materially from any forward-looking statements made in
this prospectus or that are otherwise made by us or on our behalf.
"Forward-looking statements" are not based on historical facts and are typically
phrased using words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate" or "continue" and similar expressions or
variations.
Investing in our common stock is risky. You should carefully consider the
preceding risks before making an investment decision. These risks are not the
only ones that we face. Additional risks that generally apply to publicly traded
companies and companies in our industry, that we have not yet identified or that
we think are immaterial may also impair our business operations. Our business,
operating results and financial condition could be adversely affected by any of
the preceding risks. The trading price of our common stock could decline due to
any of these risks, and you could lose all or part of your investment. You
should also refer to the other information set forth in this prospectus,
including our financial statements and the related notes.
ONLINETRADINGINC.COM CORP.
We were incorporated in Florida in September 1995 as Online Trading, Inc.
In February 1999, we changed our name to onlinetradinginc.com corp. and began
doing business under the name onlinetradinginc.com.
Our principal executive offices are located at 2700 North Military Trail,
Suite 200, Boca Raton, Florida 33431, and our telephone number is (561)
995-1010. Our World Wide Web site address is www.onlinetradinginc.com.
Information contained in our web site should not be considered part of this
prospectus.
USE OF PROCEEDS
We estimate we will receive $13,643,444 from the sale of 2,250,000 shares
of common stock offered at an initial public offering price of $7.00 per share
after deducting the underwriting discount, underwriters' non-accountable expense
allowance and additional
8
<PAGE> 12
offering expenses payable by us (estimated to be $365,000). The net proceeds are
expected to be used as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
AMOUNT PERCENTAGE
----------- -----------
<S> <C> <C>
Sales and Marketing(1)....................... $ 3,500,000 25.7%
Website Enhancement and Programming(2)....... 2,000,000 14.7
Potential Acquisitions(3).................... 2,000,000 14.7
Increase Net Capital(4)...................... 1,500,000 11.0
Hiring Additional Management and Personnel... 1,150,000 8.4
Branch Office Expansion(5)................... 1,100,000 8.1
Expansion of Client Service Department(6).... 1,000,000 7.3
Network Expansion and Upgrade................ 600,000 4.4
Year 2000 Readiness and Testing.............. 100,000 .7
Working Capital and General Corporate
Purposes(7)................................ 693,444 5.0
----------- -----
13,643,444 100.0%
</TABLE>
- -------------------------
(1) Represents costs associated with a national marketing and advertising
campaign, including advertisements in national newspapers and trade
publications and on the Internet, as well as salaries of personnel engaged
in these activities.
(2) Represents amounts to be used to enhance our website and complete the
programming to allow for more efficient execution of transactions over the
Internet, including the acquisition of additional computer equipment and
software.
(3) We are continually evaluating potential acquisitions to provide our clients
with the best possible service and products. Currently, we have no
understandings, commitments, arrangements or agreements with respect to any
pending or contemplated transaction.
(4) Represents amounts we will maintain in relatively liquid form as part of the
net capital we are required by the NASD to maintain.
(5) Management frequently explores possible locations for branch offices. We
currently have no agreement for any specific location in place.
(6) Represents costs of additional personnel and systems to provide additional
client support and continue software and program development.
(7) Represents amounts to be used for, among other things, salaries, occupancy
expenses, recruiting of employees and postage.
If the underwriter exercises its over-allotment option in full, we will
realize additional net proceeds of $2,086,267 which will be added to our working
capital.
The foregoing represents our best estimate of the allocation of the net
proceeds of this offering based upon the current status of our business. This
estimate is based on certain assumptions, including continued expansion of our
client base and corresponding increases in revenues and that our proposed
network expansion can be completed and new services can be introduced without
unanticipated delays or costs. If any of these factors change, we may find it
necessary to reallocate a portion of the proceeds within the above-described
categories or use portions of the proceeds for other purposes. Our estimates may
prove to
9
<PAGE> 13
be inaccurate, new programs or activities may be undertaken which will require
considerable additional expenditures or unforeseen expenses may occur.
Based on currently proposed plans and assumptions relating to the
implementation of our business plans, we believe that the proceeds of this
offering, combined with cash flow from operations, will enable us to fund our
planned operations for a period of at least 12 months from the date of this
prospectus. However, we cannot assure you we will realize cash flow from
operations or that the cash flow will be sufficient. If our plans change, our
assumptions change or prove to be inaccurate or if the proceeds of this offering
otherwise prove to be insufficient to implement our business plans, we may find
it necessary or desirable to reallocate a portion of the proceeds within the
above-described categories, use proceeds for other purposes, seek additional
financing or curtail our operations. We cannot assure you that any additional
financing will be available to us on acceptable terms, or at all.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
DIVIDEND POLICY
We have never paid dividends on our common stock and do not intend to pay
dividends for the foreseeable future. We intend to retain any earnings to
finance the development and expansion of our business. Payment of dividends in
the future will be subject to the discretion of our Board of Directors and will
depend upon our ability to generate earnings, our need for capital and our
overall financial condition, and as legally permissible, among other factors.
10
<PAGE> 14
DILUTION
The difference between the initial public offering price per share of
common stock and the net tangible book value per share after this offering
constitutes the dilution to investors in this offering. Net tangible book value
per share of common stock is determined by dividing our net tangible book value
(total tangible assets less total liabilities) by the number of shares of common
stock outstanding.
As of January 31, 1999, our net tangible book value was $627,536 or $0.07
per share of common stock. Net tangible book value represents the amount of our
total assets, less any intangible assets and total liabilities. After giving
effect to the sale of the 2,250,000 shares of common stock offered through this
prospectus (at an initial public offering price of $7.00 per share), and after
deducting the underwriting discount and other estimated expenses of the
offering), our adjusted pro forma net tangible book value as of January 31,
1999, would have been $14,270,980 or $1.28 per share. This represents an
immediate increase in net tangible book value of $1.21 per share to existing
shareholders and an immediate dilution of $5.72 per share to investors in the
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price............................... $7.00
Net tangible book value before offering................... $0.07
Increase attributable to investors in this offering....... $1.21
-----
Net tangible book value after offering.................... $1.28
-----
Dilution to new investors................................... $5.72
=====
</TABLE>
If the underwriters exercise their over-allotment option in full, the pro
forma adjusted net tangible book value per share of common stock after the
offering would be $1.43, which would result in dilution to your investment of
$5.57 per share of common stock.
The following table shows, at January 31, 1999, a comparison of the total
number of shares of common stock purchased from us, the total consideration paid
and the average price paid per share by existing common shareholders and to be
paid by investors who purchase shares of common stock in this offering (at an
assumed initial public offering price of $7.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT DOLLARS PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Common Shareholders... 8,888,888 79.8% $ 175,026 1.1% $0.02
New Investors.................. 2,250,000 20.2 15,750,000 98.9 $7.00
---------- ----- ----------- -----
Total........................ 11,138,888 100.0% $15,925,026 100.0%
========== ===== =========== =====
</TABLE>
The above tables assume no exercise of the underwriter's over-allotment
option. If the option is exercised in full, the new investors will have paid
$18,112,500 for 2,587,500 shares of common stock, representing approximately
23.2% of the total number of shares of common stock outstanding.
11
<PAGE> 15
CAPITALIZATION
The following table sets forth our capitalization as of January 31, 1999,
adjusted to give effect to the sale of 2,250,000 shares of common stock offered
in this offering at an assumed initial public offering price of $7.00 per share
and the receipt of the net proceeds from the sale. You should read this table in
conjunction with our financial statements and the notes included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1999
-------------------------
AS
ACTUAL ADJUSTED(1)
---------- -----------
<S> <C> <C>
Short-term borrowings................................ $ 125,000 $ 125,000
Long-term borrowings................................. 400,000 400,000
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, 300 shares of Series A Redeemable
Preferred Stock, stated value of $1,000 per
share, issued and outstanding................... 300,000 300,000
Common stock, $0.01 par value, 100,000,000 shares
authorized; 8,888,888 shares (actual),
11,138,888 shares (as adjusted) issued and
outstanding..................................... 88,888 111,389
Additional paid-in capital......................... 103,063 13,724,006
Retained earnings.................................. 135,585 135,585
---------- -----------
Total shareholders' equity........................... 627,536 14,270,980
---------- -----------
Total capitalization................................. $1,152,536 $14,795,980
========== ===========
</TABLE>
- -------------------------
(1) Adjusted to reflect the sale of 2,250,000 shares of common stock in this
offering at an initial public offering price of $7.00 per share and the
application of the net proceeds therefrom (after deducting the underwriting
discount, non-accountable expense allowance and the estimated expenses of
this offering).
12
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
onlinetradinginc.com is a fully-disclosed brokerage firm registered with
the SEC, the NASD, the Municipal Securities Rulemaking Board ("MSRB") and 48
state securities divisions and the District of Columbia. We have an application
pending with the state of Missouri and expect to be registered there by June
1999. We do not intend to register in Hawaii.
We are a full-service financial services firm targeting experienced
investors and small to mid-sized financial institutions (such as hedge funds,
money managers, mutual funds and pension funds.) We have generated positive
operating cash flows since inception, and we intend to continue our business
strategy while increasing brand awareness and customer loyalty.
We plan to expand our business and operations by utilizing, among other
things, the Internet to efficiently market and distribute our services to
additional potential clients. The anticipated expansion will require additional
capital to advertise nationally, improve the functionality of our web site,
expand our computer network, purchase additional equipment and hire additional
administrative and customer service personnel.
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 31, 1999 COMPARED WITH YEAR ENDED JANUARY 31, 1998
Our total revenue for the fiscal year ended January 31, 1999 ("Fiscal
1999") was $5,992,064, a 69% increase over the total revenue of $3,548,385 for
the fiscal year ended January 31, 1998 ("Fiscal 1998"). Total revenue increased
as a result of an additional $1,851,699 in commissions, an additional $75,512 in
interest revenues due to an improved interest sharing agreement with the
Clearing Firm, and $328,495 in trading profits.
The increase in commission revenues was primarily due to servicing new
institutional and retail customer business. In Fiscal 1999, we began doing
business with ten new banks and three new mutual funds. In addition, our client
base expanded by 62% from approximately 450 accounts at January 31, 1998, to
approximately 730 accounts at January 31, 1999. We intend to continue to attract
new institutional business through targeted marketing directed towards the small
to midsize financial institution and experienced institutional brokers. We added
one new branch office late in the last quarter of Fiscal 1999 which also added
an additional $127,864 in commission revenue. The increase in trading profits
was due to our implementing stricter internal trading risk parameters in order
to limit losses and our decreasing the losses in the error accounts because of
our increased effectiveness.
We had pretax earnings of $160,023 and net income of $107,943 for Fiscal
1999 compared to net losses of $19,428 for Fiscal 1998. The increase in net
income resulted from an increase in operating revenues combined with an overall
increase in our operating gross margins. We intend to continue our focus on
reducing transaction costs as our transaction volume continues to increase. We
paid $1,460,000 in management bonuses for Fiscal 1999 and $602,000 for Fiscal
1998. Pursuant to new employment agreements effective as of February 1, 1999,
the compensation of executive shareholder management has been set and
limitations have been placed on the amount of bonuses executive shareholder
management may receive.
13
<PAGE> 17
Our largest operating expense is our cost to clear trades through the
Clearing Firm, Instinet and Floorbrokers, i.e., our clearing costs. Our clearing
costs increased from $1,592,325 for Fiscal 1998 to $1,840,003 for Fiscal 1999.
Although the dollar amount of this expense increased, the expense as a
percentage of commission income earned decreased from 43.3% to 33.3%. This
decrease in variable costs percentage was primarily a result of negotiating
lower clearing rates with the Clearing Firm. The commission expense paid to
brokers increased from $200,499 in Fiscal 1998 to $1,144,616 in Fiscal 1999.
This increase was a result of hiring an additional five commission-based brokers
late in Fiscal 1998 and seven additional commission-based brokers in Fiscal
1999. Our salaries and benefits increased from $599,603 in Fiscal 1998 to
$753,309 for Fiscal 1999. The increase was a result of hiring our President and
Chief Financial Officer in March 1998, and instituting a retirement plan whereby
eligible employees may contribute up to $500 per month for which we match dollar
for dollar up to 3% of the employee's compensation. We contributed a total of
$46,987 for Fiscal 1999.
Occupancy and administrative expenses were $406,814 in Fiscal 1999 as
compared to $324,499 in Fiscal 1998. Although the expense increased in terms of
actual dollars, it declined as a percentage of revenues. We anticipate that
occupancy and administrative expenses will increase in the future as we expand
our number of branch offices and incur additional office lease expense. Included
in our occupancy and administrative expense was our telephone expense. Our
telephone and communication expenses increased from $96,150 in Fiscal 1998 to
$108,389 in Fiscal 1999. We anticipate these costs to continue to increase in
terms of dollar amounts, but as we grow, our telephone rates per minute have
declined and should continue to decline as a result of our increased long
distance volume.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily by raising
$465,000 in private equity and $525,000 in debt via subordinated loans.
Subordinated loans are traditional promissory notes that conform to NASD
standards and are, by agreement with the lender, subordinated to the claims of
all other creditors. Due to the fact that these loans are subordinated and that
they contain certain prepayment and repayment restrictions, SEC and NASD rules
permit us to consider our subordinated loans as part of our net capital. We
intend to repay the subordinated loans as they reach their maturity. In
addition, as co-underwriters of this offering, we may, if necessary, accept
temporary subordinated loans that will increase our net capital during the days
prior to the consummation of the offering to provide a reserve against the
anticipated increase in securities we will be holding and corresponding decrease
in liquid assets.
Cash and cash equivalents at January 31, 1999 were $1,005,944 as compared
to $218,335 at January 31, 1998. Working capital at January 31, 1999 was
$988,392 as compared to $864,489 at January 31, 1998. Our ratio of current
assets to current liabilities was almost 2 to 1 at January 31, 1999, compared to
3.5 to 1 at January 31, 1998.
Pursuant to the SEC's net capital rule, we are currently required to
maintain net capital of $100,000 and a ratio of aggregate indebtedness to net
capital (the "net capital ratio") not to exceed 15 to 1. As of January 31, 1999,
our net capital ratio was 1.09 to 1. SEC rules also prohibit "equity capital"
(which, pursuant to the net capital rule includes the subordinated loans) from
being withdrawn or cash dividends from being paid if our net capital ratio would
exceed 10 to 1 or if we would have less than our minimum required net capital.
Accordingly, our ability to repay the subordinated loans may be restricted
pursuant
14
<PAGE> 18
to the net capital rule. At January 31, 1999, we had net capital of $902,078,
which was $802,078 in excess of our minimum required net capital.
Net cash provided by operating activities was $837,167 in Fiscal 1999 and
$92,246 in Fiscal 1998. The increase in cash flow from operating activities was
primarily the result of $107,943 in net income and an increase in accounts
payable and accrued liabilities.
Net cash used in investing activities was $74,558 during Fiscal 1999 and
$83,345 during Fiscal 1998. Net cash used in investing activities was primarily
a result of purchasing additional computer systems, office equipment and
leasehold improvements. In addition, we signed a three-year operating lease in
March 1999 to secure the use of additional computers, equipment, and office
furniture.
Net cash provided by financing activities was $25,000 in Fiscal 1999 and $0
in Fiscal 1998. The increase in cash flows from financing activities was a
result of securing a $25,000 subordinated loan.
Based on currently proposed plans and assumptions relating to the
implementation of our business plan, we believe that the proceeds of this
offering, combined with cash flow from operations, will enable us to fund our
planned operations for a period of at least 12 months from the date of this
prospectus. However, we cannot assure you that we will realize cash flow from
operations or that the cash flow will be sufficient. If not, or if our plans
change, our assumptions change or prove to be inaccurate, or if the proceeds of
this offering otherwise prove to be insufficient to implement our business
plans, we may require additional financing and may seek to raise funds through
subsequent equity or debt financings or other sources. We cannot assure you that
additional funds will be available in adequate amounts or on acceptable terms.
If funds are needed but are not available, our business would be harmed.
We anticipate that we will incur capital expenditures of approximately
$2,700,000 through the fiscal year ended January 31, 2000. These expenditures
will be primarily for acquisition of computer equipment and software development
to increase the number of users capable of accessing our systems and continue to
enhance our worldwide website, as well as Year 2000 readiness.
ACCOUNTING STANDARDS
We intend to grant stock options to certain employees and consultants with
an exercise price not less than the fair market value at the date of grant.
Certain of these options will be granted as of the date of this prospectus. We
will account for stock option grants to employees in accordance with Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock-Based
Compensation."
YEAR 2000 READINESS
With the new millennium approaching, many institutions around the world are
reviewing and modifying their computer systems to ensure that they are Year 2000
compliant. The issue, in general terms, is that many existing computer systems
and microprocessors with data functions (including those in non-information
technology equipment and systems) use only two digits to identify a year in the
date field with the assumption that the first two digits of the year are always
"19." Consequently, on January 1, 2000, computers that are not Year 2000
compliant may read the year as 1900. Systems that calculate, compare or sort
using the incorrect date may malfunction.
We have conducted an assessment of the Year 2000 issue and the potential
effect it will have on us and our business. We have determined that we will not
be required to materially modify or replace our information and non-information
technology systems to
15
<PAGE> 19
properly recognize and utilize dates beyond December 31, 1999. We presently
believe that with modifications previously made to existing software,
conversions to new software and replacement of some hardware, the Year 2000
issue will be satisfactorily resolved in our own systems. However, even if these
changes are successful, failure of third parties, to which we are financially or
operationally linked, to address their own system problems could have a material
adverse effect on us. Furthermore, the investing and trading patterns of clients
may be affected by Year 2000 issues as clients become concerned about the Year
2000 issue and the effect it will have on the U.S. and international stock
markets and the securities industry generally. Changes in these patterns may
harm our business.
We continue to monitor and review the Year 2000 issue and, as appropriate,
modify or replace the software (and replace some hardware) in our computer
systems in our main and branch offices. We continue to monitor our own internal
systems to prepare for Year 2000 compliance. Our testing is expected to involve
major market participants, including competing firms and financial
intermediaries, such as stock exchanges and clearing agencies that are prominent
in the U.S. We have also initiated communications with counter-parties,
intermediaries and vendors with whom we have important financial and operational
relationships to determine the extent to which they are vulnerable to the Year
2000 issue. We have not yet received sufficient information from these parties
about their remediation plans to predict the outcome of their efforts.
To date, Year 2000 readiness has cost us an estimated $85,000 (including
upgrades to existing systems) and will cost approximately $100,000 more to
complete. Our Year 2000 program costs will be funded from the proceeds of this
offering. These costs are expensed as incurred. We cannot assure you that these
estimates will be correct; actual results could differ materially from our
plans.
16
<PAGE> 20
BUSINESS
OVERVIEW
onlinetradinginc.com provides financial brokerage services to experienced
investors and small to mid-sized financial institutions through a variety of
communication mediums, including the Internet. Unlike our name suggests, we are
not merely a real time online financial brokerage firm which allows clients to
trade directly over the Internet. We are a full-service financial services firm
with direct access to the various securities markets via our computerized
intranet infrastructure. This direct access enhances our ability to obtain the
simplest, most direct execution of orders for our clients at the best possible
price. In addition, as a result of the technology we use, our brokers and our
clients have access to the most up-to-date electronic information on stocks,
market indices, analysts' research and news. We provide our clients, through
experienced brokers, the ability to execute orders before and after traditional
market hours. Moreover, we are in the process of upgrading our software and
technology to enable our clients to execute trades more efficiently over the
Internet.
Our manner of executing trades using our computerized intranet
infrastructure eliminates middlemen (like market makers and other
broker-dealers) to save costs and increase investing efficiency. We believe we
have a strategic advantage over existing discount, deep discount, and Internet
brokerage firms as a result of:
- our commitment to providing the best stock execution prices directly to
our clients;
- our refusal to accept payment for directing orders to market makers or
other broker-dealers (i.e., accepting payment for order flow); and
- our combination of information and research tools.
We were incorporated in Florida in September 1995 as Online Trading, Inc.
In February 1999, we changed our name from Online Trading Inc. to
onlinetradinginc.com corp. and began doing business under the name
onlinetradinginc.com.
THE MARKET
The financial services industry has changed considerably over the last 25
years. Before 1975, all stock exchanges required brokers to charge fixed minimum
commissions for trades of listed stock. Under pressure from Congress, the
Department of Justice and the SEC, in 1975, these policies were changed, which
allowed for negotiated commissions and the unbundling of investment services.
The unbundling of brokerage services from other financial services has permitted
investors to pick and choose among various financial providers for specific
services. All of these developments brought about the advent and proliferation
of the discount brokerage firm, which could separate financial advisory services
from execution services, and could execute trades at a lower cost than a full-
service broker.
As a result, discount brokerage firms willing to accept stock trades for
lower commissions have begun to proliferate. Like full service brokerage firms,
discount brokerage firms are covered by the government-sponsored Securities
Investor Protection Corporation ("SIPC") that insures accounts up to $100,000 in
cash and up to $400,000 in other assets. Unlike full service brokerage firms,
however, many discount brokerage firms do not typically provide the full breadth
of products and services offered by full-service
17
<PAGE> 21
firms, such as regular access to a broker willing to make recommendations or
discuss possible investments, elaborate research reports or access to initial
public offerings.
As a result of increased competition among brokerage firms, deep discount
brokerage firms who advertise very low commission rates also entered the market.
These firms generally provide very little, if any, services and merely effect
trades for an extremely low price. However, many of these firms either (1) sell
the order received from their clients to another brokerage firm that makes a
market in the stock being traded, or (2) charge the client a mark-up or
mark-down. We believe the selling of order flow creates inefficiency in the
trade execution which may increase the client's overall cost of the transaction.
At the same time, the use of the Internet as a tool for obtaining
information, communicating and effecting commerce is also changing the financial
services industry. The Internet provides investors with a wealth of information
about investing, including stock picks, technical charts, analysis and financial
corporate news. As a result, investors are more self-reliant and value
conscious, are managing their own money and are increasingly reluctant to pay
high fees to full-service retail brokers. This has led to significant growth in
online investing and the entry into the market of electronic or online trading
which has experienced phenomenal growth since the Internet "e-brokerages" were
introduced in 1994.
As a result of the growth of the Internet as a tool to obtain information,
online trading is now the fastest growing segment of the brokerage industry and
is expected to continue to grow significantly. In a report dated March 11, 1999,
Forrester Research, Inc., an independent research firm, estimates that during
1998, the number of North American households investing online nearly doubled,
reaching just under 2.4 million by the start of 1999 and that the number of
households investing online will increase to 4.3 million by the end of 2000.
Customers at the biggest online brokerage firms average 20 to 25 trades per
year, four to five times the number of trades per account executed at
traditional full-service brokerage firms. We believe that we are positioned to
service financially sophisticated and technologically capable brokerage
customers. The marketplace is demanding lower commissions, better trade
executions, access to more information and the convenience of 24 hour account
monitoring.
OUR BUSINESS
GENERAL FINANCIAL BROKERAGE SERVICES
We provide financial brokerage services to experienced investors, including
both individuals and small to mid-sized institutions (such as hedge funds, money
managers, mutual funds and pension funds). To support the investment services
provided to these investors, we effect transactions in equity securities
strictly on an agency basis for our clients. This means that we always charge
only an agreed upon commission and never earn income from marking up or marking
down our clients' stock orders. Our retail sales division consists of 30
registered representatives of which six are registered principals. Our retail
customer accounts are carried on a "fully disclosed" basis by the Clearing Firm,
pursuant to a clearing agreement. This agreement provides that our clients'
securities positions and credit balances carry unlimited insurance through
Travelers Casualty Company that is supplemental to standard SIPC protection. All
customer credit balances
18
<PAGE> 22
are subject to immediate withdrawal from the Clearing Firm, at the discretion of
the client.
We pride ourselves on effecting equity transactions only on an agency basis
as opposed to on a principal basis, meaning, we act as the agent for our clients
directly in the market. The opposite of an agency trade in the brokerage
industry is considered a principal trade. When performing a transaction on a
principal basis, brokerage firms are permitted to accept a client's order to
purchase, immediately purchase the securities in the market for the firm, and
then sell the securities to the client for a mark-up. Notwithstanding that, we
will not specifically preclude effecting transactions on a principal basis where
a client demands that we do so.
We also provide our clients with direct access to our trading desks which
are online directly with the various stock exchanges and institutional buyers
and sellers via various electronic crossing networks. Our brokers are committed
to using their trading desks to obtain for our clients the fastest execution of
their order at the best possible price at the time the order is given. In
addition, as a result of the technology we use, we can access the most
up-to-date electronic news information and research reports.
Given the trend towards communicating, obtaining information and effecting
transactions through electronic means, we are committed to serving the changing
needs of our clients. As a result, we have a team of well-trained registered
brokers available to assist our clients by telephone, our intranet or the
Internet. Brokers are available 12 hours a day from 7:00 AM to 7:00 PM EST
Monday through Friday.
INTERNET-BASED BROKERAGE SERVICES
Through our Internet site, our clients currently have on-line access to
their account information. This electronic access enables our clients to review
the securities positions in their portfolio, confirm their buying power and
margin balances (if applicable), obtain stock quotes, enter orders for
execution, and review their recent trading activity. In addition to providing
information for their particular account, we also provide our clients, via the
Internet, pertinent market information regarding timely analysts' reports,
relevant earnings reports sorted by those companies that exceeded earnings
expectations and those that fell below expected earnings. We also provide our
clients with information about the overnight markets and the futures markets,
stocks that are trading before the market opens, and major company news through
the Internet.
We intend to use the Internet in various ways to help expand our business.
First, we intend to use the Internet to help our existing brokers serve our
clients better. The Internet will help our brokers disseminate information to
clients simultaneously, thereby allowing our brokers to efficiently serve more
clients. Second, we intend to use the Internet to serve an ever growing number
of investors who want to make 100% of their trading and investment decisions on
their own. Prior to providing this service, based upon express representations
and qualifications of prospective clients, we pre-qualify these prospective
clients to help ensure they are capable of making their own trading and
investing decisions.
We have a strong commitment to technology and are in the process of
upgrading the software and technology that enables our brokers and clients to
more efficiently use the Internet. A portion of the net proceeds of this
offering will be used to complete this upgrade. We anticipate introducing this
improved service to our clients by August, 1999.
19
<PAGE> 23
PROPRIETARY TRADING
We operate a small proprietary trading department separate and distinct
from all customer commission business. This department operates as a profit
center under strict internal controls. Pursuant to an internal policy, the
department maintains inventories of only equity securities on both a long and
short basis, with no one position constituting greater than 40% of our funds
allocated for proprietary trading. We charge the proprietary trading desk
commission rates above our costs, and we pay the department a percentage of the
trading profits generated. We never fill clients' orders from the firm's
inventories. While long inventory positions represent our ownership of
securities, short inventory positions represent obligations to deliver specified
securities at the current market price, which may differ from market prices
prevailing at the time of completion of the transaction. Accordingly, both long
and short inventory positions may result in losses or gains as market values of
securities fluctuate. To reduce the risk of losses, long and short positions are
revalued to the current market price each day and are continuously monitored by
us.
OUR BUSINESS STRATEGY
We believe that we have been successful in creating a new level of service
in the financial services industry by using technology to provide experienced
clients direct access, through brokers, intranets and the Internet, to a trading
desk which goes directly to the source and avoids the middleman to obtain the
best possible execution price. We call this a "Wall Street style trading desk."
Our strategy is designed to ensure that our clients obtain the best possible
execution price and access to relevant market information. We believe that
opportunities exist in the financial services industry for a company that is
able to provide experienced investors with the overall cost-savings created by
(1) direct access to professional trade executions, (2) access to up-to-date
market information, and (3) the convenience of trading over the Internet.
onlinetradinginc.com was founded on the principle philosophy of providing our
brokers and clients the best execution prices along with the most relevant
market information and investment research. We consistently analyze new
technologies and communication mediums, including the Internet, that will enable
our brokers to better serve our clients. We are determined to offer our clients,
regardless of the communication medium used, the simplest, most direct form of
stock execution.
Our goal is to become a leader in the financial services industry and build
market share by capitalizing on the changes occurring in the financial services
industry and providing our clients with specialized services for competitive,
fully disclosed commission rates. We intend to achieve our goal by:
- targeting experienced investors and small to mid-sized financial
institutions who typically (1) execute more trades per year than other
categories of investors, (2) require access to market information, and
(3) require fast execution of their orders;
- providing value to our clients at the lowest overall cost, including
direct access to our trading desk which enables them to realize the best
possible execution price;
- providing our clients with value-added services, including access to
well-trained brokers and up-to-date market information;
- creating technologically innovative solutions to satisfy client needs,
including efficient trading directly over the Internet; and
20
<PAGE> 24
- providing our brokers with the tools to serve the needs of our
experienced clients.
Targeting Experienced Investors. Our clients are typically experienced
investors and small to mid-sized financial institutions, including professional
money managers, hedge fund managers and registered investment advisors. These
active market participants on average execute more trades per year than
traditional retail investors. Experienced investors also demand lower
commissions, real-time access to information and quick order execution in order
to effectuate their trading and investing strategies. We believe that the market
for these clients is currently under-serviced and, as a result, intend to
continue to target this market. We have established specific guidelines and
suitability minimums for un-assisted Internet trading accounts. The requirements
include, $100,000 minimum initial deposit, at least two years of trading or
investing experience, and net worth of at least $300,000. Through a standard
interview and based upon specific representations and qualifications of each
prospective client, we pre-qualify our accounts in an attempt to screen out less
experienced investors. In addition, we typically do not establish active trading
accounts for retirement or pension accounts.
Providing Value to our Clients at the Best Possible Price. Direct access
to our trading desk enables our clients to realize the best possible execution
price. While many discount brokerage firms may charge a significantly lower flat
fee for trades, many of these firms actually realize a gain on these
transactions by either (1) selling the order to another firm that will earn a
spread between the bid and ask price, or (2) charging the client a mark up or
mark down. As a result, the firm is compensated by the difference between what
the firm pays for the stock and what the client ultimately pays for the stock or
receives from the sale of the stock. Thus, any savings the client may have
realized by paying less in commissions are lost when the client eventually pays
more for the stock or sells the stock for less. We do not benefit from either of
these types of activities. We primarily utilize electronic execution systems
that enable money managers, professional traders, large institutions and
investors the ability to trade efficiently. We pass on the savings realized from
the electronic execution systems, which historically have been kept by
professionals and large institutions, directly to our clients.
Providing our Clients with Value-Added Services. In addition to providing
our clients with lower overall costs for effecting trades, we also provide our
clients with some of the products and services provided by full-service firms,
including access to a pool of well-trained brokers and the most current
electronic news information and research reports. Most discount and online
brokerage firms do not have a staff of well-trained brokers readily available to
assist clients if they need investment advice. Our brokers are also available by
telephone in the event of electronic systems failures. We believe our team of
well-trained brokers offers our clients more than just execution services. At
onlinetradinginc.com, we provide our clients and brokers with electronic
research and electronic news from an ever growing database of news vendors to
enable them to make better informed business decisions. As the Internet expands,
research and market news become available 24 hours per day. We have the ability
to trade before and after traditional market hours (7:00 a.m. to 7:00 p.m.) and
provide this service to our clients.
Creating Technologically Innovative Solutions to Satisfy Clients'
Needs. We are actively pursuing additional technologies to service the rapidly
evolving financial services industry. Specifically, we are developing technology
to enable our clients to trade equity securities more efficiently via the
Internet. We are also exploring other solutions to improve our products and
services to satisfy our clients' needs. We believe that a demand exists for a
brokerage firm that can provide experienced traditional retail brokers with the
21
<PAGE> 25
technology to directly execute their own clients' orders. We also believe that
significant demand exists from experienced brokers who want more market
information to better serve clients. We have found that even though clients have
access to more information via the Internet, the majority of clients still
desire the assistance of an experienced broker to help guide their investment
decisions. We intend to enlarge our existing branch offices and expand our
branch office locations to every major metropolitan city across the U.S. and
provide brokers at their own locations with their own "Wall Street style trading
desk".
In addition to the above, we are continually exploring strategic alliances,
acquisitions and other opportunities to provide our clients with the best
possible service and products. We do not currently have any understandings,
commitments, arrangements or agreements with respect to any of those types of
arrangements.
STRATEGIC RELATIONSHIPS
We currently utilize the services of Bear Stearns Securities Corp. (the
"Clearing Firm") for all custody and clearing issues associated with brokerage
transactions. The Clearing Firm is the seventh largest securities firm in the
U.S. We realize the following benefits from our relationship with the Clearing
Firm:
- quality safekeeping and protection on entire net equity (cash and
securities) on all accounts;
- ability to participate in initial public offerings and other investment
banking transactions;
- ability to participate in a large database of no-load mutual funds; and
- professional and prompt handling of institutional and managed accounts.
Our relationship with Instinet Corporation affords us access to information
and enables us to trade directly and anonymously with other brokerage firms,
money managers, professional traders and large financial institutions on behalf
of our clients. As a result of this relationship, we are also able to trade
equities before the market opens at 9:30 a.m. and after the market closes at
4:00 p.m. We pass on these advantages and efficiencies directly to our clients,
thereby affording them many more trading and investment opportunities than they
would have otherwise. Management believes that some of our clients' best
opportunities have come from the ability to take advantage of market moving news
outside of traditional market hours.
We are actively pursuing additional alliances with various companies to
increase trading volume and operational efficiencies and to further enhance name
recognition. In addition, we regularly examine new ways to provide additional
products and services to our clients.
SALES AND MARKETING
As evidence that a demand exists for our services, to date we have
experienced significant revenue growth and positive cash flows, all without a
formal marketing program. However, upon completion of the offering, we will seek
to increase onlinetradinginc.com's brand recognition to attract new brokers and
clients. We are developing a comprehensive marketing plan to attract more
clients, experienced brokers, as well as build market awareness, educate the
investing public and develop brand name recognition and loyalty. We believe that
our unique approach to doing business will create a loyal client base. We intend
to expand our market share through, among other things, direct-response
22
<PAGE> 26
advertising, advertising on our own and other Web sites, a public relations
program, live seminars and television airtime. From time to time, we may choose
to increase spending on advertising to target specific groups of investors or to
decrease advertising expenditures in response to market conditions.
Initially, we intend to focus our marketing efforts on direct-mail or
direct-response advertising of our brokerage services as a less expensive and
more efficient way of building awareness about us, our products and our
services. Print advertisements will be placed in a broad range of business,
technology and financial publications, including, but not limited to The Wall
Street Journal, Barron's, Investor's Business Daily, and Forbes. Online
advertising may be conducted through America Online, CompuServe and popular Web
sites such as: Yahoo!, theStreet.com, Wall Street Journal Interactive and
Barron's Online. We also may advertise on CNBC, CNNFN and other major business
cable television networks.
COMPETITION
The market for discount brokerage services, and particularly electronic
brokerage services, is new, rapidly evolving and intensely competitive and has
few barriers to entry. We expect competition to continue and intensify in the
future. We encounter direct competition from numerous other brokerage firms,
many of which provide electronic brokerage services which we currently do not
provide. These competitors include discount brokerage firms like Charles Schwab
& Co., Inc., Quick & Reilly, Inc. and E*Trade Group, Inc. We also encounter
competition from established full-commission brokerage firms as well as
financial institutions, mutual fund sponsors and other organizations, some of
which provide electronic brokerage services.
We believe that the principal competitive factors affecting the market for
our brokerage services are speed and accuracy of order execution, price and
reliability of trading systems, quality of client service, amount and timeliness
of information provided, ease of use, and innovation. Based on management's
experience and the success we have enjoyed to date, we believe that we presently
compete effectively with respect to each of these factors.
A number of our competitors have significantly greater financial,
technical, marketing and other resources. Some of our competitors also offer a
wider range of services and financial products and have greater name recognition
and more extensive client bases. These competitors may be able to respond more
quickly to new or changing opportunities, technologies, and client requirements,
and may be able to undertake more extensive promotional activities, offer more
attractive terms to clients, and adopt more aggressive pricing policies.
Moreover, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties or may
consolidate to enhance their services and products. We expect that new
competitors or alliances among competitors will emerge and may acquire
significant market share.
There can be no assurance that we will be able to compete effectively with
current or future competitors or that the competitive pressures we face will not
harm our business.
GOVERNMENT REGULATION
BROKER-DEALER REGULATION
The securities industry is subject to extensive regulation under federal
and state law. The SEC is the federal agency responsible for administering the
federal securities laws. In
23
<PAGE> 27
general, broker-dealers are required to register with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). We are a
broker-dealer registered with the SEC. Under the Exchange Act, every registered
broker-dealer that does business with the public is required to be a member of
and is subject to the rules of the NASD. The NASD has established Conduct Rules
for all securities transactions among broker-dealers and private investors,
trading rules for the over-the-counter markets, and operational rules for its
member firms. The NASD conducts examinations of member firms, investigates
possible violations of the federal securities laws and its own rules, and
conducts disciplinary proceedings involving member firms and associated
individuals. The NASD administers qualification testing for all securities
principals and registered representatives for its own account and on behalf of
the state securities authorities.
We are also subject to regulation under state law. We are currently
registered as a broker-dealer in every state and in the District of Columbia
except for Missouri and Hawaii. We have an application pending with the state of
Missouri and expect to be registered there by June 1999. We do not intend to
register in Hawaii. An amendment to the federal securities laws prohibits the
states from imposing substantive requirements on broker-dealers which exceed
those imposed under federal law. The recent amendment, however, does not
preclude the states from imposing registration requirements on broker-dealers
that operate within their jurisdiction or from sanctioning these broker-dealers
for engaging in misconduct.
NET CAPITAL REQUIREMENTS; LIQUIDITY
As a registered broker-dealer and member of the NASD, we are subject to the
Net Capital Rule. The Net Capital Rule, which specifies minimum net capital
requirements for registered brokers-dealers, is designed to measure the general
financial integrity and liquidity of a broker-dealer and requires that at least
a minimum part of its assets be kept in relatively liquid form. In general, net
capital is defined as net worth (assets minus liabilities), plus qualifying
subordinated borrowings and certain discretionary liabilities, and less certain
mandatory deductions that result from excluding assets that are not readily
convertible into cash and from valuing conservatively certain other assets.
Among these deductions are adjustments (called "haircuts"), which reflect the
possibility of a decline in the market value of an asset prior to disposition.
Failure to maintain the required net capital may subject a firm to
suspension or revocation of registration by the SEC and suspension or expulsion
by the NASD and other regulatory bodies and ultimately could require the firm's
liquidation. The Net Capital Rule prohibits payments of dividends, redemption of
stock, the prepayment of subordinated indebtedness and the making of any
unsecured advance or loan to a shareholder, employee or affiliate, if the
payment would reduce the firm's net capital below a certain level.
The Net Capital Rule also provides that the SEC may restrict for up to 20
business days any withdrawal of equity capital, or unsecured loans or advances
to shareholders, employees or affiliates ("capital withdrawal") if the capital
withdrawal, together with all other net capital withdrawals during a 30-day
period, exceeds 30% of excess net capital and the SEC concludes that the capital
withdrawal may be detrimental to the financial integrity of the broker-dealer.
In addition, the Net Capital Rule provides that the total outstanding principal
amount of a broker-dealer's indebtedness under certain subordination agreements,
the proceeds of which are included in its net capital, may not exceed 70% of the
sum of the outstanding principal amount of all subordinated indebtedness
included in
24
<PAGE> 28
net capital, par or stated value of capital stock, paid in capital in excess of
par, retained earnings and other capital accounts for a period in excess of 90
days.
A change in the Net Capital Rule, the imposition of new rules or any
unusually large charge against net capital could limit those of our operations
that require the intensive use of capital, such as the financing of client
account balances, and also could restrict our ability to pay dividends, repay
debt and repurchase shares of our outstanding stock. A significant operating
loss or any unusually large charge against net capital could adversely affect
our ability to expand or even maintain our present levels of business, which
could harm our business.
We are a member of SIPC which provides, in the event of the liquidation of
a broker-dealer, protection for clients' accounts up to $500,000, subject to a
limitation of $100,000 for claims for cash balances. Our clients are carried on
the books and records of the Clearing Firm. The Clearing Firm has obtained
unlimited insurance through Travelers Casualty Company for the benefit of our
clients' accounts that is supplemental to SIPC protection.
ADDITIONAL REGULATION
Due to the increasing popularity and use of the Internet and other online
services, various regulatory authorities are considering laws and/or regulations
with respect to the Internet or other online services covering issues such as
user privacy, pricing, content copyrights, and quality of services. In addition,
the growth and development of the market for online commerce may prompt more
stringent consumer protection laws that may impose additional burdens on those
companies conducting business online. Moreover, the recent increase in the
number of complaints by online traders could lead to more stringent regulations
of online trading firms and their practices by the SEC, NASD and other
regulatory agencies. Furthermore, the applicability to the Internet and other
online services of existing laws in various jurisdictions governing issues such
as property ownership, sales and other taxes and personal privacy is uncertain
and may take years to resolve. Finally, as our services are available over the
Internet in multiple states and foreign countries, and as we have numerous
clients residing in these states and foreign countries, these jurisdictions may
claim that our company is required to qualify to do business as a foreign
corporation in each such state and foreign country. While our company is
currently registered as a broker-dealer in 47 states, we are qualified to do
business as a foreign corporation in only a few states; failure by our company
to qualify as a broker-dealer in other jurisdictions or as an out-of-state or
"foreign" corporation in a jurisdiction where it is required to do so could
subject our company to taxes and penalties for the failure to qualify. Our
business could be harmed by any new legislation or regulation, the application
of laws and regulations from jurisdictions whose laws do not currently apply to
our business or the applications of existing laws and regulations to the
Internet and other online services.
25
<PAGE> 29
EMPLOYEES
We currently have 34 full-time employees, of which 31 are registered
representatives and one of the remaining three has begun the registration
process. The employees are operating from the following branch locations:
Boca Raton, FL
Boston, MA
Osterville, MA (Cape Cod)
Pittsburgh, PA
Troy, MI
Hudson, OH
We have five people in management, 24 in sales, and four people in
administration. No employee is covered by a collective bargaining agreement or
is represented by a labor union. We consider our employee relations to be
excellent. We also have entered into independent contractor arrangements with
other individuals on an as-needed basis to assist with programming and
developing proprietary technologies.
FACILITIES
Our principal executive offices are located in an approximately 6,700
square foot facility in Boca Raton, Florida. This facility is occupied pursuant
to a lease expiring February 28, 2007 at a current annual rent of approximately
$118,000. We also lease approximately 1,200 square feet of office space for our
branch office in Osterville, Massachusetts. This space is occupied pursuant to a
lease expiring on November 30, 2003, at an annual rent of $24,000, with an
option to renew for an additional five-year term period. Additionally, we lease
approximately 1,300 square feet of office space for our branch office in
Pittsburgh, Pennsylvania. This office is occupied pursuant to a lease expiring
in February 2000 at an annual rent of $21,384. Finally, we lease approximately
500 square feet of office space for our branch office in Troy, Michigan pursuant
to a lease expiring in April, 1999 with an option to renew month-to-month for a
period of up to six additional months, at an annual rent of $7,200.
We have branch offices in Boston, Massachusetts, and Hudson, Ohio; however,
we are not a party to any lease agreements. The brokers established in those
offices have entered into the lease agreements and are responsible for the lease
obligations.
Management believes the existence of these branch offices and the manner in
which they are set up will be helpful if the company were to experience systems
failure. If one of our offices were not operational, under certain
circumstances, some of our other offices would continue to service clients
through their facilities. By way of example and not limitation, our phone system
has the ability to re-route calls to different locations in the event the phone
system for one location were to fail.
LEGAL PROCEEDINGS
We are not a party to any material proceedings.
26
<PAGE> 30
MANAGEMENT
The following table sets forth the names, ages and positions held with
respect to each Director and Executive Officer:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Andrew A. Allen.............. 39 Chairman of the Board, Chief Executive
Officer and Director
E. Steven zum Tobel.......... 32 President, Chief Financial Officer, and
Director
Farshid Tafazzoli............ 26 Chief Information Officer and Director
Derek J. Hernquist........... 27 Vice President of Operations, Secretary and
Director
Benedict S. Gambino.......... 41 Director
</TABLE>
ANDREW A. ALLEN. Mr. Allen is our Chairman and co-founder. He co-founded
the company in September 1995. Mr. Allen served as President until January 1999
and is presently serving as Chief Executive Officer. Prior to that, Mr. Allen
was employed by Schonfeld Securities, LLC as a firm trader and trainer of other
proprietary traders from May 1995 through September 1995. From January 1995 to
May 1995, Mr. Allen was employed by Spear, Leeds & Kellogg as a firm trader. Mr.
Allen has over 19 years experience working in various capacities in the
brokerage industry from sales, marketing, trading, operations, and training at
the following firms: Prudential Securities, Oppenheimer & Company, and Schonfeld
Securities, LLC. Mr. Allen was also a member of the Chicago Board of Options
Exchange ("CBOE") from 1985 to 1995. While at the CBOE, Mr. Allen also served on
the Appeals Committee.
E. STEVEN ZUM TOBEL. Mr. zum Tobel joined us as Chief Compliance Officer
and Chief Financial Officer in March 1998. Mr. zum Tobel became President in
March 1999. Mr. zum Tobel has over 10 years experience surrounding the brokerage
industry with areas of expertise in financial reporting, compliance, and
operations. From September 1996 through February 1998, Mr. zum Tobel was
managing partner of zum Tobel & Ling, LLP, an audit and tax practice that
specialized in the brokerage industry. Prior to establishing his own accounting
and consulting practice, Mr. zum Tobel was Vice President of Securities
Consultants International LLC, a national brokerage consulting firm, from
December 1994 through September 1996. Prior to that, from May 1994 through
December 1994, Mr. zum Tobel was a systems consultant with Vilarino Plaza, Inc.
He has a B.A. degree in finance and an MBA with a concentration in finance from
Florida Atlantic University. Mr. zum Tobel is also a certified public
accountant.
FARSHID TAFAZZOLI. Mr. Tafazzoli is our Chief Information Officer and
co-founder. He co-founded the Company in September 1995. In 1993, Mr. Tafazzoli
joined Gulfstream Partners as a systems specialist. Mr. Tafazzoli applied his
systems experience in a trading environment, and accepted an opportunity to join
Spear Leeds & Kellog, the largest specialist firm on the New York Stock
Exchange, beginning in March 1994. Mr. Tafazzoli soon became a registered trader
capitalizing on his systems experience. Mr. Tafazzoli combined his technical
computer systems experience with his trading and investing experience and
co-founded onlinetradinginc.com in September 1995. Mr. Tafazzoli received a B.S.
in Administrative Studies from Nova Southeastern University.
DEREK J. HERNQUIST. Mr. Hernquist joined the firm in January 1997 as the
manager of the trading desk. Mr. Hernquist is presently serving as Vice
President of Operations and Director. Mr. Hernquist began his career at Olde
Discount Brokerage in June 1992 where
27
<PAGE> 31
he remained until December 1995. In January, 1996, Mr. Hernquist established his
own trading and investing partnership and became one of our clients. In January
1997, Mr. Hernquist accepted a position to run our trading desk. Mr. Hernquist
has a BA in finance from the University of Arizona.
BENEDICT S. GAMBINO. Mr. Gambino co-founded the company in September 1995
as a passive shareholder and director. Mr. Gambino was a member on the CBOE from
1981 to 1996. Mr. Gambino has been retired from full-time employment since 1996,
however, since December 1995 Mr. Gambino has been employed by the company as a
registered representative on a part-time basis and receives commissions with
respect to his clients. He also acts as a private investor.
There is no family relationship between any of the officers, key employees
and directors.
Within 90 days of the consummation of this offering, we intend to secure
the services of at least two non-employee directors. We also intend to establish
audit and compensation committees.
Directors hold their offices until the next annual meeting of our
shareholders and until their successors have been duly elected and qualified or
their earlier resignation, removal from office or death. There are currently no
committees of the Board of Directors. Upon consummation of this offering, we
intend to establish audit and compensation committees, each consisting of a
majority of non-employee directors.
Officers serve at the pleasure of the Board of Directors and until the
first meeting of the Board of Directors following the next annual meeting of our
shareholders and until their successors have been chosen and qualified.
DIRECTOR COMPENSATION
We do not currently pay our directors any fees for attending Board
meetings. We anticipate that following this offering we will pay non-employee
directors $500 plus travel reimbursements per Board meeting attended.
LIMITATION ON LIABILITY OF DIRECTORS
As permitted by Florida law, our Articles of Incorporation contain an
article limiting the personal liability of directors. The Articles of
Incorporation provide that each of our directors shall not be personally liable
for monetary damages for a breach of fiduciary duty as director except for
liability (i) for any breach of the director's duty of loyalty, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under the Florida Business Corporation Act, which
prohibits the unlawful payment of dividends or the repurchase or redemption of
stock, or (iv) for any transaction from which the director derived an improper
personal benefit. This article is intended to afford directors additional
protection, and limit their potential liability, from suits alleging a breach of
duty of care by a director.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid by us during the
fiscal year ended January 31, 1999 for our Chief Executive Officer and each
other executive officer whose annual compensation exceeded $100,000 during the
fiscal year ended January 31,
28
<PAGE> 32
1999 (collectively the "Named Executive Officers"). Our directors do not receive
compensation for serving in this capacity.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
---------------------------------------------------
OTHER
COMPENSATION FOR
COMPENSATION FOR THE THE FISCAL YEAR
FISCAL YEAR ENDED ENDED
JANUARY 31, 1999 JANUARY 31,
--------------------- 1999
FISCAL SALARY BONUS ----------------
NAME AND PRINCIPAL POSITION YEAR $ $(1) $
- --------------------------- ------ -------- --------- ----------------
<S> <C> <C> <C> <C>
Andrew Allen....................... 1999 74,000 525,000 0
Chairman and Chief
Executive Officer
Farshid Tafazzoli.................. 1999 72,000 293,100 0
Chief Information Officer
and Director
E. Steven zum Tobel................ 1999 60,000 55,000 26,000(3)
Chief Financial Officer,
President and Director(2)
Derek J. Hernquist................. 1999 60,000 82,000 0
Vice President of Operations,
Secretary and Director
Benedict S. Gambino................ 1999 72,000 300,000 28,000(5)
Director(4)
</TABLE>
- -------------------------
(1) We paid $1,460,000 in management bonuses for Fiscal 1999 and $602,000 for
Fiscal 1998. Pursuant to new employment agreements effective as of February
1, 1999 for the fiscal year ended January 31, 2000, the compensation of
executive shareholder management has been set and limitations have been
placed on the amount of bonuses executive shareholder management may
receive.
(2) Mr. zum Tobel began his employment with the company in March 1998.
(3) Represents the value of shares issued in connection with Mr. zum Tobel's
employment.
(4) Mr. Gambino received his compensation in consideration for his duties as a
non-executive employee, and not as an executive officer or director.
(5) Represents interest paid to the director with respect to an outstanding loan
to us.
EMPLOYMENT AGREEMENTS
We have entered into five-year employment agreements with Messrs. Allen and
Tafazzoli which provide for an annual base compensation of $200,000 and
$200,000, respectively and entered into three-year employment agreements with
Messrs. zum Tobel and Hernquist which provide for an annual base compensation of
$120,000 and $50,000, respectively. These individuals may receive bonuses as the
Board of Directors may in its sole discretion from time to time determine.
Notwithstanding the foregoing, the employment agreements limit the aggregate
amount of bonuses that may be paid to employees to 5% of pre-tax earnings.
Moreover, Messrs. Allen, Tafazzoli, zum Tobel, Hernquist and Gambino have agreed
not to receive any bonuses until such time as the company earns $3,300,000 in
pre-tax earnings in any fiscal year.
The employment agreements provide for employment on a full-time basis and
contain a provision that the employee will not compete or engage in a business
competitive with our current or anticipated business during the term of the
employment agreement and for
29
<PAGE> 33
a period of one year thereafter. A state court may determine not to enforce this
provision or to otherwise limit its enforceability.
Mr. zum Tobel received 400,000 shares of common stock in connection with
his employment. However, a portion of these shares are subject to redemption by
the company at Mr. zum Tobel's cost basis if Mr. zum Tobel resigns from his
employment or is terminated for cause prior to February 28, 2001.
STOCK OPTION PLAN
Under our 1999 Stock Option Plan (the "1999 Plan"), 1,000,000 shares of
common stock are reserved for issuance upon exercise of the options. The 1999
Plan is designed to serve as an incentive for retaining qualified and competent
directors, employees, consultants and independent contractors. Options will be
granted to certain persons in proportion to their contributions to the overall
success of the company as determined by the Board of Directors and our
Compensation Committee in their sole discretion.
Our Board of Directors, or a committee thereof, administers and interprets
the 1999 Plan and is authorized to grant options thereunder to all eligible
employees, including our directors and executive officers (whether current or
former employees), as well as consultants and independent contractors. The 1999
Plan provides for the granting of both "incentive stock options" (as defined in
Section 422 of the Internal Revenue Code of 1986, as amended) and nonstatutory
stock options. Incentive stock options may only be granted, however, to
employees. Options can be granted under the 1999 Plan on the terms and at the
prices determined by the Board, or a committee thereof, except that the per
share exercise price of incentive stock options granted under the 1999 Plan will
not be less than the fair market value of the common stock on the date of grant
and, in the case of an incentive stock option granted to a 10% shareholder, the
per share exercise price will not be less than 110% of the fair market value as
defined in the 1999 Plan. The per share exercise price of nonstatutory stock
options granted under the 1999 Plan will not be less than 85% of the fair market
value of the common stock on the date of grant.
Options under the 1999 Plan that would otherwise qualify as incentive stock
options will not be treated as incentive stock options to the extent that the
aggregate fair market value of the shares covered by the incentive stock options
which are exercisable for the first time by any individual during any calendar
year exceeds $100,000.
Options granted under the 1999 Plan will be exercisable after the period or
periods specified in the option agreement. Incentive stock options granted to
employees will vest in equal installments over a period of five years commencing
on the first anniversary of the date of grant. Options granted under the 1999
Plan are not exercisable after the expiration of ten years from the date of the
grant and are not transferable other than by will or by the laws of descent and
distribution. Adjustments in the number of shares subject to options granted
under the 1999 Plan can be made by the Board of Directors or the appropriate
committee in the event of a stock dividend or recapitalization resulting in a
stock split-up, combination or exchange of shares.
As of the date of this prospectus, we have granted options under the 1999
Plan to purchase 325,000 shares of common stock to certain of our employees,
none of which are executive officers. These options will be exercisable at a
price equal to the initial public offering price per share of the shares of
common stock offered hereby and will expire ten years from the date of grant. In
addition, exercise of the options is contingent on the optionee's continued
employment by us.
30
<PAGE> 34
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of the date of this prospectus, by (1) each person who
owns beneficially more than 5% of our outstanding common stock, (2) each of the
Named Executive Officers, and (3) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
--------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OFFERING OFFERING
- --------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
COMMON STOCK:
Andrew A. Allen........................... 2,725,926(2) 30.7% 24.5%
Farshid Tafazzoli......................... 2,725,926 30.7 24.5
E. Steven zum Tobel....................... 444,444(3) 5.0 4.0
Derek J. Hernquist........................ 266,666 3.0 2.4
Benedict S. Gambino....................... 2,725,926 30.7 24.5
All directors and executive officers as a
group (5 persons)....................... 8,888,888 100.0% 79.9%
PREFERRED STOCK:
Benedict S. Gambino....................... 300 100.0% 100.0%
</TABLE>
- -------------------------
(1) The business address of all directors and executive officers is c/o the
company, 2700 North Military Trail, Suite 200, Boca Raton, Florida 33431.
(2) Includes shares held as custodian for minor children.
(3) Includes shares which may be redeemed by us if Mr. zum Tobel terminates his
employment with us on or before March 1, 2001.
31
<PAGE> 35
CERTAIN TRANSACTIONS
LOANS BY SHAREHOLDERS
In December 1998, Benedict Gambino, one of our directors and shareholders,
renewed a subordinated loan to us in the amount of $400,000. The outstanding
principal balance accrues interest at the rate of 5% per annum and is due and
payable on February 11, 2002.
RIGHT TO REDEEM SHARES OF STEVEN ZUM TOBEL
In February 1998, we issued 400,000 shares of common stock to Steven zum
Tobel as additional consideration for Mr. zum Tobel agreeing to join us.
Pursuant to the terms of Mr. zum Tobel's employment agreement, we may redeem a
portion of these shares at Mr. zum Tobel's cost basis in the event Mr. zum Tobel
resigns from his employment or is terminated with cause, as defined in the
Employment Agreement, on or before February 28, 2001. See
"Management -- Employment Agreements."
APPROVAL OF AFFILIATED TRANSACTIONS
We believe that each of the foregoing transactions were on terms no less
favorable than those which could have been obtained from unaffiliated third
parties. Following completion of this offering, all transactions between us and
our directors, executive officers and principal shareholders will be on terms no
less favorable than could be obtained from unaffiliated third parties and have
been and will be approved by a majority of our independent outside directors,
when elected.
SUBORDINATED LOANS BY MANAGEMENT
As co-underwriters of this offering, we may, if necessary, accept temporary
subordinated loans that will increase our net capital during the days prior to
the consummation of the offering to provide a reserve against the anticipated
increase in securities we will be holding and corresponding decrease in liquid
assets.
32
<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of (1)
100,000,000 shares of common stock, par value $0.01 per share, 11,138,888 shares
of which will be outstanding and (2) 1,000,000 shares of preferred stock, par
value $0.01 per share, 300 of which will be outstanding.
COMMON STOCK
Subject to the rights of the holders of any preferred stock that may be
outstanding and that may have preferential dividend rights, each holder of
common stock on the applicable record date is entitled to receive the dividends
declared by the Board of Directors out of funds legally available therefor, and,
in the event of liquidation, to share pro rata in any distribution of our assets
after payment or providing for the payment of liabilities and the liquidation
preference of any outstanding preferred stock.
Each holder of common stock is entitled to one vote for each share held of
record on the applicable record date on all matters presented to a vote of
shareholders, including the election of directors. Holders of common stock have
no cumulative voting rights or preemptive rights to purchase or subscribe for
any stock or other securities, and there are no conversion rights or redemption
or sinking fund provisions with respect to this stock. All outstanding shares of
common stock are, and the shares of common stock offered hereby will be, when
issued, fully paid and nonassessable.
PREFERRED STOCK
Our Board of Directors has the authority to issue 1,000,000 shares of
preferred stock in one or more series and to fix, by resolution, conditional,
full, limited or no voting powers, and the designations, preferences and
relative, participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions thereof, if any, including the
number of shares in the series (which the Board may increase or decrease as
permitted by Florida law), liquidation preferences, dividend rates, conversion
or exchange rights, redemption provisions of the shares constituting any series
and such other special rights and protective provisions with respect to any
class or series as the Board may deem advisable without any further vote or
action by the shareholders. Any shares of preferred stock so issued could have
priority over the common stock with respect to dividend or liquidation rights or
both and could have voting and other rights of shareholders.
Of the 1,000,000 authorized shares of preferred stock, 300 shares have been
designated Series A Redeemable Preferred Stock (the "Series A Stock") and all of
these shares are issued and outstanding. These shares were issued to Benedict
Gambino, a director, effective December 1997. The holder of the shares of the
Series A Stock has voting rights and is entitled to one vote per share of Series
A Stock. The stated value of each share of Series A Stock is $1,000. The holder
of Series A Stock is not entitled to dividends. The shares of Series A Stock are
not convertible into common stock. The shares of Series A Stock are redeemable
by the company, in whole or in part, at any time and from time to time, from and
after June 1, 1999, at a price of $1,100 per share.
We have no present plans to issue any additional shares of preferred stock.
33
<PAGE> 37
ANTI-TAKEOVER EFFECTS OF OUR ARTICLES OF INCORPORATION AND BYLAWS
GENERAL
Certain provisions of our Articles of Incorporation and Bylaws may be
deemed to have an anti-takeover effect and may delay, defer or prevent a tender
offer or takeover attempt, including attempts that might result in a premium
being paid over the market price for the shares held by shareholders. The
foregoing provisions may not be amended in our Articles of Incorporation or
Bylaws without the affirmative vote of the holders of two-thirds of the
outstanding shares of common stock.
SPECIAL MEETING OF SHAREHOLDERS
Our Articles of Incorporation and Bylaws provide that special meetings of
our shareholders be called only by a majority of the Board of Directors, our
Chief Executive Officer or holders of not less than one-fifth of our outstanding
voting stock.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Our Articles of Incorporation and Bylaws provide that shareholders seeking
to bring business before an annual meeting of shareholders, or to nominate
candidates for election as directors at an annual or special meeting of
shareholders, must provide timely notice thereof in writing. To be timely, a
shareholder's notice must be delivered to or mailed and received at our
principal executive offices not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder, to be timely, must be received no later
than the close of business on the 10th day following the day on which the notice
of the date of the meeting was mailed or the public disclosure was made,
whichever is first. The Bylaws also specify certain requirements as to the
content and form of a shareholder's notice. These provisions may preclude
shareholders from bringing matters before the shareholders at an annual or
special meeting or from making nominations for directors at an annual or special
meeting.
AMENDMENT OF BYLAWS
The Bylaws may only be altered, amended or repealed by the Board or the
affirmative vote of the holders of at least a majority of our outstanding shares
of common stock.
TRANSFER AGENT
The transfer agent for our common stock is American Securities Transfer &
Trust, Inc., Denver, Colorado.
34
<PAGE> 38
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we will have 11,138,888 shares of common
stock outstanding. Of these shares, the 2,250,000 shares of common stock sold in
the offering will be freely tradeable without restriction under the Securities
Act. The remaining 8,888,888 shares of common stock will be "restricted
securities" as defined in Rule 144 and will become eligible for public sale
subject to the restrictions of Rule 144 commencing one year from their issuance.
All of the 8,888,888 restricted shares are currently eligible for sale under
Rule 144 (with the exception of 296,296 of the 444,444 shares owned by Mr.
Steven zum Tobel, our President and Chief Financial Officer, which are subject
to a right of redemption).
In general, under Rule 144, if a period of at least one year has elapsed
since the later of the date the "restricted shares" (as that phrase is defined
in Rule 144) were acquired from us and the date they were acquired from an
"affiliate" of ours, as that term is defined in Rule 144 (an "Affiliate"), then
the holder of the restricted shares (including an Affiliate) is entitled to sell
a number of shares within any three-month period that does not exceed the
greater of 1% of the then outstanding shares of the common stock or the average
weekly reported volume of trading of the common stock on The Nasdaq SmallCap
Market during the four calendar weeks preceding the sale. The holder may only
sell the shares through unsolicited brokers' transactions or directly to market
makers. Sales under Rule 144 are also subject to certain requirements pertaining
to the manner of the sales, notices of the sales and the availability of current
public information concerning us. An Affiliate may sell shares not constituting
restricted shares in accordance with the foregoing volume limitations and other
requirements but without regard to the one-year holding period.
Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from us and the date they
were acquired from an Affiliate, as applicable, a holder of these restricted
shares who is not an Affiliate at the time of the sale and has not been an
Affiliate for at least three months prior to the sale would be entitled to sell
the shares immediately without regard to the volume limitations and other
conditions described above.
Our directors, executive officers and shareholders who own an aggregate of
8,888,888 shares of common stock (representing all of the issued and outstanding
shares prior to this offering) have entered into written agreements not to sell
or otherwise dispose of the shares of common stock beneficially owned by them
for 12 months after the date of this prospectus without the consent of the
Representative.
We can make no predictions as to the effect, if any, that sales of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of significant amounts of the common
stock in the public market, or the perception that these sales may occur, could
adversely affect prevailing market prices.
35
<PAGE> 39
UNDERWRITING
Subject to certain terms and conditions contained in the Underwriting
Agreement among us, Werbel-Roth Securities, Inc., as the representative of the
underwriters (the "Representative"), the underwriters named below have severally
agreed to purchase from us, and we have agreed to sell to the several
underwriters, the number of shares of common stock set forth opposite their
names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
- ------------------- ---------
<S> <C>
Werbel-Roth Securities, Inc................................. 700,000
onlinetradinginc.com corp................................... 600,000
Seaboard Securities, Inc. .................................. 500,000
The Agean Group, Inc. ...................................... 300,000
National Securities Corporation............................. 50,000
Grady and Hatch & Company, Inc. ............................ 50,000
First Colonial Securities Group Inc. ....................... 50,000
---------
Total..................................................... 2,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
underwriters to purchase the common stock are subject to approval of certain
legal matters by counsel and to various other conditions. If any of the shares
of common stock are purchased by the underwriters pursuant to the Underwriting
Agreement, all the shares of common stock (other than shares of common stock
covered by the over-allotment option described below) must be so purchased.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to certain
payments that the underwriters may be required to make in respect thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers or controlling persons, we have been
advised that in the opinion of the SEC the indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
The underwriters propose to offer the shares of common stock directly to
the public at $7.00 per share. The underwriters have advised us that they will
not engage in sales to discretionary accounts without the prior specific written
approval of the customer. The underwriters may allow certain dealers, who are
members of the NASD, concessions, not in excess of $0.30 per share of common
stock of which not in excess of $0.15 per share of common stock may be reallowed
to other dealers who are members of the NASD. The offering prices, reallowances
and concessions will not be changed until after this offering has been
completed.
We have granted a 45-day over-allotment option to the underwriters to
purchase up to 337,500 additional shares of common stock at the offering price
less the underwriting discount. If the underwriters exercise such over-allotment
option, then each of the underwriters will be committed, subject to certain
conditions, to purchase the additional shares in approximately the same
proportion as set forth in the above table. The underwriters may exercise this
option only to cover over-allotments made in connection with the sale of the
shares of common stock offered hereby.
We have agreed to pay the Representative a nonaccountable expense allowance
of 2.56% of the gross proceeds of this offering, of which $40,000 has been paid
as of the date of this prospectus. We have also agreed to pay all expenses in
connection with qualifying
36
<PAGE> 40
the shares of common stock offered hereby for sale under the laws of the states
the Representative designates, including expenses of counsel retained for that
purpose by the Representative.
We have agreed to sell to the Representative and its designees for an
aggregate of $100, warrants (the "Underwriter's Warrants") to purchase up to
225,000 shares of common stock at an exercise price of $11.55 per share (165% of
the public offering price per share). The Underwriter's Warrants may not be
sold, transferred, assigned or hypothecated for one year from the date of this
prospectus, except to the officers and partners of the Representative and
members of the underwriting syndicate and selling group and are exercisable at
any time and from time to time, in whole or in part, during the five-year period
commencing on the date of this prospectus (the "Warrant Exercise Term"). During
the Warrant Exercise Term, the holders of the Underwriter's Warrants are given,
at nominal cost, the opportunity to profit from a rise in the market price of
the common stock. To the extent that the Underwriter's Warrants are exercised,
dilution to the interests of our shareholders will occur. Further, the terms
upon which we will be able to obtain additional equity capital may be adversely
affected since the holders of the Underwriter's Warrants can be expected to
exercise them at a time when we would, in all likelihood, be able to obtain any
needed capital on terms more favorable to us than those provided in the
Underwriter's Warrants. Any profit realized by the Underwriter on the sale of
the Underwriter's Warrants or the underlying shares of common stock may be
deemed additional underwriting compensation. We have agreed, at the request of
the holders of a majority of the Underwriter's Warrants, at our expense, to
register the Underwriter's Warrants and the shares of common stock underlying
the Underwriter's Warrants under the Securities Act on one occasion during the
Warrant Exercise Term and to include the Underwriter's Warrants and the shares
of common stock underlying the Underwriter's Warrants in any appropriate
registration statement which is filed by us during the seven years following the
date of this prospectus.
This offering is being conducted in accordance with Rule 2720 of the NASD.
That rule requires, among other things, that the initial public offering price
can be no higher than that recommended by a "qualified independent underwriter,"
as defined by the NASD, which underwriter has served in that capacity and
performed due diligence investigations and reviewed and participated in the
preparation of the Registration Statement of which this prospectus forms a part.
National Securities Corporation served as the qualified independent underwriter
and will receive $100,000 as compensation for serving in this capacity. In
addition, in connection with its services as an underwriter, the Representative
has agreed to transfer to National Securities Corporation 10,000 of the
Underwriter's Warrants.
Rule 2720 also requires that all proceeds realized as a result of the
public sale of securities by NASD members and their affiliates be accumulated in
an escrow account. Prior to consummation of the offering and disbursement of the
proceeds of the offering, we must provide notice to the NASD along with a
computation of our net capital pursuant to the provisions of the Net Capital
Rule. The proceeds from the securities of the member sold to the public may be
taken into account in connection with such computation.
In compliance with the provisions of Rule 2720, all proceeds received by us
with respect to the sale of the shares will be promptly delivered to the escrow
agent and accumulated by the escrow agent in the manner described above. Prior
to consummation of the offering, we intend to immediately notify the NASD of the
proposed disbursement of proceeds and file such net capital computation. We will
immediately know if our net capital computation meets the prescribed ratios and
percentage amounts necessary for
37
<PAGE> 41
disbursement. If our net capital complies with the Net Capital Rule, the
offering will be consummated and the proceeds of the offering will be delivered
to us. If our net capital does not meet the requirements of the Net Capital
Rule, we will immediately instruct the escrow agent to promptly refund the full
amount paid by subscribers, with interest.
Our directors, executive officers and our shareholders who own an aggregate
of 8,888,888 shares of common stock have entered into written agreements not to
sell or otherwise dispose of any of their common stock, options or warrants now
owned or hereinafter acquired, for a period of 12 months from the date of this
prospectus, without the prior written consent of the Representative.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the common stock has
been determined by negotiations between us and the underwriters and is not
necessarily related to our asset value, net worth or other established criteria
of value. The factors considered in these negotiations, in addition to
prevailing market conditions, included the history of and prospects for the
industry in which we compete, an assessment of our management, our prospects,
our capital structure and certain other factors as were deemed relevant.
In connection with this offering, certain underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the common stock.
These transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which the underwriters or selling
group members may bid for or purchase common stock for the purpose of
stabilizing its market price. We will not act as a market maker for the common
stock.
The underwriters also may create a short position for the account of the
underwriters by selling more common stock in connection with the offering than
they are committed to purchase from us and in that case may purchase common
stock in the open market following completion of the offering to cover all or a
portion of that short position.
The underwriters may also cover all or a portion of that short position, up
to 333,750 shares of common stock, by exercising the over-allotment option. In
addition, the Representative may impose "penalty bids" under contractual
arrangements with the underwriters, whereby it may reclaim from an underwriter
(or dealer participating in the offering) for the account of other underwriters,
the selling concession with respect to common stock that is distributed in any
offering but subsequently purchased for the account of the underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the common stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
Under the securities laws of certain states, the shares may be sold in
those states only through registered or licensed broker-dealers or pursuant to
available exemptions from such requirements. In addition, in certain states the
securities may not be sold unless the securities have been registered or
qualified for sale in that state or an exemption from that requirement is
available and is complied with.
LEGAL MATTERS
Broad and Cassel, a partnership including professional associations, Miami,
Florida will give an opinion regarding the validity of the common stock offered
under this prospectus. Certain legal matters relating to the offering will be
passed upon for the Representative by Dreier & Baritz, LLP, Boca Raton, Florida.
38
<PAGE> 42
EXPERTS
The statements of financial condition of onlinetradinginc.com corp. as of
January 31, 1999 and January 31, 1998 and the related statements of operations,
changes in shareholders' equity and cash flows for the years then ended included
in this prospectus and incorporated by reference in the Registration Statement,
have been audited by Ahearn, Jasco + Company, P.A., independent auditors, as
stated in their report appearing herein and incorporated by reference in the
Registration Statement, and are included and incorporated by reference in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement containing this
prospectus and encompassing any amendments thereto on Form SB-2 pursuant to the
Securities Act with respect to the common stock being offered in this offering.
This prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain portions
of which are omitted as permitted by SEC rules and regulations. Statements made
in this prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete; with respect to any contract,
agreement or other document filed as an exhibit to the Registration Statement,
please refer to the exhibit for a more complete description of the matter
involved, and each statement shall be deemed qualified in its entirety by
reference to the Registration Statement and to the financial statements,
schedules and exhibits filed as a part thereof.
The Registration Statement filed by us with the SEC can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and the Regional
Offices of the SEC located in the Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and at 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of those filings can be obtained from the SEC's
Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates and may also be obtained from the website that
the SEC maintains at http://www.sec.gov. You may also call the SEC at
1-800-SEC-0330 for more information.
As of the date of this prospectus, we will become subject to the reporting
requirements of the Exchange Act and, in accordance therewith, will file
reports, proxy statements and other information with the Commission. These
reports, proxy statements and other information can be inspected and copied at
the public reference facilities of the Commission set forth above, and copies of
these materials can be obtained from the Commission's Public Reference Section
at prescribed rates. We intend to furnish our shareholders with annual reports
containing audited financial statements and any other periodic reports we deem
appropriate or as may be required by law.
39
<PAGE> 43
ONLINETRADINGINC.COM CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-2
FINANCIAL STATEMENTS
Statements of Financial Condition......................... F-3
Statements of Operations.................................. F-4
Statement of Changes in Stockholders' Equity.............. F-5
Statements of Cash Flows.................................. F-6
NOTES TO FINANCIAL STATEMENTS................... F-7 through F-14
</TABLE>
F-1
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
Board of Directors
onlinetradinginc.com corp.
We have audited the accompanying statements of financial condition of
onlinetradinginc.com corp. (the "Company") as of January 31, 1999 and 1998, and
the related statements of operations, changes in stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of onlinetradinginc.com corp.
as of January 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
March 2, 1999, except for Note 9, for
which the date is March 25, 1999
F-2
<PAGE> 45
ONLINETRADINGINC.COM CORP.
STATEMENTS OF FINANCIAL CONDITION
AS OF JANUARY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $1,005,944 $ 218,335
Receivable from clearing organization................... 572,433 300,900
Other receivables....................................... 6,163 --
Securities owned, at market value....................... 381,084 683,335
Deferred tax asset...................................... -- 4,250
Other current assets.................................... 9,420 561
---------- ----------
Total Current Assets.................................. 1,975,044 1,207,381
Property and Equipment, net............................. 136,146 117,174
Other Assets............................................ 43,398 17,730
---------- ----------
$2,154,588 $1,342,285
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities................ $ 948,422 $ 211,110
Income taxes payable.................................... 38,230 --
Securities sold but not yet purchased, at market
value................................................. -- 131,782
---------- ----------
Total Current Liabilities............................. 986,652 342,892
---------- ----------
Deferred Income Taxes................................... 15,400 5,800
---------- ----------
Subordinated Loans...................................... 525,000 500,000
---------- ----------
Stockholder's Equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; issued and outstanding, 300 shares of Series
A, stated value $1,000, voting, redeemable at 110% of
par stated value........................................ 300,000 300,000
Common stock, $0.01 par value; 30,000,000 shares
authorized; issued and outstanding, 8,000,000 in 1999
and 7,600,000 and 1998.................................. 80,000 76,000
Additional paid-in capital.............................. 111,951 89,951
Retained earnings....................................... 135,585 27,642
---------- ----------
Total Stockholder's Equity............................ 627,536 493,593
---------- ----------
$2,154,588 $1,342,285
========== ==========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 46
ONLINETRADINGINC.COM CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
REVENUES:
Commissions............................................. $5,525,427 $3,673,728
Net dealer inventory and investment gains and losses.... 328,495 (187,973)
Interest and dividends.................................. 138,142 62,630
---------- ----------
Total Revenues........................................ 5,992,064 3,548,385
---------- ----------
OPERATING EXPENSES:
Employee compensation and benefits...................... 3,356,688 1,402,102
Clearing and other transaction costs.................... 2,002,055 1,751,472
Occupancy and administration............................ 406,814 324,499
Interest expense........................................ 36,566 71,805
Depreciation............................................ 29,918 20,485
---------- ----------
Total Operating Expenses.............................. 5,832,041 3,570,363
---------- ----------
Income (Loss) Before Income Taxes....................... 160,023 (21,978)
Income Tax (Provision) Benefit.......................... (52,080) 2,550
---------- ----------
Net Income (Loss)....................................... $ 107,943 $ (19,428)
========== ==========
EARNINGS (LOSS) PER SHARE:
Basic................................................... $ 0.0135 $ (0.0026)
========== ==========
Diluted................................................. $ 0.0135 $ (0.0026)
========== ==========
Weighted average common shares outstanding.............. 7,971,510 7,600,000
========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 47
ONLINETRADINGINC.COM CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1999 AND 1998
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK
--------------------- --------------------- ADDITIONAL
SHARES AMOUNT AT SHARES AMOUNT AT PAID-IN RETAINED
ISSUED STATED VALUE ISSUED PAR VALUE CAPITAL EARNINGS TOTALS
------ ------------ --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, February 1,
1997, as restated
[see Note 9(a)]...... 300 $300,000 7,600,000 $76,000 $ 89,951 $ 47,070 $513,021
Net loss for the year
ended January 31,
1998................. -- -- -- -- -- (19,428) (19,428)
--- -------- --------- ------- -------- -------- --------
BALANCES, January 31,
1998................. 300 300,000 7,600,000 76,000 89,951 27,642 493,593
Common stock issued for
services............. -- -- 400,000 4,000 22,000 -- 26,000
Net income for the year
ended January 31,
1999................. -- -- -- -- -- 107,943 107,943
--- -------- --------- ------- -------- -------- --------
BALANCES, January 31,
1999................. 300 $300,000 8,000,000 $80,000 $111,951 $135,585 $627,536
=== ======== ========= ======= ======== ======== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 48
ONLINETRADINGINC.COM CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 107,943 $ (19,428)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:......................
Depreciation........................................... 29,918 20,485
Common stock issued for services....................... 26,000 --
Deferred income taxes.................................. 13,850 (2,550)
Changes in certain assets and liabilities:
Receivable from clearing organization............... (271,533) (172,401)
Other receivables................................... (6,163) --
Securities owned at market value.................... 302,251 84,619
Other current assets................................ (8,859) (561)
Accounts payable and accrued expenses............... 737,312 170,867
Income taxes payable................................ 38,230 (12,504)
Securities sold but not yet purchased, at market
value............................................. (131,782) 23,719
---------- ---------
Net Cash Provided By Operating Activities......... 837,167 92,246
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment....................... (48,891) (83,345)
Net change in other assets............................... (25,667) --
---------- ---------
Net Cash Used In Investing Activities............. (74,558) (83,345)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subordinated loan.............. 25,000 --
---------- ---------
Net Increase In Cash.............................. 787,609 8,901
Cash And Cash Equivalents, Beginning of year............. 218,335 209,434
---------- ---------
Cash And Cash Equivalents, End of year................... $1,005,944 $ 218,335
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for income taxes............... $ -- $ 12,504
========== =========
Cash paid during the year for interest................... $ 35,831 $ 75,936
========== =========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 49
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
onlinetradinginc.com corp. (the "Company") was incorporated in the State of
Florida on September 7, 1995 and operates as a registered securities
broker/dealer under the rules of the National Association of Securities Dealers
("NASD"). The Company is headquartered in Boca Raton, Florida and has branch
offices in Massachusetts, Pennsylvania, Michigan, and Ohio.
The Company manages its customer accounts through Bear Stearns Securities
Corp., (the "clearing firm"), on a fully disclosed basis. The clearing firm
provides services, handles the Company's customers' funds, holds securities, and
remits monthly activity statements to the customers on behalf of the Company.
The amount receivable from brokers and dealers relates to commissions earned by
the Company for trades executed by the other broker/dealer on behalf of the
Company.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
MARKETABLE SECURITIES
Marketable securities are valued at market value and securities not readily
marketable are valued at fair value as determined by the board of directors. The
resulting difference between cost and market (or fair value) is included in
income.
PROPERTY AND EQUIPMENT
Furniture, equipment and leasehold improvements are recorded at cost and
depreciated over the estimated useful lives of those assets using the
straight-line and accelerated methods. Expenditures for routine maintenance and
repairs are charged to expenses as incurred.
SECURITIES TRANSACTIONS
Proprietary securities transactions in regular-way trades are recorded on
the trade date, as if they settled. Profit and loss arising from all securities
and commodities transactions entered into for the account and risk of the
Company are recorded on a trade date basis. Customers' securities transactions
are reported on a settlement date basis with related commission income and
expenses reported on a trade date basis. Results from the use of the settlement
date basis would not be materially different from the trade date basis.
Amounts receivable and payable for securities transactions that have not
reached their contractual settlement date are recorded net on the statement of
financial condition.
F-7
<PAGE> 50
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
COMMISSIONS
Commissions and related clearing expenses are recorded on a trade-date
basis as securities transactions occur.
ADVERTISING
The costs of advertising, promotion, and marketing programs are charged to
operations in the year incurred. Such expense items totaled $30,382 and $29,062,
respectively, for the years ended January 31, 1999 and 1998.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments purchased
with an original maturity of three months or less. The Company occasionally
maintains cash balances in financial institutions in excess of the federally
insured limits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, and accounts payable and accrued expenses are
reflected in the financial statements at cost, which approximates fair value
because of the short-term maturity of those instruments. The fair value of the
Company's subordinated loans payable, as described in Note 7, approximate their
recorded values.
INCOME TAXES
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax liabilities and assets at currently
enacted tax rates for the expected future tax consequences of events that have
been included in the financial statements and tax returns. A valuation allowance
is recognized, if necessary, to reduce the net deferred tax asset to an amount
that is more likely than not to be realized.
NET INCOME PER COMMON SHARE
The Company has adopted SFAS No. 128, "Earnings Per Share," which requires
companies with complex capital structures or common stock equivalents to present
both basic and diluted earnings per share ("EPS") on the face of the income
statement. Basic EPS is calculated as income available to common stockholders
divided by the weighted average number of common shares outstanding during the
period. Diluted EPS is calculated using the "if converted" method for
convertible securities and the treasury stock method for options and warrants as
previously prescribed by Accounting Principles Board Opinion No. 15, "Earnings
Per Share." The adoption of SFAS 128 did not have an impact on the Company's
reported results.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS 130 and 131 are effective for fiscal years beginning
after December 15, 1997. Adoption of these standards had no material impact on
the
F-8
<PAGE> 51
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's results of operations. A statement of comprehensive income is not
presented since the Company had no items of other comprehensive income.
NOTE 2. NET CAPITAL REQUIREMENTS
The Company is subject to the Securities and Exchange Commission uniform
net capital rule (rule 15c3-1), which requires the maintenance of minimal net
capital and requires that the ratio of aggregate indebtedness to net capital,
both as defined, shall not exceed 15 to 1. As of January 31, 1999, the Company
had net capital of $902,078, which was $802,078 in excess of its required net
capital of $100,000.
NOTE 3. PENSION PLAN
During the year ended January 31, 1999, the Company established a "SIMPLE"
retirement plan. Eligible employees may contribute up to $500 per month for
which the Company will match dollar-for-dollar, up to 3% of the employees'
compensation. Contributions by the Company under this plan totaled $46,987 for
the year ended January 31, 1999.
NOTE 4. SECURITIES OWNED AND SECURITIES SOLD BUT NOT YET PURCHASED
Securities owned and securities sold but not yet purchased consist of
marketable trading and investment securities at quoted market values. These
securities consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
SOLD, SOLD,
NOT YET NOT YET
OWNED PURCHASED OWNED PURCHASED
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Corporate stocks........................ $224,428 $ -- $528,788 $131,782
Obligations of U.S. Government.......... 156,656 -- 154,547 --
-------- ----- -------- --------
Total......................... $381,084 $ -- $683,335 $131,782
======== ===== ======== ========
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at January 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Computers and equipment.................................... $145,009 $127,661
Furniture and fixtures..................................... 36,651 19,499
Leasehold improvements..................................... 14,521 --
-------- --------
Total cost............................................... 196,181 147,160
Less: Accumulated depreciation............................. (60,035) (29,986)
-------- --------
Property and equipment, net.............................. $136,146 $117,174
======== ========
</TABLE>
Depreciation expense for the years ended January 31, 1999 and 1998 was
$29,918 and $20,485, respectively.
F-9
<PAGE> 52
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at January 31, 1999 and 1998
consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Accounts payable........................................... $163,074 $119,622
Accrued liabilities:
Research fees............................................ 124,828 --
Payroll, and related expenses............................ 644,148 78,989
Interest payable......................................... 8,734 7,999
Professional fees and other.............................. 7,638 4,500
-------- --------
Total................................................. $948,422 $211,110
======== ========
</TABLE>
NOTE 7. SUBORDINATED LOANS
The borrowings under subordinated agreements as of January 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Subordinated equity loan with a shareholder, unsecured, at
a rate of 7% with a scheduled maturity date of February 12,
1999. Renewed on December 17, 1998, to be effective
February 12, 1999, at a rate of 5%. Scheduled maturity on
February 11, 2002.......................................... $400,000 $400,000
Subordinated loan, unsecured, at a rate of 5% with a
scheduled maturity on February 1, 2000..................... 100,000 100,000
Subordinated loan, unsecured, at a rate of 6% with a
scheduled maturity on August 31, 1999...................... 25,000 --
-------- --------
$525,000 $500,000
======== ========
</TABLE>
By being designated as subordinated, these loans are available in computing
net capital under the SEC's uniform net capital rule. To the extent that the
subordinated loans are required for the Company's continued compliance with
minimum net capital requirements, they may not be repaid.
NOTE 8. INCOME TAXES
A summary of the income tax provision (benefit) for the years ended January
31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Currently payable:
Federal................................................... $29,730 $ --
State..................................................... 8,500 --
Deferred provision (benefit)................................ 13,850 (2,550)
------- -------
Income tax provision (benefit)......................... $52,080 $(2,550)
======= =======
</TABLE>
F-10
<PAGE> 53
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences between the reported amounts in the financial
statements and tax bases of assets and liabilities that give rise to deferred
income tax (assets) liabilities relate to the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Property and equipment, due to differences in
depreciation.............................................. $15,400 $ 5,800
Net operating loss carryovers............................... -- (4,250)
------- -------
Net deferred income tax liability......................... $15,400 $ 1,550
======= =======
</TABLE>
The effective income tax rate varied from the statutory Federal tax rate as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Federal statutory rate (benefit)............................ 34% (34%)
State income taxes, net of federal income tax effect........ 5% (4%)
Other, including permanent differences, non-deductible
expenses and the effect of the rate brackets.............. (6%) 26%
-- ---
Effective income tax rate (benefit)....................... 33% (12%)
== ===
</TABLE>
NOTE 9. STOCKHOLDERS' EQUITY
(A) CAPITAL STOCK
On March 24, 1999, the shareholders and Directors affected an amendment to
the Company's articles of incorporation to change the number of authorized
common shares to 30,000,000 with a par value per share of $0.01 and to change
the number of authorized preferred shares to 1,000,000 with a par value of $0.01
per share. Prior to that date, the Company had 1,000 authorized common shares
with no par value and authorized preferred shares of 300,000 with a par value
per share of $1,000. All of the shares outstanding at that date were converted
into 8,000,000 shares of the new $0.01 par value common stock, and into 300
shares of Series A preferred stock, stated value $1,000 per share. The reported
shares of the Company have been restated to February 1, 1997, as well as other
share and per share amounts, as if a stock split had occurred.
Each holder of the new $0.01 par value common stock is entitled to one vote
for each share held on all matters presented to a vote of shareholders,
including the election of directors. Holders of common stock have no cumulative
voting rights or preemptive rights to purchase or subscribe for any stock or
other securities, and there are no conversion rights or redemption or sinking
fund provisions with respect to this stock.
The Company's Directors have the authority to issue 1,000,000 shares of the
new $0.01 par value preferred stock in one or more series and to fix, by
resolution, conditional, full, limited or no voting powers, and the
designations, preferences and relative, participating, optional or other special
rights, if any, and the qualifications, limitations or restrictions thereof, if
any, including the number of shares in the series (which the Board may increase
or decrease as permitted by Florida law), liquidation preferences, dividend
rates, conversion or exchange rights, redemption provisions of the shares
constituting any series and such other special rights and protective provisions
with respect to any class or series as the Board may deem advisable without any
further vote or action by the
F-11
<PAGE> 54
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
shareholders. Any shares of preferred stock so issued could have priority over
the common stock with respect to dividend or liquidation rights or both and
could have voting and other rights of shareholders. The Board has authorized and
issued a Series A preferred with the following terms: 300 shares with a stated
value of $1,000 per share, one vote per share, and redeemable at 110% of stated
value at the option of the Company.
(B) STOCK OFFERING
On or about March 26, 1999, the Company expects to file an SEC Registration
Statement to register its common shares, and following its being declared
effective, the Company, through its underwriter, proposes to sell its common
stock to the public.
NOTE 10. CONCENTRATIONS AND CREDIT RISKS
MAJOR CUSTOMERS
For the year ended January 31, 1998, one customer accounted for $395,491 of
the Company's gross revenues, while another accounted for $369,086. For fiscal
1999, there were no individual customers that accounted for over 10% of the
Company's revenues.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company will periodically sell securities that it does not currently
own and will therefore be obligated to purchase such securities at a future
date. The Company had recorded these obligations in the financial statements at
January 31, 1998, at market values of the related securities and would have
incurred a loss if the market value of the securities increases subsequent to
January 31, 1998. As of January 31, 1999, the Company was not holding any of
these securities.
The Company's customer securities activities are transacted on either a
cash or margin basis. In margin transactions, the Company extends credit to its
customers, subject to various regulatory and internal margin requirements,
collateralized by cash and securities in the customers' accounts. In connection
with these activities, the Company executes and clears customer transactions
involving the sale of securities not yet purchased, substantially all of which
are transacted on a margin basis subject to individual exchange regulations.
Such transactions may expose the Company to significant off-balance-sheet risk
in the event margin requirements are not sufficient to fully cover losses that
customers may incur. In the event the customer fails to satisfy its obligations,
the Company may be required to purchase or sell financial instruments at
prevailing market prices to fulfill the customer's obligations. The Company
seeks to control the risks associated with its customer activities by requiring
customers to maintain margin collateral in compliance with various regulatory
and internal guidelines. The Company and its clearing firm monitor required
margin levels daily and, pursuant to such guidelines, require the customers to
deposit additional collateral or to reduce positions when necessary.
The Company's customer financing and securities settlement activities
require the Company to pledge customer securities as collateral in support of
various secured financing sources such as bank loans and securities loaned. In
the event the counterparty is unable to meet its contractual obligation to
return customer securities pledged as collateral, the Company may be exposed to
the risk of acquiring the securities at prevailing market prices
F-12
<PAGE> 55
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
in order to satisfy its customers obligations. The Company controls this risk by
monitoring the market value of securities pledged on a daily basis and by
requiring adjustments of collateral levels in the event of excess market
exposure. In addition, the Company establishes credit limits for such activities
and monitors compliance on a daily basis.
CONCENTRATIONS OF CREDIT RISK
The Company is engaged in various trading and brokerage activities in which
counterparties primarily include broker-dealers, banks, and other financial
institutions. In the event counterparties do not fulfill their obligations, the
Company may be exposed to risk. The risk of default depends on the
creditworthiness of the counterparty or issuer of the instrument. It is the
Company's policy to review, as necessary, the credit standing of each
counterparty.
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company is obligated under four non-cancelable operating leases for
office space. Rent expense for the years ended January 31, 1999 and 1998 was as
follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Base rent.................................................. $119,705 $ 89,634
Sublease income............................................ (14,300) (27,846)
-------- --------
Rent expense, net.......................................... $105,405 $ 61,788
======== ========
</TABLE>
Future minimum rental payments required under the leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 31,
- -----------
<S> <C>
2000........................................................ $ 32,443
2001........................................................ 27,248
2002........................................................ 27,926
2003........................................................ 30,855
2004........................................................ 28,490
Thereafter.................................................. 2,989
--------
$149,951
========
</TABLE>
Operating lease commitments have been reduced for rental income from
noncancelable subleases totaling $1,079,255. If the sublessees were to default
on their obligations, the Company would ultimately be responsible for the rental
payments.
NOTE 12. NET INCOME (LOSS) PER COMMON SHARE
For the years ended January 31, 1999 and 1998, basic and diluted weighted
average common shares include only common shares outstanding since there were no
common share equivalents.
F-13
<PAGE> 56
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the number of common shares shown as outstanding in the
financial statements with the number of shares used in the computation of
weighted average common shares outstanding is shown below:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Common shares outstanding at January 31st................. 8,000,000 7,600,000
Effect of weighting....................................... (28,490) --
--------- ---------
Weighted average common shares outstanding................ 7,971,510 7,600,000
========= =========
</TABLE>
The number of shares were restated to reflect the number of shares issued
upon the amendment of the articles of incorporation as if a stock split had
occurred (see Note 9).
F-14
<PAGE> 57
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, THE
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY US OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF OR SINCE THE DATES AS OF
WHICH INFORMATION IS SET FORTH HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER
IN SUCH JURISDICTION.
-------------------------
-------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers effecting transactions in the shares of common stock, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
(ONLINE TRADINGINC.COM LOGO)
2,250,000 SHARES
OF COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
WERBEL-ROTH
SECURITIES, INC.
ONLINETRADINGINC.COM CORP.
SEABOARD SECURITIES, INC.
THE AGEAN GROUP, INC.
FIRST COLONIAL SECURITIES GROUP, INC.
GRADY AND HATCH & CO., INC.
NATIONAL SECURITIES CORPORATION
__________ , 1999
------------------------------------------------------
------------------------------------------------------
<PAGE> 58
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under the Florida Business Corporation Act to
indemnify its directors and officers to the extent provided for in such statute.
The Registrant's Articles of Incorporation and Bylaws provide that the
Registrant may insure, shall indemnify and shall advance expenses on behalf of
its officers and directors to the fullest extent not prohibited by law. The
Registrant is also a party to indemnification agreements with each of its
directors and officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this registration statement (other
than underwriting discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 11,632.88
NASD filing fee............................................. 4,440.41
Nasdaq SmallCap Market listing fee.......................... 10,000.00
Printing and engraving expenses*............................ 60,000.00
Accounting fees and expenses*............................... 40,000.00
Legal fees and expenses*.................................... 100,000.00
Blue Sky fees and expenses*................................. 20,000.00
Qualified independent underwriter fee....................... 100,000.00
Transfer Agent's fees and expenses*......................... 4,500.00
Miscellaneous*.............................................. 14,426.71
-----------
TOTAL..................................................... $365,000.00
===========
</TABLE>
- -------------------------
* Estimated.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq listing fee are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In February 1997, the Registrant issued 240,000 shares of Common Stock to
Derek J. Hernquist as additional consideration for Mr. Hernquist agreeing to
become employed by the Registrant.
In December 1997, the Registrant issued 300,000 shares of Series A
Redeemable Preferred Stock to Benedict Gambino in consideration for $300,000.
In February 1998, the Registrant issued 400,000 shares of Common Stock to
Steven zum Tobel as additional consideration for Mr. zum Tobel agreeing to
become employed by the Registrant. Pursuant to the terms of an agreement between
the Registrant and Mr. zum Tobel, the shares vest over a period of time and the
Registrant may redeem the unvested portion of these shares if Mr. zum Tobel
resigns from his employment or is terminated with cause, as defined in the
Employment Agreement, on or before March 1, 2001.
II-1
<PAGE> 59
In connection with the above-referenced issuances, we relied on Section
4(2) under the Securities Act of 1933, as amended, as transactions by an issuer
not involving any public offering. Each of the above investors had full access
to information relating to us and represented to us that he had the required
investment intent. In addition, the above-referenced securities will bear
appropriate restrictive legends, and stop transfer orders will be placed against
such securities.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement(1)
3.1 Registrant's Amended and Restated Articles of Incorporation,
as amended(2)
3.2 Registrant's Amended and Restated Bylaws(2)
4.1 Form of Representative's Warrant(1)
4.2 Form of Registrant's Common Stock Certificate(2)
4.3 Designations, Preferences, Rights and Limitations for Series
A Redeemable Preferred Stock(2)
5.1 Opinion of Broad and Cassel(2)
10.1 1999 Stock Option Plan*(1)
10.2 Employment Agreement with Farshid Tafazzoli*(1)
10.3 Employment Agreement with Andrew Allen*(1)
10.4 Employment Agreement with E. Steven zum Tobel*(1)
10.5 Employment Agreement with Derek Hernquist*(1)
10.6 Office Lease dated August 13, 1998 between Registrant and
Highwoods/Florida Holdings, L.P.(1)
10.7 Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers*(1)
10.8 Clearing Agreement with Bear Stearns Securities Corp.(1)
23.1 Consent of Broad and Cassel (included in its opinion filed
as Exhibit 5.1)(2)
23.2 Consent of Ahearn, Jasco + Company, P.A.(2)
25.1 Power of Attorney (included on the signature page of this
Registration Statement)
</TABLE>
- -------------------------
* Compensation Plan or Arrangement
(1) Previously filed.
(2) Filed herewith.
II-2
<PAGE> 60
ITEM 28. UNDERTAKINGS
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement:
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense or any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereto duly authorized, in the City
of Boca Raton, State of Florida, on June 10, 1999.
onlinetradinginc.com corp.
By: /s/ ANDREW A. ALLEN
----------------------------------
Andrew A. Allen,
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ANDREW A. ALLEN Chairman, Chief Executive June 10, 1999
- --------------------------------------------------- Officer and Director (Principal
Andrew A. Allen Executive Officer)
/s/ E. STEVEN ZUM TOBEL President, Chief Financial June 10, 1999
- --------------------------------------------------- Officer and Director (Principal
E. Steven zum Tobel Accounting Officer)
/s/ FARSHID TAFAZZOLI Chief Information Officer and June 10, 1999
- --------------------------------------------------- Director
Farshid Tafazzoli
/s/ DEREK J. HERNQUIST Vice President of Operations, June 10, 1999
- --------------------------------------------------- Secretary and Director
Derek J. Hernquist
* Director June 10, 1999
- ---------------------------------------------------
Benedict S. Gambino
*By: /s/ ANDREW A. ALLEN
- --------------------------------------------------
Andrew A. Allen
Attorney in Fact
</TABLE>
II-4
<PAGE> 1
EXHIBIT 1.1
onlinetradinginc.com corp.
2700 North Military Trail, Suite 200
Boca Raton, Florida 33431
FORM OF UNDERWRITING AGREEMENT
_________, 1999
Werbel-Roth Securities, Inc.
150 East Palmetto Park Road, Suite 501
Boca Raton, Florida 33432
Dear Sirs:
The undersigned, onlinetradinginc.com corp., a Florida corporation
(the "Company"), hereby confirms its agreement with Werbel-Roth Securities,
Inc. (being referred to herein as "you" or the "Underwriter"), as follows:
1. INTRODUCTION. The Company proposes to engage you to sell on its
behalf, 2,250,000 shares of Common Stock (the "Shares"). The Shares are
hereinafter referred to as the "Firm Securities." The Company also proposes to
issue and sell to you, pursuant to the terms of the Underwriter's Warrant
Agreement, warrants (the "Underwriter's Warrants") for the purchase of up to an
additional 225,000 Redeemable Warrants to Purchase 225,000 shares of Common
Stock. The Underwriter's Warrants shall be exercisable during the four year
period commencing one year from the date of the Prospectus at an exercise price
of 120% of the Offering Price per Warrant, subject to adjustments in the number
of Shares issuable upon the exercise thereof and in the exercise price of the
Underwriter's Warrants as a result of certain events, including subdivisions
and combinations of the Common Stock. The Shares and the Underwriter's Warrants
are more fully described in the Registration Statement and the Prospectus
referred to below.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Underwriter that:
a. The Company has filed with the Securities and Exchange
Commission (the "SEC") a registration statement and an amendment or amendments
thereto, on Form SB-2 (No. 333-75119), including any related preliminary
prospectus (the "Preliminary Prospectus"), for the registration of the Shares
and the Underwriter's Warrants (the "Common Shares"), under the Securities Act
of 1933, as amended (the "Act"), which registration statement and amendment or
amendments have been prepared by the Company in conformity with the
requirements of the Act, and the rules and regulations (the "Regulations") of
the SEC promulgated under the Act. The Company will promptly file a further
amendment to said registration statement, which has been similarly prepared, in
the form heretofore delivered to you and will not, before the registration
statement becomes effective, file any other amendment thereto to which you
shall have reasonably objected after having been furnished with a copy thereof.
Except as the context may otherwise
<PAGE> 2
require, such registration statement, as amended, on file with the SEC at the
time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein and all information deemed a part thereof
as of such time pursuant to paragraph (b) of Rule 430(A) of the Regulations),
is hereinafter called the "Registration Statement," and the form of prospectus,
in the form first filed with the SEC pursuant to Rule 424(b) of the
Regulations, is hereinafter called the "Prospectus."
b. On the date upon which the Registration Statement is
declared effective by the SEC (the "Effective Date") and all times subsequent
thereto up to the Closing Date (as such term is defined in Section 4.c.
hereof), the Registration Statement and the Prospectus will comply in all
material aspects with the applicable provisions of the Act and the Regulations;
neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. When any Preliminary Prospectus was first filed with
the SEC (whether filed as a part of the Registration Statement for the
registration of the securities or any amendment thereto or pursuant to Rule
424(a) of the Regulations) and when any amendment thereof or supplement thereto
was first filed with the SEC, such Preliminary Prospectus complied or will
comply in all material respects with the applicable provisions of the Act and
the Regulations and did not and will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The representation
and warranty made in this Section 2.b. does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriter by the Underwriter
expressly for use in the Registration Statement or Prospectus or any amendment
thereof or supplement thereto.
c. This Agreement and the Underwriter's Warrant Agreement
have been (or as of the Closing Date will have been) duly and validly
authorized by the Company, and this Agreement constitutes and the Underwriter's
Warrant Agreement, when executed and delivered pursuant to this Agreement, will
(assuming due execution by the Underwriter) constitute a valid and binding
agreement of the Company, enforceable against the Company in accordance with
its respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification provision may
be limited under the federal and state securities laws, and (iii) that the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to the equitable defenses and the discretion of the court
before which any proceeding therefor may be brought. The Shares, the
Underwriter's Warrants and the Shares issuable upon exercise of the
Underwriter's Warrants to be issued and sold by the Company pursuant to this
Agreement, have been duly authorized and, when issued and paid for pursuant to
the terms of the Underwriter's Warrant, will be validly issued, fully paid and
non-assessable; the holders thereof are not and will not be subject to personal
liability by reason of being such holders; the Shares and the Underwriter's
Warrants are not and will not be subject to the preemptive rights of any
holders of any security of
2
<PAGE> 3
the Company or similar contractual right granted by the Company; and all
corporate action required to be taken for the authorization, issuance and sale
of the Shares and the Underwriter's Warrants has been duly and validly taken.
The Underwriter's Warrants constitute valid and binding obligations of the
Company, enforceable in accordance with their terms, to issue and sell, upon
exercise in accordance with the terms thereof, the number and type of the
Company's securities called for thereby; except (i) as such enforceability may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (ii) as enforceability of any indemnification
provision may be limited under the federal and state securities laws, and (iii)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and the discretion of
the court before which any proceeding therefor may be brought.
d. All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
the issuance and sales of all such securities complied in all respects with
applicable federal and state securities laws; the holders thereof have no
rights of rescission with respect thereto, and are not subject to personal
liability by reason of being such holders; and none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company.
e. The Company has good and marketable title to, or valid and
enforceable contractual or leasehold estate in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, free and clear
of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
f. There is no action, suit, proceeding, inquiry,
investigation, litigation or governmental proceeding pending or threatened
against, or involving the properties or business of the Company which might
materially and adversely affect the financial position, or prospects, or
business of the Company, except as referred to in the Prospectus.
g. All contracts and other documents required to be described
in the Registration Statement or the Prospectus fairly present the financial
position and the results of operations of the Company at the dates and for the
periods to which they apply; and such financial statements have been prepared
in conformity with generally accepted accounting principles, consistently
applied throughout the periods involved. There has been no material adverse
change in financial condition or results of operations of the Company or
development involving a prospective change in the condition or prospects of the
Company, financial or otherwise, since the date of the financial statements
included in the Prospectus, except as disclosed therein.
h. Ahearn, Jasco + Company, P.A., whose report is filed with
the SEC as part of the Registration Statement, are independent accountants as
required by the Act and the Regulations, and are qualified in all respects to
provide the services contemplated by this Agreement.
3
<PAGE> 4
i. The Company has no subsidiaries. The Company has been duly
organized and is validly existing as a corporation in good standing under the
laws of its state of incorporation. Except as otherwise set forth in the
Prospectus, the Company does not own, directly or indirectly, an interest in
any corporation, partnership, joint venture, trust or other business entity.
The Company is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which operations require such qualification
or licensing. The Company has all requisite corporate power and authority, and
the Company has all necessary authorizations, approvals, orders, licenses,
certificates and permits of and from all governmental regulatory officials and
bodies (collectively, the "Approvals"), to own or lease its properties and
conduct its business as described in the Prospectus, except where the failure
to have such Approvals would not have a material adverse effect on the Company.
The Company is and has been doing business in compliance with all such material
authorizations, approvals, orders, licenses, certificates and permits and all
federal state and local laws, rules and regulations except where the failure to
do so would not have a material adverse effect on the Company. The Company has
all requisite corporate power and authority to enter into this Agreement and
the Underwriter's Warrant Agreement and to carry out the provisions and
conditions hereof, and all consents, authorizations, approvals and orders
required in connection therewith have been obtained. No consent, authorization
or order of, and no filing with, any court, government agency or other body is
required for the issuance of the Shares and the Underwriter's Warrant
Agreement, pursuant to the Agreement, and as contemplated by the Prospectus,
except with respect to applicable federal and state securities laws.
j. The outstanding debt, the property and the business of the
Company, conform in all material respects to the descriptions thereof contained
in the Registration Statement and Prospectus.
k. The Shares and the Underwriter's Warrants and other
securities issued or to be issued by the Company on or before the Closing Dates
described herein conform, or will conform when issued, in all material
respects, to all statements with respect thereto contained in the Registration
Statement and the Prospectus.
l. No material default exists in the due performance and
observance of any term, covenant or condition of any license, contract,
indenture, mortgage, deed of trust, note, loan or credit agreement, or any
other agreement or instrument evidencing instrument to which the Company, is a
party or by which the Company may be bound or to which any of the property or
assets of the Company, is subject.
m. The Company is not in violation of any term or provision
of its respective Articles of Incorporation or By-laws. Neither the execution
and delivery of this Agreement, nor the issue and sale of the Shares, the
Underwriter's Warrants, nor the consummation of any of the transactions
contemplated herein, nor the compliance by the Company with the terms and
provisions hereof has materially conflicted with or will materially conflict
with, or has resulted in or will result in a material breach of, any of the
terms and provisions of, or has constituted or will constitute a material
default under, or has resulted in or will result in the creation or imposition
of any lien,
4
<PAGE> 5
charge or encumbrance upon the property or assets of the Company, pursuant to
the terms of any indenture, mortgage, deed of trust, note, loan or credit
agreement or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument to which the Company is a
party or by which the Company is or may be bound or to which any of the
property or assets of the Company, is subject; nor will such action result in
any material violation of the provisions of the respective Articles of
Incorporation or the By-laws of the Company or any contract or agreement, or
any statute or any order, rule or regulation applicable to the Company or any
other regulatory authority or other governmental body having jurisdiction over
the Company.
n. All taxes which are due from the Company have been paid in
full, and the Company has no tax deficiency or claim outstanding or assessed
against it.
o. Subsequent to the respective dates as of which information
is given in the most recently circulated Preliminary Prospectus included as a
part of the Registration Statement, and except as may otherwise be indicated or
contemplated herein or therein, the Company has not issued any securities
(except for the issuance of securities described under the caption
"Capitalization") or (ii) declared or paid any dividend or made any other
distribution on or in respect to its capital stock; and the Company has not (i)
incurred any liability or obligation, direct or contingent, for borrowed money;
or (ii) entered into any transaction other than in the ordinary course of
business.
p. The SEC has not issued any order preventing or suspending
the use of any Preliminary Prospectus or part thereof.
q. On the Effective Date, (i) the authorization of capital
stock of the Company is as set forth in Registration Statement, and (ii) not
more than an aggregate of 100,000,000 shares of Common Stock shall be issued
and outstanding (including any and all (A) securities with equivalent rights as
the Common Stock, (B) 2,250,000 shares of Common Stock, or such equivalent
securities, issuable upon exercise of options, warrants and other contract
rights, and (C) securities convertible, directly or indirectly, into shares of
Common Stock or such equivalent securities, and excluding any warrants issuable
to the Underwriter in connection with the public offering of the Shares and any
options which may be outstanding to employees).
r. Except for the registration rights granted under the
Underwriter's Warrant Agreement, no holders of any securities of the Company or
of any options, warrants or convertible of exchangeable securities of the
Company exercisable for or convertible or exchangeable for securities of the
Company have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the
Company.
s. The Company has entered employment agreements with Andrew
S. Allen, Farshid Tafazzoli, E. Steven zum Tobel and Derek Hernquist in the
form filed as Exhibit 10.4 to the Registration Statement, and intends to
procure keyman life insurance policies in the amount of $2,000,000 on the lives
of Andrew S. Allen and Farshid Tafazzoli.
5
<PAGE> 6
t. The Company has filed a Registration Statement with the
SEC pursuant to Section 12(g) of the Exchange Act, and has used its best
efforts to have same declared effective by the SEC on an accelerated basis on
the Effective Date. In addition, the Company has taken all actions necessary to
qualify the Shares for listing on the Nasdaq Stock Market System ("Nasdaq") on
the Effective Date.
u. Except as described in the Prospectus, there are no
claims, payments, issuances, arrangements or understandings for services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder or any other arrangements, agreements, understandings,
commitments, payments or issuances of securities with respect to the Company
that may affect the Underwriters' compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD").
v. Neither the Company nor any of its officers, directors or
partners, nor, to the knowledge of the Company, any of its employees, agents or
any other person acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer, supplier or official or
governmental agency or instrumentality of any government (domestic or foreign)
or person who was, is, or may be in a position to help or hinder the business
of the Company (or assist it in connection with any actual or proposed
transaction) which (i) might subject the Company to any damage or penalty in
any civil, criminal or governmental litigation or proceeding, (ii) if not given
in the past, might have had a materially adverse effect on the assets, business
or operations of the Company as reflected in any of the financial statements
contained in the Prospectus, or (iii) if not continued in the future, might
adversely affect the assets, business, operations or prospects of the Company.
w. The Company owns or possesses the requisite licenses or
rights to use all trademarks, service marks, service names, trade names,
patents and patent applications, copyrights, methods, protocols, techniques,
technologies, procedures and other rights (collectively the "Intangibles")
described as owned or used by the Company in the Registration Statement. There
is no claim, action or proceeding by any person pending or, to the Company's
knowledge, threatened, which pertains to or challenges the rights of the
Company with respect to any Intangibles used in the conduct of the business of
the Company, except as described in the Prospectus. To the Company's knowledge,
the Company's current products, services and processes do not infringe on any
Intangibles held by any third party.
x. Except as set forth in the Registration Statement, the
Company is under no obligation to pay royalties or fees of any kind whatsoever
to any third party with respect to Intangibles it has developed, uses,
employees or intends to use or employ.
y. The Company has generally enjoyed a satisfactory
employer/employee relationship with is respective employees and is in
compliance in all material respects with all federal, state and local laws and
regulations respecting the employment of their respective employees
6
<PAGE> 7
and employment practices, terms and conditions of employment wages and hours
relating thereto. There are no pending or, to the Company's knowledge,
threatened investigations involving the Company by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, threatened against
or involving the Company, or any predecessor entity, and none has occurred. No
representation question exists respecting the employees of the Company. No
collective bargaining agreement or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company.
z. Neither the Company nor, to the Company's knowledge, any
of its employees, directors or shareholders has taken, directly or indirectly,
any action designed to or which has constituted or which might reasonably be
expected to cause or result in, under the Exchange Act or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
aa. Except as described in the Registration Statement and
financial statements included therein, the Company does not maintain or has not
maintained, sponsored or contributed to any program or arrangement that is an
"employee pension benefit plan," and "employee welfare benefit plan" or a
"multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"), except for the Company's 1999 Stock Option
Plan. The Company does not presently maintain or contribute to or at any time
in the past, maintained or contributed to a defined benefit plan, as defined in
Section 3(35) of ERISA. The Company has never completely or partially withdrawn
from a "multi-employer plan."
ab. Except as set forth in the Prospectus under "Certain
Transactions," the Company is not a party to any agreement with any officer,
director or shareholder of the Company, or any affiliate or associate of any
such person or entity which is required to be disclosed in the Prospectus
pursuant to Regulation S-B. Except as set forth in the Prospectus, to the
Company's knowledge, no officer, director or shareholder of the Company or any
"affiliate" or "associate" (as these terms are defined in Rule 405 promulgated
under the Regulations) of any such person or entity or the Company, has or has
had, either directly or indirectly, (i) an interest in any person or entity
which (A) furnishes or sells services or products which are furnished or sold
or are proposed to be furnished or sold by the Company, or (B) purchases from
or sells or furnishes to the Company, any goods or services, or (ii) a
beneficial interest in any contract or agreement to which the Company is a
party or by which it may be bound or affected.
ac. The minute books of the Company have been made available
to Underwriter's counsel and contain a complete summary of all meetings and
actions by unanimous consent of directors and shareholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
7
<PAGE> 8
ad. The number of Shares to be offered to the public pursuant
to the Registration Statement represents at least 20% of the issued and
outstanding shares of the Common Stock after giving effect to the conversion of
all convertible securities and the exercise of all outstanding options and
warrants (excluding the shares reserved for issuance under the Company's Stock
Option Plan, Overallotment Option and the Underwriter's Warrant), and any
securities issued with the Underwriter's prior written consent.
ae. The Company is in the process of reviewing its operations
and any third parties with which the Company has a material relationship to
evaluate the extent to which the business or operations of the Company will be
affected by the Year 2000 Problem. As a result of such review to date, the
Company has no reason to believe, and does not believe, that the Year 2000
Problem will have a material adverse effect or result in any material loss or
interference with the Company's business or operations. The "Year 2000
Problem," as used herein, means any significant risk that computer hardware or
software used in the receipt, transmission, processing, manipulation, storage,
retrieval, retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of dates or
time periods occurring after December 31, 1999, function at least as
effectively as in the case of dates or time periods occurring prior to January
1, 2000.
af. Each officer and director of the Company and each record
owner of shares of Common Stock named in Schedule A hereto has agreed in
writing that such person will not, for a period of one year after the date of
the Prospectus (the "Lock-Up Period"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities")
now owned or hereafter acquired directly by such person or with respect to
which such person has or hereafter acquires the power of disposition, otherwise
than (i) as a bona fide gift or a distribution to limited partners, members or
partners or shareholders of such person, provided that the donees or
distributees thereof (as the case may be) agree in writing to be bound by the
terms of this restriction or (ii) with the prior written consent of the
Underwriter. The foregoing restriction has been expressly agreed to preclude
the holder of the Securities from engaging in any hedging or other transaction
which is designed to or reasonably expected to lead to or result in a
Disposition of Securities during the Lock-Up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited hedging
or other transactions would include any short sale (whether or not against the
box) or any purchase, sale or grant of any right (including any put or call
option) with respect to any Securities or with respect to any security (other
than a broad-based market basket or index) that includes, relates to or derives
any significant part of its value from the Securities. Notwithstanding the
foregoing, this restriction shall not prohibit (i) the sale of Option Shares to
the Underwriters pursuant to this Agreement or (ii) resales of shares of Common
Stock acquired either in the public offering to which the Registration
Statement relates or in subsequent open-market purchases. Furthermore, such
person also has agreed and consented to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the Securities held
by such person except in compliance with this restriction. The Company has
provided to Dreier &
8
<PAGE> 9
Baritz, LLP, counsel for the Underwriter ("Underwriters' Counsel"), a complete
and accurate list of all security holders of the Company and the number and
type of securities held by each security holder. The Company has provided to
Underwriters' Counsel true, accurate and complete copies of all of the
agreements pursuant to which its officers, directors and shareholders have
agreed to such or similar restrictions (the "Lock-Up Agreements") presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other shareholders from any
Lock-Up Agreements currently existing or hereafter effected without the prior
written consent of the Underwriter.
ag. In accordance with the provisions of Section 517.075,
Florida Statutes, the Company represents and warrants that it does not now do
business nor has it ever done business in or with the government of Cuba
3. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER. The Underwriter
represents and warrants to the Company that it is a member of the NASD and
registered as a broker/dealer with the SEC. There are no past, pending or, to
the best of the Underwriter's knowledge, threatened proceedings involving the
NASD, the Commission or any state regulatory authority which would impair the
ability of the Underwriter to conduct the Offering contemplated hereunder.
4. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND UNDERWRITER'S
WARRANTS.
a. On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to the Underwriter 2,250,000 Shares, and the Underwriter
agrees to purchase from the Company such 2,250,000 Shares at a purchase price
of 90% of the public offering price per Share at the time described herein to
be sold by the Underwriter, at an initial purchase price of $7.00 per Share.
b. On the Closing Date, the Company shall issue and sell to
the Underwriter, the Underwriter's Warrants at a total purchase price of $0.001
per warrant, which warrants shall entitle the holders thereof to purchase an
aggregate of up to 225,000 Shares. All of the Underwriter's Warrants shall be
exercisable for a period of four (4) years commencing one year from the date of
the Prospectus at an initial exercise price of 120% of the Offering Price per
Share. The Underwriter's Warrant Agreement and form of Warrant Certificate
shall be substantially in the form filed as Exhibit 4.1 to the Registration
Statement.
c. Payment for the Underwriter's Warrants shall be made on
the Closing Date. Payment for the Firm Securities shall be made on the Closing
Date at the Underwriter's election by certified or bank cashier's check in New
York Clearing House funds, payable to the order of the Company at the offices
of the Underwriter or at such other place as agreed upon by the Underwriter or
at such other place as agreed upon by the Underwriter and the Company by wire
transfer, upon delivery of certificates (in form and substance satisfactory to
the Underwriter) representing the Securities or by confirmation of electronic
transfer of the Securities by or on behalf of the Company
9
<PAGE> 10
to the Underwriter, through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf
of such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to the Underwriter at
least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at
least twenty-four hours prior to the Time of Delivery (as defined below) with
respect thereto at the office of DTC or its designated custodian (the
"Designated Office"). Delivery and payment for the Firm Securities shall be
made at 10:00 a.m. New York time, on or before the fifth business day following
each of the closings or at such other time as shall be agreed upon by the
Underwriter and the Company. The hour and date of delivery and payment for the
Firm Securities are called the "Closing Date." The Firm Securities shall be
registered in such name or names and in such authorized denominations as the
Underwriter may request in writing at lease two (2) full business days prior to
the Closing Date. The Company will permit the Underwriter to examine and
package any certificates representing the Firm Securities for delivery, at
least one (1) full business day prior to the Closing Date.
d. The Company shall not be obligated to sell or deliver Firm
Securities except upon tender of payment by the Underwriter for the Firm
Securities.
5. PUBLIC OFFERING. The Underwriter is to make a public offering of
the Firm Securities, on a firm commitment basis. The Securities are to be
initially offered to the public at the offering price set forth on the cover
page of the Prospectus (such price being hereinafter called the "Public
Offering Price"). The Underwriter may, at its own expense, enter into one or
more agreements as the Underwriter, in its sole discretion, deems advisable,
with one or more broker-dealers who shall act as dealers in connection with
such public offering.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees that it
will:
a. Use its best efforts to cause the Registration Statement
to become effective and will notify the Underwriter immediately and confirm the
notice in writing, (i) when the Registration Statement and any post-effective
amendment thereto becomes effective, (ii) of the issuance by the SEC of any
stop order or of the initiation, or the threatening, of any proceeding for that
purpose, (iii) of the issuance by any state securities commission of any
proceedings for the suspension of the qualification of the Shares, or the
Underwriter's Warrants for offering or sale in any jurisdiction or of the
initiation, or the threatening, of any proceeding for that purpose, and (iv) of
the receipt of any comments from the SEC. If the SEC or any state securities
commission shall enter a stop order or suspend such qualification at anytime,
the Company will make every reasonable effort to obtain promptly the lifting of
such order.
b. File the Prospectus (in form and substance satisfactory to
the Underwriter) or transmit the Prospectus by a means reasonably calculated to
result in filing with the SEC in accordance with Rule 424.
c. During the time when a prospectus is required to be
delivered under the Act,
10
<PAGE> 11
use all reasonable efforts to comply with all requirements imposed upon it by
the Act and the Exchange Act, as now and hereafter amended and by the
Regulations, as from time to time are in force, so far as necessary to permit
the continuance of sales of or dealings in the Shares and the Underwriter's
Securities in accordance with the provisions hereof and the Prospectus. If at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
opinion of counsel for the Company or counsel for the Underwriter the
Prospectus, as then amended or supplemented, includes an untrue statement of a
material fact or omits to state any material fact required to be stated in
light of the circumstances under which they were made, not misleading or if it
is necessary at any time to amend the Prospectus to comply with the Act, the
Company will notify the Underwriter promptly and prepare and file with the SEC
an appropriate amendment or supplement in accordance with Section 10 of the
Act.
d. Deliver to the Underwriter, without charge, such number of
copies of each Preliminary Prospectus and the Prospectus as the Underwriter may
reasonably request and, as soon as the Registration Statement or any amendment
or supplement thereto becomes effective, deliver to the Underwriter two signed
copies of the Registration Statement, including exhibits, and all
post-effective amendments thereto and copies of all exhibits filed therewith or
incorporated therein by reference and signed copies of all consents of
certified experts.
e. Endeavor in good faith, in cooperation with the
Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Shares and the Underwriter's Securities for offering
and sale under the securities' laws of such jurisdictions as the Underwriter
may reasonably designate, provided that no such qualification shall be required
in any jurisdiction where, as a result thereof, the Company would be subject to
service of general process or to taxation as a foreign corporation doing
business in such jurisdiction. In each jurisdiction where such qualification
shall be effected, the Company will, unless the Underwriter agrees that such
action is not at the time necessary or advisable, use all reasonable efforts to
file and make such statements or reports at such times as are or may reasonably
be required by the laws of such jurisdiction.
f. Make generally available to its security holders as soon
as practicable, but not later than the first day of the fifteenth full calendar
month following the Closing Date, an earnings statement (which need not be
certified by independent public or independent certified public accounts unless
required by the Act or the Regulations, but which shall satisfy the provisions
of Section 11(a) of the Act) covering a period of at least twelve consecutive
months beginning after the Effective Date.
g. For a period of five years from the Effective Date,
furnish to the Underwriter copies of such financial statements and other
periodic and special reports as the Company from time to time furnishes
generally to holders of any class of its securities, and promptly furnish to
the Underwriter (i) a copy of each periodic report the Company shall be
required to file with the SEC, (ii) a copy of each press release and every news
item and article with respect to the Company or any Subsidiary or their
respective affairs which was released by the Company, (iii) a copy of each Form
8-K or Schedules 13D, 13G, 14D-1 or 13E-4 received or prepared by the Company,
and (iv) such
11
<PAGE> 12
additional documents and information with respect to the Company or any
Subsidiary and their respective affairs or any future subsidiaries of the
Company as the Underwriter may from time to time reasonably request.
h. Apply the net proceeds from the offering received by it in
a manner consistent with the caption "USE OF PROCEEDS" in the Prospectus.
i. Deliver to the Underwriter, prior to filing, any amendment
or supplement to the Registration Statement or Prospectus proposed to be filed
after the Effective Date and not file any such amendment or supplement to which
the Underwriter shall reasonably object, after being furnished such copy, in
writing with reasonable specificity as to the nature and extent of any
objection.
j. Furnish to the Underwriter as early as practicable prior
to the date hereof and the Closing Date, but not later than two (2) full
business days prior thereto, a copy of the latest available unaudited interim
financial statements of the Company (which in no event shall be as of a date
more than thirty (30) days prior to the Effective Date) which have been read by
the Company's independent accountants as stated in their letter to be furnished
to the Underwriter pursuant to Section 8(g) hereof.
k. For a period of three (3) years from the Closing Date,
provide the Underwriter, upon its request, at the Company's sole expense, with
access to daily consolidated financial transfer sheets and weekly Depository
Trust Company reports, relating to the Common Stock, such Common Stock reports
to be transmitted by facsimile and designate American Securities Transfer &
Trust Company, Inc., as transfer agent for the Company's securities or such
other transfer agent mutually agreeable by the Company and the Underwriter.
l. For a period of three (3) years after the Effective Date,
engage an advisor (the "Advisor") designated in writing by the Underwriter to
the Board of Directors of the Company (the "Board"), if requested by the
Underwriter. In the event the Underwriter shall not have designated such
individual at the time of any meeting of the Board of such person is
unavailable to serve, the Company shall notify the Underwriter of each meeting
of the Board. All individual designated by the Underwriter shall receive all
notices and other correspondence and communications sent by the Company to
members of the Board. In addition, such Advisor shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings,
including, but not limited to food, lodging and transportation. The Company
further agrees that, during said three (3) year period, it shall schedule not
less than four (4) formal and "in person" meetings of its Board of Directors in
each such year at which meetings such Advisor shall be permitted to attend as
set forth herein; said meetings shall be held quarterly each year and thirty
(30) days advance notice of such meetings shall be given to the Advisor.
Further, during such three (3) year period, the Company and its principal
stockholders shall give notice to the Underwriter with respect to any proposed
acquisitions, mergers, reorganizations or other similar transactions.
12
<PAGE> 13
The Company agrees to indemnify and hold the Underwriter and
such Advisor harmless against any and all claims, actions, damages, costs and
expenses, and judgments arising solely out of the attendance and participation
of the Advisor at any such meeting described herein. In the event the Company
maintains a liability insurance policy affording coverage for the acts of its
officers and directors, it agrees, if possible (without any additional premium
or other related cost to the Company) to include the Advisor as an insured
under such policy.
m. Until the sooner of (i) seven (7) years from the date
hereof, or (ii) the sale to the public of the Underwriter's Warrant Shares, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form SB-2 (or other appropriate form) for the registration
under the Act of the Underwriter's Securities.
n. For a period of five (5) years from the date hereof, use
its best efforts to maintain the quotation by Nasdaq of the Common Stock.
o. Supply the Underwriter with one, and Dreier & Baritz,
counsel to the Underwriter, with two (2) bound volumes of the underwriting
materials within a reasonable time after the latest Closing Date.
p. For a period of two years from the Effective Date, not
issue any shares of Common Stock or Preferred Stock or any warrants, options or
other rights to purchase Common Stock or Preferred Stock at a price less than
120% of the initial public offering price without the prior written consent of
the Underwriter; provided, however, that the Company may issue securities upon
the conversion of any securities outstanding on the date hereof pursuant to the
terms thereof and upon the exercise of any warrants or options outstanding on
the date hereof pursuant to the terms thereof.
q. So long as the Shares or Underwriter's Securities are
registered under the Exchange Act, the Company will hold an annual meeting of
shareholders for the election of directors within 180 days after the end of
each of the Company's fiscal years or at such other date as mutually agreed
upon by and between the Underwriter and the Company, and, within 150 days after
the end of each of the Company's fiscal years will provide the Company's
shareholders with the audited financial statements of the Company as of the end
of the fiscal year just completed prior thereto. Such financial statements
shall be those required by Rule 14a-3 under the Exchange Act and shall be
included in an annual report pursuant to the requirements of such Rule.
r. Enter into the Underwriter's Warrant Agreement in
substantially the form filed as Exhibit 4.1 to the Registration Statement.
s. The Company has or shall purchase term keyman insurance on
the lives of Andrew S. Allen and Farshid Tafazzoli in the amount of $2,000,000
naming the Company as the sole beneficiary thereof, as soon as possible after
the Closing Date.
13
<PAGE> 14
t. Take all necessary and appropriate actions to be included
in Standard and Poor's Corporation Descriptions.
7. PAYMENT OF EXPENSES.
a. The Company hereby agrees to pay all reasonable expenses
(other than fees of counsel to the Underwriter, except as provided in (iii)
below) in connection with the offering, including but not limited to, (i) the
preparation, printing, filing and mailing (including the payment of postage
with respect to such mailing) of the Registration Statement and the Prospectus
and the printing and mailing of this Agreement and related documents, including
the cost of all copies thereof and of the Preliminary Prospectus and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriter in quantities of herein above state, (ii) the printing, engraving,
issuance, and delivery of the Shares and the Underwriter's Warrants, including
any transfer or other taxes payable thereon, (iii) the qualification of the
Shares and the Underwriter's Warrants under state or foreign securities or
"Blue Sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum," and "Legal Investments Survey," if any, and fees of
counsel for the Underwriter (which fees shall be payable by the Company in the
sum of up to $25,000) and disbursements of counsel for the Underwriter, (iv)
advertising costs and expenses including but not limited to the costs and
expenses in connection with the "road show", information meetings and
presentations, bound volumes and "tombstones" in publications selected by the
Underwriter and prospectus memorabilia, (v) costs and expenses in connection
with due diligence investigations, including but not limited to the fees of any
independent counsel or consultant retained, and all reasonable travel and
lodging expenses incurred by you and/or counsel to the Underwriter in
connection with visits to, and examination of, the Company's premises, (vi)
fees and expenses of the transfer agent and warrant agent, (vii) applications
for assignments of a rating of the Securities by qualified rating agencies, and
(viii) the fees payable to NASD and Nasdaq. The $25,000 payment to counsel for
the Underwriter shall not include fees of special counsel if same is required
to be incurred in a merit review state which may require local counsel. In this
connection, Blue Sky applications shall be made in such states and
jurisdictions as shall be requested by the Underwriter. Payments with regard to
items (iii), (iv), and (v) shall be made on or before the Closing Date. The
Underwriter shall provide the Company with a written statement itemizing such
expenses. In addition to the foregoing, the Company shall subscribe to Blue Sky
Data, a data and reporting concern, for the purpose of tracking and maintaining
compliance with all applicable Blue Sky laws.
b. The Company additionally agrees to pay to the Underwriter
an aggregate non-accountable expense allowance in addition to the expenses
payable, pursuant to Section 6(a), equal to three (3%) percent of the gross
proceeds received by the Company from the sale of Firm Securities and, on its
part, the Underwriter agrees to deduct from the said three (3%) percent
allowance $40,000 previously paid by the Company to the Underwriter as an
advance against payment due pursuant to the provisions of this Section 6(b). In
the event the Underwriter terminates the offering or is unable to consummate
the offering within one year of the date hereof, the advances toward the
non-accountable expenses shall be non-refundable and deemed fully earned in
connection
14
<PAGE> 15
with its due diligence efforts and all services provided to the date of such
termination.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriter to purchase and pay for the Securities, as provided herein, shall
be subject to the continuing accuracy of the representations and warranties of
the Company as of the date hereof and as of the Closing Date, to the accuracy
of the statements of officers of the Company made pursuant to the provisions
hereof and to the performance by the Company of its obligations hereunder and
to the following conditions:
a. The Registration Statement shall have become effective not
later than 5:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by you, and, at the
Closing Date, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or shall be pending or contemplated by the SEC and any request
on the part of the SEC for additional information shall have been complied with
to the reasonable satisfaction of Underwriter's Counsel.
b. At the Closing Date, the Underwriter shall have received
the favorable opinion of Broad and Cassel, counsel to the Company dated the
Closing Date, addressed to the Underwriter and in form and substance
satisfactory to Underwriter's Counsel, to the effect that:
(1) the Company (A) has been incorporated under the Florida
Business Corporations Act and its status is active, (B) is qualified
and in good standing as a foreign corporation in each jurisdiction in
which, to such counsel's knowledge, its ownership or leasing of any
properties or the character of its operations requires such
qualifications, except where failure to do so would have a material
adverse effect on the Company, and (C ) has all requisite power and
authority to own or lease its properties and conduct its business as
described in the Prospectus;
(2) the Shares, Underwriter's Warrants and the Common Shares
have been duly authorized and are, or in the case of the Underwriter's
Warrants, will be, upon exercise and payment therefor, validly issued,
fully paid and non-assessable securities of the Company, and the
holders thereof are not and will not be subject to personal liability
by reason of being such holders; none of the Shares, Underwriter's
Warrants or the Common Shares (i) are subject to any preemptive or
similar contractual rights of any stockholder of the Company by reason
of the Company's certificate of incorporation, as amended, or any
applicable statute; or (ii) are subject to any preemptive, or, to such
counsel's knowledge, similar contractual rights of any stockholder of
the Company by reason of any agreement to which the Company is a
party; all corporate action required to be taken for the
authorization, issue and sale of such securities has been duly and
validly taken; if issued, the Underwriter's Warrants shall constitute,
valid and binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby; and the certificates
representing the Shares and the
15
<PAGE> 16
Underwriter's Warrant are in due and proper form;
(3) except as described in the Prospectus, to such counsel's
knowledge, the Company does not own an interest in any corporation,
partnership, joint venture, trust or other business entity.
(4) this Agreement and the Underwriter's Warrant Agreement
have each been duly and validly authorized, executed and delivered by
the Company, assuming due execution by the parties thereto other than
the Company, and are valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective
terms, except (A) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (B) as enforceability of any indemnification provision may
be limited under the federal and state securities laws, and C) that
the remedy of specific performance, injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefor may be
brought;
(5) to such counsel's knowledge, there are no contracts or
other documents required to be described in the Prospectus or to be
filed as exhibits to the Registration Statement other than those
described and filed as required, and to such counsel's knowledge,
there are no statutes, rules or regulations or legal governmental
proceedings required to be described in the Prospectus which are not
described as required and no legal or governmental proceedings pending
or threatened which could materially adversely affect the business or
financial conditions of the Company which have not been disclosed in
the Prospectus;
(6) the Registration Statement is effective under the Act,
and to such counsel's knowledge, no proceedings for a stop order are
pending or, to such counsel's knowledge threatened under the Act;
(7) all consents, approvals, authorizations or orders of any
court or governmental agency or body (other than such as may be
required under Blue Sky laws, as to which no opinion need be rendered)
required in connection with the consummation of the transactions
contemplated by this Agreement have been obtained and are in effect;
(8) neither the execution and delivery of this Agreement, the
Underwriter's Warrant Agreement nor the issue and sale of the Shares,
Underwriter's Warrants or the Common Shares, nor the consummation of
the transactions contemplated hereby, nor the compliance by the
Company with the terms and provisions hereof, constitute a default
under, any agreement that the Company is a party to, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to the terms of any
mortgage, deed of trust, note, indenture or loan or credit agreement
or any other agreement or instrument known to such counsel (after due
inquiry) to which the Company is a party or by which the Company may
be bound or which any of the property or assets of
16
<PAGE> 17
the Company is subject; nor will such action result in any violation
of the provisions of the Articles of Incorporation or the By-laws of
the Company, or any statute or any order, rule or regulation
applicable to the Company of any court or of any federal, state or
other regulatory authority or other governmental body having
jurisdiction over the Company;
(9) the Registration Statement, each preliminary Prospectus
and the Prospectus and any post-effective amendments or supplements
thereto (other than the financial statements included therein, as to
which no opinion need be rendered) comply as to form in all material
respects with the requirements of the Act and Regulations. Such
counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company,
representatives of the independent public accounts for the Company and
representatives of the Underwriter at which the contents of the
Registration Statement, the Prospectus and related matters were
discussed and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement and
Prospectus, on the basis of the foregoing, no facts have come to the
attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto at the time such
Registration Statement or amendment became effective or the Prospectus
as of the date of such opinion contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading (it being understood that such counsel need express no
opinion with respect to the financial statements and schedules and
other financial and statistical data included in the Registration
Statement or Prospectus);
(10) the terms and provisions of the Shares, the
Underwriter's Warrants, the Common Shares and all other securities
issued or issuable by the Company conform in all material respects to
the description thereof contained in the Registration Statement and
the Prospectus;
(11) to such counsel's knowledge, the Company is not in
breach of, or in default under, any term or provision of any
indenture, mortgage, deed of trust, lease, note, loan or credit
agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to
which the Company is a party or by which the Company or any of their
respective properties may be bound or affected; the Company is not in
violation of any term or provision of its Articles of Incorporation or
By-laws, and the Company is not in violation of any franchise,
license, permit, judgment, decree, order, statute, rule or regulation,
except as referred to in the Prospectus;
(12) the statements in the Prospectus under "RISK FACTORS",
"BUSINESS", "CERTAIN TRANSACTIONS", "MANAGEMENT" and "DESCRIPTION OF
SECURITIES" have been reviewed by such counsel, and insofar as they
refer to statements of law, descriptions of statutes, licenses, rules
or regulations or legal conclusions are correct in all material
aspects;
17
<PAGE> 18
(13) the authorized and outstanding capital stock of the
Company is as set forth under the caption stock of the Company is as
set forth under the caption "CAPITALIZATION" in the Prospectus; all of
the issued and outstanding capital stock, options and warrants of the
Company have been duly authorized and validly issued and all of the
issued and outstanding shares of capital stock of the Company are
fully paid and non-assessable; and none of such securities or
interests were issued in violation of the preemptive rights or similar
rights of any holder of any security of interest of the Company or of
any applicable federal or state securities law;
(14) to such counsel's knowledge, the Company is conducting
its operations in compliance with applicable federal, state and local
laws, statutes, rules and regulations;
(15) to such counsel's knowledge, the Company has good and
marketable title to, or valid and enforceable leasehold estates in the
item of real and personal property stated in the Prospectus to be
owned or leased by it as lessee, free and clear of all liens,
encumbrances, claims, security interests, defects and restrictions of
any material nature whatsoever, other than those referred to in the
Prospectus and liens for taxes not yet due and payable;
(16) to such counsel's knowledge, there are no claims,
payments, issuances, arrangements or understandings for services in
the nature of a finder's or origination fee with respect to the sale
of the Securities hereunder or financial consulting arrangement or any
other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriter's compensation, as determined by the
NASD;
(17) to such counsel's knowledge, persons listed under the
caption "PRINCIPAL STOCKHOLDERS" in the Prospectus are the respective
"beneficial owners" (as such phrase is defined in Regulation 13d-3
under the Exchange Act) of the shares of Common Stock set forth
opposite their respective names thereunder as and to the extent set
forth herein;
(18) to such counsel's knowledge, other than as set forth in
the Prospectus, no person, corporation, trust, partnership,
association or other entity has the right to include and/or register
any securities of the Company in the Registration Statement therefore;
and
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such option, if at all, upon an
opinion or opinions (in form and substance reasonably satisfactory to
Underwriter's counsel) of other counsel reasonably acceptable to Underwriter's
counsel, familiar with the applicable laws; (B) as to matters of fact, to the
extent they deem proper, on certificates and written statements of responsible
officers of the Company and certificates or other written statements of
officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company, provided
that copies of any such statements or certificates shall be delivered to
Underwriter's counsel if requested. The opinion of such counsel for the Company
shall state that
18
<PAGE> 19
the opinion of any such other counsel is in form satisfactory to such counsel
and, in their opinion, the Underwriter and they are justified in relying
thereon.
c. On or prior to the Closing Date, counsel for the
Underwriter shall have been furnished such documents, certificates and opinions
as they may reasonably require for the purpose of enabling them to review or
pass upon the matters referred to in Section 8(b.), or in order to evidence the
accuracy, completeness or satisfaction of any of the representation, warranties
or conditions herein contained.
d. Prior to the Closing Date, (i) there shall have
been no material adverse change nor development involving a prospective change
in the condition or prospects of the business activities, financial or
otherwise, of the Company from the latest dates as of which such condition is
set forth in the Registration Statement and Prospectus; (ii) there shall have
been no transaction, not in the ordinary course of business, entered into by
the Company from the latest date as of which the financial condition of the
Company is set forth in the Registration Statement and Prospectus which is
materially adverse to the Company; (iii) the Company shall not be in default
under any provision of any instrument relating to any outstanding indebtedness
which default would have a material adverse effect on the Company; (iv) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus;
(v) no action, suit or proceeding, at law or in equity, shall have been pending
or threatened against the Company wherein any unfavorable result or decision
could materially adversely affect any of their respective properties or
business before or by any court or federal or state commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects of financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus; (vi) no stop order shall have been issued under the
Act and no proceedings thereof shall have been initiated or threatened by the
SEC; and (vii) the market for securities in general or for the Company's Shares
in particular, or political, financial or economic conditions shall have
materially changed from those reasonably foreseeable as of the date hereof as
to render it impracticable in the Underwriter's judgment to make a public
offering of the Shares, or there has been a material adverse change in market
levels for securities in general (or those of the Company in particular) or
financial or economic conditions which render it inadvisable in the
Underwriter's judgment to proceed.
e. At the Closing Date, the Underwriter shall have
received a certificate of the Company signed by the Chairman of the Board or
the President and Secretary of the Company, dated the Closing Date to the
effect that the conditions set forth in subsections d. (i) through (vi) above
have been satisfied and that, as of the Closing Date, the representations and
warranties of the Company set forth in Section 2 hereof are true and correct.
f. By the Closing Date, the Underwriter shall have
received clearance from NASD as to the amount of compensation allowable or
payable to the Underwriter, as described in the Registration Statement.
19
<PAGE> 20
g. At the time this Agreement is executed, and at
the Closing Date, the Underwriter shall have received a letter, addressed to
the Underwriter and in form and substance satisfactory in all respects
(including the non-material nature of the changes or decreases, if any,
referred to in clause (iii) below) to the Underwriter and to Dreier & Baritz,
counsel for the Underwriter, from Ahearn, Jasco + Company, P.A. dated,
respectively, as of the date of this Agreement and as of the Closing Date.
(1) confirming that they are independent accountants
with respect to the Company within the meaning of the Act and
the applicable Regulations, appropriately qualified to
perform the services contemplated by their engagement;
(2) stating that in their opinion the financial
statements of the Company included in the Registration
Statement and Prospectus comply as to form in all material
respects with the applicable accounting requirements of the
Act and the published Regulations thereunder;
(3) stating that, on the basis of a reading of the
latest available minutes of the stockholders and board of
directors and the various committees of the board of
directors of the Company, consultations with officers and
other employees of the Company responsible for financial and
accounting matters and other specified procedures and
inquiries, nothing has come to their attention which would
lead them to believe that (A) either the audited financial
statements for the years ended January 31, 1998 and 1999 of
the Company in the Registration Statement do not comply as to
form in all material respects with the applicable accounting
requirements of the Act, and the Regulations or are not
fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial
statements of the Company included in the Registration
Statement, (B) at a date not later than five (5) days prior
to the Effective Date, there was any change in the capital
stock or long-term debt of the Company, or any decrease in
the stockholders' equity of the Company as compared with
amounts shown in the January 31, 1999 balance sheet included
in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was
any decrease, setting forth the amount of such decrease, and
(C) during the period from ____________ to a specified date
not more than five (5) days prior to the Effective Date there
was any decrease in net revenues, increase in net losses or
increases in net losses per common share of the Company, in
each case as compared with the corresponding period beginning
______________ other than as set forth in or contemplated by
the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease;
(4) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus in each
case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general
account records, including worksheets, of the Company and
excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of
specified
20
<PAGE> 21
readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance
with generally accepted auditing standards) set forth in the
letter and found them to be in agreement; and
(5) statements as to such other matters incident to
the transaction contemplated hereby as the Underwriter may
reasonably request.
h. All proceedings taken in connection with the
authorization, issuance or sale of the Shares, the Underwriter's Warrants and
the Common Shares as herein contemplated shall be satisfactory in form and
substance to the Underwriter and to Underwriter's Counsel.
i. On the Closing Date, there shall have been duly
tendered to you for your account the appropriate number of Securities and
individually for your own account the Underwriter's Warrants.
j. No order suspending the sale of the Securities in
any jurisdiction designated by you pursuant to Section 5(d) hereof shall have
been issued on the Closing Date (unless requested by the Underwriter), and no
proceedings for that purpose shall have been instituted or to its knowledge or
that of the Company shall be contemplated.
Any certificate signed by any officer of the Company
and delivered to the Underwriter or to counsel to the Underwriter shall be
deemed a representation and warranty by the Company to the Underwriter as to
the statements made therein. If any condition to the Underwriter's obligations
hereunder to be fulfilled prior to or at the Closing Date is not so fulfilled,
the Underwriter may terminate this Agreement or, if the Underwriter so elects,
may waive any such conditions which have not been fulfilled or extend the time
for their fulfillment.
9. INDEMNIFICATION.
(1) The Company shall indemnify and hold the
Underwriter, and each person, if any, who controls the Underwriter
("Controlling Person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act), harmless against any and all liabilities, claims,
lawsuits, including any and all awards and/or judgments to which it may become
subject under the Act, the Exchange Act or any other federal or state statute,
at common law or otherwise, insofar as said liabilities, claims and lawsuits
(including awards and/or judgments) arise out of or are in connection with the
Registration Statement, Prospectus and related Exhibits filed under the Act. In
addition, the Company shall also indemnify and hold the Underwriter harmless
against any and all costs and expenses, including reasonable counsel fees,
incurred or relating to the foregoing.
The Underwriter shall give the Company prompt notice
of any such liability, claim or lawsuit which the Underwriter contends is the
subject matter of the Company's indemnification, and the Company thereupon
shall be granted the right to take any and all necessary and proper action, at
its sole cost and expense, with respect to such liability, claim and lawsuit,
21
<PAGE> 22
including the right to settle, compromise and dispose of such liability, claim
or lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
The Underwriter shall indemnify and hold the
Company, and each Controlling Person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
harmless against any and all liabilities, claims, lawsuits, including any and
all awards and/or judgments to which it may become subject under the Act, the
Exchange Act or any other federal or state statute, at common law or otherwise,
insofar as said liabilities, claims and lawsuits (including awards and/or
judgments) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact required to be stated or necessary to make
the statement therein, not misleading, which statement or omission was made in
reliance upon information furnished in writing to the Company by or on behalf
of the Underwriter for inclusion in the Registration Statement or Prospectus or
any amendment or supplement thereto. In addition, the Underwriter shall also
indemnify and hold the Company harmless against any and all costs and expenses,
including reasonable counsel fees, incurred or relating to the foregoing.
The Company shall give to the Underwriter prompt
notice of any such liability, claim or lawsuit which the Company contends is
the subject matter of the Underwriter's indemnification and the Underwriter
thereupon shall be granted the right to take any and all necessary and proper
action, at its sole cost and expense, with respect to such liability, claim and
lawsuit, including the right to settle, compromise or dispose of such
liability, claim or lawsuit, excepting therefrom any and all proceedings or
hearings before any regulatory bodies and/or authorities.
In order to provide for just and equitable
contribution under the Act in any case in which (i) any person entitled to
indemnification under this Section 9 makes claim for indemnification pursuant
hereto but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced notwithstanding the fact that this Section 9 provides for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of any such person for which indemnification is provided
under this Section 9, then, and in each such case, the Company and the
Underwriter shall contributed to the aggregate losses, claims, damages or
liabilities to which they may be subject (after any contribution from others)
in such proportion taking into consideration the relative benefits received by
each party from the offering covered by the Prospectus (taking into account the
portion of the proceeds of the offering realized by each), the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was assessed, the opportunity to correct and prevent any
statement or omission and other equitable considerations appropriate under the
circumstances; provided, however, that notwithstanding the above in no event
shall the Underwriter be required to contribute any amount in excess of 10% of
the initial pubic offering price of the Securities; and provided, that, in any
such case, no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
22
<PAGE> 23
Within fifteen (15) days after receipt of any party
to this Agreement (or its representative) of notice of the commencement of any
action, suit or proceeding, such party will, if a claim for contribution in
respect thereof is to be made against another party (the "Contributing Party"),
notify the Contributing Party of the commencement thereof, but the omission so
to notify the Contributing Party will not relive it from any liability which it
may have to any other party other than for contribution hereunder. In case any
such action, suit or proceeding is brought against any party, and such party
notifies a Contributing Party of his or its representatives of the commencement
thereof within the aforesaid fifteen (15) days, the Contributing Party will be
entitled to participate therein with the notifying party and any other
Contributing Party similarly notified. Any such Contributing Party shall not be
liable to any party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution without
the written consent of such Contributing Party. The indemnification provisions
contained in this Section 9 are in addition to any other rights or remedies
which either party hereto may have with respect to the other or hereunder.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the
context otherwise required, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and such representations, warranties and
agreements of the Underwriter and the Company, including the indemnity
agreements contained in Section 9 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any of
the Underwriter, the Company or any controlling person, and shall survive
termination of this Agreement or the issuance and delivery of the Securities to
the Underwriter until the earlier of the expiration of any applicable statue of
limitations and the seventh anniversary of the Closing Date, at which time the
representations, warranties and agreements shall terminate and be of no further
force and effect.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION HEREOF.
(1) This Agreement shall become effective at 9:30
a.m., New York time, on the first full business day following the day on which
the Registration Statement becomes effective or at the time of the initial
pubic offering by the Underwriter of the Securities, whichever is earlier. The
time of the initial public offering, for the purpose of this Section 11, shall
mean the time, after the Registration Statement becomes effective, of the
release by the Underwriter for publication of the first newspaper advertisement
which is subsequently published relating to the Securities or the time, after
the Registration Statement becomes effective, when the Securities are first
released by the Underwriter for offering by the Underwriter or dealers by
letter or telegram, whichever shall first occur. The Underwriter may prevent
this Agreement from becoming effective without liability to any other party,
except as noted below, by giving the notice indicated below in this Section 11
before the time this Agreement becomes effective. The Underwriter agrees to
give the undersigned notice of the commencement of the offering described
herein.
(2) The Underwriter shall have the right to
terminate this Agreement if any of the conditions enumerated in Section 8 are
not fulfilled or waived by the Underwriter on or before any Closing Date.
23
<PAGE> 24
(3) If the Underwriter elects to prevent this
Agreement from becoming effective or to terminate this Agreement as provided in
this Section 11, the Company shall be notified on the same day as such election
is made by the Underwriter by telephone or telegram, confirmed by letter.
(4) In the event this Agreement is terminated prior
to the Effective Date, the $40,000 previously paid to the Underwriter shall be
refunded to the Company, less actual expenses incurred and documented.
Notwithstanding any contrary provision contained in
this agreement, any election hereunder or termination of this Agreement, and
whether or not this Agreement is otherwise carried out, the provisions of
Section 9 shall not be in any way affected.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
Witnesses: onlinetradinginc.com corp.
By:
- --------------------------- ---------------------------
Name:
-------------------------
Title:
- --------------------------- ------------------------
WERBEL-ROTH SECURITIES, INC.
By:
- --------------------------- ---------------------------
Name:
-------------------------
Title:
- --------------------------- ------------------------
24
<PAGE> 25
EXHIBIT "A"
Name and Address of Underwriter No. of Shares
------------------------------- -------------
Werbel-Roth Securities, Inc. 750,000
150 East Palmetto Park Road, Suite 510
Boca Raton, Florida 33432
onlinetradinginc.com corp. 600,000
2700 North Military Trail, Suite 200
Boca Raton, Florida 33431
Seaboard Securities, Inc. 500,000
25B Vreeland Road, Suite 305
Florham Park, New Jersey 07932
The Agean Group, Inc. 300,000
One South Ocean Drive, Suite 300
Boca Raton, Florida 33432
Grady and Hatch & Company, Inc. 50,000
20 Exchange Place, 49th Floor
New York, New York 10005
First Colonial Securities Group, Inc. 50,000
1499 West Palmetto Park Road, Suite 312
Boca Raton, Florida 33486
---------
Total: 2,250,000
=========
25
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
onlinetradinginc.com corp.
The undersigned, E. Steven zum Tobel, President of onlinetradinginc.com
corp., a Florida corporation, organized and existing under and by virtue of the
Florida Business Corporation Act (the "Corporation"), does hereby certify:
1. The name of the Corporation is onlinetradinginc.com corp.
2. The following provision of the Articles of Incorporation of the
Corporation is amended in the following particular:
ARTICLE III is deleted and replaced with the following:
ARTICLE III - CAPITAL STOCK
---------------------------
The aggregate number of shares of all classes of capital stock
which the Company shall have the authority to issue is 100,000,000
shares of common stock, par value $.01 per share (the "Common Stock");
and 1,000,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock").
3. The foregoing Amendment was adopted on May 7, 1999, by unanimous
written consent of the Corporation's Board of Directors pursuant to
Section 607.0821 of the Florida Statutes and was approved by the
shareholders of the Corporation by written consent pursuant to Section
607.0704 of the Florida Statutes. The number of votes cast by the
shareholders for the Amendment was sufficient for approval by the
shareholders.
4. Except as modified hereby, the Articles of Incorporation of the
Corporation shall remain in full force and effect.
THIS DOCUMENT PREPARED BY:
LINDA C. FRAZIER, ESQUIRE
Florida Bar No. 0990035
Broad and Cassel
201 S. Biscayne Boulevard, Suite 3000
Miami, Florida 33131
(305) 373-9400
<PAGE> 2
IN WITNESS WHEREOF, the undersigned President of the Corporation has
executed these Articles of Amendment this ____ day of May, 1999.
onlinetradinginc.com corp., a Florida
corporation
By: /s/ E. Steven zum Tobel
--------------------------------------
E. Steven zum Tobel, President
2
<PAGE> 1
EXHIBIT 4.1
ONLINETRADINGINC.COM CORP.
2700 NORTH MILITARY TRAIL, SUITE 200
BOCA RATON, FLORIDA 33431
FORM OF - REPRESENTATIVES' WARRANT
WARRANT NO. 1
Date of Issuance: As of ______, 1999 Right to Purchase 225,000 Shares
FOR VALUE RECEIVED, ONLINETRADINGINC.COM CORP., a Florida corporation
(the "Company"), promises to issue in the name of, and sell and deliver to,
Werbel-Roth Securities, Inc. (the "Holder") a certificate or certificates for
an aggregate of 225,000 shares (the "Warrant Shares") of the Company's common
stock, $.01 par value per share (the "Common Stock"), upon payment by the
Holder of the exercise price of $8.40 per share for the Warrant Shares (the
"Exercise Price") in lawful funds of the United States of America, with the
Exercise Price being subject to adjustment in the circumstances set forth
hereinbelow. This Warrant expires in its entirety at 5:00 p.m. Eastern Time on
___________, 2004 (the "Expiration Date"). This Representatives' Warrants is
issued as of ____________, 1999 pursuant to the Underwriting Agreement dated as
of __________, 1999 between the Company and Werbel-Roth Securities, Inc. (the
"Representative"), and the several underwriters named in the Underwriting
Agreement (the "Underwriters"). This Warrant may not be sold, transferred,
assigned or hypothecated until ______________, 2000, except that it may be
transferred, in whole or in part, to one or more officers or partners of the
Holder (or the officers or partners of such partner); any other Underwriter or
member of the selling group which participated in the Company's public offering
which commenced on ____________, 1999; a successor to the Holder, or other
officers or partners of such Holder; or by operation of law. The terms and
conditions of the Representatives' Warrants shall be identical in all material
respects except that the number of Warrant Shares to which the Holder is
entitled to purchase may differ.
SECTION 1 - CERTAIN DEFINITIONS:
As used in this Warrant, the following terms have the meanings set
forth below:
"COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Section 4 of this
Warrant.
"DATE OF ISSUANCE" is the date set forth on the front page of this
Warrant, and the terms "date hereof," "date of this Warrant," and similar
expressions shall be deemed to refer to the Date of Issuance, as specified in
Section 10 of this Warrant.
"EFFECTIVE DATE" means the date the Company's Registration Statement
(as defined below) is declared effective by the U.S. Securities and Exchange
Commission (the "Commission").
<PAGE> 2
"EXERCISE PERIOD" means the period of time commencing at 12:01 A.M.,
Eastern Time, on the first anniversary of the Effective Date and ending at 5:00
p.m., Eastern Time, on the fifth anniversary of the Effective Date.
"MARKET PRICE" means, as to any security, the average of the closing
prices of such security's sales on the principal domestic securities exchange
on which such security may at the time be listed, or, if there have been no
sales on any such exchange on any day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of such day, or, if on any
day such security is not so listed, the average of the representative bid and
asked prices listed on the Nasdaq National Market ("Nasdaq") as of the close of
trading in New York City on such day, or, if on any day such security is not
listed on Nasdaq, the average of the high and low bid and asked prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged over a period of 20 consecutive business days consisting of
the business day immediately preceding the day as of which "Market Price" is
being determined and the 19 consecutive business days prior to such day;
PROVIDED that if such security is listed on any domestic securities exchange or
listed on Nasdaq, the term "business day" or "business days" as used in this
sentence means a day or days, as applicable, on which such exchange or Nasdaq
is open for trading or quotation, as the case may be. If at any time such
security is not listed on any domestic securities exchange or quoted on Nasdaq
or the domestic over-the-counter market, the "Market Price" will be the fair
value thereof determined jointly by the Company and the Holders of Warrants
representing at least 50% of the Common Stock purchasable upon the exercise of
all the Warrants then outstanding; PROVIDED that if such parties are unable to
reach agreement, such fair value will be determined by an appraiser jointly
selected by the Company and the Holders of Warrants representing at least 25%
of the Common Stock purchasable upon the exercise of all the Warrants then
outstanding.
"NASDAQ" means the Nasdaq National Market(R) or such other similar
quotation system as may in the future be used generally by members of The
Nasdaq Stock Market, Inc. for transactions in securities.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, a trust, a joint venture, an unincorporated organization, or
a government or any department or agency thereof.
"REGISTRATION STATEMENT" means the Company's Registration Statement on
Form SB-2, File No. 333-75119.
"WARRANTS" mean this Warrant and all other Warrants issued in exchange
or substitution for this Warrant or any such other Warrants issued pursuant to
the terms hereof or thereof, as the case may be.
2
<PAGE> 3
SECTION 2 - EXERCISE OF WARRANT:
2.1 EXERCISE PERIOD. The Holder may exercise this Warrant, in whole or in part
(but not as to a fractional share), at any time and from time to time, during
the Exercise Period.
2.2 EXERCISE PROCEDURE.
a. This Warrant will be deemed to have been exercised at such time as
the Company has received all of the following items (the "Exercise Date"):
(i) a completed Exercise Agreement, in the form set forth as
Exhibit I hereto, executed by the Person exercising all or
part of the purchase rights represented by this Warrant (the
"Purchaser");
(ii) this Warrant (subject to delivery by the Company of a new
Warrant with respect to any unexercised portion, as provided
in Subsection 2.2(b));
(iii) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth
as Exhibit II hereto, evidencing the assignment of this
Warrant to the Purchaser; and
(iv) a cashier's or official bank check or other immediately
available funds payable to the Company in an amount equal to
the sum of the product of the Exercise Price multiplied by
the number of Warrant Shares being purchased upon such
exercise. Notwithstanding anything contained herein to the
contrary, the Exercise Price for the Warrant may be satisfied
by the delivery of an unexercised portion of this Warrant to
the Company or the Transfer Agent for cancellation having a
market value, as determined by the spread as of the date of
surrender equal to the difference between the then Exercise
Price and the market price of the shares of Common Stock
underlying this Warrant, equal to the aggregate Exercise
Price of the portion of this Warrant desired to be then
exercised.
b. Certificates for Warrant Shares purchased upon exercise of this
Warrant will be delivered by the Company to the Purchaser within five calendar
days after the Exercise Date. Unless this Warrant has expired or all of the
purchase rights represented hereby have been exercised, the Company will
prepare a new Warrant representing the rights formerly represented by this
Warrant that have not expired or been exercised. The Company will, within such
five-day period, deliver such new Warrant to the Person designated for delivery
in the Exercise Agreement.
c. The Warrant Shares issuable upon the exercise of this Warrant will
be deemed to have been transferred to the Purchaser on the Exercise Date, and
the Purchaser will be deemed for all purposes to have become the record holder
of such Common Stock on the Exercise Date.
3
<PAGE> 4
d. The issuance of certificates for Warrant Shares upon exercise of
this Warrant will be made without charge to the Holder or the Purchaser for any
issuance tax in respect thereof or any other cost incurred by the Company in
connection with such exercise and the related transfer; provided, however, that
the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any certificate or
instrument in a name other than that of the Holder of this Warrant, and the
Company shall not be required to issue or deliver any such certificate or
instrument unless and until the Person or Persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
e. The Company will not close its books for the transfer of this
Warrant or of any of the Warrant Shares in any manner that interferes with the
timely exercise of this Warrant. The Company will from time to time take all
such action as may be necessary to assure that the par value per share of the
unissued Common Stock acquirable upon exercise of this Warrant is at all times
equal to or less than the Warrant Share Exercise Price then in effect.
2.3 EXERCISE AGREEMENT. The Exercise Agreement will be substantially in the
form set forth as Exhibit I hereto, except that if the Warrant Shares are not
to be issued in the name of the Holder of this Warrant, the Exercise Agreement
will also state the name of the Person to whom the certificates or instrument
for the Warrant Shares are to be issued, and if the number of Warrant Shares
purchasable does not include all of such securities purchasable hereunder, it
will also state the name of the Person to whom a new Warrant for the
unexercised portion of the rights hereunder is to be delivered.
2.4 FRACTIONAL SHARES. If a fractional share of Common Stock would, but for the
provisions of Subsection 2.1, be issuable upon exercise of the rights
represented by this Warrant, the Company will, within 20 days after the
Exercise Date, deliver to the Purchaser a check payable to the Purchaser, in
lieu of such fractional share, in an amount equal to the Market Price of such
fractional share as of the close of business on the Exercise Date.
SECTION 3 - EXERCISE PRICE:
3.1 GENERAL. The Holder of this Warrant shall be entitled to purchase such
numbers of Warrant Shares at the Exercise Price.
3.2 SUBDIVISION OR COMBINATION OF COMMON STOCK AND STOCK DIVIDENDS. If the
Company shall at any time after the date hereof (a) issue any shares of Common
Stock or Convertible Securities, or any rights to purchase Common Stock or
Convertible Securities, as a dividend upon Common Stock, (b) issue any shares
of Common Stock, in subdivision of outstanding shares of Common Stock by
reclassification or otherwise, or (c) combine outstanding shares of Common
Stock, by reclassification or otherwise, then the Exercise Price that would
apply if purchase rights hereunder were being exercised immediately prior to
such action by the Company shall be adjusted by multiplying it by a fraction,
the numerator of which shall be the number of shares of Common
4
<PAGE> 5
Stock Deemed Outstanding immediately prior to such dividend, subdivision, or
combination and the denominator of which shall be the number of shares of
Common Stock Deemed Outstanding immediately after such dividend, subdivision,
or combination.
3.3 CERTAIN DIVIDENDS OR DISTRIBUTIONS. If the Company shall declare a dividend
or distribution upon the Common Stock payable otherwise than out of earnings or
earned surplus and otherwise than in Common Stock, Rights or Convertible
Securities, the Exercise Price that would apply if purchase rights hereunder
were being exercised immediately prior to the declaration of such dividend or
distribution shall be reduced by an amount equal, in the case of a dividend or
distribution in cash, to the amount thereof payable per share of the Common
Stock or, in the case of any other dividend or distribution, to the fair value
of such dividend or distribution per share of the Common Stock as determined in
good faith by the Board of Directors of the Company. For purposes of the
foregoing, a dividend or distribution other than in cash shall be considered
payable out of earnings or earned surplus only to the extent that such earnings
or earned surplus are charged an amount equal to the fair value of such
dividend or distribution as determined in good faith by the Board of Directors
of the Company. Such reductions shall take effect as of the date on which a
record is taken for the purpose of such dividend or distribution or, if a
record is not taken, the date as of which the holders of Common Stock of record
entitled to such dividend or distribution are to be determined.
3.4 NO DE MINIMIS ADJUSTMENTS. No adjustment of the Exercise Price shall be
made if the amount of such adjustment would be less than one cent per share,
but in such case any adjustment that otherwise would be required to be made
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment that, together with any adjustment or adjustments so
carried forward, shall amount to not less than one cent per share.
SECTION 4 - ADJUSTMENT OF NUMBER OF SHARES ISSUABLE UPON EXERCISE:
Upon each adjustment of the Exercise Price pursuant to Section 3, the
Holder of this Warrant shall thereafter (until another such adjustment) be
entitled to purchase (i) at the adjusted Exercise Price in effect on the date
purchase rights for Warrant Shares under this Warrant are exercised, the number
of Warrant Shares, calculated to the nearest whole number, determined by (a)
multiplying the number of Warrant Shares purchasable hereunder immediately
prior to the adjustment of the Exercise Price by the Exercise Price in effect
immediately prior to such adjustment, and (b) dividing the product so obtained
by the adjusted Exercise Price in effect on the date of such exercise. The
provisions of Subsection 2.4 shall apply, however, so that no fractional
Warrant Share shall be issued upon exercise of this Warrant.
SECTION 5 - EFFECT OF REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER,
OR SALE:
If at any time while this Warrant is outstanding there shall be any
reorganization or reclassification of the capital stock of the Company (other
than a subdivision or combination of shares provided for in Subsection 3.3
hereof), any consolidation or merger of the Company with another corporation
(other than a consolidation or merger in which the Company is the surviving
5
<PAGE> 6
entity and which does not result in any change in the Common Stock), or any
sale or other disposition by the Company of all or substantially all of its
assets to any other corporation, then the Holder of this Warrant shall
thereafter upon exercise of this Warrant be entitled to receive the number of
Warrant Shares or other securities or property of the Company, or of the
successor corporation resulting from such consolidation or merger, as the case
may be, to which the Holders of the Warrant Shares (and any other securities
and property) of the Company, deliverable upon the exercise of this Warrant,
would have been entitled upon such reorganization, reclassification of capital
stock, consolidation, merger, sale, or other disposition if this Warrant had
been exercised immediately prior to such reorganization, reclassification of
capital stock, consolidation, merger, sale, or other disposition. In any such
case, appropriate adjustment (as determined in good faith by the Board of
Directors of the Company) shall be made in the application of the provisions
set forth in this Warrant with respect to the rights and interests thereafter
of the Holder of this Warrant to the end that the provisions set forth in this
Warrant (including those relating to adjustments of the Exercise Price and the
number of Warrant Shares issuable upon the exercise of this Warrant) shall
thereafter be applicable, as near as reasonably may be, in relation to any
shares or other property thereafter deliverable upon the exercise hereof as if
this Warrant had been exercised immediately prior to such reorganization,
reclassification of capital stock, consolidation, merger, sale, or other
disposition and the Holder hereof had carried out the terms of the exchange as
provided for by such reorganization, reclassification of capital stock,
consolidation, or merger. The Company shall not effect any such reorganization,
consolidation, or merger unless, upon or prior to the consummation thereof, the
successor corporation shall assume by written instrument the obligation to
deliver to the Holder hereof such shares of stock or other securities, cash, or
property as such Holder shall be entitled to purchase in accordance with the
foregoing provisions. Notwithstanding any other provisions of this Warrant, in
the event of sale or other disposition of all or substantially all of the
assets of the Company as a part of a plan for liquidation of the Company, all
rights to exercise the Warrant shall terminate upon the earlier of the
expiration of the Exercise Period and 60 days after the Company gives written
notice to the Holder of this Warrant that such sale or other disposition has
been consummated.
SECTION 6 - NOTICE OF ADJUSTMENT:
Immediately upon any adjustment of the Exercise Price or increase or
decrease in the number of Warrant Shares, the Company will send written notice
thereof to all Holders, stating the adjusted Exercise Price, and the increased
or decreased number of Warrant Shares and setting forth in reasonable detail
the method of calculation for such adjustment and increase or decrease. When
appropriate, such notice may be given in advance and included as part of any
notice required to be given pursuant to Section 7 below. Notwithstanding
anything herein to the contrary, if any adjustment under this Warrant of the
Exercise Price or the number of shares of Common Stock issuable upon exercise
of this Warrant, shall be determined by NASD Regulation, Inc. (the "NASD") to
violate the Rules of Fair Practice of the NASD, and such determination shall
not be subject to further appeal or review, the violative provisions shall be
deemed to be amended to the minimum extent necessary to cause each such
provision to comply with the applicable violated section of the NASD Rules of
Fair Practice.
6
<PAGE> 7
SECTION 7 - PRIOR NOTICE OF CERTAIN EVENTS:
If at any time:
a. the Company shall pay any dividend payable in stock upon its Common
Stock or make any distribution (other than cash dividends) to the holders of
its Common Stock;
b. the Company shall offer for subscription PRO RATA to the holders of
its Common Stock any additional shares of stock of any class or any other
rights;
c. there shall be any reorganization or reclassification of the
capital stock of the Company, any consolidation or merger of the Company with
another corporation, or a sale or disposition of all or substantially all its
assets; or
d. there shall be a voluntary or involuntary dissolution, liquidation,
or winding up of the Company,
then, in each such case, the Company shall give prior written notice, by hand
delivery or by certified mail, postage prepaid, addressed to the Holder of this
Warrant at the address of such holder as shown on the books of the Company, of
the date on which (i) the books of the Company shall close or a record shall be
taken for such stock dividend, distribution, or subscription rights or (ii)
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding up shall take place, as the case may be. A
copy of each such notice shall be sent simultaneously to each transfer agent of
the Company's Common Stock. Such notice shall also specify the date as of which
the holders of Common Stock of record shall participate in said dividend,
distribution, or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up, as the case may be. Such written notice shall be
given at least 30 days prior to the record date or the effective date,
whichever is earlier, of the subject action or other event.
If any other event (not listed above) would require adjustment to the
Exercise Price, then the Company shall give prior written notice thereof (in
substance as set forth above) to the Holders, at their addresses and in the
manner provided in Subsection 13.3. Notwithstanding the foregoing, the Company
shall not be required to give prior written notice where it is not reasonably
possible.
SECTION 8 - RESERVATION OF COMMON STOCK:
The Company will at all times reserve and keep available such number
of shares of Common Stock as will be sufficient to permit the exercise in full
of all outstanding Warrants. Upon exercise of this Warrant, the Holder will
acquire fully paid and non-assessable ownership rights of the Common Stock,
free and clear of any liens, claims or encumbrances. As long as the Warrants
shall be outstanding, the Company shall use its best efforts to cause all
shares of Common Stock issuable
7
<PAGE> 8
upon the exercise of the Warrants to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock issued to the
public in connection herewith may then be listed and/or quoted on Nasdaq or
Nasdaq SmallCap Market.
SECTION 9 - NO SHAREHOLDER RIGHTS OR OBLIGATION:
This Warrant will not entitle the holder hereof to any voting rights
or other rights as a shareholder of the Company. Until the shares of Common
Stock issuable upon exercise of this Warrant are recorded as issued on the
books and records of the Company's transfer agent, the Holder shall not be
entitled to any voting rights or other rights as a shareholder; provided,
however, the Company uses its best efforts to ensure that, upon receipt of an
Exercise Agreement, the appropriate documentation necessary to effectuate the
exercise of the Warrant and issuance of the Common Stock is accomplished as
expeditiously as possible. No provision of this Warrant, in the absence of
affirmative action by the Holder to purchase Common Stock, and no enumeration
in this Warrant of the rights or privileges of the Holder, will give rise to
any obligation of such Holder for the Exercise Price of the Warrant Shares
acquirable by exercise hereof or as a shareholder of the Company.
SECTION 10 - EXCHANGEABLE FOR DIFFERENT DENOMINATIONS
This Warrant is exchangeable, upon the surrender hereof by the Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants, as set forth on the front page hereof, will represent such
portion of such rights as is designated by the Holder at the time of such
surrender. The date the Company initially issued this Warrant, which is set
forth on the front page hereof, will be deemed to be the "Date of Issuance" of
this Warrant and any purchase warrant exchanged or substituted herefor,
regardless of the number of times (and dates on which) new certificates
representing the unexpired and unexercised rights formerly represented by this
Warrant are issued.
SECTION 11 - TRANSFERABILITY:
Subject to the transfer conditions referred to in Section 2 or in the
remaining provisions or this Section 11, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Holder, upon
surrender of this Warrant with a properly executed Assignment (in the form of
Exhibit II hereto) at the principal office of the Company. This Warrant and the
Warrant Shares may not be offered, sold, or transferred except in compliance
with the Securities Act of 1933, as amended (the "Act"), and any applicable
state securities laws; and then only against receipt of an agreement of the
Person to whom such offer or sale is made to comply with the provisions of this
Section 11 with respect to any resale or other disposition of such securities;
PROVIDED that no such agreement shall be required from any Person purchasing
this Warrant or any Warrant Shares pursuant to a registration statement
effective under the Act. The Holder of this Warrant agrees that, prior to the
disposition of any security purchased on the exercise hereof under
circumstances that might require registration of such security under the Act,
or any similar statute then in effect, the
8
<PAGE> 9
Holder shall give written notice to the Company, expressing his intention as to
such disposition. Promptly upon receiving such notice, the Company shall
present a copy thereof to its securities counsel. If, in the opinion of such
counsel, the proposed disposition does not require registration of such
security under the Act, or any similar statute then in effect, the Company
shall, as promptly as practicable, notify the Holder of such opinion, whereupon
the Holder shall be entitled to dispose of such security in accordance with the
terms of the notice delivered by the Holder to the Company. The above agreement
by the Holder of this Warrant shall not be deemed to limit or restrict in any
respect the exercise of rights set forth in Section 12 hereof.
SECTION 12 - REGISTRATION RIGHTS:
12.1 DEMAND REGISTRATION RIGHT. At any time during the Exercise Period and for
a maximum period of five years following the date of the Prospectus, Holders of
Warrants whose holdings thereof comprise a majority of the Warrant Shares
issuable upon exercise of said Warrants shall have the right to require the
Company (a) to prepare and file with the Commission up to one new registration
statement under the Act (or, in lieu thereof, a post-effective amendment or
amendments to the Registration Statement, if then permitted under the Act),
covering all or any portion of the Warrants and the Warrant Shares and to use
its best efforts to obtain promptly and maintain the effectiveness thereof for
at least nine consecutive months and (b) to register or qualify the subject
Warrants and Warrant Shares for sale in up to ten states identified by such
holders. The Company covenants and agrees to give written notice of any
registration request under this Section 12.1 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Shares within ten days
from the date of the receipt of any such registration request. Notwithstanding
anything to the contrary contained herein, if the Company shall not have filed
a registration statement for the Warrant Shares within the time period
specified in Section 12.3(a) hereof pursuant to the written notice specified in
Section 12.1 of a Majority of the Holders of the Warrants and/or Warrant
Shares, the Company shall have the option, upon the written notice of election
of a Majority of the Holders of the Warrants and/or Warrant Shares, to
repurchase (i) any and all Warrant Shares at the higher of the Market Price per
Share of Common Stock on (x) the date of notice sent pursuant to Section 12.1
or (y) the expiration of the period specified in Section 12.3(a) and (ii) any
and all Warrants at such Market Price less the Exercise Price of such Warrant.
Such repurchase shall be in immediately available funds and shall close within
two days after the later of (i) the expiration of the period specified in
Section 12.3(a) or (ii) the delivery of the written notice of election
specified in this Section 12.1.
12.2 PIGGY BACK REGISTRATION RIGHTS. In addition, if at any time commencing
after the date hereof and expiring seven years after the date hereof, the
Company shall prepare and file one or more registration statements under the
Act (other than pursuant to Form S-8, S-4 or a comparable registration
statement), the Company will include in any such registration statement such
information as is required, and such number of shares of Common Stock held by,
or shares of Common Stock underlying outstanding Warrants held by, the Holders
hereof or their respective designees or transferees as may be requested by
them, to permit a public offering of the Warrant Shares so requested. In the
event of such a proposed registration, the Company shall furnish the then
9
<PAGE> 10
Holders with not less than 30 days' written notice prior to the proposed date
of filing of such registration statement. The Company shall use its best
efforts to ensure that such registration statement is declared effective and
remains effective until such time as all of the shares have been registered or
may be sold without registration under the Act or applicable state securities
laws and regulations, and without limitation as to volume, pursuant to Rule 144
of the Act. The Holders shall be entitled to exercise the rights provided for
in this Section 12.2 by giving written notice to the Company, within 20 days of
receipt of the Company's notice of its intention to file a registration
statement. Notwithstanding the provisions of this Section 12.2, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 12.2 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
12.3 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In connection with
any registration under Section 12.1 or 12.2 hereof, the Company covenants and
agrees as follows:
a. The Company shall use its best efforts to file a registration
statement within 30 days of receipt of any demand therefor, shall use its best
efforts to have any registration statement declared effective at the earliest
possible time, and shall furnish each Holder desiring to sell the Warrants or
Warrant Shares such number of prospectuses as shall reasonably be requested.
b. The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 12.1 and 12.2 hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If
the Company shall fail to comply with the provisions of Section 12.1, the
Company shall, in addition to any other equitable or other relief available to
the Holder(s), be liable for any or all incidental or special damages sustained
by the Holder(s) requesting registration of their Warrants or Warrant Shares,
excluding consequential damages.
c. The Company will take all necessary action which may be required in
qualifying or registering the Warrants or Warrant Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
d. The Company shall indemnify the Holder(s) of the Warrants or
Warrant Shares to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising
10
<PAGE> 11
from such registration statement but only to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to indemnify
the Underwriters contained in Section 8 of the Underwriting Agreement. The
Company further agree(s) that upon demand by an indemnified person, at any time
or from time to time, it will promptly reimburse such indemnified person for
any loss, claim, damage, liability, cost or expense actually and reasonably
paid by the indemnified person as to which the Company has indemnified such
person pursuant hereto. Notwithstanding the foregoing provisions of this
Section 12.3 any such payment or reimbursement by the Company of fees, expenses
or disbursements incurred by an indemnified person in any proceeding in which a
final judgment by a court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against the Company or such
indemnified person as a direct result of the Holder(s) or such person's gross
negligence or willful misfeasance will be promptly repaid to the Company.
e. The Holder(s) of the Warants and Warrant Shares to be sold pursuant
to a registration statement, and their successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 8 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company. The Holder(s) further agree(s) that upon demand by an
indemnified person, at any time or from time to time, they will promptly
reimburse such indemnified person for any loss, claim, damage, liability, cost
or expense actually and reasonably paid by the indemnified person as to which
the Holder(s) have indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this Section12.3 any such payment or reimbursement by
the Holder(s) of fees, expenses or disbursements incurred by an indemnified
person in any proceeding in which a final judgment by a court of competent
jurisdiction (after all appeals or the expiration of time to appeal) is entered
against the Company or such indemnified person as a direct result of the
Company or such person's gross negligence or willful misfeasance will be
promptly repaid to the Holder(s).
f. Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
g. The Company shall not permit the inclusion of any securities other
than the Warrant Shares to be included in any registration statement filed
pursuant to Section 12.1 hereof, without the prior written consent of the
Holders of the Warrants and Warrant Shares representing a Majority of such
securities (assuming the exercise of all of the Warrants).
11
<PAGE> 12
h. The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
i. The Company shall as soon as practicable after the effective date
of the registration statement, and in any event within 15 months thereafter,
make "generally available to its security holders" an earnings statement (which
need not to be audited) complying with Section 11(a) of the Act and covering a
period of at least 12 consecutive months beginning after the effective date of
the registration statement.
j. The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and to
the managing underwriter, if any, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the
registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities law or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable
times and as often as such Holder or underwriter shall reasonably request.
k. The Company shall enter into an underwriting agreement with the
managing underwriter selected for such underwriting by Holders holding a
Majority of the Warrants and Warrant Shares requested to be included in such
underwriting, which may be the Underwriter. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such
managing underwriter, and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type used by the managing underwriter. The Holders shall be
parties to any underwriting agreement relating to an underwritten sale of their
Warrants or Warrant Shares and may, at their option, require that any or all of
the representations, warranties and covenants of the Company to or for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or
12
<PAGE> 13
arrangements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
l. In addition to the Warrants and Warrant Shares, upon the written
request therefor by a Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of the
date of filing of such registration statement, including without limitation,
restricted shares of Common Stock, options, warrants or any other securities
convertible into shares of Common Stock.
m. For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Shares shall mean in excess of 50% of the
then outstanding Warrants or Warrant Shares that (i) are not held by the
Company, an affiliate, officer, creditor, employee or agent thereof or any of
their respective affiliates, members of their family, persons acting as
nominees or in conjunction therewith and (ii) have not been resold to the
public pursuant to a registration statement filed with the Commission under the
Act.
SECTION 13 - MISCELLANEOUS:
13.1 ORIGINAL ISSUE TAXES. The Company will pay all United States, state and
local (but not foreign) original issue taxes, if any, upon the issuance of this
Warrant and the Warrant Shares.
13.2 AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions
of this Warrant may be amended, and the Company may take any action herein
prohibited or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Holders of the
Warrants representing at least 50% of the shares of Common Stock obtainable
upon the exercise of the Warrants outstanding at the time of such consent.
13.3 NOTICES. Any notices required to be sent to a Holder of this Warrant or of
any Warrant Shares purchased upon the exercise hereof will be delivered to the
address of such Holder shown on the books of the Company. All notices referred
to herein will be delivered in person or sent by registered or certified mail,
postage prepaid, and will be deemed to have been given when so delivered in
person or on the third business day following the date so sent by mail.
If to the Holder:
Werbel-Roth Securities, Inc.
150 East Palmetto Park Road, Suite 510
Boca Raton, Florida 33432
Attention: Howard Roth, President
13
<PAGE> 14
With a copy to:
Dreier & Baritz, LLP
150 East Palmetto Park Road, Suite 401
Boca Raton, Florida 33432
Attention: Neil S. Baritz, Esquire
If to the Company:
onlinetradinginc.com corp.
2700 North Military Trail, Suite 200
Boca Raton, Florida 33431
Attention: Andrew Allen, President
With a copy to:
Broad and Cassel, P.A.
201 South Biscayne Blvd. Suite 3000
Miami, Florida 33131
Attention: Linda Frazier, Esquire
13.4 DESCRIPTIVE HEADINGS. The descriptive headings of the sections and
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
13.5 GOVERNING LAW; ARBITRATION. This Warrant is governed by, interpreted under
and construed in all respects in accordance with the substantive laws of the
State of Florida, without regard to the conflicts of law provisions thereof,
and irrespective of the place of domicile or residence of the party. In the
event of a controversy arising out of the interpretation, construction,
performance or breach of this Warrant, the parties hereby agree and consent to
the jurisdiction and venue of the courts of the State of Florida; and further
agree and consent that personal service of process in any such action or
proceeding outside the State of Florida shall be tantamount to service in
person in Florida.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and
attested by its duly authorized officer.
onlinetradinginc.com corp., a
Florida corporation
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Attest:
- ---------------------------
_______________, Secretary
14
<PAGE> 15
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned Record Holder, pursuant to the provisions set forth in
the within Warrant, hereby subscribes for and purchases _____ Warrant Shares
covered by such Warrant and herewith makes full cash payment of
$__________________ for such Warrant Shares at the Exercise Price provided by
such Warrant.
(Signature)
- -------------------------------
- -------------------------------
(Print or type name)
- -------------------------------
- -------------------------------
- -------------------------------
(Address)
NOTICE: The signature on this Exercise Agreement must correspond with the name
as written upon the face of the within Warrant, or upon the Assignment thereof
if applicable, in every particular, without alteration, enlargement, or any
change whatsoever, and must be medallion guaranteed by a bank, other than a
saving bank, having an office or correspondent in Florida, or by a firm having
membership on a registered national securities exchange and an office in
Florida.
MEDALLION SIGNATURE GUARANTEE
Authorized Signature:
Name of Bank or Firm:
Dated:
-----------------------
15
<PAGE> 16
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _______________________, the undersigned Holder
hereby sells, assigns, and transfers all of the rights of the undersigned under
the within Warrant with respect to the number of Warrant Shares covered thereby
set forth below, unto the Assignee identified below, and does hereby
irrevocably constitute and appoint _______________________ to effect such
transfer of rights on the books of the Company, with full power of
substitution:
NAME OF ASSIGNEE ADDRESS OF ASSIGNEE NO. OF WARRANT SHARES
Dated:
-------------------------------
- --------------------------------------
(Signature of Holder)
- --------------------------------------
(Print or type name)
NOTICE: The signature on this Assignment must correspond with the name as
written upon the face of the within Warrant, in every particular, without
alteration, enlargement, or any change whatsoever, and must be medallion
guaranteed by a bank, other than a savings bank, having an office or
correspondent in Florida, or by a firm having membership on a registered
national securities exchange and an office in Florida.
MEDALLION SIGNATURE GUARANTEE
Authorized Signature:
Name of Bank or Firm:
Dated:
-------------------------
16
<PAGE> 1
EXHIBIT 4.2
ONLINETRADINGINC.COM CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
100,000,000 AUTHORIZED SHARES, $.01 PAR VALUE
NUMBER SHARES
CUSIP
SEE REVERSE
FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF $.01 PAR VALUE COMMON STOCK OF
ONLINETRADINGINC.COM CORP.
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Company.
Dated:
onlinetradinginc.com corp.
CORPORATE
SEAL
Derek Hernquist Secretary E. Steven zum Tobel, President
COUNTERSIGNED AND REGISTERED:
American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 60201
By ___________________________________
Transfer Agent and Registrant
Authorized Signature
<PAGE> 2
ONLINETRADINGINC.COM CORP.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM -as tenants in common UNIF GIFT MIN ACT--________ Custodian________
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ______________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------
For Value Received, ______________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
attorney-in-fact to transfer the said stock on the books of the within-named
Corporation, with full power of substitution in the premises.
Dated __________________
---------------------------------------------------
---------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed:
___________________________________
The signature(s) must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership
in an approved signature guarantee Medallion Program), pursuant to S.E.C Rule
17Ad-15.
<PAGE> 1
EXHIBIT 4.3
DESIGNATIONS, PREFERENCES, RIGHTS
AND LIMITATIONS
OF SERIES A REDEEMABLE PREFERRED STOCK
WHEREAS, the Board of Directors of the onlinetradinginc.com corp. (the
"Company") is authorized, within the limitations and restrictions stated in the
Articles of Incorporation, to fix by resolution the designation of each series
of preferred stock of the Company, par value $0.01 per share (the "Preferred
Stock"), and the powers, preferences, rights, limitations and restrictions
thereof; and
WHEREAS, it is the desire of the Board of Directors of the Company,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of Preferred Stock and the number of shares constituting such series.
NOW, THEREFORE, IT IS RESOLVED that there is authorized such series of
Preferred Stock on the terms and with the provisions herein set forth:
1. DESIGNATION AND NUMBER OF SHARES. Of the 1,000,000 shares of Preferred Stock
authorized pursuant to Article III of the Company's Amended and Restated
Articles of Incorporation, 300 of such shares are hereby designated as Series A
Redeemable Preferred Stock (the "Series A Preferred Stock"). Shares of Series A
Preferred Stock are sometimes referred to herein as "Series A Preferred Shares."
The Stated Value of each Series A Preferred Share is $1,000.00 (the "Stated
Value").
2. REDEMPTION.
(a) The shares of Series A Preferred Stock shall be redeemable by the
Company, in whole or in part, at any time and from time to time, from and after
June 1, 1999. The Series A Preferred Shares shall be redeemable at a price equal
to 110% of the stated value.
(b) In the event that fewer than all the outstanding shares of the
Series A Preferred Stock are to be redeemed as permitted by this Section 2, the
number of shares to be redeemed shall be determined by the Board of Directors.
(c) Notice of redemption of the Series A Preferred Stock, specifying
the redemption date and place of redemption, shall be given by certified mail to
the holder of record of the shares to be redeemed, at his address of record, not
less than 10 calendar days prior to the redemption date. Such notice shall also
specify the redemption price applicable to the shares to be redeemed. If less
than all the shares owned by such holder are then to be redeemed, the notice
shall also specify the number of shares thereof that are to be redeemed and the
fact that a new certificate or certificates representing any unredeemed shares
shall be issued without cost to such holder.
(d) Notice of redemption of shares of the Series A Preferred Stock
having been given as provided in Section 2(c), then unless the Company shall
have defaulted in providing for the payment of the redemption price, all rights
of the holders thereof (except the right to receive the redemption price) shall
cease with respect to such shares and such shares shall not, after the
<PAGE> 2
redemption date, be deemed to be outstanding and shall not have the status of
Series A Preferred Stock.
(e) Any shares of Series A Preferred Stock which shall at any time have been
redeemed shall, after such redemption, have the status of authorized but
unissued shares of Preferred Stock, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors.
3. PREEMPTIVE RIGHTS. Shares of the Series A Preferred Stock are not entitled to
any preemptive rights to acquire any unissued shares of any capital stock of the
Company, now or hereafter authorized, or any other securities of the Company,
whether or not convertible into shares of capital stock of the Company or
carrying a right to subscribe to or acquire any such shares of capital stock.
4. VOTING. The holders of shares of the Series A Preferred Stock will have
voting rights and will be entitled to vote such shares to the same extent as the
holder of the Company's common stock, par value of $0.01 per share (the "Common
Stock").
5. LIQUIDATION PREFERENCE.
(a) Upon the voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the shares of the Series A Preferred
Stock shall be entitled to receive out of the assets of the Company available
for distribution to shareholders under applicable law, before and in priority to
any payment or distribution of assets by any means whatsoever that is made on
the Common Stock or on any other class or series of capital stock of the Company
ranking junior to the Series A Preferred Stock upon liquidation, an amount equal
110% of the Series A Preferred Stock Stated Value per share, in the event of an
involuntary or voluntary liquidation (the "Liquidation Preference"). The sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property and assets of the
Company shall not be deemed a dissolution, liquidation or winding up of the
Company for the purposes of this Section 5, nor shall the merger or
consolidation of the Company into or with any other corporation or association
or the merger or consolidation of any other corporation or association into or
with the Company, be deemed to be a dissolution, liquidation or winding up of
the Company for the purposes of this Section 5.
(b) After the payment in full in cash of the Liquidation Preference to
the holders of the Series A Preferred Shares, as provided in the foregoing
paragraph (a), the holders of the Series A Preferred Shares shall have no
further right or claim to any of the remaining assets of the Company, except as
otherwise provided herein or as otherwise required by law.
(c) In the event the assets of the Company available for distribution
to the holders of the Series A Preferred Shares upon any voluntary or
involuntary liquidation, dissolution or winding up of the Company shall be
insufficient to pay in full all amounts to which such holders are entitled
pursuant to Section 5(a) above, no distribution shall be made on account of any
shares of any other series of Preferred Stock or any other class of capital
stock of the Company ranking on a parity with the Series A Preferred Stock upon
such liquidation, dissolution or winding up unless proportionate amounts shall
be paid on account of the Series A Preferred Stock, ratably, in
2
<PAGE> 3
proportion to the full amounts to which holders of all such shares which are on
a parity with the Series A Preferred Stock are respectively entitled upon such
dissolution, liquidation or winding up.
6. REPORTS AND NOTICES. So long as any shares of the Series A Preferred Stock
shall be outstanding, the Company shall provide to the holder or holders of such
shares copies of all annual, quarterly and other reports of the Company and
copies of all shareholder notices of the Company promptly after filing with the
Commission.
7. WAIVER BY SERIES A PREFERRED SHAREHOLDERS. Except as expressly provided for
herein or as otherwise required by law, any rights or benefits for the Series A
Preferred Shares and the holders thereof provided herein may be waived as to all
outstanding Series A Preferred Shares and the holders thereof by the consent of
the holders of a majority of the then-outstanding Series A Preferred Shares.
8. HOLDER. The term "holder" as used in this Certificate of Designation of
Preferences, Rights and Limitations of Series A Preferred Stock means a record
holder of any Series A Preferred Shares.
9. ADDITIONAL ISSUANCE OF PREFERRED SHARES. The Company may issue additional
shares of Preferred Stock in the future.
IN WITNESS WHEREOF, onlinetradinginc.com corp. has caused this
Certificate of Designation to be executed by the undersigned duly authorized
officers of the Company on the 5th day of March, 1999 but effective as of the
27th day of December, 1997.
onlinetradinginc.com corp.
By: /s/ E. Steve zum Tobel
---------------------------------
E. Steve zum Tobel, President
Attest:
/s/ Derek J. Hernquist
- -----------------------------
Derek J. Hernquist, Secretary
3
<PAGE> 1
EXHIBIT 5.1
BROAD AND CASSEL
ATTORNEYS AT LAW
BOCA RATON * FT. LAUDERDALE * MIAMI * ORLANDO * TALLAHASSEE * TAMPA
WEST PALM BEACH
SUITE 3000
MIAMI CENTER
201 SOUTH BISCAYNE BOULEVARD
MIAMI, FLORIDA 33131
(305) 373-9400
FAX (305) 373-9443
www.broadandcassel.com
June 7, 1999
onlinetradinginc.com corp.
2700 N. Military Trail
Boca Raton, FL 33431
Re: onlinetradinginc.com corp. (the "Company")
Ladies and Gentlemen:
You have requested our opinion with respect to the shares of the
Company's common stock, $0.01 par value per share (the "Common Stock"), the
representative's warrant to purchase shares of Common Stock (the
"Representative's Warrant"), and the shares of Common Stock underlying the
Representative's Warrant (the "Warrant Shares"), included in the Registration
Statement filed with the U.S. Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act"). Any terms not
otherwise defined herein shall have the meanings ascribed to them in the
Registration Statement.
As counsel to the Company, we have examined the original or certified
copies of such records of the Company, and such agreements, certificates of
public officials, certificates of officers or representatives of the Company and
others, and such other documents as we deem relevant and necessary for the
opinions expressed in this letter. In such examination, we have assumed the
genuineness of all signatures on original documents, and the conformity to
original documents of all copies submitted to us as conformed or photostatic
copies. As to various questions of fact material to such opinions, we have
relied upon statements or certificates of officials and representatives of the
Company and others.
Based on, and subject to the foregoing, we are of the opinion that,
when the shares of Common Stock, the Representative's Warrant and the Warrant
Shares are issued and delivered in accordance with the terms of the Underwriting
Agreement and the Representative's Warrant, as the case may be, all filed as
exhibits to the Registration Statement, the shares of Common Stock, the
Representative's Warrant and the Warrant Shares will be duly and validly
issued, and the Common Stock and Warrant Shares will be fully paid and
non-assessable.
<PAGE> 2
onlinetradinginc.com.corp.
May 27, 1999
Page 2
This opinion has been prepared and is to be construed in accordance
with the Report on Standards for Florida Opinions, dated April 8, 1991, as
amended and supplemented, issued by the Business Law Section of The Florida Bar
(the "Report"). The Report is incorporated by reference into this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the use of our name under the caption
"Legal Matters" in the Prospectus constituting part of the Registration
Statement. In giving such consent, we do not thereby admit that we are included
within the category of persons whose consent is required under Section 7 of the
Securities Act, or the rules and regulations promulgated thereunder.
Sincerely,
BROAD AND CASSEL
BROAD AND CASSEL
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to the Registration Statement of
onlinetradinginc.com corp. on Form SB-2 (File No. 333-75119) of our Independent
Auditors Report dated March 2, 1999 (March 25, 1999 as to Note 9) appearing in
the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
June 7, 1999
