SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
OMEGA RESEARCH, INC.
................................................................................
(Name of Registrant as Specified In Its Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
................................................................................
2) Aggregate number of securities to which transaction applies:
................................................................................
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
................................................................................
4) Proposed maximum aggregate value of transaction:
................................................................................
5) Total fee paid:
................................................................................
[ ] Fee paid previously with preliminary materials.
[x] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$48,205
................................................................................
2) Form, Schedule or Registration Statement No.:
Form S-4
................................................................................
3) Filing Party:
OnlineTrading.com Group, Inc.
................................................................................
4) Date Filed:
April 17, 2000
................................................................................
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[Omega Research Letterhead]
Dear Omega Research Shareholders:
I am writing to you today about the proposed merger and combination of
onlinetradinginc.com corp. ("OnlineTrading.com") with Omega Research, Inc.
("Omega Research") pursuant to which a new holding company will be formed to own
both Omega Research and OnlineTrading.com. The board of directors of Omega
Research and OnlineTrading.com have each approved an agreement and plan of
merger and reorganization. We believe the combined company will be able to
create greater shareholder value than each company can achieve separately.
In the merger, the shareholders of Omega Research and OnlineTrading.com will
exchange their shares of common stock in their respective companies for shares
of common stock of OnlineTrading.com Group, Inc. ("OnlineTrading.com Group")
pursuant to the formula described in this joint proxy statement prospectus. The
exchange ratio formula will provide Omega Research shareholders with one share
of OnlineTrading.com Group common stock for each outstanding share of Omega
Research common stock. The exchange ratio formula will provide OnlineTrading.com
shareholders with between 1.3817 and 1.7172 shares of OnlineTrading.com Group
common stock for each outstanding share of OnlineTrading.com common stock,
resulting in OnlineTrading.com shareholders owning between 38% and 43% of
OnlineTrading.com Group. Omega Research shareholders will own the remaining
shares of OnlineTrading.com Group. The merger is described more fully in this
joint proxy statement/prospectus. The merger is intended to qualify as a
tax-free reorganization. OnlineTrading.com Group is to be the publicly-traded
company, its shares of common stock issued to you will be listed on The Nasdaq
National Market.
In connection with the merger, your board of directors has authorized,
subject to your approval of the agreement and plan of merger and reorganization
and the merger, an increase in the number of shares of common stock reserved for
issuance under the Amended and Restated 1996 Incentive Stock Plan from 4,500,000
to 7,500,000, subject to further antidilution adjustments. When the merger is
consummated, this Incentive Stock Plan will be assumed by and become a stock
option plan of OnlineTrading.com Group.
Your board of directors has determined that the terms and conditions of the
merger and the increase in the number of shares reserved under the Incentive
Stock Plan are advisable and fair to you and in your best interests, and
unanimously recommends that you approve and adopt the agreement and plan of
merger and reorganization, the merger and the increase in the number of shares
reserved under the Incentive Stock Plan.
This joint proxy statement/prospectus provides you with detailed information
concerning Omega Research and OnlineTrading.com and the separate mergers of
wholly-owned subsidiaries of OnlineTrading.com Group with and into each of Omega
Research and OnlineTrading.com to accomplish the merger and reorganization
transaction, as well as detailed information concerning the Incentive Stock
Plan. Please give all of the information contained in this joint proxy
statement/prospectus your careful attention. In particular, you should carefully
consider the discussion in the section titled "RISK FACTORS" beginning on page
__ of this joint proxy statement/prospectus.
Omega Research shareholders owning approximately 75% of the shares of Omega
Research have already contractually agreed to vote in favor of the merger. In
addition, OnlineTrading.com shareholders owning approximately 77% of the shares
of OnlineTrading.com have already contractually agreed to vote in favor of the
merger. Accordingly, the merger will be approved by the shareholders of both
companies, regardless of how other shareholders of either company vote.
To vote your shares, you may use the enclosed proxy card or attend the
special shareholders meeting. To approve the agreement and plan of merger and
reorganization and the increase in the number of shares reserved under the
Incentive Stock Plan, you MUST vote "FOR" the proposals by following the
instructions stated on the enclosed proxy card. If you do not vote at all, it
will, in effect, count as a vote against the proposals. We urge you to vote FOR
these proposals.
Sincerely yours,
-----------------------------------------------
William R. Cruz
Co-Chairman of the Board and Co-Chief Executive
Officer
<PAGE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION OR THE SECURITIES OF
ONLINETRADING.COM GROUP TO BE ISSUED IN THE MERGER, OR DETERMINED IF THIS JOINT
PROXY STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated ___________, 2000, and was first
mailed to Omega Research shareholders on or about ________, 2000.
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Omega Research, OnlineTrading.com and
OnlineTrading.com Group from documents that are not included in or delivered
with this joint proxy statement/prospectus. This information is available to you
without charge upon your written or oral request. You can obtain documents
incorporated by reference in this joint proxy statement/prospectus by requesting
them in writing from the appropriate company at the following addresses and
telephone numbers:
Omega Research, Inc. onlinetradinginc.com corp.
Investor Relations Investor Relations
8700 West Flagler Street 2700 N. Military Trail
Suite 250 Suite 200
Miami, Florida 33174 Boca Raton, Florida 33431
(305) 485-7000 (561) 995-1010
If you would like to request documents, please do so by _____________, 2000
in order to receive them before the special meeting.
See "Where You Can Find More Information" on page ____.
<PAGE>
OMEGA RESEARCH, INC.
8700 WEST FLAGLER STREET
MIAMI, FLORIDA 33174
(305) 485-7000
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ___________, 2000
We will hold a special meeting of shareholders of Omega Research, Inc. at
9:00, a.m., eastern standard time, on ___________, 2000, at ____________________
for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt the
agreement and plan of merger and reorganization by and among
Omega Research, Inc. ("Omega Research"), onlinetradinginc.com
corp. ("OnlineTrading.com"), OnlineTrading.com Group, Inc.
("OnlineTrading.com Group"), Omega Acquisition Corporation and
Onlinetrading Acquisition Corporation, which provides for:
o The merger of Omega Research and OnlineTrading.com,
which, after the merger, will each be owned by
OnlineTrading.com Group.
o The exchange by Omega Research and OnlineTrading.com
shareholders of their respective shares of common
stock in those companies for shares of common stock
of OnlineTrading.com Group.
o An exchange ratio formula for Omega Research's common
stock fixed at one share of OnlineTrading.com Group
common stock for each outstanding share of Omega
Research common stock owned by Omega Research
shareholders.
o An exchange ratio formula for OnlineTrading.com
common stock that will provide between 1.3817 and
1.7172 shares of OnlineTrading.com Group common stock
for each outstanding share of OnlineTrading.com
common stock, resulting in OnlineTrading.com
shareholders owning between 38% and 43% of
OnlineTradingGroup.
o Each outstanding option or warrant to purchase shares
of Omega Research or OnlineTrading.com common stock
to be assumed by OnlineTrading.com Group and
converted into an option or warrant to purchase
shares of OnlineTrading.com Group common stock, as
more fully described in this joint proxy
statement/prospectus.
o OnlineTrading.com Group to be the publicly-traded
company and its shares of common stock to be listed
on The Nasdaq National Market.
(2) To consider and vote upon a proposal to approve and adopt,
subject to Omega Research's shareholders' approval of the
merger agreement and the merger, an amendment to Omega
Research's Amended and Restated 1996 Incentive Stock Plan to
increase the number of shares of common stock, $.01 par value,
reserved for issuance under the Incentive Stock Plan from
4,500,000 shares to 7,500,000 shares, subject to further
antidilution requirements.
(3) To transact such other business as may properly come before
the meeting or any agreements or postponements thereof.
Omega Research's board of directors has determined that the merger and the
increase in the number of shares reserved for issuance under the Incentive Stock
Plan are advisable and fair to you and in your best interests, and unanimously
recommends that you vote to approve and adopt the merger agreement and the
merger and the increase in the number of reserved shares under the Incentive
Stock Plan.
<PAGE>
We describe these items of business more fully in this joint proxy
statement/prospectus, which we urge you to read carefully.
With respect to proposal (1) above, Omega Research's shareholders do not
have any dissenters' rights.
Only Omega Research shareholders of record at the close of business on June
5, 2000 are entitled to notice of and to vote at the special meeting or any
adjournment or postponement of the special meeting. Approval of the merger
agreement and merger will require the affirmative vote of the holders of Omega
Research common stock representing a majority of the outstanding shares of Omega
Research common stock entitled to vote at the special meeting. Subject to
approval of the merger, the increase in the reserved shares under the Incentive
Stock Plan will require the affirmative vote of a majority of the shares of
Omega Research common stock represented in person or by proxy at the special
meeting who cast a vote on such proposal.
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE URGED
TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN
VOTED AT THE SPECIAL MEETING. YOU MAY ATTEND THE SPECIAL MEETING AND VOTE IN
PERSON EVEN IF YOU HAVE RETURNED A PROXY.
Please do not send your stock certificate at this time. If the merger is
consummated, OnlineTrading.com Group will send instructions to you explaining
how to exchange your shares for the appropriate number of shares of
OnlineTrading.com Group.
If you have any questions about the merger, please call Omega Research
Investor Relations at (305) 485-7000.
By Order of the Board of Directors
-----------------------------------------------
William R. Cruz
Co-Chairman of the Board and Co-Chief Executive
Officer
Miami, Florida
_________________, 2000
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TABLE OF CONTENTS
Page
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SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS...................................................................1
RISK FACTORS......................................................................................................6
The Consideration OnlineTrading.com Shareholders will Receive may Deviate
Substantially from Earlier and Current Expectations.............................................7
The Merger Could Adversely Affect Combined Financial Results..................................................7
The Market Price of OnlineTrading.com Group Common Stock may Decline
as a Result of the Merger.......................................................................7
Failure of the Merger to Qualify as a Pooling-of-Interests Would Negatively
Affect OnlineTrading.com Group's Financial Results..............................................7
Failure to Complete the Merger Could Negatively Impact Omega Research's or
OnlineTrading.com's Stock Prices and Future Business and Operations.............................8
Individuals and Companies That do or may do Business with Omega Research or
OnlineTrading.com May Delay or be Uncertain About Their Dealings
with them Until Well After the Merger is Completed..............................................8
If a Company Wishes not to go Forward With the Merger, the Merger Agreement
Contains Provisions that Make it Difficult for Either Company to
Find Another Merger Partner Willing to Accept Similar or More
Favorable Merger Terms. ........................................................................8
The Change of Business Model Will Result in us Engaging in Businesses in
Which we do not Have Much Experience............................................................8
Our Transition to the New Business Model Requires the Creation and Integration
of Complex Technology, Errors or Other Problems in Which Could
Negatively Affect Customer Acceptance...........................................................9
Our Transition to the New Business Model Requires Rapid and Substantial Changes
to Our Infrastructure...........................................................................9
Our Transition to the New Business Model Places a Significant Strain on Our
Management and Operations ....................................................................10
The New Business Model is One with no Historical Record, Which Makes
Business Planning Difficult....................................................................10
The Rapid Pace of Our Transition to the New Business Model Increases
Risks of Mistakes and Failure..................................................................10
Failure to Close the Merger Will Result in Substantial Delay and Difficulty in
Omega Research's Ability to Integrate With Brokerage Services, an
Essential Requirement of its New Business Model................................................10
Failure to Close the Merger Will Result in Substantial Delay and Difficulty in
OnlineTrading.com's Ability to Distinguish Itself in the Online Brokerage Industry.............11
The Nature of Our Business Results in Potential Liability to Customers.......................................11
Systems Failure May Result in Our Inability to Deliver on Time, or at all, Important and Time-Sensitive
Services to Our Customers......................................................................12
We May Need Cash in the Foreseeable Future...................................................................12
There are Several Factors that May Cause Fluctuations in OnlineTrading.com Group's
Quarterly Operating Results, Which Would Likely Result in Significant
Volatility in its Stock Price..................................................................12
Our Industry is Intensely Competitive, Which Makes it Difficult to Attract and
Retain Customers...............................................................................13
Returns and Bad Debt May Exceed Reserves that Have Been Made for Them........................................14
We May Not Adequately Transition Our Business to the Internet................................................14
The Internet, as it Grows, May Have Problems That Affect Our Business........................................14
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Fluctuations in the Securities and Financial Markets may Affect Our Rates of Customers
Acquisition, Retention and Trading Activity....................................................14
Operation in a Highly-Regulated Industry and Compliance Failures May Result in
Severe Penalties and Other Harmful Governmental Actions Against Us.............................14
Dependence Upon Outside Data Sources Creates Risks Outside of our Control Which
May Affect Our Ability to Provide Our Customers with Market Data and News......................15
Loss of the Bear Stearns Relationship could Compromise the Credibility of
OnlineTrading.com's Brokerage Services and Result in Regulatory Compliance Issues..............15
The Loss of Key Employees could Decrease the Quality of Our Management and Operations........................15
Failure to Receive the Benefits of the Bridge Telerate Royalty Fees in 2000 or 2001
could Cause Cash Problems and Negatively Affect Revenues and Earnings..........................16
OnlineTrading.com Must Meet Net Capital Requirements as a Broker-Dealer That, if not
Complied With, Could Result in Severe Penalties, and which at all Times
Limit the Company's Right to Use all of its Cash...............................................16
There are Risks Relating to Our Ability to Maintain Customer Privacy and Security and
That Increased Government Regulation of Internet Business May Occur............................16
We May be Subject to Intellectual Property Litigation........................................................16
We May Not be Able to Adequately Protect or Preserve Our Rights in Intellectual Property.....................17
Control of OnlineTrading.com Group by the Cruzes Means That Important Decisions
Affecting the Company are Concentrated in the Judgment of Two Related Individuals..............17
OMEGA RESEARCH
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA..............................................................18
ONLINETRADING.COM
SELECTED HISTORICAL FINANCIAL DATA...........................................................................19
SELECTED UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA................................................19
COMPARATIVE PER SHARE DATA.......................................................................................21
Omega Research Market Price Data.............................................................................22
Listing of OnlineTrading.com Group Common Stock..............................................................23
Omega Research/OnlineTrading.com Group Dividend Policy.......................................................23
OnlineTrading.com Market Price Data..........................................................................24
OnlineTrading.com Dividend Policy............................................................................24
Recent Closing Prices........................................................................................25
THE SPECIAL MEETINGS.............................................................................................25
Joint Proxy Statement/Prospectus.............................................................................25
Date, Time and Place of Special Meetings.....................................................................25
Matters to be Considered at Each Special Meeting.............................................................25
Record Date and Shares Entitled to Vote......................................................................26
Voting of Proxies............................................................................................26
Vote Required ...............................................................................................26
Quorum; Abstentions and Broker Non-Votes.....................................................................27
Solicitation of Proxies and Expenses.........................................................................27
Dissenters' or Appraisal Rights..............................................................................27
THE PROPOSED MERGER..............................................................................................28
Background of the Merger.....................................................................................28
Omega Research's Reasons for the Merger......................................................................30
Recommendation of Omega Research's Board of Directors........................................................32
OnlineTrading.com's Reasons for the Merger...................................................................32
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Recommendation of OnlineTrading.com's Board of Directors.....................................................34
Opinion of Financial Advisor to Omega Research...............................................................34
Opinion of Financial Advisor to OnlineTrading.com............................................................41
Interests of Certain Directors, Officers and Affiliates in the Merger........................................45
Regulatory Approvals.........................................................................................46
Regulatory Matters Following the Merger......................................................................46
Federal Income Tax Considerations............................................................................47
Accounting Treatment.........................................................................................49
Dissenters' or Appraisal Rights..............................................................................49
Listing of OnlineTrading.com Group Common Stock..............................................................55
Restrictions on Sale of Shares By Affiliates of Omega Research and OnlineTrading.com ........................55
Operations Following the Merger..............................................................................55
THE MERGER AGREEMENT AND RELATED AGREEMENTS......................................................................55
The Merger ...............................................................................................56
Effective Time...............................................................................................56
Directors and Officers After the Merger......................................................................56
Voting Trust Agreement.......................................................................................57
Conversion of Shares in the Merger...........................................................................59
Omega Research and OnlineTrading.com Stock Options, Warrants and Stock Plans.................................59
No Fractional Shares.........................................................................................60
The Exchange Agent...........................................................................................60
Exchange of Omega Research and OnlineTrading.com Stock Certificates for
OnlineTrading.com Group Stock Certificates.....................................................60
Distributions with Respect to Unexchanged Shares.............................................................61
Representations and Warranties...............................................................................61
Conduct of Business before Completion of the Merger..........................................................63
No Solicitation of Transactions..............................................................................65
Director and Officer Indemnification and Insurance...........................................................66
Conditions to the Merger.....................................................................................67
Termination of the Merger Agreement..........................................................................69
Payment of Fees and Expenses.................................................................................71
Extension, Waiver and Amendment of the Merger Agreement......................................................73
Shareholder Agreements.......................................................................................73
Employment Agreements........................................................................................73
Non-Competition and Non-Disclosure Agreements................................................................74
Stock Option Agreements......................................................................................74
Affiliate Agreements.........................................................................................75
AMENDMENT OF OMEGA RESEARCH INCENTIVE STOCK PLAN ................................................................75
PRO FORMA COMBINED FINANCIAL STATEMENTS..........................................................................75
BUSINESS AND FINANCIAL INFORMATION REGARDING OMEGA RESEARCH......................................................83
Overview and Recent Developments.............................................................................83
Industry Background .........................................................................................84
Products and Services........................................................................................85
Sales and Marketing..........................................................................................88
Strategic Relationships......................................................................................89
Product Development and Year 2000 Compliance.................................................................90
Customer Support and Training................................................................................91
Competition .................................................................................................92
Intellectual Property........................................................................................93
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Employees ...............................................................................................94
Properties ...............................................................................................94
Legal Proceedings............................................................................................95
Selected Consolidated Financial Data.........................................................................95
Management's Discussion and Analysis of Financial Condition and Results of Operations........................96
BUSINESS AND FINANCIAL INFORMATION REGARDING ONLINETRADING.COM..................................................107
Overview and Recent Developments............................................................................107
Industry Trends.............................................................................................107
OnlineTrading.com's Business................................................................................108
OnlineTrading.com's Business Strategy.......................................................................109
Strategic Relationships.....................................................................................110
Competition ..............................................................................................110
Government Regulation.......................................................................................111
Net Capital Requirements; Liquidity.........................................................................111
Additional Regulation.......................................................................................112
Employees ..............................................................................................112
Properties ..............................................................................................113
Legal Proceedings...........................................................................................113
Management's Discussion of Financial Condition and Results of Operations....................................113
SELECTED INFORMATION WITH RESPECT TO OMEGA RESEARCH.............................................................117
Executive Officers and Directors............................................................................117
Independent Directors; Committees of the Board of Directors.................................................119
Section 16(a) Beneficial Ownership Reporting Compliance.....................................................119
Executive Compensation Tables...............................................................................119
Other Compensation Arrangements.............................................................................122
Non-Competition Agreements..................................................................................130
Compensation Committee Interlocks and Insider Participation.................................................131
Director Compensation.......................................................................................131
Certain Transactions........................................................................................131
Security Ownership of Certain Beneficial Owners and Management of Omega Research............................132
SELECTED INFORMATION WITH RESPECT TO ONLINETRADING.COM..........................................................133
Executive Officers and Directors............................................................................133
Section 16(a) Beneficial Ownership Reporting Compliance.....................................................134
Executive Compensation......................................................................................134
Employment Agreements.......................................................................................135
Stock Option Plan...........................................................................................136
Certain Transactions........................................................................................137
Security Ownership of Certain Beneficial Owners and Management of OnlineTrading.com.........................138
DESCRIPTION OF SECURITIES
OF ONLINETRADING.COM GROUP..................................................................................138
COMPARISON OF RIGHTS OF HOLDERS OF
ONLINETRADING.COM COMMON STOCK AND
OMEGA RESEARCH AND ONLINETRADING.COM GROUP COMMON STOCK.....................................................141
Authorized Capital..........................................................................................141
Voting Power of Common Stock................................................................................142
Board of Directors..........................................................................................142
Removal of Directors........................................................................................142
Filling Vacancies on the Board of Directors.................................................................143
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Actions by Written Consent..................................................................................143
Amendment of Articles of Incorporation......................................................................143
Amendment of Bylaws.........................................................................................144
Notice of Certain Shareholder Actions.......................................................................144
Special Meetings............................................................................................145
Dissenters' or Appraisal Rights.............................................................................146
EXPERTS.........................................................................................................146
LEGAL MATTERS...................................................................................................146
WHERE YOU CAN FIND MORE INFORMATION.............................................................................146
SHAREHOLDER PROPOSALS...........................................................................................147
OTHER MATTERS...................................................................................................148
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS...............................................................148
INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
APPENDICES
APPENDIX A Agreement and Plan of Merger and Reorganization, as amended
APPENDIX B Form of Omega Research Shareholder Agreement
APPENDIX C Form of OnlineTrading.com Shareholder Agreement
APPENDIX D Omega Research Stock Option Agreement
APPENDIX E OnlineTrading.com Stock Option Agreement
APPENDIX F Voting Trust Agreement
APPENDIX G Letter Agreement with Andrew A. Allen
APPENDIX H Opinion of FleetBoston Robertson Stephens Inc.
APPENDIX I Opinion of Raymond James & Associates, Inc.
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SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
The following summary highlights material information from this joint proxy
statement/prospectus. You should carefully read this entire document and the
other documents we refer to for a more complete understanding of the merger
agreement and the merger. In particular, you should read the documents attached
as appendices to this joint proxy statement/prospectus, including the merger
agreement, the Omega Research stock option agreement, the OnlineTrading.com
stock option agreement, the form of shareholder agreement for each of Omega
Research and OnlineTrading.com shareholders, the voting trust agreement among
certain shareholders of Omega Research and OnlineTrading.com and the voting
trustee related to the voting of OnlineTrading.com Group common stock after the
merger, the opinion of FleetBoston Robertson Stephens Inc., financial advisor to
Omega Research, and the opinion of Raymond James & Associates, Inc., financial
advisor to OnlineTrading.com.
MERGER CONSIDERATION EXCHANGE RATIOS (SEE PAGE ___).
The exchange ratio for Omega Research common stock is fixed at one share of
OnlineTrading.com Group common stock for each outstanding share of Omega
Research common stock.
The exchange ratio for OnlineTrading.com common stock will be between 1.3817
shares, which would constitute a 38% ownership in OnlineTrading.com Group, and
1.7172 shares, which would constitute approximately 43% ownership of
OnlineTrading.com Group. The exchange ratio for OnlineTrading.com common stock
is, subject to the 1.3817 "floor" and the 1.7172 "ceiling," determined by the
price of Omega Research common stock prior to closing of the merger as compared
to OnlineTrading.com's $11.0625 common stock price prior to the signing of the
merger agreement. The "Price Sensitivity Analysis" table set forth below
indicates for illustrative purposes the exchange ratio for OnlineTrading.com
common stock, and the value that will be received for each share of
OnlineTrading.com common stock, within a range of Omega Research common stock
prices. As an example of how the exchange ratio will work, based on the average
of the last sale prices of a share of Omega Research common stock over the
10-day trading period that ended on ______________, 2000, which is $___________,
the exchange ratio for OnlineTrading.com common stock would be __________.
Each outstanding option and warrant to purchase shares of Omega Research and
OnlineTrading.com common stock will be assumed by OnlineTrading.com Group and
converted into an option or warrant to purchase shares of OnlineTrading.com
Group common stock in a manner consistent with the exchange ratio formula.
Shareholders of both Omega Research and OnlineTrading.com will receive cash in
lieu of fractional shares of OnlineTrading.com Group.
PRICE SENSITIVITY ANALYSIS (SEE PAGE __ AND PAGE __)
In the following table, we provide you for illustrative purposes the
exchange ratio for OnlineTrading.com common stock and the value that will be
received for each share of OnlineTrading.com common stock within a range of
prices for Omega Research common stock.
ONLINETRADING.COM EXCHANGE RATIO PER SHARE SENSITIVITY ANALYSIS
ONLINETRADING.COM
SHAREHOLDERS
OMEGARESEARCH ONLINETRADING.COM AGGREGATE ONLINETRADING.COM
PRICE EXCHANGE RATIO OWNERSHIP PER SHARE VALUE
---------------- -------------------- ------------------- -----------------
$2.00 1.7172 43.2% $3.43
$2.50 1.7172 43.2% $4.29
$3.00 1.7172 43.2% $5.15
$3.50 1.7172 43.2% $6.01
$4.00 1.7172 43.2% $6.87
$4.50 1.7172 43.2% $7.73
$5.00 1.7172 43.2% $8.59
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ONLINETRADING.COM
SHAREHOLDERS
OMEGARESEARCH ONLINETRADING.COM AGGREGATE ONLINETRADING.COM
PRICE EXCHANGE RATIO OWNERSHIP PER SHARE VALUE
---------------- -------------------- ------------------- -----------------
$5.50 1.7172 43.2% $9.44
$6.00 1.7172 43.2% $10.30
$6.50 1.7019 43.0% $11.06
$7.00 1.5804 41.2% $11.06
$7.50 1.4750 39.5% $11.06
$8.00 1.3828 38.0% $11.06
$8.50 1.3817 38.0% $11.74
$9.00 1.3817 38.0% $12.44
$9.50 1.3817 38.0% $13.13
$10.00 1.3817 38.0% $13.82
In the following tables, we provide you for illustrative purposes combined
per share data and OnlineTrading.com per share equivalent data on an unaudited
basis after giving effect to the merger on a pooling-of-interests basis within
a range of prices for Omega Research common stock resulting in the exchange
ratio for a share of OnlineTrading.com common stock ranging from 1.7172 down to
1.3817 shares as noted above in the "OnlineTrading.com Exchange Ratio Per Share
Sensitivity Analysis" table.
UNAUDITED PRO FORMA COMBINED PER SHARE SENSITIVITY ANALYSIS
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QUARTER ENDED MARCH 31, FISCAL YEAR ENDED DECEMBER 31,
----------------------- ------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
EARNINGS (LOSS) PER EARNINGS (LOSS) PER EARNINGS (LOSS) PER EARNINGS (LOSS) PER EARNINGS (LOSS) PER
OMEGA SHARE SHARE SHARE SHARE SHARE
RESEARCH BOOK VALUE BOOK VALUE
PRICE BASIC DILUTED PER SHARE BASIC DILUTED BASIC DILUTED PER SHARE BASIC DILUTED BASIC DILUTED
-------- ----- ------- --------- ----- ------- ----- ------- --------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$2.00 - $6.00 ($0.06) ($0.06) $0.90 $0.02 $0.02 $0.00 $0.00 $0.97 ($0.01) ($0.01) $0.13 $0.13
$6.50 ($0.06) ($0.06) $0.91 $0.02 $0.02 $0.00 $0.00 $0.97 ($0.01) ($0.01) $0.13 $0.13
$7.00 ($0.07) ($0.07) $0.94 $0.02 $0.02 $0.00 $0.00 $1.00 ($0.01) ($0.01) $0.13 $0.13
$7.50 ($0.07) ($0.07) $0.97 $0.02 $0.02 $0.00 $0.00 $1.03 ($0.01) ($0.01) $0.14 $0.13
$8.00 ($0.07) ($0.07) $0.99 $0.02 $0.02 $0.00 $0.00 $1.06 ($0.01) ($0.01) $0.14 $0.14
$8.50 - $10.00 ($0.07) ($0.07) $0.99 $0.02 $0.02 $0.00 $0.00 $1.06 ($0.01) ($0.01) $0.14 $0.14
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA ONLINETRADING.COM PER SHARE EQUIVALENT SENSITIVITY ANALYSIS
QUARTER ENDED JANUARY 31, FISCAL YEAR ENDED JANUARY 31,
------------------------- -----------------------------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
EARNINGS (LOSS) PER EARNINGS (LOSS) PER EARNINGS (LOSS) PER EARNINGS (LOSS) PER EARNINGS (LOSS) PER
OMEGA SHARE SHARE SHARE SHARE SHARE
RESEARCH BOOK VALUE BOOK VALUE
PRICE BASIC DILUTED PER SHARE BASIC DILUTED BASIC DILUTED PER SHARE BASIC DILUTED BASIC DILUTED
-------- ----- ------- --------- ----- ------- ----- ------- --------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$2.00 - $6.00 ($0.11) ($0.11) $1.55 $0.04 $0.04 $0.00 $0.00 $1.66 ($0.01) ($0.01) $0.22 $0.21
$6.50 ($0.11) ($0.11) $1.55 $0.04 $0.03 $0.00 $0.00 $1.65 ($0.01) ($0.01) $0.22 $0.21
$7.00 ($0.10) ($0.10) $1.48 $0.03 $0.03 $0.00 $0.00 $1.58 ($0.01) ($0.01) $0.21 $0.20
$7.50 ($0.10) ($0.10) $1.42 $0.03 $0.03 $0.00 $0.00 $1.52 ($0.01) ($0.01) $0.20 $0.20
$8.00 ($0.10) ($0.10) $1.37 $0.03 $0.03 $0.00 $0.00 $1.46 ($0.01) ($0.01) $0.19 $0.19
$8.50 - $10.00 ($0.10) ($0.10) $1.37 $0.03 $0.03 $0.00 $0.00 $1.46 ($0.01) ($0.01) $0.19 $0.19
</TABLE>
2
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SUMMARY OF THE MERGER (SEE PAGE __)
On January 19, 2000, Omega Research and OnlineTrading.com entered into an
Agreement and Plan of Merger and Reorganization which contains the terms and
conditions of the proposed merger of the companies. In connection with the
merger, shareholders of Omega Research and OnlineTrading.com will exchange their
respective shares of common stock in those companies for shares of common stock
of OnlineTrading.com Group pursuant to the formula described above.
OnlineTrading.com Group is to be the publicly-traded company, its shares of
common stock to be listed on The Nasdaq National Market. We expect to complete
the merger in July 2000. However, the merger is subject to various closing
conditions. As a result, the completion of the merger may be delayed.
CONTROL OF ONLINETRADING.COM GROUP (SEE PAGE ____)
Upon consummation of the merger, affiliates of William R. Cruz and Ralph L.
Cruz, who are brothers and the Co-Chairmen and Co-Chief Executive Officers of
Omega Research, will own between 41.4% and 45.3% of the outstanding shares of
OnlineTrading.com Group common stock. In addition, the Cruzes should be able to
elect at least five of OnlineTrading.com Group's eight directors for at least
the next two years.
THE MERGER IS INTENDED TO QUALIFY AS A TAX-FREE REORGANIZATION (SEE PAGE __)
Omega Research and OnlineTrading.com intend that the merger will qualify as
a tax-free reorganization for United States federal income tax purposes. If the
merger qualifies as a tax-free reorganization, you will generally not recognize
gain or loss for United States federal income tax purposes upon your receipt of
OnlineTrading.com Group common stock in the merger, except for taxes payable
because of cash received by you instead of a fractional share or cash received
by dissenting OnlineTrading.com shareholders in lieu of OnlineTrading.com Group
common stock. It is a condition to completion of the merger that Omega Research
and OnlineTrading.com receive legal opinions to the effect that the merger
constitutes a tax-free reorganization within the meaning of the Internal Revenue
Code.
ONLINETRADING.COM GROUP INTENDS TO ACCOUNT FOR THE MERGER AS A
POOLING-OF-INTERESTS (SEE PAGE _____)
We intend to account for the merger as a pooling-of-interests, which means
that in OnlineTrading.com Group's financial statements for periods prior to the
effective time of the merger we will be treated as if we had previously been
combined for accounting and financial reporting purposes. It is a condition to
completion of the merger that Omega Research receives letters from Omega
Research and OnlineTrading.com's respective independent auditors confirming that
the merger can properly be accounted for as a pooling-of-interests, although
this condition may be waived.
RESTRICTIONS ON THE ABILITY TO SELL ONLINETRADING.COM GROUP STOCK (SEE
PAGE ____ )
All shares of OnlineTrading.com Group common stock received by you in
connection with the merger will be freely transferable unless you are considered
an "affiliate" of either Omega Research or OnlineTrading.com under the
Securities Act of 1933. Shares of OnlineTrading.com Group common stock held by
affiliates may be sold only pursuant to a registration statement or exemption
from registration under the Securities Act of 1933.
FINANCIAL ADVISORS OPINED THAT THE CONSIDERATION IS FAIR TO OMEGA RESEARCH AND
TO ONLINETRADING.COM SHAREHOLDERS (SEE PAGE ___)
FleetBoston Robertson Stephens Inc. ("Robertson Stephens") has issued a
written opinion, dated January 19, 2000, to the board of directors of Omega
Research that, as of such date, the exchange ratio for shares of
OnlineTrading.com Group common stock to be received for each share of common
stock of OnlineTrading.com pursuant to the merger agreement was fair from a
financial point of view to Omega Research. We have attached a copy of the
Robertson Stephens opinion as Appendix H. You should read the Robertson Stephens
opinion completely to understand the assumptions made, matters considered and
limitations of the review undertaken by Robertson Stephens in providing
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the opinion. The opinion of Robertson Stephens does not constitute a
recommendation as to how any shareholder of Omega Research or OnlineTrading.com
should vote on the merger agreement and the merger.
Raymond James & Associates, Inc. ("Raymond James") has issued a written
opinion, dated January 19, 2000, to the board of directors of OnlineTrading.com
that, as of such date, the exchange ratio for shares of OnlineTrading.com Group
common stock to be received for each share of common stock of OnlineTrading.com
pursuant to the merger agreement was fair from a financial point of view to the
holders of the outstanding shares of OnlineTrading.com. We have attached a copy
of the Raymond James opinion as Appendix I. You should read the Raymond James
opinion completely to understand the assumptions made, matters considered and
limitations of the review undertaken by Raymond James in providing the opinion.
The opinion of Raymond James does not constitute a recommendation as to how any
shareholder of Omega Research or OnlineTrading.com should vote on the merger
agreement and the merger.
Each of Robertson Stephens' and Raymond James' opinion was rendered as of
January 19, 2000 and has not been updated since that date. As the U.S. financial
markets have been volatile since January 19, 2000, we encourage you to read the
opinions carefully and to consider them in the context of current market
conditions.
INTERESTS OF EXECUTIVE OFFICERS, DIRECTORS AND AFFILIATES IN THE MERGER (SEE
PAGE __)
Certain directors and officers of OnlineTrading.com have employment
agreements, and directors and officers of both companies have continuing
indemnification against liabilities that provide them with interests in the
merger that are in addition to those held by OnlineTrading.com and Omega
Research shareholders generally.
BOARDS OF DIRECTORS RECOMMEND THE MERGER TO THEIR RESPECTIVE SHAREHOLDERS (SEE
PAGE ____)
After careful consideration, the boards of directors of Omega Research and
of OnlineTrading.com each has determined that the terms and conditions of the
merger are advisable, fair to, and in the best interests of, its company and
shareholders and unanimously recommends that you vote FOR approval and adoption
of the merger agreement and the merger.
DISSENTERS' OR APPRAISAL RIGHTS (SEE PAGE ___ )
Under Florida law, if you are an Omega Research shareholder you are not
entitled to dissenters' or appraisal rights in the merger, but if you are an
OnlineTrading.com shareholder, you are entitled to dissenters' rights.
APPROVAL REQUIRED BY MAJORITY OF THE OUTSTANDING SHARES OF EACH OF OMEGA
RESEARCH AND ONLINETRADING.COM COMMON STOCK (SEE PAGE ___)
The holders of a majority of the outstanding shares of each of Omega
Research and OnlineTrading.com common stock must approve the merger agreement
and the merger. You are entitled to cast one vote per share of the Omega
Research or OnlineTrading.com common stock you owned at the close of business on
the applicable record date. The record date for holders of Omega Research common
stock is June 5, 2000, and for OnlineTrading.com common stock is June 5, 2000.
On Omega Research's record date, _____________ shares of Omega Research's common
stock were outstanding and entitled to vote, and on OnlineTrading.com's record
date, __________ shares of OnlineTrading.com common stock were outstanding and
entitled to vote.
Under shareholder agreements in the form attached as Appendix B, Omega
Research shareholders comprised of affiliates of the Co-Chairmen and Co-Chief
Executive Officers of Omega Research owning in the aggregate approximately 75%
of Omega Research's common stock have agreed to vote all of their shares for
approval and adoption of the merger agreement and the merger. Under shareholder
agreements in the form attached as Appendix C, OnlineTrading.com shareholders
comprised of certain officers and directors of OnlineTrading.com, their
affiliates, and a former director of OnlineTrading.com owning in the aggregate
approximately 77% of OnlineTrading.com's common stock have agreed to vote all
their shares for approval and adoption of the merger
4
<PAGE>
agreement and the merger. Accordingly, holders of a sufficient number of shares
of outstanding common stock of each of Omega Research and OnlineTrading.com
required to approve and adopt the merger agreement and merger have already
committed to vote in favor of this transaction.
HOW TO VOTE
To cast your vote, attend the special shareholders meeting of the company in
which you hold shares or mail your signed proxy card in the enclosed return
envelope. If your shares are held in "street name" by your broker, your broker
will vote your shares only if you provide instructions on how to vote. You
should follow the directions provided by your broker regarding how to instruct
your broker to vote your shares. Without instructions, your shares will not be
voted at the applicable special meeting, which will have the same effect as
voting against approval of the merger. You may change your vote by delivering a
signed notice of revocation or a later-dated, signed proxy card to the corporate
secretary of the company in which you hold shares before the shareholders
meeting of that company, or by attending the shareholders meeting and voting in
person.
CONDITIONS THAT MUST BE SATISFIED FOR THE MERGER TO OCCUR (SEE PAGE ____)
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of conditions specified in the merger agreement. If
either one of us waives any condition, we will consider the facts and
circumstances at that time and make a determination as to whether a
resolicitation of proxies from our shareholders is appropriate.
TERMINATION OF THE MERGER (SEE PAGE ____)
The merger agreement may be terminated by either company without penalty
under certain circumstances before the completion of the merger. In certain of
those circumstances, each of Omega Research and OnlineTrading.com has agreed to
pay the other a termination fee of $5,000,000 or reimburse the other party for
its out-of-pocket expenses incurred in connection with the merger.
EACH COMPANY REQUIRED THE OTHER TO ENTER INTO A STOCK OPTION AGREEMENT (SEE
PAGE ___).
In connection with the merger agreement, each of us granted to the other a
stock option to purchase approximately 19.99% of the other's shares of common
stock outstanding on January 19, 2000. Neither option is currently exercisable,
and may be exercised only if the merger agreement is terminated under
circumstances in which a termination fee is payable. Otherwise, the option will
terminate and may not be exercised by either of us.
WE HAVE AGREED TO NOT ENGAGE IN CERTAIN TYPES OF SOLICITATION (SEE PAGE ___)
Until the merger is completed or the merger agreement is terminated, each of
us has generally agreed not to solicit, initiate or encourage third-party
takeover proposals. The stock options, the termination fees and these
nonsolicitation provisions may discourage third parties who are interested in
acquiring a significant stake in either of us, and these provisions are intended
by us to increase the likelihood that the merger will be completed.
THE COMPANIES
ONLINETRADING.COM GROUP, INC.
8700 West Flagler Street
Miami, Florida 33174
(305) 485-7000
OnlineTrading.com Group is a holding company recently formed by Omega
Research under the laws of the State of Florida. After the consummation of the
merger, Omega Research and OnlineTrading.com will be wholly-
5
<PAGE>
owned subsidiaries of OnlineTrading.com Group. OnlineTrading.com Group will
engage in business only through its wholly-owned subsidiaries, each of which
shall operate a separate, independent business.
OMEGA RESEARCH, INC.
8700 West Flagler Street
Miami, Florida 33174
(305) 485-7000
Omega Research, a Florida corporation, was incorporated in 1982 to develop,
market and sell investment analysis and trading strategy testing and automation
software tools to individual and professional investors and traders. Omega
Research is in the process of changing its business model. Omega Research's
historical business model has consisted of sales of client software products,
payment for which is committed to in full by the customer at the time of sale.
Under the new business model, Omega Research will seek to derive recurring
revenues from customers by offering through OnlineTrading.com online brokerage
services for which commissions are payable, and by offering monthly subscription
services for trading strategy tools integrated with streaming real-time market
data and news for which a monthly fee is payable.
ONLINETRADINGINC.COM CORP.
2700 North Military Trail
Suite 2000
Boca Raton, Florida 33431
(561) 945-1010
OnlineTrading.com provides financial brokerage services primarily to
experienced investors and small to mid-sized financial institutions through a
variety of communication mediums, including the Internet. OnlineTrading.com also
provides a full range of brokerage services including access to the various
securities markets via its computerized infrastructure. As a result of the
technology it uses, OnlineTrading.com's registered representatives and clients
have access to the most up-to-date electronic information on stocks, market
indices and news.
OnlineTrading.com was incorporated in Florida in September 1995 as Online
Trading, Inc. In February 1999, it changed its name from Online Trading, Inc. to
onlinetradinginc.com corp. In June 1999, it acquired the world-wide-web domain
name WWW.ONLINETRADING.COM and subsequently registered to do business under the
name OnlineTrading.com.
AMENDMENT OF OMEGA RESEARCH INCENTIVE STOCK PLAN (SEE PAGE ___)
In connection with the execution of the merger agreement, Omega Research
agreed to amend its Amended and Restated 1996 Incentive Stock Plan to increase
the number of shares of Omega Research common stock, $.01 par value, reserved
for issuance under the Incentive Stock Plan from 4,500,000 shares to 7,500,000
shares. The amendment to the Incentive Stock Plan will be voted upon by Omega
Research shareholders and is subject to their approval of the merger. Subject to
consummation of the merger, OnlineTrading.com Group will be assuming the
Incentive Stock Plan and filing a registration statement on Form S-8 to register
the unissued shares of common stock reserved for future issuance thereunder.
RISK FACTORS
By voting in favor of the merger, you will be choosing to invest in
OnlineTrading.com Group common stock. An investment in OnlineTrading.com Group
common stock involves a high degree of risk. In addition to the other
information contained in this joint proxy statement/prospectus, you should
carefully consider the following risk factors in deciding whether to vote to
approve and adopt the merger agreement and the merger. If any of the following
risks actually occur, the business and prospects of OnlineTrading.com Group,
Omega Research and/or
6
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OnlineTrading.com may be seriously harmed. In such case, the trading price of
OnlineTrading.com Group common stock would decline, and you could lose all or
part of your investment.
THE CONSIDERATION ONLINETRADING.COM SHAREHOLDERS WILL RECEIVE MAY DEVIATE
SUBSTANTIALLY FROM EARLIER AND CURRENT EXPECTATIONS
If you are an OnlineTrading.com shareholder, the number of shares you
receive of OnlineTrading.com Group common stock may change as a result of
changes in the market value of Omega Research common stock, but such upward or
downward change in the number of OnlineTrading.com Group shares you will receive
most likely will not correspond to the change in market value of Omega
Research's common stock.
The specific dollar value of OnlineTrading.com Group common stock to be
received by OnlineTrading.com shareholders will depend on the market value of
Omega Research common stock at the time of completion of the merger and may
decrease from the date OnlineTrading.com shareholders submit their proxies. The
share price of Omega Research common stock is by nature subject to the general
price fluctuations in the market for publicly-traded equity securities and has
experienced significant volatility. As of ___________, 2000, the closing price
was substantially lower than the closing price at the time of and immediately
following the signing of the merger agreement in late January. We urge you to
obtain recent and historical market quotations for Omega Research common stock
and OnlineTrading.com common stock. We cannot predict or give any assurances as
to the market price of Omega Research common stock at any time before the
completion of the merger or of OnlineTrading.com Group common stock after the
completion of the merger. See "SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
-- Price Sensitivity Analysis" and "THE MERGER AGREEMENT AND RELATED AGREEMENTS
-- Conversion of Shares in the Merger."
THE MERGER COULD ADVERSELY AFFECT COMBINED FINANCIAL RESULTS
If the benefits of the merger do not exceed the costs associated with the
merger, including dilution to Omega Research and OnlineTrading.com shareholders
resulting from the issuance of OnlineTrading.com Group shares in the merger,
OnlineTrading.com Group's financial results, including earnings per share, could
be materially adversely affected. Specifically, OnlineTrading.com Group expects
to record a one-time charge of approximately $4.1 million related to the merger
during the quarter in which the merger is completed.
THE MARKET PRICE OF ONLINETRADING.COM GROUP COMMON STOCK MAY DECLINE AS A RESULT
OF THE MERGER
The market price of OnlineTrading.com Group common stock may decline as a
result of the merger if:
o the combination of Omega Research and OnlineTrading.com is
unsuccessful;
o we do not achieve the perceived benefits of the merger as
rapidly or to the extent anticipated by financial or industry
analysts; or
o the effect of the merger on our financial results is not
consistent with the expectations of financial or industry
analysts.
FAILURE OF THE MERGER TO QUALIFY AS A POOLING-OF-INTERESTS WOULD NEGATIVELY
AFFECT ONLINETRADING.COM GROUP'S FINANCIAL RESULTS
The failure of the merger to qualify for pooling-of-interests accounting
treatment for financial reporting purposes would materially and adversely affect
OnlineTrading.com Group's reported earnings and, likely, the price of
OnlineTrading.com Group's common stock. The availability of pooling-of-interests
accounting treatment for the merger depends upon circumstances and events
occurring after the completion of the merger. For example, there must be no
significant changes in the business of the combined company, such as significant
dispositions of assets, for a period of two years following the effective time
of the merger.
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FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT OMEGA RESEARCH'S OR
ONLINETRADING.COM'S STOCK PRICES AND FUTURE BUSINESS AND OPERATIONS
If the merger is not completed, Omega Research and/or OnlineTrading.com may
be subject to a number of material negative events, including the following:
o either of them may be required to pay the other a termination
fee of $5 million;
o the stock option granted to each of them by the other may
become exercisable under certain circumstances;
o the price of Omega Research and/or OnlineTrading.com common
stock may decline to the extent that the current market price
of either or both of their common stock reflects a favorable
market assumption that the merger will be completed,
particularly given that each company believes what the other
offers is critical to its long-term success; and
o costs related to the merger, such as legal, accounting and
financial advisor fees, must be paid even if the merger is not
completed.
INDIVIDUALS AND COMPANIES THAT DO OR MAY DO BUSINESS WITH OMEGA RESEARCH OR
ONLINETRADING.COM MAY DELAY OR BE UNCERTAIN ABOUT THEIR DEALINGS WITH THEM UNTIL
WELL AFTER THE MERGER IS COMPLETED
Each company's customers, suppliers and potential strategic partners may, in
response to the announcement of the merger, be delaying or deferring decisions
concerning that company. Any delay or deferral in those decisions by such
customers, suppliers or potential strategic partners could have a material
adverse effect on OnlineTrading.com's or Omega Research's, as applicable,
business, regardless of whether or not the merger is ultimately completed.
Similarly, current and prospective Omega Research and/or OnlineTrading.com
employees may experience uncertainty about their future roles after the merger
until OnlineTrading.com Group's strategies with regard to Omega Research and
OnlineTrading.com are completely announced or executed. This may adversely
affect Omega Research's and/or OnlineTrading.com's ability to attract and retain
key management, sales, marketing and technical personnel.
IF A COMPANY WISHES NOT TO GO FORWARD WITH THE MERGER, THE MERGER AGREEMENT
CONTAINS PROVISIONS THAT MAKE IT DIFFICULT FOR EITHER COMPANY TO FIND ANOTHER
MERGER PARTNER WILLING TO ACCEPT SIMILAR OR MORE FAVORABLE MERGER TERMS.
If the merger is terminated and the board of directors of either Omega
Research or OnlineTrading.com determines to seek another merger or business
combination, there can be no assurance that either one will be able to find a
partner willing to pay or accept, as the case may be, an equivalent or better
price than that which would be paid or accepted in the merger. In addition,
while the merger agreement is in effect, subject to certain limited exceptions,
each of Omega Research and OnlineTrading.com is prohibited from soliciting,
initiating or encouraging or entering into certain extraordinary transactions,
such as a merger, sale of assets or other business combination, with any other
party. Furthermore, if the merger agreement is terminated and either Omega
Research or OnlineTrading.com is entitled to exercise and does exercise its
option to purchase the other company's common stock, the other company may not
be able to account for future transactions as a pooling-of-interests.
THE CHANGE OF BUSINESS MODEL WILL RESULT IN US ENGAGING IN BUSINESSES IN WHICH
WE DO NOT HAVE MUCH EXPERIENCE
Omega Research is, through its recent Window On WallStreet acquisition and
the merger, in the process of changing its business model from being a trading
strategy client software company to being part of, and controlling, a company
that provides an Internet platform of trading strategy tools and streaming
real-time market data and
8
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news, and trade execution through a high-speed electronic order execution
system. Omega Research has limited experience in the real-time market data
industry. All of such experience has been acquired by Window On WallStreet, and
Window On WallStreet had only one year of experience operating a real-time data
service at the time it was acquired by Omega Research. Omega Research has no
experience in the brokerage services industry, and the combined company will be
relying completely upon the experience of OnlineTrading.com. OnlineTrading.com
itself has only been providing brokerage services for approximately four years,
and primarily to institutional investors, as opposed to the individual active
traders the combined company seeks to attract. The lack of experience in key
components of the new business model, even after considering the experience of
Window On WallStreet and OnlineTrading.com, is substantial, and may result in
delays, mistakes and liabilities unlikely to happen to a company that has more
experience. Such delays, mistakes and liabilities, if and to the extent they
occur, are likely to have material adverse effects upon the combined company's
business, financial condition, results of operations and prospects.
OUR TRANSITION TO THE NEW BUSINESS MODEL REQUIRES THE CREATION AND INTEGRATION
OF COMPLEX TECHNOLOGY, ERRORS OR OTHER PROBLEMS IN WHICH COULD NEGATIVELY AFFECT
CUSTOMER ACCEPTANCE
The success of the new business model will be dependent, in part, upon the
two companies being able to rapidly integrate with one another from
technological, operational and marketing aspects. The two companies are
currently working on the completion of OnlineTrading.com's proprietary order
routing and execution technology, the integration of that technology with
TRADESTATION.COM, which itself is currently under development, in order to be
able to access electronic order execution from the TradeStation.com platform,
and the required operational, information technology and marketing integrations.
Given the rapid pace and the number of items currently in development, there are
substantial risks that the completion of those tasks and expected integrations
will not occur as or when planned, will contain significant errors or problems,
or will not be completed at a time and/or in a manner that results in commercial
viability. To the extent such errors, problems or failures occur, they are
likely to have a material adverse effect on our business, financial condition,
results of operations and prospects.
If customer acceptance of the combined company's Internet-based trading
strategy tools, real-time market data services or online brokerage services does
not meet our expectations due to technical difficulties or errors in the
products or services, unfavorable critical reviews, failure to market
effectively, the introduction by others of more-accepted products and services,
or other reasons, our business, financial condition, results of operations and
prospects will be materially adversely affected. All software, including
Internet-based software, contains errors, particularly new, highly-complex,
innovative products or services. Accordingly, there is a substantial risk that
the combined company's Internet-based trading strategy tools, real-time market
data services and online brokerage services in development will contain numerous
technical errors, some of which may be significant and deeply, negatively impact
customer acceptance of such products and services.
OUR TRANSITION TO THE NEW BUSINESS MODEL REQUIRES RAPID AND SUBSTANTIAL CHANGES
TO OUR INFRASTRUCTURE
The decision to change our business model means that we must develop and
depend upon a different operational infrastructure than the one which supported
a client software business, and substantially modify our approaches to product
development and sales and marketing. Our infrastructure must be changed to
support three separate kinds of businesses: development of trading strategy
tools; organization and delivery of streaming real-time data and news; and
online brokerage services, all of which need to be seamlessly integrated. This
will require substantial changes in information technology and databases,
mechanisms and methods of delivery of products and services, administrative
functions, and use of personnel resources. Product development must change its
focus to a large extent from client software to Internet and web site-related
technology, and sales and marketing must change its focus from high-priced
client software sales to brokerage service commission revenues, the advertising
of which is intensely regulated by governmental and quasi-governmental
authorities, and Internet-based, lower-priced, monthly subscriptions for trading
strategy tools integrated with streaming real-time data and news.
We have virtually no prior experience in marketing these services, as Omega
Research has never, until the Window On WallStreet acquisition, been in those
businesses, and Window On WallStreet and OnlineTrading.com
9
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have engaged in little or no media advertising of their respective services.
There are substantial risks that we will fail, to some degree, to sufficiently
rebuild our infrastructure and integrate the three key components of the new
business model, and/or to re-focus product development and sales and marketing
on the new business model. Such failures, if and to the extent they occur, are
likely to have material adverse effects upon our business, financial condition,
results of operations and prospects.
OUR TRANSITION TO THE NEW BUSINESS MODEL PLACES A SIGNIFICANT STRAIN ON OUR
MANAGEMENT AND OPERATIONS
Our transition to the new business model has placed, and will continue to
place, a significant strain on our management and operations. Our future
operating results will depend, in part, on our ability to continue to broaden
our senior and middle management groups and administrative infrastructure, and
our ability to attract, hire, and retain skilled employees, particularly in
product development, marketing and sales, web site design and information
technology.
THE NEW BUSINESS MODEL IS ONE WITH NO HISTORICAL RECORD, WHICH MAKES BUSINESS
PLANNING DIFFICULT
Because the new business model is one with no historical record for either
company, and, to our knowledge, one with no historical record for any other
company, our attempts to anticipate revenues and costs, to prepare budgets which
organize the implementation of the transition to the new business model, and to
make decisions regarding obtaining third-party financing that may be required,
will generally be based upon theoretical assumptions. Future events and results
may differ drastically from those planned or anticipated, which, if negative,
would result in a material adverse effect on our business, financial condition,
results of operations and prospects.
THE RAPID PACE OF OUR TRANSITION TO THE NEW BUSINESS MODEL INCREASES RISKS OF
MISTAKES AND FAILURE
The substantial risks concerning transition to the new business model
discussed above are magnified by the rapid pace at which we are attempting to
complete the transition to the new business model. We are assuming that the
merger will close no later than July (even though there is risk that the merger
will close later or not at all) and that the new business model will be fully
launched in a relatively short period of time after closing of the merger. If
that occurs, Omega Research will have changed its business entirely in a period
of approximately eight months. The rapid pace obviously increases the likelihood
of occurrence of the possible mistakes and failures discussed above, and
increases the risks of the likelihood of resulting material adverse effects that
will damage our business, financial condition, results of operations and
prospects.
FAILURE TO CLOSE THE MERGER WILL RESULT IN SUBSTANTIAL DELAY AND DIFFICULTY IN
OMEGA RESEARCH'S ABILITY TO INTEGRATE WITH BROKERAGE SERVICES, AN ESSENTIAL
REQUIREMENT OF ITS NEW BUSINESS MODEL
The change to the new business model is dependent upon closing of the
merger. If the merger does not occur, Omega Research's choices would be to
modify its new business model to exclude online brokerage services, to seek to
develop arrangements to integrate its trading strategy tools/streaming real-time
data platform with third-party online brokers, to search for a different online
broker with which to merge or create a joint venture relationship, or to create
its own online brokerage service. Omega Research does not believe that excluding
online brokerage services from its new business model or developing integration
arrangements with third-party online brokers are favorable alternatives. Omega
Research believes that integrated online brokerage services are critical in
meeting the current and evolving needs of the active trader, and that the
potential success of the new business model is dramatically reduced if it
includes only trading strategy tools and streaming real-time data without
integration of that platform with electronic order execution services owned and
provided by the same company. Further, Omega Research believes that, in the new
business model, brokerage commissions are likely to become the largest source of
revenues for the combined company. Finding a new online broker partner may or
may not be feasible, and in all cases would cause a huge delay in Omega
Research's transition to its new business model. Omega Research's development of
its own online brokerage services would likely cause an even longer delay, as
well as contain the additional risk of Omega Research entering a heavily
government-regulated business in which it has no prior experience. The merger
transaction agreements are subject to conditions precedent which, if not
fulfilled, would
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result in failure to complete the merger. Failure of the merger to occur as and
when planned, or at all, would likely have a material adverse effect on the
company's business, financial condition, results of operations and prospects.
FAILURE TO CLOSE THE MERGER WILL RESULT IN SUBSTANTIAL DELAY AND DIFFICULTY IN
ONLINETRADING.COM'S ABILITY TO DISTINGUISH ITSELF IN THE ONLINE BROKERAGE
INDUSTRY
OnlineTrading.com believes that the merger is necessary to distinguish it,
in the long-term, from other online brokerages because after the merger
OnlineTrading.com will have the exclusive right to offer some of Omega
Research's real-time trading strategy tools as a unique trading platform to
brokerage clients. If the merger does not occur, OnlineTrading.com's choices
would be to develop internally a powerful trading strategy platform or seek to
license one from a third party. Developing internally trading strategy tools of
the quality and sophistication of Omega Research's is unlikely to occur in a
reasonable period of time, if ever, and licensing from third parties, even
assuming trading strategy tools of comparable quality exist and are available,
could be expensive, insecure by reason of possible termination of the license,
and would likely be nonexclusive, and, therefore, of less value. The merger
transaction agreements are subject to conditions precedent which, if not
fulfilled, would result in failure to complete the merger. Failure of the merger
to occur as and when planned, or at all, would likely have a material adverse
effect on the company's business, financial condition, results of operations and
prospects.
THE NATURE OF OUR BUSINESS RESULTS IN POTENTIAL LIABILITY TO CUSTOMERS
Many aspects of the securities brokerage business, including online trading
services, involve substantial risks of liability. In recent years there has been
an increasing incidence of litigation involving the securities brokerage
industry, including class action and other suits that generally seek substantial
damages, including in some cases punitive damages. Any such litigation could
have a material adverse effect on our business, financial condition, results of
operations and prospects. Additionally, our other products and services and
planned products and services are and will be used by traders in the financial
markets, and, as a result, an investor or trader might claim that investment or
trading losses or lost profits resulted from use of a flawed version of one of
our trading tools or inaccurate assumptions made by the trading tools regarding
data, or inaccurate data. This risk is heightened by Omega Research's decision
to provide real-time financial market information to its customers, which
routinely contain errors and omissions, but which are nevertheless relied upon
by customers in making investment and trading decisions using Omega Research's
trading tools. This risk will again be substantially heightened by the combined
company's planned offering of online brokerage services seamlessly integrated
with real-time trading strategy tools. In particular, the proprietary order
routing technology in development is being designed to automatically locate,
with immediacy, the best available price in the appropriate market in completing
execution of a trade. Contributing to these possible occurrences are risks that
the electronic communications and other systems upon which these products and
services rely, and will continue to rely, may operate too slowly or fail. Major
failures of this kind will affect all customers who are online simultaneously.
See "Systems Failure May Result In Our Inability to Deliver on Time, or at all,
Important and Time-Sensitive Services to Our Customers" below.
In addition, there can be no assurance that either company's Year 2000
compliance efforts, or compliance modifications, have not and will not adversely
affect its products and services in ways not anticipated by it, or that
customers will not assert that either company has or had an obligation to
provide Year 2000 solutions for older versions of existing products or services
or for discontinued products or services, any of which occurrences could result
in claims by customers.
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<PAGE>
SYSTEMS FAILURE MAY RESULT IN OUR INABILITY TO DELIVER ON TIME, OR AT ALL,
IMPORTANT AND TIME-SENSITIVE SERVICES TO OUR CUSTOMERS
We will be receiving and processing trade orders through Internet-based
trading platforms and online order execution systems. Thus, we will depend
heavily on the integrity of the electronic systems supporting this type of
trading, including the trading strategy tools containing buy and sell alerts
that initiate trading decisions or order placement. Heavy stress placed on these
systems during peak trading times could cause these systems to operate too
slowly or fail. Additionally, the integrity of these systems is increasingly
being attacked by persons sometimes referred to as "hackers" who intentionally
introduce viruses or other defects to cause damage, inaccuracies or complete
failure. If these systems or any other systems in the trading process slow down
significantly or fail even for a short time, our brokerage customers would
suffer delays in trading, potentially causing substantial losses and possibly
subjecting us to claims for such losses or to litigation claiming fraud or
negligence. During a systems failure, OnlineTrading.com may be able to take
orders by telephone; however, only associates with appropriate securities
broker's licenses can accept telephone orders, and an adequate number of
associates may not be available to take customer calls in the event of a systems
failure. In addition, a hardware or software failure, power or
telecommunications interruption or natural disaster could cause a systems
failure. Any systems failure that interrupts our operations could have a
material adverse effect on our business, financial condition, results of
operations and prospects. See "The Nature of Our Business Results in Potential
Liability to Customers" above.
WE MAY NEED CASH IN THE FORESEEABLE FUTURE
Omega Research is experiencing a period of net losses. As of May 31, 2000,
Omega Research had approximately $2.9 million in cash, cash equivalents and
marketable securities to address current and anticipated losses and other cash
requirements of Omega Research as it transitions to its new business model. As
Omega Research implements the transition to the new business model and
thereafter, the combined company may use at a rapid pace all of its and
OnlineTrading.com's cash, cash equivalents and marketable securities (currently
approximating $15 million) and thereafter may need to raise additional funds in
order to fund possible operating losses, support more rapid expansion, develop
new or enhanced services and products, implement sufficient marketing campaigns,
respond to competitive pressures, acquire necessary or complementary businesses
or technologies, and take advantage of unanticipated opportunities. Omega
Research has also recently substantially increased its rental obligations under
real property, facilities and equipment leases. The combined company's future
liquidity and capital requirements will depend upon numerous factors, including
the period of time it takes to execute the transition to the new business model,
and customer acceptance thereof, costs and timing of expansion of research and
development and marketing efforts, the success and timing of such efforts, the
success of our existing and new product and service offerings, and competing
technological and market developments. Funds may be raised through debt
financing and/or the issuance of equity securities, there being no assurance
that any such type of financing on terms satisfactory to us will occur. Any
equity financing or debt financing which requires issuance of equity securities
or warrants to the lender would reduce the percentage ownership of the
shareholders of the combined company. You also may, if issuance of equities
occurs, experience additional dilution in net book value per share, or the
issued equities may have rights, preferences or privileges senior to yours.
THERE ARE SEVERAL FACTORS THAT MAY CAUSE FLUCTUATIONS IN ONLINETRADING.COM
GROUP'S QUARTERLY OPERATING RESULTS, WHICH WOULD LIKELY RESULT IN SIGNIFICANT
VOLATILITY IN ITS STOCK PRICE
Quarterly revenues and operating results of the companies have fluctuated
significantly in the past and will likely fluctuate in the future. These
fluctuations may be expected to be even greater during 2000, and thereafter, due
to the unpredictability inherent in the change to the new business model the
merger will effectuate. Causes of such significant fluctuations may include, but
are not limited to:
o the timing, completion and costs of:
o the merger;
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o Omega Research's development and launch of
TradeStation.com and other trading strategy
platforms;
o development and launch of OnlineTrading.com's
proprietary electronic order routing and execution
technology;
o the integration and launch of TradeStation.com as a
platform for OnlineTrading.com's electronic order
routing and execution technology; and
o creation of the combined company infrastructure,
including information technology and databases,
mechanisms and methods of delivery of products and
services, administrative functions, product
development and sales and marketing;
o cash flow problems that may occur;
o the transition in Omega Research's business model from
deriving revenues on expensive client software sales at the
time of the sale to deriving revenues on lower-priced
subscription services on a monthly basis and, ultimately,
commission revenues;
o OnlineTrading.com's expansion from high net-worth individual
and institutional clients to active traders;
o Omega Research's actual returns and bad debt exceeding or
being smaller than its estimated reserves for returns and bad
debt;
o continuous changes in sales incentive or marketing strategies
(which have undergone significant change recently and are
expected to continue to evolve);
o changes in demand for our products and services due to rapid
pace in which new technology is offered to customers in our
industry;
o costs that may occur with respect to regulatory compliance or
other regulatory issues;
o adverse results in the Whigham lawsuit against
OnlineTrading.com or other cases that may be filed from time
to time by brokerage clients, including, but not limited to,
class action lawsuits; and
o general economic and market factors that affect active
trading, including changes in the securities and financial
markets.
OUR INDUSTRY IS INTENSELY COMPETITIVE, WHICH MAKES IT DIFFICULT TO ATTRACT AND
RETAIN CUSTOMERS
The markets for (i) online brokerage services, (ii) client software and
Internet-based trading tools and (iii) real-time market data services are
intensely competitive and rapidly evolving, and there appears to be substantial
consolidation of those three products and services occurring in the industry.
The new business model embraces this evolution and consolidation. However, we
believe that due to the current and anticipated rapid growth of the market for
integrated trading tools, real-time market data and online brokerage services,
competition, as well as consolidation, will substantially increase and intensify
in the future. We believe our ability to compete will depend upon many factors
both within and outside our control. These include: the timing and market
acceptance of new products and services and enhancements developed by us and our
competitors; our ability to integrate the respective businesses in an orderly,
efficient and otherwise successful manner; the operation and support of
efficient, materially error-free Internet-based systems; product and service
functionality; data availability; ease of use; pricing;
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reliability; customer service and support; and sales and marketing efforts. See
"Business and Financial Information Regarding Omega Research -- Competition."
RETURNS AND BAD DEBT MAY EXCEED RESERVES THAT HAVE BEEN MADE FOR THEM
Historically, Omega Research's net revenues from licensing fees for sales of
client software have been determined by estimating reserves for returns and bad
debt quarterly based upon historical experience and other relevant factors.
There can be no assurance, in particular given the possible effects of Omega
Research's announcements of its change in business model, that actual returns
and bad debt will not exceed estimated reserves for returns and bad debt.
WE MAY NOT ADEQUATELY TRANSITION OUR BUSINESS TO THE INTERNET
The new business model means that our future growth will depend upon our
continuing to adopt the Internet as our primary medium for commerce and
communication, including the delivery of browser-based trading tools, high-
quality streaming real-time market data, online electronic order routing and
execution systems, and comprehensive web sites that include marketing materials
and customer support. There can be no assurance that we will successfully
develop and implement such Internet capabilities, or effectively adjust our
marketing and customer support approaches. Further, we will be relying
increasingly on our web sites and related systems, and the Internet generally,
to maximize the use and cost-efficiency of our products and services, to accept
orders and payments, to track and account for orders and payments and fulfill
reporting obligations under regulatory laws and marketing agreements with third
parties, to register attendees for events, to market our products and services,
and to provide technical information and assistance to our customers.
THE INTERNET, AS IT GROWS, MAY HAVE PROBLEMS THAT AFFECT OUR BUSINESS
There is the risk that, over time, the Internet may not prove to be a viable
commercial marketplace because of a failure to continue to develop the necessary
infrastructure, such as reliable network backbones and adequate band-widths, or
the failure to develop complementary products and services, such as high-speed
modems. The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. There can be no
assurance that the Internet infrastructure will continue to be able to support
the demands placed on it by this continued growth.
FLUCTUATIONS IN THE SECURITIES AND FINANCIAL MARKETS MAY AFFECT OUR RATES OF
CUSTOMERS ACQUISITION, RETENTION AND TRADING ACTIVITY
Our current and planned products and services are and will be marketed to
customers who invest or trade in the securities and financial markets. To the
extent that interest in investing or trading decreases due to volatility in the
securities or financial markets, such as has recently occurred, tax law changes,
recession, depression, or otherwise, our business, financial condition, results
of operations and prospects could be materially adversely affected. It is
possible, if not likely, that increased losses by customers that occur as a
result of any such recession, depression or other negative event will increase
the quantity and size of legal claims made against us. See "The Nature of Our
Business Results in Potential Liability to Customers" above.
OPERATION IN A HIGHLY-REGULATED INDUSTRY AND COMPLIANCE FAILURES MAY RESULT IN
SEVERE PENALTIES AND OTHER HARMFUL GOVERNMENTAL ACTIONS AGAINST US
The securities industry is subject to extensive regulation covering all
aspects of the securities business. Regulatory authorities are currently
focusing intensely on the online trading industry, particularly the segment that
seeks the accounts of active traders by offering well-integrated, sophisticated
trading platforms and order execution. The various government authorities and
industry self-regulatory organizations that supervise and regulate and will
supervise and regulate OnlineTrading.com generally have broad enforcement powers
to censure, fine, issue cease-and-desist orders or suspend, enjoin or expel
OnlineTrading.com or any of its officers or employees who violate
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<PAGE>
applicable laws or regulations. Additionally, new rules relating to active
traders may be enacted which severely limit the operations and potential success
of our new business model. OnlineTrading.com's ability to comply with all
applicable laws and rules is largely dependent on OnlineTrading.com's
maintenance of compliance and reporting systems, as well as its ability to
attract and retain qualified compliance and other personnel. OnlineTrading.com
could be subject to disciplinary or other regulatory or legal actions in the
future due to noncompliance. In addition, it is possible that any past
noncompliance of OnlineTrading.com could subject the combined company to future
civil lawsuits or regulatory actions, the outcome of which could have a material
adverse effect on our financial condition and operating results.
DEPENDENCE UPON OUTSIDE DATA SOURCES CREATES RISKS OUTSIDE OF OUR CONTROL WHICH
MAY AFFECT OUR ABILITY TO PROVIDE OUR CUSTOMERS WITH MARKET DATA AND NEWS
Omega Research's business is dependent upon its ability to enter into
contracts with private business information compilers in order to provide market
data and news to its customers. Omega Research obtains such information pursuant
to non-exclusive licenses from private information compilers, some of which are
current or potential competitors of Omega Research. The private sector contracts
typically provide for royalties based on usage or minimums. Omega Research has
such licenses from certain data suppliers to provide such information that such
suppliers also market in competition with Omega Research. Omega Research must
also comply with rules and regulations of the exchanges that are the sources of
market data information. Failure to comply could result in Omega Research
becoming a prohibited recipient of market data from exchanges the rules or
regulations of which were violated. While Omega Research is not aware of any
material data supplier contracts that are in jeopardy of being terminated or not
renewed, there can be no assurance that Omega Research will be able to renew its
current contracts with data sources, maintain comparable price levels for
information, or negotiate additional contracts with data sources as necessary to
maintain existing products and services or introduce new products and services.
There is no assurance comparable alternative sources of information could be
obtained should existing contracts be terminated or not renewed. Termination of
Omega Research's relationship with one or more information suppliers could have
a material adverse effect on our financial condition and results of operations.
LOSS OF THE BEAR STEARNS RELATIONSHIP COULD COMPROMISE THE CREDIBILITY OF
ONLINETRADING.COM'S BROKERAGE SERVICES AND RESULT IN REGULATORY COMPLIANCE
ISSUES
OnlineTrading.com's primary clearing relationship is with Bear Stearns
Securities Corp., a premier, well-known clearing firm ("Bear Stearns"). The
clearing relationship may be terminated by either party on 60 days advance
written notice. If the clearing relationship terminates, OnlineTrading.com's
credibility and image as a brokerage firm would likely decrease in value unless
OnlineTrading.com was able to replace Bear Stearns with a comparable clearing
firm, as to which no assurance may be given. If OnlineTrading.com is unable to
engage the services of any clearing firm, it would need to provide its own
clearing to remain in business. If it was to provide its own clearing, it would
need first to obtain regulatory approval (which could be time-consuming), and
would subject itself to substantial additional infrastructure costs and
increased net capital reserve requirements and other complex and intense
regulatory requirements.
THE LOSS OF KEY EMPLOYEES COULD DECREASE THE QUALITY OF OUR MANAGEMENT AND
OPERATIONS
Our success depends to a very significant extent on the continued
availability and performance of a number of senior management, engineering and
sales and marketing personnel. The loss of one or more of these key employees,
including William R. Cruz or Ralph L. Cruz, Omega Research's Co-Chairmen and
Co-Chief Executive Officers, or certain key technology personnel of Omega
Research, or Farshid Tafazzoli, co-founder and Chief Information Officer of
OnlineTrading.com, E. Steven zum Tobel, President of OnlineTrading.com, or
certain key senior brokerage operations management personnel of
OnlineTrading.com, could have a material adverse effect on the combined company.
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FAILURE TO RECEIVE THE BENEFITS OF THE BRIDGE TELERATE ROYALTY FEES IN 2000 OR
2001 COULD CAUSE CASH PROBLEMS AND NEGATIVELY AFFECT REVENUES AND EARNINGS
Omega Research is party to a Software License, Maintenance and Development
Agreement with Bridge Telerate relating to TRADESTATION. The agreement provides
a substantial, high-margin, minimum royalty stream in 2000 and 2001, the loss of
which would materially adversely affect our revenues and earnings (or size of
our losses) and could cause cash flow problems in those years. While the
agreement is non-cancelable, there can be no assurance that Omega Research's
anticipated royalties and other anticipated benefits from its relations with
Bridge Telerate will be realized. See "We May Need Cash in the Foreseeable
Future" above.
ONLINETRADING.COM MUST MEET NET CAPITAL REQUIREMENTS AS A BROKER-DEALER THAT, IF
NOT COMPLIED WITH, COULD RESULT IN SEVERE PENALTIES, AND WHICH AT ALL TIMES
LIMIT THE COMPANY'S RIGHT TO USE ALL OF ITS CASH
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
broker-dealers. Net capital is the net worth of a broker or dealer (assets minus
liabilities), less deductions for certain types of assets as well as other
charges. If a firm fails to maintain the required net capital it may be subject
to suspension or revocation of registration by the SEC and suspension or
expulsion by the NASD, and it could ultimately lead to the firm's liquidation.
If such net capital rules are changed or expanded, or if there is an unusually
large charge against net capital, operations that require the use of capital
would be limited. Also, OnlineTrading.com Group's ability to withdraw capital
from OnlineTrading.com, its brokerage subsidiary (after the merger), will be
restricted under SEC rules, which in turn could materially impact the combined
company's available working capital and materially impact or limit the combined
company's ability to repay debt as and when due, redeem or purchase shares of
OnlineTrading.com Group's outstanding stock, if required, and pay dividends in
the future. A large operating loss or charge against net capital could adversely
affect the combined company's ability to expand or even maintain its then
present levels of business, which could have a material adverse effect on our
business, financial condition, results of operations and prospects. See "We May
Need Cash in the Foreseeable Future" above.
THERE ARE RISKS RELATING TO OUR ABILITY TO MAINTAIN CUSTOMER PRIVACY AND
SECURITY AND THAT INCREASED GOVERNMENT REGULATION OF INTERNET BUSINESS MAY OCCUR
A significant risk for our existing and planned Internet operations is that
customers may refuse to transact business over the Internet, particularly
business, such as ours, that involves the handling of significant amounts of
customers' funds, due to privacy or security concerns. We currently incorporate
and plan to incorporate security measures into our privacy policies. However, a
major breach of customer privacy or security could have serious consequences for
our Internet-based operations. Use of the Internet, particularly for commercial
transactions, may not continue to increase as rapidly as it has during the past
few years as a result of privacy or security concerns, or for other reasons. If
this occurs, the growth of our Internet-based operations would be materially
hindered. If Internet activity becomes heavily regulated in these respects, that
could also have significant negative consequences for the growth of our current
and planned Internet-based operations.
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY LITIGATION
There has been substantial litigation in the software industry involving
intellectual property rights. Although we do not believe that we are or will be
infringing upon the intellectual property rights of others, there can be no
assurance that infringement claims, if asserted, would not have a material
adverse effect on our business, financial condition and results of operations,
or result in our being unable to use intellectual property which is integral to
one or more of our products or services. The risk of infringement claims is
heightened with respect to the new business model technology in development
because any new business model technology, as opposed to Omega Research's
historical client software technology, will not have stood any "test of time."
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WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OR PRESERVE OUR RIGHTS IN INTELLECTUAL
PROPERTY
Our success is and will be heavily dependent on proprietary technology,
including existing trading tools, as well as the trading tool, Internet, web
site and order execution technology currently in development. We view our
technology as proprietary, and rely, and will be relying, on a combination of
copyright, trade secret and trademark laws, nondisclosure agreements and other
contractual provisions and technical measures to protect our proprietary rights.
Policing unauthorized use of our products and services is difficult, however,
and we are unable to determine the extent to which piracy of our products and
services exists. There can be no assurance that the steps taken by us to protect
our proprietary rights will be adequate or that our competitors will not
independently develop technologies that are substantially equivalent or superior
to our technologies or products and services.
CONTROL OF ONLINETRADING.COM GROUP BY THE CRUZES MEANS THAT IMPORTANT DECISIONS
AFFECTING THE COMPANY ARE CONCENTRATED IN THE JUDGMENT OF TWO RELATED
INDIVIDUALS
Affiliates of William R. Cruz and Ralph L. Cruz (the Co-Chairmen and
Co-Chief Executive Officers of Omega Research, and brothers) own 18,313,108
shares of Omega Research's common stock and will own the same number of shares
of OnlineTrading.com Group common stock. Assuming the minimum and maximum
exchange ratio of 1.3817 and 1.7172 shares of OnlineTrading.com Group common
stock for each share of OnlineTrading.com common stock, the Cruzes will own
between approximately 41.4% and 45.3% of the outstanding shares of
OnlineTrading.com Group common stock as of the effective time of the merger. In
addition, pursuant to the voting trust agreement entered into by affiliates of
the Cruzes and certain shareholders of OnlineTrading.com at the time of the
execution of the merger agreement, the Cruzes should have the ability for at
least two years from the effective time of the merger to effectively elect at
least five (of which two are required to be independent directors) of the eight
directors of OnlineTrading.com Group. As a result, the Cruzes will control
OnlineTrading.com Group.
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OMEGA RESEARCH
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of Omega Research are
qualified by reference to and should be read in conjunction with "Omega
Research's Management's Discussion and Analysis of Financial Condition and
Results of Operations" in "Business and Financial Information Regarding Omega
Research" and Omega Research's Consolidated Financial Statements and Notes
thereto included elsewhere in this joint proxy statement/prospectus. The
consolidated statement of operations data presented below for the three months
ended March 31, 2000 and 1999 and the consolidated balance sheet data as of
March 31, 2000 have been derived from Omega Research's unaudited interim
financial statements included on pages F-2 through F-22 in this joint proxy
statement/prospectus. The consolidated balance sheet data as of March 31, 1999
have been derived from Omega Research's unaudited interim financial statements
not included herein. The consolidated statement of operations data presented
below for each of the years in the three-year period ended December 31, 1999 and
the consolidated balance sheet data as of December 31, 1999 and 1998 have been
derived from Omega Research's financial statements, which have been audited by
Arthur Andersen LLP, included on pages F-2 through F-22 in this joint proxy
statement/prospectus. The consolidated balance sheet data as of December 31,
1997 have been derived from audited financial statements not included in this
joint proxy statement/prospectus. The consolidated statement of operations data
presented below for the years ended December 31, 1996 and 1995 and the
consolidated balance sheet data as of December 31, 1996 and 1995 have been
derived from unaudited financial statements not included in this joint proxy
statement/prospectus. See also Note 12 of Notes to Omega Research's Consolidated
Financial Statements for quarterly financial information for fiscal years 1999
and 1998.
<TABLE>
<CAPTION>
As of and for the
Three Months As of and for the
Ended March 31, Year Ended December 31,
-------------- -------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
(In thousands, except per share data) (1)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net revenues................................... $ 8,400 $10,435 $ 42,870 $ 31,711 $ 32,950 $ 20,112 $10,999
Total operating expenses............................. 13,208 9,010 40,745 30,616 24,727 13,616 7,731
(Loss) income from operations........................ (4,808) 1,425 2,125 1,095 8,223 6,496 3,268
Historical net (loss) income ........................ (2,961) 650 (967) (429) - - -
Pro forma net income (2) ............................ - - - 4,665 3,690 1,980
Historical net (loss) earnings per share:
Basic............................................. $ (0.12) $ 0.03 $ (0.04) $ (0.02) - - -
Diluted........................................... (0.12) 0.02 (0.04) $ (0.02) - - -
Pro forma earnings per share: (2)
Basic............................................. - - - - $ 0.21 $ 0.18 $ 0.09
Diluted........................................... - - - - 0.21 0.17 0.09
Weighted average shares outstanding:
Basic............................................. 24,539 24,060 24,294 23,914 21,829 20,886 20,934
Diluted........................................... 24,539 26,220 24,294 23,914 22,620 22,033 22,018
CONSOLIDATED BALANCE SHEET DATA:
Total assets......................................... $ 29,798 $ 36,305 $ 31,380 $30,774 $ 29,153 $ 7,571 $ 3,747
Long term debt....................................... - 2,712 - 2,642 2,365 2,167 -
Shareholders' equity................................. 22,798 25,405 25,475 24,495 24,017 4,304 3,200
------------------
(1) Amounts have been restated to reflect the acquisition of Window On WallStreet, which was accounted for under the
pooling-of-interests method. See Note 2 of Notes to Omega Research's Consolidated Financial Statements.
(2) Omega Research was treated as an S corporation for federal and state income tax purposes prior to September 30, 1997. Pro forma
income taxes have been provided as if Omega Research had been a C corporation for all periods prior to September 30, 1997. Upon
terminating its S corporation election, Omega Research was required to record a non-recurring credit. See Note 9 of Notes to Omega
Research's Consolidated Financial Statements.
</TABLE>
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ONLINETRADING.COM
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data of OnlineTrading.com are qualified by
reference to and should be read in conjunction with OnlineTrading.com's
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in "Business and Financial Information Regarding OnlineTrading.com"
and OnlineTrading.com's Financial Statements and Notes thereto included
elsewhere in this joint proxy statement/prospectus. The statement of operations
data presented below for each of the years in the two-year period ended January
31, 2000 and the balance sheet data as of January 31, 2000 and 1999 have been
derived from OnlineTrading.com's financial statements included on pages F-23
through F-40 in this joint proxy statement/prospectus, which have been audited
by Arthur Andersen LLP as of and for the year ended January 31, 2000 and Ahearn,
Jasco + Company, P.A. as of and for the year ended January 31, 1999. The
statement of operations data for the three-year ended period January 31, 1998
and the balance sheet data as of January 31, 1998, 1997 and 1996 have been
derived from audited financial statements not included in this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
As of and for the
Year Ended January 31,
------------------------------------------------------------
2000 1999 1998 1997 1996(2)
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Total revenues..................................... $11,691 $5,992 $3,548 $1,606
Total operating expenses........................... 9,908 5,832 3,570 1,504
Income (loss) from operations...................... 1,783 160 (22) 102
Net income (loss).................................. 1,081 108 (19) 87
Earnings (loss) per share(1):
Basic........................................... $0.10 $0.01 $(0.00) $ 0.01
Diluted......................................... 0.10 0.01 (0.00) 0.01
Weighted average shares outstanding(1):
Basic........................................... 10,523 8,857 8,444 8,444
Diluted......................................... 10,630 8,857 8,444 8,444
BALANCE SHEET
DATA: $19,361 $2,155 $1,342 $1,178 $ 386
Total assets....................................... 72 525 500 500 400
Long term debt..................................... 17,244 628 494 515 (19)
Shareholders' equity...............................
------------------
(1) OnlineTrading.com's per share data and weighted average shares outstanding reflect the 11.11111-for-10 stock split
which occurred on April 3, 1999.
(2) OnlineTrading.com received the approval of the National Association of Securities Dealers, Inc. on January 2, 1996 and
commenced operations on February 1, 1996.
</TABLE>
SELECTED UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
The selected unaudited pro forma combined consolidated financial data of
OnlineTrading.com Group give effect to the proposed mergers of separate
wholly-owned subsidiaries of OnlineTrading.com Group into and with
19
<PAGE>
Omega Research and OnlineTrading.com on a pooling-of-interests basis.
OnlineTrading.com Group's unaudited pro forma combined consolidated statements
of operations data assume that the merger of separate wholly-owned subsidiaries
of OnlineTrading.com Group into and with Omega Research and OnlineTrading.com
took place as of the beginning of the periods presented and combine Omega
Research's consolidated statements of operations for the three months ended
March 31, 2000 and 1999 and the years ended December 31, 1999, 1998 and 1997,
with OnlineTrading.com's consolidated statements of operations for the three
months ended January 31, 2000 and 1999 and the years ended January 31, 2000,
1999 and 1998, respectively. OnlineTrading.com Group's unaudited pro forma
combined balance sheet data assume that the mergers of separate wholly-owned
subsidiaries of OnlineTrading.com Group into and with Omega Research and
OnlineTrading.com took place on March 31, 2000 and combine the Omega Research
consolidated balance sheet as of March 31, 2000 with the OnlineTrading.com
consolidated balance sheet as of January 31, 2000. OnlineTrading.com Group's
selected unaudited pro forma combined consolidated financial data are based on
Omega Research's and OnlineTrading.com's respective historical consolidated
financial statements and related notes, which are included elsewhere in this
joint proxy statement/prospectus.
The selected unaudited pro forma combined consolidated financial data are
presented for illustrative purposes only and are not necessarily indicative of
the combined financial position or results of operations of future periods or
the results that actually would have been realized had the entities been
combined during these periods. The selected unaudited pro forma combined
consolidated financial data as of and for the three months ended March 31, 2000
and 1999 and the years ended December 31, 1999, 1998 and 1997, are derived from
the pro forma combined financial statements included elsewhere herein and should
be read in conjunction with those statements and the related notes. See "Pro
Forma Combined Financial Statements."
<TABLE>
<CAPTION>
As of and for the For the
Three Months Ended Year Ended
March 31, December 31,
------------------------- -----------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues...................................... $12,414 $12,639 $54,561 $37,703 $36,499
Total operating expenses............................ 16,886 10,902 50,601 36,411 28,226
(Loss) income from operations....................... (4,472) 1,737 3,960 1,292 8,273
Net (loss) income................................... (2,804) 847 114 (321) 4,646
(Loss) earnings per share:
Basic............................................ $(0.06) $0.02 $0.00 $(0.01) $0.13
Diluted.......................................... (0.06) 0.02 0.00 (0.01) 0.13
Weighted average shares outstanding:
Basic............................................ 44,246 39,324 42,364 39,123 36,330
Diluted.......................................... 44,246 41,484 44,594 39,123 37,121
CONSOLIDATED BALANCE SHEET DATA:
Total assets........................................ $49,159
Long term debt...................................... 72
Shareholders' equity................................ 40,042
</TABLE>
20
<PAGE>
COMPARATIVE PER SHARE DATA
In the following table, we provide you with historical per share data and
combined per share data on an unaudited pro forma basis after giving effect to
the merger on a pooling-of-interests basis, assuming that one share of
OnlineTrading.com Group common stock is issued for each share of Omega Research
common stock and 1.7172 shares of OnlineTrading.com Group common stock are
issued in exchange for each share of OnlineTrading.com common stock. This data
should be read along with the selected historical consolidated financial data
and the unaudited pro forma combined financial statements included in this joint
proxy statement/prospectus and the historical consolidated financial statements
of Omega Research and OnlineTrading.com and the related notes also included in
this joint proxy statement/prospectus. The pro forma information is presented
for illustrative purposes only. You should not rely on the pro forma financial
information as an indication of the combined financial position or results of
operations for future periods or the results that actually would have been
realized had the entities been combined during the periods presented.
<TABLE>
<CAPTION>
Quarter Ended Fiscal Year Ended
March 31, December 31,
----------------- -----------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unaudited Pro Forma Combined (1)(2):
(Loss) earnings per share--basic...................... $(0.06) $0.02 $ 0.00 $ (0.01) $0.13
(Loss) earnings per share--diluted.................... (0.06) 0.02 0.00 (0.01) 0.13
Book value per share(3)............................... 0.90 0.97
Omega Research Historical:
(Loss) earnings per share-basic....................... (0.12) 0.03 (0.04) (0.02) 0.21
(Loss) earnings per share-diluted..................... (0.12) 0.02 (0.04) (0.02) 0.21
Book value per share(3)............................... 0.93 1.05 1.04 1.02 1.00
Unaudited Pro Forma Omega Research Per Share
Equivalents(4):
(Loss) earnings per share--basic...................... (0.12) 0.03 (0.04) (0.02) 0.21
(Loss) earnings per share--diluted.................... (0.12) 0.02 (0.04) (0.02) 0.21
Book value per share(3)............................... 0.93 1.04
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Fiscal Year Ended
January 31, January 31,
-------------------- ----------------------------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OnlineTrading.com Historical(5):
Earnings (loss) per share-basic....................... $0.01 $0.02 $0.10 $0.01 $(0.00)
Earnings (loss) per share--diluted.................... 0.01 0.02 0.10 0.01 (0.00)
Book value per share(3)............................... 1.50 0.07 1.50 0.07 0.06
Unaudited Pro Forma Online
Trading.com Per Share Equivalents(6):
(Loss) earnings per share--basic...................... (0.11) 0.04 0.00 (0.01) 0.22
(Loss) earnings per share--diluted.................... (0.11) 0.04 0.00 (0.01) 0.21
Book value per share(3)............................... 1.55 1.66
</TABLE>
------------------
(1) The unaudited pro forma combined per share information combines financial
information of Omega Research for the three months ended March 31, 2000 and 1999
and the fiscal years ended December 31, 1999, 1998 and 1997 with the financial
information of OnlineTrading.com for the three months ended January 31, 2000 and
1999 and the fiscal years ended January 31, 2000, 1999 and 1998, respectively.
This information also assumes the merger occurred as of the beginning of the
earliest period presented and was accounted for as a pooling-of-interests.
(2) Omega Research and OnlineTrading.com estimate that they will incur
merger-related expenses, consisting primarily of transaction costs for
investment banker fees, attorneys, accountants, financial printing and other
related charges of approximately $4.1 million. The unaudited pro forma combined
consolidated balance sheet data and the unaudited pro forma combined
consolidated statement of operations data do not give effect to such expenses.
(3) Historical book value per share is computed by dividing shareholders' equity
by the number of shares of common stock outstanding at the end of each period.
Unaudited pro forma combined book value per share is computed by dividing
unaudited pro forma combined shareholders' equity by the unaudited pro forma
combined number of shares of common stock outstanding at the end of the period.
(4) Amounts are calculated by multiplying the unaudited pro forma combined per
share amounts by the highest possible exchange ratio for common stock in the
merger (1.0000 shares of OnlineTrading.com Group common stock for each share of
Omega Research common stock).
(5) OnlineTrading.com's per share data reflect the 11.11111-for-10 stock split
which occurred on April 3, 1999.
(6) Amounts are calculated by multiplying the unaudited pro forma combined per
share amounts by the highest possible exchange ratio for common stock in the
merger (1.7172 shares of OnlineTrading.com Group common stock for each share of
OnlineTrading.com's common stock).
OMEGA RESEARCH MARKET PRICE DATA
Omega Research's common stock, par value $.01 per share, is quoted under
the symbol "OMGA" on The Nasdaq Stock Market (Nasdaq National Market).
Omega Research completed an initial public offering pursuant to a
registration statement that was declared effective on September 30, 1997. Prior
to the initial public offering, Omega Research's common stock was not
22
<PAGE>
listed or traded on any organized market system. The high and low closing sale
prices based on actual transactions for Omega Research's common stock on The
Nasdaq Stock Market during each of the quarters presented are as follows:
<TABLE>
<CAPTION>
High Low
-------------- -------------
Closing Sales Price
----------------------------------
<S> <C> <C>
1998:
First Quarter................................... $ 5 3/8 $ 2 3/4
Second Quarter.................................. 6 3 5/8
Third Quarter................................... 4 5/8 2 1/8
Fourth Quarter ................................. 3 1 3/16
1999:
First Quarter .................................. 14 5/16 2 15/16
Second Quarter.................................. 12 7/8 8
Third Quarter .................................. 12 7/16 3 7/8
Fourth Quarter ................................. 10 3 13/16
2000:
First Quarter .................................. 8 1/8 4 5/8
Second Quarter
(through May 26, 2000) ..................... 4 7/16 2 1/2
</TABLE>
As of May 26, 2000, there were approximately 58 holders of record of Omega
Research's common stock, and, based upon information previously provided to
Omega Research by depositories and brokers, Omega Research believes it has in
excess of 3,900 beneficial owners.
LISTING OF ONLINETRADING.COM GROUP COMMON STOCK
Upon the closing of the merger, OnlineTrading.com Group is to be the
publicly-traded company and its common stock is to be listed on The Nasdaq
National Market under the symbol "OTRD." A condition to the closing of the
merger is the completion of such listing, subject to official notice of
issuance.
OMEGA RESEARCH/ONLINETRADING.COM GROUP DIVIDEND POLICY
Prior to the merger, Omega Research, and after the merger, OnlineTrading.com
Group, expects operating losses for at least the next several quarters and
intends to retain any future earnings to finance its growth and development and
therefore does not anticipate paying any cash dividends in the foreseeable
future. Payment of any future dividends will depend upon the future earnings and
capital requirements of OnlineTrading.com Group, assuming the merger occurs, or
Omega Research, if the merger does not occur, and other factors which the board
of directors considers appropriate. Omega Research did not distribute any
dividends during the years ended December 31, 1999 or 1998.
During 1997, Omega Research distributed cash dividends in the aggregate
amount of $16.5 million, including the $15.4 million dividend described in the
following paragraph, to William R. Cruz, Ralph L. Cruz and their affiliates, the
then current shareholders of Omega Research. Additionally, during the second
quarter of 1997, Omega Research declared a dividend to the then current
shareholders of the company, William R. Cruz and Ralph L. Cruz, of Omega
Research's former office facilities. The carrying value of the facility on Omega
Research's books was approximately $507,000.
23
<PAGE>
Omega Research's board of directors declared and paid a dividend of $15.4
million to Omega Research's then existing shareholders immediately prior to the
consummation of Omega Research's initial public offering. The dividend was equal
to Omega Research's estimate at that time of its cumulative taxable income prior
to its conversion to a C corporation to the extent such taxable income had not
been previously distributed. Subsequent to the payment of the Dividend, Omega
Research preliminarily determined that the actual cumulative taxable income
would be less than was originally estimated. Accordingly, in the fourth quarter
of 1997, the recipients of the Dividend repaid $800,000, plus interest, to Omega
Research. During the third quarter of 1998, upon finalization of Omega
Research's 1997 tax returns and final determination of S corporation earnings at
the date of the conversion to a C corporation, the recipients of the Dividend
repaid an additional $135,000, plus interest, to Omega Research, reducing the
Dividend to $14.5 million.
ONLINETRADING.COM MARKET PRICE DATA
OnlineTrading.com's common stock, par value $0.01 per share, is quoted under
the symbol "LINE" on The Nasdaq Stock Market (SmallCap Market).
OnlineTrading.com completed an initial public offering pursuant to a
registration statement that was declared effective on June 11, 1999 at an
offering price of $7.00 per share. Prior to the initial public offering,
OnlineTrading.com's common stock was not listed or traded on any organized
market system. The high and low closing sale prices based on actual transactions
for OnlineTrading.com's common stock on The Nasdaq SmallCap Market during each
of the fiscal quarters presented are as follows:
Closing Sales Price
-------------------
High Low
---- ---
2000 fiscal year:
Second Quarter
(commencing June 11, 1999) 16 15/16 8
Third Quarter 14 1/2 7 7/16
Fourth Quarter 12 5/8 7 3/4
2001 fiscal year:
First Quarter 10 1/8 4 1/4
Second Quarter
(through May 26, 2000) 5 9/16 4 3/32
As of May 26, 2000, there were 22 holders of record of OnlineTrading.com's
common stock based on information provided by its transfer agent. The number of
shareholders does not reflect the actual number of individual or institutional
shareholders that hold OnlineTrading.com stock because certain stock is held in
the name of nominees. Based on the best information made available by the
transfer agent, there are in excess of 1,800 beneficial holders of
OnlineTrading.com's common stock.
ONLINETRADING.COM DIVIDEND POLICY
OnlineTrading.com has not declared or paid cash dividends on its common
stock. OnlineTrading.com currently intends to retain future earnings, if any,
for use in its business and does not anticipate paying any cash dividends in the
foreseeable future. If the merger is not consummated, the payment of any future
dividends would be at the discretion of OnlineTrading.com's board of directors
and would depend upon a number of factors, including future earnings, the
success of its business activities, capital requirements, the general financial
condition and future prospects of its business, general business conditions and
such other factors as its board of directors may deem relevant.
24
<PAGE>
RECENT CLOSING PRICES
As of January 19, 2000, the last trading day before announcement of the
proposed merger, the closing prices per share of Omega Research common stock and
OnlineTrading.com common stock on The Nasdaq National Market and Nasdaq SmallCap
Market were $6.5938 and $11.75, respectively. On _______, 2000, the latest
practicable trading day before the printing of this joint proxy
statement/prospectus, the closing prices per share of Omega Research common
stock and OnlineTrading.com common stock on The Nasdaq National Market and
Nasdaq SmallCap Market were $_____ and $_____, respectively.
Because the market price of Omega Research common stock fluctuates, the
market value of the shares of OnlineTrading.com Group common stock that holders
of Omega Research and OnlineTrading.com common stock will receive in the merger
will likely increase or decrease prior to and following the merger. Shareholders
are urged to obtain current market quotations of Omega Research common stock and
OnlineTrading.com common stock. No assurance can be given as to the future
prices of OnlineTrading.com Group common stock after the consummation of the
merger or of Omega Research common stock or OnlineTrading.com common stock
before consummation of the merger.
THE SPECIAL MEETINGS
JOINT PROXY STATEMENT/PROSPECTUS
This joint proxy statement/prospectus is furnished in connection with the
solicitation of proxies from the holders of each of Omega Research and
OnlineTrading.com common stock by the Omega Research and OnlineTrading.com
boards of directors, respectively, for use at a special meeting of Omega
Research and of OnlineTrading.com shareholders.
This joint proxy statement/prospectus is first being furnished to Omega
Research shareholders on or about ____________, 2000 and to OnlineTrading.com
shareholders on or about ______________, 2000.
DATE, TIME AND PLACE OF SPECIAL MEETINGS
The special meeting for Omega Research shareholders will be held on
___________, 2000 at 9:00 a.m., local time, at _________________________.
The special meeting for OnlineTrading.com shareholders will be held on
___________, 2000 at 9:00, a.m., local time, at _________________________.
MATTERS TO BE CONSIDERED AT EACH SPECIAL MEETING
At each of the special meetings and any adjournment or postponement of
either of them, the shareholders of Omega Research and OnlineTrading.com will be
asked to consider and vote upon proposals:
o to approve and adopt the merger agreement and the merger; and
o to transact such other business as may properly come before the special
meeting.
In addition, at the special meeting of Omega Research shareholders,
shareholders will be asked to consider and vote upon a proposal to increase the
number of shares of Omega Research common stock reserved for issuance under
Omega Research's Amended and Restated 1996 Incentive Stock Plan from 4,500,000
shares to 7,500,000 shares.
25
<PAGE>
RECORD DATE AND SHARES ENTITLED TO VOTE
Omega Research's board of directors has fixed the close of business on June
5, 2000 as the record date for determination of Omega Research's shareholders
entitled to notice of and to vote at the special meeting. As of the close of
business on June 5, 2000, there were __________ shares of Omega Research common
stock outstanding and entitled to vote, held of record by approximately __
shareholders. The affirmative vote of a majority, or __________ of these
outstanding shares, will be necessary to approve and adopt the merger agreement
and the merger, and subject to approval of the merger, the increase in the
reserved shares under the Incentive Stock Plan will require the affirmative vote
of a majority of the shares of Omega Research common stock represented in person
or by proxy at the special meeting that voted on such proposal. Each Omega
Research shareholder is entitled to one vote for each share of Omega Research
common stock held as of the record date.
OnlineTrading.com's board of directors has fixed the close of business on
June 5, 2000 as the record date for its determination of OnlineTrading.com's
shareholders entitled to notice of and to vote at the OnlineTrading.com special
meeting. As of the close of business on June 5, 2000, there were __________
shares of OnlineTrading.com common stock outstanding and entitled to vote, held
of record by approximately __ shareholders. A majority, or _________ of these
shares, present in person or represented by proxy, will be necessary to approve
and adopt the merger agreement and the merger. Each OnlineTrading.com
shareholder is entitled to one vote for each share of OnlineTrading.com common
stock held as of the record date.
VOTING OF PROXIES
You are requested to complete, date and sign the accompanying proxy and
promptly return it in the accompanying envelope or otherwise mail it to Omega
Research, if you are an Omega Research shareholder, or to OnlineTrading.com, if
you are an OnlineTrading.com shareholder. If your shares are held in "street
name" by your broker, your broker will vote your shares only if you provide
instructions on how to vote. Your broker will provide you directions regarding
how to instruct your broker to vote your shares. All properly executed proxies
received by either Omega Research or OnlineTrading.com prior to the vote at the
applicable special meeting, that are not revoked, will be voted in accordance
with the instructions indicated on the proxies or, if no direction is indicated,
to approve and adopt the merger agreement and the merger, and, in the case of
Omega Research, to approve and adopt the amendment to the Incentive Stock Plan.
Neither Omega Research's nor OnlineTrading.com's board of directors presently
intends to bring any other business before its company's special meeting and, so
far as is known to each board of directors, no other matters are to be brought
before its company's special meeting. As to any other business that may properly
come before the special meeting, however, it is intended that proxies, in the
form enclosed, will be voted in respect thereof in accordance with the judgment
of the persons voting such proxies.
You may revoke your proxy at any time prior to its use by delivering to the
Secretary of Omega Research, if you are an Omega Research shareholder, or to the
Secretary of OnlineTrading.com, if you are an OnlineTrading.com shareholder, a
signed notice of revocation or a later-dated, signed proxy, or by attending the
special meeting and voting in person. Attendance at the special meeting does not
in itself constitute the revocation of a proxy.
VOTE REQUIRED
Approval and adoption of the merger agreement and the merger by each of our
shareholders is required by the Florida Business Corporation Act and our
respective articles of incorporation. This approval, in each of our cases,
requires the affirmative vote of the holders of a majority of each of our shares
of common stock outstanding and entitled to vote at our respective special
meetings. In connection with the execution of the merger agreement, certain
affiliates of William R. Cruz and Ralph L. Cruz, the Co-Chairmen and Co-Chief
Executive Officers of Omega Research, owning in the aggregate 18,313,208 shares
of Omega Research common stock, representing as of the Omega Research record
date approximately 75% of the outstanding shares of Omega Research, have each
entered into shareholder agreements with OnlineTrading.com and OnlineTrading.com
Group, a copy of the form of which is attached as Appendix B, pursuant to which
such shareholders have agreed to vote their shares of Omega
26
<PAGE>
Research common stock in favor of the merger and the approval and adoption of
the merger agreement. In addition, certain officers and directors of
OnlineTrading.com, namely Andrew A. Allen, Farshid Tafazzoli, E. Steven zum
Tobel and Derek Hernquist, their respective affiliates and a former director of
OnlineTrading.com owning in the aggregate 8,888,888 shares of OnlineTrading.com
common stock, representing as of the OnlineTrading.com record date approximately
77% of the outstanding shares of OnlineTrading.com, have entered into
shareholder agreements with Omega Research and OnlineTrading.com Group, a copy
of the form of which is attached as Appendix C, pursuant to which such
shareholders have agreed to vote their shares of OnlineTrading.com common stock
in favor of the merger and the approval and adoption of the merger agreement.
Each of the shareholder agreements will terminate on completion or termination
of the merger. Accordingly, holders of a sufficient number of outstanding shares
of common stock of each company have committed to approve and adopt the merger
agreement and merger. As of the record date and the date of this joint proxy
statement/prospectus, Omega Research owns no shares of OnlineTrading.com common
stock and OnlineTrading.com owns no shares of Omega Research common stock.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
The required quorum for the transaction of business at each of our special
meetings is a majority of the shares of the company's common stock issued and
outstanding on the record date. Abstentions and broker non-votes each will be
included in determining the number of shares present and voting at the meeting
for the purpose of determining the presence of a quorum. Because approval and
adoption of the merger agreement and the merger require the affirmative vote of
a majority of the outstanding shares of each of our company's common stock
entitled to vote, abstentions and broker non-votes will have the same effect as
votes against the merger agreement and the merger. In addition, the failure to
return a proxy or vote in person will have the effect of a vote against the
approval of the merger agreement and merger. The actions proposed in this joint
proxy statement/prospectus are not matters that can be voted on by brokers
holding shares for beneficial owners without the owners' specific instructions.
Accordingly, you are urged to return the enclosed proxy card marked to indicate
your vote.
SOLICITATION OF PROXIES AND EXPENSES
We will each bear our own cost of solicitation of proxies plus any
reasonable out-of-pocket expenses. In addition to solicitation by mail, each of
our directors, officers and employees may solicit proxies from their company's
shareholders by telephone, facsimile or in person without additional
remuneration. Following the original mailing of the proxies and other
solicitation materials, each of us will request brokers, custodians, nominees
and other record holders to forward copies of the proxy and other solicitation
materials to persons for whom they hold shares of our companies' common stock
and to request authority for the exercise of proxies. In such cases, each of us,
upon the request of the record holders, will reimburse such holders their
reasonable expenses.
DISSENTERS' OR APPRAISAL RIGHTS
If you are an Omega Research shareholder, you are not entitled to exercise
dissenters' or appraisal rights as a result of the merger or to demand cash
payment for your shares under Florida law.
If you are an OnlineTrading.com shareholder, you are entitled to exercise
dissenters' rights as a result of the merger and to demand cash payments for
your shares under Florida law in the manner described on pages ___ through ___
of this joint proxy statement/prospectus.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS ARE OF GREAT IMPORTANCE
TO OUR SHAREHOLDERS. ACCORDINGLY, YOU ARE URGED TO READ AND CAREFULLY CONSIDER
THE INFORMATION PRESENTED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND TO
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
A transmittal form with instructions for the surrender of certificates for
OnlineTrading.com Group common stock will be mailed to you as soon as
practicable after completion of the merger. For more information regarding the
procedures for exchanging your
27
<PAGE>
Omega Research or OnlineTrading.com stock certificates for OnlineTrading.com
Group stock certificates, see the section titled "Exchange of Omega Research or
OnlineTrading.com Stock Certificates for OnlineTrading.com Group Stock
Certificates" on page __ of this joint proxy statement/prospectus.
THE PROPOSED MERGER
This section and the next section of the joint proxy statement/prospectus
describes material aspects of the proposed merger. While the companies believe
that the description covers the material terms of the merger and the related
transactions, this summary may not contain all of the information that is
important. We strongly advise that this entire document and the documents
attached as appendices to this document be carefully read for a more complete
understanding of the merger agreement and the merger.
The following discussion of the background of the merger, the parties'
reasons for the merger and the potential benefits that could result from the
merger contains forward-looking statements which involve risks and
uncertainties. Readers are cautioned not to place undue reliance on these
forward-looking statements. The actual results of OnlineTrading.com Group could
differ materially from those anticipated in these forward-looking statements as
a result of many factors, including those described under "RISK FACTORS."
BACKGROUND OF THE MERGER
On October 12, 1999, Farshid Tafazzoli, co-founder and Chief Information
Officer of OnlineTrading.com, and Richard Merced, currently Director of
Institutional Sales of OnlineTrading.com, met with William Cruz, Co-CEO of Omega
Research, and Janette Perez, Executive Vice President of Marketing and Sales of
Omega Research, in Omega Research's Miami, Florida executive office. The purpose
of the meeting was to discuss potential co-marketing or joint marketing
relationships between the companies. At this meeting, each company presented a
description of its products and services, its views about the industry and where
it was headed, and what products and services would be necessary to attract
traders and investors. There had been no prior contact or communications between
executives of the companies.
Omega Research completed its merger acquisition of Window On WallStreet on
October 26, 1999 and announced, on November 8, 1999, its plan to change its
business model from client software sales to Internet-based, monthly
subscription, real-time trading strategy tools and market data. At or about this
time, Omega Research's directors and executive management engaged in
confidential internal discussions about the potential short-term and long-term
value of combining Omega Research with an online brokerage firm focused or
willing to focus on the active trader market, and the particular brokers that
should be considered. Based upon those discussions and certain informal
investigations of online brokerages made by certain executive officers, Omega
Research decided to meet with OnlineTrading.com and one other brokerage firm to
explore the possibilities of a merger or strategic relationship.
On November 12, 1999, William Cruz and Ralph Cruz, Co-CEO's of Omega
Research, met with Mr. Tafazzoli and E. Steven zum Tobel, President of
OnlineTrading.com, at OnlineTrading.com's Boca Raton, Florida executive office.
After much discussion about the companies' respective views of the industry, and
their agreement that their primary objectives and strategies were to participate
in the rapid evolution and consolidation of online order execution services,
trading strategy tools and streaming real-time market data, and to focus on the
increasing attractiveness of the active trader market, the Cruzes indicated that
Omega Research was preliminarily interested in a potential business combination
with OnlineTrading.com. The representatives of the two companies then engaged in
a discussion of the possible merits of a business combination, and agreed to
consider having further discussions concerning a potential transaction
structured as a tax-free, stock-for-stock swap, accounted for as a pooling-of-
interests. No potential structures, valuations or management issues were
discussed at this meeting. Following this meeting, the Cruzes briefed members of
Omega Research's board of directors and executive management team. Those
consulted encouraged the Cruzes and Salomon Sredni, President of Omega Research,
to move forward with the discussions. Also, at this time, Mr. Tafazzoli and Mr.
zum Tobel discussed with members of the board of
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directors of OnlineTrading.com the substance of their meeting with the Cruzes.
OnlineTrading.com's board urged Mr. Tafazzoli and Mr. zum Tobel to continue
discussions with Omega Research. Ralph Cruz contacted Mr. zum Tobel by telephone
to express Omega Research's interest in continuing discussions about a potential
business combination. Mr. zum Tobel replied that OnlineTrading.com would be
interested in having further discussions. On November 15, 1999, Omega Research
and OnlineTrading.com executed a mutual nondisclosure agreement.
Over the next eight weeks, both Omega Research and OnlineTrading.com took
steps to explore further the potential business combination, including ongoing
discussions and negotiations involving Mr. Tafazzoli, Mr. zum Tobel and/or
Andrew A. Allen, OnlineTrading.com's Chairman and CEO, on behalf of
OnlineTrading.com, and the Cruzes and/or Mr. Sredni on behalf of Omega Research.
Omega Research over this period contacted FleetBoston Robertson Stephens Inc. to
provide it with strategic banking services, its outside counsel, Bilzin Sumberg
Dunn Price & Axelrod LLP, to provide legal services, Clifford Chance Rogers &
Wells LLP, to advise on broker-dealer regulatory issues and perform regulatory
compliance due diligence, and Arthur Andersen LLP to provide services relating
to accounting issues. Over this same period, OnlineTrading.com contacted Raymond
James & Associates, Inc. to provide it with strategic banking services, its
outside counsel, Broad and Cassel, to provide it with legal services, and
Ahearn, Jasco + Company, P.A. to provide it with accounting services. The
parties engaged in substantial negotiations during this period, mostly by
telephone discussions and telephone conference calls, but including a
face-to-face meeting among Messrs. Allen and zum Tobel, and Messrs. Cruzes and
Sredni, on December 13, 1999 at a Boca Raton restaurant, and at a December 14,
1999 meeting at Broad and Cassel's Miami office attended by substantially the
entire executive team of each company and each company's outside legal counsel.
No preliminary or other agreement was reached at either of those two meetings,
and negotiations then terminated for approximately one week, after which time
Mr. Tafazzoli telephoned Ralph Cruz to recommence negotiations, a proposal Mr.
Cruz accepted.
During the last week of December 1999, the companies, through telephone
discussions, and following numerous conversations with their respective
financial and legal advisors, reached preliminary agreement as to the structure,
the general range of valuation, including most of the exchange-ratio formula,
and management issues for a merger transaction between them. However, the
parties had not yet agreed upon one material term of the valuation/exchange
ratio formula, specifically, the method of calculation of a valuation/exchange
ratio "ceiling" and "floor."
On January 3, 2000, the two companies signed an agreement under which each
agreed not to solicit or initiate any discussions with any third party regarding
a sale or business combination for a specified period of time. The parties also
agreed to continue to negotiate the last material term of the proposed business
combination, begin due diligence investigations, and move forward in the
preparation and negotiation of a complete set of transaction documents with the
goal of executing definitive merger transaction agreements and announcing the
transaction on or before January 21, 2000.
On January 11, 2000, Raymond James met with representatives of Omega
Research, and Robertson Stephens met with representatives of OnlineTrading.com,
to conduct their respective due diligence discussions of the respective affairs
of the companies. Additionally, on January 11, 2000, in a meeting in Ft.
Lauderdale attended by Messrs. Allen, Tafazzoli and zum Tobel, and Roger
Shaffer, General Counsel of OnlineTrading.com, and Messrs. Cruzes and Sredni,
and Marc J. Stone, Vice President of Corporate Development and General Counsel
of Omega Research, and Gregg F. Stewart, Vice President of Finance and Chief
Financial Officer of Omega Research, the parties reached preliminary agreement
as to the "ceiling" and "floor" formula related to valuation and the exchange
ratio. Accordingly, this was the date on which the parties reached preliminary
agreement as to all material terms of the business combination.
On January 14, 2000, Omega Research's legal counsel delivered a draft merger
agreement and related definitive documentation to OnlineTrading.com and its
outside advisors. Draft merger agreements were also delivered to the board
members of both companies. By January 18, 2000, the parties had concluded
substantially all of their due diligence investigations and agreed upon
substantially all terms and conditions of the merger agreement and the
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related agreements. By the evening of January 19, 2000, the companies completed
their respective due diligence evaluations, after receiving input from their
respective financial and legal advisors, and resolved outstanding details on the
definitive transaction documents.
During the afternoon and early evening of January 19, 2000,
OnlineTrading.com's board of directors conducted a special meeting attended in
person by all board members to consider approval of the proposed merger
transaction with Omega Research. Also present at this meeting in person or by
telephone were OnlineTrading.com's financial and legal advisors. Raymond James
presented its financial analysis, orally informing OnlineTrading.com's board of
directors of its opinion, subsequently confirmed in writing, that the exchange
ratio formula was fair, from a financial point of view, to OnlineTrading.com's
shareholders as of January 19, 2000. OnlineTrading.com's board of directors
asked several questions of Raymond James concerning its fairness opinion, to
which Raymond James provided responses. The board of directors also devoted
several hours of discussion to reviewing all of the material terms of the
transaction, the due diligence results, the business risks, the potential
effects of the change in control of OnlineTrading.com and the strategic business
reasons for the combination of the two companies. OnlineTrading.com's board of
directors concluded that the merger agreement was fair to OnlineTrading.com's
shareholders and that the proposed merger was in the best interests of
OnlineTrading.com and its shareholders. OnlineTrading.com's board of directors
unanimously approved the merger agreement and related documents and authorized
OnlineTrading.com's senior management to proceed with the final negotiation and
execution of those documents.
On the evening of January 19, 2000, the board of directors of Omega Research
also conducted a special meeting attended in person or by telephone by all board
members to consider approval of the proposed merger transaction with
OnlineTrading.com. Also present at the meeting in person or by telephone were
senior management of Omega Research, and Omega Research's legal, financial and
accounting advisors. Omega Research's Co-CEOs reviewed the terms of the
transaction and presented their views on the combination. Omega Research's legal
and accounting advisors indicated that they had discovered no material issues
regarding the proposed transaction. Robertson Stephens then reviewed the
financial terms of the transaction, and presented its opinion that, as of that
date, the exchange ratio for shares of OnlineTrading.com Group common stock to
be received for each share of common stock of OnlineTrading.com pursuant to the
merger agreement was fair to Omega Research from a financial point of view.
Numerous questions were asked by board members and answered, as applicable, by
Omega Research senior management or Omega Research's legal or financial
advisors. After several hours, the meeting concluded with Omega Research's board
of directors unanimously approving the terms of the merger agreement and related
documents and the merger and all related transactions, and authorizing Omega
Research's senior management to proceed with execution of the merger agreement
and related documents.
Following Omega Research's board of directors meeting, Omega Research and
OnlineTrading.com executed and delivered the merger agreement and the related
agreements, including the stock option agreements, and certain shareholders of
each company executed and delivered shareholder agreements agreeing to vote in
favor of the merger agreement and the merger. The merger agreement and proposed
merger was jointly announced by Omega Research and OnlineTrading.com on the
morning of January 20, 2000.
OMEGA RESEARCH'S REASONS FOR THE MERGER
The Omega Research board of directors has unanimously approved the merger
agreement and determined that the merger is advisable and fair to, and in the
best interests of, Omega Research and its shareholders, and unanimously
recommends that the holders of shares of Omega Research common stock vote FOR
the approval and adoption of the merger agreement and the merger.
The Omega Research board of directors' decision to approve the merger
agreement and the merger was based on, among others, the following positive
factors and potential benefits:
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o the board's belief that the consideration OnlineTrading.com
shareholders will receive in the merger is fair, from a financial
point of view, to Omega Research, and that the terms of the merger
agreement and related agreements are otherwise fair and reasonable;
o the opinion of Robertson Stephens that, as of January 19, 2000, the
exchange ratio for shares of OnlineTrading.com Group common stock to
be received for each share of common stock of OnlineTrading.com
pursuant to the merger agreement was fair to Omega Research from a
financial point of view;
o the expectation that the merger will qualify as a tax-free
reorganization and will be accounted for as a pooling-of-interests;
o reports from management, legal, financial and accounting advisors of
the results of the due diligence investigations of
OnlineTrading.com;
o the merger may enable the combined company to position itself as one
of the best solutions for the active online trader by providing an
Internet service that seamlessly integrates award-winning trading
strategy tools, streaming real-time data and news and high-speed
order routing and execution services;
o OnlineTrading.com is expected to deliver high-speed order routing
and execution services to the combined company;
o given the rapid consolidation of the companies' services in the
industry, Omega Research's long-term prospects depend upon the
timely addition to its product and service offerings of integrated
online order execution services, so that it may benefit from the
commission revenues from the users of its products and services;
o OnlineTrading.com and its senior management and personnel will
deliver to the combined company the infrastructure and operations of
a brokerage firm that has experience in serving experienced
investors and small to mid-sized institutions with both online and
personal order execution services, and regulatory compliance
experience;
o Omega Research's products and services, most notably, its planned
TradeStation.com service, should, as a result of its planned
integration with OnlineTrading.com's electronic order execution
services, be more attractive to the active trader market because the
active trader will not be required to leave TradeStation.com to
connect with an online broker to execute the trade upon making the
trading decision;
o OnlineTrading.com's online brokerage services should become more
attractive to the active trader market because the
seamlessly-integrated TradeStation.com platform is planned to be
offered with its brokerage services;
o Omega Research has large customer and prospect bases from client
software sales or inquiries to which the integrated
OnlineTrading.com brokerage services may be offered by direct
marketing; and
o OnlineTrading.com is expected to contribute up to $15 million in
cash and cash equivalents to the combined company.
Omega Research's board of directors also considered a number of potentially
negative factors in its deliberations concerning the merger, including the
following:
o the risk that the potential benefits of the merger may not be fully
or even partially realized;
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o the effects of intense governmental regulation and scrutiny that
would and could arise related to some or all of the business of the
combined entity;
o the rapid pace at which Omega Research was transforming, and would
need to complete transformation of, its business model, which
requires substantial changes in its operating infrastructure, and
places significant strain on the company's management and
operations;
o the substantial product development and marketing and sales changes
that would need to be accomplished to execute the objectives of the
merger;
o the risk that the companies may not successfully integrate their
businesses from technological, operational and marketing aspects;
o the combined company's ability to sustain operating losses pending
execution of the combined company's business strategies; and
o other applicable risks described in this joint proxy
statement/prospectus under the heading "RISK FACTORS."
Omega Research's board of directors concluded that the potential benefits of
the merger to Omega Research and its shareholders outweigh the risks associated
with the merger.
Omega Research's board of directors does not intend the foregoing discussion
of information and factors that it considered to be exhaustive, but believes the
discussion includes the material factors that it considered. In view of the
complexity and wide variety of information and factors, both positive and
negative, that it considered in connection with its evaluation of the merger,
Omega Research's board of directors did not find it practicable to quantify or
otherwise assign relative or specific weights to the specific factors that it
considered in reaching its determination. In addition, individual members of the
Omega Research board of directors may have given different weight to different
factors.
In light of the potential benefits, the Omega Research board of directors
has concluded that the merger represents a highly-effective current and
long-term strategy for Omega Research.
RECOMMENDATION OF OMEGA RESEARCH'S BOARD OF DIRECTORS
FOR THE REASONS DISCUSSED ABOVE, THE OMEGA RESEARCH BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS
ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, OMEGA RESEARCH AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT OMEGA RESEARCH SHAREHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
In considering the recommendation of the board of directors of each of Omega
Research and OnlineTrading.com with respect to the merger agreement and merger,
you should be aware that certain directors and officers of each company have
interests in the merger that are different from, or are in addition to, the
interests of the shareholders of their company generally. Please see the section
titled "Interests of Certain Omega Research and OnlineTrading.com Directors,
Officers and Affiliates in the Merger" on page __ of this joint proxy
statement/prospectus.
ONLINETRADING.COM'S REASONS FOR THE MERGER
The OnlineTrading.com board of directors has unanimously approved the merger
agreement and determined that the merger is advisable and fair to, and in the
best interests of, OnlineTrading.com and its shareholders, and
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unanimously recommends that the holders of shares of OnlineTrading.com common
stock vote FOR the approval and adoption of the merger agreement and the merger.
The OnlineTrading.com board of directors' decision to approve the merger
agreement and the merger was based on the following positive factors and
potential benefits:
o the board's belief that the consideration OnlineTrading.com
shareholders will receive in the merger is fair from a financial
point of view, and that the terms of the merger agreement and
related agreements are otherwise fair and reasonable;
o the opinion of Raymond James that, as of January 19, 2000, the
exchange ratio formula was fair, from a financial point of view, to
OnlineTrading.com shareholders;
o the expectation that the merger will qualify as a tax-free
reorganization and will be accounted for as a pooling-of-interests;
o reports from management, legal, financial and accounting advisors of
the due diligence investigations of Omega Research;
o the merger may enable the combined company to position itself as one
of the best solutions for the active online trader by providing an
Internet service that seamlessly integrates award-winning trading
strategy tools, streaming real-time data and news and high-speed
order routing and execution services;
o Omega Research is expected to deliver powerful trading strategy
tools and streaming real-time market data and news services to the
combined company;
o Omega Research has large customer and prospect bases from client
software sales or inquiries that may include many potential
OnlineTrading.com brokerage clients;
o Omega Research and its senior management and personnel will deliver
to the combined company significant product development and
marketing resources and experience in the industry;
o OnlineTrading.com's online brokerage services should be more
attractive to the active trader market because the
seamlessly-integrated TradeStation.com platform is to be offered
with such brokerage services; and
o given the rapid consolidation of the companies' services in the
industry, and given OnlineTrading.com's belief that high-speed,
order-routing online execution services will become an industry
standard over the next several years, OnlineTrading.com's long-term
prospects may be dependent upon the addition to its product and
service offerings of the added value of a powerful trading strategy
platform.
The OnlineTrading.com board of directors also identified and considered a
number of potentially negative factors in its deliberations concerning the
merger, including, but not limited to:
o the risk that the potential benefits of the merger may not be fully
or even partially realized;
o the risks involved in the change of control of OnlineTrading.com's
executive management as a result of Omega Research's management
control of OnlineTrading.com Group;
o Omega Research's net losses and the expected continuation of those
net losses as Omega Research transitions from a client software
company to an Internet-based subscription service company;
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<PAGE>
o whether Omega Research's reserves for returns and bad debt reflected
in its financial statements compare favorably to the actual returns
and bad debt that will be revealed as Omega Research transitions
from the sales to the subscription model;
o the risk that the companies may not successfully integrate their
businesses from technological, operational and marketing aspects;
and
o other applicable risks described in this joint proxy
statement/prospectus under the heading "RISK FACTORS."
The OnlineTrading.com board of directors believes that on balance the
potential benefits of the merger outweigh these risks.
The foregoing discussion of the information and factors considered by the
OnlineTrading.com board of directors is not intended to be exhaustive but is
believed to include all material factors considered by the OnlineTrading.com
board of directors. In view of the variety of factors considered in connection
with its evaluation of the merger, the OnlineTrading.com board of directors did
not find it practicable to quantify or otherwise assign relative weight to the
specific factors considered in reaching its determination. In addition,
individual members of the OnlineTrading.com board of directors may have given
different weight to different factors.
In light of the potential benefits, the OnlineTrading.com board of directors
has concluded that the merger represents a highly-effective current and
long-term strategy for OnlineTrading.com.
RECOMMENDATION OF ONLINETRADING.COM'S BOARD OF DIRECTORS
FOR THE REASONS DISCUSSED ABOVE, THE ONLINETRADING.COM BOARD OF DIRECTORS
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS
ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, ONLINETRADING.COM AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT ONLINETRADING.COM SHAREHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
In considering the recommendation of the board of directors of each of Omega
Research and OnlineTrading.com with respect to the merger agreement and merger,
you should be aware that certain directors and officers of each company have
interests in the merger that are different from, or are in addition to, the
interests of the shareholders of their respective company generally. Please see
the section titled "Interests of Certain Omega Research and OnlineTrading.com
Directors, Officers and Affiliates in the Merger" on page __ of this joint proxy
statement/prospectus.
OPINION OF FINANCIAL ADVISOR TO OMEGA RESEARCH
Pursuant to an engagement letter dated December 28, 1999, Omega Research
engaged FleetBoston Robertson Stephens Inc. ("Robertson Stephens") to render an
opinion as to the fairness of the OnlineTrading.com exchange ratio, the exchange
ratio for shares of OnlineTrading.com Group common stock to be received for each
share of common stock of OnlineTrading.com from a financial point of view, to
Omega Research.
On January 19, 2000 at the meeting of the Omega Research board held to
evaluate the proposed merger, Robertson Stephens delivered to the Omega Research
board its written opinion that, as of January 19, 2000 and based on the
assumptions made, the matters considered and the limitations on the review
undertaken described in the opinion, the OnlineTrading.com exchange ratio was
fair from a financial point of view to Omega Research. No limitations were
imposed by the Omega Research board on Robertson Stephens with respect to the
investigations made or procedures followed by it in furnishing its opinion. The
exchange ratio was determined through negotiations between the respective
managements of Omega Research and OnlineTrading.com. Although Robertson Stephens
did assist the management of Omega Research in those negotiations, it was not
asked by, and
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<PAGE>
did not recommend to, Omega Research that any specific exchange ratio
constituted the appropriate OnlineTrading.com exchange ratio for the merger.
Robertson Stephens also assisted Omega Research's management in the negotiations
leading to an agreement on principal structural terms of the merger.
The full text of the Robertson Stephens opinion, which sets forth, among
other things, assumptions made, matters considered and limitations on the review
undertaken, is attached as Appendix H and is incorporated in this joint proxy
statement/prospectus by reference. We urge Omega Research shareholders to read
the Robertson Stephens opinion in its entirety. The Robertson Stephens opinion
was prepared for the benefit and use of the Omega Research board in its
consideration of the merger and does not constitute a recommendation to
shareholders of Omega Research as to how they should vote upon, or take any
other action with respect to, the merger. Robertson Stephens' opinion was
rendered as of January 19, 2000 and has not been updated since that date. As the
U.S. financial markets have been volatile since January 19, 2000, we encourage
you to read the opinion carefully and to consider it in the context of current
market conditions.
The Robertson Stephens opinion does not address:
o the relative merits of the merger and the other business strategies
that the Omega Research board has considered or may be considering;
or
o the underlying business decision of the Omega Research board to
proceed with the merger.
The summary of the Robertson Stephens opinion set forth in this joint proxy
statement/prospectus is qualified in its entirety by reference to the full text
of the Robertson Stephens opinion.
In connection with the preparation of the Robertson Stephens opinion,
Robertson Stephens, among other things:
o reviewed publicly available financial statements and other business
and financial information of OnlineTrading.com and Omega Research,
respectively;
o reviewed internal financial statements and other financial and
operating data, including financial forecasts and other forward
looking financial information, concerning OnlineTrading.com and
Omega Research prepared by the managements of OnlineTrading.com and
Omega Research, respectively;
o held discussions with the respective managements of
OnlineTrading.com and Omega Research concerning the businesses, past
and current operations, financial condition and future prospects of
both OnlineTrading.com and Omega Research, independently and
combined, including discussions with the managements of
OnlineTrading.com and Omega Research concerning cost savings and
other synergies that are expected to result from the merger, as well
as their views regarding the strategic rationale for the merger;
o reviewed the financial terms and conditions set forth in the merger
agreement;
o reviewed the stock price and trading history of OnlineTrading.com
common stock and Omega Research common stock;
o compared the financial performance of OnlineTrading.com and the
prices and trading activity of OnlineTrading.com common stock with
that of other publicly-traded companies comparable with
OnlineTrading.com;
o compared the financial terms of the merger with the financial terms,
to the extent publicly available, of other transactions it deemed
relevant;
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o reviewed the pro forma impact of the merger on the combined
company's revenues and earnings per share;
o prepared a discounted cash flow analysis of OnlineTrading.com;
o participated in discussions and negotiations among representatives
of OnlineTrading.com and Omega Research and their financial and
legal advisors; and
o made such other studies and inquiries, and reviewed such other data,
as it deemed relevant.
In its review and analysis, and in arriving at its opinion, Robertson
Stephens assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it (including information furnished
to it orally or otherwise discussed with it by the managements of
OnlineTrading.com and Omega Research) or publicly available and neither
attempted to verify, nor assumed responsibility for verifying, any of such
information. Robertson Stephens relied upon the assurances of management of
OnlineTrading.com and Omega Research that they were not aware of any facts that
would make such information inaccurate or misleading. Furthermore, Robertson
Stephens did not obtain or make, or assume any responsibility for obtaining or
making, any independent evaluation or appraisal of the properties, assets or
liabilities (contingent or otherwise) of OnlineTrading.com or Omega Research,
nor was Robertson Stephens furnished with any such evaluation or appraisal.
With respect to the financial forecasts and projections (and the assumptions
and bases therefor) for each of OnlineTrading.com and Omega Research that
Robertson Stephens reviewed, upon the advice of the managements of
OnlineTrading.com and Omega Research, Robertson Stephens assumed that such
forecasts and projections:
o had been reasonably prepared in good faith on the basis of
reasonable assumptions;
o reflected the best available estimates and judgments as to the
future financial condition and performance of OnlineTrading.com and
Omega Research, respectively; and
o will be realized in the amounts and in the time periods estimated.
Robertson Stephens did not undertake any independent analysis to evaluate
the reliability or accuracy of the assumptions made by the managements of
OnlineTrading.com and Omega Research with respect to the potential effect that
the Year 2000 problem might have on their respective forecasts.
In addition, Robertson Stephens assumed that:
o the merger will be consummated upon the terms set forth in the
merger agreement without material alteration thereof, including,
among other things, that the merger will be accounted for as a
"pooling-of-interests" business combination in accordance with U.S.
generally accepted accounting principles ("U.S. GAAP");
o the merger will be treated as a tax-free reorganization pursuant to
the Internal Revenue Code of 1986, as amended; and
o the historical financial statements of each of OnlineTrading.com and
Omega Research reviewed by it had been prepared and fairly presented
in accordance with U.S. GAAP consistently applied.
Robertson Stephens relied as to all legal matters relevant to rendering its
opinion on the advice of counsel.
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Although developments following the date of the Robertson Stephens opinion
may affect the opinion, Robertson Stephens assumed no obligation to update,
revise or reaffirm its opinion. The Robertson Stephens opinion is necessarily
based upon market, economic and other conditions as in effect on, and
information made available to Robertson Stephens as of, the date of the
Robertson Stephens opinion. It should be understood that subsequent developments
may affect the conclusion expressed in the Robertson Stephens opinion and that
Robertson Stephens disclaims any undertaking or obligation to advise any person
of any change in any matter affecting the opinion which may come or be brought
to its attention after the date of the opinion. As noted above, the U.S.
financial markets have been volatile since January 19, 2000 and we encourage you
to read the opinion carefully and to consider it in the context of current
market conditions. The Robertson Stephens opinion is limited to the fairness,
from a financial point of view and as of the date thereof, of the
OnlineTrading.com exchange ratio to Omega Research. Robertson Stephens does not
express any opinion as to:
o the value of any employee agreement or other arrangement entered
into in connection with the merger;
o any tax or other consequences that might result from the merger; or
o what the value of OnlineTrading.com Group common stock will be when
issued to the shareholders of OnlineTrading.com and Omega Research
pursuant to the merger or the price at which the shares of
OnlineTrading.com Group common stock may be traded in the future.
The following is a summary of the material financial analyses performed by
Robertson Stephens in connection with rendering the Robertson Stephens opinion.
The summary of the financial analyses is not a complete description of all of
the analyses performed by Robertson Stephens. Certain of the information in this
section is presented in a tabular form. IN ORDER TO BETTER UNDERSTAND THE
FINANCIAL ANALYSES PERFORMED BY ROBERTSON STEPHENS, THESE TABLES MUST BE READ
TOGETHER WITH THE TEXT OF EACH SUMMARY. THE ROBERTSON STEPHENS OPINION IS BASED
UPON THE TOTALITY OF THE VARIOUS ANALYSES PERFORMED BY ROBERTSON STEPHENS.
EXCHANGE RATIO ANALYSIS. Robertson Stephens compared the historical ratios
of the closing price of Omega Research common stock to the closing price of
OnlineTrading.com common stock over the period from June 11, 1999 to January 18,
2000. The following table sets forth ratios of the closing prices of Omega
Research common stock compared to OnlineTrading.com common stock for the period
ending January 18, 2000:
Ratio of closing prices
of Omega Research common stock
compared
Period ending January 18, 2000 to OnlineTrading.com common stock
------------------------------ ---------------------------------
Spot High Low
---- ---- ---
10 trading days average 1.717x 2.194x 1.033x
20 trading days average 1.795x 2.159x 1.276x
30 trading days average 1.739x 2.061x 1.282x
60 trading days average 1.590x 1.919x 1.484x
COMPARABLE COMPANIES ANALYSIS. Using publicly-available information,
Robertson Stephens analyzed, among other things, the total capitalization and
trading multiples of OnlineTrading.com and publicly-traded companies that have
similar business and operating profiles, including:
o Ameritrade
o Charles Schwab
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o DLJdirect
o E*Trade Group, Inc.
o JB Oxford Holdings, Inc.
o National Discount Brokers
o Siebert Financial Corp.
o TD Waterhouse Group Inc.
Multiples compared by Robertson Stephens included total capitalization to
revenues or estimated revenues for calendar years 1999 and 2000 and total
capitalization to net income or estimated net income for calendar years 1999 and
2000. All multiples were based on closing stock prices as of January 18, 2000.
Using the ranges of multiples set forth in the table below that Robertson
Stephens derived from multiples for the comparable companies, the following
OnlineTrading.com equity values, OnlineTrading.com equity values per share and
OnlineTrading.com exchange ratios are implied:
<TABLE>
<CAPTION>
Multiple Equity Value per
Range Equity Value Share Exchange Ratio
--------------- ------------ ----- --------------
<S> <C> <C> <C> <C>
1999 Revenues 6.0x - 11.0x $88 - $147 million $7.50 - $12.52 1.398 - 1.899
2000 Revenues 5.0x - 7.5x $108 - $153 million $9.21 - $13.08 1.397 - 1.984
1999 Net Income 50.0x - 60.0x $70 - $84 million $5.96 - $7.15 0.904 - 1.084
2000 Net Income 40.0x - 50.0x $71 - $89 million $6.10 - $7.62 0.925 - 1.156
</TABLE>
Robertson Stephens also applied a typical control premium of 25.0% - 40.0%
to the results of the foregoing analysis, which implied the following
OnlineTrading.com equity values, equity values per share and OnlineTrading.com
exchange ratios:
<TABLE>
<CAPTION>
Equity Value per
Control Premium Equity Value Share Exchange Ratio
--------------- ------------ ----- --------------
<S> <C> <C> <C> <C>
1999 Revenues 25.0% - 40.0% $110 - $206 million $9.52 - $17.53 1.422 - 2.659
2000 Revenues 25.0% - 40.0% $135 - $215 million $11.52 - $18.32 1.747 - 2.778
1999 Net Income 25.0% - 40.0% $87 - $117 million $7.45 - $10.01 1.130 - 1.518
2000 Net Income 25.0% - 40.0% $89 - $125 million $7.62 - $10.67 1.156 - 1.618
</TABLE>
PRECEDENT TRANSACTION ANALYSIS: Using publicly-available information,
Robertson Stephens analyzed the consideration offered and the implied
transaction value multiples paid or proposed to be paid in prior acquisition
transactions in the financial services industry, including:
o Arbitrade Holdings LLC/Knight Trimark Group (November 18, 1999)
o R.J. Forbes Group/Ameritrade (August 9, 1999)
o Newport Discount Brokerage/onlinetradinginc.com (July 26, 1999)
o Archipelago LLC/J.P. Morgan (June 10, 1999)
o Island ECN/Paul Allen (June 10, 1999)
o Equitrade Partners LLC (NDB)/Spear, Leeds & Kellogg LP (May 10,
1999)
o E*Trade Group, Inc./Softbank Corp. (July 10, 1998)
o Quick & Reilly Group Inc./Fleet Financial Group Inc. (Sept. 17,
1997)
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o Dresdner-NY Inc./National Discount Brokers (May 2, 1997)
o Citicorp Dealing Resources/Electronic Broker Service (July 8, 1996)
o Waterhouse Investor Services/Toronto-Dominion Bank (April 10, 1996)
In analyzing these "precedent transactions" Robertson Stephens compared,
among other things, the total consideration in such transactions as a multiple
of the preceding twelve months revenues, next twelve months estimated net income
and book value. All multiples for the precedent transactions were based on
public information available at the time of the announcement. Based on this
information and other publicly-available information, the following table
illustrates the implied OnlineTrading.com equity valuations, OnlineTrading.com
equity valuations per share and exchange ratios derived from applying a range of
multiples that Robertson Stephens derived from the precedent transactions:
<TABLE>
<CAPTION>
Equity Value
Multiple Range Equity Valuation per Share Exchange Ratio
-------------- ---------------- --------- --------------
<S> <C> <C> <C> <C>
1999 Revenues 3.0x - 6.0x $53 - $88 million $4.49 - $7.50 0.681 - 1.138
1999 Net Income 20.0x - 40.0x $28 - $56 million $2.38 - $4.77 0.361 - 0.723
Book Value 3.0x - 11.0x $51 - $188 million $4.37 - $16.03 0.663 - 2.431
</TABLE>
No company, business or transaction compared in the comparable companies
analysis or precedent transaction analysis is identical to OnlineTrading.com.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
could affect the acquisition, public trading and other values of the comparable
companies, precedent transactions or the business segment, company or
transactions to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. Robertson Stephens performed a discounted
cash flow analysis of the after-tax free cash flows of OnlineTrading.com for
fiscal years 2000 through 2005 using OnlineTrading.com forecasts. Robertson
Stephens first discounted the projected, after-tax free cash flows through
January 31, 2005 using discount rates ranging from 16.0% to 18.0%.
OnlineTrading.com after-tax free cash flows were calculated as the after-tax
operating earnings of OnlineTrading.com adjusted to add back non-cash expenses
and deduct uses of cash not reflected in the income statement. Robertson
Stephens then added to the present value of the cash flows the terminal value of
OnlineTrading.com at January 31, 2005, discounted back at the same discount rate
to represent a present value. The terminal value was computed by multiplying the
projected revenues for OnlineTrading.com for fiscal year 2005 by terminal
multiples ranging from 3.5x to 4.5x. The range of terminal multiples selected
reflect Robertson Stephens' judgment as to an appropriate range of multiples at
the end of the reference period. The following table summarizes the resulting
implied range of OnlineTrading.com equity valuations, OnlineTrading.com equity
values per share and OnlineTrading.com exchange ratios:
Equity Value Exchange
Equity Value per Share Ratio
------------ --------- -----
$121 - $158 million $10.35 - $13.49 1.570 - 2.045
PRO FORMA ANALYSES. Robertson Stephens analyzed certain pro forma effects
resulting from the merger, including, among other things, the impact of the
merger on the projected revenues per share and earnings per share of the
combined company for fiscal years 2000 and 2001. The following table summarizes
the results of such analysis:
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year 2000 estimated revenue per share accretion/(dilution) (17.5)% - (24.4)%
Fiscal Year 2001 estimated revenue per share accretion/(dilution) (23.7)% - (30.0)%
Fiscal Year 2000 estimated earnings per share accretion/(dilution) 63.2% - 66.3%
Fiscal Year 2001 estimated earnings per share accretion/(dilution) (19.5)% - (26.1)%
</TABLE>
The actual results achieved by the combined company may vary from projected
results and the variations may be material.
OTHER FACTORS AND COMPARATIVE ANALYSES. In rendering its opinion, Robertson
Stephens considered other factors and conducted other comparative analyses,
including, among other things, a review of:
o the history of trading prices and volume for OnlineTrading.com
common stock for the period from June 11, 1999 to January 18, 2000
and for Omega Research common stock for the period from January 15,
1999 to January 18, 2000; and
o selected published analysts' reports on Omega Research, including
analysts' estimates as to the earnings growth potential of Omega
Research.
While the foregoing summary describes analyses and factors that Robertson
Stephens deemed material in its presentation to the Omega Research board, it is
not a comprehensive description of all analyses and factors considered by
Robertson Stephens. The preparation of a fairness opinion is a complex process
that involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Robertson Stephens believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, would create an incomplete view of the evaluation process
underlying the Robertson Stephens opinion. Several analytical methodologies were
employed and no one method of analysis should be regarded as critical to the
overall conclusion reached by Robertson Stephens. Each analytical technique has
inherent strengths and weaknesses, and the nature of the available information
may further affect the value of particular techniques. The conclusions reached
by Robertson Stephens are based on all analyses and factors taken as a whole and
also on application of Robertson Stephens' own experience and judgment. Such
conclusions may involve significant elements of subjective judgment and
qualitative analysis. Robertson Stephens therefore gives no opinion as to the
value or merit standing alone of any one or more parts of the analysis it
performed. In performing its analyses, Robertson Stephens considered general
economic, market and financial conditions and other matters, many of which are
beyond the control of OnlineTrading.com and Omega Research. The analyses
performed by Robertson Stephens are not necessarily indicative of actual values
or future results, which may be significantly more or less favorable than those
suggested by such analyses. Accordingly, analyses relating to the value of a
business do not purport to be appraisals or to reflect the prices at which the
business actually may be purchased. Furthermore, no opinion is being expressed
as to the prices at which shares of OnlineTrading.com common stock or Omega
Research common stock may be traded at any future time.
The engagement letter between Robertson Stephens and Omega Research provides
that Robertson Stephens is entitled to receive for its services a fee of
$500,000 upon the rendering of Robertson Stephens' opinion to Omega Research's
Board of Directors, and a fee of $1,000,000 plus 1.25% of the aggregate
transaction value in excess of $50 million, or an aggregate of approximately
$1.1 million based on closing stock prices as of May 25, 2000, upon consummation
of the merger, against which the opinion fee, to the extent paid, will be
credited. Omega Research has also agreed to reimburse Robertson Stephens for its
out-of-pocket expenses, including legal fees, and to indemnify and hold harmless
Robertson Stephens and its affiliates and any director, employee or agent of
Robertson Stephens or any of its affiliates, or any person controlling Robertson
Stephens or its affiliates for certain losses, claims, damages, expenses and
liabilities relating to or arising out of services provided by Robertson
Stephens as
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financial advisor to Omega Research. The terms of the fee arrangement with
Robertson Stephens, which Omega Research and Robertson Stephens believe are
customary in transactions of this nature, were negotiated at arm's length
between Omega Research and Robertson Stephens, and the Omega Research board was
aware of such fee arrangements, including the fact that a significant portion of
the fees payable to Robertson Stephens is contingent upon completion of the
merger. In the past, Robertson Stephens has provided investment banking services
to Omega Research for which it has been paid fees, including acting as lead
manager for Omega Research's initial public offering. Robertson Stephens and its
affiliates have not received any fees for services during the past two years.
Robertson Stephens maintains a market in the shares of Omega Research common
stock. In the ordinary course of its business, Robertson Stephens may trade in
Omega Research's securities and OnlineTrading.com's securities for its own
account and the account of its customers and, accordingly, may at any time hold
a long or short position in Omega Research's securities or OnlineTrading.com's
securities.
Robertson Stephens was retained based on Robertson Stephens' experience as a
financial advisor in connection with mergers and acquisitions and in securities
valuations generally, as well as Robertson Stephens' investment banking
relationship and familiarity with Omega Research.
Robertson Stephens is an internationally recognized investment banking firm.
As part of its investment banking business, Robertson Stephens is frequently
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes.
OPINION OF FINANCIAL ADVISOR TO ONLINETRADING.COM
OnlineTrading.com retained Raymond James & Associates, Inc. ("Raymond
James") in connection with its consideration of the merger because of Raymond
James' qualifications, expertise and reputation.
OPINION OF RAYMOND JAMES. At the January 19, 2000 meeting of the
OnlineTrading.com board, Raymond James gave its oral and written opinion that,
as of such date and based upon and subject to various qualifications and
assumptions described with respect to its opinion, the exchange ratio was fair,
from a financial point of view, to the holders of OnlineTrading.com common stock
as of that date. Raymond James' opinion was rendered as of January 19, 2000 and
has not been updated since that date. As the U.S. financial markets have been
volatile since January 19, 2000, we encourage you to read the opinion carefully
and to consider it in the context of current market conditions.
THE FULL TEXT OF THE WRITTEN OPINION OF RAYMOND JAMES, DATED JANUARY 19,
2000, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE
SCOPE OF REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX I TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. ONLINETRADING.COM SHAREHOLDERS ARE URGED TO CAREFULLY READ
THIS OPINION IN ITS ENTIRETY. Raymond James' opinion, which is addressed to the
OnlineTrading.com board, is directed only to the fairness of the exchange ratio
to OnlineTrading.com shareholders from a financial point of view and does not
constitute a recommendation to any OnlineTrading.com shareholder as to how such
shareholder should vote at the OnlineTrading.com special meeting and does not
address any other aspect of the proposed merger or any related transaction.
Raymond James consents to the summarization of its opinion in, and attachment of
its opinion to, this joint proxy statement/prospectus. The summary of the
opinion of Raymond James set forth in this joint proxy statement/prospectus is
qualified in its entirety by reference to the full text of such opinion.
In connection with rendering its opinion, Raymond James, has among other
things: reviewed the registration statement on Form SB-2/A filed June 10, 1999,
the quarterly reports to stockholders on Forms 10-Q filed September 10, 1999 and
December 15, 1999, and other publicly-available financial information of
OnlineTrading.com; reviewed non-public information prepared by the management of
OnlineTrading.com, including financial statements, financial projections based
on the business plan of OnlineTrading.com, and other financial and operating
data concerning OnlineTrading.com; reviewed the annual report to stockholders on
Form 10-K405 filed March 30, 1999, Form 8-K/A filed January 7, 2000, the
quarterly reports to stockholders on Forms 10-Q filed August 6, 1999 and
November 12, 1999, and other publicly-available financial information of Omega
Research;
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<PAGE>
reviewed non-public information prepared by the management of Omega Research,
including financial statements based on the business plan of Omega Research,
financial projections, and other financial and operating data concerning Omega
Research; reviewed pro forma financial information and cost savings and
operating synergies projections prepared by management of Omega Research and
OnlineTrading.com; discussed the past and current operations and financial
condition and the prospects of Omega Research and OnlineTrading.com with senior
executives of Omega Research and OnlineTrading.com, respectively; reviewed
publicly-available financial and stock market data with respect to other
companies in lines of business Raymond James believes to be generally comparable
to those of Omega Research and OnlineTrading.com; reviewed the historical market
prices of OnlineTrading.com common stock; compared the financial terms of the
merger with the financial terms of other transactions which Raymond James
believes to be generally comparable to the merger; reviewed a draft of the
merger agreement; and conducted other financial analyses, studies, and
investigations, and considered other information as Raymond James deemed
necessary or appropriate.
PRESENTATION BY RAYMOND JAMES. The following summarizes the material
financial analyses presented by Raymond James to the OnlineTrading.com board of
directors at its meeting on January 19, 2000, which were considered by Raymond
James in rendering the opinion described below. The summary set forth below does
not purport to be a complete description of either the analyses underlying
Raymond James' opinion or the presentation made by Raymond James to the
OnlineTrading.com board, but it does summarize all of the material analyses
performed and presented by Raymond James.
Raymond James calculated and compared financial multiples, ratios, and
public market multiples for OnlineTrading.com and Omega Research based on the
closing price per share in their respective principal trading markets of $11.75
and $6.59, respectively, and for each of the selected companies based on the
most recent publicly available information as of January 18, 2000.
COMPARABLE COMPANIES ANALYSIS. Raymond James presented to the
OnlineTrading.com board a summary financial analysis of eight public online
brokerage companies, including Ameritrade Holding Corporation, E*Trade Group,
Inc., Charles Schwab Corp., Siebert Financial Corporation, TD Waterhouse Group,
Web Street, Inc., DLJ Direct, and A.B. Watley Group. The financial statistics
were calculated for the comparable companies by reviewing publicly-reported
financial information. Projected financial statistics for comparable companies
were derived from the projections of various research analysts in publicly-filed
research reports. Raymond James calculated the following financial ratio ranges
for the selected online brokerage companies:
<TABLE>
<CAPTION>
Ratio Range for
Comparable Ratio from Implied
Companies Value for
Financial Ratio Analysis OnlineTrading.com
---------------------------------------------------------------------- ------------------- ----------------------
<S> <C> <C>
Enterprise value to trailing twelve-month net revenue 3.9 to 13.3 11.1
Equity value to trailing twelve-month earnings before advertising and taxes 22.2 to 497.9 65.4
Equity value to common book value 3.1 to 16.7 7.6
Equity value to calendar year 1999 net revenue 6.1 to 10.1 10.7
Equity value to calendar year 2000 projected net revenue 4.5 to 7.7 6.5
Equity value to trailing twelve-month earnings per share 39.8 to 308.9 83.3
Equity value to calendar year 1999 earnings per share 52.7 to 450.0 79.5
Equity value to calendar year 2000 projected earnings per share 36.8 to 270.0 55.6
Equity value to trades per day 33,125 to 290,609 148,371
Equity value to accounts 3,372 to 24,645 14,151
Equity value to assets under management 0.10 to 0.47 0.17
</TABLE>
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<PAGE>
PRECEDENT TRANSACTION ANALYSIS. Raymond James presented to the
OnlineTrading.com board a summary of a precedent transaction analysis, which
calculated financial ratios for six selected precedent company combination
transactions announced since 1996. The precedent transactions consisted of:
o Wells Fargo & Co. combining with Ragen MacKenzie Group, Inc.
o H&R Block, Inc. combining with Olde Financial Corp.
o Wachovia Corp. combining with Interstate/Johnson Lane Inc.
o BB&T Corp. combining with Scott & Stringfellow Financial
o BankAtlantic Bancorp combining with Ryan Beck & Co.
o Toronto Dominion Bank combining with Waterhouse Investor Service.
Raymond James examined the following financial ratios for these six selected
precedent company combinations: target company enterprise value to target
company revenue; target company enterprise value to target company earnings
before interest, taxes, depreciation, and amortization; target company
enterprise value to target company operating income; target company equity value
to target company pretax income; target company equity value to target company
net income; target company equity value to target company book value; and target
company equity value to target company common equity. The financial ratios were
calculated using financial statistics for the twelve months prior to the
consummation of the precedent company combinations. Raymond James calculated the
following financial ratio ranges for the selected precedent company
combinations:
<TABLE>
<CAPTION>
Ratio Range for
Comparable Ratio from Implied
Companies Value for
Financial Ratio Analysis OnlineTrading.com
---------------------------------------------------------------------- ------------------- ---------------------
<S> <C> <C>
Target company enterprise value to target company revenue 1.0 to 3.3 10.9
Target company enterprise value to target company earnings before
interest, taxes, depreciation, and amortization 1.7 to 9.5 54.9
Target company enterprise value to target company operating income 1.7 to 11.0 55.7
Target company equity value to target company pretax income 5.9 to 14.0 64.6
Target company equity value to target company net income 9.2 to 22.0 103.0
Target company equity value to target company book value 2.0 to 5.9 7.5
Target company equity value to target company common equity 2.0 to 6.3 7.5
</TABLE>
ONLINETRADING.COM DISCOUNTED CASH FLOW ANALYSIS. Raymond James presented to
the OnlineTrading.com board the results of a discounted cash flow analysis for
fiscal years 2000 to 2002 to estimate the present value of the stand-alone
unleveraged free cash flows that OnlineTrading.com is expected to generate if
OnlineTrading.com performs in accordance with certain internal management
forecasts. For purposes of this analysis, unleveraged free cash flows were
defined as unleveraged net income plus depreciation plus amortization less
capital expenditures less investment in working capital. Raymond James performed
its analysis based on financial forecasts and assumptions provided to it by
OnlineTrading.com.
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<PAGE>
Raymond James used the year 2002 as the terminal year for the analysis and
calculated terminal values for OnlineTrading.com by applying a range of
multiples of revenue to the projected fiscal year 2002 revenue for
OnlineTrading.com. These multiples ranged from 4.0 to 6.0. The unleveraged
projected free cash flows and terminal values were then discounted using a range
of discount rates from 12.50% to 17.50%. Based on this analysis, the implied
equity values for OnlineTrading.com ranged as set forth in the table below. This
range of equity values compares to the implied equity value for
OnlineTrading.com of $130.6 million under the merger.
Equity Value (in million $'s)
Assuming Discount Rate of:
Equity Value (in million $'s) Assuming
Terminal Value Revenue Multiple of:
4.00 5.00 6.00
---- ---- ----
12.50% 100.8 121.1 141.3
15.00% 83.7 99.7 115.7
17.50% 70.2 82.8 95.4
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Raymond
James believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering the analyses taken as a
whole, would create an incomplete view of the process underlying the analyses
set forth in its opinion. In addition, Raymond James considered the results of
all such analyses and did not assign relative weights to any of the analyses, so
the ranges of valuations resulting from any particular analysis described above
should not be taken to be Raymond James' view of the actual value of
OnlineTrading.com or a combination of Omega Research and OnlineTrading.com.
In performing its analyses, Raymond James made numerous assumptions with
respect to industry performance, general business, economic and regulatory
conditions and other matters, many of which are beyond the control of Omega
Research or OnlineTrading.com. The analyses performed by Raymond James are not
necessarily indicative of actual values, trading values or actual future results
which might be achieved, all of which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Raymond James' analysis of the fairness of the exchange ratio to
OnlineTrading.com shareholders from a financial point of view and were provided
to the OnlineTrading.com board. The analyses do not purport to be appraisals or
to reflect the prices at which a company might be sold. In addition, as
described above, the opinion of Raymond James was one of many factors taken into
consideration by the OnlineTrading.com board in making its determination to
approve the merger. Consequently, the analyses described above should not be
viewed as determinative of the OnlineTrading.com board's or OnlineTrading.com
management's opinion with respect to the value of OnlineTrading.com or a
combination of Omega Research and OnlineTrading.com, or of whether the
OnlineTrading.com board or OnlineTrading.com management would have been willing
to agree to different amounts or forms of consideration. OnlineTrading.com
placed no limits of the scope of the analysis performed, or opinion expressed,
by Raymond James.
Raymond James is actively involved in the investment banking business and
regularly undertakes the valuation of investment securities in connection with
public offerings, private placements, business combinations and similar
transactions. In the past, Raymond James has performed certain investment
banking services for Omega Research and has received customary fees for such
services. Raymond James has acted as financial advisor to the OnlineTrading.com
board in connection with the merger and will receive a fee upon the consummation
thereof, which fee is contingent upon the completion of the merger. In the
ordinary course of business, Raymond James may trade in the securities of Omega
Research and OnlineTrading.com for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
OnlineTrading.com and Raymond James have entered into a letter agreement,
dated December 16, 1999, relating to the services to be provided by Raymond
James in connection with the merger. Under this letter
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<PAGE>
agreement, Raymond James will receive a transaction fee of $525,000 plus 1.5% of
total consideration above $115 million, which is contingent upon the
consummation of the merger. The transaction fee would have been $525,000, based
upon the closing stock prices of May 26, 2000. OnlineTrading.com has agreed to
reimburse Raymond James for certain of its out-of-pocket expenses, including
legal fees, up to $25,000. OnlineTrading.com also agreed to pay Raymond James a
retainer fee of $25,000 upon signing of the letter agreement, dated December 16,
1999. The retainer fee will be credited against the transaction fee when paid
upon the consummation of the merger. In addition, Raymond James is entitled to
receive for its services a fee of $350,000 upon the rendering of Raymond James'
opinion to OnlineTrading.com's board of directors. The opinion fee will be
credited against the transaction fee when paid upon the consummation of the
merger. OnlineTrading.com has also agreed to indemnify and hold harmless Raymond
James and each of its directors, officers, agents, employees and controlling
persons for any and all losses, suits, actions, judgments, penalties, fines,
costs, damages, liabilities or claims of any kind or nature relating to or
arising out of services provided by Raymond James as financial advisor to
OnlineTrading.com. The terms of the fee arrangement with Raymond James, which
OnlineTrading.com and Raymond James believe are customary in transactions of
this nature, were negotiated at arm's length between OnlineTrading.com and
Raymond James, and the OnlineTrading.com board was aware of such fee
arrangements, including the fact that a significant portion of the fees payable
to Raymond James is contingent upon the completion of the merger.
The financial projections and estimates of cost savings and operating
synergies of management constitute forward-looking statements and are subject to
risks and uncertainties. They were based on assumptions concerning various
factors, including economic conditions, technological developments and
anticipated changes in business conditions, all of which are difficult or
impossible to predict and many of which are beyond the control of
OnlineTrading.com, Omega Research or the combined company. Consequently, there
can be no assurances that OnlineTrading.com, Omega Research or the combined
company will achieve such results.
In connection with its review, Raymond James has not assumed any
responsibility for independent verification of any of the information reviewed
by Raymond James for the purpose of the opinion and has relied on its being
complete and accurate in all material respects. In addition, Raymond James has
not made or received any independent evaluation or appraisal of any of the
assets or liabilities (contingent or otherwise) of Omega Research and
OnlineTrading.com, nor has Raymond James been furnished with any such evaluation
or appraisal. With respect to the financial forecasts, estimates, projections,
pro forma effects, calculations of synergies and other information referred to
above, Raymond James has assumed, at the direction of Omega Research and
OnlineTrading.com, that they have been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the management of Omega
Research and OnlineTrading.com, and Raymond James has relied upon each party to
advise Raymond James promptly if any such information previously provided to or
discussed with Raymond James became inaccurate or was required to be updated
during the period of the review. In addition, Raymond James has assumed, with
the consent of Omega Research and OnlineTrading.com, that the merger will be
consummated substantially in accordance with the terms of the draft merger
agreement reviewed by Raymond James, that the merger will be accounted for as a
pooling-of-interests under generally accepted accounting principles, and that
the merger will be considered a tax-free reorganization for tax purposes.
Raymond James' opinion was based on economic, market, and other conditions
as in effect on, and the information available to it as of, the date of its
opinion. Raymond James' opinion does not address the underlying business
decision to effect the merger, the structure or tax consequences of the merger
or the availability or advisability of any alternatives to the merger. Raymond
James did not express any opinion as to the range of prices at which the
combined company common stock might trade subsequent to the merger.
INTERESTS OF CERTAIN DIRECTORS, OFFICERS AND AFFILIATES IN THE MERGER
In considering the recommendation of OnlineTrading.com's board of directors,
you should be aware that certain directors and officers of OnlineTrading.com
have interests in the merger that are in addition to those held by
OnlineTrading.com shareholders generally.
In connection with entering into the merger agreement, OnlineTrading.com
modified its existing employment agreement with Andrew A. Allen, its Chairman of
the Board and Chief Executive Officer, effective as of the
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<PAGE>
effective time of the merger, to provide for, among other things, a severance
payment to him aggregating $600,000 as follows: $200,000 at the effective time
of the merger and $200,000 on each of the first and second anniversaries of such
effective time. This severance payment is a lower amount than the one to which
Mr. Allen would have been entitled had his employment terminated after the
merger and the terms of his existing employment agreement with OnlineTrading.com
not been so modified. The Allen severance agreement is attached as Appendix G
and you are urged to read it.
In addition, in connection with the entering into of the merger agreement,
OnlineTrading.com entered into new employment agreements with Farshid Tafazzoli,
its Chief Information Officer and a director, E. Steven zum Tobel, its
President, acting Chief Financial Officer and a director, and Derek J.
Hernquist, Vice President of Operations, Secretary and a director. These
employment agreements provide the terms of such executive officers' employment
with OnlineTrading.com after the effective time of the merger, including,
without limitation, position, annual base salary, bonus and other benefits. For
more information relating to the new employment agreements with certain of
OnlineTrading.com's executive officers, please see the sections called
"Employment Agreements" under the caption "THE MERGER AGREEMENT AND RELATED
AGREEMENTS" commencing on page __ of this joint proxy statement/prospectus.
The merger agreement provides that OnlineTrading.com Group will not modify,
and will cause each of Omega Research and OnlineTrading.com not to modify, any
rights to indemnification or exculpation from liabilities for acts or omissions
occurring at or prior to the effective time now existing in favor of the
officers and directors of Omega Research and OnlineTrading.com and that
OnlineTrading.com Group will use commercially reasonable efforts to provide
directors and officers liability insurance to cover any such liability for the
next two years. See "THE MERGER AGREEMENT AND RELATED AGREEMENTS--Director and
Officer Indemnification and Insurance" below.
REGULATORY APPROVALS
As a broker-dealer registered with the SEC pursuant to Section 15(a) of the
Securities Exchange Act of 1934 and as a member of the NASD, OnlineTrading.com
was required to file, and filed, a written notice of the proposed change in its
beneficial equity ownership and an application for continuance in membership
with the NASD. Such notice and application was delivered to NASD Regulation,
Inc. on February 15, 2000. On March 31, 2000, NASD Regulation, Inc. accepted the
application and approved OnlineTrading.com's right, after the merger, to
continue to engage in its broker-dealer business, as set forth in its new
membership agreement. OnlineTrading.com will also file any appropriate notices
with applicable state securities regulators and other self-regulatory
organizations of which it is a member.
Neither Omega Research nor OnlineTrading.com is aware of any other material
governmental or regulatory approval required for completion of the merger, other
than compliance with applicable corporate law of the State of Florida.
REGULATORY MATTERS FOLLOWING THE MERGER
If and when the merger is completed, OnlineTrading.com, which will then be a
wholly-owned subsidiary of OnlineTrading.com Group, will continue to be subject
to extensive securities industry regulation under both federal and state laws.
Broker-dealers are subject to regulations covering all aspects of the securities
business, including: sales methods; trade practices among broker-dealers; use
and safe-keeping of customers' funds and securities; arrangements with clearing
houses; capital structure; record keeping; conduct of directors, officers and
employees; and supervision. To the extent OnlineTrading.com solicits orders from
customers or makes investment recommendations, it is subject to additional rules
and regulations governing, among other things, sales practices and the
suitability of recommendations to its customers. Neither OnlineTrading.com
Group, nor Omega Research, is expected to be a broker or dealer.
OnlineTrading.com's mode of operation and profitability may be directly
affected by: additional legislation; changes in rules promulgated by the SEC,
the NASD, the Board of Governors of the Federal Reserve System, the
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various stock exchanges and other self-regulatory organizations; and changes in
the interpretation or enforcement of existing rules and laws.
The SEC, the NASD or other self-regulatory organizations and state
securities commissions can censure, fine, issue cease-and-desist orders, enjoin
or suspend or expel a broker-dealer or any of its officers or employees.
Marketing campaigns by OnlineTrading.com to bring brand name recognition to
it and to promote the benefit of its services, such as access to real-time
trading strategy tools and market information, and its high-speed electronic
order execution, are regulated by the NASD, and all marketing materials must be
reviewed by an appropriately-licensed OnlineTrading.com principal prior to
release, and must conform to standards articulated by the SEC and NASD. The NASD
may request that revisions be made to marketing materials, and can impose
certain penalties for violations of its advertising regulations, including
censures or fines, suspension of all advertising, the issuance of
cease-and-desist orders, and the suspension or expulsion of a broker-dealer or
any of its officers or employees.
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
broker-dealers. Net capital is the net worth of a broker or dealer, the value of
its assets minus its liabilities, less deductions for certain types of assets as
well as other charges. If a firm fails to maintain the required net capital it
may be subject to suspension or revocation of registration by the SEC and
suspension or expulsion by the NASD, and it could ultimately lead to the firm's
liquidation.
It is possible that other federal or state agencies will attempt to regulate
OnlineTrading.com and Omega Research's current and planned online and other
electronic activities with rules that may include compliance requirements
relating to record keeping, data processing, other operation methods, privacy,
and pricing, content and quality of goods and services as the market for online
commerce evolves. Because of the growth in the electronic commerce market,
Congress has held hearings on whether to regulate providers of services and
transactions in the electronic commerce market. As a result, federal or state
authorities could enact additional laws, rules or regulations, with respect to
online brokerage services, and new ones with respect to the online services both
companies provide and plan to provide. Such laws, rules and regulations, if and
when enacted, could have a material adverse effect on both companies and
OnlineTrading.com Group's business, financial condition, results of operations
and prospects.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material federal income tax
considerations relevant to the exchange of shares of Omega Research common stock
and OnlineTrading.com common stock for shares of OnlineTrading.com Group common
stock pursuant to the merger that are generally applicable to holders of Omega
Research and OnlineTrading.com common stock. This discussion is based on
currently existing provisions of the Internal Revenue Code, existing and
proposed treasury regulations thereunder and current administrative rulings and
court decisions, all of which are subject to change. Any such change, which may
or may not be retroactive, could alter the tax consequences to Omega Research
and OnlineTrading.com shareholders described herein.
Both Omega Research and OnlineTrading.com shareholders should be aware that
this discussion does not deal with all federal income tax considerations that
may be relevant to particular Omega Research or OnlineTrading.com shareholders
in light of their particular circumstances, such as shareholders who are dealers
in securities, who are subject to the alternative minimum tax provisions of the
Internal Revenue Code, who are foreign persons, who do not hold their respective
Omega Research or OnlineTrading.com common stock as capital assets, or who
acquired their shares in connection with stock option or stock purchase plans or
in other compensatory transactions. In addition, the following discussion does
not address the tax consequences of:
o the merger under foreign, state or local tax laws;
o transactions effectuated prior or subsequent to, or concurrently
with, the merger, whether or not any such transactions are
undertaken in connection with the merger, including without
limitation any transaction in
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which shares of Omega Research or OnlineTrading.com common stock are
acquired or shares of OnlineTrading.com Group common stock are
disposed of; or
o the assumption by OnlineTrading.com Group of Omega Research or
OnlineTrading.com options or warrants or the tax consequences of any
receipt of rights to acquire OnlineTrading.com Group common stock.
Accordingly, OMEGA RESEARCH AND ONLINETRADING.COM SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES.
In the opinion of both Bilzin Sumberg Dunn Price & Axelrod LLP, counsel to
Omega Research and OnlineTrading.com Group, and Broad and Cassel, counsel to
OnlineTrading.com, the merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code and will generally result
in the following material federal income tax consequences to Omega Research and
OnlineTrading.com shareholders:
o No gain or loss will be recognized solely upon receipt of
OnlineTrading.com Group common stock in exchange for Omega Research
or OnlineTrading.com common stock in the merger, except to the
extent of cash received in lieu of a fractional share of
OnlineTrading.com Group common stock or to the extent cash is
received upon the exercise of dissenters' rights.
o The aggregate tax basis of OnlineTrading.com Group common stock
received in the merger, reduced by any tax basis attributable to
fractional shares deemed to be disposed of, will be the same as the
aggregate tax basis of the Omega Research or OnlineTrading.com
common stock surrendered in exchange therefor.
o The holding period of OnlineTrading.com Group common stock received
in the merger will include the period for which the Omega Research
or OnlineTrading.com common stock surrendered in exchange therefor
was considered to be held, provided that the Omega Research or
OnlineTrading.com common stock so surrendered is held as a capital
asset at the time of the merger.
o Cash payments received in lieu of a fractional share will be treated
as if such fractional share of OnlineTrading.com Group common stock
had been issued in the merger and then redeemed by OnlineTrading.com
Group. A shareholder receiving such cash will recognize gain or
loss, upon such payment, measured by the difference, if any, between
the amount of cash received and the basis in such fractional share.
A holder of OnlineTrading.com common stock who exercises dissenters' rights
with respect to a share of OnlineTrading.com common stock and receives a cash
payment for such share generally should recognize capital gain or loss, if such
share was held as a capital asset at the effective time of the merger, measured
by the difference between the amount of cash received and the shareholder's
basis in such share provided that such payment is not essentially equivalent to
a dividend within the meaning of Section 302 of the Internal Revenue Code nor
has the effect of a distribution of a dividend within the meaning of Section
356(a)(2) of the Internal Revenue Code after giving effect to the constructive
ownership rules of the Internal Revenue Code. A sale of shares under an exercise
of dissenters' rights generally will not be so treated if, as a result of such
exercise, the shareholder exercising dissenters' rights owns no shares of
capital stock of OnlineTrading.com Group, either actually or constructively
within the meaning of Section 318 of the Internal Revenue Code, immediately
after the merger.
The parties have not and will not request a ruling from the Internal
Revenue Service as to the tax consequences of the merger. The consummation of
the merger is conditioned on the receipt by Omega Research of an opinion from
Bilzin Sumberg Dunn Price & Axelrod LLP and the receipt by OnlineTrading.com of
an opinion from Broad and Cassel to the effect that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. Omega Research and OnlineTrading.com shareholders should be aware that the
tax opinions do not bind the Internal Revenue Service and the Internal Revenue
Service is therefore not precluded from successfully asserting a contrary
opinion. The tax opinions will be subject to certain assumptions and
qualifications,
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including but not limited to the truth and accuracy of certain representations
made by Omega Research and OnlineTrading.com.
A successful Internal Revenue Service challenge to the reorganization status
of the merger would result in Omega Research and OnlineTrading.com shareholders
recognizing taxable gain or loss with respect to each share of common stock of
OnlineTrading.com Group surrendered equal to the difference between the fair
market value, as of the effective time of the merger, of OnlineTrading.com Group
stock received in exchange therefor, and the shareholder's basis in such share.
In such event, a shareholder's aggregate basis in OnlineTrading.com Group common
stock so received would equal its fair market value, and the shareholder's
holding period for such stock would begin the day after the merger.
ACCOUNTING TREATMENT
We intend to account for the merger as a pooling-of-interests, which means
that OnlineTrading.com Group, after the merger is consummated, will be treated
as if Omega Research and OnlineTrading.com had previously been combined for
accounting and financial reporting purposes. It is a condition to completion of
the merger that Omega Research be advised by Arthur Andersen LLP, Omega
Research's and OnlineTrading.com's independent auditors, that, based on material
representations by Omega Research and OnlineTrading.com, the transactions
contemplated by the merger agreement can properly be accounted for as a
pooling-of-interests business combination, although this condition may be waived
by Omega Research. Under the pooling-of-interests method of accounting, each of
the parties' historical recorded assets and liabilities will be carried forward
to the combined company at their recorded amounts. In addition, the operating
results of the combined company will include both parties' operating results for
the entire fiscal year in which the merger is completed and the parties'
historical reported operating results for prior periods will be combined and
restated as the operating results of the combined company.
DISSENTERS' OR APPRAISAL RIGHTS
If you are an Omega Research shareholder, you are not entitled to exercise
dissenters' or appraisal rights as a result of the merger or to demand cash
payment for your shares under Florida law.
If you are an OnlineTrading.com shareholder, you are entitled to dissenters'
rights as a result of the merger and, accordingly, to demand cash payment in
lieu of OnlineTrading.com Group common stock for your shares of
OnlineTrading.com common stock under Florida law.
The following summary of dissenters' rights under Florida law is qualified
in its entirety by reference to chapter 607, Florida Statutes.
To the extent you are an OnlineTrading.com shareholder, failure to strictly
follow the procedures set forth herein may result in the loss, termination or
waiver of dissenters' rights. An OnlineTrading.com shareholder who fails to sign
and return a proxy card disapproving and withholding authorization for the
merger or to attend the OnlineTrading.com special meeting and vote his or her
shares against the merger will not have a right to exercise dissenters' rights.
An OnlineTrading.com shareholder who desires to exercise his or her dissenters'
rights must also submit a written demand for payment to OnlineTrading.com before
the date of the OnlineTrading.com special meeting.
Section 607.1320 of Florida Statutes provides the following procedure for
exercise of dissenters' rights:
o The notice of meeting shall state that shareholders are or may be
entitled to assert dissenters' rights and be accompanied by a copy
of ss. 607.1301, 607.1302, and 607.1320.
o A shareholder who wishes to assert dissenters' rights shall:
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o deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the
proposed action is taken (a proxy or vote against the proposed
action does not constitute notice of intent to demand payment),
and
o not vote his shares in favor of the proposed action.
o Within 10 days after the shareholders meeting the corporation shall
give written notice of the authorization or consent or adoption of
the plan of merger, as the case may be, to each shareholder who did
not vote for, or consent in writing to, the proposed action.
o Within 20 days after the giving of notice to him or her, any
shareholder who elects to dissent shall file with the corporation a
notice of such election, stating the shareholder's name and address,
the number, classes, and series of shares as to which he or she
dissents, and a demand for payment of the fair value of his or her
shares. Any shareholder failing to file such election to dissent
within the period set forth shall be bound by the terms of the
proposed corporate action. Any shareholder filing an election to
dissent shall deposit his or her certificates for certificated
shares with the corporation simultaneously with the filing of the
election to dissent. The corporation may restrict the transfer of
uncertificated shares from the date the shareholder's election to
dissent is filed with the corporation.
o Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment and shall not be entitled to
vote or to exercise any other rights of a shareholder.
o A shareholder may withdraw his notice of election to dissent in
writing at any time before the corporation offers to pay for his
shares. After an offer is made, a shareholder may not withdraw his
notice of election to dissent unless the corporation dissents.
o Within 10 days after the expiration of the period in which
shareholders may file their notices of election to dissent, or
within 10 days after the corporate action is taken, whichever is
later, the corporation shall make a written offer to each dissenting
shareholder who has made a demand to pay an amount the corporation
estimates to be the fair value for the dissenting shareholder's
shares. The offer shall be accompanied by:
o a balance sheet of the corporation as of the latest available
date and not more than 12 months prior to the making of the
offer; and
o a profit and loss statement of the corporation for the 12-month
period ended on the date of the balance sheet.
o If a shareholder accepts an offer within 30 days after it is made,
the corporation shall pay for his shares within 90 days after the
making of the offer or the consummation of the proposed action,
whichever is later. Upon payment, the dissenting shareholder shall
cease to have any interest in his shares.
o If the corporation fails to make an offer within the specified time
or if the dissenting shareholder fails to accept an offer within 30
days after it is made, the corporation may file an action in any
court of competent jurisdiction in the county where the registered
office of the corporation is located requesting that the fair value
of the shares and the entitlement to payment of the dissenting
shareholder be determined. If the corporation fails to institute
such a proceeding, any dissenting shareholder may do so in the name
of the corporation.
In accordance with the foregoing requirement of Florida law to provide
shareholders with a copy of sections 607.1301, 607.1302 and 607.1320, the exact
text of the relevant sections is set forth below:
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s.607.1301 Dissenters' rights; definitions. The following definitions apply to
sections 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the
shareholders' authorization date, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion
would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date
on which the corporation received written consents without a meeting
from the requisite number of shareholders in order to which a copy of
the plan of merger was mailed to each shareholder of record of the
subsidiary corporation.
s.607.1302 Right of shareholders to dissent.
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his or her shares in the event of,
any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its
parent under s. 607.1104, and the shareholders would have been
entitled to vote on action taken, except for the applicability
of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation, other than in the usual and regular
course of business, if the shareholder is entitled to vote on the
sale or exchange pursuant to s. 607.1202, including a sale in
dissolution but not including a sale pursuant to court order or a
sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation is
a party as the corporation the shares of which will be acquired, if
the shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would
adversely affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of
his or her shares;
2. Altering or abolishing the voting rights pertaining to any of
his or her shares, except as such rights may be affected by the
voting rights of new shares then being authorized of any
existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification of any
of his or her shares, when such exchange, cancellation, or
reclassification would alter or abolish the shareholder's voting
rights or alter his or her percentage of equity in the
corporation, or effecting a reduction or cancellation of accrued
dividends or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of the shareholder's
redeemable shares, altering or abolishing any provision relating
to any sinking fund for the redemption or purchase of any of
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his or her shares, or making any of his or her shares subject to
redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any of
the shareholder's preferred shares which had theretofore been
cumulative;
6. Reducing the stated dividend preference of any of the
shareholder's preferred shares; or
7. Reducing any stated preferential amount payable on any of the
shareholder's preferred shares upon voluntary or involuntary
liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is
entitled to dissent and obtain payment for his or her shares.
(2) A shareholder dissenting from any amendment specified in paragraph 1(e)
has the right to dissent only as to those of his or her shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his or her name. In that event, the shareholder's rights shall be
determined as if the shares as to which he or she has dissented and his
or her other shares were registered in the names of different
shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a
proposed sale or exchange of property, to the holders of shares of any
class or series which, on the record date fixed to determine the
shareholders entitled to vote at the meeting of shareholders at which
such action is to be acted upon or to consent to any such action without
a meeting, were either registered on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his or her
shares may not challenge the corporate action creating his or her
entitlement unless the action is unlawful or fraudulent with respect to
the shareholder or the corporation.
s.607.1320 Procedure for exercise of dissenters' rights.
(1) (a) If a proposed corporate action creating dissenters' rights under
s. 607.1302 is submitted to a vote at a shareholders' meeting, the
meeting notice shall state that shareholders are or may be entitled
to assert dissenters' rights and be accompanied by a copy of ss.
607.1301, 607.1302, and 607.1320. A shareholder who wishes to assert
dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice
of the shareholder's intent to demand payment for his or her shares
if the proposed action is effectuated, and
2. Not vote his or her shares in favor of the proposed action. A proxy
or vote against the proposed action does not constitute such a
notice of intent to demand payment.
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the
corporation shall deliver a copy of ss. 607.1301, 607.1302, and
607.1320 to each shareholder simultaneously with any request for the
shareholders' written consent or, if such a request is not made,
within 10 days after the date the corporation received written
consents without a meeting from the requisite number of shareholders
necessary to authorize the action.
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(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent
or adoption of the plan of merger, as the case may be, to each
shareholder who filed a notice of intent to demand payment for his or
her shares pursuant to paragraph (1)(a) or, in the case of action
authorized by written consent, to each shareholder, excepting any who
voted for, or consented in writing to, the proposed action.
(3) Within 20 days after the giving of notice to him or her, any shareholder
who elects to dissent shall file with the corporation a notice of such
election, stating the shareholder's name and address, the number,
classes, and series of shares as to which he or she dissents, and a
demand for payment of the fair value of his or her shares. Any
shareholder failing to file such election to dissent within the period
set forth shall be bound by the terms of the proposed corporate action.
Any shareholder filing an election to dissent shall deposit his or her
certificates for certificated shares with the corporation simultaneously
with the filing of the election to dissent. The corporation may restrict
the transfer of uncertificated shares from the date the shareholder's
election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and
shall not be entitled to vote or to exercise any other rights of a
shareholder. A notice of election may be withdrawn in writing by the
shareholder at any time before an offer is made by the corporation, as
provided in subsection (5), to pay for his or her shares. After such
offer, no such notice of election may be withdrawn unless the
corporation consents thereto. However, the right of such shareholder to
be paid the fair value of his or her shares shall cease, and the
shareholder shall be reinstated to have all his or her rights as a
shareholder as of the filing of his or her notice of election, including
any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have
expired or any such dividend or distribution other than in cash has been
completed, in lieu thereof, at the election of the corporation, the fair
value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any
corporate proceedings that may have been taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a court
has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after
such corporate action is effected, whichever is later (but in no case
later than 90 days from the shareholders' authorization date), the
corporation shall make a written offer to each dissenting shareholder
who has made demand as provided in this section to pay an amount the
corporation estimates to be the fair value for such shares. If the
corporate action has not been consummated before the expiration of the
90-day period after the shareholders' authorization date, the offer may
be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and
not more than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such 12-month period,
for the portion thereof during which it was in existence.
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(6) If within 30 days after the making of such offer any shareholder accepts
the same, payment for his or her shares shall be made within 90 days
after the making of such offer or the consummation of the proposed
action, whichever is later. Upon payment of the agreed value, the
dissenting shareholder shall cease to have any interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of
30 days thereafter, then the corporation, within 30 days after receipt
of written demand from any dissenting shareholder given within 60 days
after the date on which such corporate action was effected, shall, or at
its election at any time within such period of 60 days may, file an
action in any court of competent jurisdiction in the county in this
state where the registered office of the corporation is located
requesting that the fair value of such shares be determined. The court
shall also determine whether each dissenting shareholder, as to whom the
corporation requests the court to make such determination, is entitled
to receive payment for his or her shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder
may do so in the name of the corporation. All dissenting shareholders
(whether or not residents of this state), other than shareholders who
have agreed with the corporation as to the value of their shares, shall
be made parties to the proceeding as an action against their shares. The
corporation shall serve a copy of the initial pleading in such
proceeding upon each dissenting shareholder who is a resident of this
state in the manner provided by law for the service of a summons and
complaint and upon each nonresident dissenting shareholder either by
registered or certified mail and publication or in such other manner as
is permitted by law. The jurisdiction of the court is plenary and
exclusive. All shareholders who are proper parties to the proceeding are
entitled to judgment against the corporation for the amount of the fair
value of their shares. The court may, if it so elects, appoint one or
more persons as appraisers to receive evidence and recommend a decision
on the question of fair value. The appraisers shall have such power and
authority as is specified in the order of their appointment or an
amendment thereof. The corporation shall pay each dissenting shareholder
the amount found to be due him or her within 10 days after final
determination of the proceedings. Upon payment of the judgment, the
dissenting shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate of
interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part
of such costs and expenses may be apportioned and assessed as the court
deems equitable against any or all of the dissenting shareholders who
are parties to the proceeding, to whom the corporation has made an offer
to pay for the shares, if the court finds that the action of such
shareholders in failing to accept such offer was arbitrary, vexatious,
or not in good faith. Such expenses shall include reasonable
compensation for, and reasonable expenses of, the appraisers, but shall
exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially
exceeds the amount which the corporation offered to pay therefor or if
no offer was made, the court in its discretion may award to any
shareholder who is a party to the proceeding such sum as the court
determines to be reasonable compensation to any attorney or expert
employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor,
as provided in this section, may be held and disposed of by such
corporation as provided but unissued shares of the corporation, except
that, in the case of a merger, they may be held and disposed of as the
plan of merger otherwise provides. The shares of the surviving
corporation into which the shares of such dissenting shareholder would
have been converted had they assented to the merger shall have the
status of authorized but unissued shares of the surviving corporation.
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LISTING OF ONLINETRADING.COM GROUP COMMON STOCK
It is a condition to the closing of the merger that OnlineTrading.com Group
common stock will have been listed for trading on The Nasdaq National Market,
subject to official notice of issuance, and, in connection therewith, that an
application will have been filed for the shares of OnlineTrading.com Group
common stock to be issued in the merger and the shares of OnlineTrading.com
Group common stock to be reserved for issuance in connection with the assumption
of outstanding Omega Research and OnlineTrading.com stock options and warrants.
RESTRICTIONS ON SALE OF SHARES BY AFFILIATES OF OMEGA RESEARCH AND
ONLINETRADING.COM
The shares of OnlineTrading.com Group common stock to be issued in
connection with the merger will be registered under the Securities Act of 1933
and will be freely transferable under the Securities Act of 1933, except for
shares of OnlineTrading.com Group common stock issued to any person who is
deemed to be an affiliate of either Omega Research or OnlineTrading.com at the
time of the special meetings. Persons who may be deemed to be affiliates include
individuals or entities that control, are controlled by, or are under common
control with either company and may include some of its officers and all of its
directors, as well as its principal shareholders. Affiliates may not sell their
shares of OnlineTrading.com Group common stock acquired in connection with the
merger except pursuant to:
o an effective registration statement under the Securities Act of 1933
covering the resale of those shares;
o an exemption under paragraph (d) of Rule 145 under the Securities
Act of 1933; or
o another applicable exemption under the Securities Act of 1933.
OnlineTrading.com Group's registration statement on Form S-4, of which this
joint proxy statement/prospectus forms a part, does not cover the resale of
shares of OnlineTrading.com Group common stock to be received by affiliates in
the merger.
OPERATIONS FOLLOWING THE MERGER
Following the merger, Omega Research and OnlineTrading.com will continue
their respective operations as separate wholly-owned subsidiaries of
OnlineTrading.com Group, which will be the publicly-traded company, its shares
of common stock to be listed on The Nasdaq National Market, while Omega
Research's and OnlineTrading.com's common stock will no longer be traded.
Shareholders of Omega Research and OnlineTrading.com will become shareholders of
OnlineTrading.com Group, and their rights as shareholders will be governed by
OnlineTrading.com Group's articles of incorporation and bylaws and the laws of
the State of Florida.
For a discussion of the executive officers and directors of
OnlineTrading.com Group, Omega Research and OnlineTrading.com after the merger,
see "THE MERGER AGREEMENT AND RELATED AGREEMENTS -- Directors and Executive
Officers After the Merger."
THE MERGER AGREEMENT AND RELATED AGREEMENTS
The following is a brief summary of the material provisions of the merger
agreement (attached as Appendix A), the Omega Research shareholder agreement
(the form of which is attached as Appendix B), the OnlineTrading.com shareholder
agreement (the form of which is attached as Appendix C), the Omega Research
stock option agreement (attached as Appendix D), the OnlineTrading.com stock
option agreement (attached as Appendix E) and the voting trust agreement
(attached as Appendix F), all of which appendices are incorporated in this joint
proxy statement/prospectus by reference. We urge you to read the merger
agreement and those other agreements in their entireties for a more complete
description of the merger and the related matters covered by those agreements.
If there is any discrepancy between the terms of the merger agreement or any of
those other agreements and the following summary, the merger agreement or such
other agreements, as applicable, will control.
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THE MERGER
Following the approval and adoption of the merger agreement and the merger
by the shareholders of each of Omega Research and OnlineTrading.com and the
satisfaction or waiver of the other conditions to the merger, including the
receipt of all required regulatory approvals, waivers and consents, Omega
Research will merge with Omega Acquisition Corporation, a recently-formed
Florida corporation and wholly-owned subsidiary of OnlineTrading.com Group, with
Omega Research continuing as the surviving corporation and as a wholly-owned
subsidiary of OnlineTrading.com Group. OnlineTrading.com will merge with
Onlinetrading Acquisition Corporation, a recently formed Florida corporation and
wholly-owned subsidiary of OnlineTrading.com Group, with OnlineTrading.com
continuing as the surviving corporation and as a wholly-owned subsidiary of
OnlineTrading.com Group.
EFFECTIVE TIME
As soon as practicable on or after the closing of the merger, the parties
will cause the merger to become effective by filing Articles of Merger with the
Florida Secretary of State. We are working towards completing the merger as soon
as possible. We expect to complete the merger in July 2000. However, the merger
is subject to various closing conditions including the approval for listing of
OnlineTrading.com Group common stock on The Nasdaq National Market. No
assurances can be given that we will obtain that approval or that all conditions
will be met and/or waived. After July 31, 2000, either Omega Research or
OnlineTrading.com may terminate the merger agreement.
DIRECTORS AND OFFICERS AFTER THE MERGER
At the effective time of the merger, Salomon Sredni, the President and Chief
Operating Officer and a director of Omega Research, Marc J. Stone, Vice
President of Corporate Development, General Counsel and Secretary and a director
of Omega Research, and E. Steven zum Tobel, the President and Treasurer and a
director of OnlineTrading.com, will be the directors of Omega Research and the
then current officers of Omega Research will initially remain the officers of
Omega Research.
At the effective time of the merger, Messrs. Sredni, Stone and zum Tobel,
Ralph L. Cruz, the Co-Chairman of the Board and Co-Chief Executive Officer of
Omega Research, and Farshid Tafazzoli, the Chief Information Officer and a
director of OnlineTrading.com, will be the directors of OnlineTrading.com and
the then current officers of OnlineTrading.com, except for Andrew A. Allen, who
has resigned effective as of the closing of the merger for personal family
reasons, will initially remain the officers of OnlineTrading.com.
At the effective time of the merger, the board of directors of
OnlineTrading.com Group will be comprised of eight directors. The directors of
OnlineTrading.com Group from and after the effective time will initially be
designated as follows: Omega Research shall designate five directors, including
two Co-Chairmen of the Board and two who will be independent directors, and
OnlineTrading.com will designate three directors, one of whom will be an
independent director. Accordingly, the initial board of directors of
OnlineTrading.com Group will be comprised of William R. Cruz, Ralph L. Cruz and
Salomon Sredni, executive officers of Omega Research, and Brian D. Smith and
Stephen C. Richards, independent directors of Omega Research, E. Steven zum
Tobel and Fashid Tafazzoli, executive officers of OnlineTrading.com, and Lothar
Mayer, an independent director of OnlineTrading.com.
An "independent director" means an individual who meets both the definition
of a "non-employee director" set forth in Rule 16b-3 of the Securities Exchange
Act of 1934 and the requirements of an independent director pursuant to the
rules of The Nasdaq National Market for purposes of serving as a member of
OnlineTrading.com Group's audit committee. The Nasdaq National Market
requirements include being "financially literate," as defined under such rules
and, in the case of one of the independent directors to be designated by Omega
Research, having "financial expertise," as defined under such rules. If Omega
Research or OnlineTrading.com designates an independent director to serve on the
board of directors of OnlineTrading.com Group who does not currently serve
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on such designating corporation's board of directors, such designation will
require the approval of the other corporation, which shall not be unreasonably
withheld.
Andrew A. Allen, the Chairman of the Board and Chief Executive Officer of
OnlineTrading.com, will be entitled to attend as an observer all meetings,
including telephone meetings, of the board of directors of OnlineTrading.com
Group for as long as he owns at least 5.0% of the outstanding shares of
OnlineTrading.com Group common stock. However, OnlineTrading.com Group's board
of directors may require that he not attend any particular board meeting or
shall be excused from any portions of meetings that involve matters or business
that OnlineTrading.com Group's board determines should be considered by it
without Mr. Allen being in attendance. In addition, in connection with the
acquisition by Omega Research of Window On WallStreet, each of John Jennings and
Keith Black, Co-Presidents of Window On WallStreet, were given similar
observation rights as long as he owns at least 1.5% of the shares of the
outstanding common stock of OnlineTrading.com Group
The executive officers of OnlineTrading.com Group at the effective time of
the merger are expected to be as follows:
Co-Chairman of the Board and Co-Chief
Executive Officer William R. Cruz
Co-Chairman of the Board and Co-Chief
Executive Officer Ralph L. Cruz
President and Chief Operating Officer Salomon Sredni
Vice President of Brokerage Operations E. Steven zum Tobel
Vice President of Brokerage Technology Farshid Tafazzoli
Vice President of Corporate Development, Marc J. Stone
General Counsel and Secretary
Chief Financial Officer, Vice President of
Finance and Treasurer Gregg F. Stewart
Vice President of Advertising Janette Perez
VOTING TRUST AGREEMENT
In connection with entering into the merger agreement, certain shareholders
of Omega Research and OnlineTrading.com entered into a voting trust agreement to
be effective at the time of the merger pursuant to which shares of common stock
of OnlineTrading.com Group owned by them after the effective time will be
subject to the terms of such voting trust. The relevant shareholders of Omega
Research who entered into the voting trust agreement are affiliates of William
R. Cruz and Ralph L. Cruz and hold an aggregate of 18,313,108 shares of Omega
Research common stock. The shareholders of OnlineTrading.com who entered into
the voting trust agreement are Andrew A. Allen and his affiliates, affiliates of
E. Steven zum Tobel and Farshid Tafazzoli, Derek J. Hernquist and a former
director of OnlineTrading.com, who hold an aggregate of 8,888,888 shares of
OnlineTrading.com common stock. The parties to the voting trust agreement have
agreed that during the term of the voting trust agreement and the continuance of
the voting trust created under that agreement, the voting trustee, Marc J.
Stone, will be entitled to exercise with respect to OnlineTrading.com Group
shares subject to the voting trust all rights of voting and abstaining from
voting or otherwise to participate in shareholder actions, including executing
written consents, in all matters relating to OnlineTrading.com Group as provided
in the voting trust agreement.
From and after the effective time of the merger, the Omega Research
shareholders who are a party to the voting trust agreement will have the right
to direct the voting trustee to vote all of the shares subject to the voting
trust in a manner such that five of the total of eight directors constituting
the board of directors of OnlineTrading.com Group,
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two of which five are required to be independent directors, are designated by
those Omega Research shareholders. The OnlineTrading.com shareholders who are a
party to the voting trust agreement shall have the right to direct the voting
trustee to vote all of the shares subject to the voting trust in a manner such
that three of such total number of eight directors, one of which three is
required to be an independent director, are designated by those
OnlineTrading.com shareholders. In the event that the number of directors
constituting the board of directors of OnlineTrading.com Group is increased or
decreased from time to time on or after the effective time of the merger, then
each group of shareholders will be entitled to designate its number of the total
number of directors of OnlineTrading.com Group based upon a ratio of 62.5% for
the Omega Research shareholders and 37.5% for the OnlineTrading.com
shareholders. If the foregoing ratio yields other than whole numbers as to the
number of directors for which each group of shareholders is entitled to
designate the shares to be voted, then the number of directors which each such
group is entitled to designate shall be rounded down to the nearest whole
number, and the one remaining directorship that this rounding down will create
shall be designated by the Omega Research shareholders.
A designee of the Omega Research shareholders and a designee of the
OnlineTrading.com shareholders will certify to the other group and the voting
trustee that each individual whom said group has submitted to the voting trustee
as an independent director nominee(s) in fact so qualifies. Upon request, the
group of shareholders so certifying will deliver, within three days of such
request, to the other group of shareholders such information regarding the
independent director nominee(s) as shall reasonably establish that said nominee
meets the qualifications of an independent director. In the event that the
certifying group of shareholders and the other group of shareholders do not
agree on the independent director status of one or more nominees, then, upon
written demand of the other group, such status shall be determined by binding
arbitration under the procedures set forth in the voting trust agreement;
provided, however, that, to the extent such individual, when nominated by the
board of directors of OnlineTrading.com Group, has been designated as an
independent director, such individual shall be deemed to be an independent
director.
With respect to all matters other than the election of directors as to which
a vote (or written consent) of shareholders of OnlineTrading.com Group will be
made, the voting trustee will vote the shares owned by each OnlineTrading.com
Group shareholder or party to the voting trust agreement as specifically
instructed in writing by the shareholder owning the beneficial interest in, and
voting trust certificate relating to, such shares. In the event that the voting
trustee does not timely receive such written voting instructions, in whole or in
part, from a shareholder, then the voting trustee shall abstain from voting the
shares owned by such shareholder with respect to any or all matters as to which
the voting trustee has not received written voting instructions.
The voting trust shall dissolve on the earliest of the following dates:
o the second anniversary of the effective time of the merger;
o the date when the voting trustee shall resign in writing unless such
vacancy is timely filled as provided under the voting trust
agreement;
o the date when OnlineTrading.com Group shareholders who are parties
to the voting trust agreement holding 67% or more of the shares then
subject to the agreement shall execute a written instrument so
declaring; or
o the date when less than 75% of the aggregate number of shares owned
as of the effective time of the merger by either Omega Research or
OnlineTrading.com shareholders who are a party to the voting trust
agreement remains subject to the voting trust.
The voting trust agreement is attached hereto as Appendix F and you are
urged to read it.
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CONVERSION OF SHARES IN THE MERGER
At the effective time of the merger, each outstanding share of Omega
Research common stock will be automatically cancelled and converted into one
share of OnlineTrading.com Group common stock, a fixed 1 to 1 ratio.
After the effective time of the merger and subject to the dissenters' rights
previously described, each share of OnlineTrading.com common stock will be
automatically cancelled and converted into the number of shares of
OnlineTrading.com Group common stock based on the following exchange ratio
(subject to the "floor" and "ceiling" described below) for OnlineTrading.com
common stock: (i) $11.0625,which is the average of the last sale prices of a
share of OnlineTrading.com common stock over the 10-day trading period that
ended on January 18, 2000, divided by (ii) the average of the last sale prices
of a share of Omega Research common stock over the 10-day trading period that
ends on the third day prior to the closing of the merger. Regardless of the
result of such formula, in no event will the exchange ratio related to the
OnlineTrading.com common stock be lower than 1.3817 shares of OnlineTrading.com
Group common stock, resulting in a 38% OnlineTrading.com shareholder/62% Omega
Research shareholder ownership of OnlineTrading.com Group on a fully diluted
basis, or higher than 1.7172 shares of OnlineTrading.com Group common stock,
resulting in an approximate 43% OnlineTrading.com shareholder/57% Omega Research
shareholder ownership of OnlineTrading.com Group on a fully diluted basis. The
number of shares of OnlineTrading.com Group common stock issuable in the merger
will be proportionately adjusted for any additional stock split, stock dividend
or similar event with respect to either Omega Research or OnlineTrading.com
common stock effected between the date of this joint proxy statement/prospectus
and the completion of the merger. As an example of how the exchange ratio will
work, based on the average of the last sale prices of a share of Omega Research
common stock over the 10-day trading period that ended on ________, 2000 being
$_______, the exchange ratio related to OnlineTrading.com common stock would be
___ shares if the merger was to close on _________, 2000. See also "SUMMARY OF
THE JOINT PROXY STATEMENT/PROSPECTUS -- Price Sensitivity Analysis."
OMEGA RESEARCH AND ONLINETRADING.COM STOCK OPTIONS, WARRANTS AND STOCK PLANS
At the effective time of the merger, OnlineTrading.com Group will assume:
o the Omega Research 1997 Employee Stock Purchase Plan, 1997
Nonemployee Director Stock Option Plan, as amended, and Amended and
Restated 1996 Incentive Stock Plan, as amended;
o all options to purchase Omega Research common stock then outstanding
under any of the Omega Research stock option plans and/or assumed by
Omega Research in connection with Omega Research's acquisition of
Window On WallStreet and originally granted under Window On
WallStreet's 1997 Long Term Incentive Plan or otherwise granted to
employees of Window On WallStreet prior to the adoption of such
plan;
o the OnlineTrading.com 1999 Stock Option Plan;
o all options to purchase the OnlineTrading.com common stock then
outstanding under the OnlineTrading.com 1999 Stock Option Plan; and
o warrants to purchase up to 225,000 shares of OnlineTrading.com
common stock at an exercise price of $11.55 issued to the
underwriters of OnlineTrading.com's initial public offering.
Each Omega Research stock option, OnlineTrading.com stock option and
OnlineTrading.com warrant described above will be assumed by OnlineTrading.com
Group under the same terms and conditions that were applicable to the option or
warrant immediately prior to the effective time, except that:
o each Omega Research stock option will be exercisable for the same
number of shares of OnlineTrading.com Group at the same exercise
price;
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o each OnlineTrading.com stock option and OnlineTrading.com warrant
will be exercisable for shares of OnlineTrading.com Group common
stock, and the number of shares of OnlineTrading.com Group common
stock issuable upon exercise of any given option or warrant will be
determined by multiplying the exchange ratio for a share of
OnlineTrading.com common stock in the merger by the number of shares
of OnlineTrading.com common stock underlying the option or warrant,
rounded down to the nearest whole number; and
o the per share exercise price of any given OnlineTrading.com stock
option and OnlineTrading.com warrant will be determined by dividing
the exercise price of the option or warrant immediately prior to the
effective time by the exchange ratio for a share of
OnlineTrading.com stock in the merger rounded up to the nearest
whole cent.
The parties intend for the Omega Research and OnlineTrading.com stock
options assumed by OnlineTrading.com Group to qualify to the maximum extent
possible as incentive stock options to the extent the stock options qualified as
incentive stock options prior to the effective time. OnlineTrading.com Group has
agreed to file a registration statement on Form S-8 for the shares of
OnlineTrading.com Group common stock issuable with respect to the assumed
OnlineTrading.com and Omega Research stock options within 20 business days after
the effective time, and OnlineTrading.com Group intends to maintain the
effectiveness of the registration statement for as long as any stock options
remain outstanding.
NO FRACTIONAL SHARES
No fractional shares of OnlineTrading.com Group common stock will be issued
in the merger. Instead you will receive an amount of cash, rounded to the
nearest whole cent, in lieu of a fraction of a share of OnlineTrading.com Group
common stock, equal to the product of the fraction multiplied by the last sale
price for a share of Omega Research common stock as quoted on The Nasdaq
National Market on the last full trading day prior to the effective time.
THE EXCHANGE AGENT
Prior to the effective time, OnlineTrading.com Group is required to deposit
with Omega Research's transfer agent, or another institution selected by Omega
Research and reasonably acceptable to OnlineTrading.com, certificates
representing the shares of OnlineTrading.com Group common stock to be exchanged
for shares of Omega Research and OnlineTrading.com common stock, and cash to pay
for fractional shares and any dividends or distributions which holders of Omega
Research or OnlineTrading.com common stock may be entitled to receive under the
merger agreement.
EXCHANGE OF OMEGA RESEARCH AND ONLINETRADING.COM STOCK CERTIFICATES FOR
ONLINETRADING.COM GROUP STOCK CERTIFICATES
When the merger is completed, the transfer agent will mail to you a letter
of transmittal and instructions for use in surrendering your Omega Research or
OnlineTrading.com stock certificates in exchange for OnlineTrading.com Group
stock certificates. When you deliver your Omega Research or OnlineTrading.com
stock certificates to the transfer agent along with a properly executed letter
of transmittal and any other required documents, your Omega Research or
OnlineTrading.com stock certificates will be cancelled and you will receive
OnlineTrading.com Group stock certificates representing the number of full
shares of OnlineTrading.com Group common stock to which you are entitled under
the merger agreement and cash in lieu of fractional shares.
YOU SHOULD NOT SUBMIT YOUR STOCK CERTIFICATES FOR EXCHANGE UNTIL YOU HAVE
RECEIVED THE LETTER OF TRANSMITTAL AND INSTRUCTIONS REFERRED TO ABOVE.
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DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES
OnlineTrading.com Group will issue a OnlineTrading.com Group stock
certificate or a check in lieu of a fractional share in a name other than the
name in which a surrendered Omega Research or OnlineTrading.com stock
certificate is registered only if you present the transfer agent with all
documents required to show and effect the unrecorded transfer of ownership and
show that you paid any applicable stock transfer taxes.
You are not entitled to receive any dividends or other distributions on
OnlineTrading.com Group common stock with a record date after the date the
merger is completed until you have surrendered your Omega Research or
OnlineTrading.com stock certificates in exchange for OnlineTrading.com Group
stock certificates.
If there is any dividend or other distribution on OnlineTrading.com Group
common stock with a record date after the merger and a payment date PRIOR to the
date you surrender your Omega Research or OnlineTrading.com stock certificates
in exchange for OnlineTrading.com Group stock certificates, you will receive it
with respect to the whole shares of OnlineTrading.com Group common stock issued
to you promptly after they are issued. If there is any dividend or other
distribution on OnlineTrading.com Group common stock with a record date after
the merger and a payment date AFTER the date you surrender your Omega Research
or OnlineTrading.com stock certificates in exchange for OnlineTrading.com Group
stock certificates, you will receive it with respect to the whole shares of
OnlineTrading.com Group common stock issued to you promptly after the payment
date.
REPRESENTATIONS AND WARRANTIES
We each made a number of representations and warranties in the merger
agreement regarding authority to enter into the merger agreement and to
consummate the other transactions contemplated by the merger agreement and with
regard to aspects of our respective businesses, financial conditions, structures
and other facts pertinent to the merger.
The representations given by OnlineTrading.com relate to OnlineTrading.com
and its subsidiaries and the representations given by Omega Research relate to
Omega Research and its corporate affiliates (including OnlineTrading.com Group
and the separate OnlineTrading.com Group subsidiaries that will merge with and
into Omega Research and OnlineTrading.com, respectively). The representations
cover the following topics:
o organization, qualification to do business and power;
o capitalization;
o authorization of the merger agreement, the merger and the
transaction agreements;
o filings and reports with the SEC;
o financial statements;
o changes in business since December 31, 1998 for Omega Research and
January 31, 1999 for OnlineTrading.com;
o undisclosed liabilities;
o litigation, proceedings and investigations;
o restrictions on business activities;
o the possession of and compliance with permits required to conduct
such company's business and compliance with laws;
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o title to the properties owned and leased;
o intellectual property;
o environmental laws and matters;
o taxes;
o employee benefit plans;
o matters relating to employees;
o transactions with interested parties;
o insurance;
o regulatory matters and compliance with applicable laws, rules and
regulations of governmental entities and self regulatory
organizations;
o material contracts and obligations;
o options and other rights to acquire securities;
o information supplied in registration statement on Form S-4 and joint
proxy statement/prospectus;
o opinion of financial advisor;
o affiliates and affiliate agreements related to Rule 145 of the
Securities Act of 1933 and required with respect to
pooling-of-interests accounting;
o the inapplicability of state anti-takeover statutes to the merger;
o the treatment of the merger as a pooling-of-interests and as a
tax-free reorganization;
o brokers' and finders' fees in connection with the merger; and
o completeness of information supplied.
The representations given by OnlineTrading.com Group cover the following
topics as they relate to OnlineTrading.com Group:
o organization, qualification to do business and power;
o capitalization;
o authorization of the merger agreement and merger and transaction
agreements;
o undisclosed liabilities;
o litigation, proceedings and investigations;
o information supplied in registration statement on Form S-4 and joint
proxy statement/prospectus;
o the treatment of the merger as a tax-free reorganization;
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o brokers' and finders' fees in connection with the merger; and
o completeness of information supplied.
The representations and warranties in the merger agreement are complicated
and not easily summarized. We urge you to carefully read the articles in the
merger agreement titled "Representations and Warranties of Omega,"
"Representations and Warranties of Online" and "Representations and Warranties
of Newco."
CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Each of Omega Research, OnlineTrading.com and OnlineTrading.com Group agree
that prior to completion of the merger or unless the others of them consent in
writing, each of them will not do, cause, permit, or allow any of its
subsidiaries to do, any of the following:
o modify, amend, alter or rescind its articles of incorporation or
bylaws;
o declare or pay any dividends or make any other distributions
(whether in cash, stock or property);
o split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock;
o repurchase or otherwise acquire any shares of its capital stock,
except from former employees, directors and consultants in
accordance with agreements providing for repurchase of shares in
connection with any termination of service;
o grant any options, stock appreciation rights, or any other right to
acquire securities other than stock options to employees and
consultants in accordance with the ordinary course of its business
pursuant to past practice (meaning, with respect to Omega Research,
grants of stock options to employees (other than executive officers)
and to new employees consistent with past practices not exceeding in
the aggregate stock options to purchase 350,000 shares of Omega
Research common stock and, with respect to OnlineTrading.com, grants
of stock options to employees (other than executive officers) and
new employees consistent with past practices not exceeding in the
aggregate stock options to purchase 103,000 shares of
OnlineTrading.com common stock); or
o accelerate, amend or change the period of exercisability or vesting
of options or other rights granted under its stock plans or
authorized cash payments in exchange for any option or other rights
granted under any such plan.
OnlineTrading.com agreed that until the completion of the merger or unless
Omega Research consents in writing, OnlineTrading.com and its subsidiaries will
pay their taxes and will operate their businesses in the same manner as past
practices and in good faith with the goal of:
o preserving intact their assets and current business organizations;
o keeping available the services of their current executive officers
and key employees; and
o maintaining their material contracts and preserving their
relationships with:
o customers;
o suppliers;
o distributors;
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o licensors;
o licensees; and
o others having business dealings with them.
OnlineTrading.com also agreed promptly to notify Omega Research of any event
which would harm OnlineTrading.com or its subsidiaries' business or of any
occurrence not in the usual course of business. OnlineTrading.com further agreed
that until the completion of the merger or unless Omega Research consents in
writing, OnlineTrading.com and its subsidiaries will conduct their business in
compliance with specific restrictions and will not do the following:
o enter into, amend, violate or waive any material term of any
material contract or commitment;
o issue or propose to issue any shares of its capital stock;
o acquire or dispose of, or obtain or grant licenses for, any
intellectual property rights;
o sell, lease, license, dispose of or acquire any material asset;
o incur any indebtedness for borrowed money or assume, guarantee,
cancel, release, pay, discharge, assign or modify any material
obligation or amount of indebtedness;
o make any loan;
o enter into, modify or cancel any real property, operating or capital
lease (or waive any material right or obligation thereunder);
o make any material capital expenditure;
o modify any insurance provided by existing insurance policies;
o create, adopt, amend, cancel or implement any employee plans, pay
any special bonus or remuneration to any officer or employee,
increase wages or benefits generally or to any officer or key
employee, agree to or pay any severance payments to officers or key
employees, or accelerate the vesting of any stock option or any
other benefits of any employee, consultant or other person;
o commence any action, suit or proceeding, whether legal or
quasi-legal;
o acquire or agree to acquire directly or indirectly by merging or
consolidating with, or by purchase or otherwise, a substantial
portion of the assets of, or by any other manner, including a
purchase of securities, any business or any corporation,
partnership, association or other business organization or division
thereof;
o enter into or agree to enter into any strategic alliance with any
business or part thereof;
o make or change any material election in respect of taxes, including
accounting methods or tax return amendments, or enter into any
settlement or closing agreement regarding taxes;
o revalue or restate any of its assets, liabilities, revenues,
expenses or cash flows;
o change any of its accounting methods, procedures, policies or
practices; or
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o change or fail to renew any existing domain names.
The agreements related to the conduct of OnlineTrading.com's business in the
merger agreement are complicated and not easily summarized. We urge you to
carefully read the section in the merger agreement titled "Online Conduct of
Business."
Omega Research agreed, unless consented to by OnlineTrading.com, not to
acquire or agree to acquire by merging or consolidating with or by purchasing a
substantial portion of the assets of or by any other manner, including a
strategic alliance but not including business-to-business marketing
relationships, any business or any corporation, partnership, association or
other business organization operating as a broker-dealer.
NO SOLICITATION OF TRANSACTIONS
Until the merger is completed or the merger agreement is terminated, each of
Omega Research and OnlineTrading.com has agreed not to directly or indirectly
take any of the following actions:
o solicit, initiate or encourage any takeover proposal; or
o engage in negotiations with, disclose any nonpublic information
relating to it or any of its subsidiaries to, or afford access to
its properties, books or records or any of its subsidiaries to, any
person that has advised it that it may be considering making, or
that has made, a takeover proposal or whose efforts to formulate a
takeover proposal would be assisted thereby.
However, Omega Research's or OnlineTrading.com's board of directors is not
prohibited from taking and disclosing to its shareholders a position with
respect to an unsolicited tender offer pursuant to Rules 14d-9 and 14e- 2
promulgated under the Securities Exchange Act of 1934.
Each of Omega Research and OnlineTrading.com has agreed to provide the other
with detailed information about any takeover proposal it receives, any notice
that any person is considering making a takeover proposal or any request for
nonpublic information or access to its properties, books or records by any
person considering or that has made a takeover proposal and is required to keep
the other party fully informed of the status and details of any such takeover
proposal, notice, request or correspondence or communications.
However, each of Omega Research and OnlineTrading.com may engage in any of
these acts otherwise prohibited, other than solicitation, initiation or
encouragement of any takeover proposal, if:
o its board of directors believes in good faith after written advice
from its financial advisor that a particular takeover proposal, if
consummated, will result in a transaction more favorable than the
merger to its shareholders from a financial point of view;
o its board of directors determines in good faith after advice from
outside legal counsel that the failure to engage in the prohibited
negotiations or discussions or provide non-public information is
inconsistent with the fiduciary duties of the board to its
shareholders under applicable law; and
o it notifies the other party of such determination by its board of
directors and delivers to the other a copy of the superior proposal,
or a summary of any oral proposals, and all documents containing or
referring to non-public information about it that are supplied to
such third party.
In addition, in the case of OnlineTrading.com, OnlineTrading.com cannot
agree to or endorse, and will not permit any of its officers, directors,
employees or other representatives to agree to or endorse, any takeover proposal
or withdraw its recommendation of the merger unless its board of directors
believes in good faith, after receiving written advice from its financial
advisors, that such action is required in order for its board of directors to
comply with its fiduciary duties to shareholders under applicable law, and all
of the following conditions have been met:
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o OnlineTrading.com has provided Omega Research at least five business
days prior notice of the takeover proposal and within such five
business days OnlineTrading.com has not received a proposal from
Omega Research superior in value to the superior takeover proposal
as determined by OnlineTrading.com's board of directors acting in
good faith consistent with complying with its fiduciary duties to
shareholders under applicable law;
o OnlineTrading.com has terminated the merger agreement; and
o OnlineTrading.com has paid Omega Research all amounts payable to
Omega Research pursuant to and within the time period set forth in
the merger agreement.
In the case of Omega Research, Omega Research cannot withdraw, and will not
permit any of its officers, directors, employees or other representatives to
withdraw, its recommendation of the merger unless its board of directors
believes in good faith, after receiving written advice from its financial
advisors, that such action is required in order for its board of directors to
comply with its fiduciary duties to shareholders under applicable law, and all
of the following conditions have been met:
o Omega Research has provided OnlineTrading.com at least five business
days prior notice of the takeover proposal;
o Omega Research has terminated the merger agreement; and
o Omega Research has paid OnlineTrading.com all amounts payable to
OnlineTrading.com pursuant to and within the time period set forth
in the merger agreement.
A takeover proposal is:
o any offer or proposal for, or any indication of interest in, a
merger or other business combination involving Omega Research or
OnlineTrading.com or any of their respective subsidiaries; or
o the acquisition of 10% or more of the outstanding shares of capital
stock of Omega Research or OnlineTrading.com or any of their
respective subsidiaries; or
o the sale or transfer of any significant portion of the assets of
Omega Research or OnlineTrading.com or any of their respective
subsidiaries.
DIRECTOR AND OFFICER INDEMNIFICATION AND INSURANCE
The merger agreement provides that OnlineTrading.com Group will not cause or
allow Omega Research or OnlineTrading.com to modify any rights to
indemnification or exculpation from liabilities for acts or omissions occurring
at or prior to the effective time of the merger existing in favor of the
officers and directors of Omega Research or OnlineTrading.com, respectively, or
their respective subsidiaries, as provided in their respective articles of
incorporation or bylaws or any indemnification agreements of Omega Research or
OnlineTrading.com and/or their respective subsidiaries.
The merger agreement also provides that, for two years after the completion
of the merger, OnlineTrading.com Group will use, or will cause Omega Research
and OnlineTrading.com, respectively, to use, commercially reasonable efforts to
cause to be maintained for the benefit of Omega Research's and
OnlineTrading.com's current directors and officers and other persons covered by
their respective current directors and officers liability insurance with respect
to all matters occurring on or prior to the completion of the merger, directors
and officers liability insurance on terms reasonably comparable to Omega
Research and OnlineTrading.com directors and officers liability insurance
policies in effect on the date of the merger agreement, so long as the
comparable policy does not involve premiums in excess of 150% of the annual
amount paid by each of Omega Research and OnlineTrading.com for such insurance
in its last full fiscal year. If OnlineTrading.com Group is unable to obtain or
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cause to be obtained the insurance required, it shall obtain as much comparable
insurance as possible for an annual premium equal to the maximum amount.
CONDITIONS TO THE MERGER
Our respective obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following conditions before completion of the merger:
o the merger agreement and the merger must be approved and adopted by
the holders of a majority of the outstanding shares of each of Omega
Research and OnlineTrading.com common stock;
o the SEC shall have declared the Registration Statement on Form S-4,
of which this joint proxy statement/prospectus is a part, and a Form
8-A registering OnlineTrading.com Group common stock, effective, and
no stop order suspending the effectiveness of the Registration
Statement or Form 8-A or any part thereof shall have been issued,
and no proceeding for that purpose, and no similar proceeding, shall
have been initiated or threatened by the SEC in respect of the joint
proxy statement/prospectus;
o no law, statute, rule, regulation or order is enacted or issued
which has the effect of making the merger illegal or otherwise
prohibiting or preventing completion of the merger;
o OnlineTrading.com Group common stock will have been listed for
trading on The Nasdaq National Market, subject to official notice of
issuance, and the application with The Nasdaq National Market for
the listing of the shares of OnlineTrading.com Group common stock to
be issued in the merger shall have been filed; and
o OnlineTrading.com Group, its wholly-owned merger subsidiaries, Omega
Research and OnlineTrading.com and their respective subsidiaries, if
applicable, shall have obtained from each governmental entity and
each regulatory entity all approvals, waivers and consents, if any,
necessary for consummation of the merger and the other transactions
contemplated under the merger agreement, including such approvals,
waivers and consents as may be required under the Securities Act of
1933, the Securities Exchange Act of 1934, any self-regulatory
organization constitution or rules, or any state blue sky laws, the
failure of which to obtain would reasonably be likely to have a
material adverse effect on OnlineTrading.com Group or either of
Omega Research or OnlineTrading.com or would prevent or materially
restrict or impede the consummation and effectiveness of the merger.
OnlineTrading.com's obligations to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the merger:
o OnlineTrading.com Group and Omega Research's representations and
warranties must be true and correct when made and as of the closing
of the merger except where the failure of such representations and
warranties to be true and correct, without giving effect to any
limitation as to "materiality" or "material adverse effect" or words
of similar import, does not have and is not reasonably likely to
have, individually or in the aggregate, a material adverse effect on
Omega Research or OnlineTrading.com Group as a whole;
o OnlineTrading.com Group, Omega Research and OnlineTrading.com
Group's wholly-owned merger subsidiaries must have complied with and
performed in all material respects all covenants, obligations and
conditions of the merger agreement required to be performed and
complied with by them;
o OnlineTrading.com must have been provided with a certificate
executed on behalf of Omega Research that all representations are
true and correct to the extent required and that all covenants,
obligations and conditions have been complied with or performed in
all material respects;
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o all consents or approvals shall have been obtained from those
persons whose consent or approval will be required in connection
with the merger under any material contract of Omega Research or any
of its subsidiaries or otherwise, the failure of which to obtain
would reasonably be likely to have a material adverse effect on
OnlineTrading.com Group, Omega Research or OnlineTrading.com or
would prevent or materially restrict or impede the consummation and
effectiveness of the merger;
o no temporary restraining order, preliminary or permanent injunction
or other order or other legal or regulatory restraint provision
materially limiting or restricting the conduct or operation of the
business of Omega Research and its subsidiaries following the merger
will be in effect, nor will any proceeding brought by an
administrative agency or commission, self regulatory organization or
other governmental entity seeking the foregoing be pending;
o no material adverse change in the financial or any other condition,
properties, tangible or intangible assets liabilities, business,
operations, results of operations or prospects of Omega Research and
its subsidiaries, taken as a whole, shall have occurred; and
o OnlineTrading.com shall have received the opinion of Broad and
Cassel to the effect that the merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code.
Omega Research's, OnlineTrading.com Group's and OnlineTrading.com Group's
wholly-owned merger subsidiaries' obligations to complete the merger and the
other transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the merger:
o OnlineTrading.com's representations and warranties must be true and
correct when made and as of the closing of the merger except where
the failure of such representations and warranties to be true and
correct, without giving effect to any limitation as to "materiality"
or "material adverse effect" or words of similar import, does not
have and is not reasonably likely to have, individually or in the
aggregate, a material adverse effect on OnlineTrading.com as a
whole;
o OnlineTrading.com must have complied and performed in all material
respects with all covenants, obligations and conditions of the
merger agreement required to be performed and complied with by it;
o Omega Research must have been provided with a certificate executed
on behalf of OnlineTrading.com that all representations are true and
correct to the extent required and that all covenants, obligations
and conditions have been complied with and performed in all material
respects;
o all consents or approvals shall have been obtained from those
persons whose consent or approval will be required in connection
with the merger under any material contract of OnlineTrading.com or
any of its subsidiaries or otherwise, the failure of which to obtain
would reasonably be likely to have a material adverse effect on
OnlineTrading.com Group, Omega Research or OnlineTrading.com or
would prevent or materially restrict or impede the consummation and
effectiveness of the merger;
o no temporary restraining order, preliminary or permanent injunction
or other order or other legal or regulatory restraint provision
materially limiting or restricting the conduct or operation of the
business of OnlineTrading.com and its subsidiaries following the
merger will be in effect, nor will any proceeding brought by an
administrative agency or commission, self regulatory organization or
other governmental entity seeking the foregoing be pending;
o no material adverse change in the financial or any other condition,
properties, tangible or intangible assets, liabilities, business,
operations, results of operations or prospects of OnlineTrading.com
and its subsidiaries, taken as a whole, shall have occurred;
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o Omega Research shall have received the opinion of Bilzin Sumberg
Dunn Price & Axelrod LLP to the effect that the merger will qualify
as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code;
o Omega Research shall have received letters from Arthur Andersen LLP,
Omega Research and OnlineTrading.com's independent auditors, to the
effect that the merger qualifies for pooling-of-interests accounting
treatment if consummated in accordance with the merger agreement;
and
o the aggregate number of holders of OnlineTrading.com common stock
electing dissenters' rights shall not equal more than 5% of the
outstanding shares of OnlineTrading.com common stock.
TERMINATION OF THE MERGER AGREEMENT
At any time prior to the completion of the merger, the merger agreement may
be terminated:
o by mutual written consent of Omega Research and OnlineTrading.com;
o by either Omega Research or OnlineTrading.com, if:
o without fault of the terminating party, the closing does not
occur on or before July 31, 2000;
o any permanent injunction or other order of a court or other
competent authority preventing the consummation of the merger
has become final and nonappealable;
o by Omega Research, if:
o OnlineTrading.com breaches any of its representations,
warranties, covenants or obligations to the extent it would
cause the conditions to closing regarding any of them not to be
satisfied, such breach is not cured within twenty business days
of receipt by OnlineTrading.com of written notice of such
breach, and Omega Research is not at that time in material
breach of the merger agreement;
o the OnlineTrading.com board of directors withdraws or modifies
its recommendation of the merger agreement or the merger in a
manner adverse to Omega Research or resolves to do so;
o the OnlineTrading.com board of directors recommends, endorses,
accepts or agrees to a takeover proposal or resolves to do so;
o OnlineTrading.com solicits, initiates, encourages or agrees to
any takeover proposal or engages in any negotiations with,
discloses any non-public information relating to
OnlineTrading.com or any of its subsidiaries to, or affords
access to the properties, books or records of OnlineTrading.com
to, any person that has advised OnlineTrading.com that it may be
considering making, or that has made, a takeover proposal, or
OnlineTrading.com otherwise breaches the non-solicitation
provisions of the merger agreement;
o OnlineTrading.com fails to comply in any material respect with
the OnlineTrading.com stock option agreement;
o OnlineTrading.com does not take in all material respects all
necessary action to have its shareholders meeting by the
thirty-fifth day after the date of this joint proxy
statement/prospectus or otherwise does not use reasonable best
efforts to secure the vote of shareholders required to effect
the merger;
o a takeover proposal occurs and OnlineTrading.com's board of
directors in connection with such event or proposal does not
within five business days of such occurrence:
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o reconfirm its approval and recommendation of the merger
agreement, the merger and the other transactions contemplated by
the merger agreement; and
o reject such takeover proposal or trigger event;
o a takeover proposal occurs in connection with Omega Research
and, in connection with such proposal, Omega Research's board of
directors, in compliance with the procedures in the merger
agreement, determines in good faith that such takeover proposal
is a superior proposal as compared to the merger and that it is
required by its fiduciary duty to accept such takeover proposal,
and advises OnlineTrading.com in writing;
o a trigger event occurs in connection with Omega Research and
Omega Research's board of directors, determines, within five
business days of such occurrence, acting in good faith, that it
is required by its fiduciary duty to withdraw its recommendation
of the merger;
o by OnlineTrading.com, if:
o Omega Research breaches any of its representations, warranties,
covenants or obligations to the extent it would cause the
conditions to closing regarding any of them not to be satisfied,
such breach is not cured within twenty business days following
receipt by Omega Research of written notice of such breach and
OnlineTrading.com is not at that time in material breach of the
merger agreement;
o the Omega Research board of directors withdraws or modifies its
recommendation of the merger agreement or the merger in a manner
adverse to OnlineTrading.com or resolves to do so;
o Omega Research fails to comply in any material respect with the
Omega Research stock option agreement;
o Omega Research solicits, initiates, encourages or agrees to any
takeover proposal or engages in any negotiations with, discloses
any non-public information relating to Omega Research or any of
its subsidiaries to, or affords access to the properties, books
or records of Omega Research to any person that has advised
Omega Research that it may be considering making, or that has
made, a takeover proposal, except as Omega Research is permitted
to take these actions under the merger agreement, or Omega
Research otherwise breaches the non-solicitation provisions of
the merger agreement;
o Omega Research does not take in all material respects all
necessary action to have its shareholders meeting by the
thirty-fifth day after the date of this joint proxy
statement/prospectus or otherwise does not use reasonable best
efforts to secure the vote of shareholders required to effect
the merger; and
o a takeover proposal occurs in connection with OnlineTrading.com
and, in connection with such event or proposal,
OnlineTrading.com's board of directors, in compliance with the
procedures in the merger agreement, determines in good faith
that such takeover proposal is a superior takeover proposal and
that it is required by its fiduciary duty to accept such
takeover proposal and advises Omega Research in writing.
A takeover proposal is:
o any offer or proposal for, or any indication of interest in, a
merger or other business combination involving Omega Research or
OnlineTrading.com or any of their respective subsidiaries;
o the acquisition of 10% or more of the outstanding shares of capital
stock of Omega Research or OnlineTrading.com; or
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o the sale or transfer of any significant portion of the assets of
Omega Research or OnlineTrading.com or any of their subsidiaries.
A trigger event occurs if any person:
o acquires securities representing 10% or more of the voting power of
Omega Research's or OnlineTrading.com's securities,
o commences a tender or exchange offer,
o commences an open market purchase program, or
o commences any other publicly-announced initiative,
which results in such person and its affiliates beneficially owning securities
representing 10% or more of the voting power of Omega Research or
OnlineTrading.com.
PAYMENT OF FEES AND EXPENSES
Whether or not the merger is consummated, subject to certain exceptions
discussed in this joint proxy statement/prospectus, all costs and expenses
incurred in connection with the merger agreement and the merger will be paid by
the party incurring the expense except that expenses incurred in connection with
printing the joint proxy statement/prospectus and the registration statement,
and registration and filing fees incurred in connection with the joint proxy
statement/prospectus, the registration statement and The Nasdaq National Market
listing of the OnlineTrading.com Group common stock shall be shared equally.
If the merger agreement is terminated because:
o a trigger event or takeover proposal occurs with respect to
OnlineTrading.com and the board of directors of OnlineTrading.com
does not within five business days of such occurrence reconfirm its
approval and recommendation of the merger agreement and the
transactions contemplated by the merger agreement and reject such
takeover proposal or trigger event;
o a takeover proposal occurs with respect to OnlineTrading.com and, in
connection with such event or proposal, OnlineTrading.com's board of
directors, in compliance with the procedures in the merger
agreement, determines in good faith that such takeover proposal is a
superior takeover proposal and that it is required by its fiduciary
duty to accept such takeover proposal and advises Omega Research in
writing; or
o of fraud or wilful or intentional breach or failure to perform by
OnlineTrading.com of any of its representations, warranties or
covenants in the merger agreement or the OnlineTrading.com stock
option agreement;
then OnlineTrading.com will pay Omega Research the termination fee of $5,000,000
promptly, but in all events within five business days from the termination of
the merger agreement.
If the merger agreement is terminated because:
o a takeover proposal occurs with respect to Omega Research and, in
connection with such event or proposal, Omega Research's board of
directors, in compliance with the procedures in the merger
agreement, determines in good faith that such takeover proposal is a
superior takeover proposal and that it is required by its fiduciary
duty to accept such takeover proposal and advises OnlineTrading.com
in writing;
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o a trigger event occurs with respect to Omega Research and the board
of directors of Omega Research determines, within five business days
of such occurrence, acting in good faith that it is required by its
fiduciary to withdraw its recommendation of the merger; or
o of fraud or wilful or intentional breach or failure to perform by
Omega Research of any of its representations, warranties or
covenants in the merger agreement or the Omega Research stock option
agreement;
then Omega Research will pay OnlineTrading.com a termination fee of $5,000,000
promptly, but in all events within five business days from the termination of
the merger agreement.
If the merger agreement is terminated because:
o OnlineTrading.com breaches any of its representations, warranties,
covenants or obligations in the merger agreement to the extent that
such breach would cause a condition to closing not to be satisfied
and such breach is not cured within twenty business days following
receipt by OnlineTrading.com of written notice of such breach;
o the OnlineTrading.com board of directors withdraws and modifies its
recommendation of the merger agreement or the merger or any
transaction contemplated in the merger agreement in a manner adverse
to Omega Research or resolves to do so;
o OnlineTrading.com fails to comply in any material respects with the
OnlineTrading.com stock option agreement or with its
non-solicitation or shareholders meeting obligations in the merger
agreement; or
o OnlineTrading.com's board of directors recommends, endorses, accepts
or agrees to a takeover proposal or resolves to do so;
then OnlineTrading.com will reimburse Omega Research for all actual
out-of-pocket expenses incurred by Omega Research in connection with the merger
agreement and the transactions contemplated by the merger agreement within five
business days from OnlineTrading.com's receipt of a statement from Omega
Research indicating the amount of such out-of-pocket expenses that have been
incurred and, in addition, if the merger agreement is terminated as a result of
a nonwilful material breach or failure to perform related to one of the
foregoing reasons for termination by OnlineTrading.com, Omega Research will have
the right to recover any damages arising from such nonwilful material breach or
failure to perform.
If the merger agreement is terminated because:
o Omega Research breaches any of its representations, warranties,
covenants or obligations in the merger agreement to an extent that
such breach would cause a condition to closing not to be satisfied
and such breach is not cured within twenty business days upon
receipt by Omega Research of written notice of such breach;
o the Omega Research board of directors withdraws and modifies its
recommendation of the merger agreement or the merger or any
transaction contemplated by the merger agreement in a manner adverse
to OnlineTrading.com or resolves to do so; or
o Omega Research fails to comply in any material respect with the
Omega Research stock option agreement or with its non-solicitation
or shareholders meeting obligations in the merger agreement;
then Omega Research will reimburse OnlineTrading.com for all actual
out-of-pocket expenses incurred by OnlineTrading.com in connection with the
merger agreement and the transactions contemplated by the merger agreement
within five business days from Omega Research's receipt of a statement from
OnlineTrading.com indicating the amount of such out-of-pocket expenses that have
been incurred and, in addition, if the merger
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agreement is terminated as a result of a nonwilful material breach or failure to
perform related to one of the foregoing reasons for termination by Omega
Research, OnlineTrading.com will have the right to recover any damages arising
from such nonwilful material breach or failure to perform.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
We may amend the merger agreement before completion of the merger. However,
after the Omega Research or OnlineTrading.com shareholders approve and adopt the
merger agreement and merger, no change will be made:
o to the number of shares of OnlineTrading.com Group common stock into
which Omega Research or OnlineTrading.com common stock will be
converted; or
o to any of the terms and conditions of the merger agreement if the
change would materially harm the holders of Omega Research or
OnlineTrading.com common stock.
Either of us may, in writing, extend the other's time for the performance of
any of the obligations or other acts under the merger agreement, waive any
inaccuracies in the other's representations and warranties and waive compliance
by the other with any of the agreements or conditions contained in the merger
agreement.
SHAREHOLDER AGREEMENTS
In connection with the merger, certain OnlineTrading.com shareholders,
Andrew A. Allen and his affiliates, affiliates of Farshid Tafazzoli and E.
Steven zum Tobel, Derek Hernquist and a former director of OnlineTrading.com,
have entered into shareholder agreements with Omega Research and
OnlineTrading.com Group, and certain Omega Research shareholders, affiliates of
William Cruz and Ralph Cruz, have entered into shareholder agreements with
OnlineTrading.com and OnlineTrading.com Group. The terms of the respective
shareholders agreements provide that the OnlineTrading.com shareholders that are
parties to the shareholder agreements will not transfer or sell any shares of
OnlineTrading.com common stock beneficially owned by them, or any new shares of
OnlineTrading.com stock they may acquire, and the Omega Research shareholders
that are parties to the shareholder agreements will not transfer or sell any
shares of Omega Research common stock beneficially owned by them, or any new
shares of Omega Research common stock they may acquire, at any time prior to the
earlier of the effective time of the merger and the termination of the merger
agreement, unless the person to whom the shares are sold agrees to be bound by
the applicable shareholder agreement. The shareholder agreements also provide
that the shareholders will vote all shares of such common stock beneficially
owned by them, or any new shares of such common stock they may acquire, in favor
of the approval of the merger agreement and the merger. As of June 5, 2000, the
OnlineTrading.com shareholders that are parties to the shareholder agreements
collectively held approximately 8,888,888 shares of OnlineTrading.com common
stock, which represents approximately 77% of the outstanding OnlineTrading.com
common stock, and the Omega Research shareholders that are parties to the
shareholder agreements collectively held 18,313,208 shares of Omega Research
common stock, which represents approximately 75% of the outstanding Omega
Research common stock. None of the shareholders who are parties to the
shareholder agreements was paid additional consideration in connection with the
shareholder agreements.
EMPLOYMENT AGREEMENTS
OnlineTrading.com has entered into employment agreements with three of its
employees, Farshid Tafazzoli, E. Steven zum Tobel and Derek Hernquist. The
employment agreements are contingent upon the occurrence of the closing of the
merger, will become effective upon closing of the merger and will replace their
existing employment agreements. The term of employment under each new employment
agreement is two years commencing on the effective date of the merger, unless
terminated earlier by the employer for "due cause," or by the employee upon a
change in control of the employer in connection with which the employee's duties
are materially diminished or the employee is required to relocate outside of
Broward or Palm Beach County, Florida. If the term of employment is terminated
by the employer without due cause, or by the employee upon a change in control
resulting in materially diminished duties or the relocation requirement
discussed above, the employee is entitled to receive as severance
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pay base salary for the remainder of the employment term (subject to a minimum
of three months base salary) plus any bonus amount accrued and unpaid on the
date of termination.
Under the respective new employment agreements, Mr. Tafazzoli's base salary
shall be $200,000 per annum, Mr. zum Tobel's $150,000 per annum, and Mr.
Hernquist's $100,000 per annum. Currently, their respective base salaries are
$200,000, $120,000 and $50,000. Each employee will be eligible for annual
discretionary bonuses based upon, in the case of Mr. Tafazzoli, the criteria
used to determine bonuses, if any, for William and Ralph Cruz, in the case of
Mr. zum Tobel, the criteria to determine bonuses, if any, for other executive
officers, and in the case of Mr. Hernquist, as determined by the board of
directors of the employer. These are different than the bonus arrangements
contained in their existing employment agreements, which are described in the
section called "Employment Agreements" under the caption "SELECTED INFORMATION
WITH RESPECT TO ONLINETRADING.COM."
Each employment agreement contains nondisclosure and confidentiality
obligations, a two-year covenant-not-to-compete (however, as shareholders of
OnlineTrading.com, each employee also executed a separate non-competition and
non-disclosure agreement, the terms of which are described below), and covenants
designed to ensure that all work product of the employee during the term is the
property solely of the employer.
Mr. zum Tobel is also party to an agreement with OnlineTrading.com dated
March 1, 1999 relating to redemption rights as to all or some of Mr. zum Tobel's
444,444 shares of common stock of OnlineTrading.com which become operative to
the extent Mr. zum Tobel resigns from his employment prior to a certain date.
That agreement shall continue to be in effect after the merger.
NON-COMPETITION AND NON-DISCLOSURE AGREEMENTS
In connection with the execution of the merger agreement, certain executive
officers and directors of Omega Research and OnlineTrading.com, Messrs. Cruzes,
Allen, Tafazzoli, zum Tobel, and Hernquist and a former director of
OnlineTrading.com, entered into a non-competition and non-disclosure agreement
to be effective as of the closing of the merger. The agreements for Messrs.
Cruzes, Allen, Tafazzoli and the former OnlineTrading.com director have a
covenant not-to-compete of four years and the agreements of Messrs. zum Tobel
and Hernquist have a covenant not-to-compete of two years. In addition, all of
the agreements prohibit the disclosure of confidential information and prohibit
the solicitation of employees and others doing business with Omega Research or
OnlineTrading.com.
STOCK OPTION AGREEMENTS
As a condition to each company agreeing to execute the merger agreement,
Omega Research and OnlineTrading.com also entered into two stock option
agreements. Pursuant to the OnlineTrading.com stock option agreement,
OnlineTrading.com granted Omega Research an option to purchase up to an
aggregate of 2,294,129 newly-issued shares of OnlineTrading.com common stock at
an exercise price of $11.0625 per share which is exercisable under certain
circumstances including, without limitation, the acceptance by
OnlineTrading.com's board of directors of an alternative takeover proposal.
Pursuant to the Omega Research stock option agreement, Omega Research granted
OnlineTrading.com an option to purchase up to an aggregate of 4,892,573
newly-issued shares of Omega Research common stock at an exercise price of
$6.4422 per share which is exercisable under certain circumstances including,
without limitation, the acceptance by Omega Research's board of directors of an
alternative takeover proposal combined with termination of the merger agreement
by Omega Research.
The options are intended to increase the likelihood that the merger will be
completed. Consequently, the stock option agreements may have the effect of
discouraging persons who might now or at any time be interested in acquiring all
or a significant interest in Omega Research or OnlineTrading.com or its assets
before completion of the merger. Each stock option agreement is exercisable by
the optionee company, in whole or in part, at any time or from time to time
after the occurrence of an event which would require payment to the company of
the $5 million termination fee previously discussed on page ___ of this joint
proxy statement/prospectus. Each option will terminate upon the earliest to
occur of:
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o the effective time of the merger;
o the termination of the merger agreement pursuant to certain terms
thereof; and
o 180 days following termination of the merger agreement in
circumstances under which the $5 million termination fee is payable.
The Omega Research stock option agreement and the OnlineTrading.com stock option
agreement are attached as Appendices D and E, respectively, and you are urged to
read each of them.
AFFILIATE AGREEMENTS
In connection with the merger, the directors of each of Omega Research and
OnlineTrading.com, and certain Omega Research principal shareholders and
OnlineTrading.com principal shareholders have entered into affiliate agreements
with OnlineTrading.com Group under which they agreed to restrict their transfer
of any OnlineTrading.com Group, Omega Research or OnlineTrading.com common stock
they now own or receive in the merger, and to refrain from taking actions which
would adversely affect the ability to account for the merger as a
pooling-of-interests transaction. Specifically, the affiliate agreements
provide, among other things, that the affiliates of Omega Research and
OnlineTrading.com will not sell, transfer or otherwise dispose of the common
stock now owned by them or issued to them in connection with the merger other
than: in compliance with Rule 145 of the Securities Act of 1933; as part of an
effective registration statement under the Securities Act of 1933; or, in the
opinion of counsel, under an exemption from registration under the Securities
Act of 1933.
The affiliate agreements also generally provide that until the earlier of
(i) OnlineTrading.com Group's public announcement of financial results covering
at least thirty days of combined operations of Omega Research and
OnlineTrading.com and (ii) the merger agreement's termination, the affiliate
will not sell, exchange, transfer or otherwise dispose of or reduce the
affiliate's economic risk in respect of shares of OnlineTrading.com Group, Omega
Research or OnlineTrading.com common stock and options or warrants to purchase
OnlineTrading.com Group common stock beneficially owned by the affiliate.
AMENDMENT OF OMEGA RESEARCH INCENTIVE STOCK PLAN
In connection with the execution of the merger agreement, Omega Research
agreed to amend its Amended and Restated 1996 Incentive Stock Plan to increase
the number of shares of Omega Research common stock, $.01 par value, reserved
for issuance under the Incentive Stock Plan from 4,500,000 shares to 7,500,000
shares. The amendment to the Incentive Stock Plan will be voted upon by Omega
Research shareholders and is subject to the approval of the merger. Subject to
consummation of the merger, OnlineTrading.com Group will be assuming the
Incentive Stock Plan and filing a registration statement on Form S-8 to register
the unissued shares of common stock reserved for future issuance thereunder. For
more information on the Incentive Stock Plan, see "Selected Information with
Respect to Omega Research -- Other Compensation Arrangements" below. Subject to
shareholder approval of the merger, the affirmative vote of a majority of the
shares of common stock represented in person or by proxy which are voted at the
special meeting is necessary for the adoption and approval of the proposed
amendment to the Incentive Stock Plan.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO
THE INCENTIVE STOCK PLAN.
PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements give effect to the
proposed merger of Omega Research and OnlineTrading.com, on a
pooling-of-interests basis. Immediately after the merger, Omega Research and
OnlineTrading.com would be wholly-owned subsidiaries of OnlineTrading.com Group.
OnlineTrading.com Group's unaudited pro forma combined balance sheet assumes
that the mergers took place on March 31, 2000 and combines the Omega Research
consolidated balance sheet at March 31, 2000 with OnlineTrading.com's
consolidated balance sheet as of January 31, 2000. OnlineTrading.com Group's
unaudited pro forma combined statements of operations
75
<PAGE>
assume that the mergers took place as of the beginning of the periods presented
and combine Omega Research's consolidated statements of operations for the three
months ended March 31, 2000 and 1999 and the years ended December 31, 1999, 1998
and 1997 with OnlineTrading.com's statements of operations for the three months
ended January 31, 2000 and 1999 and the years ended January 31, 2000, 1999 and
1998, respectively. OnlineTrading.com Group's unaudited pro forma combined
financial statements are based on Omega Research and OnlineTrading.com's
historical financial statements and related notes thereto, which have not been
restated for the effect of the merger and are set forth elsewhere in this joint
proxy statement/prospectus.
It is anticipated that nonrecurring merger expenses in the amount of
approximately $4.1 million, comprised of approximately $2.8 million in banking
fees, $0.6 million in severance expenses, $0.6 million in legal, accounting and
tax service fees and $0.1 million in miscellaneous expenses, will be incurred in
connection with the merger. Such expenses are not reflected in the unaudited pro
forma combined statements of operations.
The unaudited pro forma combined financial statements are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had the entities been a single entity
during these periods.
Certain amounts presented in the unaudited pro forma combined financial
statements have been reclassified for comparative purposes.
76
<PAGE>
ONLINETRADING.COM GROUP
PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
OnlineTrading.com
Omega Group
Research OnlineTrading.com Pro Forma Combined
3/31/00 1/31/00 Adjustments Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,537,436 $ 15,127,790 $ -- $ 16,665,226
Marketable securities 1,695,304 155,012 -- 1,850,316
Accounts receivable, net 10,619,733 -- -- 10,619,733
Receivable from clearing organization -- 759,183 -- 759,183
Inventory 131,355 -- -- 131,355
Income tax receivable 5,307,105 -- -- 5,307,105
Other current assets 690,853 103,987 -- 794,840
Deferred income taxes 6,133,000 -- -- 6,133,000
------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 26,114,786 16,145,972 -- 42,260,758
------------ ------------ ------------ ------------
PROPERTY, AND EQUIPMENT, net 2,659,199 400,776 -- 3,059,975
INTANGIBLE ASSETS, net -- 2,592,600 -- 2,592,600
OTHER ASSETS 1,023,771 221,456 -- 1,245,227
------------ ------------ ------------ ------------
TOTAL ASSETS $ 29,797,756 $ 19,360,804 $ -- $ 49,158,560
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,297,198 $ 497,694 $ -- $ 3,794,892
Accrued expenses and other current liabilities 2,081,738 793,623 -- 2,875,361
Income taxes payable -- 653,141 -- 653,141
Current portion of capital lease -- 39,944 -- 39,944
Securities sold but not yet purchased, at
market value -- 25,938 -- 25,938
Deferred revenue 1,621,062 -- -- 1,621,062
------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 6,999,998 2,010,340 -- 9,010,338
------------ ------------ ------------ ------------
DEFERRED INCOME TAXES -- 34,300 -- 34,300
------------ ------------ ------------ ------------
CAPITAL LEASE PAYABLE, NET OF CURRENT
PORTION -- 72,131 -- 72,131
------------ ------------ ------------ ------------
TOTAL LIABILITIES 6,999,998 2,116,771 -- 9,116,769
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock -- -- -- --
Common stock 245,570 114,763 82,310 (A) 442,643
Additional paid-in capital 26,844,275 15,943,179 (82,310)(A) 42,705,144
Retained (deficit) earnings (4,292,087) 1,186,091 -- (3,105,996)
------------ ------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY 22,797,758 17,244,033 -- 40,041,791
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 29,797,756 $ 19,360,804 $ -- $ 49,158,560
============ ============ ============ ============
</TABLE>
--------------------------------------------------------------------------------
(A) To reflect the common stock to be issued by OnlineTrading.com Group in
connection with the merger.
77
<PAGE>
ONLINETRADING.COM GROUP
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Omega
Research OnlineTrading.com OnlineTrading.com
Three Months Three Months Group
Ended Ended Pro Forma Combined
3/31/00 1/31/00 Adjustments Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $ 5,547,296 $ -- $ -- $ 5,547,296
Commissions and fees -- 3,421,274 -- 3,421,274
Subscription services 902,834 -- -- 902,834
Net investment gains -- 259,766 -- 259,766
Other revenues 1,950,445 331,903 -- 2,282,348
------------ ------------ ------------ ------------
Total net revenues 8,400,575 4,012,943 -- 12,413,518
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees 272,295 -- -- 272,295
Cost of subscription services 539,374 -- -- 539,374
Clearing and other transaction costs -- 1,147,255 -- 1,147,255
Product development 1,827,503 279,387 -- 2,106,890
Sales and marketing 7,572,860 855,917 -- 8,428,777
General and administrative 2,996,211 1,427,018 (32,258)(A) 4,390,971
Acquisition costs -- -- -- --
------------ ------------ ------------ ------------
Total operating expenses 13,208,243 3,709,577 (32,258) 16,885,562
------------ ------------ ------------ ------------
(Loss) income from operations (4,807,668) 303,366 32,258 (4,472,044)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE), net:
Interest expense -- -- (32,258)(A) (32,258)
Other income, net 34,342 -- -- 34,342
------------ ------------ ------------ ------------
Total other income (expense), net 34,342 -- (32,258) 2,084
(Loss) income before income taxes (4,773,326) 303,366 -- (4,469,960)
INCOME TAX (BENEFIT)
PROVISION (1,812,000) 145,837 -- (1,666,163)
------------ ------------ ------------ ------------
Net (loss) income $ (2,961,326) $ 157,529 $ -- (2,803,797)
============ ============ ============ ============
Loss per share:
Basic $ (0.12) $ (0.06)
============ ============
Diluted $ (0.12) $ (0.06)
============ ============
Weighted average common stock:
Basic 24,539,324 19,707,253(B) 44,246,577
============ ============ ============
Diluted 24,539,324 19,707,253(B) 44,246,577
============ ============ ============
</TABLE>
--------------------------------------------------------------------------------
(A) To reclass interest expense.
(B) To reflect the conversion of Omega Research and OnlineTrading.com's weighted
average shares outstanding to shares of OnlineTrading.com Group common stock
in connection with the merger.
78
<PAGE>
ONLINETRADING.COM GROUP
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Omega
Research OnlineTrading.com OnlineTrading.com
Three Months Three Months Group
Ended Ended Pro Forma Combined
3/31/99 1/31/99 Adjustments Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $ 8,445,460 $ -- $ -- $ 8,445,460
Commissions and fees -- 1,818,049 -- 1,818,049
Subscription services 322,904 -- -- 322,904
Net investment gains -- 338,783 -- 338,783
Other revenues 1,667,020 46,762 -- 1,713,782
------------ ------------ ------------ ------------
Total net revenues 10,435,384 2,203,594 -- 12,638,978
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees 589,500 -- -- 589,500
Cost of subscription services 253,288 -- -- 253,288
Clearing and other transaction costs -- 554,956 -- 554,956
Product development 1,192,647 -- -- 1,192,647
Sales and marketing 4,067,341 561,659 -- 4,629,000
General and administrative 2,907,159 784,950 (9,127)(A) 3,682,982
Acquisition costs -- -- -- --
------------ ------------ ------------ ------------
Total operating expenses 9,009,935 1,901,565 (9,127) 10,902,373
------------ ------------ ------------ ------------
Income from operations 1,425,449 302,029 9,127 1,736,605
------------ ------------ ------------ ------------
OTHER (EXPENSE) INCOME, net:
Interest expense (170,494) -- (9,127)(A) (179,621)
Other income, net 109,146 -- -- 109,146
------------ ------------ ------------ ------------
Total other expense, net (61,348) -- (9,127) (70,475)
------------ ------------ ------------ ------------
Income before income taxes 1,364,101 302,029 -- 1,666,130
INCOME TAX PROVISION 714,000 105,610 -- 819,610
------------ ------------ ------------ ------------
Net income $ 650,101 $ 196,419 $ -- $ 846,520
============ ============ ============ ============
Earnings per share:
Basic $ 0.03 $ 0.02
============ ============
Diluted $ 0.02 $ 0.02
============ ============
Weighted average common stock:
Basic 24,060,338 15,263,999 (B) 39,324,337
============ ============ ============
Diluted 26,219,715 15,263,999 (B) 41,483,714
============ ============ ============
</TABLE>
--------------------------------------------------------------------------------
(A) To reclass interest expense.
(B) To reflect the conversion of Omega Research and OnlineTrading.com's weighted
average shares outstanding to shares of OnlineTrading.com Group common stock
in connection with the merger.
79
<PAGE>
ONLINETRADING.COM GROUP
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Omega OnlineTrading.com
Research OnlineTrading.com Group
Year Ended Year Ended Pro Forma Combined
12/31/99 1/31/00 Adjustments Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $ 33,767,832 $ -- $ -- $ 33,767,832
Commissions and fees -- 9,471,435 -- 9,471,435
Subscription services 1,777,779 -- -- 1,777,779
Net investment gains -- 1,129,493 -- 1,129,493
Other revenues 7,324,358 1,089,912 -- 8,414,270
------------ ------------ ------------ ------------
Total net revenues 42,869,969 11,690,840 -- 54,560,809
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees 2,190,693 -- -- 2,190,693
Cost of subscription services 794,716 -- -- 794,716
Clearing and other transaction costs -- 3,012,284 -- 3,012,284
Product development 5,144,658 279,387 -- 5,424,045
Sales and marketing 18,979,103 3,048,623 -- 22,027,726
General and administrative 12,435,758 3,567,816 (51,863)(A) 15,951,711
Acquisition costs 1,200,000 -- -- 1,200,000
------------ ------------ ------------ ------------
Total operating expenses 40,744,928 9,908,110 (51,863) 50,601,175
------------ ------------ ------------ ------------
Income from operations 2,125,041 1,782,730 51,863 3,959,634
------------ ------------ ------------ ------------
OTHER (EXPENSE) INCOME, net:
Interest expense (1,691,185) -- (51,863)(A) (1,743,048)
Other income, net 445,535 -- -- 445,535
------------ ------------ ------------ ------------
Total other expense, net (1,245,650) -- (51,863) (1,297,513)
------------ ------------ ------------ ------------
Income before income taxes 879,391 1,782,730 -- 2,662,121
INCOME TAX PROVISION 1,846,000 702,224 -- 2,548,224
------------ ------------ ------------ ------------
Net (loss) income $ (966,609) $ 1,080,506 $ -- $ 113,897
============ ============ ============ ============
(Loss) earnings per share:
Basic $ (0.04) $ 0.00
============ ============
Diluted $ (0.04) $ 0.00
============ ============
Weighted average common stock:
Basic 24,294,179 18,069,905 (B) 42,364,084
============ ============ ============
Diluted 24,294,179 20,299,288 (B) 44,593,467
============ ============ ============
</TABLE>
--------------------------------------------------------------------------------
(A) To reclass interest expense.
(B) To reflect the conversion of Omega Research and OnlineTrading.com's weighted
average shares outstanding to shares of OnlineTrading Group common stock in
connection with the merger.
80
<PAGE>
ONLINETRADING.COM GROUP
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Omega OnlineTrading.com
Research OnlineTrading.com Pro Forma Group
Year Ended Year Ended Adjustments Combined
12/31/98 1/31/99 Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $ 25,057,098 $ -- $ -- $ 25,057,098
Commissions and fees -- 5,525,427 -- 5,525,427
Subscription services 179,043 -- -- 179,043
Net investment gains -- 328,495 -- 328,495
Other revenues 6,474,612 138,142 -- 6,612,754
------------ ------------ ------------ ------------
Total net revenues 31,710,753 5,992,064 -- 37,702,817
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees 2,459,952 -- -- 2,459,952
Cost of subscription services 34,493 -- -- 34,493
Clearing and other transaction costs -- 2,002,055 -- 2,002,055
Product development 4,001,981 -- -- 4,001,981
Sales and marketing 15,573,786 1,174,998 -- 16,748,784
General and administrative 8,545,073 2,654,988 (36,566)(A) 11,163,495
------------ ------------ ------------ ------------
Total operating expenses 30,615,285 5,832,041 (36,566) 36,410,760
------------ ------------ ------------ ------------
Income from operations 1,095,468 160,023 36,566 1,292,057
------------ ------------ ------------ ------------
OTHER (EXPENSE) INCOME, net:
Interest expense (907,196) -- (36,566)(A) (943,762)
Other income, net 435,181 -- -- 435,181
------------ ------------ ------------ ------------
Total other expense, net (472,015) -- (36,566) (508,581)
------------ ------------ ------------ ------------
Income before income taxes 623,453 160,023 -- 783,476
INCOME TAX PROVISION 1,052,000 52,080 -- 1,104,080
------------ ------------ ------------ ------------
Net (loss) income $ (428,547) $ 107,943 $ -- $ (320,604)
============ ============ ============ ============
Loss per share:
Basic $ (0.02) $ (0.01)
============ ============
Diluted $ (0.02) $ (0.01)
============ ============
Weighted average common stock:
Basic 23,913,762 15,209,636 (B) 39,123,398
============ ============ ============
Diluted 23,913,762 15,209,636 (B) 39,123,398
============ ============ ============
</TABLE>
--------------------------------------------------------------------------------
(A) To reclass interest expense.
(B) To reflect the conversion of Omega Research and OnlineTrading.com's weighted
average shares outstanding to shares of OnlineTrading.com Group common stock
in connection with the merger.
81
<PAGE>
ONLINETRADING.COM GROUP
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Omega OnlineTrading.com
Research OnlineTrading.com Group
Year Ended Year Ended Pro Forma Combined
12/31/97 1/31/98 Adjustments Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $ 27,729,549 $ -- $ -- $ 27,729,549
Commissions and fees -- 3,673,728 -- 3,673,728
Net investment losses -- (187,973) -- (187,973)
Other revenues 5,220,899 62,630 -- 5,283,529
------------ ------------ ------------ ------------
Total net revenues 32,950,448 3,548,385 -- 36,498,833
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees 2,688,277 -- -- 2,688,277
Clearing and other transaction costs -- 1,751,472 -- 1,751,472
Product development 2,355,716 -- -- 2,355,716
Sales and marketing 12,217,117 229,562 -- 12,446,679
General and administrative 7,465,942 1,589,329 (71,805)(A) 8,983,466
------------ ------------ ------------ ------------
Total operating expenses 24,727,052 3,570,363 (71,805) 28,225,610
------------ ------------ ------------ ------------
Income (loss) from operations 8,223,396 (21,978) 71,805 8,273,223
------------ ------------ ------------ ------------
OTHER (EXPENSE) INCOME, net:
Interest expense (265,469) -- (71,805)(A) (337,274)
Other income, net 195,995 -- -- 195,995
------------ ------------ ------------ ------------
Total other expense, net (69,474) -- (71,805) (141,279)
------------ ------------ ------------ ------------
Income (loss) before income
taxes 8,153,922 (21,978) -- 8,131,944
INCOME TAX BENEFIT (934,000) (2,550) -- (936,550)
------------ ------------ ------------ ------------
Income (loss) before pro forma
income tax adjustments 9,087,922 (19,428) -- 9,068,494
PRO FORMA INCOME TAX
ADJUSTMENTS:
Pro forma income taxes for periods
prior to September 30, 1997 3,255,731 -- -- 3,255,731
Non-recurring tax credit 1,167,000 -- -- 1,167,000
------------ ------------ ------------ ------------
Pro forma net income (loss) $ 4,665,191 $ (19,428) $ -- $ 4,645,763
============ ============ ============ ============
Earnings per share:
Basic $ 0.21 $ 0.13
============ ============
Diluted $ 0.21 $ 0.13
============ ============
Weighted average common stock:
Basic 21,829,417 14,500,799 (B) 36,330,216
============ ============ ============
Diluted 22,620,064 14,500,799 (B) 37,120,863
============ ============ ============
</TABLE>
--------------------------------------------------------------------------------
(A) To reclass interest expense.
(B) To reflect the conversion of Omega Research and OnlineTrading.com's weighted
average shares outstanding to shares of OnlineTrading.com Group common stock
in connection with the merger.
82
<PAGE>
BUSINESS AND FINANCIAL INFORMATION REGARDING OMEGA RESEARCH
OVERVIEW AND RECENT DEVELOPMENTS
Omega Research, Inc., a Florida corporation, was incorporated in 1982 to
develop, market and sell investment analysis and trading strategy testing and
automation (collectively, "trading strategy") software tools to individual and
professional investors and traders (collectively, "traders"). Omega Research's
current products and services provide traders with the ability to develop,
historically test and computer automate trading strategies and to access
streaming real-time charts, quotes and news via the Internet.
Omega Research is in the process of changing its business model. Omega
Research has taken steps, one of which is the proposed merger, to transform
itself from a trading strategy client software company to one that includes an
online brokerage firm -- a company which intends to provide to active traders a
trading platform that incorporates and seamlessly integrates powerful trading
strategy tools, historical and streaming real-time market data and news, and
high-speed access directly to an electronic order execution system. Omega
Research's historical business model has consisted of sales of client software
products, payment for which is committed to in full by the customer at the time
of sale. Under the new business model, Omega Research will seek to derive
recurring revenues from customers by offering monthly subscription services for
trading strategy tools integrated with streaming real-time market data and news
for which a monthly fee is payable, and by offering through OnlineTrading.com
(subject to completion of the merger) online brokerage services for which
commissions are payable. Omega Research believes that it will be able to
leverage its historical success in selling trading strategy tools to build a
subscriber base of active traders that will, assuming completion of the merger,
use the online brokerage services of OnlineTrading.com or, at a minimum, Omega
Research's trading strategy subscription services.
Historically, Omega Research has provided real-time trading strategy client
software for the Microsoft Windows operating system. In February 1999, Omega
Research released its latest generation of premium software products, branded
"2000i," which included upgrade versions of its then-existing products and new
products. As of February 22, 1999, Omega Research's client software product line
has consisted of TRADESTATION 2000I, OPTIONSTATION 2000I, RADARSCREEN 2000I,
OMEGA RESEARCH PROSUITE 2000I and SUPERCHARTS 4.
TRADESTATION enables traders to historically test the profitability of their
own trading strategies, and then computer-automate those strategies to generate
real-time buy and sell signals. OPTIONSTATION enables traders to benefit from
stock, index and futures options trading strategies. RADARSCREEN enables traders
to scan the markets in real time to identify favorable buying and selling
opportunities based upon their own trading strategies. OMEGA RESEARCH PROSUITE
is an integrated suite of TRADESTATION, OPTIONSTATION and RADARSCREEN.
SUPERCHARTS provides traders with state-of-the-art technical analysis tools.
In October 1999, Omega Research began to implement the change in its business
model. On October 26, 1999, Omega Research acquired Window on WallStreet Inc.
("Window On WallStreet"), a leading provider of Internet-based streaming
real-time market data (FINANCIAL DATA CAST NETWORK, OR FDCN) and a developer of
client software and online trading strategy tools, in a merger transaction in
which the Window On WallStreet shareholders received 1,999,995 newly-issued
shares of Omega Research common stock.
On November 8, 1999, Omega Research announced that it would focus on serving
active online traders through the design, marketing and implementation of a
monthly-subscription, Internet-based, trading strategy platform that is to be
named TRADESTATION.COM. TRADESTATION.COM, expected to be launched later this
year, will include premium trading strategy tools of TRADESTATION seamlessly
integrated with the FDCN's streaming real-time market quotes and news.
On January 19, 2000, Omega Research signed the merger agreement with
OnlineTrading.com. The prime objective of the pending merger with
OnlineTrading.com is to offer to active traders online brokerage services that
are integrated with TRADESTATION.COM, thereby creating a trading platform that
incorporates and seamlessly integrates
83
<PAGE>
powerful trading strategy tools, historical and streaming real-time market data
and news, and high-speed access directly to an electronic order execution
system.
On January 25, 2000, Omega Research launched WINDOWONWALLSTREET.COM, its
first Internet subscription service. WINDOWONWALLSTREET.COM offers streaming
real-time charts, quotes and news powered by some of Omega Research's
award-winning trading tools. Omega Research believes that the subscriber base
being built with WINDOWONWALLSTREET.COM will contain many potential
OnlineTrading.com brokerage clients.
On February 29, 2000, Omega Research announced that in light of the apparent
successful launch of WINDOWONWALLSTREET.COM, Omega Research was accelerating its
transition to its new business model by focusing its marketing efforts and
resources on WINDOWONWALLSTREET.COM, as opposed to its client software.
Omega Research's principal executive offices are located at 8700 West Flagler
Street, Miami, Florida 33174, and its telephone number is (305) 485-7000.
INDUSTRY BACKGROUND
In the last several years there has been dramatic growth in the electronic
brokerage industry. In the early 1990s, several broker-dealers gave customers
the ability to enter orders with them through private computer networks. In
1995, broker-dealers introduced the first systems that allowed customers to
submit orders through the Internet. More than 160 broker-dealers now offer
online trading. In fewer than five years, online brokerage has become an
important channel for conducting retail brokerage transactions.
U.S. Bancorp Piper Jaffray estimated that by the end of the third quarter of
1999 there were over 10.8 million online brokerage accounts, up from 3.7 million
in 1997 and 7.3 million in 1998. U.S. Bancorp Piper Jaffray estimated that over
$900 billion in assets were held in online brokerage accounts at year-end 1999.
Online equity trading volume has also grown dramatically over the past several
years. U.S. Bancorp Piper Jaffray reported that there was a daily average of
approximately 807,000 online trades in the fourth quarter of 1999.
Not only have online equity trading volumes risen, they are accounting for an
increasing percentage of overall equity trading. CS First Boston reported that
in the first quarter of 1999 almost one in six equity trades (15.91%) took place
online. Online trading accounts for an even higher percentage of overall equity
and options trades by retail investors. U.S. Bancorp Piper Jaffray estimated
that online trading activity accounted for 48% of all retail trades in the
second half of 1999, up from 37% in the first half of 1999. For all of 1999,
U.S. Bancorp Piper Jaffray estimated that online firms processed 43% of all
retail trades, up from 27% in 1998.
Industry analysts foresee continued growth both in the number of online
brokerage accounts and account assets. Forrester Research predicted that, by
2003, 9.7 million U.S. households will manage more than $3 trillion in 20.4
million online accounts. Jupiter Communications estimated that, by 2003, 20.3
million households will trade online, and also predicted total online account
assets at more than $3 trillion. Forrester Research has also recently predicted
that, by 2004, Europe will have 14 million online brokerage accounts.
Concurrently with the growth of online trading, there has been, in the last
several years, dramatic growth in the financial markets as increasing amounts of
capital have been actively invested in an effort to generate superior returns.
Traditionally, financial instruments were held to maturity or for long
investment horizons, but in today's environment of abundant data flow and low
transaction costs, financial instruments are increasingly being actively traded.
Robertson Stephens reported that during 1999 The Nasdaq Stock Market ("Nasdaq")
and New York Stock Exchange ("NYSE") composite volumes experienced the largest
jump in history. Nasdaq volume reached 271 billion in 1999, a 37% increase over
the 1998 volume of 198 billion. NYSE volume also increased in 1999, to 209
billion, a 24% increase over 1998 volume of 169 billion.
84
<PAGE>
The broad availability of financial market information online has enabled
individuals to become more sophisticated and knowledgeable about trading, having
experienced greater access to stock quotes, other financial market data, trading
advice and other trading information through the Internet or through other
online services. In addition to increased information flows, the increased
popularity and proliferation of online brokerage services have resulted in
reduced transaction costs to the individual trader, facilitating the increase in
trading activity.
While both brokerage services and financial market data have been available
for some time, historically only large institutional investors with access to
mainframe or minicomputer-based systems, and direct or personal access to
securities exchanges, have had the capability to manipulate, organize and
analyze such data to support their trading decisions, and then execute with
efficiency those trading decisions. Historically, such organizational and
analytical data activities have been expensive and time consuming, and usually
performed in the "back office" of institutional traders through custom
programming by information technology professionals. With the proliferation of
online brokerage services, the increasing and less-expensive accessibility to
large quantities of various types of market data, the increasingly-powerful
processing capabilities of personal computers, and the rapidly-growing
capabilities of the Internet, Omega Research believes that individual traders
are demanding powerful, Internet-based, real-time trading platforms that are
seamlessly integrated with the best-available order execution technology.
Individual traders desire to improve both their decision-making regarding, and
their execution of, trades. Omega Research believes that a need has arisen for
an online brokerage to provide to the growing market of active traders an
institutional quality, Internet-based platform that includes analytical tools
which support the design and testing of trading strategies, the automation of
those strategies in real-time, and the execution of those strategies through
state-of-the-art electronic order execution systems.
PRODUCTS AND SERVICES
As a result of Omega Research's decision to change its business model, the
beginning of this "Products and Services" discussion is set forth in two parts.
The first part discusses Omega Research's client software products, principally
the 2000i line released in February 1999, which constituted virtually all
products sold by Omega Research during 1999. The second part discusses Omega
Research's recently-implemented and future-planned Internet-based services.
Those consist of trading tools seamlessly integrated with streaming real-time
market quotes and news, which, after the merger, are to be integrated with
OnlineTrading.com's online brokerage services.
The first of Omega Research's Internet-based, monthly-subscription services,
WINDOWONWALLSTREET.COM, was first marketed on Window On WallStreet's web site in
December 1999, and was launched by Window On WallStreet in late January 2000. In
February 2000, the focus of Omega Research's marketing efforts were shifted from
the 2000i product line to WINDOWONWALLSTREET.COM.
Omega Research's products and services are sophisticated trading tools. They
do not provide investment or trading advice or recommendations, or recommend the
use of any particular strategy.
CLIENT SOFTWARE
In the first quarter of 1999, Omega Research released its current generation
of client software products: TRADESTATION 2000I, RADARSCREEN 2000I,
OPTIONSTATION 2000I and OMEGA RESEARCH PROSUITE 2000I. Omega Research's 2000I
software products contain numerous new features, functions and improvements when
compared to the prior versions, including 32-bit architecture and Microsoft COM
technology, which enables users to run multiple software applications within a
single workspace.
Omega Research's client software products, each of which operates in a
Microsoft Windows environment, have been marketed to individual and professional
traders. The 2000I software is compatible with the following real-time Internet
and broadcast financial market datafeeds: BMI (broadcast); DTN Real Time
(broadcast); DTNstant (broadcast); eSignal (Internet); Hyperfeed (Internet and
broadcast) and InSite (Internet). In addition to being
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compatible with real-time datafeeds, Omega Research's 2000i software products
are able to access and display end-of-day market data.
Omega Research's principal client software products currently are:
<TABLE>
<CAPTION>
Current Operating List
Product Version System Price
------- ------- ------ -----
<S> <C> <C> <C>
Omega Research ProSuite 2000i Microsoft Windows $4,799
TradeStation 2000i Microsoft Windows $2,399
RadarScreen 2000i Microsoft Windows $2,399
OptionStation 2000i Microsoft Windows $2,399
SuperCharts Real-Time 4.0 Microsoft Windows $1,199
SuperCharts End-of-Day 4.0 Microsoft Windows $ 395
</TABLE>
TRADESTATION 2000i. TRADESTATION has been the flagship product of Omega
Research, serving as a platform for numerous third-party software solutions.
TradeStation has been marketed to equities, futures and foreign currency
traders. TradeStation empowers the trader to design and develop trading
strategies based upon the trader's objective rules and criteria, test the
profitability of such trading strategies against historical data, and then
computer-automate a chosen trading strategy to monitor the applicable market and
alert the trader in real-time when the criteria of the trading strategy have
been met and an order should, therefore, be placed. The principal features of
TRADESTATION which enable the trader to design and develop trading strategies
are EASYLANGUAGE and the POWEREDITOR. EASYLANGUAGE is a proprietary computer
language developed by Omega Research consisting of English-like statements and
trading terms which can be input by the trader to describe particular objective
rules and criteria. The POWEREDITOR is a compiler of EASYLANGUAGE statements
that provides the trader with considerable flexibility to modify and combine
different trading rules and criteria which ultimately result in the design of
the trader's trading strategies. Omega Research's TRADESTATION product has also
been marketed worldwide to institutional traders on a monthly subscription basis
by Telerate, Inc., a subsidiary of Bridge Information Systems, Inc. See
"Strategic Relationships" below.
RADARSCREEN 2000i. RADARSCREEN, a product officially released in February
1999, enables traders to scan up to hundreds or thousands, depending upon the
data service and computer hardware used, of stocks or other securities to
identify favorable buying and selling opportunities based upon their own trading
strategies, which may be designed through the use of EASYLANGUAGE and the
POWEREDITOR. The program also updates dynamically and ranks securities in
real-time based upon user-defined criteria and alerts the trader in real-time
when the strategies' criteria are met.
OPTIONSTATION 2000i. OPTIONSTATION is an options trading analysis product for
stock, index and futures options which enables traders to explore options
trading strategies. Specifically, OptionStation is designed to sort through all
of the possible options positions on one or more securities and identify the
most favorable risk-reward profile based upon user-defined assumptions.
EASYLANGUAGE and the POWEREDITOR can be used with OPTIONSTATION to customize the
user's options analyses. OPTIONSTATION is designed to perform two critical tasks
of options trading-- position search and position analysis. OPTIONSTATION'S
Position Search helps the trader find the best risk-reward profile based upon
the trader's market assumptions. The OPTIONSTATION Position Analysis and
OPTIONSTATION Position Chart features enable traders to design and customize
options positions and then graphically view and analyze each position's
profitability and risk. The program will alert the trader in real-time when the
trader's specified criteria have been met.
OMEGA RESEARCH PROSUITE 2000i. OMEGA RESEARCH PROSUITE is Omega Research's
premium client software product, as it includes, as an integrated suite,
TRADESTATION 2000i, RADARSCREEN 2000i and OPTIONSTATION 2000i. Due to the
utilization of Microsoft COM technology, all three programs, plus additional
third party programs, such as Microsoft Excel, may be viewed and utilized
simultaneously within a single workspace. OMEGA RESEARCH
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PROSUITE is best suited to traders who are active in multiple markets and to
traders who are seeking a full range of analysis tools. For example, traders who
use OMEGA RESEARCH PROSUITE may use TRADESTATION to conduct analysis to
determine the optimum time to buy or sell stocks or futures based upon their own
trading strategies, then use RADARSCREEN to scan the markets to identify which
stocks or futures they want to buy or sell based upon such trading strategies,
and then use OPTIONSTATION to determine whether, based upon their market
assumptions, an option strategy may be preferable to trading the underlying
securities.
SUPERCHARTS. SUPERCHARTS is a technical analysis charting product available
in both real-time and end-of-day versions. SUPERCHARTS has a built-in library of
more than 80 popular technical indicators and 15 drawing tools that highlight
significant market patterns. SUPERCHARTS provides the trader with sophisticated
charting and technical analysis capabilities, including the ability to draw
trend lines, identify chart patterns and chart historical fundamental data.
SUPERCHARTS can generate an alert on a real-time or end-of-day basis when a
simple user-defined criterion occurs with respect to a specific security.
SUPERCHARTS also contains certain trading strategy tools in order to introduce
the less-experienced trader to such functions. EASYLANGUAGE is included to a
limited degree in SUPERCHARTS.
ADDITIONAL PRODUCTS AND SERVICES. Omega Research has offered additional
products and services to support its client software sales, such as:
HISTORYBANK.COM, Omega Research's historical financial market database and end-
of-day financial market data service included free of charge with orders for
2000i products, and OMEGAWORLD, Omega Research's annual trading strategy
development conference attended by users and prospective users of its trading
strategy tools.
WINDOW ON WALLSTREET LEGACY PRODUCTS. Window On WallStreet has, over the
years, developed client software products and Internet-based products and
services, including FDCN, all of which are being phased out in an orderly
fashion. FDCN and certain features and functions of some of those other products
and services have been, and will be, incorporated into WINDOWONWALLSTREET.COM
and TRADESTATION.COM. In particular, FDCN is intended to serve as the backbone
of the streaming real-time market data and news services that are and will be
part of those Internet-based services.
NEW BUSINESS MODEL
WINDOWONWALLSTREET.COM. On January 25, 2000, Omega Research launched
WINDOWONWALLSTREET.COM. WINDOWONWALLSTREET.COM offers to its subscribers, on a
monthly-subscription basis, browser-based streaming real-time charts, quotes and
news presented and powered by some of Omega Research's award-winning trading
tools. The features of WINDOWONWALLSTREET.COM include powerful analytical
charting, Nasdaq Level II market maker data, time and sales data, quote lists,
option chains, market leaders data, streaming news, Internet SmartSearch (a
feature that enables the trader to access relevant Internet research services),
live ticker, portfolio management, profit/loss tracking, discussion forum, and
wireless access. The streaming real-time financial market data currently
included are NYSE, Nasdaq, American Stock Exchange ("AMEX") and Options Price
Reporting Authority ("OPRA"). The subscription price currently being offered is
$79.95 per month. If the subscriber commits to a one-year subscription, and pays
in advance, the price currently offered is $839.40 ($69.95 per month). All
exchange fees payable to NYSE, Nasdaq, AMEX and OPRA for non-professional
subscribers, which currently total $5.00 per month and will soon decrease to
$4.00 per month, are included in the pricing, except for fees payable to receive
Nasdaq Level II data, which currently costs $50.00 per month and will soon
decrease to $10.00 per month. Exchange fees payable by professional subscribers
are also not included in the above-described pricing.
TRADESTATION.COM. Later this year, Omega Research intends to launch
TRADESTATION.COM, which is currently under development. Omega Research has
targeted late Spring for the launch, but given the substantial development yet
to be completed, the launch date may be considerably later than currently
anticipated. TRADESTATION.COM is planned to be an Internet-based monthly
subscription service that will include substantially all of the features and
functions of WINDOWONWALLSTREET.COM, including streaming real-time charts,
quotes and news, plus the powerful trading strategy tools of TRADESTATION: tools
that enable the development of trading strategies that may be
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historically tested and then automated to produce buy and sell signals in real
time. TRADESTATION.COM'S tools will likely also include the functions of
RADARSCREEN. Conceptually, TRADESTATION.COM is being designed as a web-based
platform for the active online trader who wishes to develop, test and implement
in real time objective trading strategies. Omega Research has not yet determined
the monthly subscription price at which TRADESTATION.COM will be offered. Such
decision is expected to be made shortly before its launch. Sometime following
the launch of TRADESTATION.COM, Omega Research plans to launch
OPTIONSTATION.COM, either as a separate trading platform for options traders or
as premium service within TRADESTATION.COM.
INTEGRATION WITH ONLINETRADING.COM'S ONLINE BROKERAGE SERVICES. After the
merger, Omega Research intends to integrate the TRADESTATION.COM platform with
ONLINETRADING.COM'S high-speed electronic order execution brokerage services.
These development efforts are in progress. The planned benefit of such
integration is that OnlineTrading.com's online brokerage customers will be able
to utilize TRADESTATION.COM to develop real-time trading strategies and then
electronically generate buy and sell orders, including buy and sell orders that
result from alerts generated in real time by TRADESTATION.COM. Those buy and
sell orders would then, upon confirmation by the user, be transmitted to, and
executed through, OnlineTrading.com's high-speed electronic order execution
system. Assuming that all additional regulatory requirements are satisfied, it
is possible that the users may also be enabled to program their trading
strategies to generate real-time buy and sell signals that automatically,
without the need for confirmation, initiate execution of trades through
OnlineTrading.com's electronic order execution system. WINDOWONWALLSTREET.COM
also may be usable in such fashion with OnlineTrading.com's order execution
technology and it is currently intended that OPTIONSTATION.COM, if and when
launched, will also be so integrated.
SALES AND MARKETING
Omega Research has marketed its client software products using a combination
of methods, including inbound telesales, the use of distributors, and, most
recently, online sales through its web site. Marketing efforts in support of
sales have included television advertising and print media, direct mail,
advertising on Omega Research's web site, hundreds of sales seminars conducted
annually throughout the United States (which were discontinued in February 2000
in connection with Omega Research's transition to its new business model), and
establishment of marketing and other relationships with data vendors, online
brokerages and software and service solution providers. In connection with Omega
Research's transition to its new business model, its marketing and sales
methods, and the mix of such methods, is expected to change significantly. For
example, those relationships, as related to the new business model, with data
vendors and online brokerages (companies that Omega Research is now or soon will
be directly or indirectly competing with) will likely no longer be desirable or
available, and the mix of television, print, web site, direct mail and in-person
marketing methods will be determined and continually modified as Omega Research
tests such methods and mixtures and analyzes and interprets the results.
In February 1999, Omega Research launched a redesigned and expanded web site
for its client software business. In addition to enabling online ordering and
payment for virtually all 1999 products and services, the new web site included
the following features: online registration for Omega Research conferences and
online subscriptions to Omega Research newsletters; expanded free access to
downloadable technical files, indicators and studies; online search functions
that enable users to find Omega Research product distributors and user groups by
geographic area; an expanded industry events section; online search capabilities
for locating compatible third-party products; online search capabilities that
allow users to find answers to technical issues by having access to Omega
Research's technical assistance knowledge base; and comprehensive information
about Omega Research's products and services. The web site will be substantially
redesigned, and new web sites will be created in connection with Omega
Research's planned offering of TRADESTATION.COM and, possibly,
OPTIONSTATION.COM, as a result of the merger.
The majority of Omega Research's direct sales for its client software
products has been generated by telesales. The telesales process has consisted of
the generation of leads through media and direct mail advertising, delivery of
product information to prospective purchasers, and follow-up calls to the
recipients of the product information to attempt to complete the sale. The size
of this sales force was substantially reduced in February 2000 in connection
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with Omega Research's transition to its new business model, and is in the
process of being transformed to one that is more conducive to the
Internet-based, monthly subscription model.
In the first quarter of 1999, Omega Research implemented a new system of
customer tracking and management at its corporate headquarters to improve its
lead management capability, to enhance its customer satisfaction through
increased responsiveness and to improve its ability to market additional
products to existing customers. This system will need to be substantially
modified, and/or integrated with additional systems that will need to be
obtained or designed and implemented, in connection with Omega Research's
transition to its new business model.
Omega Research has advertised its 2000I products on a regular basis on the
CNBC television network, and to a much lesser extent on certain local television
and radio stations. Omega Research has advertised its 2000I products in
publications popular with traders such as INVESTOR'S BUSINESS DAILY and
TECHNICAL ANALYSIS OF STOCKS & COMMODITIES. Omega Research has also undertaken
periodic promotional mailings to its customer base, as well as to mailing lists
obtained by Omega Research by license from, or agreement with, third parties.
Such promotional mailings have included flyers, brochures, videotapes, books or
demo compact disks.
Omega Research has engaged in sales to customers outside of the United States
through the use of independent distributors and responses to direct telephonic
or electronic mail inquiries from foreign persons. Less than 10% of Omega
Research's revenues were derived from customers outside of the United States for
the years ended December 31, 1999, 1998 and 1997. International sales are made
in U.S. dollars.
STRATEGIC RELATIONSHIPS
Omega Research over the years established strategic marketing and other
strategic partner relationships with data vendors, online brokerages and other
relevant third parties with respect to its client software products. In light of
Omega Research's transition to its new business model, the number and
significance of Omega Research's strategic relationships, as they relate to
Omega Research's client software products, will substantially decrease. With
respect to Omega Research's new business model, those types of relationships
with data vendors and online brokerages are expected to be undesirable and
unavailable.
BRIDGE TELERATE AGREEMENT. In August 1994, Omega Research entered into a
Software License, Maintenance and Development Agreement with Dow Jones Markets,
Inc., now known as Telerate, Inc., and a subsidiary of Bridge Information
Systems, Inc., under which Omega Research licenses to Telerate, Inc. the right
to market and distribute TRADESTATION to its data subscribers worldwide, who are
primarily institutional traders. In 1999, Omega Research and Telerate, Inc.
completed development of technical compatibility between TRADESTATION 2000i and
the Bridgefeed technology on which the Telerate, Inc. datafeeds currently run.
The agreement with Telerate, Inc. expires in January 2002. The agreement with
Telerate, Inc. requires Telerate, Inc. to use commercially reasonable efforts to
market TRADESTATION, to market the product under a name including
"TradeStation," and to pay to Omega Research a per-subscription royalty, subject
to minimum annual royalties which escalate each year of the agreement. Omega
Research has no technical support obligation under the agreement to the
customers of Telerate, Inc., but is obligated to provide limited technical
support to Telerate, Inc. managers. During the term of the agreement, Omega
Research is not permitted to enter into a similar licensing arrangement
regarding TRADESTATION with five enumerated competitors of Telerate, Inc.
Telerate, Inc. is not prohibited by the agreement from offering to its data
service subscribers its own or another company's trading strategy software.
MARKET DATA SERVICES. The real-time market data included in
WINDOWONWALLSTREET.COM is, and the real-time market data to be included in
TRADESTATION.COM will be, licensed from S&P ComStock, Inc. A portion of the
technology used to deliver real-time market data services is licensed from a
third-party development company. A significant portion of the computer hardware
and software used by Omega Research to provide market data services is located
at facilities leased to Window On WallStreet by Verio Inc. located in Dallas,
Texas.
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CROSS-MARKETING AGREEMENTS. Omega Research currently has written agreements
with other data vendors, each of which contains provisions for the maintenance
of technical compatibility between one or more of Omega Research's client
software products and the data vendors' data services.
COMPATIBLE THIRD-PARTY PRODUCTS. Omega Research developed its principal
client software products as "platform applications," unique and valuable
software applications that also serve as platforms for third-party solutions
which add value to the products. The Omega Research platform applications were
designed to be open and extendible, encouraging the development of as many
complementary third-party solutions as possible. To date, more than 150
independent software developers have developed specific trading strategies or
other trading applications for Omega Research platform applications. This is
attributable chiefly to EASYLANGUAGE, Omega Research's proprietary computer
language comprised of English-like statements and trading terms that can be used
by traders and third-party developers to describe their own trading rules and
criteria. Omega Research expects that TRADESTATION.COM shall serve as an open
platform for third-party developers who wish to design compatible products or
services.
PRODUCT DEVELOPMENT AND YEAR 2000 COMPLIANCE
Omega Research believes that its future success depends in large part on its
ability to transfer and implement, on a high-quality, efficient and
user-friendly basis, the functions and features of its 2000i line of products to
Internet, browser-based platforms, and to integrate those platforms with the
FDCN's streaming real-time market data and news and with state-of-the-art online
order execution technology, and to develop and implement well-designed and
user-friendly web sites. To date, Omega Research has relied primarily on
internal development of its products and services, but is currently relying and
will rely to some extent on licenses from third parties with respect to market
data services technology and order execution technology. Omega Research
currently performs all quality assurance and develops documentation and other
training materials internally, but this, too, may change to some extent with
respect to market data services technology and order execution technology. In
1999, 1998 and 1997, product development expenses were approximately $5.1
million, $4.0 million and $2.4 million, respectively. Omega Research may, in the
near future, explore acquisitions of, or strategic or other relationships with,
quality software development companies as a means of expanding its product
development resources. Omega Research and OnlineTrading.com are currently
working together, with the assistance of a third-party development company, on
the development of a proprietary order routing and execution technology to be
used in the new business model. Omega Research also intends to continue to
improve the speed and efficiency of its 2000i line of products. As of December
31, 1999, Omega Research's product development team was comprised of 72 persons,
as compared to 54 as of December 31, 1998, a 33% increase. That number of
persons was 82 as of April 10, 2000, a 14% increase from December 31, 1999.
Omega Research views its product development cycle with respect to both
client software and its new business model as a four-step process to achieve
technical feasibility. The first step is to conceptualize in detail the defining
features and functions that the targeted trader group requires from the product
or service, and to undertake a cost-benefit analysis to determine the proper
scope and integration of such features and functions. Once the functional
requirements of the product or service have been determined, the second step is
to technically design the product or service. The third step is the detailed
implementation, or engineering, of this technical design. The fourth step is
rigorous quality assurance testing to ensure that the final product or service
generally meets the functional requirements determined in the first step.
Several refinements are typically added in the quality assurance phase of
development. Once this process is completed, technological feasibility has been
achieved and the working model is available for final testing.
The market for trading strategy tools, streaming real-time market data and
news services, and online order execution services is characterized by rapidly
changing technology, evolving industry standards in computer hardware,
programming tools and languages, operating systems, database technology and
information delivery systems, changes in customer requirements and frequent new
product and service introductions and enhancements. Omega Research's future
success will depend upon its ability to develop and maintain competitive
technologies and
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to develop and introduce its new products and services in a timely and
cost-effective manner that meets changing conditions such as evolving customer
needs, existing and new competitive product and service offerings, emerging
industry standards and changing technology. There can be no assurance that Omega
Research will be able to develop and market, on a timely basis, if at all, new
products and services that fulfill the objectives of Omega Research's new
business model, respond to changing market conditions or that will be accepted
by customers. Any failure by Omega Research to anticipate or to respond quickly
to changing market conditions, or any significant delays in the development and
implementation of Omega Research's new business model and/or introduction of new
products and services and/or enhancements, could cause customers to delay or
decide against purchases of Omega Research's products and services and would
have a material adverse effect on Omega Research's business, financial condition
and results of operations.
Omega Research's most recent versions of its client software products,
TRADESTATION 2000i, RADARSCREEN 2000i, OPTIONSTATION 2000i and OMEGA RESEARCH
PROSUITE 2000i are Year 2000 compliant in all material respects.
WINDOWONWALLSTREET.COM is also Year 2000 compliant in all material respects, as
are Window On WallStreet's 6.5, 7.0 and 7.5 versions of Internet Trader,
Internet Trader Deluxe, Internet Trader Pro, Day Trader and Professional
Investor.
With respect to the shipping versions of Omega Research's client software
products immediately prior to the 2000i line, TradeStation 4, OptionStation 1.2,
TradeStation ProSuite 4 and SuperCharts 4, Omega Research offered, in June 1999,
to all registered customers in good-payment standing of those versions, as a
courtesy, an appropriate solution to those products' Year 2000 compliance
issues. No versions prior to version 6.0 of any Window On WallStreet product,
all of which are discontinued products, are Year 2000 compliant. With respect to
the 5.0 shipping versions of those discontinued client software products, Window
On WallStreet offered, in December 1999, to all registered customers of version
5.0 products in good-payment standing, as a courtesy, a free upgrade to a Year
2000 compliant Window On WallStreet product. Omega Research did not incur any
material expenditures specifically to provide Year 2000 solutions for its
products. During 1999, Omega Research utilized internal resources having an
approximate aggregate value of under $200,000 to provide all requisite Year 2000
solutions.
There have not been, and will not be, any Year 2000 modifications or
solutions for any versions of Omega Research's or Window On WallStreet's
products introduced prior to those versions specifically mentioned above, or for
any other products not specifically named above, or any other discontinued
products.
CUSTOMER SUPPORT AND TRAINING
Omega Research provides customer support and product-use training in the
following ways:
CUSTOMER SUPPORT. Omega Research provides technical support to its customers
by telephone, electronic mail and fax. The majority of these services are
provided during the first sixty days of ownership of an Omega Research client
software product and the related costs associated with such support are accrued
at the date of sale. With respect to monthly subscription services, technical
support is provided as a courtesy to subscribers during the subscription period.
Omega Research also provides a substantial amount of technical support
information on its web sites.
PRODUCT-USE TRAINING. Omega Research considers product-use and service-use
training important to try to ensure that its customers develop the ability to
use its products and services as fully and effectively as is possible. The
majority of Omega Research's training materials consist of extensive online
documentation and technical assistance information on its web sites.
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COMPETITION
The markets for (i) online brokerage services, (ii) client software and
Internet-based trading tools and (iii) real-time market data services are
intensely competitive and rapidly evolving, and there appears to be substantial
consolidation of those three products and services occurring in the industry.
Omega Research's new business model embraces this evolution and consolidation.
However, Omega Research believes that due to the current and anticipated rapid
growth of the market for integrated trading tools, real-time market data and
online brokerage services, competition, as well as consolidation, will
substantially increase and intensify in the future. Omega Research believes its
ability to compete will depend upon many factors both within and outside its
control, including: the timing and market acceptance of new products and
services and enhancements developed by Omega Research and its competitors; the
ability of Omega Research to complete the merger with OnlineTrading.com and to
integrate the respective businesses in an orderly, efficient and otherwise
successful manner; the ability of Omega Research to operate and support
efficient, materially error-free Internet-based systems; product and service
functionality; data availability; ease of use; pricing; reliability; customer
service and support; and sales and marketing efforts.
Omega Research faces and after the merger the combined company will face
direct competition from several publicly-traded and privately-held companies
with respect to its new business model, principally online brokerages and data
vendors with Internet-based subscription services. The combined company's online
brokerage competitors, most of whom offer or are seeking to offer real-time
trading tools to their clients, will include the approximately 160 online
brokerages currently active in the United States, including, but not limited to,
A.B. Watley, Inc., Ameritrade, Inc., Charles Schwab & Co., Inc. (including
CyberCorp., an online broker with an active trader customer base which has been
acquired by Charles Schwab & Co., Inc.), Datek Online Holdings Corporation,
Discover Brokerage Direct, Inc., DLJdirect, E*Trade Group, Inc., Fidelity
Brokerage Services, Inc., National Discount Brokers, Quick & Reilly, Inc.,
SURETRADE, Inc., Track Data Corporation, TradeCast Securities, Ltd.,
TRADESCAPE.com Inc. and Waterhouse Securities, Inc. Those brokers currently
serve, in the aggregate, more than 92% of existing online accounts, and many are
focusing on attracting more active traders to use their services. Omega
Research's principal data vendor competitors include, but are not limited to,
Bridge Information Systems, Inc. (Bridge Channel, Telerate Channel), Data
Broadcasting Corporation (eSignal), Data Transmission Network Corporation
(DTN.IQ and InterQuote), Hyperfeed Technologies, Inc. (Hyperfeed), Quote.com,
Inc. (Quote.com), S&P ComStock, Inc. (ComStock on the Net and MyComStock.com),
Telescan, Inc. (Wall Street City) and Track Data Corporation (MyTrack). Omega
Research's competitors in the trading tools industry include, but are not
limited to, Equis International, Inc. (a subsidiary of Reuters Group PLC) and
each of the data vendors and online brokers listed above (all of whom develop,
are in the process of developing or seek to develop or otherwise obtain, trading
tools as value-added front ends for their data services and/or, as noted above,
value-added tools for their brokerage services). Omega Research also will
compete with trading tools and data services on the Internet that are available
for free, and believes that trading tools and data services that are available
on the Internet either for free or at modest prices will increase in
sophistication over time. There can be no assurance that Omega Research and the
combined company will be able to compete effectively with their competitors,
adequately educate potential customers as to the benefits that their products
and services provide, or continue to offer such products and services.
Many of Omega Research and the combined company's existing and potential
competitors, which include:
o large, established software or Internet companies that do not currently
focus on trading tools/market data services;
o large online, discount and traditional national brokerages that are
focusing more closely on online services, trading tools and real-time
market data for active traders; and
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o data vendors that are adding online brokerages and/or increasing the
sophistication of their trading tools, have longer operating histories,
significantly greater financial, technical and marketing resources,
greater name recognition and a larger installed customer base than has
Omega Research.
Omega Research can, against such forces, be considered to have virtually no
prior operating experience given its recent decision to shift to its new
business model, especially given that Omega Research has not completed the
merger with OnlineTrading.com and no assurance can be given that such completion
will occur. One or more of these competitors may be able to respond more quickly
to new or emerging technologies or changes in customer requirements or to devote
greater resources to the development, promotion and sale of their products and
services than may Omega Research. There can be no assurance that Omega
Research's existing or potential competitors will not develop products and
services comparable or superior to those developed by Omega Research or adapt
more quickly than Omega Research to new technologies, evolving industry trends
or changing customer requirements, or that Omega Research will be able to timely
and adequately complete the implementation of its new business model, in
particular, consummation of the merger with OnlineTrading.com, and integrate,
implement and offer products and services competitive with those of its
competitors. Increased competition could result in price reductions, reduced
margins, failure to obtain any significant market share, or loss of market
share, any of which could materially adversely affect Omega Research's business,
results of operations and financial condition. There can be no assurance that
Omega Research or the combined company will be able to compete successfully
against current or future competitors, or that competitive pressures faced by
Omega Research or the combined company will not have a material adverse effect
on its business, financial condition and results of operations.
INTELLECTUAL PROPERTY
Omega Research and the combined company's success is and will be heavily
dependent on proprietary technology, including Internet, web site and order
execution technology currently in development. Omega Research views its software
technology as proprietary, and relies, and will be relying, on a combination of
copyright, trade secret and trademark laws, nondisclosure agreements and other
contractual provisions and technical measures to establish and protect its
proprietary rights. Omega Research has no material patents or patents pending,
and has not to date registered any of its copyrights. Omega Research has
obtained registrations in the United States and Canada for the trademarks
TRADESTATION AND OPTIONSTATION, and registrations in the United States for the
trademarks SUPERCHARTS, PROSUITE, EASYLANGUAGE, POWEREDITOR and TEST BEFORE YOU
TRADE, and for the service mark OMEGAWORLD. Omega Research uses a "click-wrap"
license on its web site for online orders of client software products, and in
its client software products for other types of sales, and uses and plans to
continue to use a subscription agreement for its Internet-based subscription
services, each directed to users of those products and services, in order to
protect its copyrights and trade secrets and to prevent such users from
commercially exploiting such copyrights and trade secrets for their own gain.
Since these licenses are not physically signed by the licensees, many
authorities believe that they may not be enforceable under many state laws and
the laws of many foreign jurisdictions. The laws of Florida, which such licenses
purport to make the governing law, are unclear on this subject.
Despite Omega Research's efforts to protect its proprietary rights,
unauthorized parties copy or otherwise obtain, use or exploit Omega Research's
software or technology independently. Policing unauthorized use of Omega
Research's software technology is difficult, and Omega Research is unable to
determine the extent to which piracy of its software technology exists. Piracy
can be expected to be a persistent problem, particularly in international
markets and as a result of the growing use of the Internet, including Omega
Research's substantially increasing use of the Internet in connection with its
transition to its new business model. In addition, effective protection of
intellectual property rights may be unavailable or limited in certain countries,
including some in which Omega Research may attempt to expand its sales efforts.
There can be no assurance that the steps taken by Omega Research to protect its
proprietary rights will be adequate or that Omega Research's competitors will
not independently develop technologies that are substantially equivalent or
superior to Omega Research's technologies.
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There has been substantial litigation in the software industry involving
intellectual property rights. Omega Research does not believe that it is
infringing, or that the technology in development will infringe, the
intellectual property rights of others. The risk of infringement by Omega
Research is heightened with respect to its new business model technology in
development, as such will not have stood any "test of time" as has Omega
Research's client software technology. There can be no assurance that
infringement claims would not have a material adverse effect on Omega Research's
business, financial condition and results of operations. In addition, to the
extent that Omega Research or the combined company acquires or licenses a
portion of the software or data included in its products or services from third
parties (all data is licensed from third parties), or markets products licensed
from others generally, its exposure to infringement actions may increase because
Omega Research or the combined company must rely upon such third parties for
information as to the origin and ownership of such acquired or licensed software
or data technology. In the future, litigation may be necessary to establish,
enforce and protect trade secrets, copyrights, trademarks and other intellectual
property rights of Omega Research or the combined company. Omega Research or the
combined company may also be subject to litigation to defend against claimed
infringement of the rights of others or to determine the scope and validity of
the intellectual property rights of others. Any such litigation could be costly
and divert management's attention, either of which could have a material adverse
effect on Omega Research's or the combined company's business, financial
condition and results of operations. Adverse determinations in such litigation
could result in the loss of proprietary rights, subject Omega Research or the
combined company to significant liabilities, require Omega Research or the
combined company to seek licenses from third parties, which could be expensive,
or prevent Omega Research or the combined company from selling its products or
services or using its trademarks, any one of which could have a material adverse
effect on Omega Research's or the combined company's business, financial
condition and results of operations.
EMPLOYEES
As of December 31, 1999, Omega Research had 282 full-time equivalent
employees consisting of 72 in product development, including software
engineering, product management, documentation and quality assurance, 173 in
sales and marketing, including sales, marketing, customer support and order
fulfillment, and 37 in general administration, including executive management,
finance, information technology services and administration. Omega Research's
employees are not represented by any collective bargaining organization, and
Omega Research has never experienced a work stoppage and considers its relations
with its employees to be good.
Omega Research's future success depends, in significant part, upon the
continued service of its key senior management, technical and sales and
marketing personnel. The loss of the services of one or more of these key
employees, including William R. Cruz or Ralph L. Cruz, Omega Research's Co-Chief
Executive Officers, or of certain key technology personnel, could have a
material adverse effect on Omega Research. There can be no assurance that Omega
Research will be able to retain its key personnel. Departures and additions of
personnel, to the extent disruptive, could have a material adverse effect on
Omega Research's business, financial condition and results of operations.
PROPERTIES
Omega Research's corporate headquarters are located in Miami, Florida, in a
leased facility originally consisting of approximately 17,300 square feet of
office space under a lease which commenced in February 1997 and which expires in
August 2002. Omega Research has entered into a sublease and two lease amendments
with respect to its corporate headquarters which, taken together, had the effect
of significantly expanding these facilities to approximately 60,500 square feet
of office space. Omega Research recently opened a leased facility in Boca Raton,
Florida, consisting of approximately 6,000 square feet of space to be used for
additional product development and data services operations. That lease expires
January 1, 2005, and has a five-year renewal option. Omega Research acquired an
approximate 13,500 square foot leased facility in Richardson, Texas in
connection with the Window On WallStreet acquisition, at which most Window On
WallStreet employees are based and at which certain data services development
and technical operations are based. That lease expires July 31, 2002, and has a
three-year renewal option. Omega Research also leases warehouse space south of
Miami, Florida consisting of approximately
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4,800 square feet, which is used for fulfillment of orders. The warehouse lease
is on a month to month term. Omega Research's corporate headquarters contain all
of Omega Research's facilities except for data services, a portion of product
development, and fulfillment. Omega Research believes that its existing
facilities are adequate to support its existing operations and that, if needed,
it will be able to obtain suitable additional facilities on commercially
reasonable terms.
LEGAL PROCEEDINGS
Omega Research is not a party to any material legal proceedings.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of Omega Research are
qualified by reference to and should be read in conjunction with Omega
Research's "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and Omega Research's Consolidated Financial Statements
and Notes thereto included elsewhere in this report. The Consolidated Statement
of Operations Data presented below for the three months ended March 31, 2000 and
1999 and the Consolidated Balance Sheet Data as of March 31, 2000 have been
derived from Omega Research's unaudited interim financial statements included on
pages F-2 through F-22 in this joint proxy statement/prospectus. The
Consolidated Balance Sheet Data as of March 31, 1999 have been derived from
Omega Research's unaudited consolidated interim financial statements not
included herein. The Consolidated Statement of Operations Data presented below
for each of the years in the three-year period ended December 31, 1999 and the
Consolidated Balance Sheet Data as of December 31, 1999 and 1998 have been
derived from Omega Research's financial statements, which have been audited by
Arthur Andersen LLP, included on pages F-2 through F-22 of this joint proxy
statement/prospectus. The Consolidated Balance Sheet Data as of December 31,
1997 have been derived from audited financial statements not included in this
joint proxy statement/prospectus. The Consolidated Statement of Operations Data
presented below for the years ended December 31, 1996 and 1995 and the
Consolidated Balance Sheet Data as of December 31, 1996 and 1995 have been
derived from unaudited financial statements not included in this joint proxy
statement/prospectus. See also Note 12 of Notes to Omega Research's Consolidated
Financial Statements for quarterly financial information for fiscal years 1999
and 1998.
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<TABLE>
<CAPTION>
As of and for the
Three Months As of and for the
Ended March 31, Year Ended December 31,
------------------- --------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data) (1)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Licensing fees $ 5,547 $ 8,445 $ 33,768 $ 25,057 $ 27,729 $ 15,994 $ 9,404
Subscription services 903 323 1,778 179 -- -- --
Other revenues 1,950 1,667 7,324 6,475 5,221 4,118 1,595
-------- -------- -------- -------- -------- -------- --------
Total net revenues 8,400 10,435 42,870 31,711 32,950 20,112 10,999
Total Operating Expenses 13,208 9,010 $ 40,745 30,616 24,727 13,616 7,731
-------- -------- -------- -------- -------- -------- --------
(Loss) income from operations (4,808) 1,425 2,125 1,095 8,223 6,496 3,268
-------- -------- -------- -------- -------- -------- --------
Historical net (loss) income $ (2,961) $ 650 $ (967) $ (429) -- -- --
======== ======== ======== ========
Pro forma net income (2) -- -- -- -- $ 4,665 $ 3,690 $ 1,980
======== ======== ========
Historical net (loss) earnings per share
Basic $ (0.12) $ 0.03 $ (0.04) $ (0.02)
Diluted $ (0.12) $ 0.02 $ (0.04) $ (0.02)
Pro forma earnings per share: (2)
Basic -- -- -- -- $ 0.21 $ 0.18 $ 0.09
Diluted -- -- -- -- $ 0.21 $ 0.17 $ 0.09
Weighted average shares outstanding:
Basic 24,539 24,060 24,294 23,914 21,829 20,886 20,934
Diluted 24,539 26,220 24,294 23,914 22,620 22,033 22,018
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $ 1,537 $ 9,250 $ 2,176 $ 7,650 $ 12,827 $ 1,097 $ 364
Marketable securities 1,695 5,737 1,695 5,737 1,015 -- --
Working capital 19,115 25,448 22,390 24,928 24,983 5,051 2,154
Total assets 29,798 36,305 31,380 30,774 29,153 7,571 3,747
Long term debt -- 2,712 -- 2,641 2,365 2,167 --
Shareholders' equity 22,798 25,405 25,475 24,495 24,017 4,304 3,200
</TABLE>
------------------
(1) Amounts have been restated to reflect the acquisition of Window On
WallStreet, which was accounted for under the pooling-of-interests method.
See Note 2 of Notes to Omega Research's Consolidated Financial Statements.
(2) Omega Research was treated as an S corporation for federal and state income
tax purposes prior to September 30, 1997. Pro forma income taxes have been
provided as if Omega Research had been a C corporation for all periods prior
to September 30, 1997. Upon terminating its S corporation election, Omega
Research was required to record a non-recurring credit. See Note 9 of Notes
to Omega Research's Consolidated Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion should be read in conjunction with "Selected Financial
Data"and the Consolidated Financial Statements and Notes to Consolidated
Financial Statements contained in this joint proxy statement/prospectus.
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OVERVIEW
Omega Research, a Florida corporation, was incorporated in 1982 to develop,
market and sell investment analysis and trading strategy testing and automation
(collectively, "trading strategy") software tools to individual and professional
investors and traders (collectively, "traders"). Omega Research's current
products and services provide traders with the ability to develop, historically
test and computer-automate trading strategies and to access streaming real-time
charts, quotes and news via the Internet.
Omega Research is in the process of changing its business model. Omega
Research has taken steps, one of which is the proposed merger, to transform
itself from a trading strategy client software company to one that includes an
online brokerage firm -- a company that intends to provide to active traders a
trading platform that incorporates and seamlessly integrates powerful trading
strategy development tools, historical and streaming real-time market data and
news, and high-speed access directly to an electronic order execution system.
Omega Research's historical business model has consisted of sales of client
software products, payment for which is committed to in full by the customer at
the time of sale. Under the new business model, Omega Research will seek to
derive recurring revenues from customers by offering monthly subscription
services for trading strategy development tools integrated with streaming
real-time market data and news for which a monthly fee is payable. Omega
Research believes that it will be able to leverage its historical success in
selling trading strategy tools to build a subscriber base of active traders that
will, assuming completion of the merger, use the online brokerage services of
OnlineTrading.com or, at a minimum, Omega Research's trading strategy
subscription services.
To support the change in the business model, Omega Research expects to
increase significantly its sales and marketing, product development and
infrastructure expenditures. As a result, Omega Research expects to incur net
losses through the year 2000. These anticipated losses could reduce Omega
Research's available cash resources, increase its capital requirements and
require Omega Research to seek debt and/or equity financing. See "Liquidity and
Capital Resources" below.
Historically, Omega Research's revenues have been derived principally from
two sources: (i) licensing fees for use of Omega Research's client software
products, and (ii) other revenues consisting primarily of royalties, fees and
commissions paid to Omega Research in accordance with its agreements with
third-party data vendors and other third parties and revenue from Window On
WallStreet's Financial Data Cast Network ("FDCN") subscription service.
Licensing fees are recognized upon product shipment in accordance with the
American Institute of Certified Public Accountants Statement of Position ("SOP")
97-2, Software Revenue Recognition. See Note 1 of Notes to Consolidated
Financial Statements.
While Omega Research has no obligation to perform future services subsequent
to shipment of client software, Omega Research voluntarily provides telephone,
electronic mail and fax customer support to purchasers of its products. Omega
Research currently does not charge a fee for the use of customer support. The
costs associated with these services are insignificant in relation to product
value.
On February 22, 1999, Omega Research released its latest generation of
premium software products, branded "2000I," which included upgrade versions of
its then existing products and new products. Accordingly, as of February 22,
1999, Omega Research's client software product line consisted of TRADESTATION
2000I, RADARSCREEN 2000I, OPTIONSTATION 2000I, OMEGA RESEARCH PROSUITE 2000I and
SUPERCHARTS 4.
Omega Research began to implement the change in its business model with its
October 1999 acquisition of Window On WallStreet, a provider of Internet-based
streaming real-time market data through its FDCN subscription service. Omega
Research's Consolidated Financial Statements have been restated to reflect the
acquisition of Window On WallStreet, which was accounted for as a
pooling-of-interests. In November 1999, Omega Research announced that it would
focus on serving active online traders by offering a new monthly subscription,
Internet- based, trading strategy platform that is to be named TradeStation.com.
TradeStation.com is expected to be launched later this year. On January 19,
2000, Omega Research signed the merger agreement with OnlineTrading.com. The
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merger is also expected to be accounted for as a pooling-of-interests. Omega
Research launched its first Internet subscription service,
WindowOnWallStreet.com, on January 25, 2000. WindowOnWallStreet.com offers
streaming real-time charts, quotes and news, powered by certain of Omega
Research's award-winning trading tools.
Through 1999, substantially all of Omega Research's licensing fees were
derived from the licensing of client software products to individual traders.
Omega Research's client software products have been sold primarily by Omega
Research's telesales force. To date, a majority of the licensing fees have been
generated through sales of TRADESTATION and OMEGA RESEARCH PROSUITE. For sales
of most of Omega Research's client software products, customers have typically
provided Omega Research with a credit card number and were billed for their
purchases automatically and on a monthly basis over the course of 12 months.
Omega Research has offered a 16-month payment term for OMEGA RESEARCH PROSUITE
2000i sales. That payment plan results in deferred revenues with respect to the
amounts not due within twelve months from the date of sale. The concentration of
Omega Research's revenues is expected to migrate towards its subscription
services during 2000. Furthermore, as a result of Omega Research's transition
from a seller of client software to a provider of Internet subscription
services, it is expected that net revenues will be adversely impacted and it is
difficult to predict when, if at all, or to what extent, Omega Research's
Internet subscription services will offset such reductions.
The majority of Omega Research's revenues other than licensing fees for the
year ended December 31, 1999 were derived from royalties associated with a
licensing agreement with Telerate, Inc. relating to TRADESTATION. Under that
agreement, Telerate, Inc. has the right to offer TRADESTATION to its customers
on a subscription basis. Telerate, Inc. pays a per unit royalty to Omega
Research, subject to a minimum annual royalty commitment. The remaining other
revenues has been comprised of fees and commissions paid to Omega Research
pursuant to cross-marketing agreements with data service vendors and other third
parties, revenues from the FDCN subscription service and revenues generated from
OmegaWorld, Omega Research's annual trading strategy development conference.
Omega Research's decision to focus its marketing resources on
WINDOWONWALLSTREET.COM and future Internet subscription services is expected to
result in reduced commission revenues from data service vendors. However, it is
difficult to predict when, if at all, or to what extent, Omega Research's
Internet subscription service revenues will offset such reductions. Other
revenues are recognized as earned in accordance with the terms of the applicable
contract; Internet subscription services are recognized monthly as service is
provided; and, with respect to OMEGAWORLD, at the time the conference is
conducted.
Omega Research provides client software customers with a 30-day right of
return and, as a result, records a provision for estimated returns at the time
of sale. Depending on the circumstances, Omega Research has often allowed
customers to return client software after the 30-day period. The reserve for
returns and the provision for bad debt, in accordance with generally accepted
accounting principles, are estimated based on historical experience and other
relevant factors and there is no certainty that future returns or bad debt will
not exceed established estimates. During 1999, Omega Research experienced a
significant increase in the level of returns and bad debt expense. Omega
Research believes that over the last several years increased public awareness in
personal investing has lead to increased interest in Omega Research's client
software products, including the interest of less active traders that are
willing to purchase the products subject to the 30-day return warranty. During
the same period, increased public access to the Internet has appeared to shift
that interest and customer demand to bundled products -- ones that can be
accessed via the Internet and that integrate streaming real-time data and
decision support tools in a single, competitively-priced product. The price
points at which Omega Research has sold its product ($2,400 each for individual
products and $4,800 each for the Omega Research ProSuite) and these shifting
customer preferences have likely resulted in an increase in the return rate.
Omega Research believes that the three primary factors have been: (1) Omega
Research's products are not bundled with real-time data; (2) its high price
point (especially in light of "freeware" from online brokers); and (3) its
products are not integrated with order execution. Omega Research believes that
the first factor mentioned leads many of its customers to feel that the product
is too complex. Omega Research maintained allowances for returns of
approximately $8.7 million, $23.3 million and $7.5 million at March 31, 2000,
December 31, 1999 and 1998, respectively.
Omega Research believes that the increase in bad debt expense is primarily
attributable to the overall growth in sales, its expanded market reach and the
offering of the higher priced Omega Research ProSuite. Omega Research maintained
allowances for bad debt of $7.6 million, $6.3 million and $3.7 million at March
31, 2000, December 31, 1999 and 1998, respectively. During the years ended
December 31, 1999, 1998 and 1997, Omega Research wrote off $3.2 million, $1.7
million and $52,000, respectively, of accounts deemed uncollectible after all
reasonable collection efforts were exhausted. Omega Research did not write off
any accounts in the three-month periods ended March 31, 2000 and 1999. There can
be no assurance that these trends will not continue, particularly in light of
Omega Research's recent decision to transition its business from a client
software company to a provider of subscription- based services and to merge with
an online brokerage firm.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, Accounting for the Cost of Capitalized Software to be Sold, Leased or
Otherwise Marketed, Omega Research examines its software development costs after
technological feasibility has been established to determine the amount of
capitalization that is required. Based on Omega Research's product development
process, technological feasibility is established upon completion of a working
model. The costs that are capitalized are amortized on the straight-line basis
over a one- year period, the period of benefit of the related products. There
were no capitalized software development costs as of December 31, 1999 or 1998.
In the future, Omega Research believes that the time between the technological
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feasibility of Omega Research's Internet-based services and the general release
of such services will be insignificant, and, as a result, development costs
qualifying for capitalization are expected to be immaterial.
In 1988, Omega Research elected to be taxed under Subchapter S of the
Internal Revenue Code and, as a result, Omega Research's earnings prior to
September 30, 1997, the effective date of Omega Research's initial public
offering, were taxed at the federal level directly to Omega Research's
shareholders (the State of Florida does not have a personal income tax).
Effective September 30, 1997, Omega Research terminated its S corporation
election and became subject to corporate-level federal and state income taxes.
As a result of terminating this election, Omega Research was required to record
a non-recurring credit (the "SFAS No. 109 Credit"). The SFAS No. 109 Credit
represents the recognition of net deferred tax assets arising from the book and
tax basis differences that arise primarily as a result of accounts receivable
reserves. The SFAS No. 109 Credit, net of a $1.8 million provision for income
taxes payable, was approximately $1.2 million as of September 30, 1997, the date
the S corporation election was terminated. See "Income Taxes" below.
The pro forma income tax adjustments for the year ended December 31, 1997 in
Omega Research's historical financial statements reflect the federal and state
income taxes which would have been recorded if Omega Research had been treated
as a C corporation during the periods presented. Omega Research has calculated
these amounts based upon an estimated combined effective tax rate of 39.5% for
Omega Research as a stand-alone company, prior to its merger with Window On
WallStreet for the period prior to September 30, 1997. In addition, the
non-recurring net tax credit of $1.2 million has been excluded from pro forma
net income.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items in
Omega Research's statement of operations reflected as a percentage of total net
revenues:
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
------------------ ---------------------------
2000 1999 1999 1998 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Revenues:
Licensing fees 66.0% 80.9% 78.8% 79.0% 84.2%
Subscription services 10.8 3.1 4.1 .6 --
Other revenues 23.2 16.0 17.1 20.4 15.8
----- ----- ----- ----- -----
Total net revenues 100.0 100.0 100.0 100.0 100.0
Operating Expenses:
Cost of licensing fees 3.3% 5.6% 5.1% 7.8% 8.2%
Cost of subscription services 6.4 2.4 1.8 .1 --
Product development 21.7 11.4 12.0 12.6 7.1
Sales and marketing 90.1 39.0 44.3 49.1 37.1
General and administrative 35.7 27.9 29.0 26.9 22.7
Acquisition costs -- -- 2.8 -- --
----- ----- ----- ----- -----
Total operating expenses 157.2 86.3 95.0 96.5 75.1
----- ----- ----- ----- -----
(Loss) income from operations (57.2)% 13.7% 5.0% 3.5% 24.9%
===== ===== ===== ===== =====
</TABLE>
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QUARTERS ENDED MARCH 31, 2000 AND 1999
NET REVENUES
TOTAL NET REVENUES. Omega Research's total net revenues decreased 19% from
$10.4 million in the three months ended March 31, 1999 to $8.4 million in the
comparable period of 2000.
LICENSING FEES. Licensing fees decreased from $8.4 million in the three
months ended March 31, 1999 to $5.5 million in the comparable period of 2000
primarily due to a decrease in sales of Omega Research's client software
products. Licensing fees are expected to continue to decrease as Omega Research
focuses its efforts on promoting its Internet subscription services such as
WindowOnWallStreet.com and it is difficult to predict when, if at all, or to
what extent, Omega Research's Internet subscription services will offset such
reductions. Omega Research has provided what it believes are appropriate
provisions for returns, in light of its 30-day right of return policy and the
transition of its business, but no assurance can be given that the rate of
returns will not be higher than the reserved levels.
SUBSCRIPTION SERVICES. Subscription services increased from $323,000 in the
three months ended March 31, 1999 to $903,000 for the same period of 2000
primarily due to the January 25, 2000 launch of WindowOnWallStreet.com, which
contributed revenues of $425,000 during the period.
OTHER REVENUES. Other revenues increased 17% from $1.7 million in the three
months ended March 31, 1999 to $2.0 million in the comparable period of 2000,
primarily due to an increase in minimum royalties of $500,000 per quarter under
Omega Research's license agreement with Telerate, Inc., a subsidiary of Bridge
Information Systems, Inc., offset by decreases in royalties related to
end-of-day data.
OPERATING EXPENSES
COST OF LICENSING FEES. Cost of licensing fees consists primarily of product
media, packaging and inventory costs. Cost of licensing fees decreased from
$590,000 in the three months ended March 31, 1999 to $272,000 in the comparable
period of 2000. Cost of licensing fees as a percentage of licensing fee revenue
decreased from 7% in the three months ended March 31, 1999 to 5% in the
comparable period of 2000, primarily due to a decrease in the cost of the
products during the first quarter of 2000 as compared to the first quarter of
1999.
COST OF SUBSCRIPTION SERVICES. Cost of subscription services consists
primarily of expenses related to the maintenance and support of Omega Research's
server farm, data distribution and exchange fees. Cost of subscription services
increased from $253,000 in the three months ended March 31, 1999 to $539,000 in
the comparable period of 2000. Cost of subscription services as a percentage of
subscription services revenue decreased from 78% in the three months ended March
31, 1999 to 60% in the comparable period of 2000 due to data distribution
expenses incurred during the first quarter of 1999 related to the ramp-up of the
FDCN subscription services. Cost of services related to Omega Research's
subscription business is expected to increase assuming that Omega Research is
successful in continuing to build its subscriber base.
PRODUCT DEVELOPMENT. Product development expenses include expenses
associated with the development of new products and services, including Internet
based products and services, enhancements to existing products and services,
testing of products and services and the creation of documentation. Such costs
consist primarily of personnel costs and depreciation of computer and related
equipment and facilities expenses. Product development expenses increased 53%
from $1.2 million in the three months ended March 31, 1999 to $1.8 million in
the comparable period of 2000, primarily due to an increase in personnel and
related costs of $534,000. The number of individuals employed in product
development increased 61% from 54 at March 31, 1999 to 87 at March 31, 2000.
Omega Research anticipates that the absolute dollar amount of product
development expense will increase for the foreseeable future as Omega Research
seeks to develop new products and services and enhance existing products and
services.
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SALES AND MARKETING. Sales and marketing expenses consist primarily of
marketing programs, including advertising, brochures, direct mail programs and
seminars to promote Omega Research's products, sales commissions, customer
support center and marketing personnel costs, web site design and administration
costs, and shipping expenses. Sales and marketing expenses increased from $4.0
million in the three months ended March 31, 1999 to $7.6 million in the
comparable period of 2000, primarily due to increased advertising and
promotional expenses of $2.2 million and increased personnel and related costs
of $877,000.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of provision for bad debt, employee-related costs for administrative
personnel such as executive, human resources, finance and information
technology, and professional fees, rent and other facilities expense. General
and administrative expenses increased from $2.9 million in the three months
ended March 31, 1999 to $3.0 million in the comparable period of 2000. Omega
Research believes that the absolute dollar amount of its general and
administrative expenses in the future will depend, to a large extent, on the
level of provision required for bad debt and the level of hiring of additional
personnel to support the expected growth of Omega Research as it transforms
itself from a client software company to an Internet-based trading platform that
includes on-line brokerage services.
OTHER INCOME (EXPENSE), NET
INTEREST EXPENSE. Interest expense of $170,000 during the three months ended
March 31, 1999 was primarily due to noncash interest expense associated with the
conversion of detachable warrants by the pooled company (Window On WallStreet)
into common stock upon non-payment of certain debt with related parties. There
was no interest expense in the comparable period of 2000 as the debt of the
pooled company was paid off at the time of the merger.
OTHER INCOME, NET. Other income, net consists primarily of investment income
from cash and cash equivalents and marketable securities. Omega Research
generally invests in overnight investments, tax exempt commercial paper and
investment grade short-term municipal bonds. The amount of interest income
fluctuates based on the amount of funds available for investment and the
prevailing interest rates. Other income, net decreased from $109,000 in the
three months ended March 31, 1999 to $34,000 in the comparable period of 2000
due to decreases in cash and cash equivalents and marketable securities.
YEARS ENDED DECEMBER 31, 1999 AND 1998
NET REVENUES
TOTAL NET REVENUES. Omega Research's total net revenues increased 35% from
$31.7 million in 1998 to $42.9 million in 1999.
LICENSING FEES. Licensing fees increased 35% from $25.1 million in 1998 to
$33.8 million in 1999, primarily due to an increase in net revenues resulting
from the release, on February 22, 1999, of Omega Research's 2000i line of client
software products. As a result of Omega Research's recent announcement regarding
the acceleration of its Internet subscription services, it is expected that in
the short term the level of licensing fees will decrease as Omega Research
focuses on building a subscriber base from its Internet subscription services.
Omega Research has provided what it believes are appropriate provisions for
returns, in light of its 30-day right of return policy, but no assurance can be
given that the rate of returns will not increase beyond the reserved levels,
particularly due to Omega Research's announcements regarding its new business
model.
SUBSCRIPTION SERVICES. Subscription services increased from $179,000 in 1998
to $1.8 million in 1999 due to an increase in data service revenues associated
with FDCN, Window On WallStreet's real-time market data subscription service
which was officially launched during the fourth quarter of 1998.
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OTHER REVENUES. Other revenues increased 13% from $6.5 million in 1998 to
$7.3 million in 1999, primarily due to an increase in minimum royalties under
Omega Research's license agreement with Telerate, Inc. of $1.0 million, and a
$314,000 increase in revenues generated from OmegaWorld, Omega Research's annual
trading strategy conference offset by decreases in royalties related to
end-of-day data.
OPERATING EXPENSES
COST OF LICENSING FEES. Cost of licensing fees decreased from $2.5 million
in 1998 to $2.2 million in 1999. Cost of licensing fees as a percentage of
licensing fee revenue decreased from 10% in 1998 to 6% in 1999, primarily due to
a shift in product mix to higher-priced products during 1999 as well as the
impact of a one-time payment made to a third party in conjunction with the
development of certain technology for Omega Research during 1998.
COST OF SUBSCRIPTION SERVICES. Cost of subscription services increased from
$34,000 in 1998 to $795,000 in 1999 due to an increase in data service revenues
associated with FDCN, which was officially launched during the fourth quarter of
1998.
PRODUCT DEVELOPMENT. Product development expenses increased from $4.0
million in 1998 to $5.1 million in 1999 primarily due to an increase in the
personnel and related costs of $957,000. The number of product development
personnel increased 33% from 54 at December 31, 1998 to 72 employees at December
31, 1999. Product development expenses as a percentage of total net revenues
decreased from 13% in 1998 to 12% in 1999, primarily due to a higher rate of
growth in net revenues compared to the increase in personnel and related
expenses.
SALES AND MARKETING. Sales and marketing expenses increased from $15.6
million in 1998 to $19.0 million in 1999 primarily due to a $2.8 million
increase in sales and marketing personnel expenses, including increased
commissions resulting from higher net revenues, increased travel expenses and
increased costs related to OmegaWorld. Sales and marketing expenses as a
percentage of total net revenues decreased from 49% in 1998 to 44% in 1999
primarily due to a higher rate of growth in net revenues compared to the
increase in personnel and related expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $8.5 million in 1998 to $12.4 million in 1999 primarily as a result of an
increase of $3.4 million in bad debt expense, and, to a lesser extent, an
increase in personnel and related costs as well as facility expenses, partially
offset by decreased consulting and professional expenses as a result of the
favorable resolution of the securities class action law suit brought against
Omega Research in 1998. The suit was dismissed with prejudice at the lower court
level before any discovery. On July 1, 1999, pursuant to the stipulation of the
parties, the United States Court of Appeals for the Eleventh Circuit issued a
final order which dismissed with prejudice all claims against Omega Research and
all other defendants. In connection with such favorable resolution, legal fees
of approximately $270,000 expensed during 1998 were reimbursed by Omega
Research's insurance carrier in 1999. General and administrative expenses as a
percentage of total net revenues increased from 27% in 1998 to 29% in 1999,
primarily as a result of the increase in the provision for bad debt.
ACQUISITION COSTS. Acquisition expenses of $1.2 million, comprised of
approximately $0.9 million in banking fees and $0.3 million in legal and
accounting fees, were recognized in the fourth quarter of fiscal year 1999 for
transaction costs associated with the Window On WallStreet acquisition.
Significant additional costs in conjunction with the merger with
OnlineTrading.com are expected to be incurred during fiscal year 2000.
OTHER INCOME (EXPENSE), NET
INTEREST EXPENSE. Interest expense increased from approximately $907,000 in
1998 to approximately $1.7 million in 1999 due to the issuance of common stock
of the pooled company, Window On WallStreet, associated with nonpayment and
consolidation of its debt with related parties. Interest expense during 1999
included $1.3 million of noncash charges related to the issuance of common stock
of Window On WallStreet, as compared to $600,000 during 1998. Window On
WallStreet outstanding debt of approximately $4.1 million was repaid, in
accordance with its terms, by Omega Research upon consummation of that merger.
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OTHER INCOME, NET. Other income, net was approximately $445,000 in 1999 and
$435,000 in 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
NET REVENUES
TOTAL NET REVENUES. Omega Research's total net revenues decreased 4% from
$33.0 million in 1997 to $31.7
million in 1998.
LICENSING FEES. Licensing fees decreased 10% from $27.7 million in 1997 to
$25.1 million in 1998 primarily due to a decrease in net sales of all of Omega
Research's principal products. Omega Research believes that licensing fees in
1998 were impacted by slower than anticipated demand for its products, which was
first experienced during the fourth quarter of 1997. Management believes that
the slower demand was due in part to customer delays in decision making in
anticipation of the release of Omega Research's 2000i line of client software
products, which were released on February 22, 1999.
SUBSCRIPTION SERVICES. Subscription services were $179,000 during 1998 due
to the fourth-quarter launch of FDCN, Window On WallStreet's real-time market
data subscription service.
OTHER REVENUES. Other revenues increased 27% from $5.2 million in 1997 to
$6.5 million in 1998, primarily due to increases in minimum royalties under
Omega Research's license agreement with Telerate, Inc., and, to a lesser extent,
revenues generated from OmegaWorld, Omega Research's annual trading strategy
development conference.
OPERATING EXPENSES
COST OF LICENSING FEES. Cost of licensing fees decreased from $2.7 million
in 1997 to $2.5 million in 1998. Cost of licensing fees as a percentage of
licensing fee revenue remained unchanged at 10%.
COST OF SUBSCRIPTION SERVICES. Cost of subscription services was $34,000
during 1998 due to the launch of FDCN during the fourth-quarter of 1998.
PRODUCT DEVELOPMENT. Product development expenses increased from $2.4
million in 1997 to $4.0 million in 1998, primarily due to a $1.0 million
increase in personnel and related costs resulting from an increase in the number
of individuals employed in product development. The number of product
development personnel increased 42% from 38 at December 31, 1997 to 54 at
December 31, 1998. Product development expenses as a percentage of total net
revenues increased from 7% in 1997 to 13% in 1998, primarily due to increased
personnel and related expenses as well as decreased revenues.
SALES AND MARKETING. Sales and marketing expenses increased from $12.2
million in 1997 to $15.6 million in 1998 primarily due to increased marketing
and sales personnel and related costs of $2.1 million, increased advertising,
including print and television advertising, the use of sales seminars and direct
mailers, of $598,000, increased shipping costs of $500,000 and, to a lesser
extent, costs related to OmegaWorld, offset by decreased telecommunications
expenses. Sales and marketing expenses as a percentage of total net revenues
increased from 37% in 1997 to 49% in 1998 as a result of the increased marketing
expenses and decreased revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $7.5 million in 1997 to $8.5 million in 1998 primarily as a result of
increases in professional fees of $400,000, including approximately $300,000
related to the defense of the class action lawsuit brought against Omega
Research in 1998, costs of being a public company of approximately $300,000, and
to a lesser extent, expenses related to the implementation and lease of a new
telephone system, and increased personnel costs. General and administrative
expenses as a
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percentage of total net revenues increased from 23% in 1997 to 27% in 1998,
primarily as a result of the increase in those expenses and decrease in
revenues.
OTHER INCOME (EXPENSE), NET
INTEREST EXPENSE. Interest expense increased from approximately $265,000 in
1997 to approximately $907,000 in 1998, primarily due to noncash interest
associated with the conversion of Window On WallStreet's detachable warrants
into its common stock upon nonpayment of certain debt with related parties.
OTHER INCOME, NET. Other income, net increased from approximately $196,000
in 1997 to approximately $435,000 in 1998, primarily due to income earned on the
proceeds from Omega Research's initial public offering.
INCOME TAXES
For income tax purposes, Omega Research was an S corporation prior to
September 30, 1997. Accordingly, net income and related timing differences which
arose in the recording of income and expense items for financial reporting and
tax reporting purposes were included in the individual tax returns of the S
corporation shareholders. Effective September 30, 1997, Omega Research
terminated its S corporation election, and, as a result, adopted SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires that deferred income tax
balances be recognized based on the differences between the financial statement
and income tax bases of assets and liabilities using the enacted tax rates.
Upon adoption of SFAS No. 109 during the third quarter of 1997, Omega
Research recorded a benefit for income taxes which reflects the SFAS No. 109
Credit, a non-recurring deferred income tax credit of approximately $3.0
million, which was partially offset by a $1.8 million provision for income taxes
payable. The SFAS No. 109 Credit recognized net deferred tax assets arising from
book and tax basis differences that arose primarily as a result of accounts
receivable reserves. The $1.8 million in income taxes payable relate to federal
and state income taxes owed by Omega Research as a result of an approximate $4.6
million in S corporation taxable earnings which were recognized by Omega
Research for tax purposes in the fourth quarter of 1997 and the year ended
December 31, 1998.
The pro forma income tax adjustments for the year ended December 31, 1997 in
Omega Research's historical financial statements reflect the federal and state
income taxes which would have been recorded if Omega Research had been treated
as a C corporation during the periods presented. Omega Research calculated those
amounts based upon an estimated combined effective tax rate of 39.5% for Omega
Research for periods prior to September 30, 1997.
The effective tax rates for the three months ended March 31, 2000 and 1999
were 38% and 52%, respectively, and the effective tax rates for the years ended
December 31, 1999 and 1998 were 210% and 169%, respectively. The increase in
1999 and 1998 as compared with the 38.6% statutory rate is primarily due to an
increase in the valuation allowance established at Window On WallStreet to
offset net operating loss carryforwards. The effective tax rates of Omega
Research as a stand-alone company were approximately 37% for the three months
ended March 31, 1999 and the year ended December 31, 1999 and 35% for the year
ended December 31, 1998, below the 38.6% statutory rate primarily as a result of
the impact of tax-free investment income.
VARIABILITY OF RESULTS
The operating results for any quarter are not necessarily indicative of
results for any future period or for the full year. Omega Research's quarterly
revenues and operating results have varied in the past, and are likely to vary
even further from quarter to quarter in the future due to Omega Research's
transition to a new business model. Such fluctuations may result in volatility
in the price of Omega Research common stock before the merger and
OnlineTrading.com Group common stock after the merger. As budgeted expenses are
based upon expected
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revenues, if actual revenues on a quarterly basis are below management's
expectations, then results of operations are likely to be adversely affected
because a relatively small amount of Omega Research's expenses varies with its
revenues in the short term. In addition, operating results may fluctuate based
upon the timing, level and rate of acceptance of releases of new products and
services and/or enhancements, increased competition, variations in the revenue
mix, and announcements of new products and services and/or enhancements by Omega
Research or its competitors and other factors. Such fluctuations may result in
volatility in the price of Omega Research common stock before the merger and
OnlineTrading.com Group common stock after the merger. See Note 12 of Notes to
Omega Research's Consolidated Financial Statements for quarterly financial
information.
LIQUIDITY AND CAPITAL RESOURCES
Omega Research currently anticipates that its available cash resources and
cash flows from operations will be sufficient to meet its presently anticipated
working capital and capital expenditure requirements for approximately the next
12 months. However, Omega Research is experiencing a period of net losses which
is expected to continue at least through the year 2000. Further, as Omega
Research transitions to its new business model, it may need to raise additional
funds in order to execute that transition, support more rapid expansion, develop
new or enhanced services and products, respond to competitive pressures, to
acquire complementary businesses or technologies and/or take advantage of
unanticipated opportunities. Omega Research has also recently substantially
increased its rental obligations under real property, facilities and equipment
leases. Omega Research's future liquidity and capital requirements will depend
upon numerous factors, including the period of time it takes Omega Research to
execute its transition to its new business model, and customer acceptance
thereof, costs and timing of expansion of research and development and marketing
efforts and the success of such efforts, the success of Omega Research's
existing and new product and service offerings, and competing technological and
market developments. Omega Research's forecast of the period of time through
which its financial resources will be adequate to support its operations
involves risks and uncertainties, and actual results could vary. The factors
described earlier in this paragraph, as well as other factors, will impact Omega
Research's future capital requirements and the adequacy of its available funds.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of the shareholders of Omega Research, or, after the
merger, OnlineTrading.com Group, will be reduced, shareholders may experience
additional dilution in net book value per share or such equity securities may
have rights, preferences or privileges senior to those of the holders of Omega
Research's (or, after the merger, OnlineTrading.com Group's) common stock.
There can be no assurance that additional financing, if required, will be
available when needed on terms favorable to Omega Research, or, after the
merger, OnlineTrading.com Group, if at all. If adequate funds are not available
on acceptable terms, Omega Research may be unable to complete effectively its
transition to its new business model, develop or enhance its services and
products, take advantage of future opportunities or respond to competitive
pressures, any of which could have a material adverse effect on Omega
Research's, or, after the merger, OnlineTrading.com Group's business, financial
condition, results of operations and prospects.
As of March 31, 2000, Omega Research had cash and cash equivalents of
approximately $1.5 million, investments in short term marketable securities of
$1.7 million, and working capital of approximately $19.1 million. Marketable
securities consist of investment grade municipal bonds maturing, on average,
within a year.
Cash used in operating activities during the three months ended March 31,
2000 totaled approximately $518,000, compared to cash provided by operating
activities of approximately $2.0 million in the comparable period of 1999. The
decrease in net cash provided by operations in 2000 was primarily due to net
losses during the first quarter of 2000. Cash used in operating activities in
1999 totaled approximately $5.0 million, compared to cash provided by operating
activities of approximately $33,000 and $2.8 million in 1998 and 1997,
respectively. The decrease in net cash provided by operations in 1999 was
primarily due to an increase in net losses by Omega Research and an increase
over 1998 in cash paid for income taxes of $3.8 million by Omega Research prior
to the Window On WallStreet acquisition. The decrease in net cash provided by
operations in 1998 was primarily attributable to lower net income of Omega
Research and an increase in cash paid for income taxes of $1.6 million
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by Omega Research. Omega Research began paying taxes in the fourth quarter of
1997 and, in addition, paid during 1998 the remaining $900,000 of the $1.8
million tax liability recognized in September 1997.
Omega Research's investing activities used cash of approximately $366,000
and $567,000 in the three months ended March 31, 2000 and 1999, respectively.
The principal use of cash in investing activities was primarily for capital
expenditures related to the acquisition of computer and related equipment and
software required to support expansion of the Omega Research's operations. Omega
Research's investing activities provided cash of $2.3 million during 1999 and
used cash of $6.3 million and $2.2 million in 1998 and 1997, respectively.
During 1999, cash provided from investing activities was made up of $4.0 million
of proceeds from maturity of marketable securities primarily offset by capital
expenditures related to the acquisition of computer and related equipment and
software required to support expansion of Omega Research's operations. The
principal use of cash in investing activities in 1998 and 1997 was for
investments in marketable securities, net of marketable securities that matured.
The balance of such investing activities during 1998 and 1997 was primarily for
capital expenditures related to the acquisition of computer and related
equipment and software required to support expansion of Omega Research's
operations. During 1997, investing activities also used cash as a result of
purchases of furniture and fixtures and leasehold improvements related to Omega
Research's move to a new corporate headquarters in February 1997.
Omega Research's financing activities provided cash of approximately
$246,000 and $203,000 in the three months ended March 31, 2000 and 1999,
respectively. Cash provided was primarily from the issuance of common stock from
the exercise of stock options under Omega Research's Amended and Restated 1996
Incentive Stock Plan.
In 1999, Omega Research's financing activities used cash of $2.8 million as
compared to cash provided of $1.0 million and $11.1 million in 1998 and 1997,
respectively. Net cash used in financing activities during 1999 was related to
the payment of existing debt of Window On WallStreet (net of current year
borrowings) of $3.3 million, offset by proceeds from the issuance of common
stock from Omega Research's 1997 Employee Stock Purchase Plan and the exercise
of stock options under Omega Research's Amended and Restated 1996 Incentive
Stock Plan.
Cash provided during 1998 related primarily to borrowings of debt from
related parties by Window On WallStreet in addition to the repayment of the
excess portion of the $15.4 million dividend distributed on September 30, 1997
to Omega Research's then shareholders, which is described in more detail later
in this document. See "Comparative Per Share Data -- Omega
Research/OnlineTradingGroup Dividend Policy." The balance of the cash provided
during 1998 related to the issuance of common stock from Omega Research's 1997
Employee Stock Purchase Plan and the exercise of stock options under Omega
Research's Amended and Restated 1996 Incentive Stock Plan.
Cash provided during 1997 of $11.1 million was primarily attributable to
$27.4 million of net proceeds from Omega Research's initial public offering
completed during the fourth quarter of 1997, offset by cash distributions
totaling $16.5 million (net of the 1997 repayment discussed above) to Omega
Research's S corporation shareholders prior to Omega Research's initial public
offering, and to a lesser extent, related party borrowings of approximately
$240,000 by Window On WallStreet. A portion of the distributions were financed
with a $15 million short-term bank loan which was repaid with the proceeds of
the initial public offering.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL OF FASB
STATEMENT NO. 133. SFAS No. 137 defers for one year the effective date of SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 will now apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133 will require Omega Research to recognize all
derivatives on the balance sheet as either assets or liabilities measured at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. Omega Research will adopt SFAS No. 133 effective for the year
ended December 31, 2001. Omega Research believes that the adoption of SFAS No.
133 will not have a material impact on its consolidated financial statements, as
it has entered into no derivative contracts and has no current plans to do so in
the future.
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In March 2000, the Emerging Issues Task Force (the "EITF") reached a
consensus on Issue No. 00-2, ACCOUNTING FOR WEB SITE DEVELOPMENT COSTS ("EITF
Issue No. 00-2"), which applies to all web site development costs incurred for
the quarters beginning after June 30, 2000. The consensus states that the
accounting for specific web site development costs should be based on a model
consistent with AICPA Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. Accordingly, certain
web site development costs that are currently expensed as incurred may be
capitalized and amortized. The adoption of EITF Issue No. 00-2 is not expected
to have a material impact on the financial statements of Omega Research.
YEAR 2000 COMPLIANCE
Omega Research has not encountered any significant difficulties with respect
to Year 2000 compliance issues in connection with its customer integrated
support and general ledger system, its telephone system, or any vendor products
or services.
BUSINESS AND FINANCIAL INFORMATION REGARDING ONLINETRADING.COM
OVERVIEW AND RECENT DEVELOPMENTS
OnlineTrading.com provides financial brokerage services primarily to
experienced investors and small to mid- sized financial institutions through a
variety of communication mediums, including the Internet. While its products
allow clients to trade directly over the Internet, OnlineTrading.com also
provides a full range of brokerage services including access to the various
securities markets via its computerized infrastructure. This enhances its
ability to obtain the simplest, most direct execution of orders for its clients
at the best possible price. In addition, as a result of the technology it uses,
its registered representatives and clients have access to the most up-to-date
electronic information on stocks, market indices, analysts' research and news.
OnlineTrading.com's manner of executing trades using its computerized
infrastructure eliminates middlemen to save costs and increase investing
efficiency. It believes it has a strategic advantage over existing discount,
deep discount, and Internet brokerage firms as a result of: (1) its commitment
to provide the best stock execution prices to its clients; and (2) its
combination of information and research tools.
OnlineTrading.com was incorporated in Florida in September 1995 as Online
Trading, Inc. In February 1999, it changed its name from Online Trading Inc. to
onlinetradinginc.com corp. In June 1999, OnlineTrading.com acquired the world
wide web domain name WWW.ONLINETRADING.COM and subsequently registered to do
business under the name OnlineTrading.com.
On June 11, 1999, OnlineTrading.com successfully completed its initial
public offering by issuing 2,587,500 shares of common stock at a public offering
price of $7.00 per share with net proceeds of approximately $15,810,891.
On December 6, 1999, OnlineTrading.com completed the purchase of the
principal assets of Newport Discount Brokerage, Inc., an NASD registered
broker-dealer. The purchase added over 7,700 clients to OnlineTrading.com's
existing client base, along with approximately $470 million in client assets.
The transaction also included the employment of Newport Discount Brokerage,
Inc.'s current staff.
INDUSTRY TRENDS
The Securities Industry Association reported that, as of early 1999, over
48% of all U.S. households owned equities or stock mutual funds. According to
Robertson Stephens, both the New York Stock Exchange and composite Nasdaq
experienced record increases in transaction volumes during 1999. Transaction
volume on the NYSE was 209 billion shares, representing a 24% increase over 1998
volume of 169 billion shares. Likewise, composite transaction volume on Nasdaq
increased 37% to 271 billion shares in 1999 up from 198 billion shares in 1998.
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The Securities Industry Association report also indicated that the online
brokerage segment of the industry experienced record growth within the past
three years and that growth of the online brokerage segment is expected to
continue. In the year 2000, the percentage of investors who trade online is
projected to grow from 11% to 28%. According to the Securities Industry
Association, by 2003 online brokerage accounts are projected to make up
approximately 50 percent of total brokerage accounts representing an increase in
customer assets to $3.1 trillion.
ONLINETRADING.COM'S BUSINESS
GENERAL FINANCIAL BROKERAGE SERVICES.
OnlineTrading.com provides financial brokerage services to 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, OnlineTrading.com effects transactions in equity securities strictly
on an agency basis. This means that OnlineTrading.com always charges only an
agreed upon commission and never earns income from marking up or marking down
its clients' equity transactions. OnlineTrading.com's customer accounts are
carried on a "fully disclosed" basis by its clearing firms. OnlineTrading.com's
clearing agreements provide that its clients' securities positions and credit
balances carry insurance that is supplemental to standard SIPC protection.
OnlineTrading.com executes its clients' equity transactions on an agency
basis only--as opposed to a principal basis. That is, OnlineTrading.com acts as
the agent for its clients directly in the market. When brokerage firms perform a
transaction on a principal basis, they 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 with a mark-up. OnlineTrading.com does
not mark-up its clients' equity transactions.
OnlineTrading.com also does not allow other brokerage firms to mark-up its
clients' equity transactions. OnlineTrading.com provides its non-internet
clients with access to the financial markets via its professionally staffed
trading desks. OnlineTrading.com's trading desks are directly connected to the
national stock exchanges and electronic communication networks or "ECNs." ECNs,
such as Archipelago, Island and NexTrade, eliminate the brokerage industry
"middlemen" by directly matching anonymous buyers and sellers participating on
the network. OnlineTrading.com's registered representatives are committed to
using its trading desks to obtain the fastest execution and best possible price
at the time the clients' orders are taken. In addition, as a result of the
technology OnlineTrading.com uses, it can access the most up-to-date electronic
news information and research reports.
INTERNET-BASED BROKERAGE SERVICES
Through OnlineTrading.com's Internet site, its clients currently have online
access to their account information and OnlineTrading.com's order execution
systems. This electronic access enables OnlineTrading.com's clients to review
the securities positions in their portfolio, review their recent trading
activity, obtain stock quotes, confirm their buying power and/or margin balances
and enter orders for execution. In addition to providing information for their
particular accounts, OnlineTrading.com also provides its clients with 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. OnlineTrading.com also provides its 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.
OnlineTrading.com uses the Internet in various ways to help expand its
business. First, OnlineTrading.com uses the Internet to help its registered
representatives serve its clients better through the dissemination of
information to clients simultaneously. This allows OnlineTrading.com's
registered representatives to efficiently serve more clients. In addition,
OnlineTrading.com uses the Internet to serve an ever-growing number of investors
who want to implement their trading and investment decisions without calling a
registered representative.
OnlineTrading.com currently provides two systems for trading and investing
over the Internet. The "basic" Internet system is a "browser-based" program
maintained by one of OnlineTrading.com's clearing firms. This system provides
the client with basic transaction functions and account information and is
primarily used by OnlineTrading.com's less active and less experienced traders.
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OnlineTrading.com's "advanced" Internet system is known as O.R.D.E.R.S.
O.R.D.E.R.S. is a sophisticated information, execution and routing program that
provides clients with real-time Nasdaq Level II quotes and the ability to direct
over the counter orders to a particular ECN. At this time, clients requesting
the O.R.D.E.R.S. system must meet minimum suitability requirements of experience
and financial condition.
PROPRIETARY TRADING
OnlineTrading.com operates 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 trades only equity securities, equity options and index equities
on both a long and short basis, with no one position constituting greater than
40% of our funds allocated for proprietary trading. The intra-day position limit
guideline is 15,000 shares for an individual position and 40,000 shares in the
aggregate. The intra-day dollar limit guideline is $750,000 for an individual
position and $2,500,000 in the aggregate. The overnight position limit guideline
is 10,000 shares for an individual position and 30,000 shares in the aggregate.
The overnight dollar limit guideline is $500,000 for an individual position and
$1,500,000 in the aggregate.
OnlineTrading.com charges the proprietary trading desk commission rates
above OnlineTrading.com's costs, and OnlineTrading.com pays the department a
percentage of the trading profits generated. OnlineTrading.com never fills
clients' orders from the firm's inventories. OnlineTrading.com's long inventory
positions represent its ownership of securities. Conversely, OnlineTrading.com's
short inventory positions represent obligations to deliver specified securities
at the current market price. 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 one of
OnlineTrading.com's registered principals.
ONLINETRADING.COM'S BUSINESS STRATEGY
OnlineTrading.com uses technology to provide experienced clients access,
through its professionally staffed trading desk and the Internet, to an
execution system directly connected to the financial markets.
OnlineTrading.com's strategy is designed to provide its clients with the best
possible execution price and access to relevant market information. As a result,
OnlineTrading.com's strategy allows it to take advantage of opportunities that
exist in the financial brokerage industry for firms that are able to provide
their clients with the overall cost-savings created by access to
professional-type trade executions, access to up-to-date market information, and
the convenience of trading over the Internet. OnlineTrading.com was founded on
the principal philosophy of providing its clients with the best execution prices
along with the most relevant market information and investment research.
OnlineTrading.com consistently analyzes new technologies and communication
mediums that will enable it to better serve its clients. OnlineTrading.com is
committed to offering its clients the simplest, most direct form of stock
trading.
OnlineTrading.com's goal is to become a leader in the financial brokerage
industry. OnlineTrading.com intends to achieve its goal by:
o targeting experienced traders 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;
o providing value to its clients at the lowest overall cost, including
access to its trading desk which enables them to realize the best
available execution price;
o providing its clients with value-added services, including access to
registered representatives and up-to-date market information; and
o providing technologically innovative solutions to satisfy client needs,
including efficient trading directly over the Internet, and access to
trading strategy tools and real-time market information.
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STRATEGIC RELATIONSHIPS
OnlineTrading.com currently utilizes the services of clearing firms for all
custody and clearing issues associated with brokerage transactions.
OnlineTrading.com realizes the following benefits from these relationships:
o quality safekeeping and protection on the net equity on all accounts;
o elimination of significant self-clearing regulatory requirements and the
associated overhead costs;
o ability to participate in initial public offerings and other investment
banking transactions; and
o ability to participate in a large database of no-load mutual funds.
OnlineTrading.com's relationship with Instinet Corporation affords it access
to information and enables its clients to trade directly and anonymously with
other brokerage firms, money managers, professional traders and large financial
institutions. Through OnlineTrading.com's relationship with Instinet
Corporation, OnlineTrading.com's clients 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. As a
result, OnlineTrading.com's clients are able to take advantage of trading and
investment opportunities occurring outside of the traditional market hours.
In addition to OnlineTrading.com's relationship with Instinet Corporation,
it has relationships with several other ECNs, including Archipelago, Island and
NexTrade. These relationships allow OnlineTrading.com to provide its clients
with direct access to multiple avenues of execution.
COMPETITION
The market for discount brokerage services, and particularly electronic
brokerage services, is rapidly evolving, intensely competitive and has few
barriers to entry. OnlineTrading.com expects competition to continue and
intensify in the future. OnlineTrading.com encounters direct competition from
numerous other brokerage firms, many of which provide electronic brokerage
services which OnlineTrading.com currently does not provide. These competitors
include discount brokerage firms like Charles Schwab & Co., Inc. and Quick &
Reilly, Inc., as well as electronic brokerage firms such as E*Trade Group, Inc.,
Ameritrade, CyperCorp, TradeScape, and ABWatley. OnlineTrading.com also
encounters 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.
OnlineTrading.com believes that the principal competitive factors affecting
the market for its 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 ability to provide clients
with innovative products and services. Due to its trading systems and its
decision to merge with Omega Research, OnlineTrading.com believes that it should
be able to compete effectively with respect to each of these factors, as related
to active trader accounts, and will continue to do so in the future.
However, a number of OnlineTrading.com's competitors have significantly
greater financial, technical, marketing and other resources. Some of
OnlineTrading.com's 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. OnlineTrading.com expects that new
competitors will emerge and may acquire significant market share.
There can be no assurance that OnlineTrading.com will be able to compete
effectively with current or future competitors or that the competitive pressures
we face will not harm our business.
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GOVERNMENT REGULATION
BROKER-DEALER REGULATION
OnlineTrading.com is subject to extensive securities industry regulation
under both federal and state laws. Broker-dealers are subject to regulations
covering all aspects of the securities business, including: sales methods; trade
practices among broker-dealers; use and safe-keeping of customers' funds and
securities; arrangements with clearing houses; capital structure; record
keeping; conduct of directors, officers and employees; and supervision. To the
extent OnlineTrading.com solicits orders from customers or makes investment
recommendations, it is subject to additional rules and regulations governing,
among other things, sales practices and the suitability of recommendations to
its customers.
OnlineTrading.com's mode of operation and profitability may be directly
affected by: additional legislation; changes in rules promulgated by the SEC,
the NASD, the Board of Governors of the Federal Reserve System, the various
stock exchanges and other self-regulatory organizations; and changes in the
interpretation or enforcement of existing rules and laws.
The SEC, the NASD and other self-regulatory organizations and state
securities commissions can censure, fine, issue cease-and-desist orders, enjoin
or suspend or expel a broker-dealer or any of its officers or employees.
Marketing campaigns by OnlineTrading.com to bring brand name recognition to
it and to promote the benefit of its services, such as access to real-time
trading strategy tools and market information, and its high-speed electronic
order execution, are regulated by the NASD, and all marketing materials must be
reviewed by an appropriately- licensed OnlineTrading.com principal prior to
release, and must conform to standards articulated by the SEC and NASD. The NASD
may request that revisions be made to marketing materials, and can impose
certain penalties for violations of its advertising regulations, including
censures or fines, suspension of all advertising, the issuance of
cease-and-desist orders, and the suspension or expulsion of a broker-dealer or
any of its officers or employees.
OnlineTrading.com is also subject to regulation under state law.
OnlineTrading.com is currently registered as a broker-dealer in every state and
in the District of Columbia. 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, OnlineTrading.com is
subject to the Net Capital Rule. The Net Capital Rule, which specifies minimum
net capital requirements for registered broker-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, the value of 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,
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 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
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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 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
OnlineTrading.com's operations that require the intensive use of capital, such
as the financing of client account balances, and also could restrict
OnlineTrading.com's ability to pay dividends, repay debt and repurchase shares
of its outstanding stock. A significant operating loss or any unusually large
charge against net capital could adversely affect OnlineTrading.com's ability to
expand or even maintain its present levels of business, which could harm its
business.
OnlineTrading.com is a member of SIPC. SIPC provides protection of up to
$500,000 for each client, subject to a limitation of $100,000 for cash balances,
in the event of the financial failure of a broker-dealer. OnlineTrading.com's
accounts are carried on the books and records of its clearing firms.
OnlineTrading.com's clearing firms have obtained insurance for the benefit of
OnlineTrading.com's 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, the 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. Also, as OnlineTrading.com's services are
available over the Internet in multiple states and foreign countries, and as
OnlineTrading.com has numerous clients residing in these states and foreign
countries, these jurisdictions may claim that OnlineTrading.com is required to
qualify to do business as a foreign corporation in each such state and foreign
country. While OnlineTrading.com is currently registered as a broker-dealer in
every state, it is qualified to do business as a foreign corporation in only a
few states; failure by OnlineTrading.com 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 OnlineTrading.com to taxes and
penalties for the failure to qualify. OnlineTrading.com's business could be
harmed by new legislation or regulation, the application of laws and regulations
from jurisdictions whose laws do not currently apply to its business or the
applications of existing laws and regulations to the Internet and other online
services.
EMPLOYEES
As of January 31, 2000, OnlineTrading.com employed a total of 68 full-time
employees, of which 6 are engaged in executive management, 32 in trading
activities, 9 in client services/back office, 9 in office personnel, and 12 in
information technology. The employees are operating from the following branch
locations:
Boca Raton, FL
Osterville, MA
Pittsburgh, PA
Hudson, OH
Cincinnati, OH
No employee is covered by a collective bargaining agreement or is
represented by a labor union. OnlineTrading.com considers its employee relations
to be excellent. OnlineTrading.com also has entered into
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independent contractor arrangements with other individuals on an as-needed basis
to assist with programming and developing proprietary technologies.
PROPERTIES
OnlineTrading.com's principal executive offices are located in an
approximately 11,800 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 $164,000 plus escalations. OnlineTrading.com also leases
approximately 1,200 square feet of office space for its 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. OnlineTrading.com leases approximately 1,300
square feet of office space for its branch office in Pittsburgh, Pennsylvania.
This space is occupied pursuant to a month-to-month lease at a monthly rent of
$1,783. OnlineTrading.com leases approximately 750 square feet of office space
for its branch office in Hudson, Ohio. This office is occupied pursuant to a
month-to-month lease at a monthly rent of $500.
OnlineTrading.com has a branch office in Cincinnati, Ohio; however,
OnlineTrading.com is not a party to any lease agreement. The registered
representatives established in that office have entered into the lease
agreements and are responsible for the lease obligations. OnlineTrading.com has
recently closed its branch office in Boston, Massachusetts.
The existence of these branch offices, and the manner in which they are set
up, are helpful in the event of certain system failures. In the event that an
office experiences such a system failure, one or more of OnlineTrading.com's
other offices could continue to service clients through its facilities. By way
of example and not limitation, OnlineTrading.com's phone system has the ability
to re-route calls to different locations in the event the phone system for one
location were to fail. To date, OnlineTrading.com's existing facilities have
proven adequate to support its operations. However, if needed, OnlineTrading.com
believes that it could obtain suitable additional facilities on commercially
reasonable terms.
LEGAL PROCEEDINGS
On January 11, 2000, Robert A. Whigham, Jr. and Patricia F. Whigham filed a
civil action against onlinetradinginc.com corp., Barry Goodman, Jan Bevivino,
William L. Mark and Bear Stearns Securities Corp. OnlineTrading.com's attorneys
moved the case to the United States District Court for the District of
Massachusetts, Eastern Division and on May 5, 2000 the United States District
Court granted OnlineTrading.com's motion to compel arbitration and subsequently
entered a procedural order dismissing the Whighams' civil action without
prejudice. Although OnlineTrading.com expects the Whighams to initiate an
arbitration proceeding, as of the date of this joint proxy statement/prospectus
the Whighams have not as yet filed a statement of claim or otherwise initiated
the arbitration.
The Whighams have alleged that, during the period from January 1999 through
August 1999, their accounts were serviced by an unregistered person, Barry
Goodman, in violation of Massachusetts General Laws c.110A and that
OnlineTrading.com aided and abetted Mr. Goodman in violation of c.110A. The
Whighams have also made allegations of excessive trading, excessive commissions,
fraud and negligent supervision. The Whighams seek total alleged damages of
$566,345 plus interest, costs, fees and treble damages. OnlineTrading.com
intends to present a vigorous defense and to seek reimbursement for certain
costs associated with its defense. OnlineTrading.com believes the claim to be
without merit, however, there can be no assurance that OnlineTrading.com's
defense of the claim will be successful.
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of OnlineTrading.com should be read in conjunction with
OnlineTrading.com's Consolidated Financial Statements and notes thereto
appearing elsewhere herein.
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OVERVIEW
OnlineTrading.com provides financial brokerage services primarily to
experienced investors and small to mid-sized financial institutions through a
variety of communication mediums, including the Internet. While its products
allow clients to trade directly over the Internet, OnlineTrading.com also
provides a full range of brokerage services including direct access to the
various securities markets via OnlineTrading.com's computerized infrastructure.
This enhances OnlineTrading.com's ability to obtain the simplest, most direct
execution of orders for its clients at the best possible price. In addition, as
a result of the technology OnlineTrading.com uses, its registered
representatives and clients have access to the most up-to-date electronic
information on stocks, market indices, analysts' research and news.
OnlineTrading.com's manner of executing trades using its computerized
infrastructure eliminates middlemen (like traditional market makers and other
broker-dealers) to save costs and increase investing efficiency.
RECENT DEVELOPMENTS
On December 6, 1999, OnlineTrading.com completed the purchase of the
principal assets of Newport Discount Brokerage, Inc.. The purchase added over
7,700 clients to OnlineTrading.com's existing client base, along with
approximately $470 million in client assets. The transaction also included the
employment of Newport Discount Brokerage, Inc.'s current staff. The total
consideration paid by OnlineTrading.com in connection with this acquisition
included cash of $2,682,000 and up to 125,000 shares of OnlineTrading.com's
common stock. The cash consideration is payable as follows: (i) $2,182,000 to
Newport Discount Brokerage, Inc.; (ii) $250,000 to Robert Scarpetti, Newport
Discount Brokerage, Inc.'s President and sole shareholder, in exchange for a 15
year non-compete agreement and (iii) $250,000 to Raymond Chodkowski, a key
Newport Discount Brokerage, Inc. employee, in exchange for a 15 year non-compete
agreement. Issuance and delivery of the common stock consideration is contingent
upon the acquired assets achieving certain revenue goals and maintaining
customer accounts within one year from closing. More specifically, the total
shares deliverable under the agreement shall be reduced by the greater of (i)
the percentage that the gross revenue from all Newport Discount Brokerage, Inc.
accounts acquired at closing is less than $3,000,000 over the first one-year
period; or (ii) .0009 for each dollar of account value lost due to the closing
of Newport Discount Brokerage, Inc.'s Pennsylvania office over the first
one-year period.
YEAR ENDED JANUARY 31, 2000 COMPARED WITH YEAR ENDED JANUARY 31, 1999
REVENUES
TOTAL REVENUES. OnlineTrading.com's total revenues for the year ended
January 31, 2000 ("Fiscal 2000") were $11,690,840 an increase of 95% from
$5,992,064 for the year ended January 31, 1999 ("Fiscal 1999").
COMMISSION REVENUE. Commission revenue increased by $3,946,008 or 71% from
$5,525,427 for Fiscal 1999 to $9,471,435 for Fiscal 2000. The increase was the
result of opening two new branch offices, the acquisition of the principal
assets of Newport Discount Brokerage, Inc. and the increase in client base.
During Fiscal 2000, the new branch offices generated commission revenue of
$891,425, while OnlineTrading.com's other branches increased commission revenues
by $383,738 from Fiscal 1999. The acquisition of the principal assets,
consisting of the right, title and interest in and to the clients of Newport
Discount Brokerage, Inc., increased commission revenue by $459,455. The balance
of the increase was due to the expansion in OnlineTrading.com's customer base
from approximately 750 accounts to 1,200 accounts.
INVESTMENT GAINS (LOSSES). OnlineTrading.com's proprietary trading profits
increased by $800,998 to $1,129,493 for Fiscal 2000 as compared to $328,495 for
Fiscal 1999. The increase in trading profits was the result of several factors
namely, greater short term stock volatility, a better trading environment,
record share volumes adding to liquidity and better technology for order
execution.
INTEREST AND DIVIDENDS. Interest and dividend income increased by $567,957,
primarily as a result of OnlineTrading.com's increased cash position available
for investment and the prevailing interest rates.
INTEREST-REVENUE SHARING. Interest-revenue sharing represents a revenue
sharing agreement with OnlineTrading.com's clearing firm. Interest-revenue
sharing increased by $193,813 to $295,934 for Fiscal 2000 as
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compared to $102,121 for Fiscal 1999. The increase was due primarily to a change
in the percentage of revenue OnlineTrading.com receives and the increase of its
customer balances being maintained by the clearing firm.
OTHER REVENUES. Other revenues increased by $190,000 primarily from an
arbitration settlement received by OnlineTrading.com in July 1999.
EXPENSES
TOTAL OPERATING EXPENSES. Total operating expenses increased by 70% from
$5,832,041 for Fiscal 1999 to $9,908,110 for Fiscal 2000.
EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and related
benefits increased by $1,983,477, or 59%, from $3,356,688 for Fiscal 1999 to
$5,340,165 for Fiscal 2000. Included in this amount are commissions paid to
OnlineTrading.com's brokers and traders which increased $2,426,884 from
$1,144,616 for Fiscal 1999 to $3,571,500 for Fiscal 2000 as a result of the
increased commission revenue. OnlineTrading.com anticipates this expense to
continue to increase to the extent, if any, OnlineTrading.com expands its
business and customer base. In addition, OnlineTrading.com has expanded its back
office and customer support staff due to the increased trading volume, acquired
fifteen employees from Newport Discount Brokerage, Inc. and has hired additional
executive staff including a general counsel, a chief financial officer, a chief
technical officer, and a director of internet sales. The increase in broker
commissions and compensation for new staff was offset somewhat by a significant
decline in officer compensation. In addition, the percentage of employee
compensation and related benefits to revenue decreased from 56% for Fiscal 1999
to 46% for Fiscal 2000.
CLEARING AND OTHER TRANSACTION COSTS. Clearing and other transaction costs
represent the cost to execute and clear customer trades. These expenses
increased by $1,010,229, or 50%, from $2,002,055 for Fiscal 1999 to $3,012,284
for Fiscal 2000, primarily as a result of the increase in OnlineTrading.com's
volume of transactions. However, these costs decreased from 36% of commission
revenue for Fiscal 1999 to 32% of commission revenue for Fiscal 2000 as a result
of changes in the charges to OnlineTrading.com by the clearing firm.
OCCUPANCY AND ADMINISTRATIVE. Occupancy and administrative expenses consist
primarily of advertising, telephone and communication, rent and professional
fees. Occupancy and administrative expenses increased $686,434 from $406,814 for
Fiscal 1999 to $1,093,248 for Fiscal 2000. This increase primarily resulted from
advertising in a national business publication, increased telephone and
communication expenses due to increased customer activity, leasing of additional
office equipment and furniture to facilitate OnlineTrading.com's expansion,
increased professional fees for costs incurred relating to the proposed merger
with Omega Research, and licenses and registrations for the additional offices
and registered representatives.
PRODUCT DEVELOPMENT. Product development represents those costs relating to
the development of electronic order routing and execution software.
INTEREST EXPENSE. Interest expense increased $15,297 from $36,566 for Fiscal
1999 to $51,863 for Fiscal 2000 primarily due to the recording of margin
interest charged to OnlineTrading.com's proprietary accounts as interest expense
as opposed to netting with interest revenue as earned by our accounts.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $101,245 from $29,918 for Fiscal 1999 to $131,163 for Fiscal 2000. The
increase is the result of $246,790 in additional fixed assets being placed into
service during Fiscal 2000 and the amortization of the intangible assets
acquired from the Newport Discount Brokerage, Inc. acquisition.
INCOME TAXES. OnlineTrading.com recorded a provision for income taxes of
$702,224 for Fiscal 2000 as compared to $52,080 for Fiscal 1999. The effective
tax rate was 39% for Fiscal 2000 and 33% for Fiscal 1999.
As a result of the above, net income improved from $107,943 for Fiscal 1999
to $1,080,506 for Fiscal 2000.
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LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2000, OnlineTrading.com had cash and cash equivalents of
$15,127,790, consisting of money market funds and short term commercial paper.
Cash provided by operating activities was $2,078,352 and $837,167 for Fiscal
2000 and Fiscal 1999, respectively. The increase in cash provided by operations
in Fiscal 2000 was primarily the result of an increase in OnlineTrading.com's
net income of $972,563 for Fiscal 2000 and an increase in its income tax
liability of $614,911 as a result of its increased net income.
Cash used in investing activities was $2,912,497 and $74,558 for Fiscal 2000
and Fiscal 1999, respectively. The primary use of cash in investing activities
was $2,682,000 for the acquisition of the principal assets of Newport Discount
Brokerage, Inc.. In addition, OnlineTrading.com expended $234,097 for the
purchase of office furniture and computer equipment. During Fiscal 1999,
OnlineTrading.com expended $48,891 for the purchase of office furniture and
equipment.
Cash provided by financing activities was $14,955,991 and $25,000 for Fiscal
2000 and Fiscal 1999, respectively. The primary source of funds was $15,810,891
from OnlineTrading.com's initial public offering and $360,000 from issuance of
subordinated loans. The primary use of funds was $885,000 for the repayment of
all outstanding subordinated loans and $330,000 for the redemption of the
outstanding preferred stock.
As a result, OnlineTrading.com had a net increase in cash and cash
equivalents of $14,121,846 for Fiscal 2000 and $787,609 for Fiscal 1999.
On December 1, 1999, OnlineTrading.com entered into a capital lease for
office furniture, computer equipment and phone system. As of January 31, 2000,
the leasing company had funded $112,075 representing a portion of the total
furniture and computer equipment to be received. The balance of the equipment
totaling $180,450 was not received as of January 31, 2000 and accordingly, not
included in the statement of financial condition. The lease is to be paid over
36 months with an estimated monthly payment expected to commence on April 1,
2000 of $8,698 with a final payment of 7% of the original invoice amounts.
OnlineTrading.com is subject to the SEC uniform net capital rule, which
requires the maintenance of minimal net capital as defined. As of January 31,
2000 and 1999, OnlineTrading.com had net capital of $14,051,801 and $902,078,
which was $13,914,699 and $802,078 in excess of the minimum required of $137,102
and $100,000 respectively.
OnlineTrading.com currently anticipates that its available cash resources,
including the net proceeds from the initial public offering, and cash flows from
operations will be sufficient to meet its working capital and anticipated
capital expenditure requirements for at least the next twelve months. However,
OnlineTrading.com may need to raise additional funds in order to support more
rapid expansion, develop new or enhanced services and products, respond to
competitive pressures, acquire complementary businesses or technologies or take
advantage of unanticipated opportunities.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of
FASB Statement No. 133." SFAS No. 137 defers for one year the effective date of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 133 will now apply to all fiscal quarters of all fiscal years beginning
after June 15, 2000. SFAS No. 133 will require OnlineTrading.com to recognize
all derivatives on the balance sheet as either assets or liabilities measured at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. OnlineTrading.com will adopt SFAS No. 133 effective for the year
ending January 31, 2002. OnlineTrading.com believes that the adoption of SFAS
No. 133 will not have a material impact on its financial statements, as it has
entered into no derivative contracts and has no current plans to do so in the
future.
In March 2000, the Emerging Issues Task Force (the "EITF") reached a
consensus on Issue No. 00-2, "Accounting for Web Site Development Costs" ("EITF
Issue No. 00-2"), which applies to all web site development costs incurred for
the quarters beginning after June 30, 2000. The consensus states that the
accounting for specific web site development costs should be based on a model
consistent with AICPA Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
Accordingly, certain web site development costs that are currently expensed as
incurred may be capitalized and amortized. The adoption of EITF Issue No. 00-2
is not expected to have a material impact on the financial statements of
OnlineTrading.com.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On February 8, 2000, OnlineTrading.com terminated its relationship with the
accounting firm of Ahearn, Jasco + Company, P.A. as independent auditor of
OnlineTrading.com's financial statements. The termination of the relationship
with Ahearn, Jasco + Company, P.A. was not the result of any disagreements
between OnlineTrading.com and Ahearn, Jasco + Company, P.A. on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. On February 8, 2000, OnlineTrading.com retained the
accounting firm of Arthur Andersen LLP as its new independent auditor to audit
OnlineTrading.com's financial statements for the fiscal year ended January 31,
2000. The decision to change accounting firms to audit OnlineTrading.com's
financial statements was approved by OnlineTrading.com's board of directors on
February 8, 2000. No report of Ahearn, Jasco + Company, P.A. contained an
adverse opinion or disclaimer of opinion nor was any such report modified as to
uncertainty, audit scope, or accounting principles.
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SELECTED INFORMATION WITH RESPECT TO OMEGA RESEARCH
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Omega Research and their ages and
positions with Omega Research as of April 1, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH OMEGA RESEARCH
---- --- ----------------------------
<S> <C> <C>
William R. Cruz 39 Co-Chairman of the Board and Co-Chief Executive Officer
Ralph L. Cruz 36 Co-Chairman of the Board and Co-Chief Executive Officer
Salomon Sredni(1) 32 President and Chief Operating Officer and Director
Peter A. Parandjuk 37 Chief Technology Officer, Vice President of Research and Technology and Director
Marc J. Stone 39 Vice President of Corporate Development, General Counsel, Secretary and Director
Gregg F. Stewart 38 Chief Financial Officer, Vice President of Finance and Treasurer
Janette Perez 42 Executive Vice President of Marketing and Sales
Stephen C. Richards(1)(2) 46 Director
Brian D. Smith(1)(2) 55 Director
</TABLE>
--------------------
(1) Member of the Audit Committee of Omega Research's board of directors.
(2) Member of the Compensation Committee of Omega Research's board of directors.
Omega Research's directors hold office until the next annual meeting of
shareholders. Omega Research's executive officers serve at the discretion of the
board of directors.
WILLIAM R. CRUZ co-founded Omega Research in 1982 and has been a director
since that time. Mr. Cruz was appointed Co-Chief Executive Officer of Omega
Research in 1996 and was Omega Research's President since its founding through
August 1999. Mr. Cruz studied classical violin at the University of Miami, which
he attended on a full scholarship, and Julliard School of Music. He left
Julliard School of Music prior to graduation to co-found Omega Research. He has
won numerous classical violin competitions. Mr. Cruz has been primarily
responsible for overseeing the conception and management of Omega Research's
products and product strategies.
RALPH L. CRUZ co-founded Omega Research in 1982 and has been a director
since that time. Mr. Cruz was Vice President of Omega Research from 1982 until
1996, at which time he was appointed Co-Chief Executive Officer. Mr. Cruz
studied classical violin at the University of Miami, which he attended on a full
scholarship, and Indiana University. He left Indiana University prior to
graduation to devote full time to Omega Research. He has won numerous classical
violin competitions. Mr. Cruz has been primarily responsible for overseeing
Omega Research's marketing strategies.
SALOMON SREDNI joined Omega Research in December 1996 as its Vice President
of Operations and Chief Financial Officer and was named Treasurer in May 1997, a
director of Omega Research in July 1997 and a member of the Audit Committee of
the board of directors in January 1998. In August 1999, Mr. Sredni was named
President and Chief Operating Officer, and maintained Chief Financial Officer
functions until September 1999. From August 1994 to November 1996, Mr. Sredni
was Vice President of Accounting and Corporate Controller at IVAX Corporation, a
publicly-held pharmaceutical company. Prior to that time, from January 1988 to
August 1994, Mr. Sredni was with Arthur Andersen LLP, an international
accounting firm. Mr. Sredni is a Certified Public Accountant and a member of the
American Institute of Certified Public Accountants and the Florida Institute of
Certified Public Accountants. Mr. Sredni has a bachelor's degree in Accounting
from The Pennsylvania State University.
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PETER A. PARANDJUK joined Omega Research in 1988 as a software engineer,
became Omega Research's senior software engineer in 1991, was appointed Vice
President of Product Development in January 1995 and was named a director of
Omega Research in July 1997. In October 1998, Mr. Parandjuk was appointed Chief
Technology Officer and Vice President of Research and Technology. Mr. Parandjuk
has a bachelor's degree in Applied Mathematics from the State University of New
York at Buffalo.
MARC J. STONE joined Omega Research in May 1997 as its Vice President of
Corporate Development, General Counsel and Secretary and was named a director of
Omega Research in July 1997. From January 1993 to May 1997, Mr. Stone was a
partner at a predecessor law firm of Bilzin Sumberg Dunn Price & Axelrod LLP
("Bilzin Sumberg"), which currently serves as Omega Research's regular outside
counsel. Prior to that time, from 1985 to 1992, Mr. Stone was an associate with
that predecessor law firm. Mr. Stone is of counsel to Bilzin Sumberg. Mr. Stone
has bachelor's degrees in English and American Literature and Theatre Arts and
Dramatic Literature from Brown University, and received his law degree from
University of California (Boalt Hall) School of Law at Berkeley. Mr. Stone is a
member of the Bar of the State of New York, The Florida Bar, the American Bar
Association and the New York State Bar Association.
GREGG F. STEWART joined Omega Research in September 1999 as its Chief
Financial Officer, Vice President of Finance and Treasurer. Before joining Omega
Research, he served as Vice President - Finance & Treasurer of Interim
HealthCare, Inc. from October 1998 until September 1999. Prior to that, from
1990 to 1998, he held several positions with Alamo Rent-A-Car, Inc., including
Executive Director, Replacement Division (1996 to 1998), Controller,
Consolidated Group (1995 to 1996) and Assistant Treasurer (1990 to 1995). Prior
to that, from 1986 to 1990, he served in several financial positions with USAir,
Inc. Mr. Stewart is a Certified Public Accountant and holds a Bachelor of
Science in Accounting from Marquette University, Milwaukee, Wisconsin.
JANETTE PEREZ joined Omega Research in January of 1996 as its Public
Relations Manager and was appointed Corporate Relations Director in November
1997. In July 1998, she was appointed Vice President of Marketing and, in
September 1999, she was appointed Executive Vice President of Marketing and
Sales. During 1994 and 1995, Ms. Perez traveled abroad. Prior to that, from 1979
to January 1994, Ms. Perez was Office Manager and Controller for Simon Bolivar
International, a specialty advertising firm.
STEPHEN C. RICHARDS is currently Chief Online Trading Officer of E*Trade
Group, Inc. ("E*Trade"), a position he has held since March 1999. From 1998 to
February 1999, Mr. Richards served as Senior Vice President, Corporate
Development and New Ventures at E*Trade following two years as E*Trade's Senior
Vice President of Finance, Chief Financial Officer and Treasurer. Prior to
joining E*Trade in April 1996, Mr. Richards was Managing Director and Chief
Financial Officer of Correspondent Clearing at Bear Stearns & Companies, Inc.,
where he was employed for more than 11 years. He is also a former Vice
President/Deputy Controller of Becker Paribas, and former First Vice
President/Controller of Jefferies and Company, Inc. Mr. Richards also serves as
a director of Versus Technologies, Inc. which is listed on the Montreal and
Toronto Stock Exchanges. He received a Bachelor of Arts in Statistics and
Economics from the University of California at Davis and an MBA in Finance from
the University of California at Los Angeles. Mr. Richards is a Certified Public
Accountant. Mr. Richards became a director in August 1999, at which time he was
also elected to the Compensation Committee and the Audit Committee of the board
of directors.
BRIAN D. SMITH, who is currently a private investor, served as President of
Data Broadcasting Corporation ("DBC"), a provider of market data services, from
1990 until 1996. Prior to becoming President, Mr. Smith, since 1983, held
several key positions with DBC and its predecessor companies. Prior to that, Mr.
Smith worked for 13 years for General Electric Company in engineering, sales and
management positions, and for Texas Instruments in engineering. Mr. Smith also
served as Chief Executive Officer of Mobile Broadcasting Corp., a wireless
communications company, from December 1996 to December 1997. Mr. Smith became a
director in December 1997, and was elected to the Compensation Committee and the
Audit Committee of the board of directors in January 1998.
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<PAGE>
INDEPENDENT DIRECTORS; COMMITTEES OF THE BOARD OF DIRECTORS
During 1999, two nonemployee, independent members, Brian D. Smith and
Stephen C. Richards (or Christos M. Cotsakos, who was an independent member
prior to August 1999 until replaced by Mr. Richards), served on Omega Research's
board of directors.
In January 1998, Omega Research's board of directors appointed the
independent directors and Salomon Sredni as the members of the first Audit
Committee of the board of directors, and they were reappointed in July 1998. In
August of 1999, Mr. Smith and Mr. Sredni were reappointed, and Mr. Richards, who
replaced Mr. Cotsakos, was appointed, and all of them currently serve, as
members of the Audit Committee. The Audit Committee recommends the annual
engagement of Omega Research's auditors, with whom the Audit Committee reviews
the scope of audit and non-audit assignments, related fees, the accounting
principles used by Omega Research in financial reporting, internal financial
auditing procedures and the adequacy of Omega Research's internal control
procedures. In January 1998, the board of directors established a Compensation
Committee consisting solely of the independent directors, who were reappointed
in July 1998 and August 1999, with Mr. Richards replacing Mr. Cotsakos in August
1999, and both of them currently serve, on the Compensation Committee. The
Compensation Committee determines executive officers' salaries and bonuses and
administers the Omega Research, Inc. Amended and Restated 1996 Incentive Stock
Plan, as amended, and the Omega Research, Inc. 1997 Employee Stock Purchase
Plan, as amended.
The board of directors does not currently have a nominating committee or a
committee that performs similar functions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Omega Research's officers (as defined under the Securities Exchange Act of 1934)
and directors, and persons who own more than ten percent of a registered class
of Omega Research's equity securities, to file reports of ownership and changes
in ownership with the SEC. Officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish Omega Research with
copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to Omega
Research and written representations that no Forms 5 were required when
applicable, Omega Research believes that during the fiscal year ended December
31, 1999 all Section 16(a) filing requirements applicable to such officers,
directors and greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION TABLES
The following tables provide information about executive compensation.
The following table sets forth information with respect to all compensation
paid or earned for services rendered to Omega Research in the three years ended
December 31, 1999 by the Co-Chief Executive Officers of Omega Research and the
four other most highly compensated executive officers of Omega Research whose
aggregate annual compensation exceeded $100,000 (together, the "Named Executive
Officers"). Omega Research did not have a pension plan or a long-term incentive
plan, had not issued any restricted stock awards and had not granted any stock
appreciation rights as of December 31, 1999. The value of all perquisites and
other personal benefits received by each Named Executive Officer did not exceed
10% of the Named Executive Officer's total annual compensation.
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<PAGE>
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------------- ----------
Securities
Fiscal Underlying All Other
NAME AND PRINCIPAL POSITION Year Salary Bonus (1) Options(2) Compensation(3)
---------------------------------------- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
William R. Cruz 1999 $150,000 -- -- $ 5,400
Co-Chief Executive Officer 1998 150,000 -- -- --
1997 150,000 -- -- 3,800
Ralph L. Cruz 1999 150,000 -- -- 5,400
Co-Chief Executive Officer 1998 150,000 -- -- --
1997 150,000 -- -- 3,800
Salomon Sredni 1999 193,636 $ 25,000 100,000 6,000
President and Chief Operating Officer 1998 165,000 10,000 150,000 --
1997 130,000 34,125(4) -- --
Peter A. Parandjuk 1999 186,323 5,761 -- 6,000
Chief Technology Officer and Vice 1998 165,000 15,077 205,000 --
President of Research and Technology 1997 130,000 34,125(4) -- 3,800
Marc J. Stone 1999 186,323 -- -- --
Vice President of Corporate 1998 165,000 10,000 130,000 --
Development, General Counsel 1997 76,483(5) 107,875(4)(6) 140,000(7) --
and Secretary
Janette Perez 1999 176,763 -- 50,000 6,000
Executive Vice President of 1998 97,083 30,255(9) 100,000 --
Marketing and Sales (8) 1997 36,875 9,858 12,000 573
</TABLE>
--------------------
(1) See "Other Compensation Arrangements - Executive Officer Bonus Plan" for a
discussion of Omega Research's bonus plan for executive offers for fiscal
years 1998 and 1999.
(2) Represents shares of common stock issuable upon the exercise of options
granted under Omega Research's Incentive Stock Plan.
(3) Represents 401(k) Plan company contributions on behalf of the Named
Executive Officer during the current year, but paid out during the
subsequent year.
(4) $4,875 of this amount was earned in 1997, but paid in 1998.
(5) Mr. Stone joined Omega Research on May 30, 1997. His annual base salary for
1997 was $130,000.
(6) Includes a one-time bonus of $90,000 paid to Mr. Stone at the time he became
an employee of Omega Research.
(7) The record and beneficial ownership of unexercised options for an aggregate
of 70,000 shares of Omega Research's common stock, constituting one-half of
those 140,000 options, were transferred in 1999 to the former spouse of the
Named Executive Officer pursuant to a marital settlement agreement.
Accordingly, the Named Executive Officer disclaims any pecuniary ownership
of such transferred options.
(8) Ms. Perez became an executive officer in July 1998.
(9) $9,000 of this amount was earned in 1998, but paid in 1999.
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<PAGE>
OPTION GRANTS IN 1999 FISCAL YEAR
The following table summarizes the options which were granted during the
fiscal year ended December 31, 1999 to the Named Executive Officers.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------
Percent of Potential Realizable
Total Value at Assumed
Number Options Annual Rate of
Of Granted Market Value at Stock Price
Securities to Exercise Price Grant-Date Appreciation for
Underlying Employees or Base on Grant Market Option Term (1)
Options in Fiscal Price Date Expiration Price ---------------------
Name Granted(#)(sh) Year (3) ($)(sh) ($)(sh) Date 0%($)(4) 5%($) 10%($)
---- -------------- -------- ------- ------- ---- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William R. Cruz -- -- -- -- -- -- -- --
Ralph L. Cruz -- -- -- -- -- -- -- --
Salomon Sredni 100,000 9.8% $8.57 $8.00 5/4/09 -- $446,116 $1,217,994
Peter A. Parandjuk -- -- -- -- -- -- -- --
Marc J. Stone -- -- -- -- -- -- -- --
Janette Perez 50,000 4.9% 8.57 8.00 5/4/09 -- 223,058 608,997
</TABLE>
--------------------
(1) Potential realizable value is based on the assumption that the common stock
price appreciates at the annual rate shown (compounded annually) from the
date of grant until the end of the option term. The amounts have been
calculated based on the requirements promulgated by the SEC. The actual
value, if any, a Named Executive Officer may realize will depend on the
excess of the stock price over the exercise price on the date the option is
exercised (if the executive officer were to sell the shares on the date of
exercise), so there is no assurance that the value realized will be at or
near the potential realizable value as calculated in this table.
(2) These options vest over five years and have a term of ten years from the
date of grant, subject to acceleration under certain circumstances.
(3) Does not include the outstanding stock options of Window On WallStreet
assumed by Omega Research in connection with Omega Research's acquisition of
that company. See "Other Compensation Arrangements - Window On WallStreet
Assumed Options" below.
(4) For purposes of and as provided under Omega Research's Incentive Stock Plan,
"fair market value" on the date of grant of any option is the average of the
high and low sales prices of a share of common stock on The Nasdaq National
Market on the trading day immediately preceding such date of grant. The
Compensation Committee of Omega Research believes this calculation more
accurately reflects "fair market value" of Omega Research's common stock on
any given day as compared to simply using the closing market price on the
date of grant. As a result, the closing market price on the date of grant at
times may be different than the exercise price per share.
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<PAGE>
AGGREGATE OPTION EXERCISES IN 1999 FISCAL YEAR
AND 1999 FISCAL YEAR-END OPTION VALUES
The following table provides information regarding the value of all
options exercised during 1999 by the Named Executive Officers, and of all
unexercised options held at December 31, 1999 by the Named Executive Officers
measured in terms of the closing market price of Omega Research's Common Stock
on December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999(#) DECEMBER 31, 1999($)(1)
-------------------- -----------------------
ACQUIRED SHARES
ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William R. Cruz -- -- -- -- -- --
Ralph L. Cruz -- -- -- -- -- --
Salomon Sredni 20,000 $148,750 94,000 276,000 $411,080 $694,320
Peter A. Parandjuk -- -- 191,000 264,000 874,480 1,122,920
Marc J. Stone (2) -- -- 54,000 146,000 179,200 506,800
Janette Perez 1,000 7,688 23,800 137,200 78,590 303,360
</TABLE>
-------------------
(1) Based on a per share price of $6.00 on December 31, 1999, which was the
closing market price of Omega Research's common stock on the last day of
Omega Research's 1999 fiscal year.
(2) See footnote (7) to "SUMMARY COMPENSATION TABLE" above.
OTHER COMPENSATION ARRANGEMENTS
EXECUTIVE OFFICER BONUS PLAN
In February 1998, the Compensation Committee of the board of directors
approved a cash bonus plan for the 1998 fiscal year for the then executive
officers of Omega Research, other than William R. Cruz and Ralph L. Cruz who
have no bonus plan, that provided for cash bonuses of up to 40% of the executive
officer's base salary determined by the extent, if any, to which Omega
Research's 1998 net income exceeded its 1997 net income. The Co-Chief Executive
Officers were also authorized to grant up to a $10,000 bonus to each such
executive officer regardless of whether application of the bonus formula would
result in a bonus payout. As 1998 net income of Omega Research was lower than
1997 net income, no bonus was paid other than the $10,000 per executive officer
bonus. In February 1999, the Compensation Committee of the board of directors
approved a cash bonus plan for the 1999 fiscal year for the executive officers
of Omega Research, other than William R. Cruz and Ralph L. Cruz who have no
bonus plan, that provides for cash bonuses of up to 50% of the executive
officer's base salary depending upon the extent, if any, to which Omega Research
achieves its net income goals for 1999. As 1999 net income goals of Omega
Research were not met, no bonus was paid other than a $25,000 special bonus paid
to Salomon Sredni in connection with his promotion to President and Chief
Operating Officer.
1996 INCENTIVE STOCK PLAN
The Incentive Stock Plan, pursuant to which officers, employees and
nonemployee consultants may be granted stock options, stock appreciation rights,
stock awards, performance shares and performance units, was adopted by the board
of directors and approved by the shareholders in June 1996. It was amended and
restated in August 1997 and further amended by the board of directors in
February 1998. In December 1998 the board of directors increased, subject to
shareholder approval, the authorized number of shares of common stock for
issuance under the Incentive Stock Plan from 3,000,000 to 4,500,000, subject to
future antidilution adjustments, which was approved at Omega Research's annual
meeting of shareholders held on August 13, 1999. In January 2000, the board of
directors, as part of its authorization of the merger agreement with
OnlineTrading.com, authorized an increase,
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subject to the approval by Omega Research's shareholders of the merger agreement
and merger with OnlineTrading.com, in the number of shares of common stock
reserved for issuance under the Incentive Stock Plan from 4,500,000 to
7,500,000, subject to future antidilution adjustments.
PURPOSE. The purpose of the Incentive Stock Plan is to provide incentives
which will attract and retain highly competent persons as officers and key
employees of Omega Research, as well as nonemployee consultants, such as
independent contractors, providing consulting or advisory services to Omega
Research. It is intended to enable such key employees, including officers, and
nonemployee consultants of Omega Research or any subsidiary to own stock in
Omega Research or to receive monetary payments based on the value of such stock,
and to take advantage of the tax benefits to employer stock plans allowed by the
Internal Revenue Code.
ADMINISTRATION. Prior to January 1998, the Incentive Stock Plan had been
administered by the board of directors of Omega Research, but, since the
establishment of the Compensation Committee of the board of directors in January
1998, the Incentive Stock Plan has been administered by the Compensation
Committee, whose members must qualify as "nonemployee directors," as such term
is defined in Rule 16b-3 under the Securities Exchange Act of 1934. The
Compensation Committee is authorized to determine, among other things, the
employees to whom, and the times at which, options and other benefits are to be
granted, the number of shares subject to each option, the applicable vesting
schedule and the exercise price, provided that, for incentive stock options, the
exercise price shall not be less than 100% of the fair market value of the
common stock on the date of grant. The Compensation Committee also determines
the treatment to be afforded to a participant in the Incentive Stock Plan in the
event of termination of employment for any reason, including death, disability
or retirement, or change in control. Under the Incentive Stock Plan, the maximum
term of an incentive stock option is ten years and the maximum term of a
nonqualified stock option is fifteen years.
In February 1998, the board of directors amended the Incentive Stock Plan
to permit the Compensation Committee to delegate to Omega Research's Co-Chief
Executive Officers the authority to grant options to employees of Omega Research
identified by the Co-Chief Executive Officers. At present, the Compensation
Committee has delegated to the Co-Chief Executive Officers the authority to
grant options covering up to 250,000 shares of common stock per annum, but
retains the ability to revoke the delegation at any time.
The board of directors has the power to amend the Incentive Stock Plan from
time to time. Shareholder approval of an amendment is only required to the
extent that it is necessary to maintain the Incentive Stock Plan's status as a
protected plan under applicable securities laws or as a qualified plan under
applicable tax laws.
ELIGIBILITY. Employees, including officers, and independent contractors,
including persons other than individuals providing consulting or advisory
services to Omega Research are eligible to participate in the Incentive Stock
Plan. Participants will consist of such employees or prospective employees of
Omega Research and independent contractors as the Compensation Committee, or the
Co-CEOs pursuant to the delegation of authority granted by the Compensation
Committee, in their sole discretion determine to be responsible for the success
and future growth and profitability of Omega Research and whom the Compensation
Committee or Co-CEOs, as the case may be, may designate from time to time to
receive awards under the Incentive Stock Plan. The Compensation Committee or
Co-CEOs, as the case may be, shall consider such factors as they deem pertinent
in selecting participants and in determining the type and amount of their
respective awards.
The Incentive Stock Plan permits Omega Research to grant incentive stock
options, nonqualified stock options, stock appreciation rights, stock awards,
performance shares and performance units (collectively, "Awards"). These Awards
are described below.
STOCK OPTIONS. Stock options consist of awards from Omega Research, in the
form of agreements, which enable the holder to purchase a specific number of
shares of common stock, at set terms and at a fixed purchase price. Incentive
stock options are options that qualify for preferred tax treatment under Section
422 of the Code. Nonqualified stock options are options that do not qualify as
incentive stock options. Options designated as incentive stock options that fail
to continue to meet the requirements of Section 422 of the Code shall be
redesignated as nonqualified stock options for federal income tax purposes
automatically without further action by
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<PAGE>
the Compensation Committee on the date of such failure to continue to meet the
requirements of Section 422 of the Code.
The Compensation Committee determines the term of each option and the time
or times, and conditions (such as a change in control) under which, each option
vests and may be exercised. However, the term of an incentive stock option may
not exceed ten years from the date of grant and the term of nonqualified stock
option may not exceed fifteen years from the date of grant.
The Compensation Committee also determines the option exercise price.
However, the exercise price of an incentive stock option may not be less than
the fair market value of common stock on the date of grant. Under certain
circumstances relating to ownership of more than 10% of the total combined
voting power of all classes of stock of Omega Research, the exercise price of an
incentive stock option may not be less than 110% of the fair market value on the
date of grant and the term of such incentive stock option may not exceed five
years from the date of grant. For purposes of the Incentive Stock Plan and any
Awards thereunder, "fair market value" of common stock is the mean between the
highest and lowest sale prices for Omega Research's common stock as reported on
The Nasdaq National Market on the date immediately preceding the date of grant,
or on the next preceding trading date if common stock was not traded on the date
immediately preceding the date of grant, provided, however, that, if Omega
Research's common stock is not at any time readily tradable on a national
securities exchange or other market system, "fair market value" shall mean the
amount determined in good faith by the Compensation Committee as the fair market
value of the common stock of Omega Research.
The aggregate fair market value, determined as of the time the option is
granted, of the common stock with respect to which incentive stock options are
exercisable for the first time by a participant during any calendar year shall
not exceed $100,000 and, to the extent in excess of such $100,000, such excess
options shall be treated as nonqualified stock options.
If a holder of an option terminates his or her employment relationship for
any reason, his or her option may be exercised to the extent it had vested and
was exercisable at the date of such termination for a period of time determined
by the Compensation Committee at the time the option is granted. Pursuant to the
terms of the existing option agreements entered into at the time of the granting
of an option, in the case of a termination other than for disability, death or
termination of employment for cause, the period for exercise as to vested
options following termination generally may not exceed 90 days. In the case of
termination for death (or death within 90 days of the employee's disability or
termination by Omega Research other than for cause) or disability, the period
for exercise as to vested options is generally 12 months. If the holder of the
option was terminated for cause, the exercise period generally ends on the date
of termination. In no event may an option be exercised after the expiration of
the original term of the option.
In all events, upon any termination of an option holder's employment with
Omega Research or upon the option holder's death, whichever is first to occur,
the unvested portion, if any, of any then unexercised options generally shall
automatically and without notice terminate and become null and void.
Options may be exercised only by delivery of written notice to the Chief
Financial Officer of the Company, at its principal business office or such other
office as the Compensation Committee directs from time to time. The notice shall
specify, among other items, the number of optioned shares being purchased and
shall be accompanied by payment in full for the purchase price for the shares
being purchased.
The Compensation Committee determines how an option holder may pay the
exercise price of an option. The Incentive Stock Plan specifically states that a
check is an acceptable form of consideration and that, subject to the discretion
of the Compensation Committee and as provided in the agreement evidencing the
grant, payment may also be made by delivery of shares of common stock of Omega
Research, or by a combination of check and shares, or by delivery to Omega
Research of a properly executed exercise notice together with a copy of
irrevocable instructions to a broker to deliver to Omega Research the
appropriate amount of proceeds from the sale of or loan against the shares
exercised, often referred to as a "cashless exercise," if the payment method
used does not result in a charge to earnings of Omega Research for financial
accounting purposes. Subject to certain restrictions and the discretion of the
Compensation Committee, an optionee holder who incurs a tax liability upon the
exercise of an
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<PAGE>
option may satisfy any withholding obligation by electing to have Omega Research
retain a sufficient number of shares to cover the withholding obligation.
The recipient of an option shall not be deemed for any purpose to be a
shareholder of Omega Research with respect to any of the common stock subject
thereto except to the extent that the option shall have been exercised and, in
addition, a certificate shall have been issued and delivered to the participant.
STOCK APPRECIATION RIGHTS. A stock appreciation right is a right to
participate in the appreciation of the fair market value of the shares of common
stock subject to the right. Stock appreciation rights may be granted to the
holders of stock options or may be granted independently of and without relation
to stock options. Stock appreciation rights granted in conjunction with a stock
option will entitle the holder to elect, in lieu of exercising the stock option,
to receive the appreciation in the fair market value of the shares subject to
the option up to the date the right is exercised. Such appreciation shall be
measured from not less than the option exercise price. In the case of a stock
appreciation right issued independently of any stock option, such appreciation
shall be measured from not less than 85% of the fair market value of the common
stock on the day the right is granted. Payment of such appreciation shall be
made in cash or in shares of common stock, or a combination thereof, as
determined by the Compensation Committee and as set forth in the Award, but no
stock appreciation right shall entitle the holder to receive, upon exercise
thereof, more than the number of shares of common stock (or cash equivalent)
with respect to which the right is granted. A stock appreciation right relating
to nonqualified stock option may be made as part of the nonqualified stock
option at the time of its grant or at any time thereafter up to six months prior
to its expiration. A stock appreciation right relating to an incentive stock
option may be made a part of such incentive stock option only at the time of its
grant. Each stock appreciation right will be exercisable at the times and to the
extent set forth therein, but no stock appreciation right shall be exercisable
earlier than six months after the date it was granted or later than the earlier
of (i) the term of the related stock option, if any, or (ii) 15 years after it
was granted.
STOCK AWARDS. A stock award is a grant of shares of common stock to the
grantee without payment for such shares or payment at less than fair market
value of the shares as additional compensation for services rendered to Omega
Research. Stock awards are subject to such terms and conditions as the
Compensation Committee determines, including, without limitation, restrictions
on the sale or other disposition of such shares and rights of Omega Research to
reacquire such shares for no consideration upon termination of the grantee's
employment or consulting relationship within specified periods. The grantee of a
stock award shall have, with respect to the shares subject to such stock award,
all the rights of a holder of shares of Omega Research's common stock, including
the right to receive dividends and to vote the shares.
PERFORMANCE SHARES. Performance shares entitle the grantee to receive
shares of common stock or cash of an equivalent value at the end of a specified
performance period. A performance period relates to the period during which the
receipt of the shares of common stock will be deferred. Performance shares may
be awarded either alone or in addition to other Awards under the Incentive Stock
Plan. The Compensation Committee will determine the number of performance shares
to be awarded to any grantee, the duration of the performance period and the
conditions under which receipt of the shares of common stock will be deferred,
and the other terms and conditions of the grant. The Compensation Committee may
condition the grant of performance shares upon the attainment of certain
specified performance goals or other factors or criteria as the Compensation
Committee shall determine. Unless otherwise determined by the Compensation
Committee at the time of the award of a Performance Share, any dividends payable
during the performance period with respect to the shares covered by a
performance share award will not be paid to the grantee. Subject to the
provisions of the performance share award and the Incentive Stock Plan, at the
expiration of the performance period, shares of common stock and/or cash of an
equivalent value shall be delivered to the grantee, or his or her legal
representative, in a number equal to the vested shares covered by the
Performance Share award. If the grantee's employment or consulting arrangement
with Omega Research terminates during the performance period, the performance
shares in question will vest or be forfeited in accordance with the terms and
conditions established by the Compensation Committee.
PERFORMANCE UNITS. Performance units consist of the right to receive a
fixed dollar amount, payable in cash or shares of common stock or a combination
of both. Performance units may be awarded either alone or in addition to other
Awards under the Incentive Stock Plan. The Compensation Committee will determine
the time or times at
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which Performance Units shall be awarded, the duration of the period during
which, and the conditions under which, a grantee's right to performance units
will be vested, and the other terms and conditions of the award of performance
units. The Compensation Committee may condition the vesting of performance units
upon the attainment of certain specified goals or such other factors or criteria
as the Compensation Committee shall determine. At the expiration of the
applicable period, the Compensation Committee shall determine the extent to
which the performance goals have been achieved, and the percentage of the
performance units that have vested. Subject to the applicable provisions of the
performance unit grant and the Incentive Stock Plan, at the expiration of the
applicable period, cash and/or shares of common stock of an equivalent cash
value shall be delivered to the grantee, or his or her legal representative, in
payment of the vested performance units covered by the performance unit award.
Upon termination of the grantee's employment or consulting arrangement with
Omega Research during the applicable period for a given performance unit award,
the performance units in question will vest or be forfeited in accordance with
the terms and conditions established by the Compensation Committee.
TERMS APPLICABLE TO ALL AWARDS. Awards granted under the Incentive Stock
Plan are non-transferable by the participant, other than as required by law, by
will or the laws of descent and distribution or, if the Award expressly so
provides, to the participant's immediate family, which for purposes of the
Incentive Stock Plan is limited to the participant's children, grandchildren and
spouse, or to one or more trusts for the benefit of such immediate family
members or partnerships in which such immediate family members and/or trusts are
the only partners. Except with respect to a qualified domestic relations order,
Awards may be exercised during the lifetime of the participant only by the
participant. In the event of the death of a participant while the participant is
rendering services to Omega Research, each Award theretofore granted to him or
her shall be exercisable during such period after his or her death as the
Compensation Committee shall in its discretion set forth in such Award at the
date of grant, but not beyond the stated duration of the Award, and then only by
the executor or administrator of the estate of the deceased participant or the
person or persons to whom the deceased participant's rights under the Award
passes by will or the laws of descent and distribution, and only to the extent
that the deceased participant was entitled to do so at the date of his or her
death.
If Omega Research at any time changes the number of issued common stock
without new consideration to Omega Research (such as by stock dividend, stock
split, recapitalization, reorganization, exchange of shares, liquidation,
combination or other change in corporate structure affecting the common stock)
or makes a distribution of cash or property which has a substantial impact on
the value of issued common stock, the total number of shares available for
Awards under the Incentive Stock Plan shall be appropriately adjusted and the
number of shares covered by each outstanding Award and the reference price or
fair market value for each outstanding Award shall be adjusted so that the net
value of such Award shall not be changed.
In the event any sale of assets, merger, consolidation, combination or
other corporate reorganization or restructuring of Omega Research with or into
another corporation which results in the outstanding common stock being
converted into or exchanged for different securities, cash or other property,
each outstanding Award, subject to the other provisions of the Incentive Stock
Plan and any limitation applicable to a particular Award, may be assumed or
substituted by the successor corporation (or a parent or subsidiary or such
successor corporation) and the grantee will be entitled to receive, upon
exercise of the Award, an equivalent amount of securities, cash or other
property received with respect to the common stock in such transaction as would
have been received upon exercise of the Award immediately prior to such
transaction.
All payments or distributions made pursuant to the Incentive Stock Plan
shall be net of any amounts required to be withheld pursuant to applicable
federal, state and local tax withholding requirements. If Omega Research
proposes or is required to distribute common stock pursuant to the Incentive
Stock Plan, it may require the recipient to remit to it an amount sufficient to
satisfy such tax withholding requirements prior to the delivery of any
certificates for such common stock. The Compensation Committee may, in its
discretion and subject to such rules as it may adopt, permit an Award holder to
pay all or a portion of the federal, state and local withholding taxes arising
in connection with the exercise of a nonqualified stock option or a stock
appreciation right, the receipt or vesting of stock Awards, or the receipt of
common stock upon the expiration of the applicable period with respect to any
performance shares or performance units, by electing to have Omega Research
withhold common stock having a fair market value equal to the amount to be
withheld.
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A participant's right, if any, to continue to serve Omega Research as an
officer, employee, independent contractor or otherwise, shall not be enlarged or
otherwise affected by such person's designation as a participant under the
Incentive Stock Plan, nor shall the Incentive Stock Plan in any way interfere
with the right of Omega Research, subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or to increase or decrease the compensation of the participant from the rate in
existence at the time of the grant of an Award.
The Incentive Stock Plan and actions taken in connection therewith shall be
governed by and construed in accordance with the laws of the State of Florida,
regardless of the law that might otherwise govern under applicable Florida
principles of conflict of laws.
The board may amend, alter, suspend or discontinue the Incentive Stock Plan
at any time, but such amendment, alteration, suspension or discontinuation may
not adversely affect any outstanding Award without the consent of the holder. To
the extent necessary and desirable to comply with Rule 16b-3 under the
Securities Exchange Act of 1934, Section 422 of the Code, or the rules of The
Nasdaq Stock Market or any other applicable law or regulation, Omega Research
must obtain shareholder approval of certain amendments to the Incentive Stock
Plan in the manner and to the degree required by such laws and regulations,
including, without limitation, any amendment to the Incentive Stock Plan which
would change the class of persons eligible for grants of options or otherwise
materially modify the requirements as to eligibility for participation in the
Incentive Stock Plan or would increase the maximum number of shares reserved for
issuance under the Incentive Stock Plan. No Award shall be granted after June
29, 2006; provided, however, that the terms and conditions applicable to any
Award granted prior to such date may thereafter be amended or modified by mutual
agreement between Omega Research and the participant or such other persons as
may then have an interest therein. Also, by mutual agreement between Omega
Research and a participant under the Incentive Stock Plan or under any other
present or future plan of Omega Research, Awards may be granted to such
participant in substitution and exchange for, and in cancellation of, any Awards
previously granted such participant under the Incentive Stock Plan, or any other
present or future plan of Omega Research.
Awards granted to persons subject to Section 16 of the Securities Exchange
Act of 1934, referred to as "Section 16 Insiders," are subject to any additional
applicable restrictions under Rule 16b-3.
REGISTRATION OF UNDERLYING COMMON STOCK. On November 24, 1997, Omega
Research filed a Registration Statement on Form S-8 with the SEC in order to
register the 3,000,000 shares of common stock then reserved for issuance under
the Incentive Stock Plan. To the extent that such Registration Statement is
effective under the Securities Act of 1933, shares of common stock issued upon
the exercise of outstanding stock options granted under the Incentive Stock Plan
will be immediately and freely tradable without restriction under the Securities
Act of 1933, subject to applicable volume limitations, if any, under Rule 144
promulgated under the Securities Act of 1933 and, in the case of executive
officers of Omega Research, Section 16 of the Securities Exchange Act of 1934.
Subject to the approval of the increase in the number of shares of common stock
reserve for issuance to 7,500,000 by Omega Research shareholders and the
approval of the merger, it is currently contemplated that OnlineTrading.com
Group will file a Registration Statement on Form S-8 in order to register the
unissued shares of common stock reserved for issuance under the Incentive Stock
Plan which is being assumed by OnlineTrading.com Group.
OUTSTANDING AWARDS. As of December 31, 1999, options to purchase 3,478,869
shares were outstanding under the Incentive Stock Plan, of which options to
purchase 1,326,000 shares had been granted to executive officers of Omega
Research. During 1999, options granted to executive officers totaled options to
purchase 220,000 shares of common stock which were granted at exercise prices
ranging from $5.54 to $8.57 per share. In general, options granted under the
Incentive Stock Plan vest at the rate of 20% per year and have a total term of
ten years. The options which have been granted under the Incentive Stock Plan to
the executive officers of Omega Research immediately vest and become exercisable
upon termination of employment due to death or permanent disability, or upon a
sale or a change in control of Omega Research, and, in the case of Mr.
Parandjuk, upon termination of employment by Omega Research without cause. The
options to purchase the shares granted under the Incentive Stock Plan, the
Window On WallStreet options assumed by Omega Research (discussed below) and the
Nonemployee Director Stock Plan (defined and discussed below) that were
outstanding as of December 31, 1999
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have a weighted average exercise price of $3.49 per share. See Note 7 of Notes
to Omega Research Consolidated Financial Statements. To date, Omega Research has
not granted any SARs, Stock Awards, Performance Shares or Performance Units
under the Incentive Stock Plan.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief summary of the
applicable federal income tax consequences of Awards granted under the Incentive
Stock Plan based on U.S. federal income tax laws in effect on the date of this
joint proxy statement/prospectus. THIS SUMMARY IS NOT INTENDED TO BE EXHAUSTIVE
AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT'S DEATH OR THE
PROVISIONS OF ANY INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY
IN WHICH A GRANTEE MAY RESIDE.
No taxable income is recognized by a holder of an option upon the grant or
exercise of an ISO. No taxable ordinary income is recognized by the holder upon
the disposition of an incentive stock option by a holder, except to the extent
the incentive stock option affects the determination of the optionee's
alternative minimum taxable income under Section 56 of the Code, as discussed in
the paragraph below titled "Alternative Minimum Taxable Income Adjustment",
provided (i) no disposition of any share of Common Stock issued pursuant to the
exercise of the incentive stock option is made by the holder within two years
from the date of the grant of the incentive stock option nor within one year
after the transfer of such share to him or her; and (ii) the holder was an
employee of Omega Research at all times from the date of the grant of the
incentive stock option to the date, generally, three months before the date of
such exercise, that is, the holder may exercise the incentive stock option
within three months following his or her termination of employment without the
recognition of taxable income on such exercise.
If any share of common stock is transferred to a holder pursuant to his or
her exercise of an incentive stock option, and if no disqualifying disposition
of such share is made by the optionee, and the optionee is continuously employed
by Omega Research, then upon the subsequent disposition of such share by the
optionee: any amount realized in excess of the option exercise price is treated
as long-term capital gain, subject to various tax rates depending on how long
such share is held; any loss sustained is a long-term capital loss; and no
deduction under Section 162 of the Internal Revenue Code is allowed to Omega
Research for federal income tax purposes.
If any share of common stock transferred to an optionee pursuant to his or
her exercise of an incentive stock option is disposed of by the holder in a
disqualifying disposition, then for the taxable year of such disposition: the
optionee recognizes ordinary compensation income in an amount equal to the
lesser of (a) the excess, if any, of the fair market value of such share at the
time of the exercise of the option over the option exercise price and (b) the
amount realized on such disposition over the option exercise price; the basis of
such share is then increased by the amount of any income recognized, and any
additional gain or loss recognized by the optionee with respect to such share is
treated as short-term or long-term capital gain or loss, as the case may be,
depending on how long such share is held; and Omega Research is allowed
deduction in an amount equal to the holder's ordinary compensation income.
With respect to nonqualified stock options: no income is recognized by the
optionee at the time the option is granted; generally, at exercise, ordinary
income is recognized by the optionee in an amount equal to the difference
between the option exercise price paid for the shares and the fair market value
of the shares on the date of exercise, and Omega Research is entitled to an
employer tax deduction in the same amount; and upon disposition of the shares,
any gain or loss recognized (after increasing the basis of such shares by the
amount of any ordinary income previously recognized) is treated as short-term or
long-term capital gain or loss, as the case may be, depending on how long such
shares are held. To qualify for long-term capital gain treatment, such shares
will have to be held for more than one year and, if not, any short-term capital
gain shall be taxable at ordinary income tax rates. In the case of an optionee
who is also an employee at the time of grant, any income recognized upon
exercise of a nonqualified stock option will constitute wages for which federal
income tax withholding will be required.
With respect to stock appreciation rights, if the grantee elects to receive
the appreciation inherent in the Stock Appreciation Right in cash, the cash is
ordinary income, taxable to the grantee. If the grantee elects to receive the
appreciation in Omega Research's common stock, the stock received will be
ordinary income to the grantee to the extent of the difference between its fair
market value and the amount, if any, the grantee paid for the stock. Omega
Research is entitled to an employer tax deduction in the same amount of the
ordinary income.
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With respect to Stock Awards, generally, ordinary income is recognized to
the grantee on the date of grant in an amount equal to the difference between
the fair market value of the common stock awarded and the consideration paid by
the grantee, if any, for such shares and Omega Research is entitled to an
employer tax deduction in the same amount.
With respect to performance shares and performance units, generally,
ordinary income is recognized by the grantee upon receipt by the grantee of
shares of common stock or cash of an equivalent value or a combination of both
upon the expiration of the applicable period and Omega Research is entitled to
an employer tax deduction in the same amount.
The exercise by a holder of an incentive stock option granted under the
Incentive Stock Plan may subject the optionee to alternative minimum tax under
Section 56 of the Code. Under Section 56(b)(3) of the Internal Revenue Code, for
purposes of computing the amount of the alternative minimum taxable income of an
individual for any taxable year Section 83 (relating to nonqualified stock
options) as opposed to Section 421 (relating to incentive stock options) of the
Internal Revenue Code applies to the transfer of a share of common stock
pursuant to the exercise of an ISO (that is, the incentive stock option is
treated as nonqualified stock options) and the optionee must treat the
difference, if any, between the fair market value of the incentive stock option
and the option exercise price as an adjustment in determining alternative minium
taxable income under Section 56(b)(3) of the Internal Revenue Code in the first
taxable year in which the optionee's rights in such share are either
transferable or are not subject to a substantial risk of forfeiture under
Section 83(a) of the Internal Revenue Code. A holder may alter the timing and
amount of such an alternative taxable income adjustment, if any, by filing with
the Internal Revenue Service an election under Section 83(b) of the Internal
Revenue Code within thirty (30) days after the date of the exercise of an
incentive stock option. Such an alternative minimum taxable income adjustment,
if any, is also added to the basis of such share for purposes of determining
adjusted gain or loss under the alternate minimum tax upon disposition of such
share. No such alternative minimum tax adjustment is required if the exercise of
an incentive stock option and the subsequent disposition of such share occur
within the same taxable year.
WINDOW ON WALLSTREET ASSUMED OPTIONS
In October 1999, Omega Research assumed all outstanding stock options to
purchase Window On WallStreet common stock which, based on an exchange ratio of
.210974 shares of common stock for each share of Window On WallStreet common
stock, were exercisable at the time of assumption for an aggregate of 182,529
shares of common stock, 82,783 shares of common stock at an exercise price of
$.48 per share, and 99,746 shares of common stock at an exercise price of $8.06
per share. The Window On WallStreet options generally vest ratably over a
four-year period and their terms are ten years. As of December 31, 1999, there
were 176,783 Window On WallStreet options outstanding.
1997 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
The 1997 Nonemployee Director Stock Option Plan, as amended, pursuant to
which annual grants of a nonqualified stock option are made to each nonemployee
director of Omega Research, was adopted by the board of directors and approved
by the shareholders in July 1997. It was amended by the board of directors in
January 1998 to increase the number of shares that may be covered by an option
granted to nonemployee directors upon their initial election to the board. Upon
initial election to the board of directors, each nonemployee director may be
granted an option to purchase up to 75,000 shares of common stock as determined
by Omega Research's board of directors at such time. Upon each re-election to
the board of directors at the annual meeting of shareholders, each nonemployee
director will be granted an additional option to purchase 3,000 shares of common
stock. Each option will be granted at an exercise price equal to the fair market
value of the common stock on the date of grant. Omega Research has reserved
175,000 shares of common stock for issuance under the Nonemployee Director Stock
Option Plan, subject to antidilution adjustments. In August 1999, Mr. Smith was
awarded an additional option to purchase 3,000 shares at an exercise price of
$5.60 per share upon re-election to the board of directors and Stephen C.
Richards was issued an option to purchase 25,000 shares at an exercise price of
$5.60 per share upon his initial election to the board of directors. These
options have a term of five years and vest in equal installments over three
years. In August 1999, the vesting of Mr. Cotsakos's options to purchase 75,000
shares of common stock were accelerated upon his retirement from the board due
to his significant contribution to Omega Research, which
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permitted him to exercise any or all such options for 180 days following his
retirement from the board. As of December 31, 1999, options to purchase 128,000
shares were outstanding under the Nonemployee Director Stock Plan.
The board of directors has the power to amend the Nonemployee Director
Stock Option Plan from time to time. Shareholder approval of an amendment is
only required to the extent that it is necessary to maintain the Nonemployee
Director Stock Plan's status as a protected plan under applicable securities
laws.
1997 EMPLOYEE STOCK PURCHASE PLAN
The purchase plan was adopted by the board of directors and approved by
Omega Research's shareholders in July 1997. The purchase plan provides for the
issuance of a maximum of 500,000 shares of common stock pursuant to the exercise
of nontransferable options granted to participating employees.
The purchase plan is administered by the Compensation Committee of the
board of directors. All employees of Omega Research whose customary employment
is more than 20 hours per week and more than five months in any calendar year
and who have completed at least three months of employment are eligible to
participate in the purchase plan. Employees who would immediately after the
grant own 5% or more of the total combined voting power or value of Omega
Research's stock and the nonemployee directors of Omega Research may not
participate in the purchase plan. To participate in the Purchase Plan, an
employee must authorize Omega Research to deduct an amount not less than one
percent nor more than ten percent of a participant's total cash compensation
from his or her pay during six-month periods (each a "Plan Period"). The maximum
number of shares of common stock an employee may purchase in any Plan Period is
500 shares. The exercise price for the option for each Plan Period is 85% of the
lesser of the market price of the common stock on the first or last business day
of the Plan Period. If an employee is not a participant on the last day of the
Plan Period, such employee is not entitled to exercise his or her option, and
the amount of his or her accumulated payroll deductions will be refunded. An
employee's rights under the Purchase Plan terminate upon his or her voluntary
withdrawal from the purchase plan at any time or upon termination of employment.
No options were granted under the Purchase Plan during 1997. The first Plan
Period began January 1, 1998. During the years ended December 31, 1999 and 1998,
23,585 and 12,506 shares, respectively, of common stock were issued under the
plan at an average price of $3.27 and $3.06, respectively.
The board of directors has the power to amend or terminate the purchase
plan. Shareholder approval of an amendment is only required to the extent that
it is necessary to maintain the purchase plan's status as a protected plan under
applicable securities laws or as a qualified plan under applicable tax laws.
401(K) PLAN
Omega Research has a defined contribution retirement plan which complies
with Section 401(k) of the Code. All employees with at least three months of
continuous service are eligible to participate and may contribute up to 15% of
their compensation. Company contributions are vested 20% for each year of
service. Matching contributions accrued under the 401(k) Plan amounted to
approximately $242,000, $0 and $63,000 in 1999, 1998 and 1997, respectively.
NON-COMPETITION AGREEMENTS
Virtually all employees of Omega Research, including the Named Executive
Officers, have entered into agreements with Omega Research which generally
contain certain non-competition, non-disclosure and non-solicitation
restrictions and covenants, including a provision prohibiting such employees
from competing with Omega Research during their employment with Omega Research
and for a period of two years thereafter.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Omega Research formed the Compensation Committee of the board of directors,
consisting solely of the two independent directors, in January 1998. As of the
date of this joint proxy statement/prospectus, Omega Research's current
independent directors, Stephen C. Richards and Brian D. Smith, constitute the
Compensation Committee. Mr. Richards had replaced Christos M. Cotsakos, a prior
independent director, in August 1999. The compensation, including salaries,
bonuses and stock options, of Omega Research's executive officers for 1999 was
determined by the Compensation Committee. In 1999, neither member of the
Compensation Committee had any relationship with Omega Research requiring
disclosure under Item 404 of Regulation S-K.
DIRECTOR COMPENSATION
Omega Research's Independent Directors receive $750 for attendance at each
meeting of the board of directors and each committee thereof, with an additional
$150 paid for each committee meeting which is chaired by an Independent
Director. Pursuant to the Nonemployee Director Stock Plan, each Independent
Director also receives an option to purchase up to 75,000 shares of common stock
upon initial election as a director of Omega Research as determined by Omega
Research's board of directors at such time, and an option to purchase 3,000
shares of common stock upon each re-election as an Independent Director at Omega
Research's annual meeting of shareholders. See "Other Compensation
Arrangements--1997 Nonemployee Director Stock Option Plan." All directors may
also be reimbursed for certain expenses in connection with attendance at board
of directors and committee meetings. Other than with respect to reimbursement of
expenses, directors who are employees or officers of Omega Research do not
receive additional compensation for service as a director. During 1999, Mr.
Richards received a one-time retainer of $10,000 in connection with his initial
appointment to the board of directors.
CERTAIN TRANSACTIONS
For information concerning cash dividends paid by Omega Research to its
shareholders in 1997 (including the $15.4 million dividend which was paid by
Omega Research to its then-existing shareholders immediately prior to the
consummation of Omega Research's initial public offering) and the dividend of
Omega Research's former office facilities to William R. Cruz and Ralph L. Cruz
declared in the second quarter of 1997, see "Comparative Per Share Data -- Omega
Research/OnlineTrading.com Group Dividend Policy."
Omega Research and William R. Cruz, Ralph L. Cruz and certain of their
respective affiliates (collectively, the "Cruz Shareholders") have entered into
an S Corporation Tax Allocation and Indemnification Agreement (the "Tax
Agreement") relating to the $15.4 million dividend and their respective income
tax liabilities. The Tax Agreement provides that to the extent Omega Research's
earnings during the period in which it was an S corporation ("S Corporation
Earnings"), as subsequently established by the filing of Omega Research's tax
return for Omega Research's short S corporation tax year, are less than the
$15.4 million dividend paid prior to the consummation of Omega Research's
initial public offering, the Cruz Shareholders will make a payment equal to such
difference to Omega Research and if the S Corporation Earnings are greater than
the $15.4 million dividend, Omega Research will make an additional distribution
equal to such difference to William R. Cruz and Ralph L. Cruz, in either case,
with interest thereon. Subject to certain limitations, the Tax Agreement also
provides for the cross-indemnification of the Cruz Shareholders and Omega
Research for any federal and state income taxes, including interest and
penalties, if any, as a result of a final determination of a taxing authority
that increases or decreases the taxable income of Omega Research for an S
corporation taxable year, resulting in a change in the income taxes due by the
Cruz Shareholders for such year, and causes a corresponding increase or decrease
in the taxable income of Omega Research for a C corporation taxable year. Each
party's obligation under the Tax Agreement is limited to the amount of any
reduction in such party's tax liability as a result of any such determination.
To the extent a payment is made pursuant to the Tax Agreement by Omega Research
to the Cruz Shareholders after the one year anniversary of the date on which
Omega Research's S corporation status terminated, except to the extent it
relates to the change of Omega Research's method of accounting from the cash
method to the accrual method effective on July 1, 1997, Omega Research will be
required to make an additional payment to the Cruz Shareholders equal to any
income taxes payable by such persons on such payments. Omega Research will not
receive a tax deduction for any payments made pursuant to the Tax Agreement. The
Cruz Shareholders have not provided security for their obligations under the Tax
Agreement; accordingly, Omega Research's ability to collect any such payments
will be dependent upon the
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financial condition of such persons at the time such payments are to be made.
Omega Research is not aware of any tax adjustments which might require payments
under the Tax Agreement other than related to the change in accounting method.
Marc J. Stone, Omega Research's Vice President of Corporate Development,
General Counsel and Secretary and a director, was a partner in a predecessor law
firm to Bilzin Sumberg until immediately prior to joining Omega Research in May
1997. Thereafter, Mr. Stone was of counsel to the predecessor firm and is
currently of counsel to Bilzin Sumberg. Bilzin Sumberg and its predecessor firms
have acted as Omega Research's regular outside legal counsel since 1994. The
total fees and costs paid by Omega Research to the predecessor firm of Bilzin
Sumberg, Rubin Baum Levin Constant Friedman & Bilzin, in 1999, 1998 and 1997
were approximately $84,000, $10,000, and $349,000, respectively, and to Bilzin
Sumberg in 1999 and 1998 were approximately $87,000 and $69,000, respectively.
Omega Research believes that the fees paid are no less favorable to Omega
Research than could be obtained from comparable law firms in the Miami area.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF OMEGA RESEARCH
The following table sets forth certain information regarding the beneficial
ownership of Omega Research's common stock as of June 5, 2000 by each person who
is known to Omega Research to own beneficially more than 5% of Omega Research's
common stock, each director of Omega Research, each Named Executive Officer, and
all directors and executive officers of Omega Research as a group. Except as
otherwise described in the footnotes below, Omega Research believes that the
beneficial owners of the common stock listed below, based on information
provided by such owners, have sole investment and voting power with respect to
such shares. The address of each person who beneficially owns more than 5% of
the common stock is Omega Research's principal executive office.
Shares Beneficially Owned(1)
-----------------------------
Name of Beneficial Owner (1) Number Percent
---------------------------- ------ -------
William R. Cruz(2) 9,156,654 37.3%
Ralph L. Cruz(3) 9,156,554 37.3
Peter A. Parandjuk 203,550 *
Salomon Sredni 130,750 *
Marc J. Stone 80,000 *
Janette Perez 43,000 *
Brian D. Smith 16,666 *
Stephen C. Richards 14,000 *
All executive officers and
directors as a group (9 persons)(4) 18,801,174 75.1%
--------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
that deem shares to be beneficially owned by any person who has or shares
voting or investment power with respect to such shares. Includes options
held by executive officers and/or directors which are exercisable within 60
days of June 5, 2000. Does not include any shares of Common Stock that may
be deemed beneficially owned by OnlineTrading.com as a result of that
certain Omega Shareholder Agreement dated January 19, 2000 among
OnlineTrading.com Group, OnlineTrading.com and certain of Omega Research's
shareholders or that certain Omega Stock Option Agreement dated January 19,
2000 between Omega Research and OnlineTrading.com, both of which were
executed in connection with the merger agreement.
(2) Includes 1,950,000 shares held by a Texas limited partnership as to which
William R. Cruz possesses sole voting and dispositive powers through his
direct and indirect 100% ownership of a Texas limited liability company that
is the 1% sole general partner of such limited partnership. William R. Cruz
and the William R. Cruz 1999 Grantor Retained Annuity Trust #1 are the
limited partners. The William R. Cruz 1999 Grantor Retained Annuity Trust #1
provides for annual distributions of principal and income to William R. Cruz
for
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five years commencing with respect to calendar year 1999, and thereafter
any remainder interest is payable to the William R. Cruz 1997 Family Trust
for the benefit of certain family members and/or charitable organizations.
Also includes 7,206,554 shares held by another Texas limited partnership as
to which William R. Cruz possesses sole voting and dispositive powers
through his 100% ownership of the sole general partner of such limited
partnership. William R. Cruz is the sole limited partner. Does not include
900 shares owned by the spouse of William R. Cruz with respect to which Mr.
Cruz disclaims beneficial ownership.
(3) The shares are held by two Texas limited partnerships as to which Ralph L.
Cruz possesses sole voting and dispositive powers through his direct and/or
indirect 100% ownership of the sole general partner of each of such limited
partnerships. In one limited partnership Ralph L. Cruz is the sole limited
partner and in the other Ralph L. Cruz and his spouse are the limited
partners.
(4) See other footnotes above.
SELECTED INFORMATION WITH RESPECT TO ONLINETRADING.COM
EXECUTIVE OFFICERS AND DIRECTORS
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 40 Chief Executive Officer, Chairman of the Board and Director
E. Steven zum Tobel 33 President, Acting Chief Financial Officer, Treasurer and Director
Farshid Tafazzoli 28 Chief Information Officer and Director
Derek J. Hernquist 28 Vice President of Operations, Secretary and Director
Lothar Mayer 60 Director
Eldren P. Nalley 80 Director
Robert A. Scarpetti 41 Director
</TABLE>
ANDREW A. ALLEN. Mr. Allen is OnlineTrading.com's Chairman, Chief Executive
Officer and a co-founder. He co-founded OnlineTrading.com in September 1995. 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; Spear, Leeds & Kellogg; Oppenheimer
& Company, and Schonfeld Securities, LLC. Mr. Allen was also a member of the
Chicago Board of Options Exchange from 1985 to 1995 and served on its Appeals
Committee. Due to personal family reasons, Mr. Allen is resigning from
OnlineTrading.com immediately following the effective time of the merger.
E. STEVEN ZUM TOBEL. Mr. zum Tobel is OnlineTrading.com's President and acting
Chief Financial Officer. Mr. zum Tobel has over 12 years experience relating to
the brokerage industry with areas of expertise in financial reporting,
compliance, and operations as a certified public accountant and managing partner
of zum Tobel & Ling, LLP, an audit and tax practice specializing in the
brokerage industry, and as Vice President of Securities Consultants
International LLC, a national brokerage consulting firm. Mr. zum Tobel received
a B.A. degree in finance and an MBA with a concentration in finance from Florida
Atlantic University.
FARSHID TAFAZZOLI. Mr. Tafazzoli is OnlineTrading.com's Chief Information
Officer and a co-founder. He co-founded OnlineTrading.com in September 1995. Mr.
Tafazzoli has over six years experience as a systems specialist in the brokerage
industry including positions with Spear, Leeds & Kellogg, the largest specialist
firm on the New York Stock Exchange, and Gulfstream Partners. Mr. Tafazzoli
received a B.S. in Administrative Studies from Nova Southeastern University.
DEREK J. HERNQUIST. Mr. Hernquist is OnlineTrading.com's Vice President of
Operations. Mr. Hernquist has over seven years experience in the brokerage
industry beginning with Olde Discount Brokerage and later in his own trading and
investing partnership. Mr. Hernquist received a B.S. in finance from the
University of Arizona.
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ROBERT SCARPETTI. Mr. Scarpetti is a director and employee of OnlineTrading.com.
Mr. Scarpetti has over 15 years experience in the brokerage industry as
president of Newport Discount Brokerage, Inc., an NASD registered broker-dealer.
In December of 1999, in connection with OnlineTrading.com's acquisition of the
principal assets of Newport Discount Brokerage, Inc., Mr. Scarpetti joined
OnlineTrading.com as an employee and director.
LOTHAR MAYER. Mr. Mayer is a director of OnlineTrading.com. Mr. Mayer is the
President of Liberty Hardware Manufacturing Corp., a subsidiary of Masco Corp.
(NYSE: MAS). Mr. Mayer has held this position for over 21 years. Mr. Mayer is
also a chartered and certified public accountant.
ELDREN P. NALLEY. Mr. Nalley is a director of OnlineTrading.com. He is currently
retired but, in addition to serving on OnlineTrading.com's board, serves on the
board of directors of Invacare Corp. (NYSE: IVC) and Royal Appliance
Manufacturing (NYSE: RAM). Mr. Nalley has served on the boards of Invacare and
Royal Appliance for over twenty years.
In conjunction with the pending merger and consolidation of certain
accounting and financial reporting responsibilities, effective April 18, 2000
Anthony M. Palermo resigned his position as Chief Financial Officer of
OnlineTrading.com. Mr. Palermo has decided to return to public accounting with
his former employer Ahearn, Jasco + Company, P.A. Upon Mr. Palermo's
resignation, the Company's President, E. Steven zum Tobel, assumed the
responsibilities of Chief Financial Officer until a successor is appointed.
There is no family relationship between any of the officers, key employees
and directors.
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. 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
OnlineTrading.com's officers and directors, and persons who own more than ten
percent of a registered class of OnlineTrading.com's equity securities, to file
reports of ownership and changes in ownership with the SEC. Officers, directors
and greater than ten percent shareholders are required by SEC regulations to
furnish OnlineTrading.com with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to
OnlineTrading.com and written representations that no Forms 5 were required when
applicable, OnlineTrading.com believes that during the fiscal year ended January
31, 2000 all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with,
except with respect to the Forms 3 for Messrs. Scarpetti and Nalley which were
filed late on April 4, 2000 due to an administrative oversight.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid by OnlineTrading.com
during the fiscal years ended January 31, 1999 and January 31, 2000 to
OnlineTrading.com's Chief Executive Officer and each other executive officer
whose annual compensation exceeded $100,000 during said fiscal years
(collectively the "Named Executive Officers"). OnlineTrading.com's directors do
not receive compensation for serving in this capacity.
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Annual Compensation
---------------------------
Fiscal Salary Bonus All Other
Name and Principal Position Year $ $(1) Compensation $
------------------------------------------------------------------------------
Andrew A. Allen 2000 200,000 -- --
Chairman and Chief Executive 1999 74,000 525,000 --
Officer
Farshid Tafazzoli 2000 193,333 -- --
Chief Information Officer and 1999 72,000 293,100 --
Director
E. Steven zum Tobel 2000 120,000 -- --
President, Treasurer and 1999 60,000 55,000 26,000(3)
Director (2)
Derek J. Hernquist 2000 38,662 -- 495,473(4)
Vice President of Operations, 1999 60,000 82,000 --
Secretary and Director
------------------
(1) OnlineTrading.com 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. See "Employment Agreements" below.
(2) Mr. zum Tobel began his employment with OnlineTrading.com in March 1998.
(3) Represents the value of shares issued in connection with Mr. zum Tobel's
employment.
(4) Represents commissions earned on OnlineTrading.com's net proprietary trading
gains and losses.
EMPLOYMENT AGREEMENTS
OnlineTrading.com has entered into five-year employment agreements with
Messrs. Allen and Tafazzoli which provide for an annual base compensation of
$200,000 each 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 said employees to 5% of pre-tax earnings.
Moreover, Messrs. Allen, Tafazzoli, zum Tobel, and Hernquist have agreed not to
receive any bonuses until such time as OnlineTrading.com 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 OnlineTrading.com's current or anticipated business during the
term of the employment agreement and for a period of one year thereafter.
The employment agreements of Messrs. Allen and Tafazzoli contain
change-in-control provisions. These provisions allow the employee to receive
certain additional compensation upon termination of employment following a
change in control of OnlineTrading.com. Mr. Tafazzoli has agreed to waive said
rights in connection with the pending merger with Omega Research, and Mr. Allen
has agreed to an alternative arrangement given his post-merger departure
discussed below.
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Mr. zum Tobel received 444,444 shares of common stock in connection with his
employment. However, a portion of these shares are subject to redemption by
OnlineTrading.com 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.
In connection with its December 1999 acquisition of the principal assets of
Newport Discount Brokerage, Inc., OnlineTrading.com entered into a three-year
employment agreement with Mr. Scarpetti, a director of the company, which
provides for an annual base compensation of $100,000 and a discretionary bonus.
Mr. Scarpetti's employment agreement contains a provision that Mr. Scarpetti
will not compete or engage in a business competitive with OnlineTrading.com's
current or anticipated business during the term of the employment agreement and
for a period of two years thereafter unless Mr. Scarpetti's involvement with a
competitor does not represent activities which comprise more than 20% of
OnlineTrading.com's revenue.
Upon closing of the merger with Omega Research, the current employment
agreements of Messrs. Tafazzoli, zum Tobel and Hernquist shall be replaced by
new two-year employment agreements which shall provide for annual base
compensation of $200,000, $150,000 and $100,000 respectively. Due to personal
family matters, Mr. Allen has decided to resign upon closing of the merger with
Omega Research. In connection with such resignation, Mr. Allen shall be entitled
to severance payment as discussed elsewhere in this joint proxy
statement/prospectus.
STOCK OPTION PLAN
Under OnlineTrading.com's 1999 Stock Option Plan, 1,000,000 shares of
common stock are reserved for issuance upon exercise of the options. The stock
option 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 OnlineTrading.com as determined by the board of directors or
a committee thereof in their sole discretion.
OnlineTrading.com's board of directors, or a committee thereof, administers
and interprets the stock option plan and is authorized to grant options
thereunder to all eligible employees, including directors and executive officers
(whether current or former employees), as well as consultants and independent
contractors. The stock option plan provides for the granting of both "incentive
stock options," as defined in Section 422 of the Internal Revenue Code, and
nonstatutory stock options. Incentive stock options may only be granted,
however, to employees. Options can be granted under the stock option 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
stock option 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 stock option plan. The per share
exercise price of nonstatutory stock options granted under the stock option plan
will not be less than 85% of the fair market value of the common stock on the
date of grant.
Options under the stock option 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 $100,000.
Options granted under the stock option plan will be exercisable after the
period or periods specified in the option agreement. Incentive stock options
granted to employees will vest in equal installments over a period of five years
commencing on the first anniversary of the date of grant. Options granted under
the stock option plan are not exercisable after the expiration of ten years from
the date of the grant and are not transferable other than by will or by the laws
of descent and distribution. Adjustments in the number of shares subject to
options granted under the stock option plan can be made by the board of
directors or the appropriate committee in the event of a stock dividend or
recapitalization resulting in a stock split-up, combination or exchange of
shares.
OPTIONS GRANTED DURING FISCAL YEAR END JANUARY 31, 2000
All options granted to the Named Executive Officers and the former Chief
Financial Officer, Anthony M. Palermo, are stated in the table below. No options
have been exercised by any of the Named Executive Officers. All of the options
granted to such officers and directors terminate on the ten-year anniversary of
their grant dates.
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<TABLE>
<CAPTION>
Percent of
Total
Number of Options
Securities Granted to Exercise or
Underlying Employees in Base Price Expiration
Name Options Granted Fiscal Year ($)(sh) Date
---- --------------- ----------- ------- ----
<S> <C> <C> <C> <C>
Andrew A. Allen -- -- -- --
Farshid Tafazzoli -- -- -- --
E. Steven zum Tobel -- -- -- --
Derek J. Hernquist -- -- -- --
Anthony M. Palermo 12,500 3% $7.00 06/11/2009
</TABLE>
AGGREGATE OPTION EXERCISES DURING FISCAL YEAR-END JANUARY 31, 2000 AND FISCAL
YEAR-END OPTION VALUES
The following table provides information regarding the value of all
unexercised options held at January 31, 2000 by the Named Executive Officers and
the former Chief Financial Officer, Anthony M. Palermo, measured in terms of the
closing market price of OnlineTrading.com's common stock on January 31, 2000. No
Named Executive Officer exercised any stock options during the fiscal year end
January 31, 2000.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options At January 31, 2000 At January 31, 2000 (1)
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Andrew A. Allen -- -- -- --
Farshid Tafazzoli -- -- -- --
E. Steven zum Tobel -- -- -- --
Derek J. Hernquist -- -- -- --
Anthony M. Palermo -- 12,500 -- $33,594
</TABLE>
------------------
(1) Based on a per share price of $9.6875 on January 31, 2000, which was the
closing market price of OnlineTrading.com's common stock on the last day of
OnlineTrading.com's fiscal year, less the exercise price.
CERTAIN TRANSACTIONS
LOANS BY SHAREHOLDERS
In December 1998, a former director of OnlineTrading.com renewed a
subordinated loan to OnlineTrading.com in the amount of $400,000. The
outstanding principal balance and accrued interest was paid in full to him on
November 30, 1999.
OnlineTrading.com was a co-underwriter of its initial public offering. In
order to increase the firm's excess net capital, the primary shareholders of
OnlineTrading.com provided temporary subordinated loans to OnlineTrading.com
during the days prior to the consummation of the initial public offering. On
June 6, 1999, Messrs. Allen and Tafazzoli, and a former director loaned
OnlineTrading.com $100,000 each and Mr. zum Tobel loaned OnlineTrading.com
$60,000. All of these loans including interest at a rate of 7% per annum were
repaid on June 23, 1999.
RIGHT TO REDEEM SHARES OF E. STEVEN ZUM TOBEL
In February 1998, OnlineTrading.com issued 444,444 shares of common stock to
E. Steven zum Tobel as additional consideration for Mr. zum Tobel agreeing to
join the company. Pursuant to the terms of Mr. zum Tobel's employment agreement,
OnlineTrading.com may redeem a portion of these shares at Mr. zum Tobel's cost
basis in
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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."
REDEEMED PREFERRED STOCK
On July 14, 1999, OnlineTrading.com redeemed the then outstanding preferred
stock held by a former director for 110% of the stated value, or $330,000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
ONLINETRADING.COM
The following table sets forth information regarding beneficial ownership
of OnlineTrading.com's common stock as of June 5, 2000, by (1) each person who
owns beneficially more than 5% of OnlineTrading.com's outstanding common stock,
(2) each of the Named Executive Officers, and (3) all directors and executive
officers as a group.
Shares Beneficially Owned (1)
-----------------------------
Name and Address of Beneficial Owner(2) Number Percent
--------------------------------------------------------------------------------
Andrew A. Allen (3) 2,725,926 23.4%
Farshid Tafazzoli (4) 2,725,926 23.4
E. Steven zum Tobel (5) 444,444 3.9
Derek J. Hernquist 266,666 2.3
Benedict S. Gambino 2,725,926 23.4
Lothar Mayer (6) 22,500 *
Eldren P. Nalley (7) 10,000 *
Robert A. Scarpetti -- --
All Directors and executive officers as a group 6,195,462 53.4%
(7 persons)
--------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
that deem shares to be beneficially owned by any person who has or shares
voting or investment power with respect to such shares.
(2) The business address of all employee directors, executive officers and Mr.
Nalley is c/o OnlineTrading.com, 2700 North Military Trail, Suite 200, Boca
Raton, Florida 33431. The business address of Mr. Mayer is 5200 Town Center
Circle, Suite 105, Boca Raton, Florida 33486.
(3) Includes shares held Andrew A. Allen Family Limited Partnership.
(4) Shares held by Tafazzoli Family Limited Partnership.
(5) Includes shares which may be redeemed by OnlineTrading.com if Mr. zum Tobel
terminates his employment with OnlineTrading.com on or before February 28,
2001. Shares held by zum Tobel Family Limited Partnership.
(6) Shares held by Mayer Investments, LP.
(7) Shares held by Eldren P. Nalley Declaration of Trust DTD.
DESCRIPTION OF SECURITIES
OF ONLINETRADING.COM GROUP
The authorized capital stock of OnlineTrading.com Group consists of 225
million shares, of which 200 million shares are common stock, par value $0.01
per share, and 25 million shares are preferred stock, par value $0.01 per share.
As of April 10, 2000, there were 100 shares of common stock outstanding held of
record by Omega Research, which will be cancelled upon consummation of the
merger, and no shares of preferred stock outstanding. Upon completion of the
merger a maximum of approximately 44,264,594 shares of OnlineTrading.com Group
common stock will be issued and outstanding assuming the maximum exchange ratio
of 1.7172 shares of OnlineTrading.com Group common stock for each share of
OnlineTrading.com common stock.
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The following description of the capital stock of OnlineTrading.com Group
and certain provisions of OnlineTrading.com Group's Articles and Bylaws is a
summary and is qualified in its entirety by the provisions of the Articles and
Bylaws, which have been filed as exhibits to OnlineTrading.com Group's
Registration Statement, of which this joint proxy statement/prospectus is a
part.
COMMON STOCK
The issued and outstanding shares of common stock are, and the common stock
to be sold by OnlineTrading.com Group subject to completion of the merger will
be, validly issued, fully paid and nonassessable. Subject to the rights of
holders of preferred stock which may be issued in the future, the holders of
outstanding OnlineTrading.com Group common stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the board of directors of OnlineTrading.com Group may from time to
time determine. The shares of common stock are neither redeemable nor
convertible, and the holders thereof have no preemptive or subscription rights
to purchase any securities of OnlineTrading.com Group. Upon liquidation,
dissolution or winding up of OnlineTrading.com Group, the holders of common
stock are entitled to receive, pro rata, the assets of OnlineTrading.com Group
which are legally available for distribution, after payment of all debts and
other liabilities and subject to the prior rights of any holders of preferred
stock then outstanding. Each outstanding share of OnlineTrading.com Group common
stock is entitled to one vote on all matters submitted to a vote of
shareholders. There is no cumulative voting in the election of directors.
PREFERRED STOCK
OnlineTrading.com Group's Articles authorize the board of directors to
issue the preferred stock in classes or series and to establish the
designations, preferences, qualifications, limitations or restrictions of any
class or series with respect to the rate and nature of dividends, the amounts
payable upon liquidation, the price and terms and conditions on which shares may
be redeemed, the terms and conditions for conversion or exchange into any other
class or series of shares, voting and preemptive rights and other terms.
OnlineTrading.com Group may issue, without approval of the holders of common
stock, preferred stock which has voting, dividend or liquidation rights superior
to the common stock and which may adversely affect rights of holders of common
stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of common stock
and could have the effect of discouraging, delaying, deferring or preventing a
change in control of OnlineTrading.com Group. OnlineTrading.com Group has no
present intention to issue any preferred stock.
CERTAIN PROVISIONS OF FLORIDA LAW
OnlineTrading.com Group is subject to Sections 607.0901 and 607.0902 of the
Florida Business Corporation Act. In general, Section 607.0901 restricts the
ability of a greater than 10% shareholder of a company to engage in a wide range
of specified transactions between such company and such shareholder or a person
or entity controlled by or controlling such shareholder. The statute provides
that such a transaction must be approved by the affirmative vote of the holders
of two-thirds of such company's voting shares, other than the shares
beneficially owned by the interested shareholder, unless it is approved by a
majority of the disinterested directors. Section 607.0902 restricts the ability
of a third party to effect an unsolicited change in control of a company. In
general, the statute provides that, unless approved by the board of directors of
OnlineTrading.com Group, shares acquired in a transaction which effects a
certain threshold change in the ownership of OnlineTrading.com Group's voting
shares (a "control share acquisition") have the same voting rights as shares
held by the acquiring person prior to the acquisition only to the extent granted
by a resolution adopted by shareholders in a prescribed manner. These statutory
provisions have an anti-takeover effect by deterring unsolicited offers or
delaying changes in control or management of OnlineTrading.com Group.
CERTAIN CHARTER AND BYLAW PROVISIONS
OnlineTrading.com Group's Articles and Bylaws contain a number of
provisions related to corporate governance and to the rights of shareholders. In
particular, the Bylaws provide that shareholders are required to follow an
advance notification procedure for certain shareholder nominations of candidates
for the board of
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directors and for certain other shareholder business to be conducted at any
meeting of the shareholders. The Articles provide that special meetings of the
shareholders may be called by the board of directors or by holders of not less
than 50% of the outstanding voting shares of OnlineTrading.com Group. The
Articles require that, upon completion of the merger, any actions to be taken by
the shareholders of OnlineTrading.com Group may be taken only upon the vote of
the shareholders at a meeting and may not be taken by written consent. The
existence of these provisions in OnlineTrading.com Group's Articles and Bylaws
may have the effect of discouraging a change in control of OnlineTrading.com
Group and limiting shareholder participation in certain transactions or
circumstances by limiting shareholders' participation to annual and special
meetings of shareholders and making such participation contingent upon adherence
to certain prescribed procedures. The affirmative vote of the holders of shares
equal to at least 66-2/3% of the outstanding capital stock is required to amend
or repeal these provisions.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
OnlineTrading.com Group's Articles contain a provision eliminating the
personal liability of its directors for monetary damages resulting from breaches
of their fiduciary duty to the extent permitted by the Florida Business
Corporation Act. This provision in the Articles does not eliminate the duty of
care and, in appropriate circumstances, equitable remedies such as an injunction
or other forms of non-monetary relief would remain available under Florida law.
Each director will continue to be subject to liability for breach of a
director's duty of loyalty to OnlineTrading.com Group or its shareholders, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, and for any transaction from which the director
derived an improper personal benefit. This provision also does not affect a
director's responsibilities under any other laws, such as the federal securities
laws or state or federal environmental laws.
OnlineTrading.com Group's Articles and Bylaws provide that
OnlineTrading.com Group will indemnify its directors and officers, and may
indemnify its employees and other agents, to the fullest extent permitted by
law. OnlineTrading.com Group's Bylaws also permit it to secure insurance on
behalf of any person it is required or permitted to indemnify for any liability
arising out of his or her actions in such capacity, regardless of whether the
Articles or Bylaws would permit indemnification. OnlineTrading.com Group intends
to obtain liability insurance for its directors and officers.
In addition to the indemnification provided for in OnlineTrading.com
Group's Articles and Bylaws, OnlineTrading.com Group intends to enter into
agreements to indemnify its directors and its executive officers. These
agreements, among other things will indemnify OnlineTrading.com Group's
directors and executive officers for all direct and indirect expenses and costs,
including, without limitation, all reasonable attorneys' fees and related
disbursements, other out-of-pocket costs and reasonable compensation for time
spent by such persons for which they are not otherwise compensated by
OnlineTrading.com Group or any third person, and liabilities of any type
whatsoever, including, but not limited to, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by such persons in connection with
either the investigation, defense, settlement or appeal of any threatened,
pending or completed action, suit or other proceeding, including any action by
or in the right of OnlineTrading.com Group, arising out of such persons'
services as a director, officer, employee or other agent of OnlineTrading.com
Group, any subsidiary of OnlineTrading.com Group or any other company or
enterprise to which such persons provide services at the request of
OnlineTrading.com Group. OnlineTrading.com Group believes that these provisions
and agreements are necessary to attract and retain talented and experienced
directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of OnlineTrading.com Group where
indemnification will be required or permitted. OnlineTrading.com Group is not
aware of any threatened litigation or proceeding that might result in a claim
for such indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for OnlineTrading.com Group common stock
will be American Stock Transfer & Trust Company, New York, New York.
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NASDAQ NATIONAL MARKET LIST AND SYMBOL
OnlineTrading.com Group common stock, subject to being approved for listing
on The Nasdaq National Market (which is a condition to the closing of the
merger), will trade under the symbol "OTRD."
COMPARISON OF RIGHTS OF HOLDERS OF
ONLINETRADING.COM COMMON STOCK AND
OMEGA RESEARCH AND ONLINETRADING.COM GROUP COMMON STOCK
This section of the joint proxy statement/prospectus describes certain
differences between the rights of holders of OnlineTrading.com common stock, on
the one hand, and Omega Research/OnlineTrading.com Group common stock, on the
other hand. While we believe that the description covers the material
differences between the two, this summary may not contain all of the information
that is important to you. You should carefully read this entire document and the
other documents we refer to for a more complete understanding of the differences
between being a shareholder of OnlineTrading.com and being a shareholder of
Omega Research or OnlineTrading.com Group.
The rights of OnlineTrading.com shareholders are currently governed by
OnlineTrading.com's Amended and Restated Articles of Incorporation and Articles
of Amendment to Articles of Incorporation, as currently in effect, and
OnlineTrading.com's Amended and Restated By-Laws. The rights of Omega Research
shareholders are currently governed by Omega Research's Second Amended and
Restated Articles of Incorporation, as currently in effect, and Omega Research's
Second Amended and Restated Bylaws. The rights of OnlineTrading.com Group
shareholders are currently governed by OnlineTrading.com Group's Articles of
Incorporation and Articles of Amendment to Articles of Incorporation, as
currently in effect, and OnlineTrading.com Group's Bylaws. Because each of the
foregoing corporations is incorporated under the laws of the State of Florida,
the rights of their respective shareholders are governed by Chapter 607, Florida
Statutes (the "Florida Business Corporation Act") and relevant Florida case law.
If the proposed merger is consummated, OnlineTrading.com and Omega Research
shareholders will receive shares of OnlineTrading.com Group's capital stock in
exchange for their respective shares of capital stock in OnlineTrading.com or
Omega Research, as the case may be. Because OnlineTrading.com Group is also a
Florida corporation, the rights of the former OnlineTrading.com and Omega
Research shareholders (now shareholders of OnlineTrading.com Group) will
continue to be governed by Florida law.
The articles of incorporation and bylaws of OnlineTrading.com Group are
identical in all material respects to those of Omega Research. However, the
OnlineTrading.com articles of incorporation and bylaws differ in certain
respects from the comparable documents of Omega Research and OnlineTrading.com
Group. The following description summarizes the material differences which may
affect the rights of shareholders of OnlineTrading.com but does not purport to
be a comprehensive statement of all such differences or a complete description
of the specific provisions referred to in this summary. The identification of
specific differences is not intended to suggest that other equally or more
significant differences do not exist. Shareholders should carefully read the
relevant provisions of the Florida Business Corporation Act and the respective
articles of incorporation and bylaws of OnlineTrading.com, Omega Research and
OnlineTrading.com Group.
AUTHORIZED CAPITAL
ONLINETRADING.COM. The authorized capital stock of OnlineTrading.com
consists of 100 million shares of OnlineTrading.com common stock, par value
$0.01 per share, and one million shares of OnlineTrading.com preferred stock,
par value $0.01 per share. As of June 5, 2000, there were _____ shares of
OnlineTrading.com common stock outstanding.
OMEGA RESEARCH. The authorized capital stock of Omega Research consists of
100 million shares of Omega Research common stock, par value $0.01 per share,
and 25 million shares of Omega Research preferred stock, par value $0.01 per
share. As of June 5, 2000, there were ____ shares of Omega Research common stock
outstanding.
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ONLINETRADING.COM GROUP. The authorized capital stock of OnlineTrading.com
Group consists of 200 million shares of OnlineTrading.com Group common stock,
par value $0.01 per share, and 25 million shares of OnlineTrading.com Group
preferred stock, par value $0.01 per share. As of the date of this prospectus,
there were 100 shares of OnlineTrading.com Group common stock outstanding, all
of which were owned by Omega Research and which will be cancelled upon
consummation of the merger.
VOTING POWER OF COMMON STOCK
ONLINETRADING.COM. According to the OnlineTrading.com bylaws, each
outstanding share, regardless of class, is entitled to vote on each matter
submitted to a vote at a meeting of shareholders. Each shareholder entitled to
vote may do so by proxy in writing.
OMEGA RESEARCH/ONLINETRADING.COM GROUP. According to the respective Omega
Research and OnlineTrading.com Group bylaws, each outstanding share, regardless
of class, is entitled to vote on each matter submitted to a vote at a meeting of
shareholders. However, shares of the corporation are not entitled to vote if
they are owned by a second corporation, and the corporation owns a majority of
the shares entitled to vote for directors of the second corporation. In
addition, redeemable shares are not entitled to vote on any matter after notice
of redemption is mailed to the holders thereof and a sum sufficient to redeem
such shares has been deposited with a financial institution. Each shareholder
entitled to vote may do so by proxy in writing.
Further, the respective Omega Research and OnlineTrading.com Group bylaws
provide that one or more shareholders may create a voting trust, conferring on a
trustee the right to vote on their behalf by signing an agreement setting out
the provisions of the trust and transferring their shares to a trustee. In
addition, two or more shareholders may provide for the manner in which they vote
their shares by signing an agreement for that purpose.
BOARD OF DIRECTORS
ONLINETRADING.COM. The OnlineTrading.com bylaws provide that the number of
directors of OnlineTrading.com may consist of three to ten people, with the
exact number to be determined by a resolution of the board of directors. The
term of each director is one year or until such time as the director's successor
is duly elected. Directors are elected by a plurality vote of shareholders
entitled to vote on the election of directors.
OMEGA RESEARCH/ONLINETRADING.COM GROUP. The respective bylaws of Omega
Research and OnlineTrading.com Group provide that the board of directors shall
consist of three directors, subject to increase or decrease as determined by the
board or by amendment to such bylaws. Directors are elected at the first annual
shareholders' meeting and at each annual meeting thereafter. Otherwise, a
majority of the votes cast at any meeting of shareholders at which directors are
elected shall elect directors. Upon consummation of the merger,
OnlineTrading.com Group's board of directors will be comprised of eight
directors.
REMOVAL OF DIRECTORS
ONLINETRADING.COM. The OnlineTrading.com bylaws provide that directors may
be removed only for cause by the affirmative vote of two-thirds or more of the
outstanding shares of stock entitled to vote for the election of directors.
OMEGA RESEARCH/ONLINETRADING.COM GROUP. The respective bylaws of Omega
Research and OnlineTrading.com Group provide that the shareholders may remove
one or more directors with or without cause at a meeting of shareholders,
provided that the notice of meeting states that the purpose, or one of the
purposes, of such meeting is removal of the director. Directors elected by a
particular voting group may only be removed by the shareholders of that voting
group.
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FILLING VACANCIES ON THE BOARD OF DIRECTORS
ONLINETRADING.COM. According to OnlineTrading.com's bylaws, vacancies
arising on the board of directors may be filled by the affirmative vote of a
majority of the remaining directors, even if no quorum remains. The shareholders
may not fill a vacancy on the board of directors.
OMEGA RESEARCH/ONLINETRADING.COM GROUP. The respective bylaws of Omega
Research and OnlineTrading.com Group provide that vacancies arising on the board
of directors may be filled by the affirmative vote of a majority of the
remaining directors, even if no quorum remains, or by the shareholders.
ACTIONS BY WRITTEN CONSENT
ONLINETRADING.COM. The OnlineTrading.com bylaws provide that no action
required or permitted to be taken by OnlineTrading.com shareholders may be taken
by written consent.
OMEGA RESEARCH/ONLINETRADING.COM GROUP. The Omega Research articles of
incorporation and bylaws provide that no action required or permitted to be
taken by Omega Research shareholders may be taken by written consent.
The articles of incorporation and bylaws of OnlineTrading.com Group provide
that until a registration statement on Form S-4 of the corporation is filed with
and declared effective by the SEC, action of shareholders may be taken if signed
written consents are obtained by the holders of not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted. After the
effectiveness of the registration statement, OnlineTrading.com Group's articles
of incorporation and bylaws provide that no action required or permitted to be
taken by OnlineTrading.com Group shareholders may be taken by written consent.
AMENDMENT OF ARTICLES OF INCORPORATION
ONLINETRADING.COM. The Florida Business Corporation Act generally requires,
subject to certain exceptions, approval by a majority of directors and by
holders of a majority of the shares entitled to vote on any amendment to a
Florida corporation's articles of incorporation. In addition, the amendment must
be approved by a majority of the votes entitled to be cast on the amendment by
any class or series of shares with respect to which the amendment would create
dissenters' rights. The board of directors must recommend the amendment to the
shareholders, unless the board of directors determines that, because of a
conflict of interest or other special circumstances, it should make no
recommendation and communicates the basis for such determination to the
shareholders together with the amendment. The OnlineTrading.com articles of
incorporation follow the provisions of the Florida Business Corporation Act,
except that provisions of OnlineTrading.com's articles of incorporation relating
to the following matters cannot be amended, modified or repealed unless such
amendment, modification or repeal is adopted by an affirmative vote of holders
of not less than two-thirds of the outstanding shares entitled to vote thereon:
(i) the calling of special meetings of shareholders; and (ii) the amendment of
OnlineTrading.com's bylaws.
OMEGA RESEARCH/ONLINETRADING.COM GROUP. The respective bylaws of Omega
Research and OnlineTrading.com Group provide that the board of directors may
adopt specified limited amendments to the articles of incorporation without
shareholder action, including:
o the deletion of information of historical interest;
o the declaration of a stock split of issued and unissued authorized
shares of an outstanding class of stock, if the corporation has only
shares of that class outstanding;
o the removal of authorization for a class or series of shares, if no
shares of such class or series have been issued; and
o making any other changes expressly permitted by the Florida Business
Corporation Act to be made without shareholder action.
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In addition, specified provisions of the respective articles of
incorporation of Omega Research and OnlineTrading.com Group relating to the
following matters cannot be amended, modified or repealed unless such amendment,
modification or repeal is adopted by an affirmative vote of holders of not less
than two-thirds of the outstanding shares entitled to vote thereon unless
recommended to the shareholders by a majority of the then directors of the
corporation, in which case only an affirmative vote of a majority of the
outstanding shares shall be required: (i) advance notice of shareholder
nominations for election of directors and of new business to be brought at a
shareholders' meeting; (ii) the calling of special meetings of shareholders;
(iii) the elimination of shareholders' actions by written consent without a
meeting; and (iv) liability of directors.
AMENDMENT OF BYLAWS
ONLINETRADING.COM. The articles of incorporation and bylaws of
OnlineTrading.com state that the bylaws may be altered, amended or repealed by
either the board of directors or the shareholders of OnlineTrading.com. However,
certain provisions of the bylaws relating to the following matters cannot be
amended, modified or repealed unless such amendment, modification or repeal is
adopted by an affirmative vote of holders of not less than two-thirds of the
outstanding shares entitled to vote thereon: (i) the calling of special meetings
of shareholders; (ii) the elimination of shareholders actions by written consent
without a meeting; (iii) advance notice of shareholder proposed business at
annual shareholders' meeting; (iv) the powers, responsibilities, election and
removal of directors; and (v) the amendment of the bylaws.
OMEGA RESEARCH/ONLINETRADING.COM GROUP. The respective bylaws of Omega
Research and OnlineTrading.com Group state that the bylaws may be altered,
amended or repealed by either the board of directors or the shareholders.
However, the board may not alter, amend or repeal the bylaws generally or a
particular bylaw adopted by the shareholders if the shareholders expressly
preclude the board from doing so.
NOTICE OF CERTAIN SHAREHOLDER ACTIONS
ONLINETRADING.COM. According to the OnlineTrading.com bylaws,
OnlineTrading.com is required to notify shareholders of the date, time and place
of each annual and special meeting not less than ten or more than sixty days
before the meeting date. Only notices of special meetings must include a
description of the purpose or purposes for which the meeting is called. Meetings
may be held without notice if all the shareholders entitled to vote are present
and do not object at the beginning of the meeting or if notice is waived by
those not present.
Notice must be given at the direction of the president, the secretary or
the officer or persons calling the meeting. Notice must be written and must be
given to each shareholder at the shareholder's address as it appears on the
stock transfer records of OnlineTrading.com.
For nominations or other business to be properly brought before an annual
meeting by a shareholder, the shareholder must give written notice, which
includes information concerning the shareholder as well as information as to the
person whom the shareholder proposes to nominate or a description of and reason
for the business desired, to the secretary of OnlineTrading.com at its principal
executive offices. Such notice must be delivered to OnlineTrading.com not later
than the 60th day, nor earlier than the 90th day, prior to the meeting. If
notice to the shareholders or public disclosure of the date of the meeting is
made less than seventy days before the date of the meeting, notice by the
shareholder must be delivered not later than the close of business on the 10th
day following the day on which notice of the meeting was mailed or public
disclosure was made, whichever occurred first.
Furthermore, nominations of persons for election to the board may be made
at a special meeting of shareholders at which directors are to be elected
pursuant to notice of meeting by or at the direction of the board by any
shareholder entitled to vote for the election of directors at the meeting. If
OnlineTrading.com calls a special meeting for the purpose of electing directors,
any such shareholder may nominate a person(s) for election if the shareholder's
notice described above is delivered to the secretary of OnlineTrading.com at its
principal executive offices not later than the 60th day, nor earlier than the
90th day, prior to the special meeting. If notice to the shareholders or public
disclosure of the date of the special meeting is made less than seventy days
before the date of the meeting, notice by the shareholder must be delivered not
later than the close of business on the 10th day
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following the day on which notice of the special meeting was mailed or public
disclosure was made, whichever occurred first.
OMEGA RESEARCH/ONLINETRADING.COM GROUP. According to the respective bylaws
of Omega Research and OnlineTrading.com Group, the corporation is required to
notify shareholders entitled to vote at the meeting of the date, time and place
of each annual and special meeting not less than ten or more than sixty days
before the meeting date. Only notices of special meetings must include a
description of the purpose or purposes for which the meeting is called. Meetings
may be held without notice if all the shareholders entitled to vote are present
or if notice is waived by those not present.
No notice of a shareholders' meeting need be given to a shareholder if (i)
an annual report and proxy statement for two consecutive annual meetings or (ii)
all, and at least two checks in payment of dividends or interest during a
twelve-month period have been sent by first-class United States mail, addressed
to the shareholder at his, her or its address as it appears on the share
transfer books of the corporation, and returned undeliverable. The obligation of
the corporation to provide notice to a shareholder will be reinstated once the
corporation has received a new address for the shareholder.
Notice must be given at the direction of the president, the secretary or
the officer or persons calling the meeting. Notice must be written and may be
communicated in person, by telegraph, teletype or other form of electronic
communication or by mail.
For nominations or other business to be properly brought before an annual
meeting by a shareholder, the shareholder must give written notice, which
includes information concerning the shareholder as well as information as to the
person whom the shareholder proposes to nominate or a description of and reason
for the business desired, to the secretary of the corporation at its principal
executive offices. Such notice must be delivered to the corporation not later
than the close of business on the 60th day, nor earlier than the close of
business on the 90th day, prior to the first anniversary of the preceding year's
annual meeting. If such annual meeting is more than thirty days before or more
than sixty days after such anniversary date, notice by the shareholder must be
delivered not earlier than the close of business on the 90th day prior to such
annual meeting and not later than the close of business on the later of the 60th
day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
corporation.
Furthermore, nominations of persons for election to the board of directors
may be made at a special meeting of shareholders at which directors are to be
elected pursuant to notice of meeting (i) by or at the direction of the board or
(ii) provided that the board has determined that directors will be elected at
such meeting, by any shareholder who (A) is a shareholder of record at the time
of giving notice, (B) is entitled to vote for the election of directors at the
meeting and (C) complies with notice procedures. If the corporation calls a
special meeting for the purpose of electing directors, any such shareholder may
nominate a person(s) for election if the shareholder's notice described above is
delivered to the secretary of the corporation at its principal executive offices
no earlier than the close of business on the 90th day prior to such special
meeting and not later than the 60th day prior to such annual meeting or the 10th
day following the day on which public announcement is first made of the special
meeting and the nominees proposed by the board.
SPECIAL MEETINGS
ONLINETRADING.COM. The articles of incorporation and bylaws of
OnlineTrading.com provide that special meetings of the shareholders may be
called only by (i) the board of directors pursuant to a resolution approved by a
majority of the board, (ii) the chief executive officer or (iii) the holders of
at least one-third (1/3) of the outstanding shares of capital stock.
OMEGA RESEARCH/ONLINETRADING.COM GROUP. According to the respective
articles of incorporation of Omega Research and OnlineTrading.com Group, special
meetings of the shareholders may be called only by the board of directors or by
the holders of not less than fifty percent (50%) of all votes entitled to be
cast on any issue to be considered at the proposed special meeting.
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DISSENTERS' OR APPRAISAL RIGHTS
ONLINETRADING.COM. Under the Florida Business Corporation Act, any
shareholder of a Florida corporation has the right to dissent from, and obtain
the fair value of his or her shares in the event of, a plan of merger to which
the corporation is a party if the shareholder is entitled to vote on the merger,
or if the shareholder is a shareholder of a subsidiary that is merged with its
parent in accordance with the provisions of the Florida Business Corporation Act
relating to the merger of subsidiaries. Shareholders will also have rights to
dissent from any corporate action taken to the extent that the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his or her shares. The OnlineTrading.com articles
of incorporation and bylaws do not contain any provisions granting these
additional rights to dissent.
OMEGA RESEARCH/ONLINETRADING.COM GROUP. Under the Florida Business
Corporation Act, unless the articles of incorporation of a corporation otherwise
provide, dissenters rights will not be available to the holders of any shares of
any class or series which, on the applicable date, were either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the NASD, or held of record by not fewer
than 2,000 shareholders. Omega Research's common stock is designated as a
National Market System Security being listed on The Nasdaq National Market and,
accordingly, dissenters rights will not be available with respect to the merger.
Similarly, OnlineTrading.com Group will be listed on The Nasdaq National Market
so dissenters' rights will not be available in any future merger or other
business combination or similar transaction. Neither the Omega Research nor the
OnlineTrading.com Group articles of incorporation or the bylaws contain any
provisions granting dissenters' or appraisal rights.
EXPERTS
The consolidated financial statements of Omega Research, Inc. and
subsidiaries included elsewhere in this joint proxy statement/prospectus have
been audited by Arthur Andersen LLP, independent certified public accountants,
as set forth in their report with respect hereto, and are included herein in
reliance upon the authority of such firm as experts in giving said report.
The financial statements of onlinetradinginc.com corp. included elsewhere
in this joint proxy statement/prospectus as of and for the year ended January
31, 2000 have been audited by Arthur Andersen LLP, independent certified public
accountants, and are included herein in reliance upon the authority of such firm
as experts in giving said report.
The statement of financial condition of onlinetradinginc.com corp. as of
January 31, 1999 and the related statements of income, changes in stockholders'
equity and cash flows for the year ended January 31, 1999 included in this joint
proxy statement/prospectus have been audited by Ahearn, Jasco + Company, P.A.,
independent auditors, as stated in their report appearing with the financial
statements herein, and this report is included in reliance on their authority as
experts in accounting and auditing.
Representatives of Arthur Andersen LLP and Ahearn, Jasco + Company, P.A. are
not expected to be present at the special meetings of Omega Research or
OnlineTrading.com.
LEGAL MATTERS
The validity of the shares of OnlineTrading.com Group's common stock
offered by this joint proxy statement/prospectus and the federal income tax
consequences in connection with the merger will be passed upon for
OnlineTrading.com Group and Omega Research by Bilzin Sumberg Dunn Price &
Axelrod LLP, Miami, Florida. Certain legal matters with respect to federal
income tax consequences in connection with the merger will be passed upon for
OnlineTrading.com by Broad and Cassel, Miami, Florida.
WHERE YOU CAN FIND MORE INFORMATION
OnlineTrading.com and Omega Research file annual, quarterly and special
reports, proxy statements and other information with the SEC. You may read and
copy any reports, statements or other information we file at the
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Commission's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from commercial document retrieval services and at the web site
maintained by the SEC at http://www.sec.gov.
OnlineTrading.com Group has filed a registration statement with the SEC to
register OnlineTrading.com Group's common stock to be issued to Omega Research
and OnlineTrading.com shareholders in the merger. This joint proxy
statement/prospectus is a part of that registration statement and constitutes a
prospectus of OnlineTrading.com Group in addition to being a joint proxy
statement of Omega Research and OnlineTrading.com for the special meeting of
shareholders of each of Omega Research and OnlineTrading.com.
As allowed by the SEC's rules, this joint proxy statement/prospectus does
not contain all of the information relating to OnlineTrading.com Group, Omega
Research and OnlineTrading.com you can find in the registration statement or the
exhibits to the registration statement. If you are a shareholder, you can obtain
a copy of the registration statement and/or the exhibits to the registration
statement through Omega Research, OnlineTrading.com, or the SEC. If from one of
us, you may obtain such documents by requesting them orally or in writing to the
following addresses or by telephone:
Omega Research, Inc. OnlineTrading.com
Investor Relations Investor Relations
8700 West Flagler Street 2700 N. Military Trail
Suite 250 Suite 200
Miami, Florida 33174 Boca Raton, Florida 33431
(305) 485-7000 (561) 995-1010
If you would like to request documents, please do so by _________, 2000 in
order to receive them before the Omega Research or OnlineTrading.com special
meeting of shareholders.
Omega Research has supplied all information contained in this joint proxy
statement/prospectus relating to OnlineTrading.com Group and Omega Research, and
OnlineTrading.com has supplied all information contained in this joint proxy
statement/prospectus relating to OnlineTrading.com. Neither Omega Research nor
OnlineTrading.com warrants the accuracy or completeness of information relating
to the other.
You should rely only on the information contained in this joint proxy
statement/prospectus to vote on the merger. Neither Omega Research nor
OnlineTrading.com has authorized anyone to provide you with information that is
different from what is contained in this joint proxy statement/prospectus. This
joint proxy statement/prospectus is dated __________, 2000. You should not
assume that the information contained in the joint proxy statement/prospectus is
accurate as of any other date, and neither the mailing of this joint proxy
statement/prospectus to shareholders nor the issuance of OnlineTrading.com Group
common stock in the merger shall create any implication to the contrary.
SHAREHOLDER PROPOSALS
Each of Omega Research and OnlineTrading.com will hold its 2000 annual
meeting of shareholders only if the merger is not consummated. In the event
either such meeting is held, any proposal that a shareholder wishes to have
presented at the next annual meeting of shareholders and included in the proxy
materials of Omega Research or OnlineTrading.com (as the case may be) must be
received at the main office of either Omega Research, 8700 West Flagler Street,
Miami, Florida 33134 no later than ______, 2000 or at OnlineTrading.com at 2700
N. Military Trail, Suite 200, Boca Raton, Florida 33431, no later than sixty
days nor more than ninety days prior to the publicly-announced date of its
annual meeting of shareholders. If such proposal is in compliance with the
bylaws of the applicable company and all of the requirements of Rule 14a-8 of
the Securities Exchange Act of 1934, it will be included in the proxy statement
and set forth on the form of proxy issued for the 2000 annual meeting of
shareholders in the event that the merger is not consummated.
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OTHER MATTERS
Neither Omega Research's nor OnlineTrading.com's board of directors has any
knowledge of any other matters which may come before its company's special
meeting nor intends to present any other matters. However, if any other matters
shall properly come before the special meeting or any adjournment or
postponements thereof, the persons named as proxies will have discretionary
authority to vote the shares represented by the proxy accompanying this joint
proxy statement/prospectus in accordance with their best judgment.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains forward-looking statements
within the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995 with respect to Omega Research and OnlineTrading.com's financial
condition, results of operations, business strategies, competitive positions,
growth opportunities for existing products and services, plans and objectives of
management, the expected financial performance, business and prospects of
OnlineTrading.com Group as a result of the merger, and the parties' plans to
execute the objectives of the merger. Statements in this joint proxy
statement/prospectus that are not historical facts are hereby identified as
"forward-looking statements" for the purpose of the safe harbor provided by
Section 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933. Such forward-looking statements, including, without
limitation, those relating to the future business prospects, revenues and
income, in each case relating to Omega Research and OnlineTrading.com, wherever
they occur in this joint proxy statement/prospectus, are necessarily estimates
reflecting the best judgment of the senior management of Omega Research and
OnlineTrading.com and involve a number of risks and uncertainties that could
cause actual results to differ materially from those suggested by the
forward-looking statements. Such forward-looking statements should, therefore,
be considered in light of various important factors, including the risks and
uncertainties set forth in this joint proxy statement/prospectus. See
particularly "RISK FACTORS."
Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates," "would," "should," "could," "will," "might," "may,"
"predicts," "plans" and similar expressions indicate forward-looking statements.
These forward-looking statements are found at various places throughout this
joint proxy statement/prospectus. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this joint proxy statement/prospectus. Neither Omega Research nor
OnlineTrading.com undertake any obligation to publicly update or release any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this joint proxy statement/prospectus or to reflect the
occurrence of unanticipated events.
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<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
----
<S> <C>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants..............................................................F-2
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 and 1998.....................F-3
Consolidated Statements of Operations for the three months ended March 31, 2000
and 1999 (unaudited) and for the years ended December 31, 1999, 1998 and 1997...................................F-4
Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2000 (unaudited)
and for the years ended December 31, 1999, 1998 and 1997........................................................F-5
Consolidated Statements of Cash Flows for the three months ended March 31, 2000
and 1999 (unaudited) and for the years ended December 31, 1999, 1998 and 1997...................................F-6
Notes to Consolidated Financial Statements...................................................................F-7-22
ONLINETRADINGINC.COM CORP.
Reports of Independent Certified Public Accountants.........................................................F-23-24
Financial Statements
Statements of Financial Condition.........................................................................F-25
Statements of Income......................................................................................F-26
Statement of Changes in Stockholders' Equity..............................................................F-27
Statements of Cash Flows..................................................................................F-28
Notes to Financial Statements...............................................................................F-29-40
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Omega Research, Inc.:
We have audited the accompanying consolidated balance sheets of Omega
Research, Inc. (a Florida corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. 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 auditing standards generally
accepted in the United States. 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 Omega Research, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/s/ Arthur Andersen LLP
-----------------------------------
ARTHUR ANDERSEN LLP
Miami, Florida,
February 18, 2000.
F-2
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OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999 1998
------------ ------------ ------------
ASSETS (unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,537,436 $ 2,175,852 $ 7,649,771
Marketable securities 1,695,304 1,695,304 5,736,958
Accounts receivable, net 10,619,733 13,695,059 9,659,700
Inventory 131,355 67,371 283,065
Income tax receivable 5,307,105 436,106 --
Other current assets 690,853 1,033,277 696,440
Deferred income taxes 6,133,000 9,192,000 4,541,000
------------ ------------ ------------
Total current assets 26,114,786 28,294,969 28,566,934
PROPERTY AND EQUIPMENT, net 2,659,199 2,611,454 2,020,832
OTHER ASSETS 1,023,771 473,344 186,676
------------ ------------ ------------
Total assets $ 29,797,756 $ 31,379,767 $ 30,774,442
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,297,198 $ 2,786,739 $ 1,487,128
Notes payable -- -- 600,000
Accrued expenses 2,081,738 1,861,321 1,171,452
Deferred revenue 1,621,062 1,256,824 380,133
------------ ------------ ------------
Total current liabilities 6,999,998 5,904,884 3,638,713
LONG TERM DEBT -- -- 2,640,925
------------ ------------ ------------
Total liabilities 6,999,998 5,904,884 6,279,638
------------ ------------ ------------
COMMITMENTS & CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 25,000,000
shares authorized, none issued and
outstanding -- -- --
Common stock, $.01 par value; 100,000,000
shares authorized, 24,557,010, 24,475,104 and
24,017,512 issued and outstanding at March 31,
2000, December 31, 1999 and 1998, respectively 245,570 244,751 240,176
Additional paid - in capital 26,844,275 26,560,893 24,618,780
Accumulated deficit (4,292,087) (1,330,761) (364,152)
------------ ------------ ------------
Total shareholders' equity 22,797,758 25,474,883 24,494,804
------------ ------------ ------------
Total liabilities and shareholders' equity $ 29,797,756 $ 31,379,767 $ 30,774,442
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31, For the Years Ended December 31,
----------------------------- ----------------------------------------------
2000 1999 1999 1998 1997
----------------------------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $ 5,547,296 $ 8,445,460 $ 33,767,832 $ 25,057,098 $ 27,729,549
Subscription services 902,834 322,904 1,777,779 179,043 --
Other revenues 1,950,445 1,667,020 7,324,358 6,474,612 5,220,899
------------ ------------ ------------ ------------ ------------
Total net revenues 8,400,575 10,435,384 42,869,969 31,710,753 32,950,448
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees 272,295 589,500 2,190,693 2,459,952 2,688,277
Cost of subscription services 539,374 253,288 794,716 34,493 --
Product development 1,827,503 1,192,647 5,144,658 4,001,981 2,355,716
Sales and marketing 7,572,860 4,067,341 18,979,103 15,573,786 12,217,117
General and administrative 2,996,211 2,907,159 12,435,758 8,545,073 7,465,942
Acquisition costs -- -- 1,200,000 -- --
------------ ------------ ------------ ------------ ------------
Total operating expenses 13,208,243 9,009,935 40,744,928 30,615,285 24,727,052
------------ ------------ ------------ ------------ ------------
(Loss) income from operations (4,807,668) 1,425,449 2,125,041 1,095,468 8,223,396
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE), net:
Interest expense -- (170,494) (1,691,185) (907,196) (265,469)
Other income, net 34,342 109,146 445,535 435,181 195,995
------------ ------------ ------------ ------------ ------------
Total other income (expense), net 34,342 (61,348) (1,245,650) (472,015) (69,474)
------------ ------------ ------------ ------------ ------------
(Loss) income before income
taxes (4,773,326) 1,364,101 879,391 623,453 8,153,922
INCOME TAX (BENEFIT)
PROVISION (1,812,000) 714,000 1,846,000 1,052,000 (934,000)
------------ ------------ ------------ ------------ ------------
Historical net (loss) income $ (2,961,326) $ 650,101 $ (966,609) $ (428,547) --
Income before pro forma income
tax adjustments -- -- -- -- 9,087,922
PRO FORMA INCOME TAX
ADJUSTMENTS (Note 1):
Pro forma income taxes for periods
prior to September 30, 1997 -- -- -- -- 3,255,731
Non-recurring tax credit -- -- -- -- 1,167,000
------------ ------------ ------------ ------------ ------------
Pro forma net income -- -- -- -- $ 4,665,191
============ ============ ============ ============ ============
HISTORICAL (LOSS) EARNINGS
PER SHARE (Note 10):
Basic $ (0.12) $ .03 $ (0.04) $ (0.02) --
============ ============ ============ ============ ============
Diluted $ (0.12) $ .02 $ (0.04) $ (0.02) --
============ ============ ============ ============ ============
PRO FORMA EARNINGS PER
SHARE (Note 10):
Basic -- -- -- -- $ 0.21
============ ============ ============ ============ ============
Diluted -- -- -- -- $ 0.21
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional Retained
---------------------------- Paid-In Earnings
Shares Amount Capital (Deficit) Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 21,137,884 $ 211,379 $ -- $ 4,092,388 $ 4,303,767
Issuances of common stock 2,766,108 27,661 27,412,784 -- 27,440,445
Cash distributions to shareholders, net -- -- -- (16,532,826) (16,532,826)
Non-cash distributions to shareholders -- -- -- (506,781) (506,781)
Conversion from S corporation to
C corporation -- -- (3,788,670) 3,788,670 --
Compensation expense on stock
option grants -- -- 122,041 -- 122,041
Issuance of detachable warrants by
pooled company in conjunction
with issuance of notes -- -- 102,896 -- 102,896
Net income -- -- -- 9,087,922 9,087,922
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1997 23,903,992 239,040 23,849,051 (70,627) 24,017,464
Issuances of common stock 23,856 239 54,749 -- 54,988
Compensation expense on stock
option grants -- -- 113,877 -- 113,877
Issuance of detachable warrants by
pooled company in conjunction
with issuance of notes -- -- 126,000 -- 126,000
Conversion of detachable warrants
into common stock by pooled
company upon non-payment of notes 89,664 897 475,103 -- 476,000
Repayment of distributions -- -- -- 135,022 135,022
Net loss -- -- -- (428,547) (428,547)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1998 24,017,512 240,176 24,618,780 (364,152) 24,494,804
Issuances of common stock 205,145 2,051 463,671 -- 465,722
Compensation expense on stock
option grants -- -- 140,796 -- 140,796
Issuance of common stock by pooled
company upon non-payment of notes 252,447 2,524 1,337,646 -- 1,340,170
Net loss -- -- -- (966,609) (966,609)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1999 24,475,104 244,751 26,560,893 (1,330,761) 25,474,883
Issuances of common stock (unaudited) 81,906 819 244,963 -- 245,782
Compensation expense on stock
option grants (unaudited) -- -- 38,419 -- 38,419
Net loss (unaudited) -- -- -- (2,961,326) (2,961,326)
------------ ------------ ------------ ------------ ------------
BALANCE, March 31, 2000 24,557,010 $ 245,570 $26,844,275 $(4,292,087) $22,797,758
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31, For the Years Ended December 31,
----------------------------- ----------------------------------------------
2000 1999 1999 1998 1997
----------------------------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
(Loss) income before pro forma income tax
adjustments $ (2,961,326) $ 650,101 $ (966,609) $ (428,547) $ 9,087,922
Adjustments to reconcile (loss) income before
pro forma income tax adjustments to net cash
(used in) provided by operating activities:
Depreciation and amortization 332,360 213,729 1,097,104 742,966 717,083
Provision for doubtful accounts 1,274,000 1,184,857 5,721,857 2,222,834 2,450,736
Compensation expense on stock option
grants 38,418 42,781 140,796 113,877 122,041
Noncash interest associated with the
conversion of detachable warrants into
common stock by pooled
company upon nonpayment of notes -- 77,804 1,340,170 476,000 --
Deferred income tax benefit 3,059,000 (1,968,000) (4,651,000) (1,578,000) (2,963,000)
(Increase) decrease in:
Accounts receivable 1,801,326 (2,915,040) (9,757,216) (1,877,540) (7,543,001)
Inventory (63,984) 176,103 215,694 132,803 (276,061)
Other current assets 342,425 59,346 (449,013) (168,380) (515,476)
Other assets (564,572) (106,450) (217,293) 128,672 (1,315)
Income tax receivable (4,871,000) -- (324,105) -- --
Increase (decrease) in:
Accounts payable 510,459 839,555 1,299,611 (25,042) 942,453
Accrued expenses 220,417 2,665,793 689,869 558,239 235,784
Income taxes payable -- -- -- (509,000) 509,000
Deferred revenue 364,238 1,043,486 876,691 243,863 --
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by operating
activities (518,239) 1,964,065 (4,983,444) 32,745 2,766,166
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (365,960) (482,347) (1,608,782) (1,310,391) (1,081,398)
Capitalized software development costs -- -- -- -- (48,694)
Purchases of marketable securities -- -- -- (5,722,368) (1,014,590)
Proceeds from maturity of marketable securities -- -- 4,041,654 1,000,000 --
Acquisition of data rights and customer lists -- (85,000) (120,000) (222,900) (40,000)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by investing
activities (365,960) (567,347) 2,312,872 (6,255,659) (2,184,682)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock, net 245,783 139,377 465,722 54,988 27,440,445
Proceeds from issuance of warrants by
pooled company -- -- -- -- 3,222
Repayments from (distributions to)
shareholders, net -- -- -- 135,022 (16,532,826)
Proceeds from borrowings of debt -- 64,061 815,422 855,750 15,238,712
Repayment of borrowings of debt -- -- (4,084,491) -- (15,001,594)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing
activities 245,783 203,438 (2,803,347) 1,045,760 11,147,959
------------ ------------ ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (638,416) 1,600,156 (5,473,919) (5,177,154) 11,729,443
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,175,852 7,649,771 7,649,771 12,826,925 1,097,482
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,537,436 $ 9,249,927 $ 2,175,852 $ 7,649,771 $ 12,826,925
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ -- $ -- $ -- $ 17,979
============ ============ ============ ============ ============
Cash paid for income taxes $ -- $ 300,000 $ 6,933,366 $ 3,138,740 $ 1,520,000
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION:
Effective June 30, 1997, Omega Research declared a dividend, distributing land
and a building with a carrying value of $506,781, to its shareholders.
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All notes and related disclosures applicable to the three
months ended March 31, 2000 and 1999 are unaudited)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Omega Research, Inc. (together with its subsidiaries, "Omega Research"), a
Florida corporation, was incorporated in 1982 to develop, market and sell
trading strategy tools to individual and professional investors and traders.
Omega Research's products and services provide investors and traders with the
ability to develop, historically test and computer automate trading strategies
and to access streaming real-time charts, quotes and news via the Internet.
The following is a summary of significant accounting policies followed in
the preparation of these financial statements:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Omega
Research and its direct and indirect wholly owned subsidiaries, Window on
WallStreet Inc. ("Window On WallStreet") and Direct XChange Securities, Inc. All
significant intercompany transactions have been eliminated in consolidation.
INTERIM FINANCIAL DATA
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as of
March 31, 2000, the results of operations for the three months ended March 31,
2000 and 1999 and cash flows for the three months ended March 31, 2000 and 1999
have been made. Certain amounts included in the prior year's consolidated
financial statements have been reclassified to conform to the current year's
presentation. The results of operations and cash flows for an interim period are
not necessarily indicative of the results of operations or cash flows which may
be reported for the year or for any subsequent period.
CASH AND CASH EQUIVALENTS
Omega Research considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents consist primarily of overnight investments, tax exempt commercial
paper and short-term municipal bonds with an original maturity of three months
or less.
MARKETABLE SECURITIES
Marketable securities consist of investment grade municipal bonds maturing,
on average, within a year. The cost of these investments approximates fair
market value and management has designated the securities as available for sale.
ACCOUNTS RECEIVABLE
Accounts receivable are principally from individuals and distributors of
Omega Research's products. Omega Research performs periodic credit evaluations
and maintains allowances for potential credit losses of approximately $7.6
million (unaudited), $6.3 million and $3.7 million at March 31, 2000, December
31, 1999 and 1998,
F-7
<PAGE>
respectively. Additionally, Omega Research maintains allowances for potential
returns of approximately $8.7 million (unaudited), $23.2 million and $7.5
million at March 31, 2000, December 31, 1999 and 1998, respectively.
Omega Research provides all client software customers with a 30-day right
of return, and, as a result, records a provision for returns at the time of
sale. Omega Research, depending on the circumstances, permits customers to
return client software products after the 30-day period in order to maintain as
high a level of customer satisfaction as possible. The reserve for returns and
the provision for bad debt, in accordance with generally accepted accounting
principles, are estimated based on historical experience and other relevant
information. There is no certainty that future returns or bad debt will not
exceed established estimates. In addition, Omega Research is subject to rapid
changes in technology and shifts in consumer demand which could result in
product returns, in the near term, that are materially different than Omega
Research's reserves that have been provided.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, marketable securities,
accounts receivable, accounts payable, notes payable and long term debt
approximate fair value as of December 31, 1999 and 1998.
INVENTORY
Inventory, which consists primarily of software media, manuals and related
packaging materials, are stated at the lower of cost or market with cost
determined on a first-in, first-out ("FIFO") basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets.
Maintenance and repairs are charged to expense when incurred; betterments
are capitalized. Upon the sale or retirement of assets, the cost and accumulated
depreciation are removed from the accounts, and any gain or loss is recognized
currently.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, ACCOUNTING FOR THE COST OF CAPITALIZED SOFTWARE TO BE SOLD, LEASED OR
OTHERWISE MARKETED, Omega Research examines its software development costs after
technological feasibility has been established to determine the amount of
capitalization that is required. Based on Omega Research's product development
process, technological feasibility is established upon completion of a working
model. The costs that are capitalized are amortized on the straight-line basis
over a one- year period, the period of benefit, of the related products. For
certain periods, the technological feasibility of Omega Research's products and
the general release of such software substantially coincide, and, as a result,
software development costs qualifying for capitalization are immaterial. There
were no capitalized software development costs as of December 31, 1999 or 1998.
LONG-LIVED ASSETS
Omega Research reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
F-8
<PAGE>
REVENUE RECOGNITION
LICENSING FEES
Sales of client software products, net of provisions for estimated returns,
are recognized at the time the product is shipped, in accordance with the
provisions of the American Institute of Certified Public Accountants Statement
of Position ("SOP") 97-2, SOFTWARE REVENUE RECOGNITION. SOP 97-2 requires
companies to defer revenue and profit recognition if four required criteria of a
sale are not met. In addition, SOP 97-2 requires revenue recognized from
software arrangements to be allocated to each element of an arrangement based on
the relative fair values of the elements, such as software products, upgrades,
enhancements, post contract customer support, installation, or training. SOP
97-2 was adopted by Omega Research effective January 1, 1998 and did not have a
material impact on Omega Research's financial position or results of operations.
While Omega Research has no obligation to perform future services
subsequent to shipment of client software, Omega Research provides telephone and
electronic mail customer support as an accommodation to purchasers of its
products as a means of fostering customer satisfaction. The majority of such
services are provided during the first 60 days of ownership of Omega Research's
products. Costs associated with this effort are generally insignificant in
relation to product sales value.
Certain products have been sold with bundled services (see discussion of
SUBSCRIPTION SERVICES below). The portion of software sales related to such
bundled services are deferred and recognized as revenue on a monthly basis as
the service is provided.
SUBSCRIPTION SERVICES
Omega Research provides streaming real-time market information via the
Internet through the FINANCIAL DATA CAST NETWORK ("FDCN") acquired in the Window
On WallStreet merger. In addition, on January 25, 2000, Omega Research launched
WINDOWONWALLSTREET.COM, a subscription service which offers streaming real-time
charts, quotes and news powered by certain of Omega Research's trading tools.
Revenue for both subscription services is recognized on a monthly basis as the
service is provided. Payments received in advance of service are deferred and
recognized on a monthly basis as the services are provided.
OTHER REVENUES
Omega Research has, with respect to its client software products, entered
into certain agreements with entities that market and sell financial market data
subscriptions. Except for the agreement described in Note 11 (which is a royalty
arrangement), Omega Research receives, in certain cases, monthly payments in the
nature of commissions based on the use by Omega Research's client software
customers of financial market data feed subscriptions which are accessed through
one of Omega Research's client software products. Omega Research records these
revenues as they are earned in accordance with the terms of the applicable
contracts.
ADVERTISING COSTS
Advertising costs are expensed when the initial advertisement is run, and
are included in sales and marketing expenses in the accompanying statements of
operations. Advertising costs for the years ended December 31, 1999, 1998 and
1997 were $6.2 million, $7.0 million and $6.4 million, respectively.
STOCK-BASED COMPENSATION
In accordance with SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
in accounting for stock-based transactions with non-employees, Omega Research
records compensation expense in the statement of operations when these types of
options are issued. As permitted by SFAS No. 123, Omega Research accounts for
its stock-based compensation paid to employees in accordance with Accounting
Principles Board ("APB") Opinion No. 25.
F-9
<PAGE>
INCOME TAXES
For income tax purposes, Omega Research was an S corporation prior to
September 30, 1997. Accordingly, net income and related timing differences which
arose in the recording of income and expense items for financial reporting and
tax reporting purposes were included in the individual tax returns of the S
corporation shareholders. Effective September 30, 1997, Omega Research
terminated its S corporation election, and, as a result, adopted SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires that deferred income tax
balances be recognized based on the differences between the financial statement
and income tax bases of assets and liabilities using the enacted tax rates (see
Note 9).
PRO FORMA INCOME TAX ADJUSTMENTS
The pro forma income tax adjustments included in the accompanying statement
of operations for the year ended December 31, 1997 are for informational
purposes only. Pro forma income taxes have been provided at an estimated
effective rate of 39.5% for Omega Research for periods prior to September 30,
1997. In addition, a non-recurring tax credit of $1.2 million has been excluded
from pro forma net income (see Note 9).
EARNINGS PER SHARE
Earnings per share is calculated in accordance with SFAS No. 128, EARNINGS
PER SHARE. SFAS No.128 requires presentation of basic and diluted earnings per
share on the face of the statement of operations. Basic earnings per share is
computed by dividing the net income (loss) available to common shareholders by
the weighted average shares of outstanding common stock. The calculation of
diluted earnings per share is similar to basic earnings per share except that
the denominator includes dilutive common stock equivalents such as stock options
and warrants (see Note 10).
USE OF ESTIMATES
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. Such
estimates include established reserves for returns and reserves for potentially
uncollectable accounts receivable.
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE
Computer software developed or obtained for internal use is accounted for
in accordance with SOP 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 establishes criteria for
determining which costs of developing or obtaining internal-use computer
software should be charged to expense and which should be capitalized. Omega
Research adopted SOP 98-1 prospectively effective January 1, 1999. Such adoption
did not have a material effect on Omega Research's financial position or results
of operations.
COMPREHENSIVE INCOME
Comprehensive income is defined as the change in a business enterprise's
equity during a period arising from transactions, events or circumstances
relating to non-owner sources, such as foreign currency translation adjustments
and unrealized gains or losses on available-for-sale securities. It includes all
changes in equity during a period except those resulting from investments by or
distributions to owners. Comprehensive income is equal to net income (loss) for
all periods presented.
F-10
<PAGE>
SEGMENT INFORMATION
During the quarter ended March 31, 2000 and the three years ended December
31, 1999, management evaluated and operated the business of Omega Research as a
single segment.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL OF FASB
STATEMENT NO. 133. SFAS No. 137 defers for one year the effective date of SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 will now apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133 will require Omega Research to recognize all
derivatives on the balance sheet as either assets or liabilities measured at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. Omega Research will adopt SFAS No. 133 effective for the year
ended December 31, 2001. Omega Research believes that the adoption of SFAS No.
133 will not have a material impact on its consolidated financial statements, as
it has entered into no derivative contracts and has no current plans to do so in
the future.
In March 2000, the Emerging Issues Task Force (the "EITF) reached a
consensus on Issue No. 00-2, ACCOUNTING FOR WEB SITE DEVELOPMENT COSTS ("EITF
Issue No. 00-2"), which applies to all web site development costs incurred for
the quarters beginning after June 30, 2000. The consensus states that the
accounting for specific web site development costs should be based on a model
consistent with AICPA Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. Accordingly, certain
web site development costs that are currently expensed as incurred may be
capitalized and amortized. The adoption of EITF Issue No. 00-2 is not expected
to have a material impact on the financial statements of Omega Research.
(2) ACQUISITIONS
Effective October 26, 1999, Omega Research acquired Window On WallStreet, a
leading provider of Internet-based streaming real-time market data and a
developer of client software and online trading strategy tools. Under the terms
of the merger agreement, Window On WallStreet shareholders received 1,999,995
newly issued shares of Omega Research's common stock for all of the issued and
outstanding shares of Window On WallStreet's common stock. In addition, Omega
Research (i) repaid in accordance with its terms approximately $4.1 million of
debt and (ii) assumed all outstanding stock options to purchase Window On
WallStreet common stock which, based on an exchange ratio of 0.210974, were
exercisable for an aggregate of 182,529 shares of Omega Research's common stock.
The acquisition of Window On WallStreet was accounted for as a
pooling-of-interests. Accordingly, the financial statements herein have been
restated to give retroactive effect to this acquisition. Below is a
reconciliation of Net revenues and Pro forma net (loss) income amounts
previously reported with amounts included herein:
1998 1997
------------ ------------
Net revenues:
Omega Research, as previously reported $ 28,216,505 $ 29,226,274
Window On WallStreet 3,494,248 3,724,174
------------ ------------
Omega Research, as restated $ 31,710,753 $ 32,950,448
============ ============
Pro forma net (loss) income:
Omega Research, as previously reported $ 1,955,547 $ 5,451,582
Window On WallStreet (2,384,094) (786,391)
------------ ------------
Omega Research, as restated $ (428,547) $ 4,665,191
============ ============
There were no material relationships or intercompany transactions between
Omega Research and Window On WallStreet prior to the merger.
F-11
<PAGE>
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following as of March 31, 2000
and December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Useful Life March 31, December 31, December 31,
In Years 2000 1999 1998
--------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Computers and software 3-5 $ 4,963,582 $ 4,682,353 $ 3,195,754
Furniture and equipment 3-7 506,221 495,877 448,048
Leasehold improvements 3-5 252,457 178,811 144,015
Autos 5 -- -- 110,205
----------- ----------- -----------
5,722,260 5,357,041 3,898,022
Accumulated depreciation and amortization (3,063,061) (2,745,587) (1,877,190)
----------- ----------- -----------
$ 2,659,199 $ 2,611,454 $ 2,020,832
=========== =========== ===========
</TABLE>
(4) ACCRUED EXPENSES
Accrued expenses consist of the following as of March 31, 2000 and December
31, 1999 and 1998:
<TABLE>
<CAPTION>
March 31, December 31, December 31,
2000 1999 1998
---------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
Payroll and related accruals $ 996,972 $ 579,153 $ 654,883
Accrued data distribution and exchange fees 688,000 550,977 --
Accrued technical support costs 161,000 161,000 173,500
Other 235,766 570,191 343,069
---------- ---------- ----------
$2,081,738 $1,861,321 $1,171,452
========== ========== ==========
</TABLE>
Omega Research entered into an agreement with a data service vendor, under
which Omega Research was granted the right to distribute market data to its
customers in exchange for paying the data service vendor a per user royalty fee.
Prior to March 1, 2000, the per user royalty fees were subject to monthly
minimums. Omega Research also pays per user fees by the various exchanges.
(5) DEFERRED REVENUE
Deferred revenue is comprised of deferrals for (i) licensing fees revenue
for which amounts are not due within the next twelve months and for obligations
which have not yet been fulfilled (such as committed upgrades), (ii) payments
received in advance of service or bundled with client software purchases and
(iii) registration fees and sponsorship and exhibitor deposits for OmegaWorld,
Omega Research's annual conference, designed to highlight the benefits of
trading strategy development, held during the second quarter of each year.
Deferred revenue consists of the following as of March 31, 2000 and December 31,
1999 and 1998:
F-12
<PAGE>
March 31, December 31, December 31,
2000 1999 1998
---------- ---------- ----------
(unaudited)
Licensing fees $ 138,000 $ 842,000 $ 58,095
Subscription services 1,206,537 290,300 265,453
OmegaWorld 276,525 124,524 56,585
---------- ---------- ----------
$1,621,062 $1,256,824 $ 380,133
========== ========== ==========
(6) RELATED PARTY DEBT
SHORT TERM DEBT
Short term debt consists of the following as of March 31, 2000 and December
31, 1999 and 1998:
<TABLE>
<CAPTION>
March 31, December 31, December 31,
2000 1999 1998
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Note payable to Red Oak Capital dated June 11, 1998, bearing
interest at 10%, due December 31, 1998 $ -- $ -- $495,000
Note payable to individual dated June 11, 1998, bearing interest at
10%, due December 31, 1998 -- -- 5,000
Note payable to Red Oak Capital dated December 23, 1998,
bearing interest at 10%, due February 28, 1999 -- -- 100,000
------ ----- --------
$ -- $ -- $600,000
====== ===== ========
</TABLE>
The above notes dated June 11, 1998 were issued by Window On WallStreet
together with detachable warrants which entitled the holders, related parties to
Window On WallStreet, to purchase 425,000 shares of Window On WallStreet's
common stock, no par value, at $2.48 per share. Such warrants resulted in a
charge to interest expense of $126,000 during 1998. Furthermore, the debt
agreement provided for the conversion of all warrants into shares of Window On
WallStreet's common stock to the holder if the notes were not paid as of
December 31, 1998. As the notes were not paid as of December 31, 1998, under the
terms of the note, the holders converted the warrants into 425,000 shares of
Window On WallStreet's common stock at zero cost. Accordingly, an additional
charge reflected in interest expense was recorded by Window On WallStreet at
December 31, 1998 in the amount of $476,000.
Furthermore, as the above notes dated June 11, 1998 were not paid as of the
end of March 1999, Window On WallStreet issued an additional 75,000 shares of
its common stock, no par value, to the note holders in accordance with the
agreement. In addition, in accordance with the terms of the above note dated
December 23, 1998, Window On WallStreet issued 120,000 shares of its common
stock, no par value, to the holders of the notes. Accordingly, a charge
reflected in interest expense was recorded by Window On WallStreet during the
year ended December 31, 1999 in the aggregate amount of approximately $218,000.
These notes were later consolidated and paid by Omega Research.
The common stock discussed above was issued at $1.12 per share, its fair
market value. The fair market value was determined by an independent appraisal.
F-13
<PAGE>
LONG TERM DEBT
Long term debt consists of the following as of March 31, 2000 and December
31, 1999 and 1998:
<TABLE>
<CAPTION>
March 31, December 31, December 31,
2000 1999 1998
-------- -------- ----------
(unaudited)
<S> <C> <C> <C>
Notes payable to Red Oak Capital dated August 14, 1996,
bearing interest at 10%, payable at various dates beginning
September 2000, net of unamortized discount at December
31, 1998 of $52,035. Amount includes accrued interest
recharacterized as notes payable $ -- $ -- $2,631,167
Notes payable to individual dated August 14, 1996, bearing
interest at 10%, payable at various dates beginning
September 2000, net of unamortized discount at December
31, 1998 of $242. Amount includes accrued interest
recharacterized as notes payable -- -- 9,758
-------- -------- ----------
$ -- $ -- $2,640,925
======== ======== ==========
</TABLE>
On April 13, 1999, Window On WallStreet signed an agreement with the
related parties holding the notes, consolidating all of the existing debt, short
term and long term, into two notes in the aggregate principal amount of
approximately $3.9 million (the "New Notes"). The New Notes accrued interest at
10% per annum in cash plus one fully paid and non-assessable share of Window On
WallStreet common stock, no par value, for each $45.26 of principal amount
outstanding (rounded up to the nearest share) at the end of each month. Interest
not paid was capitalized as part of the principal amount of the New Notes on a
monthly basis.
As part of this refinancing of debt, Window On WallStreet issued an
additional 400,000 shares of its common stock as a financing fee. Excluding the
financing fee of 400,000 issued shares, during 1999 Window On WallStreet issued
601,580 shares of its common stock to the holders of the New Notes related to
the common stock component of interest expense. Accordingly, Window On
WallStreet recorded additional charges reflected in interest expense of $448,000
for the financing fee and $674,000 for the common stock component of interest
expense. Charges to interest expense totaled approximately $1.3 million
including the $218,000 discussed above.
The common stock discussed above was issued at $1.12 per share, its fair
market value. The fair market value was determined by an independent appraisal.
At the time of the acquisition of Window On WallStreet, Omega Research
repaid all existing debt in accordance with the terms of the agreement.
(7) SHAREHOLDERS' EQUITY
SHARE SPLIT
Effective January 29, 1997, Omega Research authorized an increase in the
amount of its authorized common stock to 100 million shares and changed the par
value of each share to $.01. In addition, on January 30, 1997,
F-14
<PAGE>
Omega Research declared a 97,400-for-1 split of its outstanding common stock.
The split has been retroactively reflected in the financial statements for all
periods presented.
PREFERRED STOCK
On July 16, 1997, Omega Research authorized 25 million shares of preferred
stock with a par value of $.01 per share. No specific preferences or rights have
been established to date with respect to any of these shares nor have any of
these shares been issued.
INITIAL PUBLIC OFFERING
On October 6, 1997, Omega Research closed its initial public offering of
2.6 million shares of common stock of Omega Research at $11.00 per share (the
"Initial Public Offering"). On November 5, 1997, Omega Research closed the
underwriters' purchase of 158,108 additional shares of common stock pursuant to
the exercise of a portion of their over-allotment option granted in the Initial
Public Offering. Total proceeds to Omega Research, net of underwriting discounts
and offering expenses of approximately $2.9 million, were $27.4 million.
DISTRIBUTIONS TO SHAREHOLDERS
On September 30, 1997, Omega Research terminated its S corporation status
and Omega Research became a C corporation making it subject to federal and state
income taxes on its earnings. In conjunction with Omega Research becoming a C
corporation, Omega Research declared and paid a cash dividend to Omega
Research's existing shareholders of $15.4 million (the "Dividend"). The Dividend
was equal to Omega Research's estimate at that time of its cumulative taxable
income prior to its conversion to a C corporation to the extent such taxable
income had not been previously distributed. Subsequent to the payment of the
Dividend, Omega Research preliminarily determined that the actual cumulative
taxable income would be less than was originally estimated. Accordingly, in the
fourth quarter of 1997, the recipients of the Dividend repaid $800,000, plus
interest, to Omega Research. During the third quarter of 1998, upon finalization
of Omega Research's 1997 tax returns and final determination of S corporation
earnings at the date of conversion to a C corporation, the recipients of the
Dividend repaid an additional $135,000, plus interest, to Omega Research,
reducing the Dividend to $14.5 million.
ISSUANCE OF STOCK BY POOLED COMPANY
During 1998, Window On WallStreet issued detachable warrants in association
with the issuance of certain notes to related parties, which entitled the
holders to purchase 425,000 shares of Window On WallStreet's common stock, no
par value, at $2.48 per share. At that time, a charge was made to Additional
Paid-in Capital of $126,000. The related debt agreement provided for the
conversion of all warrants into shares of Window On WallStreet's common stock at
zero cost to the holder if the notes were not paid as of December 31, 1998. As
the notes were not paid as of December 31, 1998, under the terms of the note,
the holder converted the warrants into 425,000 shares of Window On WallStreet's
common stock at zero cost, resulting in a charge to Additional Paid-in Capital
of $476,000.
During 1999, Window On WallStreet issued 1,196,580 shares of its common
stock, no par value, due to nonpayment, consolidation and interest on debt to
related parties. The resulting charge to Additional Paid-in Capital was
approximately $1.3 million.
STOCK OPTION PLANS
Omega Research has reserved 4,500,000 shares of its common stock for
issuance under its Amended and Restated 1996 Incentive Stock Plan, as amended
(the "Option Plan"). Under the Option Plan, incentive and nonqualified stock
options, stock appreciation rights, stock awards, performance shares and
performance units are
F-15
<PAGE>
available to employees or consultants of Omega Research. Currently, only options
have been granted. The terms of each option agreement are determined by the
Compensation Committee of the board of directors. The exercise price of
incentive stock options may not be less than fair market value at the date of
grant and their terms may not exceed ten years. The options issued under the
Option Plan generally vest ratably over a five-year period. In January 2000, the
board of directors, as part of its authorization of the merger agreement (see
Note 13) with onlinetradinginc.com corp. ("OnlineTrading.com") authorized an
increase, subject to approval by Omega Research's shareholders of the merger
agreement and the merger with OnlineTrading.com, in the number of shares of
common stock reserved for issuance under the Option Plan from 4,500,000 to
7,500,000, subject to future anti-dilution adjustments.
Omega Research has reserved 175,000 shares of its common stock for issuance
under its 1997 Director Stock Option Plan, as amended (the "Director Plan").
Under the Director Plan, an independent director is awarded an initial grant of
up to 75,000 non-qualified stock options and annual grants of up to 3,000
non-qualified stock options. The terms of each option grant are determined by
the board of directors.
As discussed in Note 2, Omega Research assumed all outstanding stock
options to purchase Window On WallStreet common stock ("WOW Options"). The WOW
Options generally vest ratably over a four-year period and their terms are ten
years.
A summary of stock option activity including stock options granted under
the Option Plan, Director Plan and the WOW Options is as follows:
<TABLE>
<CAPTION>
Option Price Per Share
Number -----------------------------
of Shares Low High Weighted
--------- --- ---- --------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1996 689,328 $ .48 $ 8.06 $ 1.40
Granted 584,692 1.25 11.00 5.04
Canceled (38,004) 2.00 11.00 5.02
Exercised (8,000) 1.25 1.25 1.25
----------
Outstanding, December 31, 1997 1,228,016 .48 11.00 3.02
Granted 1,902,214 1.59 8.06 2.41
Canceled (68,635) 2.00 11.00 5.15
Exercised (11,350) 1.25 2.00 1.47
----------
Outstanding, December 31, 1998 3,050,245 .48 11.00 2.60
Granted 1,076,245 1.66 10.25 5.86
Canceled (131,278) 1.66 11.00 3.91
Exercised (181,560) 1.25 11.00 2.14
----------
Outstanding, December 31, 1999 3,813,652 .48 11.00 3.49
==========
</TABLE>
F-16
<PAGE>
Additional information regarding options outstanding at December 31, 1999
is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of --------------------------------------- ---------------------------
Exercisable Number Weighted Weighted Number Weighted
Prices Outstanding Average Average Exercisable Average
------------------- As of Contractual Exercise As of Exercise
Low High 12/31/99 Life Price 12/31/99 Price
--- ---- --------- ---- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
$ 0.48 $ 0.48 82,572 5.8 $ 0.48 81,728 $ 0.48
1.25 1.66 1,503,252 8.3 1.52 467,647 1.42
2.00 3.00 780,647 8.0 2.81 142,475 2.80
3.03 4.53 605,440 8.0 4.05 112,133 3.20
4.59 6.35 297,200 8.6 5.48 46,500 5.16
6.94 10.25 489,961 8.9 8.39 54,472 7.72
11.00 11.00 54,580 7.6 11.00 25,405 11.00
--------- -------
$ 0.48 $11.00 3,813,652 8.2 $ 3.49 930,360 $ 2.58
========= =======
</TABLE>
All options issued during 1996 were issued to key employees at an exercise
price that was subsequently determined to be approximately $291,000 in the
aggregate below fair market value at the date of grant as determined by an
independent appraisal. Several of the options issued during 1997 were determined
to be, in the aggregate, approximately $341,000 below fair value as determined
by an independent appraisal. These differences are being amortized over the
five-year vesting period of the related stock options. For the years ended
December 31, 1999, 1998 and 1997, Omega Research recorded compensation expense
of approximately $141,000, $114,000 and $122,000, respectively. Included in
compensation expense in 1999, 1998 and 1997 was approximately $5,000, $7,000 and
$23,000, respectively, related to 36,500 options (30,000 in 1999, 1,500 in 1998
and 5,000 in 1997) issued to consultants of Omega Research, accounted for under
the provisions of SFAS No. 123. Options to purchase 930,360, 421,979 and 176,238
shares were exercisable at December 31, 1999, 1998 and 1997, respectively.
Omega Research, as permitted by SFAS No. 123, applies APB Opinion No. 25
for options granted to employees. Accordingly, no compensation is recognized for
such grants to the extent their exercise price is equal to the fair market value
of the underlying stock at the date of grant. Had compensation cost for Omega
Research's stock options been based on fair value at the grant dates consistent
with the methodologies of SFAS No. 123, Omega Research's pro forma net loss (and
pro forma loss per share) would have been approximately $1.8 million ($0.07 per
share) and $1.0 million ($0.04 per share) for the years ended December 31, 1999
and 1998, and pro forma net income (and pro forma earnings per share on a
diluted basis) would have been $4.5 million ($0.20 per share) for the year ended
December 31, 1997. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes model with the following assumptions:
1/1/97 - 10/1/97 -
9/30/97 12/31/97 1998 1999
------- -------- ---- ----
Risk free interest rate 6% 5% 5% 5%
Dividend yield - - - -
Volatility factors 70% 81% 81% 75%
Weighted average life (years) 7 7 5 5
F-17
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
In July 1997, the board of directors of Omega Research adopted and the
shareholders approved the 1997 Employee Stock Purchase Plan (the "Purchase
Plan") and reserved 500,000 shares of common stock pursuant to the exercise of
nontransferable options granted to participating employees. The exercise price
for the option for each six-month Purchase Plan period is 85% of the lesser of
the fair market value of Omega Research's common stock on the first or last
business day of the Purchase Plan period. The Purchase Plan provides for the
first options to be granted for the Purchase Plan period which commenced January
1, 1998. During the years ended December 31, 1999 and 1998, 23,585 and 12,506
shares of common stock were issued under the plan at an average price of $3.27
and $3.06, respectively.
(8) EMPLOYEE BENEFIT PLAN
Omega Research provides retirement benefits through a defined contribution
401(k) plan (the "401(k) Plan") which was established during 1994. Employees
become eligible based upon meeting certain service requirements. Omega Research
matches employee contributions based upon a formula defined in the 401(k) Plan.
Matching contributions accrued under the 401(k) Plan amounted to approximately
$242,000, $0 and $63,000 in 1999, 1998 and 1997, respectively.
(9) INCOME TAXES
The components of income tax provision (benefit) for the three months ended
March 31, 2000 and 1999 and for the years ended December 31, 1999, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
For the three months ended
March 31, For the year ended December 31,
--------- -------------------------------
2000 1999 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal (4,184,000) 2,299,500 $ 5,568,000 $ 2,254,000 $ 1,739,894
State (687,000) 382,500 929,000 376,000 289,106
----------- ----------- ----------- ----------- -----------
Total current taxes (4,871,000) 2,682,000 6,497,000 2,630,000 2,029,000
----------- ----------- ----------- ----------- -----------
Deferred:
Federal 2,623,000 (1,687,000) (3,988,000) (1,353,000) (2,540,811)
State 436,000 (281,000) (663,000) (225,000) (422,189)
----------- ----------- ----------- ----------- -----------
Total deferred taxes 3,059,000 (1,968,000) (4,651,000) (1,578,000) (2,963,000)
----------- ----------- ----------- ----------- -----------
Total income tax (benefit)
provision $(1,812,000) $ 714,000 $ 1,846,000 $ 1,052,000 $ (934,000)
=========== =========== =========== =========== ===========
</TABLE>
Deferred income taxes are recorded when revenues and expenses are recognized
in different periods for financial statement and tax return purposes. The
temporary differences that created deferred income taxes are as follows:
F-18
<PAGE>
<TABLE>
<CAPTION>
Deferred tax assets: March 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Reserves for returns $ 3,362,815 $ 7,101,313 $ 2,841,765
Allowances for doubtful accounts 1,761,558 1,270,112 1,437,000
Net operating loss carryforwards 2,390,220 2,390,220 961,213
Deferred revenue and accrued liabilities 905,226 749,708 176,615
Other 436,181 403,647 401,018
------------ ------------ ------------
Total deferred tax assets 8,856,000 11,915,000 5,817,611
Valuation allowance (2,723,000) (2,723,000) (1,276,611)
------------ ------------ ------------
Deferred income taxes, net $ 6,133,000 $ 9,192,000 $ 4,541,000
============ ============ ============
</TABLE>
The valuation allowance is primarily due to losses incurred by the pooled
company which historically had unprofitable operations.
A reconciliation of the difference between the expected provision (benefit)
for income taxes using the statutory federal tax rate and Omega Research's
actual provision (benefit) is as follows:
<TABLE>
<CAPTION>
For the three months ended
March 31, For the year ended December 31,
--------- -------------------------------
2000 1999 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
(Benefit) provision using
statutory federal tax rate $(1,670,664) $ 477,435 $ 307,787 $ 218,209 $ 2,853,873
Pro forma taxes for periods prior
to September 30, 1997 -- -- -- -- (3,255,731)
Tax credits -- -- -- (26,463) (1,229,911)
Change in valuation allowance -- 366,440 1,446,389 578,143 306,692
Other (141,336) (129,875) 91,824 282,111 391,077
----------- ----------- ----------- ----------- -----------
Total income tax provision
(benefit) $(1,812,000) $ 714,000 $ 1,846,000 $ 1,052,000 $ (934,000)
=========== =========== =========== =========== ===========
</TABLE>
The effective tax rates for the three months ended March 31, 2000 and 1999
were 38% and 52%, respectively. The effective tax rates for the years ended
December 31, 1999 and 1998 were 210% and 169%, respectively. The increase during
1999 and prior as compared with the 35% federal statutory rate is primarily due
to an increase in the valuation allowance established at Window On WallStreet to
offset net operating loss carryforwards. The effective tax rates of Omega
Research as a stand-alone company were approximately 37% for the three months
ended March 31, 1999 and for the year ended December 31, 1999 and 35% for the
year ended December 31, 1998, respectively.
For income tax purposes, Omega Research was an S corporation prior to
September 30, 1997. Accordingly, net income and related timing differences which
arose in the recording of income and expense items for financial reporting and
tax reporting purposes were included in the individual tax returns of the S
corporation shareholders. Effective September 30, 1997, Omega Research
terminated its S corporation election. The $1.2 million benefit for income taxes
recorded during the third quarter of 1997 is comprised of a non-recurring
deferred income tax credit (the "SFAS 109 Credit") of approximately $3.0 million
partially offset by a $1.8 million provision for income taxes payable. The SFAS
109 Credit recognized net deferred tax assets arising from book and tax basis
differences that arose primarily as a result of accounts receivable reserves.
The $1.8 million in income taxes payable relate to federal and state income
taxes owed by Omega Research as a result of an approximate $4.6 million in S
corporation taxable earnings paid by Omega Research during the fourth quarter of
1997 and the year-ended December 31, 1998.
Window On WallStreet has available net operating loss carryforwards totaling
approximately $6.3 million, which will begin to expire in 2012. Window On
WallStreet also has tax credit carryforwards totaling approximately $100,000,
which will begin to expire in 2012. The utilization of these net operating
losses and tax credits will be subject to limitations of approximately $518,000
per year which are cumulative to the extent not utilized by Omega Research. The
deferred tax asset related to these carryforwards has been reduced to zero by a
valuation allowance.
F-19
<PAGE>
(10) (LOSS) EARNINGS PER SHARE
Weighted average shares outstanding for the three months ended March 31,
2000 and 1999 and for the years ended December 31, 1999, 1998 and 1997 are
calculated as follows:
<TABLE>
<CAPTION>
Three months ended
March 31, For the year ended December 31,
--------- -------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding
(basic) 24,539,324 24,060,338 24,294,179 23,913,762 21,829,417
Impact of dilutive options after applying
the treasury stock method -- 2,159,377 -- -- 790,647
---------- ---------- ---------- ---------- ----------
Weighted average shares outstanding
(diluted) 24,539,324 26,219,715 24,294,179 23,913,762 22,620,064
========== ========== ========== ========== ==========
Options outstanding which are not
included in the calculation of diluted
earnings per share because their impact is
antidilutive 4,181,927 303,650 3,793,652 3,050,245 115,483
========== ========== ========== ========== ==========
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Omega Research has seven non-cancelable operating leases for facilities. The
only significant facility operating leases are for Omega Research's corporate
headquarters. The original lease is for five and one-half years and commenced in
February 1997. In December 1998, February 1999 and January 2000, Omega Research
entered into a sub-lease and two lease amendments for additional space at the
facilities with lease terms ending on the same day as the original lease. In
addition to the leases for facilities, Omega Research leases its telephone
system and computer equipment server farm.
Future minimum lease payments as of December 31, 1999 under all operating
leases are as follows:
2000 $2,783,700
2001 2,689,514
2002 1,076,065
2003 131,556
2004 131,556
Thereafter 10,963
----------
$6,823,354
==========
Total rent expense for 1999, 1998 and 1997 was approximately $689,000,
$439,000 and $343,000, respectively.
BRIDGE TELERATE ROYALTY AGREEMENT
Omega Research has entered into a Software License, Maintenance and
Development Agreement (the "Agreement") with Dow Jones Markets, Inc. (then known
as Dow Jones Telerate, Inc., now known as Telerate, Inc., and a subsidiary of
Bridge Information Systems, Inc.) ("Bridge Telerate"). Under the Agreement,
Omega Research modified one of its software products to create a Bridge Telerate
version and granted Bridge Telerate a license to promote, market, sublicense and
distribute the Bridge Telerate version for a period of six years expiring
January 16, 2002. During 1999, 1998 and 1997, Omega Research earned
approximately $4.0, $3.0 and $2.2 million, respectively, in royalties (based
upon minimum royalty requirements) under the terms of this Agreement. Minimum
royalty requirements for 2000 and 2001 are $6.0 million and $8.0 million,
respectively.
F-20
<PAGE>
DATA SERVICES PROVIDER AGREEMENT
Omega Research has an agreement with its data services provider that
requires, in the event of termination, the payment of a termination fee of
$1,000,000 if terminated prior to December 31, 2000 and $500,000 if terminated
prior to December 31, 2001. Other than the termination fees, no minimum
obligation exists under the agreement.
LITIGATION
On January 28, 1998, a class action lawsuit, captioned Richard M. Rhodes v.
William R. Cruz; Ralph L. Cruz; Omega Research, Inc.; BancAmerica Robertson
Stephens; Lehman Brothers; and Hambrecht & Quist (Case No. 98- 0174-CIV-Lenard),
was filed in the United States District Court for the Southern District of
Florida. On July 1, 1999, pursuant to the stipulation of the parties, the Court
of Appeals for the Eleventh Circuit issued a final order which dismissed with
prejudice all claims against Omega Research and all other defendants.
In addition to the above, from time to time Omega Research may become
engaged in routine litigation incidental to its business. Omega Research does
not believe that such routine litigation would have a material adverse effect on
its financial position or results of operations.
(12) QUARTERLY FINANCIAL INFORMATION
The following tables summarize selected quarterly financial data of Omega
Research for the years ended December 31, 1999 and 1998 as restated for the
acquisition of Window On WallStreet, which was accounted for as a
pooling-of-interests.
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------------------------
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Net revenues:
--------------
Previously reported $ 9,440,788 $ 10,977,164 $ 10,792,560
Window On WallStreet 994,596 646,872 690,064
------------- ------------ ------------
Restated $ 10,435,384 $ 11,624,036 $ 11,482,624 $ 9,327,925 $ 42,869,969
============ ============ ============ ============ ==============
Gross profit: *
--------------
Previously reported $ 8,957,997 $ 10,521,775 $ 10,332,922
Window On WallStreet 634,599 264,494 346,523
------------ ------------ ------------
Restated $ 9,592,596 $ 10,786,269 $ 10,679,445 $ 8,826,250 $ 39,884,560
============ ============ ============ ============ ==============
Net income (loss):
--------------
Previously reported $ 1,210,616 $ 1,644,370 $ 1,639,340
Window On WallStreet (560,511) (1,826,075) (1,272,563)
------------ ------------ ------------
Restated $ 650,105 $ (181,705) $ 366,777 $ (1,801,786) $ (966,609)
============ ============ ============ ============ ==============
Earnings (loss) per share:
-------------------------
Previously reported-
Basic and Diluted $ . 05 $ .07 $ .07
Restated-
Basic $ .03 $ (.01) $ .02 $ (.07) $ (.04)
Diluted .02 (.01) .01 (.07) (.04)
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------------------------
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Net revenues:
------------
Previously reported $ 7,030,794 $ 7,651,597 $ 6,469,473 $ 7,064,641 $ 28,216,505
Window On WallStreet 1,065,236 766,382 192,152 1,470,478 3,494,248
------------ ------------ ------------ ------------ ------------
Restated $ 8,096,030 $ 8,417,979 $ 6,661,625 $ 8,535,119 $ 31,710,753
============ ============ ============ ============ ============
Gross profit: *
------------
Previously reported $ 6,579,542 $ 7,132,764 $ 6,156,909 $ 6,549,212 $ 26,418,427
Window On WallStreet 875,186 667,944 108,439 1,146,312 2,797,881
------------ ------------ ------------ ------------ ------------
Restated $ 7,454,728 $ 7,800,708 $ 6,265,348 $ 7,695,524 $ 29,216,308
============ ============ ============ ============ ============
Net income (loss):
------------
Previously reported $ 801,954 $ 817,018 $ 216,103 $ 120,472 $ 1,955,547
Window On WallStreet (359,842) (475,045) (870,110) (679,097) (2,384,094)
------------ ------------ ------------ ------------ ------------
Restated $ 442,112 $ 341,973 $ (654,007) $ (558,625) $ (428,547)
============ ============ ============ ============ ============
Earnings (loss) per share:
------------
Previously reported-
Basic and diluted $ .04 $ .04 $ .01 $ .01 $ .09
Restated-
Basic and diluted $ .02 $ .01 $ (.03) $ (.02) $ (.02)
</TABLE>
* Gross profit is defined as total net revenues less cost of licensing fees
and services.
(13) SUBSEQUENT EVENTS (UNAUDITED)
On January 19, 2000, Omega Research signed a definitive, 100%
share-exchange merger agreement with OnlineTrading.com, an online broker.
OnlineTrading.com provides order execution technology that directly accesses
electronic communications networks ("ECNs"), exchanges and market makers, in
order to provide OnlineTrading.com's customers with high speed and efficient
order execution that avoids traditional market maker participation and brokerage
order-flow arrangements.
Pursuant to an Agreement and Plan of Merger and Reorganization, as amended
(the "Merger Agreement"), a recently-formed holding company named
OnlineTrading.com Group, Inc. ("OnlineTrading.com Group") will own 100% of the
issued and outstanding capital stock of Omega Research and OnlineTrading.com.
Upon completion of the merger, as a result of share exchanges between
OnlineTrading.com Group and each of Omega Research and OnlineTrading.com, and
the listing of OnlineTrading.com Group shares, OnlineTrading.com Group will be
the sole publicly-traded company in the group with its outstanding shares of
common stock listed on The Nasdaq National Market. OnlineTrading.com Group,
based upon the exchange ratio set forth in the Merger Agreement, would initially
be owned between 62% and approximately 57% (on a fully diluted basis) by Omega
Research's shareholders and between 38% and approximately 43% (on a fully
diluted basis) by OnlineTrading.com's shareholders. The precise percentages will
be determined by the formula set forth in the Merger Agreement. Closing of the
Merger Agreement is conditioned upon and subject to the filing and effectiveness
of a registration statement on Form S-4, the approval of the shareholders of
each of Omega Research and OnlineTrading.com, and the satisfaction of the other
conditions precedent to consummating the Merger Agreement.
Omega Research is currently in the process of changing its business model.
Omega Research has taken certain steps to transform itself from a trading
strategy client software company to one that includes an online brokerage firm
-- a company which intends to provide to active traders a trading platform that
incorporates and seamlessly integrates powerful trading strategy development
tools, historical and streaming real-time market data and news, and a high speed
electronic order execution system.
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To onlinetradinginc.com corp.:
We have audited the accompanying statement of financial condition of
onlinetradinginc.com corp. (a Florida corporation, formerly doing business as
Online Trading, Inc.) as of January 31, 2000, and the related statements of
income, changes in stockholders' equity and cash flows for the year 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides 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, 2000, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
--------------------------------
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 15, 2000.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
onlinetradinginc.com corp.
We have audited the accompanying statement of financial condition of
onlinetradinginc.com corp. (the "Company") as of January 31, 1999, and the
related statements of income, changes in stockholders' equity, and cash flows
for the year 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 audit.
We conducted our audit 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 audit provides 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 the results of its operations and its cash flow for the
year then ended in conformity with generally accepted accounting principles.
/s/Ahearn, Jasco + Company, P.A.
-------------------------------------------
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
March 2, 1999, except for Note 10, for
which the date is March 25, 1999
F-24
<PAGE>
ONLINETRADINGINC.COM CORP.
STATEMENTS OF FINANCIAL CONDITION
JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $15,127,790 $ 1,005,944
Receivable from clearing organization 759,183 572,433
Securities owned, at market value 155,012 381,084
Other current assets 103,987 15,583
----------- -----------
TOTAL CURRENT ASSETS 16,145,972 1,975,044
PROPERTY AND EQUIPMENT, net 400,776 136,146
INTANGIBLE ASSET, net 2,592,600 --
OTHER ASSETS 221,456 43,398
----------- -----------
TOTAL ASSETS $19,360,804 $ 2,154,588
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease $ 39,944 $ --
Accounts payable and accrued liabilities 1,291,317 948,422
Income taxes payable 653,141 38,230
Securities sold but not yet purchased, at market value 25,938 --
----------- -----------
TOTAL CURRENT LIABILITIES 2,010,340 986,652
----------- -----------
DEFERRED INCOME TAXES 34,300 15,400
----------- -----------
CAPITAL LEASE PAYABLE, net of current portion 72,131 --
----------- -----------
SUBORDINATED LOANS -- 525,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 14 and 15)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 1,000,000
shares authorized; issued and outstanding,
none in 2000 and 300 shares of Series A,
stated value $1,000, voting, redeemable at
110% of stated par value in 1999 -- 300,000
Common stock, $0.01 par value;
100,000,000 shares authorized; issued and
outstanding, 11,476,388 in 2000 and
8,888,888 in 1999 114,763 88,888
Additional paid-in capital 15,943,179 103,063
Retained earnings 1,186,091 135,585
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 17,244,033 627,536
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,360,804 $ 2,154,588
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-25
<PAGE>
ONLINETRADINGINC.COM CORP.
STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Commissions $ 9,471,435 $ 5,525,427
Net dealer inventory and investment gains and losses 1,129,493 328,495
Interest and dividends 603,978 36,021
Interest revenue sharing 295,934 102,121
Other 190,000 --
----------- -----------
TOTAL REVENUES 11,690,840 5,992,064
----------- -----------
OPERATING EXPENSES:
Employee compensation and benefits 5,340,165 3,356,688
Clearing and other transaction costs 3,012,284 2,002,055
Occupancy and administration 1,093,248 406,814
Product development 279,387 --
Interest expense 51,863 36,566
Depreciation and amortization 131,163 29,918
----------- -----------
TOTAL OPERATING EXPENSES 9,908,110 5,832,041
----------- -----------
INCOME BEFORE INCOME TAXES 1,782,730 160,023
PROVISION FOR INCOME TAXES 702,224 52,080
----------- -----------
NET INCOME $ 1,080,506 $ 107,943
=========== ===========
EARNINGS PER SHARE:
Basic $ 0.10 $ 0.01
=========== ===========
Diluted $ 0.10 $ 0.01
=========== ===========
Weighted average common shares outstanding - basic 10,522,889 8,857,230
=========== ===========
Weighted average common shares outstanding - diluted 10,630,263 8,857,230
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-26
<PAGE>
ONLINETRADINGINC.COM CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Series A
Preferred Stock Common Stock
--------------------------- --------------------------
Amount at Additional
Shares Stated Shares Amount at Paid-In Retained
Issued Value Issued Par Value Capital Earnings Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January
31, 1998 300 $ 300,000 8,444,444 $ 84,444 $ 81,507 $ 27,642 $ 493,593
Common stock
granted to officer -- -- 444,444 4,444 21,556 -- 26,000
Net income -- -- -- -- -- 107,943 107,943
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, January
31, 1999 300 300,000 8,888,888 88,888 103,063 135,585 627,536
Issuance of common
stock for cash -- -- 2,587,500 25,875 15,785,016 -- 15,810,891
Redemption of
preferred stock (300) (300,000) -- -- -- (30,000) (330,000)
Options and warrants
granted to
non-employees -- -- -- -- 55,100 -- 55,100
Net income -- -- -- -- -- 1,080,506 1,080,506
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, January
31, 2000 -- $ -- 11,476,388 $ 114,763 $15,943,179 $ 1,186,091 $17,244,033
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-27
<PAGE>
ONLINETRADINGINC.COM CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,080,506 $ 107,943
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 131,163 29,918
Common stock granted to officer -- 26,000
Loss on disposal of assets 38,706 --
Deferred income taxes 18,900 13,850
Changes in operating assets and liabilities:
Receivable from clearing organization (186,750) (271,533)
Securities owned at market value 226,072 302,251
Other current assets (88,404) (15,022)
Other assets (125,585) --
Accounts payable and accrued expenses 342,895 737,312
Income taxes payable 614,911 38,230
Securities sold but not yet purchased, at market value 25,938 (131,782)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,078,352 837,167
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 3,600 --
Cash paid for intangible asset (2,682,000) --
Other assets -- (25,667)
Purchase of property and equipment (234,097) (48,891)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (2,912,497) (74,558)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 15,810,891 --
Proceeds from issuance of common stock warrants 100 --
Proceeds from issuance of subordinated loans 360,000 25,000
Repayment of subordinated loans (885,000) --
Redemption of preferred stock (330,000) --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,955,991 25,000
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 14,121,846 787,609
CASH AND CASH EQUIVALENTS, beginning of year 1,005,944 218,335
------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 15,127,790 $ 1,005,944
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 75,279 $ --
============ ============
Cash paid for interest $ 57,806 $ 35,831
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
</TABLE>
During the year ended January 31, 2000, the Company acquired $112,075 of office
furniture and equipment through a capital lease. During the year ended January
31, 2000, the Company granted 40,000 options valued at $55,000 to acquire a
domain name.
The accompanying notes to financial statements are an integral part of
these statements.
F-28
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Online Trading, Inc. 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"). In February 1999, OnlineTrading.com changed its name
to onlinetradinginc.com corp. ("OnlineTrading.com"). OnlineTrading.com
is headquartered in Boca Raton, Florida and has branch offices in
Massachusetts, Pennsylvania and Ohio. All revenues and expenses
recorded by the branch offices are presented in the appropriate
categories in OnlineTrading.com's financial statements.
OnlineTrading.com manages its customer accounts through Bear
Stearns Securities Corp., and US Clearing Corporation (collectively,
the "Clearing Firms") on a fully disclosed basis. The Clearing Firms
provide services, handle OnlineTrading.com's customers' funds, hold
securities, and remit monthly activity statements to the customers on
behalf of OnlineTrading.com. The amount receivable from brokers and
dealers relates to commissions earned by OnlineTrading.com for trades
executed by the Clearing Firms on behalf of OnlineTrading.com.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 (if any) 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 the statements of
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.
INTANGIBLE ASSET
The intangible asset is a result of the acquisition as
described in Note 13, and is being amortized on a straight-line basis
over five years.
LONG-LIVED ASSETS
OnlineTrading.com reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. For the years ended January
31, 2000 and 1999, there were no write-downs in value.
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 transactions entered into for the account and risk
of OnlineTrading.com are recorded on a trade date basis. Customers'
securities transactions are reported on a settlement date basis to the
customer with related commission income and expenses reported on a
trade date basis.
F-29
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 $103,000 and $30,382, respectively, for the years ended January
31, 2000 and 1999.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid
investments purchased with an original maturity of three months or
less. Cash and cash equivalents consist primarily of money market funds
and commercial paper with an original maturity of three months or less.
OnlineTrading.com 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 OnlineTrading.com's subordinated loans
payable, as described in Note 7, and OnlineTrading.com's capital lease
obligation, as described in Note 8, are the same as the recorded
amounts because rates and terms approximate current market conditions.
INCOME TAXES
OnlineTrading.com accounts for income taxes in accordance with
the Statement of Financial Accounting Standards ("SFAS") 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.
EARNINGS PER SHARE
Earnings per share is calculated in accordance with 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."
F-30
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
COMPREHENSIVE INCOME
In accordance with SFAS No. 130, "Reporting Comprehensive
Income," OnlineTrading.com is required to report its other
comprehensive income. Other comprehensive income refers to revenue,
expenses, gains, and losses that under accounting principles generally
accepted in the United States are included in comprehensive income but
are excluded from net income, as these amounts are recorded directly as
an adjustment to stockholders' equity. A statement of comprehensive
income is not presented since OnlineTrading.com had no items of other
comprehensive income. Comprehensive income is the same as net income
for all periods presented herein.
SEGMENT INFORMATION
OnlineTrading.com adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," effective January
31, 1999. SFAS No. 131 establishes standards for the way that public
companies report selected information about operating segments in
annual and interim financial reports to shareholders. It also
establishes standards for related disclosures about an enterprise's
business segments, products, services, geographic areas and major
customers. OnlineTrading.com operates its business as a single segment.
As a result, no additional disclosure was required.
RECENT ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board
("FASB") issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of FASB Statement No. 133." SFAS No.
137 defers for one year the effective date of SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 will
now apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133 will require OnlineTrading.com to recognize
all derivatives on the balance sheet as either assets or liabilities
measured at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. OnlineTrading.com will adopt
SFAS No. 133 effective for the year ending January 31, 2002.
OnlineTrading.com believes that the adoption of SFAS No. 133 will not
have a material impact on its financial statements, as it has entered
into no derivative contracts and has no current plans to do so in the
future.
In March 2000, the Emerging Issues Task Force (the "EITF")
reached a consensus on Issue No. 00-2, ACCOUNTING FOR WEB SITE
DEVELOPMENT COSTS ("EITF Issue No. 00-2"), which applies to all web
site development costs incurred for the quarters beginning after June
30, 2000. The consensus states that the accounting for specific web
site development costs should be based on a model consistent with AICPA
Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. Accordingly, certain
web site development costs that are currently expensed as incurred may
be capitalized and amortized. The adoption of EITF Issue No. 00-2 is
not expected to have a material impact on the financial statements of
OnlineTrading.com.
NOTE 2 - NET CAPITAL REQUIREMENTS
OnlineTrading.com 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, 2000, OnlineTrading.com had net
capital of $14,051,801, which was $13,914,699 in excess of its required
net capital of $137,102.
NOTE 3 - PENSION PLAN
OnlineTrading.com had maintained a "SIMPLE" retirement plan
for all eligible employees. Eligible employees may contribute up to
$500 per month for which OnlineTrading.com will match dollar-
for-dollar, up to 3% of the employees' compensation. Contributions by
OnlineTrading.com under this plan totaled $39,928 and $46,987 for the
years ended January 31, 2000 and 1999, respectively. Effective December
31, 1999, OnlineTrading.com decided to terminate the plan.
F-31
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 3 - PENSION PLAN (continued)
Effective January 15, 2000, OnlineTrading.com started a
defined contribution 401(k) plan. Eligible employees can contribute up
to 15% of their eligible salary for which OnlineTrading.com will match
fifty percent up to $2,500. Contributions by OnlineTrading.com under
this plan totaled $6,658 for the year ended January 31, 2000.
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:
2000 1999
-------------------- ----------------------
Sold Sold
Not Yet Not Yet
Owned Purchased Owned Purchased
-------- -------- -------- ----------
Corporate stocks $ 5,200 $ 25,938 $224,428 $ --
Obligations of U.S. Government 149,812 -- 156,656 --
-------- -------- -------- ----------
Total $155,012 $ 25,938 $381,084 $ --
======== ======== ======== ==========
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at January 31,
2000 and 1999:
2000 1999
--------- ---------
Computers, software, and equipment $ 307,915 $ 145,009
Furniture and fixtures 122,784 36,651
Leasehold improvements 38,773 14,521
--------- ---------
Total cost 469,472 196,181
Less: Accumulated depreciation (68,696) (60,035)
--------- ---------
Property and equipment, net $ 400,776 $ 136,146
========= =========
Depreciation expense for the years ended January 31, 2000 and
1999 was $39,236 and $29,918, respectively.
F-32
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at January 31, 2000
and 1999 consist of the following:
2000 1999
---------- ----------
Accounts payable $ 497,694 $ 163,074
Accrued liabilities:
Research fees 177,918 124,828
Payroll, and related expenses 521,115 644,148
Clearing deposit 50,000 --
Professional fees and other 44,590 16,372
---------- ----------
Total $1,291,317 $ 948,422
========== ==========
NOTE 7 - SUBORDINATED LOANS
The borrowings under subordinated agreements as of January 31,
1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Subordinated equity loan with a shareholder, unsecured, at a rate of 5% with
a scheduled maturity on February 11, 2002. This loan was paid in full on
November 30, 1999. $ 400,000
Subordinated loan, unsecured, at a rate of 5% with a scheduled maturity on
February 1, 2000. This loan was paid in full on July 2, 1999. 100,000
Subordinated loan, unsecured, at a rate of 6%. This loan was paid in full on
its scheduled maturity of August 31, 1999. 25,000
-----------
$ 525,000
===========
</TABLE>
By being designated as subordinated, these loans were
available in computing net capital under the SEC's uniform net capital
rule at January 31, 1999.
NOTE 8 - CAPITAL LEASE
On December 1, 1999, OnlineTrading.com entered into a capital
lease for office furniture, computer equipment and phone system. As of
January 31, 2000, the leasing company had funded $112,075 representing
a portion of the total furniture and computer equipment to be received.
The balance of the equipment totaling $180,450 was not received as of
January 31, 2000 and accordingly, not included in the statement of
financial condition. The lease is to be paid over 36 months with an
estimated monthly payment expected to commence on April 1, 2000 of
$8,698 with a final payment of 7% of the original invoice amounts.
F-33
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 8 - CAPITAL LEASE (continued)
Anticipated future minimum payments based on the amount of
furniture and equipment received are as follows:
Year ending
January 31,
-----------
2001 $ 39,944
2002 39,944
2003 39,944
2004 7,845
--------
Total payments 127,677
Less: amount representing interest (15,602)
--------
Original capitalized cost $112,075
========
NOTE 9 - INCOME TAXES
A summary of the income tax provision for the years ended
January 31, 2000 and 1999 is as follows:
2000 1999
-------- --------
Current taxes:
Federal $587,587 $ 29,730
State 95,737 8,500
-------- --------
Total current taxes 683,324 38,230
-------- --------
Deferred tax provision:
Federal 16,000 10,800
State 2,900 3,050
-------- --------
Total deferred tax provision 18,900 13,850
-------- --------
Total income tax provision $702,224 $ 52,080
======== ========
F-34
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (continued)
Temporary differences between the reported amounts in the
financial statements and tax bases of assets and liabilities that give
rise to the deferred income tax liabilities relate to the following:
2000 1999
-------- --------
Property and equipment, due to differences in
depreciation $ 60,000 $ 15,400
Intangible asset, due to differences in amortization (25,700) --
-------- --------
Net deferred income tax liability $ 34,300 $ 15,400
======== ========
The effective income tax rate varied from the statutory
federal tax rate as follows:
2000 1999
------ ------
Federal statutory rate 35.0 % 34.0 %
State income taxes, net of federal income tax effect 4.5 5.3
Other, including permanent differences, non-deductible
expenses and the effect of the rate brackets (.1) (6.8)
------ ------
Effective income tax rate 39.4 % 32.5 %
====== ======
NOTE 10 - STOCKHOLDERS' EQUITY
(a) CAPITAL STOCK
On March 24, 1999, the shareholders and directors affected an
amendment to OnlineTrading.com'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, OnlineTrading.com had 1,000 authorized common shares with no par
value and authorized preferred shares of 300,000 with a stated 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.
On April 3, 1999, a stock split of 11.11111 shares for each 10
shares of common stock outstanding was effected. All of the common
shares outstanding at that date were converted into 8,888,888 shares.
On May 8, 1999, the shareholders and directors affected an
amendment to OnlineTrading.com's articles of incorporation to change
the number of authorized common shares to 100,000,000 with a par value
per share of $0.01. The effect of the stock split has been
retroactively reflected in the accompanying financial statements.
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.
F-35
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 10 - STOCKHOLDERS' EQUITY (continued)
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.
OnlineTrading.com'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
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 OnlineTrading.com. In July 1999, OnlineTrading.com
redeemed all of the then outstanding preferred stock.
(b) INITIAL PUBLIC OFFERING
OnlineTrading.com completed its initial public offering (the
"IPO") by issuing 2,587,500 shares of common stock (including 337,500
shares to cover over-allotments), $0.01 par value (the "IPO Shares") on
June 11, 1999. The IPO shares were issued in a registered offering
pursuant to a Registration Statement on Form SB-2 (Commission File No.
333-75119; effective date June 11, 1999) through a syndicate of
underwriters, the principal representatives of which were Werbel-Roth
Securities, Inc., OnlineTrading.com, Seaboard Securities, Inc. and The
Agean Group, Inc.
The IPO shares were offered and sold by the underwriters at an
initial public offering price of $7.00 per share, resulting in
aggregate gross offering proceeds of $18,112,500, net concession and
management fee proceeds for participation in the underwriting of the
IPO of $189,867 and net proceeds to OnlineTrading.com of $15,810,891.
OnlineTrading.com incurred offering expenses in connection
with this offering as follows:
Underwriting discounts and commissions $ 1,539,563
Expenses paid to/for underwriters 486,461
Other offering expenses 465,452
-----------
$ 2,491,476
===========
Except for the concessions earned by OnlineTrading.com as a
result of participating in the underwriters syndicate, none of the
above expenses were paid either directly or indirectly to directors,
officers, general partners of OnlineTrading.com or its associates, or
to persons owning more than 10% of any class of equity security of
OnlineTrading.com or to affiliates of OnlineTrading.com.
In conjunction with the IPO, OnlineTrading.com issued 225,000
warrants to the underwriters for $100. The warrants have an exercise
price of $11.55 (165% of the $7.00 IPO price).
F-36
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 11 - EARNINGS PER SHARE
Weighted average shares outstanding for the years ended
January 31, 2000 and 1999 are calculated as follows:
2000 1999
---------- ----------
Weighted average shares outstanding (basic) 10,522,889 8,857,230
Impact of dilutive options and warrants after
applying the treasury stock method 107,374 --
---------- ----------
Weighted average shares outstanding (diluted) 10,630,263 8,857,230
========== ==========
Options and warrants outstanding which are
not included in the calculation of diluted
earnings per share because their impact
is antidultive 384,000 --
========== ==========
NOTE 12 - STOCK OPTIONS
In June 1999, OnlineTrading.com adopted the 1999 Stock Option
Plan. Pursuant to the terms of this plan, employees, non-employee
directors, consultants and independent contractors are eligible to
receive options to purchase common stock. Up to 1,000,000 shares may be
issued under the plan and will be drawn from either authorized but
previously unissued shares or from treasury shares. Options granted
under this plan are granted at the fair market value of the common
stock at the date of grant. In general, the employee options become
exercisable over a five-year period beginning June 11, 2000. All
options expire ten years after the date of grant.
OnlineTrading.com has granted the following options:
Option Price Per Share
----------------------------------
Type Shares Low High Weighted
---- ------- --------- --------- ---------
Employee 390,500 $ 7.00 $ 11.93 $ 8.37
Non-employee directors 40,000 $ 7.00 $ 11.31 $ 9.16
Non-employee consultants 40,000 $ 13.50 $ 13.50 $ 13.50
No stock options have been exercised during the year ended
January 31, 2000.
OnlineTrading.com, as permitted by SFAS No. 123, applies the
APB Opinion No. 25 for options granted to employees. Accordingly, no
compensation is recognized for such grants to the extent their exercise
price is equal to the fair market value of the underlying stock at the
date of grant. Had compensation cost for OnlineTrading.com's stock
options been based on fair value at the grant dates consistent with the
methodologies of SFAS No. 123, OnlineTrading.com's pro forma net income
(and pro forma earnings per share on a diluted basis) for the year
ended January 31, 2000 would have been $919,424 (.07 per share). The
fair value of each option grant is estimated on the date of grant using
the Black-Scholes model with the following assumptions: risk free
interest rate - 6%; dividend yield - 0%; volatility factor - 70%; and
weighted average life (years) - 5.
F-37
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 13 - ACQUISITION
On December 6, 1999, OnlineTrading.com acquired certain
intangible assets of Newport Discount Brokerage, Inc. ("Newport")
pursuant to an Asset Purchase Agreement dated September 21, 1999 (the
"Asset Purchase Agreement"). Pursuant to the Asset Purchase Agreement,
OnlineTrading.com purchased all of Newport's right, title and interest
in and to its clients. The total consideration paid by
OnlineTrading.com in connection with this acquisition included cash of
$2,682,000 and up to 125,000 shares of OnlineTrading.com's common
stock.
Issuance and delivery of the common stock consideration is
contingent upon the acquired assets achieving certain revenue goals and
maintaining customer accounts within one year from closing. For
accounting purposes, the transaction was treated as a purchase.
OnlineTrading.com recorded an intangible asset of $2,682,000 in
connection with this acquisition, which is being amortized over five
years. Amortization expense for the year ending January 31, 2000 was
$89,400.
NOTE 14 - CONCENTRATIONS AND CREDIT RISKS
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
OnlineTrading.com will periodically sell securities that it
does not currently own and will therefore be obligated to purchase such
securities at a future date. OnlineTrading.com has recorded these
obligations in the financial statements at January 31, 2000, at market
values of the related securities totaling $25,938. As of January 31,
1999, OnlineTrading.com had none of these transactions outstanding.
OnlineTrading.com's customer securities activities are
transacted on either a cash or margin basis. In margin transactions,
OnlineTrading.com 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, OnlineTrading.com 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 OnlineTrading.com 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,
OnlineTrading.com may be required to purchase or sell financial
instruments at prevailing market prices to fulfill the customer's
obligations. As of January 31, 2000, OnlineTrading.com, through its
clearing firms, maintained customer margin debit balances totaling
approximately $60 million. These customer debit balances were secured
in aggregate with customer securities approximating $700 million. In
addition, OnlineTrading.com's clearing firm maintains insurance
protection that is supplemental to standard SIPC protection in the
event the clearing firm becomes insolvent. Given the amount of customer
assets securing margin loans and the insurance protection maintained by
the clearing firms, OnlineTrading.com does not believe the amount of
loss exposure is material to the operations of the business.
OnlineTrading.com 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. OnlineTrading.com 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.
F-38
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 14 - CONCENTRATIONS AND CREDIT RISKS (continued)
CONCENTRATIONS OF CREDIT RISK
OnlineTrading.com 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, OnlineTrading.com may be exposed to
risk. The risk of default depends on the creditworthiness of the
counterparty or issuer of the instrument. It is OnlineTrading.com's
policy to review, as necessary, the credit standing of each
counterparty.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
OnlineTrading.com is obligated under four non-cancelable
operating leases for office space with expiration dates ranging from
February 2000 to February 2007. OnlineTrading.com subleases space to
three unrelated entities in its corporate headquarters. On March 2,
1999, OnlineTrading.com entered into a three year operating lease for
office furniture and equipment.
Rent expense for the years ended January 31, 2000 and 1999 was
as follows:
2000 1999
--------- ---------
Base rent - office space $ 259,655 $ 119,705
Sublease income (118,975) (14,300)
Base rent - furniture & equipment 73,020 --
--------- ---------
Rent expense, net $ 213,700 $ 105,405
========= =========
As of January 31, 2000, future minimum rental payments
required under the leases are as follows:
Year ending Rental Sublease Net Minimum
January 31, Payments Payments Payments
------------ ------------- ----------- ---------------
2001 $ 381,216 $ 119,300 $ 261,916
2002 394,546 124,072 270,474
2003 340,335 129,034 211,301
2004 335,983 134,196 201,787
2005 321,379 139,564 181,815
Thereafter 703,567 308,718 394,849
------------- ----------- ---------------
$ 2,477,026 $ 954,884 $ 1,522,142
============= =========== ===============
F-39
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE 15 - COMMITMENTS AND CONTINGENCIES (continued)
LITIGATION
OnlineTrading.com has been named in a civil action by a former
customer alleging excessive trading and commissions, violation of
Massachusetts General Laws c.93A ss. and c.110A ss.ss.101 and 102 and
violation of NASD conduct rules. The claimant is seeking total alleged
damages of $566,345 plus interest, costs, fees, and treble damages.
OnlineTrading.com's attorneys moved the case to the United States
District Court for the District of Massachusetts, Eastern Division,
where the matter is currently pending and awaiting ruling on our motion
to compel arbitration.
The case is in the early stages and no estimate of a potential
liability against OnlineTrading.com, if any, can be determined at this
time. Management believes the case to be completely without merit and
intends to present a vigorous defense and to seek reimbursement for all
costs and fees associated with our defense.
In addition, from time to time, OnlineTrading.com may become
engaged in ordinary routine litigation and/or arbitration incidental to
its business. OnlineTrading.com does not believe that such ordinary
routine litigation/arbitration would have a material adverse effect on
its financial position or results of operations.
F-40
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
OMEGA RESEARCH, INC.,
ONLINETRADINGINC.COM CORP.,
ONLINE TRADING GROUP, INC.,
OMEGA ACQUISITION CORPORATION,
AND
ONLINETRADING ACQUISITION CORPORATION
January 19, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE I
THE MERGER...............................................................................................2
1.1 The Merger.............................................................................2
1.2 Closing, Effective Time................................................................2
1.3 Effect of the Merger...................................................................3
1.4 Articles of Incorporation, Bylaws......................................................3
1.5 Directors and Officers.................................................................3
1.6 Effect on Capital Stock................................................................5
1.7 Surrender of Certificates..............................................................8
1.8 No Further Ownership Rights in Omega
Capital Stock or Online Capital Stock..................................................9
1.9 Lost, Stolen or Destroyed Certificates................................................10
1.10 Tax and Accounting Consequences.......................................................10
1.11 Withholding Rights....................................................................10
1.12 Taking of Necessary Action, Further Action............................................10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF OMEGA........................................................10
2.1 Organization, Standing and Power......................................................11
2.2 Capital Structure.....................................................................11
2.3 Authority.............................................................................12
2.4 Omega SEC Documents; Omega Financial Statements.......................................13
2.5 Absence of Certain Changes............................................................14
2.6 Absence of Undisclosed Liabilities....................................................14
2.7 Litigation............................................................................14
2.8 Restrictions on Business Activities...................................................15
2.9 Compliance With Laws..................................................................15
2.10 Title to Property.....................................................................15
2.11 Intellectual Property.................................................................16
2.12 Environmental Matters.................................................................17
2.13 Taxes.................................................................................18
2.14 Employee Benefit Plans................................................................19
2.15 Employee Matters......................................................................22
2.16 Interested Party Transactions.........................................................23
2.17 Insurance.............................................................................23
2.18 Regulatory Matters....................................................................23
2.19 Material Contracts....................................................................25
2.20 Omega Options.........................................................................27
2.21 Registration Statement, Joint Proxy Statement/Prospectus..............................27
2.22 Opinion of Financial Advisor..........................................................28
2.23 Omega Affiliate Agreements............................................................28
2.24 State Takeover Statutes...............................................................28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
2.25 Tax and Accounting Treatment..........................................................29
2.26 Brokers' and Finders' Fees............................................................29
2.27 Representations Complete..............................................................29
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ONLINE.........................................................29
3.1 Organization, Standing and Power......................................................29
3.2 Capital Structure.....................................................................30
3.3 Authority.............................................................................31
3.4 Online SEC Documents; Online Financial Statements.....................................32
3.5 Absence of Certain Changes............................................................32
3.6 Absence of Undisclosed Liabilities....................................................33
3.7 Litigation............................................................................33
3.8 Restrictions on Business Activities...................................................33
3.9 Compliance With Laws..................................................................34
3.10 Title to Property.....................................................................34
3.11 Intellectual Property.................................................................34
3.12 Environmental Matters.................................................................36
3.13 Taxes.................................................................................37
3.14 Employee Benefit Plans................................................................37
3.15 Employee Matters......................................................................40
3.16 Interested Party Transactions.........................................................41
3.17 Insurance.............................................................................41
3.18 Regulatory Matters....................................................................42
3.19 Material Contracts....................................................................43
3.20 Online Options........................................................................45
3.21 Registration Statement, Joint Proxy Statement/Prospectus..............................46
3.22 Opinion of Financial Advisor..........................................................46
3.23 Online Affiliate Agreements...........................................................46
3.24 State Takeover Statutes...............................................................46
3.25 Tax and Accounting Treatment..........................................................47
3.26 Brokers' and Finders' Fees............................................................47
3.27 Representations Complete..............................................................47
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NEWCO...........................................................47
4.1 Organization, Standing and Power......................................................47
4.2 Capital Structure.....................................................................48
4.3 Authority.............................................................................48
4.4 Absence of Undisclosed Liabilities....................................................49
4.5 Litigation............................................................................49
4.6 Registration Statement; Joint Proxy Statement/Prospectus..............................49
4.7 Tax Treatment.........................................................................50
4.8 Brokers' and Finders' Fees............................................................50
4.9 Representations Complete..............................................................50
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME...............................................................50
5.1 Conduct of Businesses of Omega and Online.............................................50
5.2 Online Conduct of Business............................................................51
5.3 Omega Conduct of Business............................................................52
5.4 No Solicitation.......................................................................52
ARTICLE VI ADDITIONAL AGREEMENTS.............................................................................53
6.1 Registration Statement, Joint Proxy Statement/Prospectus..............................53
6.2 Meetings of Shareholders..............................................................55
6.3 Access to Information.................................................................55
6.4 Confidentiality.......................................................................56
6.5 Public Disclosure.....................................................................56
6.6 Consents; Cooperation.................................................................56
6.7 Reasonable Best Efforts and Further Assurances........................................57
6.8 Blue Sky Laws.........................................................................57
6.9 Nasdaq Quotation......................................................................57
6.10 Public Accounting.....................................................................57
6.11 Affiliate Agreements..................................................................57
6.12 Tax Treatment.........................................................................58
6.13 Omega and Online Options..............................................................58
6.14 Nasdaq Listing of Newco Common Stock..................................................60
6.15 Form 8-A..............................................................................60
6.16 Form S-8..............................................................................60
6.17 Employees.............................................................................60
6.18 Director and Officer Indemnification..................................................60
6.19 Comfort Letters.......................................................................61
6.20 Shareholder Litigation................................................................61
6.21 Observation Rights....................................................................62
6.22 Errors and Omissions Insurance........................................................62
ARTICLE VII CONDITIONS TO THE MERGER.........................................................................62
7.1 Conditions to Obligations of Each Party to Effect the Merger..........................62
7.2 Additional Conditions to Obligations of Online........................................63
7.3 Additional Conditions to the Obligations of Newco,
Merger Subs and Omega.................................................................64
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...............................................................66
8.1 Termination...........................................................................66
8.2 Effect of Termination.................................................................67
8.3 Expenses and Termination Fees.........................................................68
8.4 Amendment.............................................................................69
8.5 Extension; Waiver.....................................................................69
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IX GENERAL PROVISIONS................................................................................69
9.1 Non-Survival at Effective Time........................................................69
9.2 Notices...............................................................................69
9.3 Interpretation........................................................................70
9.4 Counterparts..........................................................................71
9.5 Entire Agreement; Nonassignability; Parties in Interest...............................71
9.6 Severability..........................................................................71
9.7 Remedies Cumulative...................................................................71
9.8 Governing Law.........................................................................71
9.9 Rules of Construction.................................................................72
9.10 Definitions...........................................................................72
9.11 Specific Performance..................................................................72
9.12 Prevailing Party Legal Fees...........................................................72
</TABLE>
SCHEDULES
Omega Disclosure Schedule
Online Disclosure Schedule
Newco Disclosure Schedule
Schedule 6.11(a)
Schedule 6.11(b)
Schedule 6.17(a)
Schedule 6.17(b)
EXHIBITS
Exhibit A - Intentionally Omitted
Exhibit B - Form of Omega Affiliate Agreement
Exhibit C - Form of Online Affiliate Agreement
Exhibit D-1 - Form of Employment Agreement
Exhibit D-2 - Form of Non-Competition and Non-Disclosure Agreement
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the
"Agreement") is made and entered into as of January 19, 2000, by and among Omega
Research, Inc., a Florida corporation ("Omega"), onlinetradinginc.com corp., a
Florida corporation ("Online"), Online Trading Group, Inc., a Florida
corporation ("Newco"), and Omega Acquisition Corporation, a Florida corporation
and wholly owned subsidiary of Newco ("Omega Merger Sub"), and Onlinetrading
Acquisition Corporation, a Florida corporation and wholly owned subsidiary of
Newco ("Online Merger Sub") (together, Omega Merger Sub and Online Merger Sub
are collectively referred to herein as "Merger Subs") .
R E C I T A L S
A. The Board of Directors of Omega has unanimously (i) determined that
it is advisable and fair to, and in the best interests of, Omega and its
shareholders that, upon the terms and subject to the conditions of this
Agreement, Omega Merger Sub merge with and into Omega, with Omega being the
surviving corporation (which merger, together with the merger described in
paragraph B below, is collectively referred to herein as the "Merger"), (ii)
approved this Agreement, the Merger and the other transactions contemplated
hereby and (iii) recommended the approval of this Agreement and the Merger by
the shareholders of Omega.
B. The Board of Directors of Online has unanimously (i) determined that
it is advisable and fair to, and in the best interests of, Online and its
shareholders that, upon the terms and subject to the conditions of this
Agreement, Online Merger Sub merge with and into Online, with Online being the
surviving corporation, (ii) approved this Agreement, the Merger and the other
transactions contemplated hereby and (iii) recommended the approval of this
Agreement and the Merger by the shareholders of Online.
C. The Board of Directors of Newco has (i) determined that the Merger
is advisable and in the best interests of Newco and its shareholder and (ii)
approved this Agreement, the Merger and the other transactions contemplated
hereby.
D. Pursuant to the Merger, among other things, the outstanding shares
of Common Stock, par value $.01 per share ("Omega Common Stock"), of Omega shall
be converted into the right to receive the consideration set forth herein and
the outstanding shares of Common Stock, par value $.01 per share ("Online Common
Stock"), of Online shall be converted into the right to receive the
consideration set forth herein.
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
"reorganization" under the provisions of Section 368(a)(1)(A) and 368(a)(2)(E)
of the Code, and as a pooling of interests for financial accounting purposes.
F. Concurrently with the execution of this Agreement and as an
inducement to Newco and Merger Subs, Omega and Online to enter into this
Agreement, (a) Omega and Online have entered into a stock option agreement dated
the date hereof (the "Online Option Agreement")
<PAGE>
providing for the purchase under certain circumstances by Omega of newly-issued
shares of Online Common Stock, (b) Omega and Online have entered into a stock
option agreement dated the date hereof (the "Omega Option Agreement") providing
for the purchase under certain circumstances by Online of newly issued shares of
Omega Common Stock, (c) certain affiliates of Omega have on the date hereof
entered into Shareholder Agreements (the"Omega Shareholder Agreements") pursuant
to which they have agreed, among other things, to vote the shares of Omega
Common Stock beneficially owned by such persons to approve this Agreement and
the Merger, and (d) certain affiliates of Online have on the date hereof entered
into Shareholder Agreements (the "Online Shareholder Agreements") pursuant to
which they have agreed, among other things, to vote the shares of Online Common
Stock beneficially owned by such persons to approve this Agreement and the
Merger. The Omega Option Agreement and Online Option Agreement are sometimes
referred to herein as the "Option Agreements."
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the plan of
merger (the "Plan of Merger") in the form of and as set forth in this Agreement
(or such other instrument setting forth the plan of merger as set forth in this
Article I) and the applicable provisions of the Florida Business Corporation Act
("Florida Law"), (i) Omega Merger Sub shall be merged with and into Omega, the
separate corporate existence of Omega Merger Sub shall cease and Omega shall
continue as the surviving corporation and (ii) Online Merger Sub shall be merged
with and into Online, the separate corporate existence of Online Merger Sub
shall cease and Online shall continue as the surviving corporation. Omega as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Omega Surviving Corporation," Online as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Online Surviving
Corporation," and Omega Surviving Corporation and Online Surviving Corporation
are sometimes hereinafter collectively referred to as the "Surviving
Corporations."
1.2 CLOSING, EFFECTIVE TIME. The consummation of the Merger (the
"Closing") shall take place as soon as practicable, and in any event not later
than two (2) business days, after the satisfaction or waiver of each of the
conditions set forth in Article VII hereof or at such other time as the parties
hereto may mutually in writing agree (the "Closing Date"). The Closing shall
take place at the offices of Bilzin Sumberg Dunn Price & Axelrod LLP, 2500 First
Union Financial Center, Miami, Florida 33131-2336, or at such other location as
the parties hereto may agree in writing. In connection with the Closing, the
parties hereto shall cause the Merger to be consummated by filing the Plan of
Merger with the Secretary of State of the State of Florida, in accordance with
the relevant provisions of Florida Law (the time of such filing, or such later
time
2
<PAGE>
as may be mutually in writing agreed to by the parties and set forth in the Plan
of Merger, being hereinafter referred to as the "Effective Time").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Plan of Merger and the
applicable provisions of Florida Law. Without limiting the generality of the
foregoing, and subject to the foregoing, at the Effective Time, (i) all the
property, rights, privileges, powers and franchises of Omega and Omega Merger
Sub shall vest in the Omega Surviving Corporation, and all debts, liabilities
and duties of Omega and Omega Merger Sub shall become the debts, liabilities and
duties of the Omega Surviving Corporation, and (ii) all the property, rights,
privileges, powers and franchises of Online and Online Merger Sub shall vest in
the Online Surviving Corporation, and all debts, liabilities and duties of
Online and Online Merger Sub shall become the debts, liabilities and duties of
the Online Surviving Corporation.
1.4 ARTICLES OF INCORPORATION, BYLAWS.
(a) At the Effective Time, the Articles of Incorporation (the
"Omega Articles of Incorporation") of Omega Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation of the Omega
Surviving Corporation; provided, however, that Article I of the Omega Articles
of Incorporation shall be amended to read as follows: "The name of the
corporation is OmegaResearch.com, Inc."
(b) The Bylaws of Omega Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Omega Surviving
Corporation until thereafter amended.
(c) At the Effective Time, the Articles of Incorporation (the
"Online Articles of Incorporation") of Online Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
of the Online Surviving Corporation; provided, however, that Article I of the
Online Articles of Incorporation shall be amended to read as follows: "The name
of the corporation is OnlineTradinginc.com corp."
(d) The Bylaws of Online Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Online Surviving
Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS.
(a) At the Effective Time, Salomon Sredni and Marc J. Stone
shall be the initial directors of the Omega Surviving Corporation and Steven zum
Tobel shall be elected an additional director, which directors shall serve until
their successors are duly elected or appointed and qualified. The officers of
Omega at the Effective Time shall be the initial officers of the Omega Surviving
Corporation, until their respective successors are duly elected or appointed and
qualified.
(b) At the Effective Time, Salomon Sredni and Marc J. Stone
shall be the initial directors of Online Surviving Corporation and Ralph L.
Cruz, Farshid Tafazzoli and Steven zum Tobel shall be elected additional
directors, which directors shall serve until their successors are duly
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elected or appointed and qualified. The officers of Online at the Effective Time
shall be the initial officers of the Online Surviving Corporation, until their
respective successors are duly elected or appointed and qualified.
(c) (i) At the Effective Time, the Board of Directors of Newco
shall be comprised of eight directors. The directors of Newco from and after the
Effective Time, who shall serve until their respective successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with Newco's Articles of Incorporation and Bylaws, shall
be designated as follows: Omega shall designate five directors (including two
Co- Chairman of the Board and two of whom shall be independent directors (as
hereinafter defined) and Online will designate three directors (including one
Vice Chairman of the Board and one of whom shall be an independent director).
(ii) The executive officers of Newco at the Effective Time,
who shall serve until their respective successors shall have been duly elected
or appointed and qualified or until their earlier death, resignation or removal
in accordance with Newco's Articles of Incorporation and Bylaws, shall be as
follows:
Co-Chairman of the Board and Co-Chief William R. Cruz
Executive Officer
Co-Chairman of the Board and Co-Chief Ralph L. Cruz
Executive Officer
President and Chief Operating Officer Salomon Sredni
Vice President Farshid Tafazzoli
Vice President E. Steven zum Tobel
Vice President, General Counsel and Marc J. Stone
Secretary
Vice President of Advertising and Sales Janette Perez
Chief Financial Officer and Vice Gregg Stewart
President of Finance and Treasurer
(iii) For purposes of this subsection (c), an "independent
director" shall mean an individual who both (i) meets the definition of a
"non-employee director" set forth in Rule 16b-3 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and (ii) meets the requirements of an
independent director pursuant to the rules of The Nasdaq National Market for
purposes of serving as a member of Newco's audit committee, including, without
limitation, being "financially literate" (as defined under such rules) and, in
the case of one of the independent directors designated by Omega, having
"financial expertise" (as defined under such rules). If, pursuant to subsection
(c)(i), Omega or Online shall designate an independent director to serve on the
Board of
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Directors of Newco who does not currently serve on such designating
corporation's Board of Directors, such designation shall require the approval of
the other corporation, which approval shall not be unreasonably withheld.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Newco, Merger Subs, Omega, Online
or the holders of any of the following securities:
(a) CONVERSION OF OMEGA AND ONLINE CAPITAL STOCK.
(i) Each share of Omega Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Omega Common
Stock to be canceled pursuant to Section 1.6(b)) will be canceled and
extinguished and be converted automatically into the right to receive one (1)
share (the "Omega Exchange Ratio") of Newco Common Stock, par value $.01 per
share ("Newco Common Stock"), upon surrender of the certificate representing
such share of Omega Common Stock in the manner provided in Section 1.7 (or, in
the case of a lost, stolen or destroyed certificate, upon delivery of an
affidavit and, if required, bond in the manner provided in Section 1.9).
(ii) Each share of Online Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Online Common
Stock to be canceled pursuant to date Section 1.6(b) or any shares of persons
who have not voted such shares for approval of the Merger and with respect to
which such persons shall become entitled to exercise dissenters' rights in
accordance with Florida Law ("Online Dissenting Shares")) will be canceled and
extinguished and be converted automatically into the right to receive the number
of shares of Newco Common Stock as determined pursuant to subparagraph (a)(iii)
hereinbelow (the "Online Exchange Ratio," and together with the Omega Exchange
Ratio, collectively referred to herein as the "Exchange Ratios") upon surrender
of the certificate representing such share of Online Common Stock in the manner
provided in Section 1.7 (or, in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit and, if required, bond in the manner
provided in Section 1.9).
(iii) The Online Exchange Ratio shall be equal to the
quotient, which shall be rounded to four decimal places (the "Quotient"), of (A)
the Average Online Closing Price (as hereinafter defined) divided by the Average
Omega Closing Price (as hereinafter defined); provided, however, that,
notwithstanding the Quotient, in no event shall the Online Exchange Ratio be
less than 1.3817 (the "Minimum Online Exchange Ratio") or more than 1.7172 (the
"Maximum Online Exchange Ratio") and, to the extent the Quotient is less than
the Minimum Online Exchange Ratio, the Online Exchange Ratio shall be adjusted
upward to and be equal to the Minimum Online Exchange Ratio and, to the extent
the Quotient is more than the Maximum Online Exchange Ratio, the Online Exchange
Ratio shall be adjusted downward to and be equal to the Maximum Online Exchange
Ratio. For purposes of this subsection (iii), the "Average Online Closing Price"
means and equals the 10 trading day average of the last sale price of a share of
Online Common Stock as reported on the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") over the period ending on the
trading day prior to the date of this Agreement; and the "Average
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Omega Closing Price" means and equals the 10 trading day average of the last
sale price of a share of Omega Common Stock as reported on The Nasdaq National
Market over the period ending on the third trading day prior to the Closing
Date.
(b) CANCELLATION OF OMEGA AND ONLINE CAPITAL STOCK OWNED BY NEWCO,
MERGER SUBS, OMEGA OR ONLINE. Each share of Omega Common Stock that is owned by
Omega as treasury stock and each share of Omega Common Stock owned by Newco,
Merger Subs or Online or any direct or indirect wholly owned subsidiary of
Newco, Merger Subs, Omega or Online immediately prior to the Effective Time
shall be canceled and extinguished without any conversion thereof. Each share of
Online Common Stock that is owned by Online as treasury stock and each share of
Online Common Stock owned by Newco, Merger Subs, Omega or Online or any direct
or indirect wholly owned subsidiary of Newco, Merger Subs, Omega or Online
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) OMEGA AND ONLINE STOCK OPTION PLANS AND WARRANTS. At the
Effective Time, (i) Omega's 1997 Employee Stock Purchase Plan, 1997 Nonemployee
Director Stock Option Plan, as amended, and Amended and Restated 1996 Incentive
Stock Plan, as amended (collectively, the "Omega Stock Option Plans"), (ii) all
options to purchase Omega Common Stock ("Omega Options") then outstanding under
the Omega Stock Option Plans and/or assumed by Omega in connection with Omega's
acquisition of Window on WallStreet Inc. ("WOW") and originally granted under
WOW's 1997 Long Term Incentive Plan or otherwise granted to employees of WOW
prior to the adoption of such plan, (iii) Online's 1999 Stock Option Plan, (iv)
all options to purchase Online Common Stock ("Online Options") then outstanding
under the Online 1999 Stock Option Plan and (v) warrants to purchase up to
225,000 shares of Online Common Stock ("Online Warrants") at an exercise price
of $11.55 issued to the underwriters of Online's initial public offering shall
be assumed by Newco in accordance with Section 6.13. It is hereby acknowledged
and agreed that as part of the Merger and obtaining the approval of the Merger
by the shareholders of Omega and Online, the number of shares reserved for
issuance under Omega's Amended and Restated 1996 Incentive Stock Plan, as
amended, shall be increased to 7,500,000.
(d) UNVESTED OMEGA COMMON STOCK AND ONLINE COMMON STOCK. If any
shares of Omega Common Stock or Online Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement, or other agreement with Omega or Online or under which Omega
or Online has any rights, then (unless such condition terminates by virtue of
the Merger pursuant to the express term of such agreement) the shares of Newco
Common Stock issued in exchange for such shares of Omega Common Stock or Online
Common Stock will also be unvested and subject to the same repurchase option,
risk of forfeiture or other condition, and the certificates representing such
shares of Newco Common Stock may accordingly be marked with appropriate legends.
Omega and Online shall take all action that may be necessary to ensure that,
from and after the Effective Time, Newco is entitled to exercise any such
repurchase option or other right set forth in any such restricted stock purchase
agreement or other agreement.
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(e) CAPITAL STOCK OF MERGER SUBS.
(i) At the Effective Time, each share of Common Stock, par
value $.01 per share, of Omega Merger Sub ("Omega Merger Sub Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the Omega
Surviving Corporation, and the Omega Surviving Corporation shall become a wholly
owned subsidiary of Newco. Each stock certificate of Omega Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Omega Surviving Corporation.
(ii) At the Effective Time, each share of Common Stock, par
value $.01 per share, of Online Merger Sub ("Online Merger Sub Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the Online
Surviving Corporation, and the Online Surviving Corporation shall become a
wholly owned subsidiary of Newco. Each stock certificate of Online Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such share of capital stock of the Online Surviving Corporation.
(f) ADJUSTMENTS TO EXCHANGE RATIO. Each of the Exchange Ratios
shall be appropriately adjusted to reflect the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into Omega Common Stock or Online Common Stock),
reorganization, recapitalization or other like change with respect to Omega
Common Stock or Online Common Stock occurring after the date hereof and prior to
the Effective Time so as to provide Omega and Online the same economic effect as
contemplated by this Agreement prior to such stock split, reverse split, stock
dividend, reorganization, recapitalization, like change.
(g) FRACTIONAL SHARES. No fraction of a share of Newco Common
Stock will be issued, but in lieu thereof each holder of shares of Omega Capital
Stock or Online Capital Stock who would otherwise be entitled to a fraction of a
share of Newco Common Stock (after aggregating all fractional shares of Newco
Common Stock to be received by such holder) shall receive from Newco an amount
of cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the last sale price for a share of Omega Common
Stock as quoted on The Nasdaq National Market on the last full trading day prior
to the Effective Time.
(h) DISSENTERS' RIGHTS. Any Online Dissenting Shares shall not be
converted into Newco Common Stock but shall instead be converted into the right
to receive such consideration as may be determined to be due with respect to
such Online Dissenting Shares pursuant to Florida Law. Online agrees that,
except with the prior written consent of Omega and Newco, or as required under
Florida Law, it will not voluntarily make any payment with respect to, or settle
or offer to settle, any such purchase demand. Each holder of Online Dissenting
Shares ("Dissenting Shareholder") who, pursuant to the provisions of Florida
Law, becomes entitled to payment of the fair value for shares of Online Common
Stock shall receive payment therefor (but only after the value therefor shall
have
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been agreed upon or finally determined pursuant to such provisions). If, after
the Effective Time, any Online Dissenting Shares shall lose their status as
Online Dissenting Shares, Newco shall issue and deliver, upon surrender by such
shareholder of certificate or certificates representing shares of Online Common
Stock, the number of shares of Newco Common Stock to which such shareholder
would otherwise be entitled under this Section 1.6 and the Agreement.
(i) EXISTING NEWCO CAPITAL STOCK. At the Effective Time, any
shares of common stock, par value $.01 per share, of Newco issued and
outstanding immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Omega's transfer agent or another institution
selected by Omega and reasonably acceptable to Online shall act as exchange
agent (the "Exchange Agent") in the Merger.
(b) NEWCO TO PROVIDE COMMON STOCK AND CASH. Promptly after the
Effective Time, Newco shall make available to the Exchange Agent for exchange in
accordance with this Article I, through such reasonable procedures as Newco may
adopt, (i) the shares of Newco Common Stock issuable pursuant to Section 1.6(a)
in exchange for shares of Omega Common Stock and Online Common Stock outstanding
immediately prior to the Effective Time and (ii) cash in an amount sufficient to
permit payment of cash in lieu of fractional shares pursuant to Section 1.6(g).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Omega Surviving Corporation and the Online Surviving Corporation shall cause to
be mailed to each holder of record of a certificate or certificates (the
"Certificates") which immediately prior to the Effective Time represented
outstanding shares of Omega Common Stock or Online Common Stock, as applicable,
whose shares were converted into the right to receive shares of Newco Common
Stock (and cash in lieu of fractional shares) pursuant to Section 1.6, (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Newco may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing shares of Newco Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Newco, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing the number of whole
shares of Newco Common Stock and payment in lieu of fractional shares which such
holder has the right to receive pursuant to Section 1.6, and the Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Omega
Common Stock or Online Common Stock will be deemed from and after the Effective
Time, for all corporate purposes, other than the payment of dividends, to
evidence the ownership of the number of whole shares of Newco Common Stock into
which such shares of Omega Common Stock or Online Common Stock shall have been
so converted
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and the right to receive an amount in cash in lieu of the issuance of any
fractional shares in accordance with Section 1.6.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends
or other distributions with respect to Newco Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to the shares of Newco Common Stock represented thereby
until the holder of record of such Certificate shall surrender such Certificate.
Subject to applicable law, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing whole shares
of Newco Common Stock issued in exchange therefor, without interest, at the time
of such surrender, the amount of any such dividends or other distributions with
a record date after the Effective Time theretofore payable (but for the
provisions of this Section 1.7(d)) with respect to such shares of Newco Common
Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of Newco
Common Stock is to be issued by the Exchange Agent in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it will be
a condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Newco or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Newco or a check in any name other than that of the registered
holder of the Certificate surrendered, or established to the satisfaction of
Newco or any agent designated by it that such tax has been paid or is not
payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, none of the Exchange Agent, the Omega Surviving Corporation or the
Online Surviving Corporation or any party hereto shall be liable to any person
for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(g) ONLINE DISSENTING SHARES. The provisions of this Section 1.7
shall also apply to Online Dissenting Shares that lose their status as such,
except that the obligations of Newco under this Section 1.7 shall commence on
the date of loss of such status and the holder of such shares shall be entitled
to receive in exchange for such shares the number of shares of Newco Common
Stock to which such holder is entitled pursuant to Section 1.6.
1.8 NO FURTHER OWNERSHIP RIGHTS IN OMEGA CAPITAL STOCK OR ONLINE
CAPITAL STOCK. All shares of Newco Common Stock issued (and cash in lieu of
fractional shares paid) upon the surrender for exchange of shares of Omega
Common Stock or Online Common Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Omega Common Stock or Online Common Stock, and there shall be no
further registration of transfers on the records of the Omega Surviving
Corporation of shares of Omega Common Stock or the Online Surviving Corporation
of shares of Online Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Omega Surviving Corporation or the Online Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
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1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Newco
Common Stock (and cash in lieu of fractional shares) as may be required pursuant
to Section 1.6; provided, however, that Newco may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against Newco,
the Omega Surviving Corporation, the Online Surviving Corporation or the
Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
1.10 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368(a) of the Code and a pooling of interests for accounting purposes.
1.11 WITHHOLDING RIGHTS. Newco and the Surviving Corporations shall be
entitled to deduct and withhold from the number of shares of Newco Common Stock
otherwise deliverable under this Agreement, and from any other payments made
pursuant to this Agreement, such amounts as Newco and the Surviving Corporations
are required to deduct and withhold with respect to such delivery and payment
under the Code or any provision of state, local, provincial or foreign tax law.
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been delivered and paid to
the holder of shares of Omega Common Stock or Online Common Stock in respect of
which such deduction and withholding was made by Newco and the Surviving
Corporations.
1.12 TAKING OF NECESSARY ACTION, FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the respective Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Omega and Omega Merger Sub, on the one
hand, and Online and Online Merger Sub, on the other hand, the officers and
directors of Omega, Online, Newco and Merger Subs are fully authorized in the
name of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action, so long as such action is not inconsistent
with this Agreement and provided that any action taken by Merger subs must be
duly authorized by Newco.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF OMEGA
Except as disclosed in the document of even date herewith delivered by
Omega to Online prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "Omega
Disclosure Schedule"), any exception so disclosed in the Omega Disclosure
Schedule to specifically identify the Section or subsection of this Agreement to
which such exception relates, Omega represents and warrants to Online as
follows:
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2.1 ORGANIZATION, STANDING AND POWER. Each of Omega and its direct and
indirect subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of Omega
and its subsidiaries has the corporate power to own its properties and to carry
on its business as now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect (as defined in Section
9.10) on Omega. Omega has delivered to Online a true and correct copy of the
certificate or articles of incorporation, as amended, and bylaws, as amended,
and any other charter or organizational documents, each as amended, of Omega and
each of its direct and indirect subsidiaries. Neither Omega nor any of its
direct and indirect subsidiaries is in violation of any of the provisions of its
certificate or articles of incorporation or bylaws or other charter or
organizational documents, each as amended. Omega is the owner of all outstanding
shares of capital stock or voting securities of each of its subsidiaries and all
such shares and voting securities are duly authorized, validly issued, fully
paid and nonassessable. All of the outstanding shares of capital stock and
voting securities of each such subsidiary are owned by Omega, free and clear of
all liens, charges, claims or encumbrances or rights of others. Except as
disclosed in the Omega SEC Documents (as defined below), there are no
outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable
or convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock or other securities of any such
subsidiary, or otherwise obligating Omega or any such subsidiary to issue,
transfer, sell, purchase, redeem or otherwise acquire any such securities. The
Omega Disclosure Schedule sets forth all of the direct or indirect subsidiaries
of Omega and the authorized and outstanding capital stock thereof. Except as
disclosed in the Omega SEC Documents and the Omega Disclosure Schedule, Omega
does not directly or indirectly own any equity or similar interest in, or any
interest convertible or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
2.2 CAPITAL STRUCTURE. The authorized capital stock of Omega consists
of 100,000,000 shares of Omega Common Stock, and 25,000,000 shares of Omega's
Preferred Stock, par value $.0l per share ("Omega Preferred Stock"), of which
there were issued and outstanding as of the close of business on January 18,
2000, 24,475,104 shares of Omega Common Stock and no shares of Omega Preferred
Stock. There are no other outstanding shares of capital stock or voting
securities and no outstanding commitments to issue any shares of capital stock
or voting securities after January 18, 2000 other than pursuant to the exercise
of options outstanding as of such date under the Omega Stock Option Plans and
options assumed by Omega in connection with the acquisition of WOW ("WOW"). All
outstanding shares of Omega Common Stock are duly authorized, validly issued,
fully paid and non-assessable and are free and clear of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof, and are not subject to preemptive rights or rights of first
refusal created by statute, the Articles of Incorporation or Bylaws, each as
amended, of Omega or any agreement to which Omega is a party or by which it is
bound. As of the close of business on January 18, 2000, Omega has reserved an
aggregate of 5,175,000 shares of Common Stock for issuance to employees,
consultants and directors pursuant to the Omega Stock Option Plans, of which
237,001 shares have been issued pursuant to option exercises or direct stock
purchases, and 4,166,501 shares are subject to outstanding, unexercised options
(excluding any options to purchase shares of Omega Common Stock under the 1997
Employee Stock Purchase Plan,
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as amended). As of the close of business on January 18, 2000, there were 182,529
shares of Omega Common Stock subject to the WOW Options. Since January 18, 2000,
Omega has not issued or granted additional options under the Omega Stock Option
Plans or otherwise except for outstanding options to purchase by employees under
the Omega 1997 Employee Stock Purchase Plan, as amended. Omega has not issued or
granted any stock appreciation rights or performance units under the Omega Stock
Option Plans or otherwise. Except for the rights created pursuant to this
Agreement, the Omega Stock Option Plans, the WOW Options and the Omega Option
Agreement, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Omega is a party or by which it is bound
obligating Omega to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of capital stock of
Omega or obligating Omega to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except for this Agreement and as provided by
Section 6.11, there are no contracts, commitments or agreements relating to
voting, purchase or sale of Omega's capital stock (i) between or among Omega and
any of its shareholders or (ii) to Omega's knowledge, between or among any of
Omega's shareholders. The terms of the Omega Stock Option Plans and the WOW
Options permit the assumption of options to purchase Omega Common Stock as
provided in this Agreement, without the consent or approval of the holders of
such securities, the Omega shareholders, or otherwise. All agreements and
instruments relating to or issued under the Omega Stock Option Plans and in
connection with the WOW Options have not been amended, modified or supplemented,
and there are no agreements to amend, modify or supplement such agreements or
instruments in any case from the existing forms. All outstanding shares of Omega
Common Stock and all Omega Options (which include the WOW Options) were issued
in compliance with all applicable federal and state securities laws.
2.3 AUTHORITY. Omega has all requisite corporate power and authority to
enter into this Agreement and the Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Omega Option Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Omega, subject only to the approval of
the Merger by Omega's shareholders as contemplated by Section 7.1(a). Each of
this Agreement and the Omega Option Agreement has been duly executed and
delivered by Omega and constitutes the valid and binding obligation of Omega,
enforceable against Omega in accordance with its terms, except as such
enforcement may be limited by (i) the effect of bankruptcy, insolvency,
reorganization, receivership, conservatorship, arrangement, moratorium or other
laws affecting or relating to the rights of creditors generally, or (ii) the
rules governing the availability of specific performance, injunctive relief or
other equitable remedies and general principles of equity, regardless of whether
considered in a proceeding in equity or at law. The execution and delivery of
this Agreement and the Omega Option Agreement by Omega does not, and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (i)
any provision of the certificate or articles of incorporation, bylaws, or other
charter or organizational documents, each as amended, of Omega or any of its
subsidiaries, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law,
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ordinance, rule or regulation applicable to Omega or any of its subsidiaries or
any of their properties or assets. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission, self-regulatory organization ("SRO") or other foreign or
domestic governmental or quasi-governmental authority or instrumentality (each
of the foregoing, a "Governmental Entity") is required by or with respect to
Omega or any of its subsidiaries in connection with the execution and delivery
of this Agreement or the Omega Option Agreement, the performance of Omega's
obligations hereunder or thereunder or the consummation of the transactions
contemplated hereby or thereby, except for (i) the filing of the Plan of Merger
as provided in Section 1.2, (ii) the filing with the SEC and the National
Association of Securities Dealers, Inc. (the "NASD") of the Joint Proxy
Statement/Prospectus (as defined in Section 2.21), relating to the Omega
Shareholders Meeting (as defined in Section 2.21), (iii) such notices,
applications, consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal or state
securities (including, without limitation, under the Securities Act of 1933, as
amended (the "Securities Act") and the Exchange Act or the securities laws of
any foreign country in connection with the Merger, and (iv) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Omega and would not prevent,
or materially alter or delay, any of the transactions contemplated by this
Agreement or the Omega Option Agreement. Omega is not aware of any reason why
the approvals of all Governmental Entities necessary to permit consummation of
the Merger or the other transactions contemplated by this Agreement will not be
received without the imposition of a condition or requirement that would have a
Material Adverse Effect on Omega.
2.4 OMEGA SEC DOCUMENTS; OMEGA FINANCIAL STATEMENTS. Omega has
furnished or made available (including via EDGAR) to Online a true and complete
copy of each statement, report, registration statement (with the prospectus in
the form filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement and other filings filed with the SEC by Omega since the date of
initial filing of Omega's registration statement relating to its initial public
offering, and, prior to the Effective Time, Omega will have furnished Online
with true and complete copies of any additional documents filed with the SEC by
Omega prior to the Effective Time (collectively, the "Omega SEC Documents"). In
addition, Omega has made available to Online all exhibits to the Omega SEC
Documents filed prior to the date hereof, and will promptly make available to
Online all exhibits to any additional Omega SEC Documents filed prior to the
Effective Time. All documents required to be filed as exhibits to the Omega SEC
Documents have been so filed, and all material contracts so filed as exhibits
are in full force and effect, except those which have expired in accordance with
their terms, and neither Omega nor any of its subsidiaries is in material
default thereunder. As of their respective filing dates, the Omega SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the Securities Act, and none of the Omega SEC Documents 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 made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Omega SEC Document. The financial statements
of Omega, including the notes thereto, included in the Omega SEC Documents (the
"Omega Financial Statements") were complete and correct in all material respects
as of their respective dates, complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with
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respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The Omega Financial Statements fairly present the consolidated
financial condition and operating results of Omega and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments).
2.5 ABSENCE OF CERTAIN CHANGES. Since December 31, 1998 (the "Omega
Balance Sheet Date"), Omega has conducted its business in the ordinary course
consistent with past practice and there has not occurred except as otherwise
disclosed in the Omega SEC Documents: (i) any change, event or condition
(whether or not covered by insurance) that has resulted in, or would reasonably
be expected to result in, a Material Adverse Effect on Omega; (ii) any
acquisition, sale or transfer of any material asset of Omega or any of its
subsidiaries other than in the ordinary course of business and consistent with
past practice; (iii) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by Omega or any
revaluation by Omega of any of its or any of its subsidiaries' assets; (iv) any
declaration, setting aside, or payment of a dividend or other distribution with
respect to the shares of Omega, or any direct or indirect redemption, purchase
or other acquisition by Omega of any of its shares of capital stock; (v) any
material contract entered into by Omega or any of its subsidiaries, other than
in the ordinary course of business and as provided to Online, or any material
amendment or termination of, or material default under, any material contract to
which Omega or any of its subsidiaries is a party or by which it is bound; (vi)
any amendment or change to the Articles of Incorporation or Bylaws of Omega;
(vii) any material increase in or material modification of the compensation or
benefits payable or to become payable by Omega to any of its directors, officers
or employees (except in the case of employees (other than officers) increases in
the ordinary course of business consistent with past practices; (viii) any
material change in the interest rate risk management and hedging policies,
procedures or practices of Omega or any of its subsidiaries, or any failure to
comply with such policies, procedures and practices; or (ix) any negotiation or
agreement by Omega or any of its subsidiaries to do any of the things described
in the preceding clauses (i) through (viii) (other than negotiations with Online
and its representatives regarding the transactions contemplated by this
Agreement).
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. None of Omega or any of its
subsidiaries has any material obligations or liabilities of any nature (matured
or unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the balance sheet of Omega and subsidiaries included in Omega's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999
(the "Omega Balance Sheet"), (ii) those incurred in the ordinary course of
business consistent with past practice since the Omega Balance Sheet Date and
which have not had and are not reasonably likely to have a Material Adverse
Effect on Omega, and (iii) those incurred in connection with the execution of
this Agreement.
2.7 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration, inquiry, examination, inspection or
investigation pending by or before any Governmental
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Entity, agency, court or tribunal, foreign or domestic or, to the knowledge of
Omega or any of its subsidiaries, threatened against Omega or any of its
subsidiaries or any of their respective properties or any of their respective
officers or directors (in their capacities as such) that, individually or in the
aggregate, would reasonably be expected to prevent, enjoin, alter or materially
delay any of the transactions contemplated hereby or would reasonably be
expected to have a Material Adverse Effect on Omega. There is no judgment,
decree or order against Omega or any of its subsidiaries, or, to the knowledge
of Omega and its subsidiaries, any of their respective directors or officers (in
their capacities as such), that, individually or in the aggregate, would
reasonably be expected to prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement or would reasonably be expected to
have a Material Adverse Effect on Omega.
2.8 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Omega or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any current or future business practice of
Omega or any of its subsidiaries, any acquisition of property by Omega or any of
its subsidiaries or the conduct of business by Omega or any of its subsidiaries
as currently conducted or as proposed to be conducted by Omega or any of its
subsidiaries.
2.9 COMPLIANCE WITH LAWS. Each of Omega and its subsidiaries has
complied in all material respects with all applicable federal, state, local,
self-regulatory and foreign laws, statutes, ordinances, rules and regulations,
and is not in violation in any material respect of, and has not received any
notices of material violation with respect to, its respective certificate or
articles of incorporation or bylaws or other charter or organizational
documents, or any federal, state, local, self-regulatory or foreign statute,
law, ordinance, rule or regulation applicable to the conduct of its business or
the ownership or operation of its business.
2.10 TITLE TO PROPERTY. Omega and its subsidiaries have good, valid and
marketable title to all of their respective properties, interests in properties
and assets, real and personal, reflected in the Omega Balance Sheet or acquired
after the Omega Balance Sheet Date (except properties, interests in properties
and assets sold or otherwise disposed of since the Omega Balance Sheet Date in
the ordinary course of business), or in the case of leased properties and
assets, valid leasehold interests in, free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character, except (i) the lien
of current taxes not yet due and payable, (ii) such imperfections of title,
liens and easements as do not and will not materially detract from or interfere
with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens
securing debt which is reflected on the Omega Balance Sheet or in any Omega SEC
document filed with respect to the Omega Balance Sheet Date. The plants,
property and equipment of Omega and its subsidiaries that are used in the
operations of their businesses are in generally good operating condition and
repair. All properties used in the operations of Omega and its subsidiaries are
reflected in the Omega Balance Sheet to the extent generally accepted accounting
principles require the same to be reflected. SCHEDULE 2.10 of the Omega
Disclosure Schedule identifies each parcel of real property owned or leased by
Omega or any of its subsidiaries.
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2.11 INTELLECTUAL PROPERTY.
(a) Omega and its subsidiaries are the sole and exclusive owners
of, or are licensed or otherwise possess legally enforceable and unencumbered
rights to use, all patents, trademarks, trade names, service marks, domain
names, database rights, copyrights, and any applications therefor, maskworks,
net lists, schematics, technology, know-how, trade secrets, inventory, ideas,
algorithms, processes, computer software programs or applications (in both
source code and object code form), and tangible or intangible proprietary
information or material ("Omega Intellectual Property") that are used in and are
material to the business of Omega and its subsidiaries as currently conducted by
Omega and its subsidiaries. Omega has not (i) licensed any Omega Intellectual
Property in source code form to any party or (ii) entered into any exclusive
agreements relating to Omega Intellectual Property.
(b) SCHEDULE 2.11 of the Omega Disclosure Schedule lists (i) all
patents and patent applications and all registered and unregistered trademarks,
trade names and service marks, registered and unregistered copyrights, and
maskworks included in Omega Intellectual Property, including the jurisdictions
in which each such Omega Intellectual Property right has been issued or
registered or in which any application for such issuance and registration has
been filed, (ii) all licenses, sublicenses and other agreements as to which
Omega is a party and pursuant to which any person is authorized to use Omega
Intellectual Property, and (iii) all licenses, sublicenses and other agreements
as to which Omega or any of its subsidiaries is a party and pursuant to which
Omega is authorized to use any third party patents, trademarks or copyrights,
including software or other intellectual property ("Omega Third Party
Intellectual Property Rights"), which is incorporated in, is, or forms a part of
any product or service of Omega or any of its subsidiaries or which is otherwise
used by Omega or any of its subsidiaries (excluding commercially available,
off-the-shelf software). No material royalties or other continuing payment
obligations are or will be due in respect of Omega Third Party Intellectual
Property Rights, except as disclosed in the Omega SEC Documents.
(c) To the knowledge of Omega, there is no unauthorized use,
improper disclosure, infringement or misappropriation of any Omega Intellectual
Property rights of Omega or any of its subsidiaries, or any Omega Intellectual
Property right of any third party to the extent licensed by or through Omega or
any of its subsidiaries, by any third party, including any employee or former
employee of Omega or any of its subsidiaries. Neither Omega nor any of its
subsidiaries has entered into any agreement to indemnify any other person
against any charge of unauthorized use, improper disclosure, misappropriation or
infringement of any Omega Intellectual Property.
(d) None of Omega or its subsidiaries is, nor will any of them be
as a result of the execution and delivery of this Agreement or the performance
of its obligations under this Agreement, in breach of or cause a right to
terminate any license, sublicense or other agreement relating to any Omega
Intellectual Property or Omega Third Party Intellectual Property Rights which
would have a Material Adverse Effect on Omega.
(e) All patents, registered trademarks, service marks and
copyrights held by Omega and its subsidiaries are valid and subsisting. Neither
Omega nor any of its subsidiaries (i)
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has been charged in any suit, action or proceeding with any infringement,
violation, misappropriation, improper disclosure or unauthorized use of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party or a breach of any license or
other agreement involving Omega Intellectual Property nor has a claim been made
with respect thereto or (ii) has brought any action, suit or proceeding for
infringement, violation, misappropriation, improper disclosure or unauthorized
use of Omega Intellectual Property or breach of any license or other agreement
involving Omega Intellectual Property against any third party. To the knowledge
of Omega, neither the manufacturing, use, marketing, licensing or sale of the
products or services of Omega or any of its subsidiaries constitutes an
infringement, violation, misappropriation, unauthorized use or improper
disclosure in any material respect of any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party.
(f) Omega has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Omega Intellectual Property of the rights to such contributions that Omega does
not already own by operation of law.
(g) Omega has taken reasonable steps consistent with prevailing
industry practice to protect and preserve the confidentiality of all Omega
Intellectual Property not otherwise protected by patents, patent applications or
copyright ("Omega Confidential Information"). All use, disclosure or
appropriation of Omega Confidential Information owned by Omega or any of its
subsidiaries by or to a third party has been pursuant to the terms of a written
agreement between Omega or its subsidiary and such third party. All use,
disclosure or appropriation by Omega and its subsidiaries of Omega Confidential
Information not owned by Omega or any such subsidiary has been pursuant to the
terms of a written agreement between Omega or its subsidiary and the owner of
such Omega Confidential Information, or is otherwise lawful.
2.12 ENVIRONMENTAL MATTERS.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal,
state or local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which are intended
to assure the safety of employees, workers or other persons, including the
public.
(ii) "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or infectious or
radioactive substance or material, including without limitation, those
substances, materials and wastes defined in or regulated under any Environmental
and Safety Laws.
(iii) For purposes of this Section 2.12 only, "Property" shall
mean all real property leased or owned by Omega or its subsidiaries either
currently or in the past.
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(iv) For purposes of this Section 2.12 only, "Facilities"
shall mean all buildings and improvements on the Property of Omega or its
subsidiaries.
(b) Omega represents and warrants as follows: (i) to Omega's
knowledge no ethylene chloride or asbestos is contained in or has been used at
or released from the Facilities; (ii) to Omega's knowledge all Hazardous
Materials have been disposed of in accordance with all Environmental and Safety
Laws; (iii) Omega and its subsidiaries have received no written notice of any
noncompliance of the Facilities or its past or present operations with
Environmental and Safety Laws; (iv) to Omega's knowledge no notices,
administrative actions or suits are pending or threatened relating to a
violation of any Environmental and Safety Laws; (v) to Omega's knowledge neither
Omega nor any of its subsidiaries are a potentially responsible party under the
federal Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), or state analog statute, arising out of events occurring prior to the
Effective Time; (vi) to Omega's knowledge there have not been in the past, and
are not now, any Hazardous Materials on, under or migrating to or from the
Facilities or any Property; (vii) to Omega's knowledge there have not been in
the past, and are not now, any underground tanks or underground improvements at,
on or under any Property including without limitation, treatment or storage
tanks, sumps, or water, gas or oil wells; (viii) to Omega's knowledge there are
no polychlorinated biphenyls (PCBs) deposited, stored, disposed of or located on
the Property or Facilities or any equipment on the Property containing PCBs at
levels in excess of 50 parts per million; (ix) to Omega's knowledge there is no
formaldehyde on the Property or in the Facilities, nor any insulating material
containing urea formaldehyde in the Facilities; (x) Omega's and its
subsidiaries' uses of and activities in Facilities and Property have at all
times complied in all material respects with all Environmental and Safety Laws;
and (xi) Omega and its subsidiaries have all the permits and licenses required
to be issued under Environmental and Safety Laws and are in compliance in all
material respects with the terms and conditions of those permits.
2.13 TAXES. Omega and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax (as defined below) purposes of
which Omega or any of its subsidiaries is or has been a member have properly
completed and timely filed all Tax Returns (as defined below) required to be
filed by them and have paid all Taxes shown thereon to be due, other than any
Taxes for which adequate reserves under generally accepted accounting principles
have been recorded in the Omega Financial Statements. Omega has provided
adequate accruals in accordance with generally accepted accounting principles in
its financial statements for any Taxes that have not been paid, whether or not
shown as being due on any Tax Returns. Omega has no material liability for
unpaid Taxes accruing after the date of its latest Financial Statements the
Omega Balance Sheet other than Taxes arising in the ordinary course of its
business. Except as disclosed in the Omega SEC Documents, there is (i) no
material claim for Taxes that is a lien against the property of Omega or any of
its subsidiaries or is being asserted against Omega or any of its subsidiaries
other than liens for Taxes not yet due and payable, (ii) Omega has not been
notified that any audit of any Tax Return of Omega or any of its subsidiaries is
being conducted by a Tax authority, (iii) no extension of the statute of
limitations on the assessment of any Taxes granted by Omega or any of its
subsidiaries is currently in effect, and (iv) there is no agreement, contract or
arrangement to which Omega or any of its subsidiaries is a party that may result
in the payment of any amount that would not be
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deductible by reason of Sections 280G, 162 or 404 of the Code. There has been no
change in ownership of Omega or any of its subsidiaries that has caused the
utilization of any losses of such entities to be limited pursuant to Section 382
of the Code. Omega has not been and will not be required to include any material
adjustment in Taxable income for any Tax period (or portion thereof) pursuant to
Section 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions, events or accounting methods
employed prior to the Merger. Neither Omega nor any of its subsidiaries has
filed or will file any consent to have the provisions of paragraph 341(f)(2) of
the Code (or comparable provisions of any state Tax laws) apply to Omega or any
of its subsidiaries. Neither Omega nor any of its subsidiaries is a party to any
Tax sharing or Tax allocation agreement nor does Omega or any of its
subsidiaries owe any amount under any such agreement. Neither Omega nor any of
its subsidiaries has filed any disclosures under Section 6662 or comparable
provisions of state, local or foreign law to prevent the imposition of penalties
with respect to any Tax reporting position taken on any Tax Return. Neither
Omega nor any of its subsidiaries has ever been a member of a consolidated,
combined or unitary group of which Omega was not the ultimate parent
corporation. Omega and each of its subsidiaries have in their possession
receipts for any Taxes paid to foreign Tax authorities. For purposes of this
Agreement, the following terms have the following meanings: "Tax" (and, with
correlative meaning, "Taxes" and "Taxable") means (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period and
(iii) any liability for the payment of any amounts of the type described in (i)
or (ii) as a result of any express or implied obligation to indemnify any other
person. As used herein, "Tax Return" shall mean any return, statement, report or
form (including, without limitation, estimated Tax returns and reports,
withholding Tax returns and reports and information reports and returns)
required to be filed with respect to Taxes. Omega and each of its subsidiaries
are in full compliance with all terms and conditions of any Tax exemptions and
the consummation of the Merger shall not have any adverse effect on the
continued validity and effectiveness of any such Tax exemptions.
2.14 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 2.14 of the Omega Disclosure Schedule lists, with
respect to Omega, any subsidiary of Omega and any trade or business (whether or
not incorporated) which is treated as a single employer with Omega (an "Omega
ERISA Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the
Code, (i) all material employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), (ii)
each loan to a non-officer employee in excess of Fifty Thousand Dollars
($50,000), loans to officers and directors and any stock option, stock purchase,
phantom stock, stock appreciation right, supplemental retirement, severance,
sabbatical, medical, dental, vision care, disability, employee relocation,
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cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, programs or arrangements, (iii) all
bonus, pension, profit sharing, savings, deferred compensation or incentive
plans, programs or arrangements, (iv) other fringe or employee benefit plans,
programs or arrangements that apply to senior management of Omega and that do
not generally apply to all employees, and (v) any current or former employment
or executive compensation or severance agreements, written or otherwise, are
still operative and in effect for the benefit of, or relating to, any present or
former employee, consultant or director of Omega (together, the "Omega Employee
Plans").
(b) Omega has furnished to Online a copy of each of the Omega
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and any material employee communications relating
thereto) and has, with respect to each Omega Employee Plan which is subject to
ERISA reporting requirements, provided copies of the Form 5500 reports filed for
the last three plan years. Any Omega Employee Plan intended to be qualified
under Section 401 (a) of the Code has either obtained from the Internal Revenue
Service a favorable determination letter as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has applied to the Internal Revenue Service
for such a determination letter prior to the expiration of the requisite period
under applicable Treasury Regulations or Internal Revenue Service pronouncements
in which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination. Omega has also furnished Online
with the most recent Internal Revenue Service determination letter issued with
respect to each such Omega Employee Plan, and nothing has occurred since the
issuance of each such letter which could reasonably be expected to cause the
loss of the tax-qualified status of any Omega Employee Plan subject to Code
Section 401 (a). Omega has also furnished Online with all registration
statements and prospectuses prepared in connection with each Omega Employee
Plan.
(c) (i) None of the Omega Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Omega Employee Plan,
which could reasonably be expected to have, in the aggregate, a Material Adverse
Effect; (iii) each Omega Employee Plan has been administered in accordance with
its terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect, and Omega and each
subsidiary or Omega ERISA Affiliate have performed in all material respects all
obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no knowledge of any material
default or material violation by any other party to, any of the Omega Employee
Plans; (iv) neither Omega nor any subsidiary or ERISA Affiliate is subject to
any material liability or penalty under Sections 4976 through 4980 of the Code
or Title I of ERISA with respect to any of the Omega Employee Plans; (v) all
material contributions required to be made by Omega or any subsidiary or Omega
ERISA Affiliate to any Omega Employee Plan have been made on or before their due
dates and a reasonable amount has been accrued for contributions to each Omega
Employee Plan for the current plan years; (vi) with respect to each Omega
Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA
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(excluding any such event for which the thirty (30) day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 or ERISA has occurred; (vii) each Omega
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Newco (other
than ordinary administrative expenses typically incurred in a termination
event); (viii) all premiums required by any Omega Employee Plan have been paid
thereunder or accrued on the books of Omega; (ix) all outstanding indebtedness
for services performed or accrued vacation, holiday pay, earned commissions,
accrued bonuses or other benefits owned to any present or former employee,
consultant or director have been paid when due or accrued on the books of Omega;
and (x) no action or failure to act with respect to any Omega Employee Plan
could subject Omega, Surviving Corporations or Newco or any of their respective
affiliates or any Omega Employee Plan to any material tax, penalty or other
liability, for breach of fiduciary duty or otherwise, under ERISA or any other
applicable law, whether by way of indemnity or otherwise. With respect to each
Omega Employee Plan subject to ERISA as either an employee pension plan within
the meaning of Section 3(2) of ERISA or an employee welfare benefit plan within
the meaning of Section 3(l) of ERISA, Omega has prepared in good faith and
timely filed all requisite governmental reports (which were true and correct in
all material respects as of the date filed) and has properly and timely filed
and distributed or posted all notices and reports to employees required to be
filed, distributed or posted with respect to each such Omega Employee Plan,
except to the extent the failure to timely or properly file or comply would not,
in the aggregate, have a Material Adverse Effect on Omega. No suit,
administrative proceeding, action or other litigation has been brought, or to
the knowledge of Omega is threatened, against or with respect to any such Omega
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor, and, to the knowledge of Omega, there are no facts that
could give rise to any material liability in the event of any such suit,
proceeding, action or other litigation. No payment or benefit which will or may
be made (either as a result of the Merger or otherwise) by Omega to any employee
will be characterized as an "excess parachute payment" within the meaning of
Section 280G(b)(1) of the Code. Neither Omega nor any Omega subsidiary or other
ERISA Affiliate is a party to, or has ever been a party to, or has made any
contribution to or otherwise incurred any obligation under, any "multiemployer
plan" as defined in Section 3(37) of ERISA. Neither Omega nor any Omega
subsidiary or Omega ERISA Affiliate currently maintain, sponsor, participate in
or contribute to, nor has it ever maintained, established, sponsored,
participated in, or contributed to, any pension plan (within the meaning of
Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(d) With respect to each Omega Employee Plan, Omega and each of
its subsidiaries have complied with (i) the applicable health care continuation
and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") and the regulations (including proposed regulations) thereunder,
(ii) the applicable requirements of the Family Medical and Leave Act of 1993 and
the regulations thereunder, except to the extent that such failure to comply
would not, in the aggregate, have a Material Adverse Effect and (iii) the
applicable requirements of the Health Insurance Portability and Accountability
Act of 1996 and the regulations (including proposed regulations) thereunder,
except to the extent that such failure to comply would not, in the aggregate,
have a Material Adverse Effect.
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(e) The consummation of the transactions contemplated by this
Agreement will not (either alone or when taken together with any additional or
subsequent events) (i) entitle any current or former employee or other service
provider of Omega, any Omega subsidiary or any other Omega ERISA Affiliate to
severance benefits or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or service provider.
(f) There has been no amendment to, or written interpretation or
announcement (whether or not written) by Omega, any Omega subsidiary or other
ERISA Affiliate relating to, or change in participation or coverage under, any
Omega Employee Plan which would materially increase the expense of maintaining
such Plan above the level of expense incurred with respect to that Plan for the
most recent fiscal year included in Omega's financial statements.
(g) There has been no deferral of any cash or securities under the
Omega Stock Option Plans.
2.15 EMPLOYEE MATTERS.
(a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any director or employee
of Omega or any of its subsidiaries, (ii) materially increase any benefits
otherwise payable by Omega or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
(b) Omega and each of its subsidiaries are in compliance in
all material respects with all currently applicable laws and regulations
respecting employment, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and employment
practices, and is not engaged in any unfair labor practice. Omega and each of
its subsidiaries has withheld all material amounts required by law or by
agreement to be withheld from the wages, salaries, and other payments to
employees, and is not liable for any material arrears of wages or any material
taxes or any material penalty for failure to comply with any of the foregoing.
Omega is not liable for any material payment to any trust or other fund or to
any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending material
claims against Omega or any of its subsidiaries under any workers compensation
plan or policy or for long term disability. Neither Omega nor any of its
subsidiaries has any obligations under COBRA with respect to any former
employees or qualifying beneficiaries thereunder, except for obligations that
would not, individually or in the aggregate, have a Material Adverse Effect on
Omega. There are no material controversies pending or, to the knowledge of
Omega, threatened between Omega or any of its subsidiaries, on the one hand, and
any of their respective employees, on the other hand, which controversies have
or would reasonably be expected to result in an action, suit, proceeding, claim,
arbitration or investigation before any agency, court or tribunal which would
have a Material
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Adverse Effect on Omega. Neither Omega nor any of its subsidiaries is a party to
any collective bargaining agreement or other labor union contract; nor does
Omega know of any activities or proceedings of any labor union to organize any
such employees. To Omega's knowledge, no employees of Omega are in violation in
any material respect of any term of any employment contract, patent disclosure
agreement, noncompetition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by Omega
because of the nature of the business conducted or presently proposed to be
conducted by Omega or to the use of trade secrets or proprietary information of
others. Except as disclosed in the Omega SEC Documents filed prior to the date
of this Agreement, Omega does not have any employment agreement with any of its
officers or other employees.
(c) All employees of Omega or any of its subsidiaries engaged in
the business of, acting as, or performing the duties of a registered
representative, registered principal or similar registered personnel or agent
(under the definition of such terms in the rules of the NASD, The Nasdaq
National Market, any other SRO or any state which has jurisdiction over Omega or
any of its subsidiaries (if applicable)) are properly registered to act in the
capacity of a registered representative, registered principal or similar
registered personnel or agent under the rules of the NASD, The Nasdaq National
Market, any other SRO or any state which has jurisdiction over Omega or any of
its subsidiaries (if applicable).
2.16 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the Omega
SEC Documents filed prior to the date of this Agreement, neither Omega nor any
of its subsidiaries is indebted to any director, officer, employee or agent of
Omega or any of its subsidiaries (except for amounts due as normal salaries and
bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to Omega or any of its subsidiaries other than an employee (who is not
an officer) for nonmaterial amounts, and there have been no other transactions
of the type required to be disclosed pursuant to Items 402 and 404 of Regulation
S-K under the Securities Act and the Exchange Act.
2.17 INSURANCE. Omega and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of Omega and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Omega and its subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds. Omega has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.18 REGULATORY MATTERS.
(a) Omega and each of its subsidiaries have obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which Omega or any
of its subsidiaries currently operates or holds any interest in any of its
properties or (ii) that is required for the operation or conduct of Omega's or
any of its subsidiaries' business or the holding of any such interest ((i) and
(ii) herein
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collectively called "Omega Authorizations"), and all of such Omega
Authorizations are in full force and effect and there are no circumstance which
indicate that any of such Omega Authorizations may not be renewed or withdrawn
or amended, in whole or in part, except where the failure to obtain or have any
of such Omega Authorizations would not reasonably be expected to have a Material
Adverse Effect on Omega.
(b) Omega and its subsidiaries have complied, and are in
compliance, in all material respects with all applicable federal, state, local
and self-regulatory laws, statutes, licensing requirements, rules, and
regulations. Each of Omega and its subsidiaries has, and is in compliance in all
material respects with, all material authorizations, consents, licenses, permits
(temporary or otherwise), orders, approvals, waivers, franchises and other
rights ("Governmental Permits") necessary to conduct their businesses,
including, but not limited to, Governmental Permits of the SEC, the NASD, the
NASD Regulation, Inc., The Nasdaq Stock Market, any state or foreign securities
or prosecutorial authority or any other Governmental Entity required to operate
their respective businesses and maintain their respective assets. Each of Omega
and its subsidiaries has obtained all material Governmental Permits of any and
all Governmental Entities required for the carrying on of its business and the
maintenance of its assets and such material Governmental Permits are in full
force and effect, and there are no circumstances of which Omega is aware which
indicate that any of such material Governmental Permits may be revoked or not
renewed or withdrawn or (except to an immaterial or beneficial extent) amended,
in whole or in part. SCHEDULE 2.18 to the Omega Disclosure Schedule sets forth a
true and complete list of all Governmental Permits held by Omega or any of its
subsidiaries or any of their respective employees (including all registered
personnel). Neither Omega nor any of its subsidiaries has received any notice
from any Governmental Entity (i) asserting that Omega or any of its Subsidiaries
is not in compliance in any material respect with any of the statutes,
regulations, or ordinances that such Governmental Entity enforces or (ii)
threatening to revoke cancel or not renew any Permit or (iii) restricting or
disqualifying their activities. After giving effect to the Merger all
Governmental Permits of the Omega Surviving Corporation and its subsidiaries
shall continue to be valid and in full force and effect to the same extent as
they presently are for Omega and its subsidiaries. There is no order issued,
investigation or proceeding pending or (to Omega's knowledge) threatened, or
notice served which remains outstanding or unresolved, with respect to any
material violation of any law, statute, ordinance, order, writ, decree, rule, or
regulation issued by any Governmental Entity applicable to either Omega or any
of its subsidiaries or any of their respective directors, officers, employees or
agents.
(c) Neither Omega nor any of its subsidiaries is a party or
subject to any agreement, consent decree or order, or other understanding or
arrangement with, or any directive of any Governmental Entity which imposes any
material restrictions on, or otherwise affects in any material respect, the
conduct of the business of Omega or any of its subsidiaries. SCHEDULE 2.18 of
the Omega Disclosure Schedule sets forth all compliance or enforcement
proceedings or, to the knowledge of Omega, examinations, inspections,
investigations or inquiries convened, and all fines, sanctions and other
measures imposed by any Governmental Entity or body against, concerning or
relating to Omega, any of its subsidiaries, any of their respective predecessor
entities, or any of their respective directors, officers, employees or agents.
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(d) Each of Omega and its subsidiaries, to the extent required to
so register (the "Broker-Dealers"), is duly registered as a broker-dealer with
the SEC and under all applicable state, federal, foreign or related laws and is
a member of the NASD and a member of Securities Investor Protection Act ("SIPC")
and the Municipal Securities Rulemaking Board. None of the Broker- Dealers has
exceeded in any material respect the business activities enumerated in any
applicable restriction or membership agreements or other limitations imposed in
connection with its registrations, forms (including Form BDs) and reports filed
with the NASD or any other Governmental Entity. The information contained in
such registrations, forms and reports was or will be true and complete in all
material respects as of the date hereof and, except as indicated on a subsequent
registration form or report filed before the Closing, will continue to be true
and complete in all material respects. Each such registration is in full force
and effect, except where the failure to be so would not have a Material Adverse
Effect on Omega.
(e) None of Omega or any of its subsidiaries is required to be
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended (the "Advisers Act") or under any state, federal and foreign
investment adviser or related laws.
(f) None of Omega, its subsidiaries or their respective operations
are required to be registered as an investment company under the Investment
Company Act of 1940, as amended.
2.19 MATERIAL CONTRACTS.
(a) Except for the contracts included as an exhibit to the Omega
SEC Documents or in connection with this transaction, neither Omega nor any of
its subsidiaries is a party to or bound by any of the following (collectively
and including the contracts which are included as exhibits to the Omega SEC
Documents, the "Omega Material Contracts"):
(i) any contract or agreement for the acquisition or sale of
securities or any material portion of the assets or business of or to any other
person or entity whether completed or pending other than pursuant to Omega
Options (including the WOW Options);
(ii) any contract or agreement for the purchase of materials,
supplies, equipment, services or data involving in the case of any such contract
or agreement more than Fifty Thousand Dollars ($50,000) over the life of the
contract or agreement;
(iii) any contract, agreement or instrument that expires or
may be renewed at the option of any person other than Omega or its subsidiaries
so as to expire more than six months after the date of this Agreement, or which
is not terminable by Omega or a subsidiary (as applicable) on sixty or fewer
days' notice at any time without penalty, and involves the receipt or payment by
Omega or any of its subsidiaries of more than Fifty Thousand Dollars ($50,000)
during any twelve month period;
(iv) any indenture, mortgage, note, loan agreement,
installment obligation or other contract, agreement or instrument for the
borrowing of money, any currency exchange,
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commodities or other hedging arrangement, any letter of credit or any leasing
transaction of the type required to be capitalized in accordance with generally
accepted accounting principles;
(v) any contract or agreement for capital expenditures in
excess of Fifty Thousand Dollars ($50,000) individually or in the aggregate with
other similar contracts or agreements;
(vi) any contract or agreement limiting the freedom of Omega
or any of its subsidiaries or (to the extent known to Omega) any of its officers
or key employees to engage in any line of business or to compete with any person
(as that term is defined in the Exchange Act) or any confidentiality, secrecy or
non-disclosure contract or agreement other than an ancillary provision included
as part of a contract or agreement entered into by Omega or any of its
subsidiaries in the ordinary course of business;
(vii) any contract or agreement involving payments during any
twelve- month period of Fifty Thousand Dollars ($50,000) or more, pursuant to
which Omega or any of its subsidiaries is a lessor or lessee of any real
property, machinery, equipment, motor vehicles, office furniture, fixtures or
other personal property;
(viii) any material contract or agreement with any person with
whom Omega or any of its subsidiaries does not deal at arm's length within the
meaning of the Code;
(ix) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person;
(x) any material consulting agreement;
(xi) any distribution, reseller, dealer, agency, franchise,
advertising, revenue sharing, marketing or similar agreement;
(xii) any clearing agency, investment banking, placement,
broker or similar agreement;
(xiii) any agreement with any Governmental Entity (including
any SRO);
(xiv) any agreement to provide brokerage services or directly
or indirectly participate in brokerage activities, commissions or fees in any
manner (including any forms of customer brokerage agreements);
(xv) any data redistribution or other agreement with any
vendor of financial market data or relating in any manner to financial market
data;
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(xvi) any product and/or service warranties, price protection
or return agreement or written policy or any similar written undertaking by or
for which Omega or any of its subsidiaries remains responsible to perform (a
form of any of the foregoing will be sufficient);
(xvii) any material agreement which would be terminable other
than by Omega or its subsidiaries or any agreement that provides for the payment
of money, accelerates or increases benefits, vesting or compensation or entitles
any person to take actions or receive benefits or otherwise triggers obligations
as a result of the Merger or consummation of any of the transactions
contemplated by this Agreement not otherwise disclosed in the Omega Disclosure
Schedule; or
(xviii) any other agreement which is material to the
operations of Omega's or any of its subsidiaries' businesses or operations or
which may have a material affect on Omega's assets, properties or the Merger.
(b) Each of Omega and its subsidiaries has performed all of
the material obligations required to be performed by it and is entitled to all
accrued benefits under, and is not in material default, nor to Omega's knowledge
has a claim been made that it is in material default in respect of, each Omega
Material Contract to which it is a party or by which it is bound. Each of the
Omega Material Contracts is in full force and effect and there exists no
material default or event of default or event, occurrence, condition or act,
with respect to Omega or any of its subsidiaries or, to Omega's knowledge, with
respect to any other contracting party, which, with the giving of notice, the
lapse of time or the happening of any other event or condition, would become a
material default or event of default under any Omega Material Contract. There
are no unwritten obligations or agreements or course of dealings contrary in any
material respect to the specific terms and conditions of any Material Contract.
True, correct and complete copies of all Omega Material Contracts have been
delivered to Online or filed as an exhibit to the Omega SEC Documents.
2.20 OMEGA OPTIONS. Since December 31, 1998,Omega has not granted any
options, stock appreciation rights or other rights to acquire securities other
than annual grants of stock options to its employees and grants of stock options
to new employees and consultants in accordance with the ordinary course of its
business consistent with past practices, or accelerated, amended or changed the
period of exercisability or vesting of options or other rights granted, under
the Omega Stock Option Plans or authorized cash payments in exchange for any
options or other rights granted under any of the Omega Stock Option Plans.
2.21 REGISTRATION STATEMENT, JOINT PROXY STATEMENT/PROSPECTUS. The
information supplied by Omega for inclusion in the registration statement on
Form S-4 (or such other successor form as shall be appropriate) pursuant to
which the shares of Newco Common Stock to be issued in the Merger will be
registered with the SEC (the "Registration Statement") shall not at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC contain any 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 information supplied by Omega for inclusion
in the joint proxy statement/prospectus to be sent to the shareholders of Omega
in connection with the
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meeting of Omega's shareholders to consider the Merger (the "Omega Shareholders
Meeting") and to the shareholders of Online in connection with the meeting of
Online's shareholders to consider the Merger (the "Online Shareholders Meeting"
and, together with the Omega Shareholders Meeting, collectively herein referred
to as "Shareholders Meetings") (such joint proxy statement/prospectus, together
with any amendments thereof or supplements thereto, in each case in the form or
forms sent as aforesaid, the "Joint Proxy Statement/Prospectus") shall not, on
the date the "Joint Proxy Statement/Prospectus" is first mailed to either the
shareholders of Omega or Online, at the time of the either of the Shareholders
Meetings or at the Effective Time, contain any statement which, at such time, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they are made, not false or misleading; or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for either of the
Shareholders Meetings which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Omega
which should be set forth in an amendment to the Registration Statement or a
supplement to the "Joint Proxy Statement/Prospectus", Omega shall promptly
inform Online of such event or information. Notwithstanding the foregoing, Omega
makes no representation, warranty or covenant with respect to any information
supplied by Online which is contained in any of the foregoing documents.
2.22 OPINION OF FINANCIAL ADVISOR. Omega has been advised by its
financial advisor, FleetBoston Robertson Stephens ("Robertson Stephens"), that
in such advisor's opinion, as of the date hereof, the Merger is fair, from a
financial point of view, to the shareholders of Omega. A copy of the written
opinion to the foregoing effect of Robertson Stephens dated as of the date of
this Agreement has been delivered to Online or will be delivered to Online
within five business days from the date of this Agreement.
2.23 OMEGA AFFILIATE AGREEMENTS. Each Affiliate (as defined below) of
Omega has entered into a Omega Affiliate Agreement in the form attached hereto
as EXHIBIT B (the "Omega Affiliate Agreements"). Omega shall use its best
efforts to obtain such a written agreement from any other person as soon as
practicable after the date on which such person becomes as an Affiliate of Omega
prior to the Effective Time. For purposes of this Agreement, persons and/or
entities deemed affiliates of an entity within the meaning of Rule 144 of the
rules and regulations of the SEC promulgated under the Securities Act for
purposes of Accounting Series, Releases 130 and 135, as amended, of the SEC are
referred to as "Affiliates."
2.24 STATE TAKEOVER STATUTES. The Board of Directors of Omega has taken
all actions so that the restrictions contained in Section 607.0902 of the
Florida Law applicable to "control shares" (as defined in such Section 607.0902)
will not apply to the execution, delivery or performance of this Agreement, the
Shareholder Agreements or the Option Agreement or the consummation of the Merger
or the other transactions contemplated by this Agreement, the Omega Shareholder
Agreements or the Omega Option Agreement. No other state takeover statute is
applicable to the Merger, this Agreement, the Omega Option Agreement, the Omega
Shareholder Agreements or the transactions contemplated hereby or thereby.
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2.25 TAX AND ACCOUNTING TREATMENT. Neither Omega nor any of its
directors or officers has taken any action that would interfere with Newco's or
the Surviving Corporations', Omega's or Online's ability to account for the
Merger as a pooling of interests or would prevent the Merger from constituting a
transaction qualifying as a reorganization within the meaning of Section 368(a)
of the Code. Neither Omega nor, to Omega's knowledge, any of its affiliates or
agents is aware of any agreement, plan or other circumstance that would
interfere with Newco's, the Surviving Corporations', Omega's or Online's ability
to account for the Merger as a pooling of interests or prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
2.26 BROKERS' AND FINDERS' FEES. Omega has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, other
than under its engagement letter with Robertson Stephens.
2.27 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Omega herein or in any schedule hereto, including the Omega
Disclosure Schedule, or certificate furnished by Omega pursuant to this
Agreement, or the Omega SEC Documents, when all such documents are read together
in their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ONLINE
Except as disclosed in the document of even date herewith delivered by
Online to Omega prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "Online
Disclosure Schedule"), any exception so disclosed in the Online Disclosure
Schedule to specifically identify the Section or subsection of this Agreement to
which such exception relates, Online represents and warrants to Omega, Newco and
Merger Subs as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Online and its direct and
indirect subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of Online
and its subsidiaries has the corporate power to own its properties and to carry
on its business as now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect on Online. Online has
delivered to Omega a true and correct copy of the certificate or articles of
incorporation, as amended, and bylaws, as amended, and any other charter or
organizational documents, each as amended, of Online and each of its direct and
indirect subsidiaries. Neither Online nor any of its direct and indirect
subsidiaries is in violation of any of the provisions of its certificate or
articles of incorporation or bylaws or other charter or
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organizational documents, each as amended. Online is the owner of all
outstanding shares of capital stock or voting securities of each of its
subsidiaries and all such shares and voting securities are duly authorized,
validly issued, fully paid and nonassessable. All of the outstanding shares of
capital stock and voting securities of each such subsidiary are owned by Online
free and clear of all liens, charges, claims or encumbrances or rights of
others. Except as disclosed in the Online SEC Documents (as defined below),
there are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating Online or any such subsidiary to
issue, transfer, sell, purchase, redeem or otherwise acquire any such
securities. The Online Disclosure Schedule sets forth all of the direct and
indirect subsidiaries of Online and the authorized and outstanding capital stock
thereof. Except as disclosed in the Online SEC Documents and the Online
Disclosure Schedule, Online does not directly or indirectly own any equity or
similar interest in, or any interest convertible or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity.
3.2 CAPITAL STRUCTURE. The authorized capital stock of Online consists
of 100,000,000 shares of Online Common Stock, and 1,000,000 shares of Online
Preferred stock, par value $.0l per share ("Online Preferred Stock"), of which
there were issued and outstanding as of the close of business on January 18,
2000, 11,476,388 shares of Online Common Stock and no shares of Online Preferred
Stock. There are no other outstanding shares of capital stock or voting
securities and no outstanding commitments to issue any shares of capital stock
or voting securities after January 18, 2000 other than pursuant to the exercise
of options outstanding as of such date under the Online 1999 Stock Option Plan
and the Online Warrants. All outstanding shares of Online Common Stock are duly
authorized, validly issued, fully paid and non-assessable and are free and clear
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the Articles of Incorporation or
Bylaws, each as amended, of Online or any agreement to which Online is a party
or by which it is bound. As of the close of business on January 18, 2000, Online
has reserved an aggregate of 1,000,000 shares of Common Stock for issuance to
employees, consultants and directors pursuant to the Online 1999 Stock Option
Plan, of which no shares have been issued pursuant to option exercises and
460,500 shares are subject to outstanding, unexercised options. Since January
18, 2000, Online has not issued or granted additional options under the Online
1999 Stock Option Plan or otherwise. Online has not issued or granted any stock
appreciation rights or performance units under the Online 1999 Stock Option
Plans or otherwise. Except for the rights created pursuant to this Agreement,
the Online 1999 Stock Option Plan, the Online Warrants and the Online Option
Agreement, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Online is a party or by which it is bound
obligating Online to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of capital stock of
Online or obligating Online to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except for this Agreement and as provided by
Section 6.11, there are no contracts, commitments or agreements relating to
voting, purchase or sale of Online's capital stock (i) between or among Online
and any of its shareholders and (ii) to Online's knowledge,
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between or among any of Online's shareholders. The terms of the Online 1999
Stock Option Plan and Online Warrants permit the assumption of options and
warrants (as the case may be) to purchase Online Common Stock as provided in
this Agreement, without the consent or approval of the holders of such
securities, the Online shareholders, or otherwise. True and complete copies of
all agreements and instruments relating to or issued under the Online 1999 Stock
Option Plan and in connection with the Online Warrants have been provided to
Omega and such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments in any case from the form provided to Omega. All
outstanding shares of Online Common Stock and all Online Options and Online
Warrants were issued in compliance with all applicable federal and state
securities laws.
3.3 AUTHORITY. Online has all requisite corporate power and authority
to enter into this Agreement and the Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Online Option Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Online, subject only to the approval
of the Merger by Online's shareholders as contemplated by Section 7.1(a). Each
of this Agreement and the Online Option Agreement has been duly executed and
delivered by Online and constitutes the valid and binding obligation of Online,
enforceable against Online in accordance with its terms, except as such
enforcement may be limited by (i) the effect of bankruptcy, insolvency,
reorganization, receivership, conservatorship, arrangement, moratorium or other
laws affecting or relating to the rights of creditors generally, or (ii) the
rules governing the availability of specific performance, injunctive relief or
other equitable remedies and general principles of equity, regardless of whether
considered in a proceeding in equity or at law. The execution and delivery of
this Agreement and the Online Option Agreement by Online does not, and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (i)
any provision of the certificate or articles of incorporation, bylaws, or other
charter or organizational documents, each as amended, of Online or any of its
subsidiaries, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Online
or any of its subsidiaries or any of their properties or assets. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission, SRO or other Governmental
Entity is required by or with respect to Online or any of its subsidiaries in
connection with the execution and delivery of this Agreement or the Online
Option Agreement, the performance of Online's obligations hereunder or
thereunder or the consummation of the transactions contemplated hereby or
thereby, except for (i) the filing of the Plan of Merger as provided in Section
1.2, (ii) the filing with the SEC and the NASD of the Joint Proxy
Statement/Prospectus relating to the Online Shareholders Meeting, (iii) such
notices, applications, consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal or state securities laws (including, without limitation, under the
Securities Act and the Exchange Act) in connection with the Merger, (iv) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Online and
would not prevent, or materially alter or
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delay, any of the transactions contemplated by this Agreement or the Omega
Option Agreement. Online is not aware of any reason why the approvals of all
Governmental Entities necessary to permit consummation of the Merger or the
other transactions contemplated by this Agreement will not be received without
the imposition of a condition or requirement that would have a Material Adverse
Effect on Online.
3.4 ONLINE SEC DOCUMENTS; ONLINE FINANCIAL STATEMENTS. Online has
furnished or made available (including via EDGAR) to Omega a true and complete
copy of each statement, report, registration statement (with the prospectus in
the form filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement and other filings filed with the SEC by Online since the date of
initial filing of Online's registration statement relating to its initial public
offering, and, prior to the Effective Time, Online will have furnished Omega
with true and complete copies of any additional documents filed with the SEC by
Online prior to the Effective Time (collectively, the "Online SEC Documents").
In addition, Online has made available to Omega all exhibits to the Online SEC
Documents filed prior to the date hereof, and will promptly make available to
Omega all exhibits to any additional Online SEC Documents filed prior to the
Effective Time. All documents required to be filed as exhibits to the Online SEC
Documents have been so filed, and all material contracts so filed as exhibits
are in full force and effect, except those which have expired in accordance with
their terms, and neither Online nor any of its subsidiaries is in material
default thereunder. As of their respective filing dates, the Online SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the Online SEC Documents
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 made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a subsequently filed Online SEC Document. The
financial statements of Online, including the notes thereto, included in the
Online SEC Documents (the "Online Financial Statements") were complete and
correct in all material respects as of their respective dates, complied as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-QSB, as permitted by Form 10-QSB of the SEC or except to the
extent corrected by a subsequently filed Online SEC Document filed prior to the
date hereof). The Online Financial Statements fairly present the consolidated
financial condition and operating results of Online and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments).
3.5 ABSENCE OF CERTAIN CHANGES. Since January 31, 1999 (the "Online
Balance Sheet Date"), Online has conducted its business in the ordinary course
consistent with past practice and there has not occurred except as otherwise
disclosed in the Online SEC Documents: (i) any change, event or condition
(whether or not covered by insurance) that has resulted in, or would reasonably
be expected to result in, a Material Adverse Effect on Online; (ii) any
acquisition, sale or transfer of any material asset of Online or any of its
subsidiaries other than in the ordinary course of business
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and consistent with past practice; (iii) any change in accounting methods or
practices (including any change in depreciation or amortization policies or
rates) by Online or any revaluation by Online of any of its or any of its
subsidiaries' assets; (iv) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of Online, or any
direct or indirect redemption, purchase or other acquisition by Online of any of
its shares of capital stock; (v) any material contract entered into by Online or
any of its subsidiaries, other than in the ordinary course of business and as
provided to Omega, or any material amendment or termination of, or material
default under, any material contract to which Online or any of its subsidiaries
is a party or by which it is bound; (vi) any amendment or change to the Articles
of Incorporation or Bylaws of Online; (vii) any material increase in or material
modification of the compensation or benefits payable or to become payable by
Online to any of its directors, officers or employees except in the case of
employees (other than officers) increases in the ordinary course of business
consistent with past practices; (viii) any material change in the interest rate
risk management and hedging policies, procedures or practices of Online or any
of its subsidiaries, or any failure to comply with such policies, procedures and
practices; or (ix) any negotiation or agreement by Online or any of its
subsidiaries to do any of the things described in the preceding clauses (i)
through (viii) (other than negotiations with Omega and its representatives
regarding the transactions contemplated by this Agreement).
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. None of Online or any of its
subsidiaries has any material obligations or liabilities of any nature (matured
or unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the balance sheet of Online and subsidiaries included in
Online's Quarterly Report on Form 10-QSB for the fiscal quarter ended November
30, 1999 (the "Online Balance Sheet"), (ii) those incurred in the ordinary
course of business consistent with past practice since the Online Balance Sheet
Date and which have not had and are not reasonably likely to have a Material
Adverse Effect on Online, and (iii) those incurred in connection with the
execution of this Agreement.
3.7 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration, inquiry, examination, inspection or
investigation pending by or before any Governmental Entity, agency, court or
tribunal, foreign or domestic or, to the knowledge of Online or any of its
subsidiaries, threatened against Online or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, would
reasonably be expected to prevent, enjoin, alter or materially delay any of the
transactions contemplated hereby or would reasonably be expected to have a
Material Adverse Effect on Online. There is no judgment, decree or order against
Online or any of its subsidiaries, or, to the knowledge of Online and its
subsidiaries, any of their respective directors or officers (in their capacities
as such), that, individually or in the aggregate, would reasonably be expected
to prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement or would reasonably be expected to have a
Material Adverse Effect on Online.
3.8 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Online or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any current or future business
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practice of Online or any of its subsidiaries, any acquisition of property by
Online or any of its subsidiaries or the conduct of business by Online or any of
its subsidiaries as currently conducted or as proposed to be conducted by Online
or any of its subsidiaries.
3.9 COMPLIANCE WITH LAWS. Each of Online and its subsidiaries has
complied in all material respects with all applicable federal, state, local,
self-regulatory and foreign laws, statutes, ordinances, rules and regulations,
and is not in violation in any material respect of, and has not received any
notices of material violation with respect to, its respective certificate or
articles of incorporation or bylaws or other charter or organizational
documents, or any federal, state, local, self-regulatory or foreign statute,
law, ordinance, rule or regulation applicable to the conduct of its business or
the ownership or operation of its business.
3.10 TITLE TO PROPERTY. Online and its subsidiaries have good, valid
and marketable title to all of their respective properties, interests in
properties and assets, real and personal, reflected in the Online Balance Sheet
or acquired after the Online Balance Sheet Date (except properties, interests in
properties and assets sold or otherwise disposed of since the Online Balance
Sheet Date in the ordinary course of business), or in the case of leased
properties and assets, valid leasehold interests in, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties and (iii) liens securing debt which is reflected on the Online
Balance Sheet or in any Online SEC Document filed subsequent to the Online
Balance Sheet Date. The plants, property and equipment of Online and its
subsidiaries that are used in the operations of their businesses are in
generally good operating condition and repair. All properties used in the
operations of Online and its subsidiaries are reflected in the Online Balance
Sheet to the extent generally accepted accounting principles require the same to
be reflected. SCHEDULE 3.10 of the Online Disclosure Schedule identifies each
parcel of real property owned or leased by Online or any of its subsidiaries.
3.11 INTELLECTUAL PROPERTY.
(a) Online and its subsidiaries are the sole and exclusive owners
of, or are licensed or otherwise possess legally enforceable and unencumbered
rights to use, all patents, trademarks, trade names, service marks, domain
names, database rights, copyrights, and any applications therefor, maskworks,
net lists, schematics, technology, know-how, trade secrets, inventory, ideas,
algorithms, processes, computer software programs or applications (in both
source code and object code form), and tangible or intangible proprietary
information or material ("Online Intellectual Property") that are used in and
are material to the business of Online and its subsidiaries as currently
conducted or as proposed to be conducted by Online and its subsidiaries. Online
has not (i) licensed any Online Intellectual Property in source code form to any
party or (ii) entered into any exclusive agreements relating to Online
Intellectual Property.
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(b) SCHEDULE 3.11 of the Online Disclosure Schedule lists (i) all
patents and patent applications and all registered and unregistered trademarks,
trade names and service marks, registered and unregistered copyrights, and
maskworks included in Online Intellectual Property, including the jurisdictions
in which each such Intellectual Property right has been issued or registered or
in which any application for such issuance and registration has been filed, (ii)
all licenses, sublicenses and other agreements as to which Online is a party and
pursuant to which any person is authorized to use Online Intellectual Property,
and (iii) all licenses, sublicenses and other agreements as to which Online or
any of its subsidiaries is a party and pursuant to which Online is authorized to
use any third party patents, trademarks or copyrights, including software or
other intellectual property ("Online Third Party Intellectual Property Rights"),
which is incorporated in, is, or forms a part of any product or service of
Online or any of its subsidiaries or which is otherwise used by Online or any of
its subsidiaries (excluding commercially available, off-the-shelf software). No
material royalties or other continuing payment obligations are or will be due in
respect of Online Third Party Intellectual Property Rights, except as disclosed
in the Online SEC Documents.
(c) To the knowledge of Online, there is no unauthorized use,
improper disclosure, infringement or misappropriation of any Online Intellectual
Property rights of Online or any of its subsidiaries, or any Online Intellectual
Property right of any third party to the extent licensed by or through Online or
any of its subsidiaries, by any third party, including any employee or former
employee of Online or any of its subsidiaries. Neither Online nor any of its
subsidiaries has entered into any agreement to indemnify any other person
against any charge of unauthorized use, improper disclosure, misappropriation or
infringement of any Online Intellectual Property.
(d) None of Online or its subsidiaries is, nor will any of them be
as a result of the execution and delivery of this Agreement or the performance
of its obligations under this Agreement, in breach of or cause a right to
terminate any license, sublicense or other agreement relating to any Online
Intellectual Property or Online Third Party Intellectual Property Rights which
would have a Material Adverse Effect on Online.
(e) All patents, registered trademarks, service marks and
copyrights held by Online and its subsidiaries are valid and subsisting. Neither
Online nor any of its subsidiaries (i) has been charged in any suit, action or
proceeding with any infringement, violation, misappropriation, improper
disclosure or unauthorized use of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party or a breach of any license or other agreement involving Online
Intellectual Property nor has a claim been made with respect thereto or (ii) has
brought any action, suit or proceeding for infringement, violation,
misappropriation, improper disclosure or unauthorized use of Online Intellectual
Property or breach of any license or agreement involving Online Intellectual
Property against any third party. To the knowledge of Online, neither the
manufacturing, use, marketing, licensing or sale of the products or services of
Online or any of its subsidiaries constitutes an infringement, violation,
misappropriation, unauthorized use or improper disclosure in any material
respect of any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party.
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(f) Online has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Online Intellectual Property of the rights to such contributions that Online
does not already own by operation of law.
(g) Online has taken reasonable steps consistent with prevailing
industry practice to protect and preserve the confidentiality of all Online
Intellectual Property not otherwise protected by patents, patent applications or
copyright ("Online Confidential Information"). All use, disclosure or
appropriation of Online Confidential Information owned by Online or any of its
subsidiaries by or to a third party has been pursuant to the terms of a written
agreement between Online or its subsidiary and such third party. All use,
disclosure or appropriation by Online and its subsidiaries of Online
Confidential Information not owned by Online or any such subsidiary has been
pursuant to the terms of a written agreement between Online or its subsidiary
and the owner of such Online Confidential Information, or is otherwise lawful.
3.12 ENVIRONMENTAL MATTERS.
(a) For purposes of this Section 3.12 only, the following terms
shall be defined as follows:
(i) For purposes of this Section 3.12 only, "Property" shall
mean all real property leased or owned by Online or its subsidiaries either
currently or in the past.
(ii) For purposes of this Section 3.12 only, "Facilities"
shall mean all buildings and improvements on the Property of Online or its
subsidiaries.
(b) Online represents and warrants as follows: (i) to Online's
knowledge, no methylene chloride or asbestos is contained in or has been used at
or released from the Facilities; (ii) to Online's knowledge, all Hazardous
Materials have been disposed of in accordance with all Environmental and Safety
Laws; (iii) Online and its subsidiaries have received no written notice of any
noncompliance of the Facilities or its past or present operations with
Environmental and Safety Laws; (iv) to Online's knowledge, no notices,
administrative actions or suits are pending or threatened relating to a
violation of any Environmental and Safety Laws; (v) to Online's knowledge,
neither Online nor any of its subsidiaries are a potentially responsible party
under CERCLA, or state analog statute, arising out of events occurring prior to
the Effective Time; (vi) to Online's knowledge, there have not been in the past,
and are not now, any Hazardous Materials on, under or migrating to or from the
Facilities or any Property; (vii) to Online's knowledge, there have not been in
the past, and are not now, any underground tanks or underground improvements at,
on or under any Property including without limitation, treatment or storage
tanks, sumps, or water, gas or oil wells; (viii) to Online's knowledge, there
are no PCBs deposited, stored, disposed of or located on the Property or
Facilities or any equipment on the Property containing PCBs at levels in excess
of 50 parts per million; (ix) to Online's knowledge, there is no formaldehyde on
the Property or in the Facilities, nor any insulating material containing urea
formaldehyde in the Facilities; (x) Online's and its subsidiaries' uses of and
activities in the Facilities and Property have at all times complied in all
material respects with all Environmental and Safety Laws; and (xi) Online and
its subsidiaries have
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all the permits and licenses required to be issued under Environmental and
Safety Laws and are in compliance in all material respects with the terms and
conditions of those permits.
3.13 TAXES. Online and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax (as defined below) purposes of
which Online or any of its subsidiaries is or has been a member have properly
completed and timely filed all Tax Returns required to be filed by them and have
paid all Taxes shown thereon to be due, other than any Taxes for which adequate
reserves under generally accepted accounting principles have been recorded in
the Online Financial Statements. Online has provided adequate accruals in
accordance with generally accepted accounting principles in its financial
statements for any Taxes that have not been paid, whether or not shown as being
due on any Tax Returns. Online has no material liability for unpaid Taxes
accruing after the date of the Online Balance Sheet other than Taxes arising in
the ordinary course of its business. Except as disclosed in the Online SEC
Documents, there is (i) no material claim for Taxes that is a lien against the
property of Online or any of its subsidiaries or is being asserted against
Online or any of its subsidiaries other than liens for Taxes not yet due and
payable, (ii) Online has not been notified that any audit of any Tax Return of
Online or any of its subsidiaries is being conducted by a Tax authority, (iii)
no extension of the statute of limitations on the assessment of any Taxes
granted by Online or any of its subsidiaries is currently in effect and (iv)
there is no agreement, contract or arrangement to which Online or any of its
subsidiaries is a party that may result in the payment of any amount that would
not be deductible by reason of Sections 280G, 162 or 404 of the Code. There has
been no change in ownership of Online or any of its subsidiaries that has caused
the utilization of any losses of such entities to be limited pursuant to Section
382 of the Code. Online has not been and will not be required to include any
material adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions, events or accounting
methods employed prior to the Merger. Neither Online nor any of its subsidiaries
has filed or will file any consent to have the provisions of paragraph 341(f)(2)
of the Code (or comparable provisions of any state Tax laws) apply to Online or
any of its subsidiaries. Neither Online nor any of its subsidiaries is a party
to any Tax sharing or Tax allocation agreement nor does Online or any of its
subsidiaries owe any amount under any such agreement. Neither Online nor any of
its subsidiaries has filed any disclosures under Section 6662 or comparable
provisions of state, local or foreign law to prevent the imposition of penalties
with respect to any Tax reporting position taken on any Tax Return. Neither
Online nor any of its subsidiaries has ever been a member of a consolidated,
combined or unitary group of which Online was not the ultimate parent
corporation. Online and each of its subsidiaries have in their possession
receipts for any Taxes paid to foreign Tax authorities. Online and each of its
subsidiaries are in full compliance with all terms and conditions of any Tax
exemptions and the consummation of the Merger shall not have any adverse effect
on the continued validity and effectiveness of any such Tax exemptions.
3.14 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.14 of the Online Disclosure Schedule lists, with
respect to Online, any subsidiary of Online and any trade or business (whether
or not incorporated) which is treated as a single employer with Online (an
"Online ERISA Affiliate") within the meaning of Section 414(b),
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(c), (m) or (o) of the Code, (i) all material employee benefit plans (as defined
in Section 3(3) of ERISA, (ii) each loan to a non-officer employee in excess of
Fifty Thousand Dollars ($50,000), loans to officers and directors and any stock
option, stock purchase, phantom stock, stock appreciation right, supplemental
retirement, severance, sabbatical, medical, dental, vision care, disability,
employee relocation, cafeteria benefit (Code Section 125) or dependent care
(Code Section 129), life insurance or accident insurance plans, programs or
arrangements, (iii) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (iv) other fringe or
employee benefit plans, programs or arrangements that apply to senior management
of Online and that do not generally apply to all employees, and (v) any current
or former employment or executive compensation or severance agreements, written
or otherwise, are still operative and in effect for the benefit of, or relating
to, any present or former employee, consultant or director of Online (together,
the "Online Employee Plans").
(b) Online has furnished to Online a copy of each of the Online
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and any material employee communications relating
thereto) and has, with respect to each Online Employee Plan which is subject to
ERISA reporting requirements, provided copies of the Form 5500 reports filed for
the last three plan years. Any Online Employee Plan intended to be qualified
under Section 401 (a) of the Code has either obtained from the Internal Revenue
Service a favorable determination letter as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has applied to the Internal Revenue Service
for such a determination letter prior to the expiration of the requisite period
under applicable Treasury Regulations or Internal Revenue Service pronouncements
in which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination. Online has also furnished Omega
with the most recent Internal Revenue Service determination letter issued with
respect to each such Online Employee Plan, and nothing has occurred since the
issuance of each such letter which could reasonably be expected to cause the
loss of the tax-qualified status of any Online Employee Plan subject to Code
Section 401 (a). Online has also furnished Omega with all registration
statements and prospectuses prepared in connection with each Online Employee
Plan.
(c) (i) None of the Online Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Online Employee Plan,
which could reasonably be expected to have, in the aggregate, a Material Adverse
Effect; (iii) each Online Employee Plan has been administered in accordance with
its terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect, and Online and each
subsidiary or Online ERISA Affiliate have performed in all material respects all
obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no knowledge of any material
default or material violation by any other party to, any of the Online Employee
Plans; (iv) neither Online nor any subsidiary or ERISA Affiliate is subject to
any material liability or penalty under Sections 4976 through 4980 of the Code
or Title I of ERISA with respect to any of the Online Employee Plans; (v) all
material contributions
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required to be made by Online or any subsidiary or Online ERISA Affiliate to any
Online Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Online Employee
Plan for the current plan years; (vi) with respect to each Online Employee Plan,
no "reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; (vii) each Online Employee
Plan can be amended, terminated or otherwise discontinued after the Effective
Time in accordance with its terms, without liability to Newco (other than
ordinary administrative expenses typically incurred in a termination event);
(viii) all premiums required by any Online Employee Plan have been paid
thereunder or accrued on the books of Online; (ix) all outstanding indebtedness
for services performed or accrued vacation, holiday pay, earned commissions,
accrued bonuses or other benefits owned to any present or former employee,
consultant or director have been paid when due or accrued on the books of
Online; and (x) no action or failure to act with respect to any Online Employee
Plan could subject Online, Surviving Corporations or Newco or any of their
respective affiliates or any Online Employee Plan to any material tax, penalty
or other liability, for breach of fiduciary duty or otherwise, under ERISA or
any other applicable law, whether by way of indemnity or otherwise. With respect
to each Online Employee Plan subject to ERISA as either an employee pension plan
within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan
within the meaning of Section 3(l) of ERISA, Online has prepared in good faith
and timely filed all requisite governmental reports (which were true and correct
in all material respects as of the date filed) and has properly and timely filed
and distributed or posted all notices and reports to employees required to be
filed, distributed or posted with respect to each such Online Employee Plan,
except to the extent the failure to timely or properly file or comply would not,
in the aggregate, have a Material Adverse Effect on Online. No suit,
administrative proceeding, action or other litigation has been brought, or to
the knowledge of Online is threatened, against or with respect to any such
Online Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor, and, to the knowledge of Online, there are no facts that
could give rise to any material liability in the event of any such suit,
proceeding, action or other litigation. No payment or benefit which will or may
be made (either as a result of the Merger or otherwise) by Online to any
employee will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code. Neither Online nor any Online
subsidiary or other ERISA Affiliate is a party to, or has ever been a party to,
or has made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA. Neither Online nor
any Online subsidiary or Online ERISA Affiliate currently maintain, sponsor,
participate in or contribute to, nor has it ever maintained, established,
sponsored, participated in, or contributed to, any pension plan (within the
meaning of Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
(d) With respect to each Online Employee Plan, Online and each of
its subsidiaries have complied with (i) the applicable health care continuation
and notice provisions of COBRA and the regulations (including proposed
regulations) thereunder, (ii) the applicable requirements of the Family Medical
and Leave Act of 1993 and the regulations thereunder, except to the extent that
such failure to comply would not, in the aggregate, have a Material Adverse
Effect
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and (iii) the applicable requirements of the Health Insurance Portability and
Accountability Act of 1996 and the regulations (including proposed regulations)
thereunder, except to the extent that such failure to comply would not, in the
aggregate, have a Material Adverse Effect.
(e) The consummation of the transactions contemplated by this
Agreement will not (either alone or when taken together with any additional or
subsequent events) (i) entitle any current or former employee or other service
provider of Online, any Online subsidiary or any other Online ERISA Affiliate to
severance benefits or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or service provider.
(f) There has been no amendment to, or written interpretation or
announcement (whether or not written) by Online, any Online subsidiary or other
ERISA Affiliate relating to, or change in participation or coverage under, any
Online Employee Plan which would materially increase the expense of maintaining
such Plan above the level of expense incurred with respect to that Plan for the
most recent fiscal year included in Online's financial statements.
(g) There has been no deferral of any cash or securities under the
Online Stock Option Plans.
3.15 EMPLOYEE MATTERS.
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any director or employee
of Online or any of its subsidiaries, (ii) materially increase any benefits
otherwise payable by Online or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
(b) Online and each of its subsidiaries are in compliance in all
material respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and is
not engaged in any unfair labor practice. Online and each of its subsidiaries
has withheld all material amounts required by law or by agreement to be withheld
from the wages, salaries, and other payments to employees, and is not liable for
any material arrears of wages or any material taxes or any material penalty for
failure to comply with any of the foregoing. Online is not liable for any
material payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending material claims against Online or any of
its subsidiaries under any workers compensation plan or policy or for long term
disability. Neither Online nor any of its subsidiaries has any obligations under
COBRA with respect to any former employees or qualifying beneficiaries
thereunder, except for obligations that would not, individually or in the
aggregate, have a Material Adverse Effect on Online. There are no
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material controversies pending or, to the knowledge of Online, threatened
between Online or any of its subsidiaries, on the one hand, and any of their
respective employees, on the other hand, which controversies have or would
reasonably be expected to result in an action, suit, proceeding, claim,
arbitration or investigation before any agency, court or tribunal which would
have a Material Adverse Effect on Online. Neither Online nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract; nor does Online know of any activities or proceedings of any
labor union to organize any such employees. To Online's knowledge, no employees
of Online are in violation in any material respect of any term of any employment
contract, patent disclosure agreement, noncompetition agreement, or any
restrictive covenant to a former employer relating to the right of any such
employee to be employed by Online because of the nature of the business
conducted or presently proposed to be conducted by Online or to the use of trade
secrets or proprietary information of others. Except as disclosed in the Online
SEC Documents filed prior to the date of this Agreement, Online does not have
any employment agreement with any of its officers or other employees.
(c) All employees of Online or any of its subsidiaries engaged in
the business of, acting as, or performing the duties of a registered
representative, registered principal or similar registered personnel or agent
(under the definition of such terms in the rules of the NASD, The Nasdaq
National Market, any other SRO or any state which has jurisdiction over Online
or any of its subsidiaries (if applicable)) are properly registered to act in
the capacity of a registered representative, registered principal or similar
registered personnel or agent under the rules of the NASD, The Nasdaq National
Market, any other SRO or any state which has jurisdiction over Online or any of
its subsidiaries (if applicable).
3.16 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the Online
SEC Documents filed prior to the date of this Agreement, neither Online nor any
of its subsidiaries is indebted to any director, officer, employee or agent of
Online or any of its subsidiaries (except for amounts due as normal salaries and
bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to Online or any of its subsidiaries other than an employee (who is not
an officer) for nonmaterial amounts, and there have been no other transactions
of the type required to be disclosed pursuant to Items 402 and 404 of Regulation
S-K under the Securities Act and the Exchange Act.
3.17 INSURANCE. Online and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of Online and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Online and its subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds. Online has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
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3.18 REGULATORY MATTERS.
(a) Online and each of its subsidiaries have obtained each
federal, state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to which
Online or any of its subsidiaries currently operates or holds any interest in
any of its properties or (ii) that is required for the operation or conduct of
Online's or any of its subsidiaries' business or the holding of any such
interest ((i) and (ii) herein collectively called "Online Authorizations"), and
all of such Online Authorizations are in full force and effect and there are no
circumstances which indicate that any of such Online Authorizations may not be
renewed or withdrawn or amended, in whole or in part, except where the failure
to obtain or have any of such Online Authorizations could not reasonably be
expected to have a Material Adverse Effect on Online.
(b) Online and its subsidiaries have complied, and are in
compliance, in all material respects with all applicable federal, state, local
and self-regulatory laws, statutes, licensing requirements, rules, and
regulations. Each of Online and its subsidiaries has, and is in compliance in
all material respects with, all material Governmental Permits necessary to
conduct their businesses, including, but not limited to, Governmental Permits of
the SEC, the NASD, the NASD Regulation, Inc., The Nasdaq Stock Market, any state
or foreign securities or prosecutorial authority or any other Governmental
Entity required to operate their respective businesses and maintain their
respective assets. Each of Online and its subsidiaries has obtained all material
Governmental Permits of any and all Governmental Entities required for the
carrying on of its business and the maintenance of its assets and such material
Governmental Permits are in full force and effect, and there are no
circumstances of which Online is aware which indicate that any of such material
Governmental Permits may be revoked or not renewed or withdrawn or (except to an
immaterial or beneficial extent) amended, in whole or in part. SCHEDULE 3.18 to
the Online Disclosure Schedule sets forth a true and complete list of all
Governmental Permits held by Online or any of its subsidiaries or any of their
respective employees (including all registered personnel). Neither Online nor
any of its subsidiaries has received any notice from any Governmental Entity (i)
asserting that Online or any of its Subsidiaries is not in compliance in any
material respect with any of the statutes, regulations, or ordinances that such
Governmental Entity enforces or (ii) threatening to revoke cancel or not renew
any Permit or (iii) restricting or disqualifying their activities. After giving
effect to the Merger all Governmental Permits of the Online Surviving
Corporation and its subsidiaries shall continue to be valid and in full force
and effect to the same extent as they presently are for Online and its
subsidiaries. There is no order issued, investigation or proceeding pending or
(to Online's knowledge) threatened, or notice served which remains outstanding
or unresolved, with respect to any material violation of any law, statute,
ordinance, order, writ, decree, rule, or regulation issued by any Governmental
Entity applicable to either Online or any of its subsidiaries or any of their
respective directors, officers, employees or agents.
(c) Neither Online nor any of its subsidiaries is a party or
subject to, any agreement, consent decree or order, or other understanding or
arrangement with, or any directive of any Governmental Entity which imposes any
material restrictions on, or otherwise affects in any material respect, the
conduct of the business of Online or any of its subsidiaries. SCHEDULE 3.18 of
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the Online Disclosure Schedule sets forth all compliance or enforcement
proceedings or, to the knowledge of Online, examinations, inspections,
investigations or inquiries convened, and all fines, sanctions and other
measures imposed by any Governmental Entity or body against, concerning or
relating to Online, any of its subsidiaries, any of their respective predecessor
entities, or any of their respective directors, officers, employees or agents.
(d) Each of Online and its subsidiaries, to the extent required to
so register (the "Online Broker-Dealers"), is duly registered as a broker-dealer
with the SEC and under all applicable state, federal, foreign or related laws
and is a member of the NASD and a member of SIPC and the Municipal Securities
Rulemaking Board. Online has delivered or made available to Omega a true and
complete copy of Online's currently effective Form BD as filed with the NASD, a
copy of any restriction agreement, its NASD membership agreement, and all
Government Permits, including, all currently effective SEC, NASD, and state
registrations. Online has also made available to Omega all prior Form BD's filed
with the NASD and any state, as well as any state registration filings submitted
on state specific forms. Online has also made available to Omega all
correspondence between Online and any Governmental Entity, including the SEC,
NASD and all applicable state regulators, within the last five years, and will
provide Omega such forms and reports as are filed from and after the date hereof
and prior to the Closing. None of the Online Broker-Dealers has exceeded in any
material respect the business activities enumerated in any applicable
restriction or membership agreements or other limitations imposed in connection
with its registrations, forms (including Form BDs) and reports filed with the
NASD or any other Governmental Entity. The information contained in such
registrations, forms and reports was or will be true and complete in all
material respects as of the date hereof and, except as indicated on a subsequent
registration form or report filed before the Closing, will continue to be true
and complete in all material respects. Each such registration is in full force
and effect, except where the failure to be so would not have a Material Adverse
Effect on Online.
(e) None of Online or any of its subsidiaries is required to be
registered as an investment adviser under the Advisers Act or under any state,
federal and foreign investment adviser or related laws.
(f) None of Online, its subsidiaries or their respective
operations are required to be registered as an investment company under the
Investment Company Act of 1940, as amended.
(g) Schedule 3.18(g) of the Online Disclosure Schedule sets forth
a list of all bank, brokerage and proprietary trading accounts maintained by or
on behalf of Online, and the persons authorized as signatories or to conduct
transactions relating thereto.
3.19 MATERIAL CONTRACTS.
(a) Except for the contracts included as an exhibit to the Online
SEC Documents or in connection with this transaction, neither Online nor any of
its subsidiaries is a party to or bound by any of the following (collectively
and including the contracts which are included as exhibits to the Online SEC
Documents, the "Online Material Contracts"):
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(i) any contract or agreement for the acquisition or sale of
securities or any material portion of the assets or business of or to any other
person or entity whether completed or pending other than pursuant to Online
Options or Online Warrants;
(ii) any contract or agreement for the purchase of materials,
supplies, equipment, services or data involving in the case of any such contract
or agreement more than Fifty Thousand Dollars ($50,000) over the life of the
contract or agreement;
(iii) any contract, agreement or instrument that expires or
may be renewed at the option of any person other than Online or its subsidiaries
so as to expire more than six months after the date of this Agreement, or which
is not terminable by Online or a subsidiary (as applicable) on sixty or fewer
days' notice at any time without penalty, and involves the receipt or payment by
Online or any of its subsidiaries of more than Fifty Thousand Dollars ($50,000)
during any twelve month period;
(iv) any indenture, mortgage, note, loan agreement,
installment obligation or other contract, agreement or instrument for the
borrowing of money, any currency exchange, commodities or other hedging
arrangement, any letter of credit or any leasing transaction of the type
required to be capitalized in accordance with generally accepted accounting
principles;
(v) any contract or agreement for capital expenditures in
excess of Fifty Thousand Dollars ($50,000) individually or in the aggregate with
other similar contracts or agreements;
(vi) any contract or agreement limiting the freedom of Online
or any of its subsidiaries or (to the extent known to Online) any of its
officers or key employees to engage in any line of business or to compete with
any person (as that term is defined in the Exchange Act) or any confidentiality,
secrecy or non-disclosure contract or agreement other than an ancillary
provision included as part of a contract or agreement entered into by Online or
any of its subsidiaries in the ordinary course of business;
(vii) any contract or agreement involving payments during any
twelve- month period of Fifty Thousand Dollars ($50,000) or more, pursuant to
which Online or any of its subsidiaries is a lessor or lessee of any real
property, machinery, equipment, motor vehicles, office furniture, fixtures or
other personal property;
(viii) any material contract or agreement with any person with
whom Online or any of its subsidiaries does not deal at arm's length within the
meaning of the Code;
(ix) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person;
(x) any material consulting agreement;
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(xi) any distribution, reseller, dealer, agency, franchise,
advertising, revenue sharing, marketing or similar agreement;
(xii) any clearing agency, investment banking, placement,
broker or similar agreement;
(xiii) any agreement with any Governmental Entity (including
any SRO);
(xiv) any agreement to provide brokerage services or directly
or indirectly participate in brokerage activities, commissions or fees in any
manner (including any forms of customer brokerage agreements);
(xv) any data redistribution or other agreement with any
vendor of financial market data or relating in any manner to financial market
data;
(xvi) any product and/or service warranties, price protection
or return agreement or written policy or any similar written undertaking by or
for which Online or any of its subsidiaries remains responsible to perform (a
form of any of the foregoing will be sufficient);
(xvii) any material agreement which would be terminable other
than by Online or its subsidiaries or any agreement that provides for the
payment of money, accelerates or increases benefits, vesting or compensation or
entitles any person to take actions or receive benefits or otherwise triggers
obligations as a result of the Merger or consummation of any of the transactions
contemplated by this Agreement not otherwise disclosed in the Online Disclosure
Schedule; or
(xviii) any other agreement which is material to the
operations of Online's or any of its subsidiaries' businesses or operations or
which may have a material affect on Online's assets, properties or the Merger.
(b) Each of Online and its subsidiaries has performed all of the
material obligations required to be performed by it and is entitled to all
accrued benefits under, and is not in material default, nor to Online's
knowledge has a claim been that it is in material default in respect of, each
Online Material Contract to which it is a party or by which it is bound. Each of
the Online Material Contracts is in full force and effect and there exists no
material default or event of default or event, occurrence, condition or act,
with respect to Online or any of its subsidiaries or, to Online's knowledge,
with respect to any other contracting party, which, with the giving of notice,
the lapse of time or the happening of any other event or condition, would become
a material default or event of default under any Online Material Contract. There
are no unwritten obligations or agreements or course of dealings contrary in any
material respect to the specific terms and provisions of any Material Contract.
True, correct and complete copies of all Online Material Contracts have been
delivered to Omega or filed as an exhibit to the Online SEC Documents.
3.20 ONLINE OPTIONS. Since January 31, 1999, Online has not granted any
options, stock appreciation rights or other rights to acquire securities other
than grants of stock options to new
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employees in accordance with the ordinary course of its business consistent with
past practices, or accelerated, amended or changed the period of exercisability
or vesting of options or other rights granted, under Online's 1999 Stock Option
Plan or authorized cash payments in exchange for any options or other rights
granted under such plan.
3.21 REGISTRATION STATEMENT, JOINT PROXY STATEMENT/PROSPECTUS. The
information supplied by Online for inclusion in the Registration Statement shall
not at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC contain any 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 information
supplied by Online for inclusion in the Joint Proxy Statement/Prospectus shall
not, on the date the Joint Proxy Statement/Prospectus is first mailed to either
the shareholders of Omega or Online, at the time of either of the Shareholders
Meetings or at the Effective Time, contain any statement which, at such time, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they are made, not false or misleading; or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for either of the
Shareholders Meetings which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Online
which should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, Online shall promptly inform
Omega of such event or information. Notwithstanding the foregoing, Online makes
no representation, warranty or covenant with respect to any information supplied
by Omega, Newco or the Merger Subs which is contained in any of the foregoing
documents.
3.22 OPINION OF FINANCIAL ADVISOR. Online has been advised by its
financial advisor, Raymond James & Associates, Inc. ("Raymond James") that in
such advisor's opinion, as of the date hereof, the consideration to be received
by the shareholders of Online in the Merger is fair, from a financial point of
view, to the shareholders of Online. A copy of the written opinion to the
foregoing effect of Raymond James dated as of the date of the Agreement has been
delivered to Omega or will be delivered to Omega within five business days from
the date of this Agreement.
3.23 ONLINE AFFILIATE AGREEMENTS. Each Affiliate (as defined below) of
Online has entered into a Online Affiliate Agreement in the form attached hereto
as Exhibit C (the "Online Affiliate Agreements"). Online shall use its best
efforts to obtain such a written agreement from any other person as soon as
practicable after the date on which such person becomes as an Affiliate of
Online prior to the Effective Time. For purposes of this Agreement, persons
and/or entities deemed affiliates of an entity within the meaning of Rule 144 of
the rules and regulations of the SEC promulgated under the Securities Act for
purposes of Accounting Series, Releases 130 and 135, as amended, of the SEC are
referred to as "Affiliates."
3.24 STATE TAKEOVER STATUTES. The Board of Directors of Online has
taken all actions so that the restrictions contained in Section 607.0902 of the
Florida Law applicable to "control shares" (as defined in such Section 607.0902)
will not apply to the execution, delivery or performance of this
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Agreement, the Shareholder Agreements or the Option Agreement or the
consummation of the Merger or the other transactions contemplated by this
Agreement, the Online Shareholder Agreements or the Online Option Agreement. No
other state takeover statute is applicable to the Merger, this Agreement, the
Online Option Agreement, the Online Shareholder Agreements or the transactions
contemplated hereby or thereby.
3.25 TAX AND ACCOUNTING TREATMENT. Neither Online nor any of its
directors or officers has taken any action that would interfere with Newco's,
the Surviving Corporations', Omega's or Online's ability to account for the
Merger as a pooling of interests or would prevent the Merger from constituting a
transaction qualifying as a reorganization within the meaning of Section 368(a)
of the Code. Neither Online nor, to Online's knowledge, any of its affiliates or
agents is aware of any agreement, plan or other circumstance that would
interfere with Newco's, the Surviving Corporations', Omega's or Online's ability
to account for the Merger as a pooling of interests or prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
3.26 BROKERS' AND FINDERS' FEES. Online has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, other
than under its engagement letter with Raymond James.
3.27 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Online herein or in any schedule hereto, including the Online
Disclosure Schedule, or certificate furnished by Online pursuant to this
Agreement, or the Online SEC Documents, when all such documents are read
together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWCO
Except as disclosed in the document of even date herewith delivered by
Newco to Omega and Online prior to the execution and delivery of this Agreement
and referring to the representations and warranties in this Agreement (the
"Newco Disclosure Schedule'), any exception so disclosed in the Newco Disclosure
Schedule to specifically identify the Section, Subsection or clause of this
Agreement to which such exception relates, Newco represents and warrants to
Omega and Online as follows:
4.1 ORGANIZATION, STANDING AND POWER. Each of Newco and Merger Subs are
corporations duly organized, validly existing and in good standing under the
laws of the State of Florida. Newco and Merger Subs have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby and thereby.
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4.2 CAPITAL STRUCTURE. The authorized capital stock of Newco consists
of 200,000,000 shares of Newco Common Stock and 25,000,000 shares of Newco
preferred stock, par value $.01 per share, of which there were issued and
outstanding as of the close of business on January 18, 2000, 100 shares of Newco
Common Stock. There are no other outstanding shares of capital stock or voting
securities and no outstanding commitments to issue any shares of capital stock
or voting securities after January 18, 2000, other than as contemplated pursuant
to this Agreement. All outstanding shares of Newco Common Stock are duly
authorized, validly issued, fully paid and non- assessable and are free and
clear of any liens or encumbrances other than any liens or encumbrances created
by or imposed upon the holders thereof, and are not subject to preemptive rights
or rights of first refusal created by statute, the Certificate of Incorporation
or Bylaws, each as amended, of Newco or any agreement to which Newco is a party
or by which it is bound. Except for (i) the rights created pursuant to this
Agreement, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Newco is a party or by which it is bound
obligating Newco to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of capital stock of
Newco or obligating Newco to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. There are no contracts, commitments or
agreements relating to voting, purchase or sale of Newco's capital stock (i)
between or among Newco and any of its stockholders and (ii) to Newco's
knowledge, between or among any of Newco's stockholders. All outstanding shares
of Newco Common Stock were issued in compliance with all applicable federal and
state securities laws.
4.3 AUTHORITY. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Newco and Merger
Subs. This Agreement has been duly executed and delivered by Newco and Merger
Subs, and constitutes the valid and binding obligations of Newco and Merger
Subs, enforceable against them in accordance with its terms, except as such
enforcement may be limited by (i) the effect of bankruptcy, insolvency,
reorganization, receivership, conservatorship, arrangement, moratorium or other
laws affecting or relating to the rights of creditors generally, or (ii) the
rules governing the availability of specific performance, injunctive relief or
other equitable remedies and general principles of equity, regardless of whether
considered in a proceeding in equity or at law. The execution and delivery of
this Agreement do not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a benefit
under (i) any provision of the Articles of Incorporation or Bylaws of Newco or
Merger Subs, as amended, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Newco or Merger Subs or their respective properties or assets. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, is required by or with respect to Newco or
Merger Subs in connection with the execution and delivery of this Agreement by
Newco and Merger Subs or the consummation by Newco and Merger Subs of the
transactions contemplated hereby, except for (i) the filing of the Plan of
Merger as provided in Section 1.2 hereof, (ii) the filing with the SEC and the
NASD of the Registration Statement and the
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effectiveness thereof, (iii) the filing of a Form 8-K with the SEC and the NASD,
(iv) any filings, applications and consents as may be required under applicable
federal, SRO or state securities laws or the securities laws of any foreign
country, (v) the filing of a registration statement on Form 8-A ("Form 8-A") to
register the Newco Common Stock under the Exchange Act, (vi) the filing with The
Nasdaq National Market of a listing application and agreement with respect to,
and The Nasdaq National Market's acceptance for listing of, the shares of Newco
Common Stock issuable upon conversion of the Omega Common Stock and the Online
Common Stock in the Merger and upon exercise of the options under the Omega
Stock Option Plans and Online 1999 Stock Option Plan, the WOW Options and the
Online Warrants assumed by Newco, (vii) the filing of a registration statement
on Form S-8 (or other applicable form) with the SEC covering the shares of Newco
Common Stock issuable pursuant to outstanding options under the Omega Stock
Option Plans, the Online 1999 Stock Option Plan and the WOW Options assumed by
Newco, and (viii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Newco and would not prevent or materially alter or delay any of the
transactions contemplated by this Agreement.
4.4 ABSENCE OF UNDISCLOSED LIABILITIES. Newco has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than those incurred or to be incurred in connection with the
Merger and the transactions related thereto and/or contemplated pursuant hereto
and which have not had and are not reasonably likely to have a Material Adverse
Effect on Newco.
4.5 LITIGATION. There is no judgment, decree or order against Newco or
any of its subsidiaries or, to the knowledge of Newco, any of their respective
directors or officers (in their capacities as such) that could prevent, enjoin,
alter or materially delay any of the transactions contemplated by this
Agreement.
4.6 REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS. The
information supplied by Newco for inclusion in the Registration Statement (or
such other successor form as shall be appropriate) shall not at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC contain any 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 information supplied by Newco for inclusion
in the Joint Proxy Statement/Prospectus shall not, on the date the Joint Proxy
Statement/Prospectus is first mailed to either of Omega's or Online's
shareholders, at the times of the Shareholders Meetings and at the Effective
Time, contain any statement which, at such time, is false or misleading with
respect to any material fact, or omits to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Online Shareholders Meetings which has
become false or misleading. If at any time prior to the Effective Time any event
or information should be discovered by Newco which should be set forth in an
amendment to the Registration Statement or in a supplement to the Joint Proxy
Statement/ Prospectus, Newco will promptly inform Omega and Online of such event
or information.
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Notwithstanding the foregoing, neither Newco nor Merger Subs makes any
representation, warranty or covenant with respect to any information supplied by
or on behalf of Online or any of its affiliates which is contained in any of the
foregoing documents.
4.7 TAX TREATMENT. Neither Newco nor any of its directors or officers
has taken any action that would prevent the Merger from constituting a
transaction qualifying as a reorganization within the meaning of Section 368(a)
of the Code. Neither Newco nor, to Newco's knowledge, any of its affiliates or
agents is aware of any agreement, plan or other circumstance that would prevent
the Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
4.8 BROKER'S AND FINDERS' FEES. Newco has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby other than
those incurred by Omega and Online.
4.9 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by Newco and Merger Subs herein or in any Schedule hereto, including the
Newco Disclosure Schedule, or certificate furnished by Newco pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain at the Effective Time any untrue statement of a material fact,
or omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 CONDUCT OF BUSINESSES OF OMEGA AND ONLINE. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, except as expressly contemplated by
this Agreement, each of Omega, Online and Newco shall not do, cause or permit
any of the following, or allow, cause or permit any of its subsidiaries to do,
cause or permit any of the following, without the prior written consent of the
others:
(a) CHARTER DOCUMENTS. Cause or permit any amendment,
modification, alteration or rescission of its certificate or articles of
incorporation, bylaws or other charter or organizational documents;
(b) DIVIDENDS: CHANGES IN CAPITAL STOCK. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock or split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries; or
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(c) OPTIONS. Grant any options, stock appreciation rights or other
rights to acquire securities other than stock options to its employees and
consultants in accordance with the ordinary course of its business consistent
with past practices (meaning, with respect to Omega, grants of stock options to
its employees (other than executive officers) and to new employees consistent
with past practices not exceeding in the aggregate from the date hereof until
the Effective Time stock options to purchase 200,000 shares of Omega Common
Stock and, with respect to Online, grants of stock options to its employees
(other than executive officers) and new employees consistent with past practices
not exceeding in the aggregate from the date hereof until the Effective Time
stock options to purchase 50,000 shares of Online Common Stock), or accelerate,
amend or change the period of exercisability or vesting of options or other
rights granted under its stock plans or authorize cash payments in exchange for
any options or other rights granted under any of such plans.
5.2 ONLINE CONDUCT OF BUSINESS. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Online agrees (except to the extent expressly otherwise
permitted or required by this Agreement or as consented to in writing by Omega),
to carry on its business in the ordinary course in substantially the same manner
as heretofore conducted, to pay debts and Taxes when due subject to good faith
disputes over such debts or Taxes, to pay or perform other obligations when due,
and to use all reasonable best efforts consistent with past practice and
policies to preserve intact its present business organizations, keep available
the services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, to the end that its goodwill and
ongoing businesses shall be unimpaired at the Effective Time. Online agrees to
promptly notify Omega of any event or occurrence not in the ordinary course of
its business, and of any event which could have a Material Adverse Effect on it
or its subsidiaries. Without limiting the generality of the foregoing, Online
shall not, unless consented to in writing, in advance, by Omega: enter into,
amend, violate or waive any material term of any Material Contract or
commitment; issue or propose to issue any shares of its capital stock; acquire
or dispose of, or obtain or grant licenses for, any intellectual property
rights; sell, lease, license, dispose of or acquire any material asset; incur
any indebtedness for borrowed money or assume, guarantee, cancel, release, pay,
discharge, assign or modify any material obligation or amount of indebtedness;
make any loan; enter into, modify or cancel any real property, operating or
capital lease (or waive any material right or obligation thereunder); make any
material capital expenditure, modify any insurance provided by existing
insurance policies; create, adopt, amend, cancel or implement any employee plans
or pay any special bonus or remuneration to any officer or employee, or increase
wages or benefits generally or to any officer or key employee, or agree to or
pay any severance payments to officers or key employees, or accelerate the
vesting of any stock option or any other benefits of any employee, consultant or
other person, commence any action, suit or proceeding (legal or quasi-legal);
acquire or agree to acquire directly or indirectly by merging or consolidating
with, or by purchase or otherwise, a substantial portion of the assets of, or by
any other manner (including without limitation, a purchase of securities), any
business or any corporation, partnership, association or other business
organization or division thereof; enter into or agree to enter into any
strategic alliance with any business or part thereof; make or change any
material election in respect of Taxes (including accounting methods or Tax
Return amendments) or enter into any settlement or closing agreement regarding
Taxes; revalue or restate any of its assets, liabilities, revenues, expenses or
cash flows;
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change any of its accounting methods, procedures, policies or practices; or
change or fail to renew any existing domain names.
5.3 OMEGA CONDUCT OF BUSINESS. Omega shall not, unless consented to in
writing, in advance, by Online, acquire or agree to acquire by merging or
consolidating with or by purchasing a substantial portion of the assets of or by
any other manner (including, without limitation, a strategic alliance (which
shall not include business-to-business marketing relationships such as the ones
that exist with Wall Street Access)) any business or any corporation
partnership, association or other business organization operating as a
broker-dealer.
5.4 NO SOLICITATION. For purposes of this Section, the term "Company"
shall apply to either Omega or Online and "the other such party" or words of
similar import shall refer to either Omega or Online as the context so dictates.
Company and its subsidiaries and the officers, directors, employees, agents,
representatives and advisors of Company and its subsidiaries (collectively,
Company's "Representatives") will not, directly or indirectly, (i) take any
action to solicit, initiate, encourage (including by way of furnishing
information) or take any other action designed to facilitate or agree to any
Takeover Proposal (as defined in Section 8.3(e) hereof) or (ii) subject to the
next three sentences, engage in negotiations with, or disclose any nonpublic
information relating to Company or any of it subsidiaries to, or afford access
to the properties, books or records of Company or any of its subsidiaries to,
any person that has advised Company that it may be considering making, or that
has made, a Takeover Proposal, or whose efforts to formulate a Takeover Proposal
would be assisted thereby; provided, nothing herein shall prohibit Company's
Board of Directors from taking and disclosing to Company's shareholders a
position with respect to an unsolicited tender offer pursuant to Rules 14d-9 and
14e-2 promulgated under the Exchange Act. Notwithstanding the immediately
preceding sentence, if an unsolicited Takeover Proposal shall be received by the
Board of Directors of Company, then, to the extent the Board of Directors of
Company believes in good faith (after receiving written advice from its
financial advisor) that such Takeover Proposal would, if consummated, result in
a transaction more favorable to Company's shareholders from a financial point of
view than the transaction contemplated by this Agreement (any such more
favorable Takeover Proposal being referred to in this Agreement as a "Superior
Proposal") and the Board of Directors of Company determines in good faith after
advice from outside legal counsel that it is necessary for the Board of
Directors of Company to further entertain and consider the Superior Proposal in
order to comply with its fiduciary duties to shareholders under applicable law,
Company and its Representatives may furnish information to the party, making
such Superior Proposal and engage in negotiations with such party, and such
actions shall not be considered a breach of this Section 5.4 or any other
provisions of this Agreement; provided that in each such event Company notified
the other party of such determination by the Company Board of Directors and has
delivered to the other party a true and complete copy of the Superior Proposal
(or summary of any oral proposal) received from such third party and all
documents containing or referring to non-public information of Company that are
supplied to such third party. Further, Company shall provide such non-public
information pursuant to a nondisclosure agreement at least as restrictive on
such third party as the Confidentiality Agreement (as defined in Section 6.4) is
on the other party. In addition, in the case of Online, Online shall not agree
to or endorse, and shall not permit any of its officers, directors, employees or
other representatives to agree to or endorse, any Takeover Proposal or
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withdraw its recommendation of the Merger unless the Board of Directors of
Online believes in good faith (after receiving written advice from its financial
advisors) that such action is required in order for the Board of Directors to
comply with it fiduciary duties to shareholders under applicable law, Online has
provided Omega at least five (5) business days prior notice thereof and within
such five (5) business days Online has not received a proposal from Omega
superior in value to the Superior Proposal as determined by Online's Board of
Directors acting in good faith consistent with complying with its fiduciary
duties to shareholders under applicable law, has terminated this Agreement
pursuant to Section 8.1(g) and has paid Omega all amounts payable to Omega
pursuant to and within the time period set forth in Section 8.3, and, in the
case of Omega, Omega shall not withdraw, and shall not permit any of its
officers, directors, employees or other representatives to withdraw its
recommendation of the Merger unless the Board of Directors of Omega believes in
good faith (after receiving written advice from its financial advisors) that
such action is required in order for the Board of Directors to comply with it
fiduciary duties to shareholders under applicable law, Omega has provided Online
at least five (5) business days prior notice thereof, has terminated this
Agreement pursuant to Section 8.1(f) and has paid Online all amounts payable to
Online pursuant to and within the time period set forth in Section 8.3. Company
will promptly (and in any event within 24 hours) notify the other party after
receipt of any Takeover Proposal or any notice that any person is considering
making a Takeover Proposal or any request for non-public information relating to
Company or any of its subsidiaries or for access to the properties, books or
records of Company or any of its subsidiaries by any person that has advised
Company that it may be considering making, or that has made, a Takeover
Proposal, or whose efforts to formulate a Takeover Proposal would be assisted
thereby (such notice to include the identity of such person or persons), and
will keep the other party fully informed of the status and details of any such
Takeover Proposal notice, request or any correspondence or communications
related thereto and shall provide the other party with a true and complete copy
of such Takeover Proposal notice or request or correspondence or communications
related thereto, if it is in writing, or a complete written summary thereof, if
it is not in writing. Company shall immediately cease and cause to be terminated
any discussion or negotiations with any persons conducted that may have existed
with respect to a Takeover Proposal prior to the execution of this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 REGISTRATION STATEMENT, JOINT PROXY STATEMENT/PROSPECTUS.
(a) As soon as practicable after the execution of this
Agreement, Omega and Online shall prepare and file with the SEC preliminary
proxy materials relating to the Shareholders Meetings and the vote of the
shareholders of each of Omega and Online with respect to the Merger. As soon as
practicable following receipt of SEC comments on the Joint Proxy
Statement/Prospectus, Omega and Online shall file with the SEC definitive proxy
materials relating to the Shareholders Meetings and Newco shall file with the
SEC the Registration Statement, which shall include the Joint Proxy
Statement/Prospectus as a prospectus, in connection with the registration under
the Securities Act of the shares of Newco Common Stock to be distributed to
holders of Omega
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Common Stock and Online Common Stock pursuant to the Merger. Each of Newco,
Omega and Online shall use its reasonable best efforts to have or cause the
Registration Statement to become effective (including clearing the Joint Proxy
Statement/Prospectus with the SEC) as promptly as practicable, and shall take
any and all actions required under any applicable federal or state securities
laws or blue sky laws in connection with the issuance of Newco Common Stock
pursuant to the Merger. Without limiting the generality of the foregoing, each
of Omega and Online shall (i) notify the other as promptly as practicable after
the receipt by it of any written or oral comments of the SEC on, or of any
written or oral request by the SEC or any other governmental official for
amendments or supplements to, or any other filing or supplemental or additional
information relating to the Joint Proxy Statement/Prospectus or the Registration
Statement, and shall promptly supply the other with copies of all correspondence
between it or any of its representatives, on the one hand, and the SEC or any
other governmental official, on the other hand, with respect to any of the
foregoing filings, and (ii) use all reasonable efforts, after consultation with
the other such party, to respond promptly to any comments made by the SEC with
respect to the Joint Proxy Statement/Prospectus (including each preliminary
version thereof) and the Registration Statement (including each amendment
thereof and supplement thereto). As promptly as practicable after the
Registration Statement shall have become effective, each of Omega and Online
shall mail or cause to be mailed its Joint Proxy Statement/Prospectus to its
respective shareholders.
(b) Omega and Online shall each cause the Registration Statement
and the Joint Proxy Statement Prospectus to comply in all material respects with
the Securities Act, the Exchange Act and all other applicable federal and state
securities law requirements. Each of Omega and Online shall, and shall cause its
respective representatives to, fully cooperate with the other such party and its
respective representatives in the preparation of the Joint Proxy
Statement/Prospectus and the Registration Statement, and shall provide promptly
to the other such information concerning it and its affiliates, directors,
officers and stockholders as the other may reasonably request in connection with
the preparation of the Joint Proxy Statement/Prospectus and the Registration
Statement. If at any time prior to the Effective Time Omega or Online shall
become aware of any fact, event or circumstance that is required to be set forth
in an amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, Omega or Online, as the case may be, shall promptly notify
the other of such fact, event or circumstance and the parties shall cooperate
with each other in filing with the SEC or any other governmental official, and
(in the case of a supplement to the Joint Proxy Statement/Prospectus) mailing to
shareholders of Omega or Online, as appropriate, such amendment or supplement.
(c) (i) The Joint Proxy Statement/Prospectus shall contain the
unanimous recommendation of the Board of Directors of Omega that the Omega
shareholders approve this Agreement and the Merger and the conclusion of the
Board of Directors that the terms and conditions of the Merger are advisable and
fair to, and in the best interests of, the shareholders of Omega PROVIDED that
no such recommendation need be included, and any such recommendation may be
withdrawn if previously included, if a Superior Proposal has been made and Omega
and Omega's Board of Directors withdraw or modify such recommendation in
compliance with, and otherwise have complied in all respects with, Section 5.4.
Notwithstanding anything to the contrary contained herein, Omega shall not
include in the Joint Proxy Statement/Prospectus any information with
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respect to Online or its affiliates or associates, the form and content of which
information shall not have been approved by Online prior to such inclusion.
(ii) The Joint Proxy Statement/Prospectus shall contain the
unanimous recommendation of the Board of Directors of Online that the Online
shareholders approve this Agreement and the Merger and the conclusion of the
Board of Directors that the terms and conditions of the Merger are advisable and
fair to, and in the best interests of, the shareholders of Online PROVIDED that
no such recommendation need be included, and any such recommendation may be
withdrawn if previously included, if a Superior Proposal has been made and
Online and Online's Board of Directors withdraw or modify such recommendation in
compliance with, and otherwise have complied in all respects with Section 5.4.
Notwithstanding anything to the contrary contained herein, Online shall not
include in the Joint Proxy Statement/Prospectus any information with respect to
Omega or its affiliates or associates, the form and content of which information
shall not have been approved by Omega prior to such inclusion.
6.2 MEETINGS OF SHAREHOLDERS. Omega and Online shall, consistent with
Florida Law and its respective Articles of Incorporation and Bylaws, call and
hold, in the case of Omega, the Omega Shareholders Meeting and, in the case of
Online, the Online Shareholders Meeting, as promptly as practicable for the
purpose of voting upon the adoption or approval of this Agreement and shall use
all reasonable best efforts to hold their respective meetings as soon as
practicable after the date on which the Registration Statement becomes
effective, but in no event later than 35 days after the effective date of the
Registration Statement. Omega and Online shall each use its best efforts to
solicit from its respective shareholders proxies in favor of the Merger and
shall take all other action necessary or advisable to secure the vote or consent
of shareholders required to effect the Merger provided that such solicitation
efforts need not be made (although all efforts required to hold its respective
Shareholders Meeting will continue to be required and, in that regard, its
respective Shareholders Meeting shall be held and not canceled unless this
Agreement is terminated pursuant to and as permitted under the terms of this
Agreement prior to its respective Shareholders Meeting), if a Superior Proposal
has been made and Omega or Online and its respective Board of Directors withdraw
or modify such recommendation in compliance with, and otherwise have complied in
all respects with, Section 5.4.
6.3 ACCESS TO INFORMATION.
(a) At all times prior to the Effective Time, Omega and Online
shall each afford the other such party and its accountants, counsel and other
representatives, reasonable access during normal business hours to (i) all of
its properties, books, contracts, commitments and records as well as those of
its subsidiaries, (ii) all of its Tax Returns and accountants' work papers and
all other information relating to Taxes of it and its subsidiaries, and (iii)
all other information concerning the business, properties and personnel of it
and its subsidiaries as the other party may reasonably request. Omega and Online
each agree to provide to the other party and its accountants, counsel and other
representatives copies of internal financial statements, budgets, operating
plans and projections promptly upon request.
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(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Omega and Online shall confer on a
regular and frequent basis with one or more representatives of the other party
to report material operational matters and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 6.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
6.4 CONFIDENTIALITY. The parties acknowledge that each of Omega and
Online have previously executed a mutual nondisclosure agreement dated November
15, 1999 (the "Confidentiality Agreement"), which Confidentiality Agreement
shall continue in full force and effect in accordance with its terms, except to
the extent necessary to comply with the terms of this Agreement.
6.5 PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement,
Omega and Online shall consult with each other before issuing any press release
or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement or any of the transactions contemplated
hereby, and Online shall not issue any such press release or make any such
statement or disclosure without the prior approval of Omega (which approval
shall not be unreasonably withheld or delayed), except as may be required by law
or by obligations pursuant to any listing agreement with Nasdaq, in which case
Online shall use commercially reasonable efforts to consult with the Omega
before issuing such press release or making such public statement or disclosure.
6.6 CONSENTS; COOPERATION. Each of Newco, Merger Subs, Omega and Online
will, and will cause their respective subsidiaries to, take all reasonable
actions necessary to comply promptly with all legal requirements which may be
imposed on them with respect to the consummation of the transactions
contemplated by this Agreement and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement. In the event an injunction or other order
shall have been issued which prevents, alters or delays the Merger or any other
transaction contemplated hereby, each party agrees to use its reasonable best
efforts to have such injunction or other order lifted. Without limiting the
foregoing, each of Omega and Online shall use its reasonable best efforts to
obtain all necessary consents, waivers and approvals under any of its material
contracts in connection with the Merger for the assignment thereof or otherwise.
As soon as practicable following the execution hereof, Omega, Online and Newco
shall file all necessary forms and take all necessary actions, and thereafter
shall use its reasonable best efforts, to file any required notice or
application and to obtain prior to the Closing Date approval of the change of
control or ownership of Omega and Online and its respective subsidiaries from
The
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Nasdaq Stock Market or the NASD and any applicable state and all other notices,
licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Entities and parties to contracts, agreements, licenses
or other instruments relating to the business as may be required in order to
enable each of Omega, Online and Newco, respectively, to perform its obligations
hereunder and so as to permit the Closing to occur at the earliest possible
date.
6.7 REASONABLE BEST EFFORTS AND FURTHER ASSURANCES. Each of the parties
to this Agreement shall use its reasonable best efforts to effect the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to Closing under this Agreement. Each party hereto, at the reasonable
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
6.8 BLUE SKY LAWS. Newco shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the shares of Newco Common Stock in connection
with the Merger. Omega and Online shall use its best efforts to assist Newco as
may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of the shares
of Newco Common Stock in connection with the Merger.
6.9 NASDAQ QUOTATION. Omega agrees to continue the quotation of Omega
Common Stock on the Nasdaq National Market during the term of the Agreement so
that, to the extent necessary, appraisal rights will not be available to
shareholders of Omega under Section 1302 of the Florida Law.
6.10 PUBLIC ACCOUNTING. Omega and Online shall each use its best
efforts to cause the business combination to be effected by the Merger to be
accounted for as a pooling of interests under generally accepted accounting
principles and applicable SEC rules and regulations. Each of Omega and Online
shall use its reasonable best efforts to cause its Affiliates not to take any
action that would adversely affect the ability of Newco or the Surviving
Corporations to account for the business combination to be effected by the
Merger as a pooling of interests. At all times at and following the Effective
Time, Newco may impose stop transfer instructions or elect to not permit the
transfer of shares of Newco Common Stock or the issuance of a new certificate
representing such shares unless and until such a transfer can be made without
adversely affecting the ability of Newco or the Surviving Corporations to
account for the business combination to be effected by the Merger as a pooling
of interests.
6.11 AFFILIATE AGREEMENTS.
(a) SCHEDULE 6.11(a) of the Omega Disclosure Schedule sets forth
those persons who may be deemed Affiliates of Omega. Omega shall provide Online
with such information and documents as Online shall reasonably request for
purposes of reviewing such list. Omega shall deliver or cause to be delivered to
Online, no later than five (5) business days after the execution of this
Agreement, from each of the Affiliates of Omega an executed Omega Affiliate
Agreement.
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Newco shall be entitled to place appropriate legends on the certificates
evidencing shares of Newco Common Stock to be received by such Affiliates of
Omega pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for Newco Common Stock, in each of
the foregoing cases in accordance with the terms of such Omega Affiliate
Agreement.
(b) SCHEDULE 6.11(b) of the Online Disclosure Schedule sets forth
those persons who may be deemed Affiliates of Online. Online shall provide Omega
with such information and documents as Omega shall reasonably request for
purposes of reviewing such list. Online shall deliver or cause to be delivered
to Omega, no later than five (5) business days after the execution of this
Agreement, from each of the Affiliates of Online an executed Online Affiliate
Agreement. Newco and Merger Subs shall be entitled to place appropriate legends
on the certificates evidencing shares of Newco Common Stock to be received by
such Affiliates of Online pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for Newco Common
Stock, in each of the foregoing cases in accordance with the terms of such
Online Affiliate Agreement.
6.12 TAX TREATMENT. The parties shall use their reasonable best efforts
to cause the Merger to qualify as a "reorganization" within the meaning of
Section 368(a) of the Code.
6.13 OMEGA AND ONLINE OPTIONS.
(a) At the Effective Time, the Omega Stock Option Plans and each
outstanding option to purchase shares of Omega Common Stock under the Omega
Stock Option Plans or which is part of the WOW Options, whether vested or
unvested, will be assumed by Newco. Omega represents and warrants to Online that
SCHEDULE 6.13(a) of the Disclosure Schedule hereto sets forth a true and
complete list as of the date hereof of all holders of outstanding options under
the Omega Stock Option Plans and the WOW Options, including the number of shares
of Omega capital stock subject to each such option, the exercise or vesting
schedule, the exercise price per share and the term of each such option. On the
Closing Date, Omega shall deliver to Online an updated SCHEDULE 6.13(a) current
as of such date. Each such option so assumed by Newco under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
the Omega Stock Option Plans and/or the applicable stock option agreements,
immediately prior to the Effective Time, except that (i) such option will be
exercisable for that number of whole shares of Newco Common Stock equal to the
product of the number of shares of Omega Common Stock that were issuable upon
exercise of such option immediately prior to the Effective Time multiplied by
the Omega Exchange Ratio and rounded down to the nearest whole number of shares
of Newco Common Stock, and (ii) the per share exercise price for the shares of
Newco Common Stock issuable upon exercise of such assumed option will be equal
to the quotient determined by dividing the exercise price per share of Omega
Common Stock at which such option was exercisable immediately prior to the
Effective Time by the Omega Exchange Ratio, rounded up to the nearest whole
cent, subject to any adjustments necessary to protect the status of any option
as an incentive stock option as defined in Section 422 of the Code. It is the
intention of the parties that the options so assumed by Newco qualify, to the
maximum extent permissible following the Effective Time as incentive stock
options as defined in Section 422 of the Code to the extent such options
qualified as incentive stock options
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prior to the Effective Time. Within 30 business days after the Effective Time,
Newco will issue to each person who, immediately prior to the Effective Time was
a holder of an outstanding option under the Omega Stock Option Plans or a holder
of WOW Options a document evidencing the foregoing assumption of such option by
Newco.
(b) All outstanding rights of Omega which it may hold immediately
prior to the Effective Time to repurchase unvested shares of Omega Common Stock
(the "Omega Repurchase Options") shall be assigned to Newco in the Merger and
shall thereafter be exercisable by Newco upon the same terms and conditions in
effect immediately prior to the Effective Time, except that the shares
purchasable pursuant to the Omega Repurchase Options and the purchase price per
share shall be adjusted to the extent necessary to reflect the Omega Exchange
Ratio.
(c) At the Effective Time, the Online 1999 Stock Option Plan and
each outstanding option to purchase shares of Online Common Stock under the
Online 1999 Stock Option Plan, whether vested or unvested, and the Online
Warrants will be assumed by Newco. Online represents and warrants to Omega that
SCHEDULE 6.13(c) to the Online Disclosure Schedule sets forth a true and
complete list as of the date hereof of (i) all holders of outstanding options
under the Online 1999 Stock Option Plan, including the number of shares of
Online capital stock subject to each such option, the exercise or vesting
schedule, the exercise price per share and the term of each such option, and
(ii) all holders of the Online Warrants, including the number of shares of
Online capital stock subject to each Online Warrant, the exercise or vesting
schedule, the exercise price per share and the term of the Online Warrants. On
the Closing Date, Online shall deliver to Omega an updated SCHEDULE 6.13(c)
current as of such date. Each such option so assumed by Newco under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Online 1999 Stock Option Plan and the applicable
stock option agreements immediately prior to the Effective Time, and each such
Online Warrant so assumed by Newco under this Agreement shall continue to have,
and is subject to, the same terms and conditions set forth in the applicable
warrant agreements immediately prior to the Effective Time, except that (i) such
option will be exercisable for that number of whole shares of Newco Common Stock
equal to the product of the number of shares of Online Common Stock that were
issuable upon exercise of such option immediately prior to the Effective Time
multiplied by the Online Exchange Ratio and rounded down to the nearest whole
number of shares of Newco Common Stock, and (ii) the per share exercise price
for the shares of Newco Common Stock issuable upon exercise of such assumed
option will be equal to the quotient determined by dividing the exercise price
per share of Online Common Stock at which such option was exercisable
immediately prior to the Effective Time by the Online Exchange Ratio, rounded up
to the nearest whole cent, subject to any adjustments necessary to protect the
status of any option as an incentive stock option as defined in Section 422 of
the Code. It is the intention of the parties that the options so assumed by
Newco qualify, to the maximum extent permissible following the Effective Time as
incentive stock options as defined in Section 422 of the Code to the extent such
options qualified as incentive stock options prior to the Effective Time. Within
30 business days after the Effective Time, Newco will issue to each person who,
immediately prior to the Effective Time was a holder of an outstanding option
under the Online 1999 Stock Option Plan or a holder of an Online Warrant, a
document evidencing the foregoing assumption of such option or warrant by Newco.
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(d) All outstanding rights of Online which it may hold
immediately prior to the Effective Time to repurchase unvested shares of Online
Common Stock (the "Repurchase Options") shall be assigned to Newco in the Merger
and shall thereafter be exercisable by Newco upon the same terms and conditions
in effect immediately prior to the Effective Time, except that the shares
purchasable pursuant to the Repurchase Options and the purchase price per share
shall be adjusted to the extent necessary to reflect the Online Exchange Ratio.
6.14 NASDAQ LISTING OF NEWCO COMMON STOCK. Prior to the Effective Time,
Omega shall cause Newco to (a) file with The Nasdaq National Market a listing
application and agreement in order to list the Newco Common Stock on the Nasdaq
National Market and (b) use its commercially reasonable efforts to have the
shares of Newco Common Stock issuable upon the conversion of the Omega Common
Stock and Online Common Stock in the Merger and upon exercise of the options
under the Omega Stock Option Plans and Online 1999 Stock Option Plan, the WOW
Options and the Online Warrants assumed by Newco listed for trading on The
Nasdaq National Market on or prior to the Effective Time, subject to official
notice of issuance.
6.15 FORM 8-A. Prior to the Effective Time, Omega shall cause Newco to
(a) file a Form 8-A ("Form 8-A") with the SEC in order to register the Newco
Common Stock and (b) use its commercially reasonable efforts to have such Form
8-A declared effective by the SEC on or prior to the Effective Time.
6.16 FORM S-8. Newco agrees to use its commercially reasonable efforts
to file as soon as practicable after the Effective Time (and in any event no
later than twenty (20) business days after the Effective Time), a registration
statement on Form S-8 covering the shares of Newco Common Stock issuable
pursuant to outstanding options under the Omega Stock Option Plans and Online
1999 Stock Option Plan and pursuant to the WOW Options assumed by Newco. Omega
and Online shall cooperate with and assist Newco in the preparation of such
registration statement.
6.17 EMPLOYEES.
(a) Concurrently with the execution of this Agreement, each of the
individuals set forth on SCHEDULE 6.17(a) attached hereto shall have delivered
to Newco an executed Employment Agreement in the form of EXHIBIT D-1 attached
hereto.
(b) Concurrently with the execution of this Agreement, each of the
individuals set forth on SCHEDULE 6.17(b) attached hereto shall have delivered
to Newco an executed Non- Competition and Non-Disclosure Agreement
("Non-Competition Agreement") in the form of EXHIBIT D-2 attached hereto.
6.18 DIRECTOR AND OFFICER INDEMNIFICATION.
(a) Newco agrees not to cause or allow the Omega Surviving
Corporation or the Online Surviving Corporation to modify any rights to
indemnification or exculpation from liabilities for acts or omissions occurring
at or prior to the Effective Time now existing in favor of the officers
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and directors of Omega or Online, respectively, and their respective
subsidiaries as provided in their respective articles of incorporation or bylaws
(or comparable organizational documents) and any indemnification agreements of
Omega or Online and/or their respective subsidiaries.
(b) For two years after the Effective Time, Newco directly will or
will cause the Omega Surviving Corporation and Online Surviving Corporation to
use commercially reasonable efforts to provide officers' and directors'
liability insurance in respect of acts or omissions occurring at or prior to the
Effective Time covering each such person currently covered by Omega's and
Online's respective officers' and directors' liability insurance policy on terms
reasonably comparable to those of such policy in effect on the date hereof,
provided that in satisfying its obligation under this paragraph, Newco shall not
be obligated to (i) pay or to cause the Omega Surviving Corporation to pay
premiums in excess of 150% of the amount per annum Omega paid in its last full
fiscal year, which amount has been disclosed in writing to Online and, if Newco
or the Omega Surviving Corporation (as the case may be) is unable to obtain the
insurance required by this paragraph, it shall obtain as much comparable
insurance as possible for an annual premium equal to such maximum amount, or
(ii) pay or to cause the Online Surviving Corporation to pay premiums in excess
of 150% of the amount per annum Online paid in its last full fiscal year, which
amount has been disclosed in writing to Omega, and if the Newco or the Online
Surviving Corporation (as the case may be) is unable to obtain the insurance
required by this paragraph, it shall obtain as much comparable insurance as
possible for an annual premium equal to such maximum amount.
6.19 COMFORT LETTERS.
(a) Online shall use its reasonable best efforts to cause to be
delivered to Omega a procedures letter of Online's independent auditors, dated a
date within two (2) business days before the date on which the Registration
Statement shall become effective and at the Closing Date and addressed to Newco,
Omega and Online, in form reasonably satisfactory to Omega and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
(b) Omega shall use its reasonable best efforts to cause to be
delivered to Online a procedures letter of Omega's independent auditors, dated a
date within two (2) business days before the date on which the Registration
Statement shall become effective and at the Closing Date addressed to Newco,
Omega and Online, in form reasonably satisfactory to Online and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
6.20 SHAREHOLDER LITIGATION. Unless and until Online has withdrawn its
recommendation of the Merger in compliance with Section 5.4, Online shall give
Omega the opportunity to participate in or, in the event Omega is named in any
such litigation, to lead, in each case at its own expense, in the defense of any
shareholder litigation against Omega or Online and/or its respective directors
relating to the transactions contemplated by this Agreement and the Omega Stock
Option Agreement or Online Stock Option Agreement. In the event Omega is leading
any such shareholder litigation,
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Online shall be given the opportunity to participate at its own expense in the
defense of such shareholder litigation.
6.21 OBSERVATION RIGHTS. Andrew A. Allen shall be entitled to attend as
an observer all meetings of the Board of Directors of Newco (including
telephonic meetings); provided, however, that (a) Newco's Board of Directors may
require that such individual not attend any particular Board meeting or be
excused from any portions of meetings that involve matters or business that
Newco's Board of Directors, in its reasonable discretion, determines involve
matters or business necessary to be considered by the Board of Directors without
Mr. Allen being in attendance; and (b) such rights shall exist for such
individual only for so long as such individual owns at least 5.0% of the
outstanding shares of Newco Common Stock. Except with respect to matters or
business as to which Newco's Board of Directors has determined should be
considered by the Board of Directors without Mr. Allen being in attendance and
for so long as such individual is entitled to attend Board meetings, such
individual shall be provided with the same meeting notices and materials as the
members of Newco's Board of Directors, including but not limited to copies of
all proposed and final resolutions, minutes and written consents.
6.22 ERRORS AND OMISSIONS INSURANCE. Within thirty (30) days from the
date of this Agreement, Online will obtain errors and omissions insurance in an
amount of at least $5,000,000 in form and content and from an insurer reasonably
satisfactory to Omega.
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to consummate and effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, by agreement of all the parties hereto:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the holders of a majority of the shares of Omega
Common Stock outstanding as of the record date set for the Omega Shareholders
Meeting. This Agreement and the Merger shall have been approved and adopted by
the holders of a majority of the shares of Online Common Stock outstanding as of
the record date set for the Online Shareholders Meeting.
(b) REGISTRATION STATEMENTS EFFECTIVE. The SEC shall have declared
the Registration Statement and Form 8-A effective. No stop order suspending the
effectiveness of the Registration Statement or Form 8-A or any part thereof
shall have been issued, and no proceeding for that purpose, and no similar
proceeding shall have been initiated or threatened by the SEC in respect of the
Joint Proxy Statement/Prospectus, and all requests for additional information on
the part of the SEC shall have been complied with to the reasonable satisfaction
of the parties hereto.
(c) NO INJUNCTIONS OR RESTRAINTS, ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall
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be in effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which in the opinion of counsel to either of
the respective parties prevents or prohibits the consummation of the Merger. In
the event an injunction or other order shall have been issued, each party agrees
to use its commercially reasonable efforts to have such injunction or other
order lifted.
(d) NASDAQ NATIONAL MARKET LISTING. The Newco Common Stock shall
have been listed for trading on The Nasdaq National Market, subject to official
notice of issuance.
(e) GOVERNMENTAL APPROVAL. Newco, Merger Subs, Omega and Online
and their respective subsidiaries, if applicable, shall have obtained from each
Governmental Entity and each Regulatory Entity all approvals, waivers and
consents, if any, necessary for consummation of or in connection with the Merger
and the other transactions contemplated hereby, including such approvals,
waivers and consents as may be required under the Securities Act, the Exchange
Act, or any SRO constitution or rules, any state Blue Sky laws, the failure of
which to obtain would reasonably be likely to have a Material Adverse Effect on
Newco or either of the Surviving Corporations or would prevent or materially
restrict or impede the consummation and effectiveness of the Merger.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF ONLINE. The obligations of
Online to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any of
which may be waived, in writing, by Online:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The
representations and warranties of Newco and Omega in this Agreement shall be
true and correct when made on and as of the Effective Time as though such
representations and warranties were made on and as of such time (other than
representations and warranties expressly relating to an earlier date, which
shall have been true and correct as of such earlier date) except (A) where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" or words of similar import set forth therein) does not have and
is not reasonably likely to have individually or in the aggregate a Material
Adverse Effect on Omega and Newco taken as a whole and (B) as otherwise
expressly contemplated by this Agreement, and (ii) Newco, Merger Subs and Omega
shall have performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by them at or prior to the Effective Time.
(b) CERTIFICATE OF OMEGA. Online shall have been provided with a
certificate executed on behalf of Omega by its President and its Chief Financial
Officer certifying that the condition set forth in Section 7.2(a) has been
fulfilled.
(c) TAX OPINION. Online shall have received a written opinion of
Broad & Cassel dated on or about the date the Joint Proxy Statement/Prospectus
is first mailed to shareholders of
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Online and Omega and on the Closing Date to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code,
and such opinion shall not have been withdrawn. In rendering such opinion,
counsel shall be entitled to rely upon, among other things, reasonable
assumptions as well as representations of Newco, Merger Subs, Omega and Online.
(d) THIRD PARTY CONSENTS. Online shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under any
Material Contract of Omega or any of its subsidiaries or otherwise, the failure
of which to obtain would reasonably be likely to have a Material Adverse Effect
on Newco or the Surviving Corporations or would prevent or materially restrict
or impede the consummation and effectiveness of the Merger.
(e) INJUNCTIONS OR RESTRAINTS ON CONDUCT OF BUSINESS. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision materially limiting or restricting the conduct or operation of the
business of Omega Surviving Corporation and its subsidiaries following the
Merger shall be in effect, nor shall any proceeding brought by an administrative
agency or commission, SRO or other Governmental Entity, domestic or foreign,
seeking the foregoing be pending.
(f) NO MATERIAL ADVERSE CHANGES. There shall not have occurred any
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of Omega and its subsidiaries, taken as a whole.
(g) COMPANY AFFILIATE AGREEMENTS. Newco shall have received from
each Affiliate of Omega an executed Omega Affiliate Agreement.
(h) EMPLOYMENT AGREEMENTS. Newco shall have entered into (or be
willing to enter into) an Employment Agreement substantially in the form
attached hereto as Exhibit D-1 with each of the employees on SCHEDULE 6.17(a).
7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF NEWCO, MERGER SUBS AND
OMEGA. The obligations of Newco, Merger Subs and Omega to consummate and effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, by Omega:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The
representations and warranties of Online in this Agreement shall be true and
correct when made on and as of the Effective Time as though such representations
and warranties were made on and as of such time (other than representations and
warranties expressly relating to an earlier date, which shall have been true and
correct as of such earlier date) except (A) where the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or
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"Material Adverse Effect" or words of similar import set forth therein) does not
have and is not reasonably likely to have individually or in the aggregate a
Material Adverse Effect on Online taken as a whole and (B) as otherwise
expressly contemplated by this Agreement, and (ii) Online shall have performed
and complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by it at
or prior to the Effective Time.
(b) CERTIFICATE OF ONLINE. Omega shall have been provided with a
certificate executed on behalf of Online by its President and Chief Financial
Officer certifying that the condition set forth in Section 7.3(a) has been
fulfilled.
(c) THIRD PARTY CONSENTS. Omega shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under any
Material Contract of Online or any of its subsidiaries or otherwise, the failure
of which to obtain would reasonably be likely to have a Material Adverse Effect
on Newco or the Surviving Corporations or would prevent or materially restrict
or impede the consummation and effectiveness of the Merger.
(d) INJUNCTIONS OR RESTRAINTS ON CONDUCT OF BUSINESS. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision materially limiting or restricting the conduct or operation of the
business of Online Surviving Corporation and its subsidiaries following the
Merger shall be in effect, nor shall any proceeding brought by an administrative
agency or commission, SRO or other Governmental Entity, domestic or foreign,
seeking the foregoing be pending.
(e) NO MATERIAL ADVERSE CHANGES. There shall not have occurred any
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of Online and its subsidiaries, taken as a whole.
(f) COMPANY AFFILIATE AGREEMENTS. Newco shall have received from
each Affiliate of Online an executed Online Affiliate Agreement.
(g) EMPLOYMENT AND NON-COMPETITION AGREEMENTS/WAIVERS. Each of the
employees of Online set forth on SCHEDULE 6.17(a) shall have accepted employment
with Newco and shall have entered into an Employment Agreement substantially in
the form attached hereto as Exhibit D-1. Each of the individuals set forth on
SCHEDULE 6.17(B) shall have entered into a Non-Competition Agreement
substantially in the form attached hereto as Exhibit D-2.
(h) TAX OPINION. Omega shall have received a written opinion of
Bilzin Sumberg Dunn Price & Axelrod, LLP dated on or about the date the Joint
Proxy Statement/Prospectus is first mailed to shareholders of Online and Omega
and on the Closing Date to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and such
opinion shall not have been withdrawn. In rendering such opinion, counsel shall
be entitled to rely upon,
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among other things, reasonable assumptions as well as representations of Newco,
Merger Subs, Omega and Online.
(i) POOLING LETTERS. Omega shall have received letters, each dated
the Closing Date, from Ahearn, Jasco & Company, P.A., Online's independent
auditors, and Arthur Andersen LLP, Omega's independent auditors, to the effect
that the Merger qualifies for pooling of interests accounting treatment if
consummated in accordance with this Agreement.
(j) ONLINE DISSENTING SHARES. The aggregate number of Online
Dissenting Shares shall not equal more than 5% of the outstanding shares of
Online Common Stock as of the Closing Date.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the shareholders of Omega and/or Online, this Agreement may be terminated:
(a) by mutual written, executed consent of Omega and Online;
(b) by either Omega or Online, if the Closing shall not have
occurred on or before July 31, 2000 (provided that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party whose
action or failure to act has been the cause of or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a material breach of this Agreement);
(c) by Omega, if (i) Online shall breach any of its
representations, warranties, covenants or obligations hereunder to an extent
that would cause the condition set forth in Section 7.3(a) not to be satisfied
and such breach shall not have been cured within twenty (20) business days
following receipt by Online of written notice of such breach (provided that the
right to terminate this Agreement by Omega shall not be available to Omega where
Omega is at that time in material breach of this Agreement), (ii) the Board of
Directors of Online shall have withdrawn or modified its recommendation of this
Agreement or the Merger or any transaction contemplated hereby in a manner
adverse to Omega or shall have resolved to do any of the foregoing, (iii) Online
shall have failed to comply in any material respect with the Online Option
Agreement or with Section 5.4 or Section 6.2 of this Agreement, or (iv) the
Board of Directors of Online shall have recommended, endorsed, accepted or
agreed to a Takeover Proposal or shall have resolved to do so;
(d) by Online, if (i) Omega shall breach any of its
representations, warranties, covenants or obligations hereunder to an extent
that would cause the condition set forth in Section 7.2(a) not to be satisfied
and such breach shall not have been cured within twenty (20) business days
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following receipt by Omega of written notice of such breach (provided that the
right to terminate this Agreement by Online shall not be available to Online
where Online is at that time in material breach of this Agreement), (ii) the
Board of Directors of Omega shall have withdrawn or modified its recommendation
of this Agreement or the Merger or any transaction contemplated hereby in a
manner adverse to Online or shall have resolved to do any of the foregoing, or
(iii) Omega shall have failed to comply in any material respect with the Omega
Option Agreement or with Section 5.4 or Section 6.2 of this Agreement;
(e) by Omega, if a Trigger Event (as defined in Section 8.3(d)) or
Takeover Proposal shall have occurred in connection with Online and Online's
Board of Directors, in connection therewith, does not within five (5) business
days of such occurrence (i) reconfirm its approval and recommendation of the
Merger and this Agreement and the transactions contemplated hereby and (ii)
reject such Takeover Proposal or Trigger Event;
(f) by Omega, if (i) a Takeover Proposal shall have occurred in
connection with Omega and, in connection therewith, Omega's Board of Directors
in compliance with the procedure set forth in Section 5.4 determines in good
faith that such Takeover Proposal is a Superior Proposal and that it is required
by its fiduciary duty to accept such Takeover Proposal and advises Online in
writing thereof or (ii) a Trigger Event shall have occurred in connection with
Omega and Omega's Board of Directors, in connection therewith determines, within
five (5) business days of such occurrence, acting in good faith that it is
required by its fiduciary duty to withdraw its recommendation of the Merger and
in either case Omega terminates this Agreement;
(g) by Online, if a Takeover Proposal shall have occurred in
connection with Online and, in connection therewith, Online's Board of Directors
in compliance with the procedures set forth in Section 5.4 determines in good
faith that such Takeover Proposal is a Superior Proposal and that it is required
by its fiduciary duty to accept such Takeover Proposal and advises Omega in
writing thereof; or
(h) by either Omega or Online if any permanent injunction or other
order of a court or other competent authority preventing the consummation of the
Merger shall have become final and nonappealable.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Newco, Merger Subs,
Omega or Online or their respective officers, directors, stockholders or
affiliates, except to the extent that such termination results from fraud or the
wilful or intentional breach or failure to perform by Omega or Online of any of
its representations, warranties or covenants set forth in this Agreement or the
Omega Option Agreement or Online Option Agreement (as the case may be), in which
event the breaching party shall pay to the non- breaching party as liquidated
damages an amount equal to $5,000,000 by wire transfer to an account designated
by the non-breaching party within five (5) business days from the termination of
this Agreement; provided that (a) the provisions of Section 6.4
(Confidentiality), Section 8.3 (Expenses
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and Termination Fees) and this Section 8.2 shall remain in full force and effect
and survive any termination of this Agreement.
8.3 EXPENSES AND TERMINATION FEES.
(a) Subject to Section 8.2 and subsections (b), (c), (d), (e) and
(f) of this Section 8.3, whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses of its
advisers, brokers, finders, agents, accountants and legal counsel) shall be paid
by the party incurring such expense, except that expenses incurred in connection
with printing the proxy materials and the Registration Statement, registration
and filing fees incurred in connection with the Registration Statement, the
proxy materials and the Nasdaq listing of the Newco Common Stock pursuant to
Section 6.14 shall be shared equally by Omega and Online.
(b) In the event that this Agreement is terminated pursuant to
Section 8.1(e) or Section 8.1(g), Online shall promptly (but in all events
within five (5) business days of the failure to reaffirm the recommendation of
the Merger as required under Section 8.1(e) or on or prior to Online's
termination of this Agreement pursuant to Section 8.1(g), as the case may be)
pay Omega an amount equal to $5,000,000 by wire transfer to an account
designated by Omega.
(c) In the event that this Agreement is terminated pursuant to
Section 8.1(f), Omega shall promptly (but in all events on or prior to Omega's
termination of this Agreement) pay Online an amount equal to $5,000,000 by wire
transfer to an account designated by Online.
(d) As used herein, a "Trigger Event" shall occur if any person
(as that term is defined in Section 13(d) of the Exchange Act and the
regulations promulgated thereunder) acquires securities representing ten percent
(10%) or more, or commences a tender or exchange offer, open market purchase
program or other publicly announced initiative following the successful
consummation of which the offeror and its affiliate would beneficially own
securities representing ten percent (10%) or more, of the voting power of Omega
or Online (as the case may be).
(e) For purposes of this Agreement, "Takeover Proposal" means any
offer or proposal for, or any written indication of interest in, a merger or
other business combination involving Omega or Online (as the case may be) or any
of its subsidiaries or the acquisition of ten percent (10%) or more of the
outstanding shares of capital stock, or a significant portion of the assets of,
Omega or Online (as the case may be) or any of its subsidiaries, other than the
transactions contemplated by this Agreement.
(f) In the event that this Agreement is terminated pursuant to
Section 8.1(c) or 8.1(d), the non-terminating party shall pay to and reimburse
the terminating party the actual out-of-pocket expenses incurred by the
terminating party in connection with this transaction by wire transfer to an
account designated by the terminating party within five (5) business days from
the non- terminating party's receipt of a statement from the terminating party
indicating the amount of such out-of-pocket expenses that have been incurred. In
addition, in the event this Agreement has been
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terminated pursuant to Section 8.1(c) or 8.1(d) as a result of a nonwillful
material breach of or failure to perform the provisions of this Agreement by the
non-terminating party, the terminating party shall have the right to recover any
damages arising from such nonwillful material breach or failure to perform.
8.4 AMENDMENT. The boards of directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the shareholders of
Omega or Online shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Omega Common Stock or the
Online Common Stock, or (ii) alter or change any of the terms and conditions of
the Agreement if such alteration or change would materially adversely affect the
holders of Omega Common Stock or Online Common Stock.
8.5 EXTENSION; WAIVER. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 NON-SURVIVAL AT EFFECTIVE TIME. The representations, warranties and
agreements set forth in this Agreement shall terminate at the Effective Time,
except that the agreements set forth in Article I, Sections 6.4
(Confidentiality), 6.7 (Reasonable Best Efforts and Further Assurances), 6.10
(Public Accounting), 6.16 (Form S-8), 6.18 (Director and Officer
Indemnification), 6.21 (Observation Rights), 8.2 (Effect of Termination), 8.3
(Expenses and Termination Fees), 8.4 (Amendment), and this Article IX shall
survive the Effective Time.
9.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
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(a) if to Omega, Newco or Merger Subs to:
Omega Research, Inc.
8700 West Flagler Street, Suite 250
Miami, Florida 33174
Attention: Salomon Sredni, President
Facsimile No.: (305) 485-7019
Telephone No.: (305) 485-7000
with a copy to:
Bilzin Sumberg Dunn Price & Axelrod LLP
2500 First Union Financial Center
Miami, Florida 33131-2336
Attention: Alan D. Axelrod, Esq.
Facsimile No: (305) 374-7593
Telephone No: (305) 374-7580
(b) if to Online, to:
onlinetradinginc.com corp.
2700 N. Military Trail
Suite 200
Boca Raton, Florida 33431
Attention: Steven zum Tobel, President
Facsimile No.: (561) 995-0606
Telephone No.: (561)995-1010
with a copy to:
Broad & Cassel
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Attention: Leonard H. Bloom, Esq.
Facsimile No.: (305) 995-6428
Telephone No.: (305) 373-9400
9.3 INTERPRETATION. When a reference is made in this Agreement to
Exhibits or Schedules, such reference shall be to an Exhibit or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date hereof, and
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terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the first paragraph of this Agreement. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.5 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Omega Disclosure Schedule, the Online Disclosure
Schedule and the Newco Disclosure Schedule, (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof, except for the Confidentiality
Agreement, which shall continue in full force and effect, and shall survive any
termination of this Agreement or the Closing, in accordance with its terms; (b)
are not intended to confer upon any other person any rights or remedies
hereunder, except as set forth in Sections 1.6(a)-(c)-(d)-(f)-(g)-(h) (Effect on
Capital Stock), 1.7 (Surrender of Certificates), 6.13 (Omega and Online
Options), 6.16 (Form S-8), 6.18 (Director and Officer Indemnification) and 6.21
(Observation Rights); and (c) shall not be assigned or transferred (in whole or
in part) by operation of law or otherwise except with the prior written consent
of the parties hereto.
9.6 SEVERABILITY. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void, invalid or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such illegal, void, invalid or unenforceable provision of this
Agreement with a legal, valid and enforceable provision that will achieve, to
the extent possible, the economic, business and other purposes of such illegal,
void, invalid or unenforceable provision.
9.7 REMEDIES CUMULATIVE. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located within
the State of Florida in connection with any matter based upon or arising out of
this Agreement or the matters contemplated herein, agrees that process may be
served upon them in any manner authorized by the laws of the State of Florida
for such persons and
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waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
9.10 DEFINITIONS. For purposes of this Agreement, "Material Adverse
Effect" means any event, change, condition or effect that is, or would be
reasonably expected to be, materially adverse to the condition (financial or
otherwise), properties, assets (including, without limitation, intangible
assets), liabilities, business, operations, results of operations or prospects
of such person or entity and its subsidiaries, taken as a whole; provided,
however, that in no event shall a decrease in such person's or entity's stock
price in and of itself be considered a "Material Adverse Effect," (b)
"subsidiary" means, with respect to a party, any corporation, partnership or
other organization or entity, whether incorporated or unincorporated, in which
such party has, directly or indirectly, a fifty percent (50%) or greater
interest and (c) any reference to a party's "knowledge" means such party's
actual knowledge after reasonable inquiry of officers and other employees, of
such party charged with senior administrative or operational responsibility for
such matters.
9.11 SPECIFIC PERFORMANCE. The parties acknowledge and agree that any
breach of the terms of this Agreement would give rise to irreparable harm for
which money damages would not be an adequate remedy and accordingly the parties
agree that, in addition to any other remedies, each shall be entitled to enforce
the terms of this Agreement by a decree of specific performance without the
necessity of proving the inadequacy of money damages as a remedy.
9.12 PREVAILING PARTY LEGAL FEES. The prevailing party(s) in any
litigation or other proceeding brought to enforce the terms of this Agreement
shall be entitled to receive from the nonprevailing party(s) its reasonable
attorneys' and paralegals' fees and costs before and at trial and at all
appellate and other tribunal levels, in addition to its other remedies hereunder
or at law or in equity.
[SIGNATURES ARE ON FOLLOWING PAGE]
72
<PAGE>
IN WITNESS WHEREOF, Online, Omega, Newco, Omega Merger Sub and Online
Merger Sub, have caused this Agreement to be executed and delivered by their
respective officers thereunto duly authorized, all as of the date first written
above.
OMEGA RESEARCH, INC.
By: /S/ RALPH L. CRUZ
----------------------------------
Name: RALPH L. CRUZ
--------------------------------
Title: CO-CEO
-------------------------------
ONLINETRADINGINC.COM CORP.
By: /S/ STEVEN ZUM TOBEL
----------------------------------
Name: STEVEN ZUM TOBEL
--------------------------------
Title: PRESIDENT
-------------------------------
ONLINE TRADING GROUP, INC.
By: /S/ RALPH L. CRUZ
----------------------------------
Name: RALPH L. CRUZ
--------------------------------
Title: CO-CEO
-------------------------------
OMEGA ACQUISITION CORPORATION
By: /S/ RALPH L. CRUZ
----------------------------------
Name: RALPH L. CRUZ
--------------------------------
Title: CO-CEO
-------------------------------
ONLINETRADING ACQUISITION CORPORATION
By: /S/ RALPH L. CRUZ
----------------------------------
Name: RALPH L. CRUZ
--------------------------------
Title: CO-CEO
-------------------------------
73
<PAGE>
SCHEDULE 6.11(a)
AFFILIATES OF OMEGA
William R. Cruz
Ralph R. Cruz
Peter A. Parandjuk
Salomon Sredni
Marc J. Stone
Brian D. Smith
Stephen C. Richards
WRCF-I 1997 Limited Partnership
WRCF-II 1997 Limited Partnership
RLCF-I 1997 Limited Partnership
RLCF-II 1997 Limited Partnership
<PAGE>
SCHEDULE 6.11(b)
AFFILIATES OF ONLINE
Andrew A. Allen
Farshid Tafazzoli
E. Steven zum Tobel
Derek J. Hernquist
Lothar Mayor
Eldren P. Nalley
Robert Scarpetti
Benedict S. Gambino
Andrew A. Allen Family Limited Partnership
Tafazzoli Family Limited Partnership
zum Tobel Family Limited Partnership
<PAGE>
SCHEDULE 6.17(a)
INDIVIDUALS EXECUTING EMPLOYMENT AGREEMENT
Farshid Tafazzoli
E. Steven zum Tobel
Derek J. Hernquist
<PAGE>
SCHEDULE 6.17(b)
INDIVIDUALS EXECUTING NON-COMPETITION AGREEMENT
Andrew A. Allen
Farshid Tafazzoli
Benedict S. Gambino
E. Steven zum Tobel
Derek J. Hernquist
William R. Cruz
Ralph L. Cruz
<PAGE>
EXHIBIT B
FORM OF OMEGA AFFILIATE AGREEMENT
January 19, 2000
Online Trading Group, Inc.
8700 West Flagler Street
Miami, Florida 33174
Ladies and Gentlemen:
Pursuant to the terms of an Agreement and Plan of Merger and
Reorganization, dated as of January 19, 2000 (the "Merger Agreement"), by and
among Omega Research, Inc., a Florida corporation ("Company"),
onlinetradinginc.com corp., a Florida corporation ("Online"), Online Trading
Group, Inc., a Florida corporation ("Newco"), Omega Acquisition Corporation, a
Florida corporation and a wholly owned subsidiary of Newco ("Omega Merger Sub"),
and Onlinetrading Acquisition Corporation, a Florida corporation and wholly
owned subsidiary of Newco ("Online Merger Sub" and, together with Omega Merger
Sub, the "Merger Subs"), Newco has agreed (i) to acquire Company through the
merger of Omega Merger Sub with and into Company and (ii) to acquire Online
through the merger of Online Merger Sub with and into Online (collectively, the
"Transaction").
The undersigned has been advised that as of the date hereof the
undersigned may be deemed to be (but does not hereby admit to be) an "affiliate"
of Company, as the term "affiliate" is (i) defined for purposes of paragraphs
(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "SEC") promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), and/or (ii)
used in and for purposes of Accounting Series Releases 130, 135 and 146 and
Staff Accounting Bulletin Two, as amended, of the SEC.
The undersigned understands that the representations, warranties and
covenants set forth herein will be relied upon by Newco, other stockholders of
Newco, Merger Subs, Online, Company and their respective counsel and accounting
firms. Except to the extent written notification to the contrary is received by
Newco from the undersigned prior to the consummation of the Transaction, the
representations and warranties contained herein shall be accurate at all times
from the date hereof through the Effective Time (as defined in the Merger
Agreement).
The undersigned hereby represents and warrants to and agrees with Newco
that in the event the undersigned receives any shares of Newco Common Stock (as
defined in the Merger Agreement) as a result of the Transaction:
<PAGE>
1. The undersigned has power and authority to execute and deliver this
letter agreement and to make the representations and warranties set forth herein
and to perform the undersigned's obligations hereunder;
2. The undersigned has carefully read this letter agreement and the
Merger Agreement and, to the extent the undersigned felt necessary, discussed
the requirements of such documents and other applicable limitations upon the
undersigned's ability to sell, transfer, pledge or otherwise dispose of Newco
Common Stock with the undersigned's counsel or counsel for the Company;
3. The undersigned is the owner of the number of shares (the "Shares")
of Omega Common Stock (as defined in the Merger Agreement) set forth below, and
did not acquire any of the Shares in contemplation of the Transaction;
4. The undersigned will not make any sale, transfer, pledge or other
disposition of Omega Common Stock, Online Common Stock or Newco Common Stock (i)
in violation of the Securities Act or the Rules and Regulations or (ii) to a
transferee that has not agreed in writing to be bound hereby;
5. The undersigned has been advised that the issuance of Newco Common
Stock to the undersigned in connection with the Transaction has been or will be
registered with the SEC under the Securities Act on a Registration Statement on
Form S-4. However, the undersigned has also been advised that, since at the time
the Transaction was or will be submitted for a vote of the shareholders of the
Company the undersigned may be deemed to be or have been an affiliate of the
Company and the distribution by the undersigned of any Newco Common Stock has
not been registered under the Securities Act, the undersigned may not sell,
transfer, or otherwise dispose of Newco Common Stock issued to the undersigned
in the Transaction unless (i) such sale, transfer, or other disposition has been
registered under the Securities Act, (ii) such sale, transfer, or other
disposition is made in conformity with the volume and other limitations of Rule
145 or (iii) in the opinion of counsel reasonably acceptable to Newco, such
sale, transfer, or other disposition is otherwise exempt from registration under
the Securities Act;
6. The undersigned understands that, except as provided in the Merger
Agreement, Newco is under no obligation to register the sale, transfer, or other
disposition of Newco Common Stock by the undersigned or on the undersigned's
behalf under the Securities Act or to take any other action necessary in order
to make compliance with an exemption from such registration available;
7. The undersigned also understands that stop transfer instructions
will be given to Newco's transfer agent with respect to Newco Common Stock
issued to the undersigned and that there will be placed on the certificates for
Newco Common Stock issued to the undersigned, or any substitutions therefor, a
legend stating in substance:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER
-2-
<PAGE>
THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES. THE SECURITIES
EVIDENCED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT DATED JANUARY 19, 2000 BETWEEN THE
REGISTERED HOLDER HEREOF AND ONLINE TRADING GROUP, INC., A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF ONLINE TRADING
GROUP, INC.;
8. The undersigned also understands that, unless the sale, transfer, or
other disposition by the undersigned of Newco Common Stock issued to the
undersigned has been registered under the Securities Act or is a sale made in
conformity with the provisions of Rule 145, Newco reserves the right to put the
following legend on the certificates issued to any transferee of the
undersigned:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ACQUIRED
FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE
145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES,
AND WERE NOT ACQUIRED BY THE HOLDER WITH A VIEW TO TRANSFER, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES EVIDENCED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF, UNLESS SUCH SALE, TRANSFER, OR OTHER DISPOSAL IS
MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES
LAWS OR IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE
SECURITIES LAWS";
9. Any other provisions of this letter agreement to the contrary
notwithstanding, except as set forth below, during the 30-day period immediately
preceding the Effective Time, the undersigned has not engaged and will not
engage, and after the Effective Time until such time as results covering at
least 30 days of combined operations of Newco and the Surviving Corporations (as
defined in the Merger Agreement) have been published by Newco, in the form of a
quarterly earnings report, an effective registration statement filed with the
SEC, a report to the SEC on Form 10-K, 10-Q, or 8-K, or any other public filing
or announcement which includes such combined results of operations (the period
commencing 30 days prior to the Effective Time and ending on the date of the
publication of the post-Transaction financial results is referred to herein as
the "Pooling Period"), the undersigned will not engage in any sale, transfer, or
other disposition of, or reduce the undersigned's risk in respect of, any of the
following:
-3-
<PAGE>
a. any shares of Newco Common Stock which the undersigned may
acquire in connection with the Transaction, or any securities which may
be paid as a dividend or otherwise distributed thereon or with respect
thereto or issued or delivered in exchange or substitution therefore
(all such shares and other securities being referred to herein,
collectively, as "Restricted Securities"), or any option, right or
other interest with respect to any Restricted Securities;
b. the shares of Newco Common Stock and options or warrants to
purchase Newco Common Stock beneficially owned by the undersigned; or
c. any shares of Newco Common Stock or any other equity
securities of Newco which the undersigned purchases or otherwise
acquires after the execution of this letter agreement and prior to the
expiration of the Pooling Period.
10. As promptly as practicable after the Effective Time, Newco will
publish results covering at least 30 days of combined operations of Newco and
Surviving Corporations in the form of a quarterly earnings report, an effective
registration statement filed with the SEC, a report to the SEC on Form 10-K,
10-Q, 8-K, or any other public filing or announcement which includes such
combined results of operations; PROVIDED, HOWEVER, that Newco will under no
circumstance be obligated to publish such results earlier than that time at
which Newco publishes results for its first full fiscal quarter during which
such 30 days of combined operations occurs.
11. This Omega Affiliate Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Florida
without giving effect to the principles of conflicts of laws thereof and may be
executed in counterparts.
(SIGNATURE PAGE FOLLOWS)
-4-
<PAGE>
Very truly yours,
-----------------------------------
-----------------------------------
(print name)
Number of Shares of Omega Common
Stock beneficially owned as of the
date hereof:
------------
Accepted as of _________ _____, 2000
ONLINE TRADING GROUP, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
SIGNATURE PAGE TO OMEGA AFFILIATE AGREEMENT
-5-
<PAGE>
EXHIBIT C
FORM OF ONLINE AFFILIATE AGREEMENT
January 19, 2000
Online Trading Group, Inc.
8700 West Flagler Street
Miami, Florida 33174
Ladies and Gentlemen:
Pursuant to the terms of an Agreement and Plan of Merger and
Reorganization, dated as of January 19, 2000 (the "Merger Agreement"), by and
among Omega Research, Inc., a Florida corporation ("Omega"),
onlinetradinginc.com corp., a Florida corporation ("Company"), Online Trading
Group, Inc., a Florida corporation ("Newco"), Omega Acquisition Corporation, a
Florida corporation and a wholly owned subsidiary of Newco ("Omega Merger Sub"),
and Onlinetrading Acquisition Corporation, a Florida corporation and wholly
owned subsidiary of Newco ("Online Merger Sub" and, together with Omega Merger
Sub, the "Merger Subs"), Newco has agreed (i) to acquire Omega through the
merger of Omega Merger Sub with and into Omega and (ii) to acquire Company
through the merger of Online Merger Sub with and into Company (collectively, the
"Transaction").
The undersigned has been advised that as of the date hereof the
undersigned may be deemed to be (but does not hereby admit to be) an "affiliate"
of Company, as the term "affiliate" is (i) defined for purposes of paragraphs
(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "SEC") promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), and/or (ii)
used in and for purposes of Accounting Series Releases 130, 135 and 146 and
Staff Accounting Bulletin Two, as amended, of the SEC.
The undersigned understands that the representations, warranties and
covenants set forth herein will be relied upon by Newco, other stockholders of
Newco, Merger Subs, Omega, Company and their respective counsel and accounting
firms. Except to the extent written notification to the contrary is received by
Newco from the undersigned prior to the consummation of the Transaction, the
representations and warranties contained herein shall be accurate at all times
from the date hereof through the Effective Time (as defined in the Merger
Agreement).
The undersigned hereby represents and warrants to and agrees with Newco
that in the event the undersigned receives any shares of Newco Common Stock (as
defined in the Merger Agreement) as a result of the Transaction:
<PAGE>
1. The undersigned has power and authority to execute and deliver this
letter agreement and to make the representations and warranties set forth herein
and to perform the undersigned's obligations hereunder;
2. The undersigned has carefully read this letter agreement and the
Merger Agreement and, to the extent the undersigned felt necessary, discussed
the requirements of such documents and other applicable limitations upon the
undersigned's ability to sell, transfer, pledge or otherwise dispose of Newco
Common Stock with the undersigned's counsel or counsel for the Company;
3. The undersigned is the owner of the number of shares (the "Shares")
of Online Common Stock (as defined in the Merger Agreement) set forth below, and
did not acquire any of the Shares in contemplation of the Transaction.
4. The undersigned will not make any sale, transfer, pledge or other
disposition of Online Common Stock, Omega Common Stock or Newco Common Stock (i)
in violation of the Securities Act or the Rules and Regulations or (ii) to a
transferee that has not agreed in writing to be bound hereby;
5. The undersigned has been advised that the issuance of Newco Common
Stock to the undersigned in connection with the Transaction has been or will be
registered with the SEC under the Securities Act on a Registration Statement on
Form S-4. However, the undersigned has also been advised that, since at the time
the Transaction was or will be submitted for a vote of the shareholders of the
Company the undersigned may be deemed to be or have been an affiliate of the
Company and the distribution by the undersigned of any Newco Common Stock has
not been registered under the Securities Act, the undersigned may not sell,
transfer, or otherwise dispose of Newco Common Stock issued to the undersigned
in the Transaction unless (i) such sale, transfer, or other disposition has been
registered under the Securities Act, (ii) such sale, transfer, or other
disposition is made in conformity with the volume and other limitations of Rule
145 or (iii) in the opinion of counsel reasonably acceptable to Newco, such
sale, transfer, or other disposition is otherwise exempt from registration under
the Securities Act;
6. The undersigned understands that, except as provided in the Merger
Agreement, Newco is under no obligation to register the sale, transfer, or other
disposition of Newco Common Stock by the undersigned or on the undersigned's
behalf under the Securities Act or to take any other action necessary in order
to make compliance with an exemption from such registration available;
7. The undersigned also understands that stop transfer instructions
will be given to Newco's transfer agent with respect to Newco Common Stock
issued to the undersigned and that there will be placed on the certificates for
Newco Common Stock issued to the undersigned, or any substitutions therefor, a
legend stating in substance:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
-2-
<PAGE>
SECURITIES ACT OF 1933, AS AMENDED, APPLIES. THE SECURITIES EVIDENCED
BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE
TERMS OF AN AGREEMENT DATED JANUARY 19, 2000 BETWEEN THE REGISTERED
HOLDER HEREOF AND ONLINE TRADING GROUP, INC., A COPY OF WHICH AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICES OF ONLINE TRADING GROUP, INC.;
8. The undersigned also understands that, unless the sale, transfer, or
other disposition by the undersigned of Newco Common Stock issued to the
undersigned has been registered under the Securities Act or is a sale made in
conformity with the provisions of Rule 145, Newco reserves the right to put the
following legend on the certificates issued to any transferee of the
undersigned:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ACQUIRED
FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE
145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES,
AND WERE NOT ACQUIRED BY THE HOLDER WITH A VIEW TO TRANSFER, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES EVIDENCED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF, UNLESS SUCH SALE, TRANSFER, OR OTHER DISPOSAL IS
MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES
LAWS OR IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE
SECURITIES LAWS";
9. Any other provisions of this letter agreement to the contrary
notwithstanding, except as set forth below, during the 30-day period immediately
preceding the Effective Time, the undersigned has not engaged and will not
engage, and after the Effective Time until such time as results covering at
least 30 days of combined operations of Newco and the Surviving Corporations (as
defined in the Merger Agreement) have been published by Newco, in the form of a
quarterly earnings report, an effective registration statement filed with the
SEC, a report to the SEC on Form 10-K, 10-Q, or 8-K, or any other public filing
or announcement which includes such combined results of operations (the period
commencing 30 days prior to the Effective Time and ending on the date of the
publication of the post-Transaction financial results is referred to herein as
the "Pooling Period"), the undersigned will not engage in any sale, transfer, or
other disposition of, or reduce the undersigned's risk in respect of, any of the
following:
-3-
<PAGE>
a. any shares of Newco Common Stock which the undersigned may
acquire in connection with the Transaction, or any securities which may
be paid as a dividend or otherwise distributed thereon or with respect
thereto or issued or delivered in exchange or substitution therefore
(all such shares and other securities being referred to herein,
collectively, as "Restricted Securities"), or any option, right or
other interest with respect to any Restricted Securities;
b. the shares of Newco Common Stock and options or warrants to
purchase Newco Common Stock beneficially owned by the undersigned; or
c. any shares of Newco Common Stock or any other equity
securities of Newco which the undersigned purchases or otherwise
acquires after the execution of this letter agreement and prior to the
expiration of the Pooling Period.
10. As promptly as practicable after the Effective Time, Newco will
publish results covering at least 30 days of combined operations of Newco and
the Surviving Corporations in the form of a quarterly earnings report, an
effective registration statement filed with the SEC, a report to the SEC on Form
10-K, 10-Q, 8-K, or any other public filing or announcement which includes such
combined results of operations; PROVIDED, HOWEVER, that Newco will under no
circumstance be obligated to publish such results earlier than that time at
which Newco publishes results for its first full fiscal quarter during which
such 30 days of combined operations occurs.
11. This Online Affiliate Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Florida
without giving effect to the principles of conflicts of laws thereof and may be
executed in counterparts.
(SIGNATURE PAGE FOLLOWS)
-4-
<PAGE>
Very truly yours,
-----------------------------------
-----------------------------------
(print name)
Number of Shares of Online Common
Stock beneficially owned as of the
date hereof:
------------
Accepted as of _________ _____, 2000
ONLINE TRADING GROUP, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
SIGNATURE PAGE TO ONLINE AFFILIATE AGREEMENT
-5-
<PAGE>
EXHIBIT D-1
FORM OF
EMPLOYMENT AGREEMENT
This AGREEMENT, dated as of January 19, 2000 and to be effective as of
and after the Effective Time (as defined in that certain Agreement and Plan of
Merger and Reorganization (the "Merger Agreement") among Omega Research, Inc.,
onlinetradinginc.com corp., Online Trading Group, Inc. ("Newco"), Omega
Acquisition Corporation and Onlinetrading Acquisition Corporation, is by and
between onlinetradinginc.com corp., a Florida corporation ("Employer"),
and_____(1)_____________ ("Employee").
PRELIMINARY STATEMENT
1. This Agreement to be effective as of and after the Effective Time
covers various subjects, including (i) protection of Employer's trade secrets
and confidential information, (ii) non- solicitation of Employer's customers,
licensees, independent contractors, consultants and employees, (iii)
restrictions on Employee's ability to compete with Employer or participate in
competitive businesses both during and after Employee's employment, (iv)
ownership of work product developed in whole or in part by Employee, (v) misuse
of trade secrets or confidential information belonging to others and
interference with rights of others, (vi) the full-time, exclusive nature of
Employee's employment commitment, and (vii) unfair business practices. Each of
these subjects is equally important, and if Employee accepts employment or
continued employment with Employer, Employee is agreeing to faithfully and fully
observe all covenants and agreements set forth below relating to each subject
addressed, without exception.
2. Employee has been informed by Employer, and understands, that (a)
Employer has developed and owns, as a result of substantial effort and expense
on the part of Employer, valuable trade secrets and other valuable confidential
business information to which Employee has and/or will have substantial access,
(b) Employee has developed and/or will be developing important and substantial
relationships with other valuable employees of Employer and/or with certain of
Employer's customers, licensees, independent contractors, consultants, strategic
partners, vendors and/or other third parties having dealings or contractual
relationships with Employer, and (c) Employer has devoted and/or will be
devoting substantial efforts and expense to train Employee to perform Employee's
employment duties, which has resulted (or, if this is a new employment, assuming
it continues, will likely result) in the development by Employee of specialized
and valuable skills, knowledge and abilities.
3. In light of all of the foregoing, in order to protect Employer's
legitimate business interests, including its goodwill with its customers,
licensees, independent contractors, consultants,
--------
(1)The following individuals are entering into new Employment
Agreements: Farshid Tafazzoli, E. Steven zum Tobel and Derek J. Hernquist.
<PAGE>
strategic partners, vendors, other third parties having dealings or contractual
relationships with Employer, and other employees and Employer's trade secrets,
and as a condition to Employee's employment with Employer (or, if Employee is
already employed by Employer, as a condition to Employer agreeing to continue to
employ Employee), Employee has agreed to make for the benefit of Employer the
reasonable covenants and agreements set forth below. As an employee of Employer,
Employee agrees to observe all of the provisions of this Agreement, as well as
all other rules and policies that Employer may announce from time to time.
NOW, THEREFORE, it is agreed as follows:
1. POSITION AND COMPENSATION
Employee will be employed in the position and at the annual base
salary and with an annual discretionary bonus as described in the attached
Schedule A, which may be changed or modified hereafter from time to time.
2. BENEFITS
Employee will be offered all group benefits, if any, made available
by Employer to its employees generally and to employees in similar positions as
Employee, and Employee will be eligible to be considered for bonuses, all of
which are subject to change by Employer at any time and from time to time.
3. CONTINUED EMPLOYMENT OF EMPLOYEE
(a) TERM OF EMPLOYMENT. The term of employment hereunder shall
commence on the Effective Time and shall end on the day preceding the second
anniversary date of the Effective Time, subject to earlier termination as
hereinafter provided (the "Employment Term"). After the expiration of the
Employment Term unless extended in writing by mutual agreement of the parties
hereto, the employment relationship thereafter will continue as employment "at
will" and, accordingly after the expiration of the Employment Term, Employee and
Employer will be each free to terminate such employment relationship at any
time, for any reason, with or without notice or cause. Employer may terminate
Employee's employment under this Agreement at any time, without prior notice,
for "due cause" upon the good faith determination by the Board of Directors of
Employer (the "Board"), which will be the parent of Employer, that "due cause"
exists for the termination of the employment relationship. The term "due cause"
shall mean any of the following events: (i) any intentional misapplication by
Employee of Employer's funds or any fraud committed by Employee upon Employer;
or (ii) Employee's conviction of a crime involving moral turpitude or a felony,
or (iii) Employee's breach, non-performance or non-observance of the terms of
this Agreement which is not cured (if curable) within ten (10) days of
Employee's receipt of written notice thereof; or (iv) any other action by
Employee involving willful and deliberate malfeasance or gross negligence in the
performance of Employee's duties, responsibilities and agreements; or (v)
Employee's death; or (vi) Employee's disability or mental or physical incapacity
resulting in his inability to substantially perform all of his duties and
responsibilities for Employer for a period of at least ninety (90) consecutive
days. During the Employment Term, Employer may also terminate
2
<PAGE>
the employment of Employee other than for "due cause" provided that in such
event Employee shall be entitled to receive the remaining base salary payments
due hereunder for the remainder of the Employment Term, but in no event less
than three months' base salary, and any accrued and unpaid bonus. In the event
of such termination for other than "due cause," all other rights and benefits
Employee may have under the employee and/or executive benefit plans and
arrangements of Employer generally shall be determined in accordance with the
terms and conditions of such plans and arrangements. The parties acknowledge and
agree that during the Employment Term, Employer shall not (i) decrease
Employee's annual base salary, (ii) materially diminish Employee's duties and
responsibilities or (iii) require Employee to relocate on a full time basis from
outside the geographic area comprised of Broward and Palm Beach Counties in the
state of Florida (the "Geographic Area").
(b) CHANGE IN CONTROL. Notwithstanding anything to the contrary
contained in this Agreement, if a "Change in Control" (as defined below) of
Employer occurs and, during the Employment Term Employee's duties and
responsibilities are materially diminished or Employee is required to relocate
on a full time basis from outside of the Geographic Area, Employee may terminate
employment upon 30 days prior written notice to Employer and shall be entitled
to receive the remaining base salary payments due hereunder for the remainder of
the Employment Term, but in no event less than three months' base salary, and
any accrued and unpaid bonus payable in a lump sum within 30 days after the date
of termination. For the purposes of this Agreement, the term "Change in Control"
of Employer shall be defined as and shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended) becomes the beneficial owner (as such term is
used in Section 13(d) of the Securities Exchange Act of 1934, as amended)
directly or indirectly of securities of Employer or Newco representing 50% or
more of the combined voting power of Employer's or Newco's then outstanding
securities (as the case may be), (ii) the Board ceases to consist of a majority
of Continuing Directors (as defined below) or (iii) a person (as defined in
clause (i) above) acquires (or, during the 12-month period ending on the date
for the most recent acquisition by such person or group of persons, has
acquired) gross assets of Employer that have an aggregate market value greater
than or equal to over 50% of the fair market value of all of the gross assets of
Employer immediately prior to such acquisition or acquisitions. For purposes of
this Agreement, a "Continuing Director" shall mean a member of the Board who
either (i) is a member of the Board immediately after the Effective Time of the
merger in connection with which this Agreement is being executed and delivered
or (ii) is nominated or appointed to serve as a director by a majority of
Continuing Directors (including those nominated or appointed pursuant to this
clause (ii)) prior to such acquisition or acquisitions.
4. EMPLOYMENT AS SOLE OCCUPATION
Employee agrees to devote Employee's full business time, attention,
skill and effort exclusively to the duties that Employer assigns to Employee
from time to time. Employee agrees that Employee may not engage in any business
activities or render any services of a business, commercial or professional
nature, whether or not for compensation, for the benefit of anyone other than
Employer, unless Employer has given its consent in writing in advance; provided,
however, that
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this Section shall not preclude Employee from (i) engaging in any activities
that are solely personal or social in nature or (ii) serving on boards of
directors of not-for-profit organizations, and, in all events, that are not a
source of secondary income and will not impede the performance of his duties and
responsibilities hereunder.
5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
(a) CONFIDENTIAL INFORMATION. Employee acknowledges that Employee
has been informed by Employer that it is Employer's policy and the policy of its
parent company, subsidiaries and affiliates (hereinafter "the Companies") to
maintain as secret and confidential all information and materials (whether or
not stamped or marked "Confidential" or bearing some other indicia of
confidentiality) relating to (i) the financial condition, operations and
business interests, objectives, plans and strategies of the Companies, (ii) the
systems, know-how, records, products, product plans, product designs, marketing
plans, specifications, drawings, product development, services, cost
information, inventions, computer programs, technology, marketing and sales
strategies, techniques and/or programs, trading and investment strategies and
analysis, formulae, methods, methodologies, manuals, customer lists and other
trade secrets from time to time acquired, sold, developed, maintained and/or
used by the Companies, (iii) the nature and terms of the Companies'
relationships with their customers, licensees, suppliers, lenders, underwriters,
stock exchanges, clearing brokers, vendors, consultants, independent
contractors, strategic partners, other third parties having dealings or
contractual relationships with the Companies, attorneys, accountants and
employees, and (iv) any proposed public or private offering of the Companies
(all such information and materials are collectively referred to as
"Confidential Information").
(b) PROHIBITED DISCLOSURE. Employee agrees that Employee will not
directly or indirectly at any time (including after the date on which Employee's
employment terminates) divulge or disclose for any purpose (except as
specifically authorized by the Companies) to any persons, firms, corporations or
other entities (collectively, "Third Parties"), or use or cause or authorize any
Third Parties to use, any such Confidential Information, except in the capacity
of an employee of Employer pursuant to any duties in the course and scope of his
employment. "Confidential Information" does not include information that, at the
time of disclosure, is part of the public domain or is generally known in the
Companies' respective industries without the fault or carelessness of Employee,
or information which Employee can demonstrate was known to or developed by
Employee prior to the date of Employee's commencement of employment with any of
the Companies without reliance upon or use of Confidential Information. If
Employee is required by order of a court or other governmental or
self-regulating authority to disclose any Confidential Information, Employee
shall immediately notify Employer so that Employer and/or the other Companies
may attempt to obtain an appropriate protective order, and, in all events,
Employee shall only disclose the portion of the Confidential Information
required by such order to be disclosed.
(c) EMPLOYER'S MATERIALS. Employee further agrees that (i) Employee
will at no time transfer, electronically transmit or remove from the premises of
Employer any products, prototypes, drawings, designs, specifications, notebooks,
software programs or disks, tapes or similar
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containers of software, e-mail, manuals, data, books, records, materials or
documents of any kind or description containing Confidential Information for any
purpose unconnected with the strict performance of Employee's duties with
Employer, and (ii) upon the termination of Employee's employment with Employer
for any reason, Employee shall immediately deliver or cause to be delivered to
Employer any and all such drawings, designs, specifications, notebooks, software
programs or disks, tapes or similar containers of software, e-mail, manuals,
data, books, records, materials and other documents and materials (and all
copies thereof) in Employee's possession or under Employee's control relating to
any Confidential Information or any other materials which are the property of
Employer.
(d) EMPLOYEE'S ACKNOWLEDGMENT. Employee acknowledges that Employee
is aware that Employee may be subject to severe criminal penalties (including
fines and lengthy imprisonment) under both federal and state law, including
Title 18, Sections 1831, et. seq. of the United States Code (The Economic
Espionage Act of 1996) and Section 812.081, Florida Statutes, as well as
substantial civil liability, for (i) stealing, or without Employer's permission,
taking, misappropriating or concealing, or by fraud or deception procuring,
trade secrets, as defined therein, or (ii) without Employer's permission,
receiving, possessing, altering, destroying, copying, sending, downloading,
uploading or conveying trade secrets or other Confidential Information. Employee
further acknowledges that any person or entity to whom trade secrets or other
Confidential Information are given by Employee may also become subject to severe
criminal penalties and civil liability.
6. COVENANT-NOT-TO-COMPETE
(a) COVENANT-NOT-TO-COMPETE. Employee covenants and agrees that,
during Employee's employment with Employer and for a period of two (2) years
after the date Employee ceases for any reason to be employed by Employer,
Employee shall not, directly or indirectly (as defined below) in any capacity,
(i) market, sell, provide or license, or be involved in the marketing, sale,
provision or licensing of, any Financial Market Data Software Products or
Software-Related Services (as defined below) to any person or entity who is or
was a distributor, retailer, reseller, licensee, subscriber, or customer of
Employer or any of the other Companies at any time during Employee's employment
with Employer and for or to whom Employer or any of the other Companies has
performed such services or sold or licensed such products at any time during the
one- year period ending on Employee's termination of employment, or (ii) engage
or participate in any venture, enterprise, activity or business which involves
the sale, licensing, performance or provision of Financial Market Data Software
Products or Software-Related Services, in whole or in part via electronic
commerce, telemarketing, telecommunication, cable, the Web or the Internet,
anywhere within the world. "Financial Market Data Software Products or
Software-Related Services" means (A) software products and/or services
(including, without limitation, all browser based and other Internet related
applications) which (1) collect or deliver financial market data (including but
not limited to stocks, bonds, options, futures, commodities, other securities
and/or fundamental company data), and/or (2) supply financial data to support
online investing and trading, including in the form of financial Web sites and
communities, and Internet-delivered streaming or other market data
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services; and/or (3) are or can be used to make, review or devise investment
analyses or strategies, including, without limitation, charting, technical
analysis and/or trading or investment strategy design, testing and/or automation
and/or (B) securities brokerage services (including, without limitation, in
connection with revenue sharing arrangements) and trading and other investment
services and services and products ancillary to any such securities brokerage,
trading or other investment services; provided, however, that "Financial Market
Data Software Products or Software- Related Services" shall not include the
activities specifically set forth on Schedule B annexed hereto. Employee
acknowledges that the businesses of Employer and the other Companies are
international in scope, that, due to the electronic and telephonic nature of
Employer's and such other Companies' businesses and the nature of Employer's and
such other Companies' licensees and customers, one could effectively compete
with such business from nearly anywhere in the world, and that, therefore, such
geographical area of restriction is reasonable in the circumstances to protect
Employer's trade secrets and other legitimate business interests.
(b) DEFINITION OF "DIRECTLY OR INDIRECTLY." For purposes of Section
6(a), "directly or indirectly" means to engage or participate in any venture,
enterprise, activity or business which is materially involved (as hereinafter
defined) in the marketing, selling, licensing or provision of Financial Market
Data Software Products or Software-Related Services, passively (except for
passive investments in publicly-traded companies) or actively, as a sole
proprietor or owner, director, officer, shareholder, partner, member,
consultant, independent contractor, advisor, participant, employee or agent or
in any other manner. For purposes hereof, "materially involved" means that the
venture, enterprise, activity or business directly or indirectly or together
with any of its subsidiaries, affiliates or partners or through strategic
alliances or any specific division or business unit of any such venture,
enterprise, activity or business either (1) derives in any year 5% or more of
its gross revenue from Financial Market Data Software Products or
Software-Related Services or (2) incurs in any year 5% or more of its expenses
(operating and/or capital) in connection with or as a result of Financial Market
Data Software Products or Software-Related Services.
(c) PAYMENT FOR COVENANT-NOT-TO-COMPETE. Employer and Employee both
believe that, due to the specialized nature of Employer's and the other
Companies businesses, it would not be difficult for Employee, upon termination
of Employee's employment, to find gainful employment or have other business
pursuits which are not violative of the restrictions set forth above, as there
are several industries and lines of business in which Employee could work which
are dissimilar to, and not competitive with, Employer's business. However,
Employer understands that such restrictions may limit Employee's new employment
options following a termination of Employee's employment with Employer.
Accordingly, if following termination of employment with Employer, Employee is
offered a position which, if accepted, would violate the restrictive covenants
set forth above, Employer will either (i) consent to Employee accepting
employment restricted by subsection (a) above, or (ii) not consent, but pay
Employee additional consideration for Employee remaining bound by such
restrictions. In order to receive the benefit of these provisions, Employee must
be and remain in compliance with all provisions of this Agreement, and must
comply with the following procedures. Upon Employee's receipt of a written offer
of employment which Employee desires to accept and which, if accepted, would
constitute a violation of subsection
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(a) above, Employee shall promptly notify Employer of such offer and provide to
Employer a copy thereof together with a written statement explaining in
reasonable detail Employee's job responsibilities at the new employment. Within
ten (10) days following the date that Employer has been given a copy of such
offer and written statement, Employer will notify Employee that either (x)
Employer consents to Employee accepting such new employment (but such consent
shall extend only to the job responsibilities described in the written statement
and shall not under any circumstances authorize Employee to disclose or use any
Confidential Information or to fail to comply with any other provision of this
Agreement), or (y) Employee may not accept the new employment. If Employer
decides that Employee may not accept the new employment, Employer shall pay to
Employee each month an amount equal to 1/24th of Employee's annual base salary
in effect at the date of termination of Employee's employment in excess of any
other severance payments being received by Employee hereunder upon termination
of employment (including, without limitation, pursuant to Section 3(a) or 3(b)
hereof) less applicable federal and state withholding ("Additional Monthly
Payments"). Such Additional Monthly Payments will cease at the end of the 24th
month following the date of Employee's termination of employment, provided that,
if Employee commences other full-time employment during such 24-month period,
such Additional Monthly Payments shall cease upon the commencement of such new
employment. Employee shall promptly notify Employer if Employee accepts any such
new employment. If Employee fails to notify Employer of new full-time employment
and continues to accept Additional Monthly Payments from Employer after
commencing new full-time employment, Employee shall be obligated to repay to
Employer all Additional Monthly Payments received from Employer pursuant to
these provisions.
7. NON-SOLICITATION AGREEMENT
(a) NON-SOLICITATION OF OTHER PERSONNEL. Employee acknowledges that
Employer devotes substantial time, effort and expense to the recruitment,
selection, training, development and promotion of talented individuals for
positions of significant responsibility with Employer. Employee further
acknowledges that it would be unfair to use Employee's familiarity with
Employer's business and other employees and Employer's independent contractors
and consultants to participate, directly or indirectly, in any activities
designed to cause any of Employer's other employees to leave Employer's employ
or to cause any of Employer's independent contractors or consultants to cease
performing services for Employer. Accordingly, Employee covenants and agrees
that, during Employee's employment with Employer and for a period of two (2)
years after the date Employee ceases for any reason to be employed by Employer,
Employee shall not, directly or indirectly, solicit the services of or recruit,
whether on Employee's own behalf or on behalf of others, any of the following
types of employees, independent contractors or consultants of Employer: (i)
executives, managers, supervisors or department directors; (ii) technicians,
engineers, programmers, designers, developers or information, Web or Internet
services workers (whether employees, independent contractors or consultants);
(iii) product, project or task managers or supervisors (whether employees,
independent contractors or consultants); (iv) sales, marketing, public or
customer relations personnel or consultants; (v) brokers, traders, securities
associates or salespersons or other similar types of personnel; (vi) financial
or accounting services personnel or
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consultants; (vii) legal personnel; (viii) customer support personnel or
consultants; or (ix) human resources personnel; provided, however, that such
provision does not apply to Employee's attorneys, accountants, investment
bankers and other professional advisors; or otherwise persuade or cause, or
attempt to persuade or cause, any such employee, independent contractor or
consultant to leave Employer's employ or cease performing services for Employer.
(b) DAMAGES FOR BREACH. Employee acknowledges that breach or
violation of this covenant would cause substantial damages to Employer. Employee
agrees that, in the event of a breach or violation of this covenant of
non-solicitation, Employee will be liable to compensate Employer for all
damages, including, without limitation, consequential damages, not limited to
lost profits, expense incurred to replace the employee or business relationship,
finder's fees, sign-on bonuses, and compensation, remuneration and/or benefits
premiums paid to employees, independent contractors and consultants to secure
their services or to replace the lost business relationship(s). The payment of
such damages shall not limit, impair or diminish Employer's right to seek and
obtain (x) any appropriate equitable relief (including but not limited to
specific performance, temporary restraining order and temporary and permanent
injunction), (y) other monetary relief, and other relief, at law or in equity,
for other causes of action which may have resulted from Employee's breach or
violation (such as intentional interference with contractual or business
relations in the event an employee is solicited by Employee for a competitive
position and such employee is subject to a covenant-not-to-compete), or (z)
monetary and other relief, at law or in equity, from or against persons or
entities other than Employee.
8. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 5, 6 AND 7
In addition to the remedies referred to in Section 7(b) above,
Employee agrees that if Employee breaches or violates any of Employee's
covenants or agreements in Sections 5, 6 and 7 hereof, Employer shall be
entitled to an accounting and repayment of any and all profits, compensation,
commissions, payments and benefits which Employee directly or indirectly has
realized and realizes as a result of, or in connection with, any such breach or
violation. In addition, in the event of a breach or violation or threatened or
imminent breach or violation of any provisions of Sections 5, 6 and 7 hereof,
Employer shall be entitled to a temporary and permanent injunction or any other
appropriate decree of specific performance or equitable relief (without, unless
otherwise required by statute, being required to post bond or other security)
from a court of competent jurisdiction in order to prevent, prohibit or restrain
any such breach or violation or threatened or imminent breach or violation by
Employee. Employer shall be entitled to such injunctive or other equitable
relief in addition to any ascertainable damages which are suffered. It is
understood that resort by Employer to such injunctive or other equitable relief
shall not be deemed to waive or to limit in any respect any other rights or
remedies which Employer may have with respect to such breach or violation.
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9. REASONABLENESS OF RESTRICTIONS
(a) REASONABLENESS. Employee acknowledges that any breach or
violation of Sections 5, 6 and 7 hereof will likely cause irreparable injury and
damage to Employer and that it would be very difficult or impossible to measure
all of the damages resulting from any such breach or violation. Employee further
acknowledges that Employee has carefully read and considered the provisions of
Sections 5, 6 and 7 hereof and, having done so, agrees that the restrictions and
remedies set forth in such Sections (including the time period, geographical
limits and scope of activity restricted) are fair and reasonable and do not
impose a greater restraint than is necessary for the protection of the trade
secrets, goodwill and other legitimate business interests of Employer.
(b) SEVERABILITY. Employee understands and intends that each
provision and restriction agreed to by Employee in Sections 5, 6 and 7 hereof be
construed as separate and divisible from every other provision and restriction.
In the event that any one of the provisions of, or restrictions in, Sections 5,
6 and 7 hereof shall be held to be invalid or unenforceable, and is not reformed
by a court of competent jurisdiction (which a court, in lieu of striking a
provision entirely, is urged by the parties to do), the remaining provisions and
restrictions shall continue to be valid and enforceable as though the invalid or
unenforceable provision or restriction had not been included. In the event that
any such provision relating to time period, geographical limits or scope of
activity restricted (collectively "Limitations") shall be declared by a court of
competent jurisdiction to exceed the maximum or permissible Limitations such
court deems reasonable and enforceable, Limitations shall be deemed to become
and shall then be the maximum Limitations which such court deems reasonable and
enforceable.
(c) SURVIVABILITY. The restrictions, acknowledgments, covenants and
agreements of Employee set forth in Sections 5, 6, 7, 8, 9, 10, 14, 15, 16, 17
and 18 of this Agreement shall survive any termination of Employee's employment
(for any or no reason, including expiration of the Employment Term).
10. OWNERSHIP OF WORK DEVELOPED IN WHOLE OR IN PART BY EMPLOYEE
Employee covenants and agrees with Employer that any and all
formulae, devices, patterns, know-how, technology, computer programs,
documentation, processes, lists, compilations, literature, inventions,
methodologies, techniques and other work product ("Work") created or developed
in whole or in part by Employee (whether alone or in cooperation with others)
while an employee of Employer, if created or developed in whole or in part (i)
on Employer's premises, or (ii) during Employee's normal working hours, or (iii)
with the use of Employer's resources, or (iv) based upon Employee's access to or
knowledge of Confidential Information, no matter what such Work relates to or is
about, shall immediately be disclosed by Employee to Employer and is and shall
be solely Employer's property. Employee further covenants and agrees with
Employer that any Work created or developed in whole or in part by Employee
(whether alone or in cooperation with others) during the term of Employee's
employment, even if wholly developed or created off Employer's premises, on
Employee's own time, and without use of Employer's resources or Confidential
Information, if related to Employer's or any of the other Companies' businesses,
shall
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immediately be disclosed by Employee to Employer and is and shall be solely
Employer's property. In all such cases, Employee agrees that Employer is the
"person for whom the work was prepared" for the purposes of determining
authorship of any copyright in the Work, and all of the Work shall be deemed
"work made for hire" as that term is defined in Section 101 of the U.S.
Copyright Act. In addition, all inventions, discoveries, improvements, trade
secrets, trademarks, service marks, trade dress, know-how, names, ideas and
other proprietary rights and intellectual property rights, whether or not
patentable, embodied in, represented by, incorporated in, part of, or relating
to any of the Work (collectively, "Other Intellectual Property Rights") are, and
shall be, as between Employer and Employee, the property of solely Employer,
and, so there will be no doubt, Employee hereby assigns to Employer and its
successors and assigns all of Employee's right, title and interest in and to all
Other Intellectual Property Rights. If, for any reason, any of the Work is
determined not to be a "work made for hire" under U.S. law or the law of any
other jurisdiction, Employee agrees to assign, and does hereby assign, to
Employer and its successors and assigns all of Employee's right, title and
interest in and to all copyrights in all of the Work. Employee shall execute and
deliver to Employer from time to time upon Employer's request such confirmatory
assignments, instruments and other documents so as to evidence and confirm full
record and beneficial ownership of Employer in all such Work. Employee hereby
irrevocably appoints Employer as Employee's attorney-in-fact for the purpose of
signing and delivering such assignments, instruments and other documents, such
appointment being coupled with an interest. "Work" does not include works or
inventions which do not relate to Employer's business and are wholly created or
developed by Employee off Employer's premises, on Employee's own time and
without use of Employer's resources or Confidential Information.
11. NON-INTERFERENCE WITH THIRD-PARTY RIGHTS
By signing this Agreement, and accepting employment or continued
employment with Employer, Employee is representing and warranting to Employer
that (a) Employee is free to accept or continue employment with Employer,
meaning that Employee has no contractual or other commitments which restrict
Employee from performing Employee's employment duties to the fullest extent, and
(b) only Employer is entitled to the benefit of Employee's work and efforts.
Employer advises Employee that Employer has no interest in using any other
person's patents, copyrights, trademarks, trade secrets or confidential or
proprietary information ("Intellectual Property Rights") in an unlawful manner,
and Employee agrees that Employee will not, in performing Employee's employment
duties, make use of any Intellectual Property Rights belonging to another which
Employer has no right to use. If Employee has any doubt about whether Employee
is misusing Intellectual Property Rights of another, Employee shall promptly
notify the General Counsel of Newco ("General Counsel"), so that General Counsel
can ensure that Employer may investigate and make the appropriate decision.
12. VIOLATION OF POLICIES BY OTHER EMPLOYEES
Many, if not most, of Employer's employees are or will be required
to sign this Agreement (or a similar agreement) as a condition of employment or
continued employment with Employer. If Employee becomes aware that any other
employee of Employer is violating any provisions of this Agreement, Employee
shall promptly report such violation to the General Counsel.
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The information provided, and its source, will be treated confidentially to the
extent possible in the circumstances. While Employer understands that it is not
always easy or pleasant to report wrongdoings of a co-worker, it is critically
important that these provisions be observed by Employee, as violations of this
Agreement may cause substantial and irreparable harm to Employer's business
which would cause all employees of Employer to suffer.
13. UNFAIR BUSINESS PRACTICES
If, during Employee's employment with Employer, Employee learns or
suspects that any unfair or questionable business practice may be occurring,
Employee shall advise the General Counsel promptly. This obligation is
intentionally broad and general because it is difficult to anticipate all
possible circumstances, and Employee should resolve all doubts by reporting the
information in question to the General Counsel. In particular, if Employee
receives an offer of any kind (kickbacks, job offers, gifts, offers of money in
exchange for information, etc.) from any outside party or another employee of
Employer, Employee shall immediately notify Employer and provide all information
relating to such offer; provided, however, that this provision shall not require
Employee to report a bona fide job offer that is not received in exchange for
Employer's or other Companies' information or in connection with any
questionable, improper or illegal purpose. No gift, favor, offer, benefit,
promise to pay or other thing of value shall be offered, made or authorized by
Employee for any questionable, improper or illegal purpose, nor shall any bribe
or kickback be offered, made or authorized by Employee, directly or indirectly,
regardless of motive, to or for the benefit of any customer, supplier or other
person or entity doing business with Employer or any of the other Companies, or
any employee or agent thereof, or to or for the benefit of any governmental
official or employee.
14. LAW APPLICABLE
This Agreement shall be governed by and construed pursuant to the
laws of the State of Florida. In the event of a dispute, exclusive venue shall
be in the state or federal courts for Miami-Dade County, Florida.
15. SUCCESSION
This Agreement shall inure to the benefit of the parties and their
respective heirs, administrators, legal representatives, successors (by merger
or otherwise) and assigns and shall be binding upon the parties and their
respective heirs, administrators, legal representatives and successors; however,
this Agreement may not be assigned by Employee.
16. NO WAIVER
A waiver of any breach or violation of any term, provision or
covenant contained in this Agreement shall not be deemed a continuing waiver or
a waiver of any future or past breach or violation. No oral waiver shall be
effective or binding.
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17. PRIOR OR SEPARATE AGREEMENTS
This Agreement contains the entire agreement between Employer and
Employee as of and after the Effective Time in Employee's capacity as an
employee of Employer concerning its subject matter, and supersedes as of and
after the Effective Time all prior and contemporaneous agreements, written or
oral, including, without limitation, that certain Employment Agreement made as
of February 1, 1999, between Employer and Employee, except that (i) any
preexisting or prior agreements regarding confidentiality, non-solicitation,
inventions, work product, proprietary rights, trade secrets and non-competition
shall survive to the extent necessary to allow Employer maximum protection for
its trade secrets, confidential information, goodwill and employee, licensee,
independent contractor, consultant, distributor, retailer, reseller, customer
and other business relationships and (ii) this Agreement and the covenants and
agreements set forth herein are separate and independent of any Non-Competition
and Non-Disclosure Agreement that has been executed and delivered by Employee
concurrently herewith and the covenants and agreements set forth therein and,
accordingly, no pursuit or enforcement of any particular right, power, privilege
or remedy under this Agreement or such Non-Competition and Non-Disclosure
Agreement (as the case may be) at any particular time or from time to time,
singly or together with others, or any partial exercise thereof, shall operate
as a waiver of, or preclude the exercise or availability of, any right, power,
privilege or remedy of Employer under this Agreement, such Non-Competition and
Non-Disclosure Agreement or any other agreement (as the case may be)(2).
18. ATTORNEY'S FEES
In the event either party hereto prevails in any dispute arising
from or relating to this Agreement, the non-prevailing party will be liable for
the prevailing party's reasonable and necessary attorneys' and paralegals' fees
and expenses and court costs before and at trial, in any other proceedings and
at all appellate levels.
19. EFFECTIVENESS
This Agreement shall be effective as of and after the Effective
Time. In the event the Merger Agreement is terminated before the Effective Time,
this Agreement shall be null and void and of no further force and effect.
[SIGNATURES ARE ON FOLLOWING PAGE]
--------
(2)In the case of the Employment Agreement with E. Steven zum Tobel the
following will be added: "and (iii) that certain letter dated March 1, 1999,
from Employer to and accepted by Employee relating to the issuance to Employee
of 444,444 shares (including 44,444 shares received by Employee as a dividend
from Employer) of common stock, $.01 par value, of Employer and the vesting
thereof shall remain in full force and effect."
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IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the day and year first written above to be effective as of and
after the Effective Time.
EMPLOYEE:
Signature:___________________________
Print Name:__________________________
EMPLOYER:
ONLINETRADINGINC.COM CORP.
By:__________________________________
Name:________________________________
Title:_______________________________
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SCHEDULE A
POSITION AND COMPENSATION
Position: (3)
Annual Base Salary: (4)
Bonus: (5)
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(3) Farshid Tafazzoli - Chief Information Officer of Employer and Vice
President of Newco; E. Steven zum Tobel - President of Employer and Vice
President of Newco; and Derek J. Hernquist - Supervisor of Investment Research
and Development and of Trading Desk of Employer.
(4) $200,000 for Mr. Tafazzoli; $150,000 for Mr. zum Tobel; and
$100,000 for Mr. Hernquist.
(5) With respect to Mr. Tafazzoli: "Employee will be eligible for an
annual discretionary bonus as, when and based on similar criteria that William
R. Cruz and Ralph L. Cruz are so eligible and as otherwise determined by the
Compensation Committee of the Board of Directors of Newco"; with respect to Mr.
zum Tobel: "Employee will be eligible for an annual discretionary bonus in line
with bonuses (if any) of other executive officers of Newco having a similar
position and consistent with his responsibilities and as otherwise determined by
the Compensation Committee of the Board of Directors of Newco"; and with respect
to Mr. Hernquist: "Employee will be eligible for an annual discretionary bonus
consistent with his responsibilities and as otherwise determined by the Board of
Directors of Employer or the Compensation Committee thereof."
<PAGE>
SCHEDULE B
PERMITTED ACTIVITIES
See attached list of activities.
<PAGE>
NON-COMPETE EXCEPTIONS SCHEDULE
Securities trading for registered or unregistered hedge funds or as a firm
trader for a broker-dealer.
Auditing or other strictly accounting services for broker-dealers that provide
no Internet-based services; Teacher of securities related subjects at a college
or university; Owner of, and/or Instructor at, schools or seminars preparing
students for securities licensing tests; Financial planning/estate planning
services (including without limitation acting as a Registered Investment
Advisor); Investment banking services for any industry or market segment.
Owning or operating a software development or similar company unrelated to the
securities industry or to securities or financial market analysis.
<PAGE>
EXHIBIT D-2
FORM OF
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
THIS AGREEMENT, dated as of January 19, 2000 to be effective as of
and after the Effective Time (as defined in the Merger Agreement described
below) is by and among Online Trading Group, Inc., a Florida corporation, Omega
Research, Inc., a Florida corporation ("Omega"), and onlinetradinginc.com corp.
("Online"), a Florida corporation, on the one hand, and _____________________
("Shareholder"), on the other hand.
A. RECITALS
1. Shareholder is, and will be up to and through the consummation
of the mergers (collectively, the "Merger") contemplated under the Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), the owner of
certain outstanding shares of either the common stock, $.01 par value, of Online
("Online Common Stock") or the common stock, $.01 par value, of Omega ("Omega
Common Stock"). Pursuant to the Merger, Shareholder will receive either common
stock, $.01 par value, of Newco ("Newco Common Stock") and cash for fractional
shares in exchange for Online Common Stock owned by Shareholder or will receive
Newco Common Stock in exchange for Omega Common Stock owned by Shareholder.
2. Upon consummation of the Merger at the Effective Time, (i) Omega
Acquisition Corporation, a Florida corporation and wholly owned subsidiary of
Newco ("Omega Merger Sub"), will be merged with and into Omega, and the separate
corporate existence of Merger Sub will cease and Omega will continue as the
surviving corporation and (ii) Onlinetrading Acquisition Corporation, a Florida
corporation and wholly owned subsidiary of Newco ("Online Merger Sub" and,
together with Omega Merger Sub, the "Merger Subs") will be merged with and into
Online, and the separate corporate existence of Online Merger Sub will cease and
Online will continue as the surviving corporation.
3. As a further result of the consummation of the Merger at the
Effective Time, Newco will own one hundred percent of the common stock of the
Surviving Corporations (as defined in the Merger Agreement) and Shareholder,
together with all the other holders of Online Common Stock and Omega Common
Stock, will effectively transfer ownership of the businesses of Online and Omega
to Newco.
4. Shareholder anticipates that the consummation of the Merger will
cause Shareholder significant financial gain and advantage. Shareholder
acknowledges and understands that the execution and delivery by Shareholder of
this Agreement is a specific condition precedent to Newco, Omega, Online and
Merger Subs entering into the Merger Agreement and the obligation of Newco,
Omega, Online and Merger Subs to consummate and effect the Merger, and
Shareholder is executing
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this Agreement in consideration of Newco, Omega, Online and Merger Subs entering
into the Merger Agreement and consummation by Newco, Omega, Online and Merger
Subs of, and as material inducement to Newco, Omega, Online and Merger Subs to
consummate the Merger, resulting in Shareholder's receipt of the Newco Common
Stock (and cash for fractional shares in the case of a shareholder of Online).
5. The parties hereto acknowledge and agree that certain covenants
are necessary to protect the value of the goodwill evidenced by the Online
Common Stock or Omega Common Stock (as the case may be) relinquished by
Shareholder in exchange for the Newco Common Stock, as well as the goodwill
evidenced by the Newco Common Stock to be received by Shareholder in the Merger.
The parties further agree that, since Shareholder's execution and delivery of
this Agreement is a condition precedent to consummation of the Merger, this
Agreement is therefore beneficial to all of the parties hereto.
6. This Agreement covers various subjects, including (i) protection
of Omega's and Online's goodwill, trade secrets and confidential information,
(ii) non-solicitation of Omega and Online's customers, licensees, independent
contractors, consultants and employees, and (iii) restrictions on Shareholder's
ability to compete with Omega or Online or participate in competitive businesses
for a reasonable period of time on and after the Effective Time of this
Agreement. Each of these subjects is equally important, and Shareholder agrees
to faithfully and fully observe all covenants and agreements set forth below
relating to each subject addressed, without exception.
7. Shareholder has been informed and understands, that (a) Omega
and Online have developed and own, and after the Merger will continue to
collaboratively develop and own, at substantial effort and expense, products,
services and valuable trade secrets and other valuable confidential business
information, all of which have enhanced and are expected to continue to enhance
the value of the Newco Common Stock, Omega Common Stock and Online Common Stock;
(b) Omega and Online have developed and/or will be developing important and
substantial relationships with customers, licensees, independent contractors,
consultants, strategic partners, vendors and/or other third parties having
dealings or contractual relationships with Omega and Online many of which have
been known to or will be made known to Shareholder in connection with
Shareholder's business relationships with Omega and Online. In light of all of
the foregoing, in order to protect Omega's and Online's legitimate business
interests, including their goodwill and trade secrets, and in consideration for,
and in order to induce, consummation of the Merger, Shareholder has agreed to
make, for the separate benefit of and enforcement by each of Omega, Online and
Newco, the reasonable covenants and agreements set forth below, all of which
shall be effective as of and after the Effective Time.
NOW, THEREFORE, it is agreed as follows:
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B. COVENANTS AND AGREEMENTS
1. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
(a) CONFIDENTIAL INFORMATION. Shareholder acknowledges that
Shareholder has been informed by Omega and Online that it is Omega's and
Online's policy to maintain as secret and confidential all information and
materials (whether or not stamped or marked "Confidential" or bearing some other
indicia of confidentiality) relating to (i) the financial conditions, operations
and business interests, objectives, plans and strategies of Omega and Online,
(ii) the systems, know-how, records, products, product plans, product designs,
marketing plans, specifications, drawings, product development, services, cost
information, inventions, computer programs, technology, marketing and sales
strategies, techniques and/or programs, trading and investment strategies and
analyses, formulae, methods, methodologies, manuals, proprietary software,
customer lists and other trade secrets from time to time acquired, sold,
developed, maintained and/or used by Omega and Online, (iii) the nature and
terms of Omega's and Online's relationships with their respective customers,
licensees, subscribers, suppliers, lenders, underwriters, stock exchanges,
clearing brokers, vendors, consultants, independent contractors, strategic
partners, other third parties having dealings or contractual relationships with
Omega and Online, attorneys, accountants and employees, and (iv) any proposed
public or private offering of Omega and Online (all such information and
materials are collectively referred to as "Confidential Information").
(b) PROHIBITED DISCLOSURE. Shareholder agrees that Shareholder will
not directly or indirectly at any time (including after the date on which
Shareholder's employment, if any, with Online or Omega (as the case may be)
terminates and including after Shareholder's ownership of any Newco Common Stock
or Online Common Stock or Omega Common Stock (as the case may be) terminates)
divulge, or disclose for any purpose (except as specifically authorized by both
Omega and Online) to any persons, firms, corporations or other entities
(collectively, "Third Parties"), or use or cause or authorize any Third Parties
to use, any such Confidential Information, except in the capacity of an employee
of Omega or Online pursuant to any duties in the course and scope of his
employment. "Confidential Information" does not include information that, at the
time of disclosure, is part of the public domain or is generally known in
Omega's and/or Online's industry without the fault or carelessness of
Shareholder. If Shareholder is required by order of a court or other
governmental or self-regulatory authority to disclose any Confidential
Information, Shareholder will immediately notify Omega and Online so that Omega
and Online may attempt to obtain an appropriate protective order, and, in all
events, Shareholder will only disclose the portion of the Confidential
Information required by such order to be disclosed.
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2. COVENANT-NOT-TO-COMPETE
(a) COVENANT-NOT-TO-COMPETE. Shareholder covenants and agrees that
for a period of ____(1)____ (__) years after the Effective Time (the "Effective
Period"), Shareholder will not, directly or indirectly (as defined below), in
any capacity (i) market, sell, provide or license, or be involved in the
marketing, sale, provision or licensing of, any Financial Market Data Software
Products or Software-Related Services (as defined below) to any person or entity
who is or was a distributor, retailer, reseller, licensee, subscriber, client or
customer of Omega or Online at any time during the two (2) years preceding the
Effective Time through the conclusion of the Effective Period, or (ii) market,
sell, provide or license, or be involved in the marketing, sale, provision or
licensing of, any Financial Market Data Software Products or Software-Related
Services (as defined below), in whole or in part via electronic commerce,
telemarketing, telecommunication, cable, the Web or the Internet, anywhere
within the world. "Financial Market Data Software Products or Software- Related
Services" means (A) software products and/or services (including, without
limitation, all browser based and other Internet related applications) which (1)
collect or deliver financial market data (including but not limited to stocks,
bonds, options, futures, commodities, other securities and/or fundamental
company data), and/or (2) supply financial data to support online investing and
trading, including in the form of financial Web sites and communities, and
Internet-delivered streaming or other market data services, and/or (3) are or
can be used to make, review or devise investment analyses or strategies,
including, without limitation, charting, technical analysis and/or trading or
investment strategy design, testing and/or automation and/or (B) securities
brokerage services (including, without limitation, in connection with revenue
sharing arrangements) and trading and other investment services and services and
products ancillary to any such securities brokerage, trading or other investment
services; provided, however, that "Financial Market Data Software Products or
Software-Related Services" shall not include the activities specifically set
forth on Exhibit A annexed hereto. Shareholder acknowledges that the businesses
of Omega and Online are international in scope, that, due to the electronic and
telephonic nature of Omega's and Online's businesses and the nature of their
licensees, subscribers and customers, one could effectively compete with such
businesses from nearly anywhere in the world, and that, therefore, such
geographical area of restriction is reasonable in the circumstances to protect
Omega's and Online's respective goodwill, trade secrets and other legitimate
business interests.
(b) DEFINITION OF "DIRECTLY OR INDIRECTLY." For purposes of Section
2(a), "directly or indirectly" means to engage or participate in any venture,
enterprise, activity or business which is materially involved (as hereinafter
defined) in the marketing, selling, licensing or provision of Financial Market
Data Software Products or Software-Related Services, passively (except for
passive
--------
(1) Four (4) years for each of Andrew A. Allen, Farshid Tafazzoli and
Benedict S. Gambino, William R. Cruz and Ralph L. Cruz and two (2) years for
each of E. Steven zum Tobel and Derek J. Hernquist.
4
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investments in publicly-traded companies) or actively, as a sole proprietor,
owner, director, officer, shareholder, partner, member, consultant, independent
contractor, advisor, participant, employee or agent, or in any other manner. For
purposes hereof, "materially involved" means that the venture, enterprise,
activity or business directly or indirectly or together with any of its
subsidiaries, affiliates or partners or through strategic alliances or any
specific division or business unit of any such venture, enterprise, activity or
business either (i) derives in any year 5% or more of its gross revenue from
Financial Market Data Software Products or Software-Related Services or (ii)
incurs in any year 5% or more of its expenses (operating and/or capital) in
connection with or as a result of Financial Market Data Software Products or
Software-Related Services.
3. NON-SOLICITATION OF EMPLOYEES AND OTHERS.
(a) NON-SOLICITATION OF EMPLOYEES AND OTHERS. Shareholder
acknowledges that Omega and Online each devotes substantial time, effort and
expense to the recruitment, selection, training, development and promotion of
talented individuals for positions of significant responsibility with Omega and
Online. Shareholder further acknowledges that it would be unfair to use
Shareholder's familiarity with Omega's and Online's businesses, employees,
independent contractors and consultants, to participate, directly or indirectly,
in any activities designed to cause any of Omega's and Online's businesses,
employees, independent contractors or consultants to cease performing services
for either or both of Omega and Online. Accordingly, Shareholder covenants and
agrees that for the later to occur of (i) one year following the date of
termination of the direct and/or indirect beneficial ownership by Shareholder of
all Newco Common Stock or (ii) two (2) years after the Effective Time,
Shareholder will not, directly or indirectly, solicit the services of or
recruit, whether on Shareholder's own behalf or on behalf of others, any of the
following types of employees, independent contractors or consultants of Omega
and Online: (i) executives, managers, supervisors or department directors; (ii)
technicians, engineers, programmers, designers, developers or information, Web
or Internet services workers (whether employees, independent contractors or
consultants); (iii) product, project or task managers or supervisors (whether
employees, independent contractors or consultants); (iv) sales, marketing,
public or customer relations personnel or consultants; (v) brokers, traders,
securities associates or salespersons or other similar types of personnel; (vi)
financial or accounting services personnel or consultants; (vii) legal
personnel; (viii) customer support personnel or consultants; or (ix) human
resources personnel; provided, however, that such provision does not apply to
Shareholder's attorneys, accountants, investment bankers and other professional
advisors. Shareholder agrees not to persuade or cause, or attempt to persuade or
cause, any such employee, independent contractor or consultant to leave Omega's
or Online's employ or cease performing services for Omega or Online.
(b) DAMAGES. Shareholder acknowledges that breach or violation of
this covenant would cause substantial damages to Omega and/or Online.
Shareholder agrees that, in the event of a breach or violation of this covenant
of non-solicitation, Shareholder will be liable to compensate Omega and/or
Online for all damages, including, without limitation, consequential damages,
not limited to lost profits, expenses incurred to replace the employee or
business relationship, finder's fees, sign-on bonuses and compensation,
remuneration and/or benefits premiums paid to employees,
5
<PAGE>
independent contractors and consultants to secure their services to replace the
lost relationship(s). The payment of such damages shall not limit, impair or
diminish Omega's and/or Online's right to seek and obtain (x) any appropriate
equitable relief (including but not limited to specific performance, temporary
restraining order and temporary and permanent injunction), (y) other monetary
and other relief, at law or in equity, for other causes of action which may have
resulted from Shareholder's breach or violation (such as intentional
interference with contractual or business relations in the event an employee is
solicited by Shareholder for a competitive position and such employee is subject
to a covenant-not-to-compete), or (z) monetary and other relief, at law or in
equity, from or against persons or entities other than Shareholder.
4. REMEDIES FOR BREACH OF SECTIONS 1, 2 AND 3
In addition to the remedies referred to in Section 3(b), above
Shareholder agrees that, if Shareholder breaches or violates any of
Shareholder's covenants or agreements in Section 1, 2 and 3 hereof, Omega and
Online shall be entitled to an accounting and repayment of any and all profits,
compensation, commissions, payments and benefits which Shareholder directly or
indirectly has realized and realizes as a result of, or in connection with, any
such violation or breach. In addition, in the event of a breach or violation or
threatened or imminent breach or violation of any provisions of Section 1, 2 and
3 hereof, Omega and Online shall be entitled to a temporary and permanent
injunction or any other appropriate decree of specific performance or equitable
relief (without, unless otherwise required by statute, being required to post
bond or other security) from a court of competent jurisdiction in order to
prevent, prohibit or restrain any such breach or violation or threatened breach
or violation by Shareholder. Omega and Online shall be entitled to such
injunctive or other equitable relief in addition to any ascertainable damages
which are suffered. It is understood that resort by Omega and Online (or either
of them) to such injunctive or other equitable relief shall not be deemed to
waive or to limit in any respect any other rights or remedies which Omega and
Online (or either of them) may have with respect to such breach or violation.
5. REASONABLENESS OF RESTRICTIONS
(a) REASONABLENESS. Shareholder acknowledges that any breach or
violation of Section 1, 2 or 3 hereof will likely cause irreparable injury and
damage to each of Omega and Online and that it would be very difficult or
impossible to measure all of the damages resulting from any such breach or
violation. Shareholder further acknowledges that Shareholder has carefully read
and considered the provisions of Sections 1, 2 and 3 hereof and, having done so,
agrees that the restrictions and remedies set forth in such Sections (including
the time period, geographical limits and scope of activity restricted) are fair
and reasonable and do not impose a greater restraint than is necessary for the
protection of the trade secrets, goodwill and other legitimate business
interests of each of Omega and Online.
(b) SEVERABILITY. Shareholder understands and intends that each
provision and restriction agreed to by Shareholder in Sections 1, 2 and 3 hereof
be construed as separate and divisible from every other provision and
restriction. In the event that any one of the provisions of,
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<PAGE>
or restrictions in, Sections 1, 2 and/or 3 hereof shall be held to be invalid or
unenforceable, and is not reformed by a court of competent jurisdiction (which a
court, in lieu of striking a provision entirely, is urged by the parties to do),
the remaining provisions and restrictions shall continue to be valid and
enforceable as though the invalid or unenforceable provision or restriction had
not been included. In the event that any provision relating to time period,
geographical limits or scope of activity restricted (collectively,
"Limitations") shall be declared by a court of competent jurisdiction to exceed
the maximum or permissible Limitations such court deems reasonable and
enforceable, said Limitations shall be deemed to become and shall then be the
maximum Limitations which such court deems reasonable and enforceable.
(c) DEFINITIONS. For purposes of Sections 1, 2 and 3 of this
Agreement, the terms Omega and Online (a "Company") each includes such Company
(and its successor by merger or otherwise) and any parent corporations of such
Company (or its successors) and all direct and indirect subsidiaries of such
Company (or its successor) and its parent corporation.
6. LAW APPLICABLE
This Agreement shall be governed by and construed pursuant to the
laws of the State of Florida. In the event of a dispute, exclusive venue shall
lie in the state or federal courts for Miami-Dade County, Florida.
7. SUCCESSION
This Agreement shall inure to the benefit of the parties and their
respective heirs, administrators, legal representatives, successors (by merger
or otherwise) and assigns and shall be binding upon the parties and their
respective heirs, administrators, legal representatives and successors.
8. NO WAIVER
A waiver of any breach or violation of any term, provision or
covenant contained in this Agreement shall not be deemed a continuing waiver or
a waiver of any future or past breach or violation. No oral waiver shall be
effective or binding.
9. SEPARATE AGREEMENT; CUMULATIVE REMEDIES
This Agreement and the covenants and agreements set forth herein
are separate and independent of any Employment Agreement that has been executed
and delivered by Shareholder in connection with the Merger or any other
agreement previously executed by Shareholder with either Omega or Online and the
covenants and agreements set forth therein. Accordingly, no pursuit or
enforcement of any particular right, power, privilege or remedy under this
Agreement or under such Agreement Regarding Employment (as the case may be) at
any particular time or from time to time, singly or together with others, or any
partial exercise thereof, shall operate as a waiver of, or
7
<PAGE>
preclude the exercise or availability of, any right, power, privilege or remedy
of Omega or Online under this Agreement, such Employment Agreement or any other
agreement (as the case may be).
10. ATTORNEY'S FEES
In the event any party hereto prevails in any dispute arising from
or relating to this Agreement, the nonprevailing party will be liable for the
prevailing party's reasonable and necessary attorneys' and paralegals' fees and
expenses and court costs before and at trial, in any other proceedings and at
all appellate levels.
11. TERMINATION OF MERGER AGREEMENT.
In the event that the Merger is not consummated and the Merger
Agreement is terminated before the Effective Time, this Agreement shall be null
and void and of no further force or effect.
[SIGNATURES ARE ON THE FOLLOWING PAGE]
8
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IN WITNESS WHEREOF, the undersigned have executed this
Non-Competition and Non- Disclosure Agreement as of the day and year first above
written to be effective as of and after the Effective Time.
SHAREHOLDER:
Signature:___________________________
Print Name:__________________________
ONLINE TRADING GROUP, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
OMEGA RESEARCH, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
ONLINETRADINGINC.COM CORP.
By:__________________________________
Name:________________________________
Title:_______________________________
9
<PAGE>
EXHIBIT A
PERMITTED ACTIVITIES
See attached list of activities.
10
<PAGE>
NON-COMPETE EXCEPTIONS SCHEDULE
Securities trading for registered or unregistered hedge funds or as a firm
trader for a broker-dealer.
Auditing or other strictly accounting services for broker-dealers that provide
no Internet-based services; Teacher of securities related subjects at a college
or university; Owner of, and/or Instructor at, schools or seminars preparing
students for securities licensing tests; Financial planning/estate planning
services (including without limitation acting as a Registered Investment
Advisor); Investment banking services for any industry or market segment.
Owning or operating a software development or similar company unrelated to the
securities industry or to securities or financial market analysis.
<PAGE>
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This First Amendment ("Amendment") hereby amends effective March 7,
2000 the Agreement and Plan of Merger and Reorganization (the "Plan of Merger"),
dated January 19, 2000, by and among Omega Research, Inc., a Florida corporation
("Omega"), onlinetradinginc.com corp., a Florida corporation ("Online"), Online
Trading Group, Inc., a Florida corporation("Newco"), Omega Acquisition
Corporation, a Florida corporation and wholly owned subsidiary of Newco ("Omega
Merger Sub"), and Onlinetrading Acquisition Corporation, a Florida corporation
and wholly owned subsidiary of Newco ("Online Merger Sub"). Capitalized terms
not otherwise defined herein shall have the respective meanings set forth in the
Agreement.
WHEREAS, the parties entered into the Agreement on January 19, 2000;
and
WHEREAS, the parties desire to amend the terms of the Agreement to
incorporate the terms herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree that the
Agreement shall be amended as follows:
1. Section 1.4 (a) shall be amended and restated in its entirety
to read as follows:
"(a) At the Effective Time, the Articles of
Incorporation (the "Omega Articles of Incorporation")
of Omega Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Articles of
Incorporation of the Omega Surviving Corporation;
provided, however, that Article I of the Omega
Articles of Incorporation shall be amended to read as
follows: "The name of the corporation is Omega
Research, Inc."
2. Section 1.4 (c) shall be amended and restated in its entirety
to read as follows:
"(c) At the Effective Time, the Articles of
Incorporation (the "Online Articles of
Incorporation") of Online Merger Sub, as in effect
immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Online Surviving
Corporation; provided, however, that Article I of the
Online Articles of Incorporation shall be amended to
read as follows: "The name of the corporation is
OnlineTrading.com, Inc."
<PAGE>
3. The parties hereto hereby authorize and consent to the filing
of an amendment to the Articles of Incorporation of Newco pursuant to which
Article I of the Articles of Incorporation shall be amended to change the name
of Newco to "OnlineTrading.com Group, Inc." and, upon such filing with the
Secretary of State of the State of Florida, all references to "Online Trading
Group, Inc." in the Agreement and any and all other agreements and instruments
entered into between or among the parties hereto in connection therewith shall
be modified to reflect the name change to "OnlineTrading.com Group, Inc."
4. Except as otherwise specifically set forth in this Amendment,
the Agreement shall remain in full force and effect in accordance with the terms
thereof. This Amendment shall be governed by and construed in accordance with
the laws of the State of Florida. This Amendment may be executed by one or more
of the parties hereto on any number of separate counterparts and all said
counterparts taken together, shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered effective as of the day and year first written
above.
ONLINETRADINGINC.COM CORP. OMEGA RESEARCH, INC.
By: /s/ STEVEN ZUM TOBEL By: /s/ RALPH L. CRUZ
----------------------------- ----------------------
Name: Steven zum Tobel Name: Ralph L. Cruz
Title: President Title: Co-Chief Executive Officer
ONLINE TRADING GROUP, INC. OMEGA ACQUISITION CORPORATION
By: /s/ RALPH L. CRUZ By: /s/ RALPH L. CRUZ
----------------------------- ---------------------------
Name: Ralph L. Cruz Name: Ralph L. Cruz
Title: Co-Chief Executive Officer Title: Co-Chief Executive Officer
ONLINETRADING ACQUISITION CORPORATION
By: /s/ RALPH L. CRUZ
-----------------------------
Name: Ralph L. Cruz
Title: Co-Chief Executive Officer
2
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APPENDIX B
OMEGA
SHAREHOLDER AGREEMENT
This SHAREHOLDER AGREEMENT (this "Agreement") is made and entered into
as of January 19, 2000 between Online Trading Group, Inc., a Florida corporation
("Newco"), onlinetradinginc.com corp., a Florida corporation ("Online"), and the
undersigned shareholder ("Shareholder") of Omega Research, Inc., a Florida
corporation ("Company"). Capitalized terms used and not otherwise defined herein
shall have the respective meanings set forth in the Merger Agreement described
below.
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Merger and Reorganization
dated as of January 19, 2000 by and among Company, Online, Newco, Omega
Acquisition Corporation, a Florida corporation and wholly owned subsidiary of
Newco ("Omega Merger Sub"), and Onlinetrading Acquisition Corporation, a Florida
corporation and wholly owned subsidiary of Newco, (such agreement as it may be
amended is hereinafter referred to as the "Merger Agreement"), Newco has agreed,
among other things, to acquire by merger (collectively, the "Merger"): (i) the
outstanding securities of Company pursuant to a statutory merger of Omega Merger
Sub with and into Company in which each outstanding share of common stock of
Company (the "Company Capital Stock") will be converted into shares of common
stock of Newco (the "Newco Common Stock") at the exchange rate set forth in the
Merger Agreement; and (ii) the outstanding securities of Online pursuant to a
statutory merger of Online Merger Sub with and into Online in which each
outstanding share of common stock of Online will be converted into shares of
Newco Common Stock at the exchange rate set forth in the Merger Agreement
(collectively, the "Transaction");
WHEREAS, in order to induce Newco and Online to enter into the Merger
Agreement and consummate the Transaction, each shareholder of Company who is an
affiliate of Company has agreed to execute and deliver to Newco and Online a
Shareholder Agreement upon the terms set forth herein; and
WHEREAS, Shareholder is the registered and beneficial owner of such
number of shares of the outstanding Company Capital Stock as is indicated on the
signature page of this Agreement (the "Shares").
NOW, THEREFORE, the parties agree as follows:
1. AGREEMENT TO RETAIN SHARES.
1.1 TRANSFER AND ENCUMBRANCE.
(a) Shareholder is the beneficial owner of the
Shares and, except as otherwise set forth on the signature page hereto, (A) has
held each such Shares at all times since the date such Shares were originally
issued by Company, and (B) did not acquire any shares of Company Capital Stock
in contemplation of the Merger. The Shares constitute Shareholder's entire
interest in the outstanding capital stock and voting securities of Company. No
other person or entity not a signatory to this Agreement has a beneficial
interest in or a right to acquire the Shares or any portion
<PAGE>
of the Shares. The Shares are, and will be at all times up until the Expiration
Date, free and clear of any liens, claims, options, charges or other
encumbrances. Shareholder's principal residence or place of business is
accurately set forth on the signature page hereto.
(b) Shareholder agrees not to transfer (except
as may be specifically required by court order or by operation of law, in which
case any such transferee shall agree to be bound hereby), sell, exchange, pledge
or otherwise dispose of or encumber any Shares or any New Shares (as defined
below), or to make any offer or agreement relating thereto, at any time prior to
the Expiration Date (as defined hereinafter). As used herein, the term
"Expiration Date" shall mean the earlier to occur of (i) the Effective Time or
(ii) termination of the Merger Agreement in accordance with the terms thereof.
1.2 NEW SHARES. Shareholder agrees that any shares of capital
stock or voting securities of Company that Shareholder purchases or with respect
to which Shareholder otherwise acquires beneficial ownership after the date of
this Agreement and prior to the Expiration Date ("New Shares") shall be subject
to the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. AGREEMENT TO VOTE SHARES. Prior to the Expiration Date, at every
meeting of the stockholders of Company at which any of the following is
considered or voted upon, and at every adjournment thereof, and on every action
or approval by written resolution of the stockholders of Company with respect to
any of the following, Shareholder shall vote the Shares and any New Shares in
favor of approval and adoption of the Merger Agreement and of the Transaction
and all matters related thereto.
3. IRREVOCABLE PROXY. Shareholder hereby agrees to timely deliver to
Online a duly executed proxy in the form attached hereto as Annex A (the
"Proxy"), such Proxy to cover the Shares and all New Shares in respect of which
Shareholder is entitled to vote at each meeting of the stockholders of Company
(including, without limitation, each written consent in lieu of a meeting)
related to the Merger Agreement and the Transaction. In the event that
Shareholder is unable to provide any such Proxy in a timely manner, Shareholder
hereby grants to certain designees of Online a power of attorney to execute and
deliver such Proxy for and on behalf of Shareholder, such power of attorney,
which being coupled with an interest, shall survive any death, disability,
bankruptcy, or any other such impediment of Shareholder. Upon the execution of
this Agreement by Shareholder, Shareholder hereby revokes any and all prior
proxies or powers of attorney given by Shareholder with respect to the Shares
related to the Merger Agreement and the Transaction and agrees not to grant any
subsequent proxies or powers of attorney with respect to the Shares related to
the Merger Agreement and the Transaction until after the Expiration Date.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SHAREHOLDER.
Shareholder hereby represents, warrants and covenants to Newco and Online as
follows:
(a) Shareholder has full power and legal
capacity to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by
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Shareholder and constitutes the valid and binding obligation of Shareholder,
enforceable against Shareholder in accordance with its terms. The execution and
delivery of this Agreement by Shareholder does not, and the performance of
Shareholder's obligations hereunder will not, result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any right to terminate, amend,
accelerate or cancel any right or obligation under, or result in the creation of
any lien of encumbrance on any Shares or New Shares pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Shareholder is a party or by which
Shareholder or the Shares or New Shares are or will be bound or affected.
(b) Until the Expiration Date, Shareholder will
not (and will use Shareholder's reasonable best efforts to cause Company, its
affiliates, officers, directors and employees and any investment banker,
attorney, accountant or other agent retained by Shareholder, Company or any of
the same, not to), except to the extent otherwise permitted under Section 5.4 of
the Merger Agreement: (i) initiate or solicit, directly or indirectly, any
proposal, plan or offer to acquire all or any material part of the business or
properties or capital stock of Company, whether by merger, purchase of assets,
tender offer or otherwise, or to liquidate Company or otherwise distribute to
the stockholders of Company all or any substantial part of the business,
properties or capital stock of Company (each, an "Acquisition Proposal"); (ii)
initiate, directly or indirectly, any contact with any person in an effort to or
with a view towards soliciting any Acquisition Proposal; (iii) furnish
information concerning Company's business, properties or assets to any
corporation, partnership, person or other entity or group (other than a party to
the Merger Agreement, or any associate, agent or representative of a party to
the Merger Agreement) under any circumstances that could reasonably be expected
to relate to an actual or potential Acquisition Proposal; or (iv) negotiate or
enter into discussions or an agreement, directly or indirectly, with any entity
or group with respect of any potential Acquisition Proposal. In the event
Shareholder shall receive or become aware of any Acquisition Proposal subsequent
to the date hereof, Shareholder shall promptly inform Online as to any such
matter and the details thereof to the extent possible without breaching any
other agreement to which such Shareholder is a party or violating Shareholder's
fiduciary duties.
(c) Shareholder understands and agrees that if
Shareholder attempts to transfer or vote or provide any other person with the
authority to vote any of the Shares with respect to any vote or other
stockholder action related to the Merger Agreement and the Transaction other
than in compliance with this Agreement, Company shall not, and Shareholder
hereby unconditionally and irrevocably instructs Company to not, permit any such
transfer on its books and records, issue a new certificate representing any of
the Shares or record such vote unless and until Shareholder shall have complied
with the terms of this Agreement. Shareholder further understands and agrees
that the Company may elect to not permit the transfer of shares of the Company
Capital Stock or the issuance of a new certificate representing such shares
unless and until such a transfer can be made without adversely affecting the
ability of Newco and/or each of the Surviving Corporations to account for the
business combination to be effected by the Merger as a pooling of interests.
5. ADDITIONAL DOCUMENTS. Shareholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Newco or Online, to carry out the purpose and intent of
this Agreement.
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6. CONSENT AND WAIVER. Shareholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger Agreement and
the Transaction under the terms of any agreement to which Shareholder is a party
or pursuant to any rights Shareholder may have.
7. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. CONFIDENTIALITY. Shareholder agrees (i) to hold any information
regarding this Agreement and the Transaction in strict confidence, and (ii) not
to divulge any such information to any third person, except to the extent any of
the same is hereafter publicly disclosed by Online and Company.
9. FIDUCIARY RESPONSIBILITIES. Notwithstanding anything to the contrary
herein, to the extent Shareholder is or becomes during the term hereof a
director or officer of the Company, Shareholder is not making (nor shall be
deemed to have made) any agreement or understanding herein in his or her
capacity as such director or officer. Without limiting the generality of the
foregoing, Shareholder is executing this Agreement solely in his, her or its
capacity as the record and/or beneficial owner, as applicable, of the Shares and
nothing herein shall limit or affect any actions taken by Shareholder (or a
designee of such Shareholder) in his or her capacity as an officer or director
of the Company in exercising his or her or the Company's or the Company's Board
of Director's rights in connection with the Merger Agreement or otherwise.
10. MISCELLANEOUS.
10.1 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
10.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor any
of the rights, interests or obligations of the parties hereto may be assigned by
either of the parties without the prior written consent of the other. This
Agreement is intended to bind Shareholder solely as a security holder of Company
only with respect to the specific matters set forth herein.
10.3 AMENDMENT AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except by the execution and delivery
of a written agreement executed by the parties hereto.
10.4 SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF. The parties
hereto acknowledge that Newco and Online will be irreparably harmed and that
there will be no adequate remedy at law for a violation of any of the covenants
or agreements of Shareholder set forth herein. Therefore, it is
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agreed that, in addition to any other remedies that may be available to Newco or
Online upon any such violation, Newco shall have the right to enforce such
covenants and agreements by specific performance, injunctive relief or by any
other means available to Newco or Online at law or in equity and Shareholder
hereby waives any and all defenses which could exist in its favor in connection
with such enforcement and waives any requirement for the security or posting of
any bond in connection with such enforcement.
10.5 NOTICES. All notices, requests, demands or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed by registered or certified mail, postage prepaid, or
sent by facsimile transmission, as follows:
(a) If to Shareholder, at the address set forth
below Shareholder's signature at the end hereof.
(b) if to Newco, to:
c/o Omega Research, Inc.
8700 West Flagler Street, Suite 250
Miami, Florida 33174
Attention: Salomon Sredni, President
Facsimile No.: (305) 485-7019
Telephone No.: (305) 485-7000
with a copy to:
Bilzin Sumberg Dunn Price & Axelrod LLP
2500 First Union Financial Center
Miami, Florida 33131-2336
Attention: Alan D. Axelrod, Esq.
Facsimile No. (305) 374-7593
Telephone No. (305)374-7580
(c) if to Online, to:
onlinetradinginc.com corp.
2700 N. Military Trail
Suite 200
Boca Raton, Florida 33431
Attention: Steven zum Tobel, President
Facsimile No.: (561) 955-0606
Telephone No.: (561) 995-1010
5
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with a copy to:
Broad & Cassel
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Attention: Leonard H. Bloom, Esq.
Facsimile No.: (305) 995-6428
Telephone No.: (305) 373-9400,
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
10.6 GOVERNING LAW. This Agreement shall be governed by,
construed and enforced in accordance with the internal laws of the State of
Florida without giving effect to the principles of conflicts of law thereof.
10.7 ENTIRE AGREEMENT. This Agreement and the Proxy contain
the entire understanding of the parties in respect of the subject matter hereof,
and supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
10.8 COUNTERPART. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
10.9 EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
10.10 PREVAILING PARTY LEGAL FEES. The prevailing party in any
litigation or other proceeding brought to enforce the terms of this Agreement
shall be entitled to receive from the nonprevailing party its reasonable
attorneys' and paralegals' fees and costs before and at trial and at all
appellate and other tribunal levels, in addition to its other remedies hereunder
or at law or in equity.
[SIGNATURE PAGE TO OMEGA SHAREHOLDER AGREEMENT ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties have caused this Omega Shareholder
Agreement to be executed as of the date first above written.
ONLINE TRADING GROUP, INC. SHAREHOLDER
By:
--------------------------------- -----------------------------------------
Name: (Signature)
-------------------------------
Title:
------------------------------
-----------------------------------------
(Signature of Spouse)
ONLINETRADINGINC.COM CORP.
-----------------------------------------
By: (Print Name of Shareholder)
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-----------------------------------------
(Print Street Address)
-----------------------------------------
(Print City, State and Zip)
-----------------------------------------
(Print Telephone Number)
-----------------------------------------
(Social Security or Tax I.D. Number)
Total Number of Shares of Company Capital Stock owned on the date hereof-
Common Stock:
----------------------------------
Principal Residence or Place of Business:
--------------------------------------
SIGNATURE PAGE TO OMEGA SHAREHOLDER AGREEMENT
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<PAGE>
ANNEX A
IRREVOCABLE PROXY
TO VOTE STOCK OF
OMEGA RESEARCH, INC.
The undersigned shareholder of Omega Research, Inc., a Florida
corporation ("Company"), hereby irrevocably (to the full extent permitted by the
Florida Business Corporation Act) appoints Andrew A. Allen and E. Steven zum
Tobel (collectively, "Proxies") and each of them, or any other designee of such
Proxies, as the sole and exclusive attorneys and proxies of the undersigned,
with full power of substitution and resubstitution, to vote and exercise all
voting and related rights (to the full extent that the undersigned is entitled
to do so) with respect to all of the shares of capital stock of Company that now
are or hereafter may be beneficially owned by the undersigned, and any and all
other shares or securities of Company issued or issuable in respect thereof on
or after the date hereof (collectively, the "Shares") in accordance with the
terms of this Irrevocable Proxy. The Shares beneficially owned by the
undersigned shareholder of Company as of the date of this Irrevocable Proxy are
listed on the final page of this Irrevocable Proxy. Upon the undersigned's
execution of this Irrevocable Proxy, any and all prior proxies given by the
undersigned with respect to any Shares relating to the subject matter of this
Irrevocable Proxy are hereby revoked and the undersigned agrees not to grant any
subsequent proxies with respect to the Shares relating to the subject matter of
this Irrevocable Proxy until after the Expiration Date (as defined below).
This Irrevocable Proxy is irrevocable (to the extent provided in the
Florida Business Corporation Act), is coupled with an interest, including, but
not limited to, that certain Affiliate Agreement dated as of even date herewith
by and among Online Trading Group, Inc., a Florida corporation ("Newco"), and
the undersigned, and is granted in consideration of Newco and
onlinetradinginc.com corp., a Florida corporation ("Online"), entering into that
certain Agreement and Plan of Merger and Reorganization (the "Merger Agreement")
by and among Newco, Online, Omega Acquisition Corporation, a Florida corporation
and wholly owned subsidiary of Newco ("Omega Merger Sub"), Onlinetrading
Acquisition Corporation, a Florida corporation and wholly owned subsidiary of
Newco ("Online Merger Sub"), and Company, which Merger Agreement provides for
the merger of Omega Merger Sub with and into Company and Online Merger Sub with
and into Online (collectively, the "Merger"). As used herein, the term
"Expiration Date" shall mean the earlier to occur of (i) such date and time as
the Merger shall become effective in accordance with the terms and provisions of
the Merger Agreement, and (ii) the date of termination of the Merger Agreement.
The Proxies named above, and each of them acting singularly or
together, are hereby authorized and empowered by the undersigned, at any time
prior to the Expiration Date, to act as the undersigned's attorney and proxy to
vote the Shares, and to exercise all voting and other rights of the undersigned
with respect to the Shares (including, without limitation, the power to execute
and deliver written consents pursuant to the Florida Business Corporation Act),
at every annual, special
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or adjourned meeting of the stockholders of Company and in every written consent
in lieu of such meeting in favor of approval and adoption of the Merger
Agreement and of any and all of the transactions and matters contemplated
thereby.
The Proxies named above may not exercise this Irrevocable Proxy on any
other matter except as provided above. The undersigned shareholder may vote the
Shares on all other matters.
All authority herein conferred shall survive the death or incapacity of
the undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: ______________, 2000
-----------------------------------------
(Signature of Shareholder)
-----------------------------------------
(Print Name of Shareholder)
Shares beneficially owned:
__________ shares of Company Common Stock
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<PAGE>
APPENDIX C
ONLINE
SHAREHOLDER AGREEMENT
This SHAREHOLDER AGREEMENT (this "Agreement") is made and entered into
as of January 19, 2000 between Online Trading Group, Inc., a Florida corporation
("Newco"), Omega Research, Inc., a Florida Corporation ("Omega") and the
undersigned shareholder ("Shareholder") of onlinetradinginc.com corp., a
Florida corporation ("Company"). Capitalized terms used and not otherwise
defined herein shall have the respective meanings set forth in the Merger
Agreement described below.
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Merger and Reorganization
dated as of January 19, 2000 by and among Company, Omega, Newco, Omega
Acquisition Corporation, a Florida corporation and wholly owned subsidiary of
Newco and Onlinetrading Acquisition Corporation, a Florida corporation and
wholly owned subsidiary of Newco (such agreement as it may be amended is
hereinafter referred to as the "Merger Agreement"), Newco has agreed, among
other things, to acquire by merger (collectively, the "Merger"): (i) the
outstanding securities of Company pursuant to a statutory merger of Online
Merger Sub with and into Company in which each outstanding share of common stock
of Company (the "Company Capital Stock") will be converted into shares of common
stock of Newco (the "Newco Common Stock") at the exchange rate set forth in the
Merger Agreement and (ii) the outstanding securities of Omega pursuant to a
statutory merger of Omega Merger Sub with and into Omega in which each
outstanding share of common stock of Omega will be converted into shares of
Newco Common Stock at the exchange rate set forth in the Merger Agreement
(collectively, the "Transaction");
WHEREAS, in order to induce Newco and Omega to enter into the Merger
Agreement and consummate the Transaction, each shareholder of Company who is an
affiliate of Company has agreed to execute and deliver to Newco and Omega a
Shareholder Agreement upon the terms set forth herein; and
WHEREAS, Shareholder is the registered and beneficial owner of such
number of shares of the outstanding Company Capital Stock as is indicated on the
signature page of this Agreement (the "Shares").
NOW, THEREFORE, the parties agree as follows:
1. AGREEMENT TO RETAIN SHARES.
1.1 TRANSFER AND ENCUMBRANCE.
(a) Shareholder is the beneficial owner of the
Shares and, except as otherwise set forth on the signature page hereto, (A) has
held each such Shares at all times since the date such Shares were originally
issued by Company, and (B) did not acquire any shares of Company Capital Stock
in contemplation of the Merger. The Shares constitute Shareholder's entire
interest in the outstanding capital stock and voting securities of Company. No
other person or entity not a signatory to this Agreement has a beneficial
interest in or a right to acquire the Shares or any portion
<PAGE>
of the Shares. The Shares are, and will be at all times up until the Expiration
Date, free and clear of any liens, claims, options, charges or other
encumbrances. Shareholder's principal residence or place of business is
accurately set forth on the signature page hereto.
(b) Shareholder agrees not to transfer (except
as may be specifically required by court order or by operation of law, in which
case any such transferee shall agree to be bound hereby), sell, exchange, pledge
or otherwise dispose of or encumber any Shares or any New Shares (as defined
below), or to make any offer or agreement relating thereto, at any time prior to
the Expiration Date (as defined hereinafter) except as disclosed on Schedule I
attached hereto. As used herein, the term "Expiration Date" shall mean the
earlier to occur of (i) the Effective Time or (ii) termination of the Merger
Agreement in accordance with the terms thereof.
1.2 NEW SHARES. Shareholder agrees that any shares of capital
stock or voting securities of Company that Shareholder purchases or with respect
to which Shareholder otherwise acquires beneficial ownership after the date of
this Agreement and prior to the Expiration Date ("New Shares") shall be subject
to the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. AGREEMENT TO VOTE SHARES. Prior to the Expiration Date, at every
meeting of the stockholders of Company at which any of the following is
considered or voted upon, and at every adjournment thereof, and on every action
or approval by written resolution of the stockholders of Company with respect to
any of the following, Shareholder shall vote the Shares and any New Shares in
favor of approval and adoption of the Merger Agreement and of the Transaction
and all matters related thereto.
3. IRREVOCABLE PROXY. Shareholder hereby agrees to timely deliver to
Omega a duly executed proxy in the form attached hereto as Annex A (the
"Proxy"), such Proxy to cover the Shares and all New Shares in respect of which
Shareholder is entitled to vote at each meeting of the stockholders of Company
(including, without limitation, each written consent in lieu of a meeting)
related to the Merger Agreement and the Transaction. In the event that
Shareholder is unable to provide any such Proxy in a timely manner, Shareholder
hereby grants to certain designees of Omega a power of attorney to execute and
deliver such Proxy for and on behalf of Shareholder, such power of attorney,
which being coupled with an interest, shall survive any death, disability,
bankruptcy, or any other such impediment of Shareholder. Upon the execution of
this Agreement by Shareholder, Shareholder hereby revokes any and all prior
proxies or powers of attorney given by Shareholder with respect to the Shares
related to the Merger Agreement and the Transaction and agrees not to grant any
subsequent proxies or powers of attorney with respect to the Shares related to
the Merger Agreement and the Transaction until after the Expiration Date.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SHAREHOLDER.
Shareholder hereby represents, warrants and covenants to Newco and Omega as
follows:
(a) Shareholder has full power and legal
capacity to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by
2
<PAGE>
Shareholder and constitutes the valid and binding obligation of Shareholder,
enforceable against Shareholder in accordance with its terms. The execution and
delivery of this Agreement by Shareholder does not, and the performance of
Shareholder's obligations hereunder will not, result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any right to terminate, amend,
accelerate or cancel any right or obligation under, or result in the creation of
any lien of encumbrance on any Shares or New Shares pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Shareholder is a party or by which
Shareholder or the Shares or New Shares are or will be bound or affected.
(b) Until the Expiration Date, Shareholder will
not (and will use Shareholder's reasonable best efforts to cause Company, its
affiliates, officers, directors and employees and any investment banker,
attorney, accountant or other agent retained by Shareholder, Company or any of
the same, not to), except to the extent otherwise permitted under Section 5.4 of
the Merger Agreement: (i) initiate or solicit, directly or indirectly, any
proposal, plan or offer to acquire all or any material part of the business or
properties or capital stock of Company, whether by merger, purchase of assets,
tender offer or otherwise, or to liquidate Company or otherwise distribute to
the stockholders of Company all or any substantial part of the business,
properties or capital stock of Company (each, an "Acquisition Proposal"); (ii)
initiate, directly or indirectly, any contact with any person in an effort to or
with a view towards soliciting any Acquisition Proposal; (iii) furnish
information concerning Company's business, properties or assets to any
corporation, partnership, person or other entity or group (other than a party to
the Merger Agreement, or any associate, agent or representative of a party to
the Merger Agreement) under any circumstances that could reasonably be expected
to relate to an actual or potential Acquisition Proposal; or (iv) negotiate or
enter into discussions or an agreement, directly or indirectly, with any entity
or group with respect of any potential Acquisition Proposal. In the event
Shareholder shall receive or become aware of any Acquisition Proposal subsequent
to the date hereof, Shareholder shall promptly inform Omega as to any such
matter and the details thereof to the extent possible without breaching any
other agreement to which such Shareholder is a party or violating Shareholder's
fiduciary duties.
(c) Shareholder understands and agrees that if
Shareholder attempts to transfer or vote or provide any other person with the
authority to vote any of the Shares with respect to any vote or other
stockholder action related to the Merger Agreement and the Transaction other
than in compliance with this Agreement, Company shall not, and Shareholder
hereby unconditionally and irrevocably instructs Company to not, permit any such
transfer on its books and records, issue a new certificate representing any of
the Shares or record such vote unless and until Shareholder shall have complied
with the terms of this Agreement except in the event of and in connection with a
foreclosure of the lien described on Schedule I. Shareholder further understands
and agrees that the Company may elect to not permit the transfer of shares of
Company Capital Stock or the issuance of a new certificate representing such
shares unless and until such a transfer can be made without adversely affecting
the ability of Newco and/or each of the Surviving Corporations to account for
the business combination to be effected by the Merger as a pooling of interests.
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<PAGE>
5. ADDITIONAL DOCUMENTS. Shareholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Newco or Omega, to carry out the purpose and intent of
this Agreement.
6. CONSENT AND WAIVER. Shareholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger Agreement and
the Transaction under the terms of any agreement to which Shareholder is a party
or pursuant to any rights Shareholder may have.
7. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. CONFIDENTIALITY. Shareholder agrees (i) to hold any information
regarding this Agreement and the Transaction in strict confidence, and (ii) not
to divulge any such information to any third person, except to the extent any of
the same is hereafter publicly disclosed by Omega and Company.
9. FIDUCIARY RESPONSIBILITIES. Notwithstanding anything to the contrary
herein, to the extent Shareholder is or becomes during the term hereof a
director or officer of the Company, Shareholder is not making (nor shall be
deemed to have made) any agreement or understanding herein in his or her
capacity as such director or officer. Without limiting the generality of the
foregoing, Shareholder is executing this Agreement solely in his, her or its
capacity as the record and/or beneficial owner, as applicable, of the Shares and
nothing herein shall limit or affect any actions taken by Shareholder (or a
designee of such Shareholder) in his or her capacity as an officer or director
of the Company in exercising his or her or the Company's or the Company's Board
of Director's rights in connection with the Merger Agreement or otherwise.
10. MISCELLANEOUS.
10.1 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
10.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor any
of the rights, interests or obligations of the parties hereto may be assigned by
either of the parties without the prior written consent of the other. This
Agreement is intended to bind Shareholder solely as a security holder of Company
only with respect to the specific matters set forth herein.
10.3 AMENDMENT AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except by the execution and delivery
of a written agreement executed by the parties hereto.
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10.4 SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF. The parties
hereto acknowledge that Newco and Omega will be irreparably harmed and that
there will be no adequate remedy at law for a violation of any of the covenants
or agreements of Shareholder set forth herein. Therefore, it is agreed that, in
addition to any other remedies that may be available to Newco or Omega upon any
such violation, Newco shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Newco or Omega at law or in equity and Shareholder hereby waives
any and all defenses which could exist in its favor in connection with such
enforcement and waives any requirement for the security or posting of any bond
in connection with such enforcement.
10.5 NOTICES. All notices, requests, demands or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed by registered or certified mail, postage prepaid, or
sent by facsimile transmission, as follows:
(a) If to Shareholder, at the address set forth
below Shareholder's signature at the end hereof.
(b) if to Newco or Omega, to:
c/o Omega Research, Inc.
8700 West Flagler Street, Suite 250
Miami, Florida 33174
Attention: Salomon Sredni, President
Facsimile No.: (305) 485-7019
Telephone No.: (305) 485-7000
with a copy to:
Bilzin Sumberg Dunn Price & Axelrod LLP
2500 First Union Financial Center
Miami, Florida 33131-2336
Attention: Alan D. Axelrod, Esq.
Facsimile No. (305) 374-7593
Telephone No. (305)374-7580,
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
10.6 GOVERNING LAW. This Agreement shall be governed by,
construed and enforced in accordance with the internal laws of the State of
Florida without giving effect to the principles of conflicts of law thereof.
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10.7 ENTIRE AGREEMENT. This Agreement and the Proxy contain
the entire understanding of the parties in respect of the subject matter hereof,
and supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
10.8 COUNTERPART. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
10.9 EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
10.10 PREVAILING PARTY LEGAL FEES. The prevailing party in any
litigation or other proceeding brought to enforce the terms of this Agreement
shall be entitled to receive from the nonprevailing party its reasonable
attorneys' and paralegals' fees and costs before and at trial and at all
appellate and other tribunal levels, in addition to its other remedies hereunder
or at law or in equity.
[SIGNATURE PAGE TO ONLINE SHAREHOLDER AGREEMENT ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties have caused this Online Shareholder
Agreement to be executed as of the date first above written.
ONLINE TRADING GROUP, INC. SHAREHOLDER
By:
---------------------------- -------------------------------------------
Name: (Signature)
--------------------------
Title:
-------------------------
-------------------------------------------
(Signature of Spouse)
OMEGA RESEARCH, INC.
-------------------------------------------
By: (Print Name of Shareholder)
----------------------------
Name:
--------------------------
Title:
-------------------------
-------------------------------------------
(Print Street Address)
-------------------------------------------
(Print City, State and Zip)
-------------------------------------------
(Print Telephone Number)
-------------------------------------------
(Social Security or Tax I.D. Number)
Total Number of Shares of Company Capital Stock owned on the date hereof-
Common Stock:
--------------------
Principal Residence or Place of Business:
--------------------------------------
SIGNATURE PAGE TO ONLINE SHAREHOLDER AGREEMENT
7
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ANNEX A
IRREVOCABLE PROXY
TO VOTE STOCK OF
ONLINETRADINGINC.COM
The undersigned shareholder of onlinetradinginc.com corp., a Florida
corporation ("Company"), hereby irrevocably (to the full extent permitted by the
Florida Business Corporation Act) appoints William R. Cruz and Ralph L. Cruz
(collectively, "Proxies") and each of them, or any other designee of such
Proxies, as the sole and exclusive attorneys and proxies of the undersigned,
with full power of substitution and resubstitution, to vote and exercise all
voting and related rights (to the full extent that the undersigned is entitled
to do so) with respect to all of the shares of capital stock of Company that now
are or hereafter may be beneficially owned by the undersigned, and any and all
other shares or securities of Company issued or issuable in respect thereof on
or after the date hereof (collectively, the "Shares") in accordance with the
terms of this Irrevocable Proxy. The Shares beneficially owned by the
undersigned shareholder of Company as of the date of this Irrevocable Proxy are
listed on the final page of this Irrevocable Proxy. Upon the undersigned's
execution of this Irrevocable Proxy, any and all prior proxies given by the
undersigned with respect to any Shares relating to the subject matter of this
Irrevocable Proxy are hereby revoked and the undersigned agrees not to grant any
subsequent proxies with respect to the Shares relating to the subject matter of
this Irrevocable Proxy until after the Expiration Date (as defined below).
This Irrevocable Proxy is irrevocable (to the extent provided in the
Florida Business Corporation Act), is coupled with an interest, including, but
not limited to, that certain Affiliate Agreement dated as of even date herewith
by and among Online Trading Group, Inc., a Florida corporation ("Newco"), and
the undersigned, and is granted in consideration of Newco and Omega Research,
Inc., a Florida corporation ("Omega"), entering into that certain Agreement and
Plan of Merger and Reorganization (the "Merger Agreement") by and among Newco,
Omega, Omega Acquisition Corporation, a Florida corporation and wholly owned
subsidiary of Newco ("Omega Merger Sub"), Onlinetrading Acquisition Corporation,
a Florida corporation and a wholly owned subsidiary of Newco ("Online Merger
Sub"), and Company, which Merger Agreement provides for the merger of Omega
Merger Sub with and into Omega and Online Merger Sub with and into Company
(collectively, the "Merger"). As used herein, the term "Expiration Date" shall
mean the earlier to occur of (i) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Merger Agreement,
and (ii) the date of termination of the Merger Agreement.
The Proxies named above, and each of them acting singularly or
together, are hereby authorized and empowered by the undersigned, at any time
prior to the Expiration Date, to act as the undersigned's attorney and proxy to
vote the Shares, and to exercise all voting and other rights of the undersigned
with respect to the Shares (including, without limitation, the power to execute
and deliver written consents pursuant to the Florida Business Corporation Act),
at every annual, special
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or adjourned meeting of the stockholders of Company and in every written consent
in lieu of such meeting in favor of approval and adoption of the Merger
Agreement and of any and all of the transactions and matters contemplated
thereby.
The Proxies named above may not exercise this Irrevocable Proxy on any
other matter except as provided above. The undersigned shareholder may vote the
Shares on all other matters.
All authority herein conferred shall survive the death or incapacity of
the undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: _______________, 2000
-------------------------------------------
(Signature of Shareholder)
-------------------------------------------
(Print Name of Shareholder)
-------------------------------------------
Shares beneficially owned:
__________ shares of Company Common Stock
9
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SCHEDULE I
LIEN
10
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APPENDIX D
OMEGA
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of January
19, 2000, by and between, Omega Research, Inc., a Florida corporation
("Company"), and onlinetradinginc.com corp., a Florida corporation ("Online").
Capitalized terms used herein but not defined herein shall have the meanings set
forth in the Merger Agreement referred to below.
WHEREAS, concurrently with the execution and delivery of this
Agreement, Online Trading Group, Inc., a Florida corporation ("Newco"), Company,
Online, Omega Acquisition Corporation, a Florida corporation and wholly-owned
subsidiary of Newco ("Omega Merger Sub"), and Onlinetrading Acquisition
Corporation, a Florida corporation and wholly-owned subsidiary of Newco ("Online
Merger Sub"), are entering into an Agreement and Plan of Merger and
Reorganization, dated as of the date hereof (the "Merger Agreement"), pursuant
to which, among other things, upon the terms and subject to the conditions
thereof, Online Merger Sub will be merged with and into Online with Online
continuing as the surviving corporation, and Omega Merger Sub will be merged
with and into Company with Company continuing as the surviving corporation
(collectively, the "Merger"); and
WHEREAS, as a condition and inducement to Online's willingness
to enter into the Merger Agreement, Online has required that Company agree, and
Company has agreed, to grant to Online an option to purchase certain newly
issued shares of Company's Common Stock, par value $.01 per share ("Company
Common Stock"), upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements set forth herein and in the Merger Agreement,
the parties hereto agree as follows:
1. GRANT OF OPTION. Company hereby grants to Online an
irrevocable option (the "Company Option") to purchase up to 4,892,573 shares
(the "Company Shares") of Company Common Stock in the manner set forth below at
a price (the "Exercise Price") of $6.4422 per Company Share, payable in cash.
2. EXERCISE OF OPTION. The Company Option may be exercised by
Online, in whole or in part at any time or from time to time prior to its
termination when provided herein and on and after the occurrence of any of the
events which obligate Company to pay Online the amount set forth in Section 8.2
or Section 8.3 (c) of the Merger Agreement. In the event Online wishes to
exercise the Company Option, Online shall deliver to Company a written notice
(an "Exercise Notice") specifying the total number of Company Shares it wishes
to purchase; PROVIDED that, if prior notification to or approval of the
Department of Justice, the Federal Trade Commission and/or any other regulatory
or antitrust agency is required in connection with such purchase, Online shall
promptly file the required notice or application for approval, shall promptly
notify Company of such filing, and shall expeditiously process the same and the
period of time that otherwise would run
<PAGE>
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Each
closing of a purchase of Company Shares (an "Option Closing") shall occur at a
place, on a date and at a time designated by Online in an Exercise Notice
delivered at least two business days prior to the date of the Option Closing.
The Company Option shall terminate upon (unless exercised pursuant to the terms
hereof prior to) the earlier of: (i) the Effective Time; (ii) the termination of
the Merger Agreement pursuant to Section 8.1 thereof (other than a termination
pursuant to Section 8.1(f) thereof or resulting from fraud or the wilful breach
or failure to perform of Company of any of its representations, warranties or
covenants set forth in the Merger Agreement or this Agreement (a "Wilful
Breach")); and (iii) one hundred eighty (180) days following any termination of
the Merger Agreement pursuant to Section 8.1(f) thereof or resulting from a
Wilful Breach by Company (or if, at the expiration of such one hundred eighty
(180) day period, the Company Option cannot be exercised by reason of any
applicable judgment, decree, order, law or regulation, 10 business days after
such impediment to exercise shall have been removed or shall have become final
and not subject to appeal).
3. CONDITIONS TO CLOSING. The obligation of Company to issue
the Company Shares to Online hereunder is subject to the conditions that (a) all
consents, approvals, orders or authorizations of, or registrations, declarations
or filings with, any Governmental Entity, if any, required in connection with
the issuance of the Company Shares hereunder shall have been obtained or made,
as the case may be; and (b) no preliminary or permanent injunction or other
order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance shall be in effect.
4. CLOSING. At each Option Closing, (a) Company will deliver
to Online a certificate or certificates in definitive form representing the
number of Company Shares designated by Online in its Exercise Notice, such
certificate or certificates to be registered in the name of Online or its
designee and to bear the legend set forth in Section 10, and (b) Online will
deliver to Company the aggregate Exercise Price for the Company Shares so
designated by wire transfer of immediately available funds or certified check or
bank check. At any Option Closing at which Online is exercising the Company
Option in part, Online shall present and surrender this Agreement to Company,
and Company shall deliver to Online an executed new agreement with the same
terms as this Agreement evidencing the right to purchase the remaining balance
of the shares of Company Common Stock purchasable hereunder.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY. Company
represents and warrants to Online that (a) Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and has the corporate power and authority to enter into this Agreement
and to carry out its obligations hereunder, (b) the execution and delivery of
this Agreement by Company and the consummation by Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Company and no other corporate proceedings on the part of Company
are necessary to authorize this Agreement or any of the transactions
contemplated hereby, (c) this Agreement has been duly executed and delivered by
Company and constitutes a valid and binding obligation of Company, enforceable
against Company
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<PAGE>
in accordance with its terms, except as such enforceability may be limited by
bankruptcy and other laws affecting the rights and remedies of creditors
generally and general principles of equity, (d) Company has taken all action
necessary to authorize and reserve for issuance and to permit it to issue, upon
exercise of the Company Option, and at all times from the date hereof through
the expiration of the Company Option will have reserved, that number of unissued
Company Shares that are subject to the Company Option, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable, (e) upon delivery of the Company
Shares to Online upon the exercise of the Company Option, Online will acquire
the Company Shares free and clear of all liens, claims, charges, encumbrances
and security interests of any nature whatsoever except those imposed by Online,
(f) assuming that the consents approvals, authorizations, permits, filings and
notifications referred to in subsection (g) are obtained or made, as applicable,
the execution and delivery of this Agreement by Company does not, and the
performance of this Agreement by Company will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a benefit under, or the creation of a lien,
pledge, security interest or other encumbrance on assets pursuant to (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation"), (A) any provision of the
articles of incorporation or by-laws, each as amended, of Company or (B) any
provisions of any material mortgage, indenture, lease, contract or other
agreement, instrument, permit, concession, franchise, or license or (C) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Company or its properties or assets, except in the case of clauses (B) and
(C) immediately above, for violations which would not, individually or in the
aggregate, have a Material Adverse Effect on Company, and (g) except as
described in Section 2.3 of the Merger Agreement, the execution and delivery of
this Agreement by Company does not, and the performance of this Agreement by
Company will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity.
6. REPRESENTATIONS AND WARRANTIES OF ONLINE. Online represents
and warrants to Company that (a) Online is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida and has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder, (b) the execution and delivery of this Agreement by
Online and the consummation by Online of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Online and no other corporate proceedings on the part of Online are necessary to
authorize this Agreement or any of the transactions contemplated hereby, (c)
this Agreement has been duly executed and delivered by Online and constitutes a
valid and binding obligation of Online, enforceable against Online in accordance
with its terms, except as such enforceability may be limited by bankruptcy and
other laws affecting the rights and remedies of creditors generally and general
principles of equity, (d) assuming that the consents, approvals, authorizations,
permits, filings and notifications referred to in subsection (e) are obtained or
made, as applicable, the execution and delivery of this Agreement by Online does
not, and the performance of this Agreement by Online will not, result in any
Violation pursuant to, (A) any provision of the articles of incorporation or
by-laws, each as amended, of Online, (B) any provisions of any material
mortgage, indenture, lease, contract or other agreement,
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<PAGE>
instrument, permit, concession, franchise, or license or (C) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Online
or its properties or assets, except in the case of each of clauses (B) and (C)
immediately, above, for Violations which would not, individually or in the
aggregate, have a Material Adverse Effect on Online, (e) except as described in
Section 3.3 of the Merger Agreement and Section 2 of this Agreement, and except
as may be required under the Exchange Act, the execution and delivery of this
Agreement by Online does not, and the performance of this Agreement by Online
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Entity and (f) any Company Shares
acquired upon exercise of the Company Option will not be, and the Company Option
is not being, acquired by Online with a view to the public distribution thereof
and Online will not sell or otherwise dispose of such shares in violation of
applicable law or this Agreement.
7. PUT.
(a) EXERCISE. At any time during which the Company
Option is exercisable hereunder (the "Repurchase Period"), upon demand by
Online, Online shall have the right to sell to Company (or any successor entity
thereof) and Company (or such successor entity) shall be obligated to repurchase
from Online (the "Put"), all or any portion of the Company Option, to the extent
not previously exercised, at the price set forth in subparagraph (i) below,
and/or all or any portion of the Company Shares purchased by Online pursuant
thereto, at a price set forth in subparagraph (ii) below:
(i) the difference between the
"Market/Tender Offer Price" for shares of Company Common Stock as of the date
(the "Notice Date") notice of exercise of the Put is given to the other party
(defined as the greater of (A) the price per share offered as of the Notice Date
pursuant to any tender or exchange offer or other Takeover Proposal which was
made prior to the Notice Date and not terminated or withdrawn as of the Notice
Date (the "Tender Price") or (B) the 10 day trading average of the last sale
price of a share of Company Common Stock as reported on The Nasdaq National
Market over the period ending on the trading day immediately preceding the
Notice Date (the "Market Price")), and the Exercise Price, multiplied by the
number of Company Shares purchasable pursuant to the Company Option (or portion
thereof with respect to which Online is exercising its rights under this Section
7), but only if the Market/Tender Offer Price is greater than the Exercise
Price;
(ii) the Exercise Price paid by Online for
the Company Shares acquired pursuant to the Company Option plus the difference
between the Market/Tender Offer Price and the Exercise Price, but only if the
Market/Tender Offer Price is greater than the Exercise Price, multiplied by the
number of Company Shares so purchased;
(b) PAYMENT AND REDELIVERY OF COMPANY OPTION OR
SHARES. In the event Online exercises its rights under this Section 7, Company
shall, within 10 business days of the Notice Date, pay the required amount (the
"Repurchase Price") to Online in immediately available funds and Online shall
surrender to Company the Company Option or the certificates evidencing the
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Company Shares purchased by Online pursuant thereto, and Online shall represent
and warrant that it owns such shares and that such shares are then free and
clear of all liens, claims, charges and encumbrances of any kind or nature
whatsoever, other than any of the same created by Company or its affiliates.
(c) PAYMENT RESTRICTIONS. To the extent that Company
is prohibited under applicable law or regulation, or as a consequence of
administrative policy, from repurchasing the Company Option and /or Company
Shares in full, Company shall immediately so notify Online and thereafter
deliver or cause to be delivered, from time to time, to Online the portion of
the Repurchase Price that it is no longer prohibited from delivering, within
five business days after the date on which Company is no longer so prohibited;
PROVIDED that, if Company at any time after delivery of a notice of repurchase
pursuant to Section 7(a) is prohibited under applicable law or regulation, or as
a consequence of administrative policy, from delivering to Online the Repurchase
Price in full (and Company hereby undertakes to use its reasonable best efforts
to obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish such repurchase),
Online may revoke its notice of the Put whether in whole or to the extent of the
prohibition, whereupon, in the latter case, Company shall promptly (1) deliver
to Online that portion of the Repurchase Price that Company is not prohibited
from delivering and (2) deliver to Online as appropriate, (A) a new Agreement
evidencing the right of Online to purchase that number of shares of Company
Common Stock obtained by multiplying the number of shares of Company Common
Stock for which the surrendered Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Repurchase Price less the portion thereof theretofore delivered to Online
and the denominator of which is the Repurchase Price, and/or (B) to Online, a
certificate for the Company Shares it is then so prohibited from repurchasing.
8. REGISTRATION RIGHTS.
(a) Following any exercise of the Company Option,
Online may by written notice (the "Registration Notice") to Company request
Company to register under the Securities Act all or any part of the shares of
Company Common Stock acquired pursuant to this Agreement, including any voting
securities issued by way of dividend, distribution or otherwise in respect
thereof (the "Restricted Shares"), beneficially owned by Online (the
"Registrable Securities") in order to permit the sale or other distribution of
such Registrable Securities, including pursuant to a firm commitment
underwritten public offering; PROVIDED, HOWEVER, that any such Registration
Notice must relate to a number of shares equal to at least 3% of the outstanding
shares of Company Common Stock and that any rights to require registration
hereunder shall terminate with respect to any Shares that may be sold in any
90-day period pursuant to Rule 144 under the Securities Act. The Registration
Notice shall include a certificate executed by Online and its proposed managing
underwriter, which underwriter shall be an investment banking firm of nationally
recognized standing (the "Manager"), stating that Manager in good faith believes
that, based on the then prevailing market conditions, it will be able to sell
the Registrable Securities at a per share price equal to at least 85% of the
Fair Market Value of such shares. For purposes of this Section 8, the term "Fair
Market Value" shall mean the 10 day trading average of the last sale price of a
share of
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Company's Common Stock as reported on The Nasdaq National Market over the period
ending on the trading day immediately preceding the date of the Registration
Notice.
(b) Company shall use commercially reasonable efforts
to effect, as promptly as practicable, the registration under the Securities Act
of the unpurchased Registrable Securities; PROVIDED, HOWEVER, that (i) Online
shall not be entitled to more than two effective registration statements
hereunder and (ii) Company will not be required to file any such registration
statement during any period of time (not to exceed 60 days after such request in
the case of clause (A) below or 90 days in the case of clauses (B) and (C)
below) when (A) Company is in possession of material non-public information
which it reasonably believes would be detrimental to be disclosed at such time
and, based on consultation with counsel to Company, such information would have
to be disclosed if a registration statement were filed at that time; (B) Company
is required under the Securities Act to include audited financial statements for
any period in such registration statement and such financial statements are not
yet available for inclusion in such registration statement; or (C) Company
determines, in its reasonable good faith, judgment, that such registration would
interfere with any financing, acquisition or other material transaction
involving Company or any of its affiliates. If consummation of the sale of any
Registrable Securities pursuant to a registration hereunder does not occur
within 180 days after the filing with the SEC of the initial registration
statement, then such registration shall not be taken into account as an
effective registration for purposes of clause (i) above. Company shall use
commercially reasonable efforts to cause any Registrable Securities registered
pursuant to this Section 8 to be qualified for sale under the securities or Blue
Sky laws of such jurisdictions as Online may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
PROVIDED, HOWEVER, that Company shall not be required to qualify to do business
in, or consent to general service of process in, any jurisdiction by reason of
this provision.
(c) The registration rights set forth in this Section
8 are subject to the condition that Online shall provide Company with such
information with respect to Online's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to Online as, in
the reasonable judgment of counsel for Company, is necessary to enable Company
to include in such registration statement all material facts required to be
disclosed with respect to a registration thereunder.
(d) If Company securities of the same type as the
Registrable Securities are then authorized for quotation or trading or listing
on the New York Stock Exchange, The Nasdaq National Market, Nasdaq or any other
securities exchange or automated quotations system, Company, upon the request of
Online, shall promptly file an application, if required, to authorize for
quotation, trading or listing the shares of Registrable Securities on such
exchange or system and will use its reasonable best efforts to obtain approval,
if required, of such quotation, trading or listing as soon as practicable.
(e) A registration effected under this Section 8
shall be effected at Company's expense, except for underwriting discounts and
commissions and fees and expenses of
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counsel to Online, and Company shall provide to the underwriters such
documentation (including certificates, opinions of counsel and "comfort" letters
from auditors) as are customary in connection with underwritten public offerings
as such underwriters may reasonably require. In connection with any such
registration, the parties agree (i) to indemnify each other and the underwriters
in the customary manner and (ii) to enter into an underwriting agreement in form
and substance customary for transactions of the type contemplated hereby with
the Manager and the other underwriters participating in such offering.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event of any change in Company Common
Stock by reason of stock dividends, splits, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the Company Option, and the Exercise
Price per share, shall be adjusted appropriately, and proper provision shall be
made in the agreements governing such transaction so that Online shall receive,
upon exercise of the Company Option, the number and class of shares or other
securities or property that Online would have received in respect of the Company
Common Stock if the Company Option had been exercised immediately prior to such
event or the record date therefor, as applicable.
(b) In the event that Company shall enter in an
agreement: (i) to consolidate with or merge into any person, other than in
connection with the Merger or into Online or any of its subsidiaries, and shall
not be the continuing or surviving corporation of such consolidation or merger;
(ii) to permit any person, other than in connection with the Merger or Online or
one of its subsidiaries, to merge into Company and Company shall be the
continuing or surviving corporation, but, in connection with such merger, the
then-outstanding shares of Company Common Stock shall be changed into or
exchanged for stock or other securities of Company or any other person or cash
or any other property or the outstanding shares of Company Common Stock
immediately prior to such merger shall after such merger represent less than 50%
of the outstanding shares and share equivalents of the merged company; or (iii)
to sell or otherwise transfer all or substantially all of its assets to any
person, other than Online or any of its subsidiaries, then, and in each such
case, the agreement governing such transaction shall make proper provision so
that upon the consummation of any such transaction and upon the terms and
conditions set forth herein, Online shall receive for each Company Share with
respect to which the Company Option has not been exercised an amount of
consideration in the form of and equal to the per share amount of consideration
that would be received by the holder of one share of Company Common Stock less
the Exercise Price (and, in the event of an election or similar arrangement with
respect to the type of consideration to be received by the holders of Company
Common Stock, subject to the foregoing, proper provision shall be made so that
the holder of the Company Option would have the same election or similar rights
as would the holder of the number of shares of Company Common Stock for which
the Company Option is then exercisable).
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10. RESTRICTIVE LEGENDS. Each certificate representing shares
of Company Common Stock issued to Online hereunder shall, to the extent
applicable, include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN
EXEMPTION FROM SUCH REGISTRATIONS ARE AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION
AGREEMENT, DATED AS OF JANUARY 19, 2000, A COPY OF WHICH MAY BE OBTAINED FROM
THE ISSUER.
11. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor the rights or the
obligations of either party hereto are assignable, except by operation of law,
or with the written consent of the other party. Nothing contained in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective permitted assigns any rights or remedies
of any nature whatsoever by reason of this Agreement. Any Restricted Shares sold
by Online in compliance with the provisions of Section 8 shall, upon
consummation of such sale, be free of the restrictions imposed with respect to
such shares by this Agreement, unless and until Online shall repurchase or
otherwise become the beneficial owner of such shares, and any transferee of such
shares shall not be entitled to the rights of Online. Certificates representing
shares sold in a registered public offering pursuant to Section 8 shall not be
required to bear the legend set forth in Section 10.
12. SPECIFIC PERFORMANCE. The parties recognize and agree that
if for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
this Agreement, neither party will allege, and each party hereby waives the
defense, that there is an adequate remedy at law.
13. ENTIRE AGREEMENT. This Agreement and the Merger Agreement
(including the Online Disclosure Schedule, the Omega Disclosure Schedule and the
Newco Disclosure Schedule relating thereto) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
other prior agreements and understandings, both written and oral, among the
parties or any of them with respect to the subject matter hereof.
14. FURTHER ASSURANCE. Each party will execute and deliver all
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
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15. VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the other provisions of this Agreement, which shall remain in full force and
effect. In the event any court or other competent authority holds any provision
of this Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision. Each party agrees that, should any court or other competent authority
hold any provision of this Agreement or part hereof to be null, void or
unenforceable, or order any party to take any action inconsistent herewith, or
not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
16. NOTICES. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telecopied or
sent by certified or registered mail, postage prepaid, and shall be deemed to be
given, dated and received when so delivered personally, telecopied or, if
mailed, five business days after the date of mailing to the following address or
telecopy number, or to such other address or addresses as such person may
subsequently designate by notice given hereunder.
(a) if to Online, to:
onlinetradinginc.com corp.
2700 N. Military Trail
Suite 200
Boca Raton, Florida 33431
Attention: Steven zum Tobel, President
Facsimile No.: (561) 995-0606
Telephone No.: (561) 995-1010
with a copy to:
Broad & Cassel
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Attention: Leonard Bloom, Esq.
Facsimile No.: (305) 995-6428
Telephone No.: (305) 373-9400
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(b) if to Company, to:
Omega Research, Inc.
8700 West Flagler Street, Suite 250
Miami, Florida 33174
Attention: Salomon Sredni, President
Facsimile No.: (305) 485-7019
Telephone No.: (305) 485-7000
with a copy to:
Bilzin Sumberg Dunn Price & Axelrod LLP
2500 First Union Financial Center
Miami, Florida 33131-2336
Attention: Alan D. Axelrod, Esq.
Facsimile No.: (305) 374-7593
Telephone No.: (305) 374-7580
17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
agreements made and to be performed entirely within such State without regard to
any applicable conflicts of law rules.
18. DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
19. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same instrument.
20. EXPENSES. Except as otherwise expressly provided herein or
in the Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
21. AMENDMENTS; WAIVER. This Agreement may be amended by the
parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the
case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
22. PREVAILING PARTY LEGAL FEES. The prevailing party in any
litigation or other proceeding brought to enforce the terms of this Agreement
shall be entitled to receive from the nonprevailing party its reasonable
attorneys' and paralegals' fees and costs before and at trial and at
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all appellate and other tribunal levels, in addition to its other remedies
hereunder or at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
ONLINETRADINGINC.COM CORP.
By: /s/ STEVEN ZUM TOBEL
---------------------------------
Name: STEVEN ZUM TOBEL
Title: PRESIDENT
OMEGA RESEARCH, INC.
By: /s/ RALPH L. CRUZ
------------------------------
Name: RALPH L. CRUZ
Title: CO-CEO
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APPENDIX E
ONLINE
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of January
19, 2000, by and between, Omega Research, Inc., a Florida corporation ("Omega"),
and onlinetradinginc.com corp., a Florida corporation ("Company"). Capitalized
terms used herein but not defined herein shall have the meanings set forth in
the Merger Agreement referred to below.
WHEREAS, concurrently with the execution and delivery of this
Agreement, Online Trading Group, Inc., a Florida corporation ("Newco"), Company,
Omega, Omega Acquisition Corporation, a Florida corporation and wholly-owned
subsidiary of Newco ("Omega Merger Sub"), and Onlinetrading Acquisition
Corporation, a Florida corporation and wholly-owned subsidiary of Newco ("Online
Merger Sub"), are entering into an Agreement and Plan of Merger and
Reorganization, dated as of the date hereof (the "Merger Agreement"), pursuant
to which, among other things, upon the terms and subject to the conditions
thereof, Omega Merger Sub will be merged with and into Omega with Omega
continuing as the surviving corporation, and Online Merger Sub will be merged
with and into Company with Company continuing as the surviving corporation
(collectively, the "Merger"); and
WHEREAS, as a condition and inducement to Omega's willingness
to enter into the Merger Agreement, Omega has required that Company agree, and
Company has agreed, to grant to Omega an option to purchase certain newly issued
shares of Company's Common Stock, par value $.01 per share ("Company Common
Stock"), upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements set forth herein and in the Merger Agreement,
the parties hereto agree as follows:
1. GRANT OF OPTION. Company hereby grants to Omega an
irrevocable option (the "Company Option") to purchase up to 2,294,129 shares
(the "Company Shares") of Company Common Stock in the manner set forth below at
a price (the "Exercise Price") of $11.0625 per Company Share, payable in cash.
2. EXERCISE OF OPTION. The Company Option may be exercised by
Omega, in whole or in part at any time or from time to time prior to its
termination when provided herein and on or after the occurrence of any of the
events which obligate Company to pay Omega the amounts set forth in Section 8.2
or Section 8.3(b) of the Merger Agreement. In the event Omega wishes to exercise
the Company Option, Omega shall deliver to Company a written notice (an
"Exercise Notice") specifying the total number of Company Shares it wishes to
purchase; PROVIDED that, if prior notification to or approval of the Department
of Justice, the Federal Trade Commission and/or any other regulatory or
antitrust agency is required in connection with such purchase, Omega shall
promptly file the required notice or application for approval, shall promptly
notify Company of such filing, and shall expeditiously process the same and the
period of time that otherwise would run
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pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Each
closing of a purchase of Company Shares (an "Option Closing") shall occur at a
place, on a date and at a time designated by Omega in an Exercise Notice
delivered at least two business days prior to the date of the Option Closing.
The Company Option shall terminate upon (unless exercised pursuant to the terms
hereof prior to) the earlier of: (i) the Effective Time; (ii) the termination of
the Merger Agreement pursuant to Section 8.1 thereof (other than a termination
pursuant to Section 8.1(e) or Section 8.1(g) thereof or resulting from fraud or
the wilful breach or failure to perform of Company of any of its
representations, warranties or covenants set forth in the Merger Agreement or
this Agreement (a "Wilful Breach")); (iii) one-hundred eighty (180) days
following any termination of the Merger Agreement pursuant to Section 8.1(e) or
Section 8.1(g) thereof or resulting from a Wilful Breach (or if, at the
expiration of such one-hundred eighty (180) day period, the Company Option
cannot be exercised by reason of any applicable judgment, decree, order, law or
regulation, 10 business days after such impediment to exercise shall have been
removed or shall have become final and not subject to appeal).
3. CONDITIONS TO CLOSING. The obligation of Company to issue
the Company Shares to Omega hereunder is subject to the conditions that (a) all
consents, approvals, orders or authorizations of, or registrations, declarations
or filings with, any Governmental Entity, if any, required in connection with
the issuance of the Company Shares hereunder shall have been obtained or made,
as the case may be; and (b) no preliminary or permanent injunction or other
order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance shall be in effect.
4. CLOSING. At each Option Closing, (a) Company will deliver
to Omega a certificate or certificates in definitive form representing the
number of Company Shares designated by Omega in its Exercise Notice, such
certificate or certificates to be registered in the name of Omega or its
designee and to bear the legend set forth in Section 10, and (b) Omega will
deliver to Company the aggregate Exercise Price for the Company Shares so
designated by wire transfer of immediately available funds or certified check or
bank check. At any Option Closing at which Omega is exercising the Company
Option in part, Omega shall present and surrender this Agreement to Company, and
Company shall deliver to Omega an executed new agreement with the same terms as
this Agreement evidencing the right to purchase the remaining balance of the
shares of Company Common Stock purchasable hereunder.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY. Company
represents and warrants to Omega that (a) Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and has the corporate power and authority to enter into this Agreement
and to carry out its obligations hereunder, (b) the execution and delivery of
this Agreement by Company and the consummation by Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Company and no other corporate proceedings on the part of Company
are necessary to authorize this Agreement or any of the transactions
contemplated hereby, (c) this Agreement has been duly executed and delivered by
Company and constitutes a valid and binding obligation of Company, enforceable
against Company
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in accordance with its terms, except as such enforceability may be limited by
bankruptcy and other laws affecting the rights and remedies of creditors
generally and general principles of equity, (d) Company has taken all action
necessary to authorize and reserve for issuance and to permit it to issue, upon
exercise of the Company Option, and at all times from the date hereof through
the expiration of the Company Option will have reserved, that number of unissued
Company Shares that are subject to the Company Option, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable, (e) upon delivery of the Company
Shares to Omega upon the exercise of the Company Option, Omega will acquire the
Company Shares free and clear of all liens, claims, charges, encumbrances and
security interests of any nature whatsoever except those imposed by Omega, (f)
assuming that the consents approvals, authorizations, permits, filings and
notifications referred to in subsection (g) are obtained or made, as applicable,
the execution and delivery of this Agreement by Company does not, and the
performance of this Agreement by Company will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a benefit under, or the creation of a lien,
pledge, security interest or other encumbrance on assets pursuant to (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation"), (A) any provision of the
articles of incorporation or by-laws, each as amended, of Company or (B) any
provisions of any material mortgage, indenture, lease, contract or other
agreement, instrument, permit, concession, franchise, or license or (C) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Company or its properties or assets, except in the case of clauses (B) and
(C) immediately above, for violations which would not, individually or in the
aggregate, have a Material Adverse Effect on Company, and (g) except as
described in Section 3.3 of the Merger Agreement, the execution and delivery of
this Agreement by Company does not, and the performance of this Agreement by
Company will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity.
6. REPRESENTATIONS AND WARRANTIES OF OMEGA. Omega represents
and warrants to Company that (a) Omega is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida and has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder, (b) the execution and delivery of this Agreement by Omega
and the consummation by Omega of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Omega and no
other corporate proceedings on the part of Omega are necessary to authorize this
Agreement or any of the transactions contemplated hereby, (c) this Agreement has
been duly executed and delivered by Omega and constitutes a valid and binding
obligation of Omega, enforceable against Omega in accordance with its terms,
except as such enforceability may be limited by bankruptcy and other laws
affecting the rights and remedies of creditors generally and general principles
of equity, (d) assuming that the consents, approvals, authorizations, permits,
filings and notifications referred to in subsection (e) are obtained or made, as
applicable, the execution and delivery of this Agreement by Omega does not, and
the performance of this Agreement by Omega will not, result in any Violation
pursuant to, (A) any provision of the articles of incorporation or by-laws, each
as amended, of Omega, (B) any provisions of any material mortgage, indenture,
lease, contract or other agreement,
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instrument, permit, concession, franchise, or license or (C) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Omega
or its properties or assets, except in the case of each of clauses (B) and (C)
immediately, above, for Violations which would not, individually or in the
aggregate, have a Material Adverse Effect on Omega, (e) except as described in
Section 2.3 of the Merger Agreement and Section 2 of this Agreement, and except
as may be required under the Exchange Act, the execution and delivery of this
Agreement by Omega does not, and the performance of this Agreement by Omega will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Entity and (f) any Company Shares acquired
upon exercise of the Company Option will not be, and the Company Option is not
being, acquired by Omega with a view to the public distribution thereof and
Omega will not sell or otherwise dispose of such shares in violation of
applicable law or this Agreement.
7. PUT.
(a) EXERCISE. At any time during which the Company
Option is exercisable hereunder (the "Repurchase Period"), upon demand by Omega,
Omega shall have the right to sell to Company (or any successor entity thereof)
and Company (or such successor entity) shall be obligated to repurchase from
Omega (the "Put"), all or any portion of the Company Option, to the extent not
previously exercised, at the price set forth in subparagraph (i) below, and/or
all or any portion of the Company Shares purchased by Omega pursuant thereto, at
a price set forth in subparagraph (ii) below:
(i) the difference between the
"Market/Tender Offer Price" for shares of Company Common Stock as of the date
(the "Notice Date") notice of exercise of the Put is given to the other party
(defined as the greater of (A) the price per share offered as of the Notice Date
pursuant to any tender or exchange offer or other Takeover Proposal which was
made prior to the Notice Date and not terminated or withdrawn as of the Notice
Date (the "Tender Price") or (B) the 10 day trading average of the last sale
price of a share of Company Common Stock as reported on The Nasdaq SmallCap
Market over the period ending on the trading day immediately preceding the
Notice Date (the "Market Price")), and the Exercise Price, multiplied by the
number of Company Shares purchasable pursuant to the Company Option (or portion
thereof with respect to which Omega is exercising its rights under this Section
7), but only if the Market/Tender Offer Price is greater than the Exercise
Price;
(ii) the Exercise Price paid by Omega for
the Company Shares acquired pursuant to the Company Option plus the difference
between the Market/Tender Offer Price and the Exercise Price, but only if the
Market/Tender Offer Price is greater than the Exercise Price, multiplied by the
number of Company Shares so purchased;
(b) PAYMENT AND REDELIVERY OF COMPANY OPTION OR
SHARES. In the event Omega exercises its rights under this Section 7, Company
shall, within 10 business days of the Notice Date, pay the required amount (the
"Repurchase Price") to Omega in immediately available funds and Omega shall
surrender to Company the Company Option or the certificates evidencing the
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Company Shares purchased by Omega pursuant thereto, and Omega shall represent
and warrant that it owns such shares and that such shares are then free and
clear of all liens, claims, charges and encumbrances of any kind or nature
whatsoever, other than any of the same created by Company or its affiliates.
(c) PAYMENT RESTRICTIONS. To the extent that Company
is prohibited under applicable law or regulation, or as a consequence of
administrative policy, from repurchasing the Company Option and /or Company
Shares in full, Company shall immediately so notify Omega and thereafter deliver
or cause to be delivered, from time to time, to Omega the portion of the
Repurchase Price that it is no longer prohibited from delivering, within five
business days after the date on which Company is no longer so prohibited;
PROVIDED that, if Company at any time after delivery of a notice of repurchase
pursuant to Section 7(a) is prohibited under applicable law or regulation, or as
a consequence of administrative policy, from delivering to Omega the Repurchase
Price in full (and Company hereby undertakes to use its reasonable best efforts
to obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish such repurchase),
Omega may revoke its notice of the Put whether in whole or to the extent of the
prohibition, whereupon, in the latter case, Company shall promptly (1) deliver
to Omega that portion of the Repurchase Price that Company is not prohibited
from delivering and (2) deliver to Omega as appropriate, (A) a new Agreement
evidencing the right of Omega to purchase that number of shares of Company
Common Stock obtained by multiplying the number of shares of Company Common
Stock for which the surrendered Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Repurchase Price less the portion thereof theretofore delivered to Omega and
the denominator of which is the Repurchase Price, and/or (B) to Omega, a
certificate for the Company Shares it is then so prohibited from repurchasing.
8. REGISTRATION RIGHTS.
(a) Following any exercise of the Company Option,
Omega may by written notice (the "Registration Notice") to Company request
Company to register under the Securities Act all or any part of the shares of
Company Common Stock acquired pursuant to this Agreement, including any voting
securities issued by way of dividend, distribution or otherwise in respect
thereof (the "Restricted Shares"), beneficially owned by Omega (the "Registrable
Securities") in order to permit the sale or other distribution of such
Registrable Securities, including pursuant to a firm commitment underwritten
public offering; PROVIDED, HOWEVER, that any such Registration Notice must
relate to a number of shares equal to at least 3% of the outstanding shares of
Company Common Stock and that any rights to require registration hereunder shall
terminate with respect to any Shares that may be sold in any 90-day period
pursuant to Rule 144 under the Securities Act. The Registration Notice shall
include a certificate executed by Omega and its proposed managing underwriter,
which underwriter shall be an investment banking firm of nationally recognized
standing (the "Manager"), stating that Manager in good faith believes that,
based on the then prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price equal to at least 85% of the Fair
Market Value of such shares. For purposes of this Section 8, the
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term "Fair Market Value" shall mean the 10 day trading average of the last sale
price of a share of Company's Common Stock as reported on The Nasdaq SmallCap
Market over the period ending on the trading day immediately preceding the date
of the Registration Notice.
(b) Company shall use commercially reasonable efforts
to effect, as promptly as practicable, the registration under the Securities Act
of the unpurchased Registrable Securities; PROVIDED, HOWEVER, that (i) Omega
shall not be entitled to more than two effective registration statements
hereunder and (ii) Company will not be required to file any such registration
statement during any period of time (not to exceed 60 days after such request in
the case of clause (A) below or 90 days in the case of clauses (B) and (C)
below) when (A) Company is in possession of material non-public information
which it reasonably believes would be detrimental to be disclosed at such time
and, based on consultation with counsel to Company, such information would have
to be disclosed if a registration statement were filed at that time; (B) Company
is required under the Securities Act to include audited financial statements for
any period in such registration statement and such financial statements are not
yet available for inclusion in such registration statement; or (C) Company
determines, in its reasonable good faith judgment, that such registration would
interfere with any financing, acquisition or other material transaction
involving Company or any of its affiliates. If consummation of the sale of any
Registrable Securities pursuant to a registration hereunder does not occur
within 180 days after the filing with the SEC of the initial registration
statement, then such registration shall not be taken into account as an
effective registration for purposes of clause (i) above. Company shall use
commercially reasonable efforts to cause any Registrable Securities registered
pursuant to this Section 8 to be qualified for sale under the securities or Blue
Sky laws of such jurisdictions as Omega may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
PROVIDED, HOWEVER, that Company shall not be required to qualify to do business
in, or consent to general service of process in, any jurisdiction by reason of
this provision.
(c) The registration rights set forth in this Section
8 are subject to the condition that Omega shall provide Company with such
information with respect to Omega's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to Omega as, in
the reasonable judgment of counsel for Company, is necessary to enable Company
to include in such registration statement all material facts required to be
disclosed with respect to a registration thereunder.
(d) If Company securities of the same type as the
Registrable Securities are then authorized for quotation or trading or listing
on the New York Stock Exchange, The Nasdaq National Market, Nasdaq or any other
securities exchange or automated quotations system, Company, upon the request of
Omega, shall promptly file an application, if required, to authorize for
quotation, trading or listing the shares of Registrable Securities on such
exchange or system and will use its reasonable best efforts to obtain approval,
if required, of such quotation, trading or listing as soon as practicable.
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(e) A registration effected under this Section 8
shall be effected at Company's expense, except for underwriting discounts and
commissions and fees and expenses of counsel to Omega, and Company shall provide
to the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection with
underwritten public offerings as such underwriters may reasonably require. In
connection with any such registration, the parties agree (i) to indemnify each
other and the underwriters in the customary manner and (ii) to enter into an
underwriting agreement in form and substance customary for transactions of the
type contemplated hereby with the Manager and the other underwriters
participating in such offering.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event of any change in Company Common
Stock by reason of stock dividends, splits, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the Company Option, and the Exercise
Price per share, shall be adjusted appropriately, and proper provision shall be
made in the agreements governing such transaction so that Omega shall receive,
upon exercise of the Company Option, the number and class of shares or other
securities or property that Omega would have received in respect of the Company
Common Stock if the Company Option had been exercised immediately prior to such
event or the record date therefor, as applicable.
(b) In the event that Company shall enter in an
agreement: (i) to consolidate with or merge into any person, other than in
connection with the Merger or into Omega or any of its subsidiaries, and shall
not be the continuing or surviving corporation of such consolidation or merger;
(ii) to permit any person, other than in connection with the Merger or Omega or
one of its subsidiaries, to merge into Company and Company shall be the
continuing or surviving corporation, but, in connection with such merger, the
then-outstanding shares of Company Common Stock shall be changed into or
exchanged for stock or other securities of Company or any other person or cash
or any other property or the outstanding shares of Company Common Stock
immediately prior to such merger shall after such merger represent less than 50%
of the outstanding shares and share equivalents of the merged company; or (iii)
to sell or otherwise transfer all or substantially all of its assets to any
person, other than Omega or any of its subsidiaries, then, and in each such
case, the agreement governing such transaction shall make proper provision so
that upon the consummation of any such transaction and upon the terms and
conditions set forth herein, Omega shall receive for each Company Share with
respect to which the Company Option has not been exercised an amount of
consideration in the form of and equal to the per share amount of consideration
that would be received by the holder of one share of Company Common Stock less
the Exercise Price (and, in the event of an election or similar arrangement with
respect to the type of consideration to be received by the holders of Company
Common Stock, subject to the foregoing, proper provision shall be made so that
the holder of the Company Option would have the same election or similar rights
as would the holder of the number of shares of Company Common Stock for which
the Company Option is then exercisable).
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10. RESTRICTIVE LEGENDS. Each certificate representing shares
of Company Common Stock issued to Omega hereunder shall, to the extent
applicable, include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN
EXEMPTION FROM SUCH REGISTRATIONS ARE AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION
AGREEMENT, DATED AS OF JANUARY 19, 2000, A COPY OF WHICH MAY BE OBTAINED FROM
THE ISSUER.
11. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor the rights or the
obligations of either party hereto are assignable, except by operation of law,
or with the written consent of the other party. Nothing contained in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective permitted assigns any rights or remedies
of any nature whatsoever by reason of this Agreement. Any Restricted Shares sold
by Omega in compliance with the provisions of Section 8 shall, upon consummation
of such sale, be free of the restrictions imposed with respect to such shares by
this Agreement, unless and until Omega shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not be
entitled to the rights of Omega. Certificates representing shares sold in a
registered public offering pursuant to Section 8 shall not be required to bear
the legend set forth in Section 10.
12. SPECIFIC PERFORMANCE. The parties recognize and agree that
if for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
this Agreement, neither party will allege, and each party hereby waives the
defense, that there is an adequate remedy at law.
13 ENTIRE AGREEMENT. This Agreement and the Merger Agreement
(including the Online Disclosure Schedule, the Omega Disclosure Schedule and the
Newco Disclosure Schedule relating thereto) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
other prior agreements and understandings, both written and oral, among the
parties or any of them with respect to the subject matter hereof.
14. FURTHER ASSURANCE. Each party will execute and deliver all
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
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15. VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the other provisions of this Agreement, which shall remain in full force and
effect. In the event any court or other competent authority holds any provision
of this Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision. Each party agrees that, should any court or other competent authority
hold any provision of this Agreement or part hereof to be null, void or
unenforceable, or order any party to take any action inconsistent herewith, or
not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
16. NOTICES. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telecopied or
sent by certified or registered mail, postage prepaid, and shall be deemed to be
given, dated and received when so delivered personally, telecopied or, if
mailed, five business days after the date of mailing to the following address or
telecopy number, or to such other address or addresses as such person may
subsequently designate by notice given hereunder.
(a) if to Omega, to:
Omega Research, Inc.
8700 West Flagler Street, Suite 250
Miami, Florida 33174
Attention: Salomon Sredni, President
Facsimile No.: (305) 485-7019
Telephone No.: (305) 485-7000
with a copy to:
Bilzin Sumberg Dunn Price & Axelrod LLP
2500 First Union Financial Center
200 South Biscayne Boulevard
Miami, Florida 33131-2336
Attention: Alan D. Axelrod, Esq.
Facsimile No.: (305) 374-7593
Telephone No. (305) 374-7580
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(b) if to Company, to:
onlinetradinginc.com corp.
2700 N. Military Trail
Suite 200
Boca Raton, Florida 33431
Attention: Steven zum Tobel, President
Facsimile No.: (561) 995-0606
Telephone No.: (561) 995-1010
with a copy to:
Broad & Cassel
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Attention: Leonard H. Bloom, Esq.
Facsimile No.: (305) 995-6428
Telephone No.: (305) 373-9400
17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
agreements made and to be performed entirely within such State without regard to
any applicable conflicts of law rules.
18. DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
19. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same instrument.
20. EXPENSES. Except as otherwise expressly provided herein or
in the Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
21. AMENDMENTS; WAIVER. This Agreement may be amended by the
parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the
case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
22. PREVAILING PARTY LEGAL FEES. The prevailing party in any
litigation or other proceeding brought to enforce the terms of this Agreement
shall be entitled to receive from the
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nonprevailing party its reasonable attorneys' and paralegals' fees and costs
before and at trial and at all appellate and other tribunal levels, in addition
to its other remedies hereunder or at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
OMEGA RESEARCH, INC.
By: /s/ RALPH L. CRUZ
------------------------------
Name: RALPH L. CRUZ
Title: CO-CEO
ONLINETRADINGINC.COM CORP.
By: /s/ STEVEN ZUM TOBEL
------------------------------
Name: STEVEN ZUM TOBEL
Title: PRESIDENT
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APPENDIX F
VOTING TRUST AGREEMENT
VOTING TRUST AGREEMENT (this "Agreement"), dated as of January 19,
2000, to be effective as of and after the Effective Time (as defined in the
Merger Agreement described below), by and among WRCF-I 1997 Limited Partnership,
a Texas limited partnership ("WRCF-I"), WRCF- II 1997 Limited Partnership, a
Texas limited partnership ("WRCF-II"), RLCF-I 1997 Limited Partnership, a Texas
limited partnership ("RLCF-I"), and RLCF-II 1997 Limited Partnership, a Texas
limited partnership ("RLCF-II" and together with WRCF-I, WRCF-II and RLCF-I, the
"Cruz Group"), and Andrew A. Allen and Andrew A. Allen Family Limited
Partnership, a Florida limited partnership (collectively "Allen"), Tafazzoli
Family Limited Partnership, a Florida limited partnership ("Tafazzoli"), Zum
Tobel Family Limited Partnership, a Florida limited partnership ("Tobel"), Derek
J. Hernquist ("Hernquist") and Benedict S. Gambino ("Gambino" and, together with
Allen, Tafazzoli, Tobel and Hernquist, the "Online Group") (each of W. Cruz, R.
Cruz, Allen, Tafazzoli, Tobel, Hernquist and Gambino, at times, individually, a
"Newco Shareholder" and, collectively, the "Newco Shareholders") and Marc J.
Stone, as voting trustee and not as an individual (the "Voting Trustee").
PRELIMINARY STATEMENT
Reference is made to the Agreement and Plan of Merger and
Reorganization of even date herewith in connection with which this Agreement is
executed and delivered (the "Merger Agreement") among Omega Research, Inc., a
Florida corporation ("Omega"), onlinetradinginc.com corp., a Florida corporation
("Online"), Online Trading Group, Inc., a Florida corporation ("Newco"), and
Onlinetrading Acquisition Corporation, a Florida corporation ("Online Merger
Sub"), and Omega Acquisition Corporation, a Florida corporation ("Omega Merger
Sub" and at times, together with Online Merger Sub, "Merger Subs"). Capitalized
terms used herein, which are not defined herein, shall have the respective
meanings ascribed to them in the Merger Agreement.
NOW, THEREFORE, in consideration of the covenants set forth in the
Merger Agreement, and in order to induce each of Omega, Online, Newco and Merger
Subs to consummate the transactions contemplated by the Merger Agreement, the
Newco Shareholders hereby make the following covenants and agreements to and
with the Voting Trustee.
1. CREATION OF VOTING TRUST. Each of the Newco Shareholders
acknowledges and agrees that as of the Effective Time that he shall make subject
to this Agreement, and each Newco Shareholder shall deposit and deliver, as soon
as possible after the Effective Time, certificates for, and hereby irrevocably
assigns as of the Effective Time to the Voting Trustee, the number of shares of
Newco Common Stock ("Newco Shares") to be received by him or it pursuant to the
Merger based on the number of shares of Online Common Stock or Omega Common
Stock (as the case may be) set forth next to his or its respective name in
Exhibit "A" attached hereto and incorporated herein by this reference. The
Voting Trustee shall cause to be issued to and in the name of the respective
Newco Shareholder one or more Voting Trust Certificates representing the Newco
Shares so received by the Voting Trustee from each such Newco Shareholder. On or
prior to the Closing Date,
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each of the Newco Shareholders shall execute and deliver to the Voting Trustee
such instruments of transfer as the Voting Trustee may reasonably require in
order to effectuate and confirm the assignments and deposits referred to above.
2. POWERS OF VOTING TRUSTEE. During the term of this Agreement and the
continuance of the voting trust created under this Agreement, the Voting Trustee
shall possess and be entitled to exercise in respect of the Newco Shares from
time to time subject hereto all rights of voting and abstaining from voting or
otherwise to participate in stockholders' actions (including, without
limitation, executing written consents) in all matters relating to Newco and
shall vote the Newco Shares subject hereto as hereinafter described in this
Section 2.
(a) ELECTION OF DIRECTORS.
(i) From and after the Effective Time, the Cruz Group shall have
the right as provided hereinafter to direct the Voting Trustee to vote all of
the Newco Shares subject hereto in a manner such that five (5) of the total of
eight (8) directors comprising the Board of Directors of Newco ("Board") (which
is the number of directors contemplated to comprise the Board at the Effective
Time), two (2) of which five (5) directors shall be required to be Independent
Directors (as hereinafter defined), shall be designated by the Cruz Group, and
the Online Group shall have the right as provided hereinafter to direct the
Voting Trustee to vote all of the Newco Shares subject hereto in a manner such
that three (3) of such total of eight (8) directors, one (1) of which three (3)
directors shall be required to be an Independent Director, shall be designated
by the Online Group. In the event that the number of directors comprising the
Board shall be increased or decreased from time to time on or after the
Effective Time, then each of the Newco Shareholders hereby acknowledges and
agrees that each of the Cruz Group and the Online Group shall be entitled to
designate their relative share of the total number of directors then comprising
the Board based upon a ratio of 62.5% for the Cruz Group and 37.5% for the
Online Group. In the event that the foregoing ratio yields other than whole
numbers as the number of directors which each of the Cruz Group and the Online
Group shall be entitled to designate for which the Newco Shares subject hereto
shall be voted, then there shall be rounded down the number of directors which
each such group shall be entitled to designate pursuant to such ratio and the
director which neither group shall as provided above have the right to designate
shall be designated by the Cruz Group.
(ii) To effectuate the voting of the Newco Shares subject hereto
for directors of Newco as provided in subparagraph (i) above in connection with
the election from time to time by the shareholders of Newco of members of the
Board on and after the Effective Time, whether in connection with the annual
election thereof, to fill a vacancy on the Board or otherwise, the Voting
Trustee shall vote the Newco Shares subject hereto based on the following:
(A) For such individuals as may be designated from time to
time in writing by the Cruz Designee (as hereinafter defined), which written
designation list shall include, without limitation, the names of such number of
Independent Director nominees as the Cruz Group shall be required to elect as
directors pursuant to subparagraph (i) above.
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(B) For such individuals as may be designated from time to
time in writing by the Online Designee (as hereinafter defined), which written
designation list shall include, without limitation, the name of an Independent
Director nominee as the Online Group shall be required to elect as director
pursuant to subparagraph (i) above.
(C) Each of the Cruz Designee and the Online Designee shall
certify to the other group and the Voting Trustee that each individual which
said group has submitted to the Voting Trustee as an Independent Director
nominee(s) in fact so qualifies. Upon request, the group so certifying (the
"Certifying Group") shall deliver, within three (3) days of such request, to the
other group such information regarding the Certifying Group's Independent
Director nominee(s) as shall reasonably establish that said nominee in fact
meets the qualifications of an Independent Director. In the event that the
Certifying Group and the other group do not agree on the Independent Director
status of one or more nominees, then, upon written demand of the other group,
such status shall be determined by binding arbitration pursuant to Section 26
below; provided, however, that to the extent such Independent Director when
nominated by the Board has been designated by the Board as an Independent
Director, such an Independent Director shall be deemed to be an Independent
Director.
(D) For purposes of this Agreement, the following meanings
shall be ascribed to the following terms:
(1) "Cruz Designee" shall mean such individual as the
Cruz Group may appoint from time to time as their designee by written notice
executed by members of the Cruz Group owning a majority of the Newco Shares
subject hereto owned by the Cruz Group and delivered to the Voting Trustee;
(2) "Online Designee" shall mean such individual as the
Online Group may appoint from time to time as their designee by written notice
executed by members of the Online Group owning a majority of the Newco Shares
subject hereto owned by the Online Group and delivered to the Voting Trustee;
and
(3) "Independent Director" shall mean an individual who
both (a) meets the definition of a "non-employee director" set forth in Rule
16b-3 of the Securities Exchange Act of 1934, as amended and (b) meets the
requirements of an independent director pursuant to the rules of The NASDAQ
National Market for purposes of serving as a member of Newco's audit committee,
including, without limitation, being "financially literate" (as defined under
such rules) and, in the case of one of the directors designated by the Cruz
Group, having "financial expertise" (as defined under such rules).
(iii) No later than the later of (A) three (3)
business days after a written request by the Voting Trustee is received by the
Cruz Designee or the Online Designee and (B), if applicable, ten (10) business
days prior to the date on which the pertinent annual or special meeting of
shareholders of Newco ("Newco Shareholders Meeting") is to occur, each of the
Cruz Designee and the Online Designee shall deliver to the Voting Trustee such
designee's certified written designation list of individuals for whom the Voting
Trustee is to vote as and in the manner provided
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in Section 2(a)(ii) above. In the event that either the Cruz Designee or the
Online Designee fails to timely deliver such designee's certified written list
to the Voting Trustee (the "Delinquent Designee"), then, upon notice thereof
from the Voting Trustee, the other designee shall have the right to supply the
Voting Trustee with a certified written list on behalf of the Delinquent
Designee, which list the Voting Trustee shall be obligated to treat as having
been delivered by the Delinquent Designee for purposes of the Voting Trustee's
voting obligations under this Agreement.
(iv) In the event that the Voting Trustee shall
have been instructed by either the Cruz Designee or the Online Designee to vote
such respective group's shares for one or more individuals whose names do not
appear on the slate of director nominees to be voted upon at a Newco
Shareholders Meeting (or pursuant to a written consent), then the Voting Trustee
shall abstain from voting the Newco Shares subject hereto with respect to the
board seat(s) which such individual or individuals might have held if so
nominated.
(v) In the event that either the Cruz Designee or
the Online Designee (the "Non-Complying Designee") delivers to the Voting
Trustee its written designation list pursuant hereto and such written
designation list fails to include the name(s) of a sufficient number of
nominee(s) who qualify as Independent Director(s), then the other designee shall
have the right, on behalf of the Non-Complying Designee, to supply the Voting
Trustee with a certified written designation list of nominee(s) for Independent
Director(s), which list the Voting Trustee shall be obligated to treat as having
been delivered by the Non-Complying Designee for purposes of the Voting
Trustee's voting obligations under this Agreement.
(b) VOTING ON OTHER MATTERS. With respect to all other matters
as to which a vote (or written consent) of shareholders of Newco will be made
(other than the election of directors), the Voting Trustee shall vote the Newco
Shares subject hereto owned by each Newco Shareholder as specifically instructed
in writing by the respective Newco Shareholder owning the respective beneficial
interests in, and Voting Trust Certificates relating to, such Newco Shares. No
later than the later of (i) three (3) business days after a written request by
the Voting Trustee is received by a Newco Shareholder and (ii), if applicable,
ten (10) business days prior to the date on which the pertinent Newco
Shareholders Meeting is to occur, each of the Newco Shareholders shall deliver
to the Voting Trustee their respective written voting instructions with respect
to the Newco Shares owned by such Newco Shareholders. In the event that the
Voting Trustee does not timely receive such written voting instructions, in
whole or in part, from any Newco Shareholder, then the Voting Trustee shall
abstain from voting the Newco Shares subject hereto owned by such Newco
Shareholder with respect to any or all matters as to which the Voting Trustee
has not received written voting instructions.
(c) NO COMPENSATION TO VOTING TRUSTEE. The Voting Trustee
shall not be entitled to any fees or commissions for his services hereunder.
3. VOTING TRUST CERTIFICATES AND PERMITTED TRANSFERS.
(a) Each Voting Trust Certificate issued hereunder shall be
substantially in the form of Exhibit "B" attached hereto, or in such other form
as may from time to time be adopted by
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the Voting Trustee, and shall be signed by the Voting Trustee. Subject to the
terms hereof, a Voting Trust Certificate issued by the Voting Trustee and so
signed shall entitle the registered holder thereof upon the termination of this
Agreement (or upon the permitted sale of Newco Shares from time to time as
hereinafter provided in accordance with the terms of this Agreement), to receive
in accordance with the provisions hereof a share certificate or certificates for
the number of Newco Shares (or lower number, if requested pursuant to a
permitted sale) represented thereby, and in the meantime to the rights in
respect of such Newco Shares provided in this Agreement.
(b) Subject to the terms of the Merger Agreement and all other
agreements executed in connection therewith and to compliance with federal and
state securities laws, the Newco Shares owned by a Newco Shareholder shall be
released from the trust created hereby in connection with any sale of such Newco
Shares by such Newco Shareholder in an open-market (including, without
limitation, a block trade), arms-length, BONA FIDE sale transaction to an
unrelated third party or parties or pursuant to an underwritten public offering
of the Newco Shares (a "Permitted Sale"). In order to effectuate a Permitted
Sale, a Newco Shareholder who wishes to make a Permitted Sale shall give the
Voting Trustee at least five (5) days advance written notice of his desire to
enter into a Permitted Sale, specifying the exact number of shares of Newco
Shares that shall be subject to the Permitted Sale. Upon the execution of the
Permitted Sale (which must occur no earlier than after the fifth day following
the giving of the aforesaid notice), such Newco Shareholder shall deliver or
cause the applicable broker to send to the Voting Trustee, by facsimile
transmission, personal delivery or commercial courier service guaranteeing next
day delivery, with confirmation by telephone, a written confirmation of
completion of the Permitted Sale ("Permitted Sale Confirmation"). Upon receipt
of the Permitted Sale Confirmation, the Voting Trustee shall, as soon as is
practicable, but not later than three (3) business days thereafter, cause the
appropriate stock certificate(s) and Voting Trust Certificate(s) to be issued,
reissued and/or canceled in whole or in part as necessary to deliver to such
Newco Shareholder or the applicable broker a stock certificate issued in the
name of such Newco Shareholder (or his designee) for the number of Newco Shares
specified in the Permitted Sale Confirmation, and, if necessary, a Voting Trust
Certificate to replace the Voting Trust Certificate(s) canceled in connection
with the Permitted Sale covering the balance of any shares of Newco Shares
covered by the canceled Voting Trust Certificate(s) which are not part of the
Permitted Sale. Such Newco Shareholder shall, together with the aforementioned
three business day notice to the Voting Trustee, deliver to the Voting Trustee
his Voting Trust Certificate(s) covering at least the number of shares of Newco
Shares sought to be transferred in the Permitted Sale, endorsed in such manner
and/or accompanied by such other instruments of transfer as the Voting Trustee
may reasonably require so that the Voting Trustee may undertake the procedures
set forth in the preceding sentence. The Voting Trustee may require a Newco
Shareholder to execute and deliver, in connection with any purported Permitted
Sale, such affidavits and other assurances to the effect that what is proposed
by such Newco Shareholder is in fact a Permitted Sale. Voting Trust Certificates
and beneficial interests in the Newco Shares subject to the voting trust created
by this Agreement may be transferred by a Newco Shareholder for estate planning
purposes and/or other tax advantages, to the direct or indirect beneficial
owner(s) of a Newco Shareholder (collectively, "Beneficial Owners") or to one or
more immediate family members of such Newco Shareholder or any of the Beneficial
Owners or a trust for the benefit of or an entity owned by such Newco
Shareholder and/or one or more of such Beneficial Owners and/or their respective
immediate family and lineal descendants, or upon death by law will and testament
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or the laws of intestacy, provided that, in such case, (i) the affected Newco
Shares shall, in the hands of the recipient or transferee, remain in every
respect subject to the voting trust hereby created and all terms, provisions and
conditions of this Agreement, as if no transfer had occurred, and (ii) such
recipient or transferee executes and delivers to the Voting Trustee such
agreements and documents as the Voting Trustee requests in order to evidence the
foregoing. Except as set forth in the preceding sentence, Voting Trust
Certificates are not transferable in any circumstances.
4. RECAPITALIZATION. In the event of the subdivision, consolidation,
change (by stock split or dividend or otherwise), classification or
reclassification at any time of any shares of Newco Shares at such time subject
to the voting trust hereby created into a higher or lower number of shares of
Newco or into a different class of shares of Newco, or in the event of the
conversion of such shares upon the amalgamation of Newco with any other company
or companies, the Voting Trust Certificate representing the same shall
thereafter represent the numbers and classes of shares resulting from such
subdivision, consolidation, change, classification, reclassification or
conversion until such Voting Trust Certificate is exchanged for a new Voting
Trust Certificate correctly describing the securities represented thereby.
5. REGISTER. The Voting Trustee shall keep or cause to be kept at the
office of Newco proper books and records in respect of the Voting Trust
Certificates, including a register or registers in which shall be recorded the
names and addresses of the holders of the Voting Trust Certificates, the number
of Newco Shares to which such holders are respectively entitled pursuant to the
provisions of this Agreement and such other information as may be deemed
advisable by the Voting Trustee. Such register or registers shall be kept
available for inspection by the holders of Voting Trust Certificates at all
reasonable times. The Voting Trustee may, at any time and from time to time,
change the address at which such records are kept and, in such event, shall give
notice of such change to the Newco Shareholders.
6. TRANSFER PROCEDURES. Except as otherwise provided in this Agreement,
Voting Trust Certificates and the beneficial interests in the Newco Shares
represented thereby shall be transferable (to the extent the transfer thereof is
permitted by the terms of this Agreement) only on the books kept by the Voting
Trustee, and no transfer shall be valid or effective except upon transfer by the
registered holder thereof or by the attorney of the registered holder thereof
duly appointed in writing upon (i) surrender of such Voting Trust Certificate
duly endorsed and/or accompanied by an instrument of transfer duly executed by
the registered holder thereof or the attorney of the registered holder thereof
duly appointed in writing, together with proof satisfactory to the Voting
Trustee of such due execution and, where applicable, of the appointment of such
attorney; and (ii) delivery of evidence of payment to the Voting Trustee of a
sum equal to the applicable security transfer taxes (if any) payable in respect
of such transfer. Upon such transfer, the Voting Trustee shall cause to be
issued such Voting Trust Certificates and/or share certificate(s) as shall be
proper in consequence thereof.
7. SUCCESSORS. To the extent that the beneficial ownership of shares of
the Newco Shares subject hereto is transferred pursuant to a permitted transfer
hereunder or otherwise is transferred by operation of law, the person becoming
entitled to a Voting Trust Certificate in consequence thereof shall be entitled,
upon surrender of the Voting Trust Certificate and production
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of such evidence of the right of such person as the Voting Trustee shall then
reasonably require, and upon compliance with the requirements of all applicable
laws including payment of a sum equal to all applicable security transfer taxes
(if any) payable in respect thereof, to one or more Voting Trust Certificates in
the name of such person in lieu of the Voting Trust Certificate so surrendered.
8. LOSS OR DESTRUCTION OF VOTING TRUST CERTIFICATES. In the event of
the mutilation of any Voting Trust Certificate, the Voting Trustee may upon
surrender thereof cause to be issued a replacement Voting Trust Certificate. In
the event of the loss, destruction or theft of any Voting Trust Certificate, the
Voting Trustee may cause to be issued a replacement Voting Trust Certificate
upon production of such evidence of such loss, destruction or theft and such
indemnity as the Voting Trustee may in his discretion reasonably require.
9. THIRD PARTIES. The Voting Trustee shall be entitled at all times to
treat and consider for all purposes the registered holder of a Voting Trust
Certificate as the holder and legal and beneficial owner thereof and of the
beneficial interest in the Newco Shares represented thereby and shall not be
required to take notice of any interest, trust or claim of any third party.
10. DISTRIBUTIONS. Subject to the provisions of Section 11 hereof, the
registered holder of a Voting Trust Certificate, upon any cash or property
distribution (other than as described in Section 4 above) by Newco (including
without limitation any cash dividend or cash redemption payment) to its
stockholders in respect of Newco's capital stock shall be entitled to receive
from the Voting Trustee such holder's pro rata share of such distribution,
provided that the Voting Trustee may deduct therefrom any amount he may be
lawfully required to withhold and account for in respect of taxes.
Notwithstanding the foregoing provisions of this Section 10, where any such
distribution by Newco constitutes a final cash or property distribution (either
by way of redemption or otherwise, but excluding any distribution described in
Section 4 above) in respect of any shares of the capital stock of Newco
represented by a Voting Trust Certificate, the Voting Trustee shall not be
required to make any distribution under this Section 10 to the holder of such
Voting Trust Certificate until surrender thereof.
11. REGISTERED HOLDER. Any distribution or partial distribution to a
holder of a Voting Trust Certificate under the provisions of Section 10 hereof
by the Voting Trustee shall be made to the registered holder of such Voting
Trust Certificate at the time of such distribution or partial distribution
(unless otherwise directed in writing by such registered holder) whether or not
such registered holder was the registered holder thereof at the time the money
or property so distributed was received by the Voting Trustee.
12. REMOVAL OF VOTING TRUSTEE. A Voting Trustee shall cease to be a
Voting Trustee if he:
(a) is adjudged bankrupt;
(b) is removed as a Voting Trustee by a court of
competent jurisdiction;
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(c) delivers to the Cruz Designee and Online Designee his
written resignation as Voting Trustee; or
(d) dies or becomes permanently disabled.
Any vacancy that may occur with respect to the Voting Trustee
by resignation, death, incapacity or inability or refusal to continue to act
shall promptly (but in no event later than thirty (30) days after the event
causing the vacancy) be filled by a person mutually agreed to by the Cruz
Designee and Online Designee. Every person appointed to fill any such vacancy
shall have the same rights, powers and discretions as though originally
appointed a Voting Trustee hereunder.
13. CANCELLATION OF CERTIFICATES. All Voting Trust Certificates
surrendered pursuant to the provisions hereof shall be canceled.
14. LIMITATIONS ON LIABILITY OF VOTING TRUSTEE. By way of supplement
to, and not in lieu of, the provisions of any law affording protection or powers
to trustees and notwithstanding any law or principle of law to the contrary, it
is agreed that:
(a) neither the Voting Trustee nor any successor Voting Trustee
shall be under any liability or responsibility by reason of any loss or damage
arising in consequence of any mistake or error of law or fact or any matter or
thing done or omitted to be done under or in relation to this Agreement of any
nature whatsoever, except to the extent such loss or damage is in consequence of
his own wilful wrongful act or wilful default;
(b) in relation to this Agreement the Voting Trustee may take the
opinion or advice of any counsel or other expert and shall not be responsible
for any loss occasioned by acting or failing to act thereon, except as provided
in Section 14(a) above; and
(c) the Voting Trustee or any firm or corporation (including,
without limitation, Newco) in which he may be a member, shareholder, officer or
director or with which he may have any other connection may deal with Newco or
with its shares or with Voting Trust Certificates representing the same in any
manner whatever as fully as though he were not a Voting Trustee.
15. DISSOLUTION OF VOTING TRUST. The voting trust created under this
Agreement shall dissolve on the earliest of the following dates:
(a) the second anniversary of the Effective Time;
(b) the date when the Voting Trustee shall resign in writing unless
such vacancy is timely filled as provided in Section 12 or Section 27 hereof;
(c) the date when the Newco Shareholders holding 67% of the Newco
Shares then subject to this Agreement shall execute a written instrument so
declaring; or
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(d) the date when less than 75% of the aggregate number of Newco
Shares owned by the Cruz Group or the Online Group (as the case may be) as of
the Effective Time remains subject to the voting trust created hereby.
Thereafter, the Voting Trustee shall notify all registered holders of Voting
Trust Certificates of such dissolution. Such notice shall fix a place or places
and a day (which shall be within fifteen days thereafter) at which and on and
after which any registered holder of a Voting Trust Certificate may, on
surrender thereof, receive a share certificate or certificates for the shares
represented thereby. Upon such dissolution the rights of the holders of Voting
Trust Certificates shall be confined to the rights provided by this Section 15
and the right to receive their proportionate interest or interests in any other
property then subject to the trust hereof and not theretofore distributed;
provided that the register or registers of the Voting Trust Certificate holders
shall be kept open by the Voting Trustee for thirty (30) days after such
dissolution to enable surrenders of Voting Trust Certificates. At any time after
thirty (30) days following the day upon which Voting Trust Certificates may
first be surrendered pursuant to the said notice and after distribution or
payment of all other property (if any) held upon the trust hereof, the Voting
Trustee may close such registers and transfer the shares represented by
unsurrendered Voting Trust Certificates to Newco's stock transfer agent for
transfer to the respective registered holders of the Voting Trust Certificates
representing the same or their lawful permitted assigns against surrender of
such Voting Trust Certificates, whereupon this Agreement shall terminate and the
Voting Trustee shall be under no further obligation to such holders, provided
that the provisions of Section 14 shall survive.
16. GOVERNING LAW. Notwithstanding any law or principle of law to
the contrary and regardless of the domicile or residence of any Voting Trustee
or any successor Voting Trustee or any of the Newco Shareholders, this Agreement
shall be governed by and construed in accordance with the laws of the State of
Florida.
17. AMENDMENTS AND WAIVERS. The parties may, by written agreement
signed by the parties, modify any of the covenants or agreements or extend the
time for the performance of any of the obligations contained in this Agreement
or in any document delivered pursuant to this Agreement. Any party may waive, by
written instrument signed by such party, compliance by another party with any of
its obligations contained in this Agreement or in any document delivered
pursuant to this Agreement. This Agreement may be amended only by written
instrument signed by the parties hereto.
18. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
19. NOTICES. Any designation, list, notice, request or other
document to be given hereunder to a party shall be in writing and shall be
deemed given if delivered personally or by commercial delivery service, or
mailed by registered or certified mail (return receipt requested and postage
pre-paid) or sent via facsimile (with confirmation of receipt) to the parties at
the following address (or at such other address for a party as shall be
specified by like notice):
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If to the Voting Trustee, addressed to him at:
8700 West Flagler Street
Suite 250
Miami, Florida 33174
If to R. Cruz, addressed to him at:
401 Casuarina Concourse
Miami, Florida 33143
If to W. Cruz, addressed to him at:
201 Arvida Parkway
Coral Gables, Florida 33156
If to Allen, addressed to him at:
4939 N.W. 23rd Court
Boca Raton, Florida 33431
If to Tafazzoli, addressed to him at:
5967 Michaux Street
Boca Raton, Florida 33433
If to Tobel, addressed to him at:
5906 Michaux Street
Boca Raton, Florida 33433
If to Hernquist, addressed to him at:
330 S.E. 20th Avenue, #213
Deerfield Beach, Florida 33441
If to Gambino, addressed to him at:
22356 Timberlea Lane
Kildeer, Illinois 60047
20. PARTIAL INVALIDITY. In the event that any provision of this
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, and is not reformed by such court, such holding shall not
invalidate or render unenforceable any other provision hereof.
10
<PAGE>
21. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
22. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
23. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto, and supersede all prior agreements and undertakings
between or among the parties hereto relating to the subject matter hereof.
24. GENDER. With respect to the language of this Agreement, the use
of the masculine gender shall include the feminine and neuter, and the use of
the neuter shall include the masculine and/or feminine, in each case, as the
context reasonably requires.
25. ACKNOWLEDGMENT. Each Newco Shareholder represents and warrants
to the Voting Trustee that he has read and understands this Agreement and the
Merger Agreement and has been advised by independent legal counsel with respect
to all matters relating to this Agreement (or understands that he has the right
to have been so advised, and that seeking and receiving such independent legal
advice is advisable).
26. BINDING ARBITRATION. Any dispute, claim or counterclaim
(collectively, a "Claim") arising out of or relating to this Agreement, or the
breach hereof, shall be settled by binding arbitration. The party having such
Claim shall deliver notice thereof to the other parties to such Claim. Such
notice shall supply the other parties with sufficient detail regarding the
nature and extent of the Claim. Within seven (7) days of receipt of the
aforementioned notice, the parties shall jointly select an arbitrator.
Thereafter, the binding arbitration shall be conducted promptly and
expeditiously and in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. In the event that the parties
are unable to agree upon an arbitrator within the aforementioned seven (7) day
period, then each party to the Claim shall appoint an arbitrator within five (5)
days thereafter and the resulting panel of arbitrators shall select one (1)
arbitrator, within five (5) days after their selection, which single arbitrator
shall conduct the binding arbitration (for purposes of this Section 26, the
arbitrator selected by the panel of arbitrators, or the arbitrator mutually
agreed upon by the parties, as the case may be, the "Arbitrator"). If for any
reason the Arbitrator is not chosen within any of the aforementioned applicable
periods, then the American Arbitration Association shall select the Arbitrator
who shall be a resident of Miami-Dade County, Florida. The arbitration shall be
conducted in Miami-Dade County, Florida. The judgment of the Arbitrator shall be
accompanied by a written statement of the basis for such judgment and may be
enforced by any court having proper jurisdiction. The prevailing party in such
arbitration shall be entitled to recover its reasonable expenses of arbitration
(including, without limitation, reasonable attorneys' fees) from the
non-prevailing party. Further, the expenses of the Arbitrator shall be borne by
the non-prevailing party. Any legal proceedings under or in connection with this
Agreement shall be maintained in Miami-Dade County, Florida, which shall have
sole jurisdiction and venue, and the prevailing party in connection therewith
shall be entitled to an award of court costs and reasonable attorneys' fees
before and at trial and at all other tribunal levels.
11
<PAGE>
27. SUCCESSOR TRUSTEE. The parties hereto acknowledge and agree that
the Voting Trustee may assign and transfer at any time hereafter all of his
rights, obligations and duties hereunder to a corporation wholly-owned by him
(the "Successor Trustee"), provided that, in such case, (i) the Voting Trustee
delivers to the Cruz Designee and the Online Designee prior written notice of
his resignation, together with an agreement executed by the Successor Trustee
pursuant to which the Successor Trustee agrees to be bound by all of the terms,
provisions and conditions hereof as if an original signatory hereto and to
assume all of the obligations and duties of the Voting Trustee hereunder. In
such event, the Successor Trustee shall for all purposes hereof become the
"Voting Trustee" and the prior Voting Trustee shall be relieved and released
from his obligations and duties hereunder.
28. EFFECTIVENESS. This Agreement shall be effective as of and
after the Effective Time. In the event that the Merger Agreement is terminated
before the Effective Time, this Agreement shall be null and void and of no
further force and effect.
[SIGNATURES ARE ON THE FOLLOWING PAGE]
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date first above written.
<TABLE>
<CAPTION>
NEWCO SHAREHOLDERS:
<S> <C>
WRCF-I 1997 Limited Partnership /S/ ANDREW A. ALLEN
----------------------------
Andrew A. Allen
By: WRCF-I GP, Inc., general partner
Andrew A. Allen Family Limited Partnership
By: /S/ WILLIAM R. CRUZ
---------------------------------
William R. Cruz, President By: Allen Holdings Corp., general partner
By: /S/ ANDREW A. ALLEN
--------------------------
Andrew A. Allen, President
WRCF-II 1997 Limited Partnership Tafazzoli Family Limited Partnership
By: WRCF-II GP, LLC, general partner By: PMA Corp., general partner
By: WRCF-II Manager, Inc., managing member By: /S/ FARSHID TAFAZZOLI
------------------------
Farshid Tafazzoli, President
By: /S/ RALPH L. CRUZ
-------------------------------
Ralph L. Cruz, President
RLCF-I 1997 Limited Partnership Zum Tobel Family Limited Partnership
By: RLCF-I GP, Inc., general partner By: Zum Tobel Holdings, Inc., general partner
By: /S/ RALPH L. CRUZ
-------------------------------
Ralph L. Cruz, President By: /S/ E. STEVEN ZUM TOBEL
------------------------------
E. Steven zum Tobel, President
RLCF-II 1997 Limited Partnership /S/ DEREK J. HERNQUIST
-------------------------------
Derek J. Hernquist
By: RLCF-II GP, LLC, general partner
/S/ BENEDICT S. GAMBINO
-------------------------------
By: RLCF-II Manager, Inc., managing Benedict S. Gambino
member
By: /S/ WILLIAM R. CRUZ
---------------------------------
William R. Cruz, President
VOTING TRUSTEE:
/S/ MARC J. STONE
-----------------------------
Marc J. Stone, as Voting
Trustee and not individually
</TABLE>
13
<PAGE>
EXHIBIT "A"
NUMBER OF SHARES OF
NAME OF NEWCO SHAREHOLDER OMEGA COMMON STOCK
------------------------- ------------------
WRCF-I 1997 LIMITED PARTNERSHIP 7,206,554
WRCF-II 1997 LIMITED PARTNERSHIP 1,950,000
RLCF-I 1997 LIMITED PARTNERSHIP 7,206,554
RLCF-II 1997 LIMITED PARTNERSHIP 1,950,000
----------
TOTAL 18,313,108
==========
NUMBER OF SHARES OF
ONLINE COMMON STOCK
-------------------
ANDREW A. ALLEN 225,926
ANDREW A. ALLEN FAMILY LIMITED PARTNERSHIP 2,500,000
TAFAZZOLI FAMILY LIMITED PARTNERSHIP 2,725,926
ZUM TOBEL FAMILY LIMITED PARTNERSHIP 444,444
DEREK J. HERNQUIST 266,666
BENEDICT S. GAMBINO 2,725,926
----------
TOTAL 8,888,888
===========
<PAGE>
EXHIBIT "B"
CERTIFICATE NO. _____
VOTING TRUST CERTIFICATE
IN RESPECT OF SHARES OF COMMON STOCK
OF
[NEWCO]
(INCORPORATED UNDER THE LAWS OF FLORIDA)
THIS CERTIFIES THAT, following the dissolution of the voting trust under, or
otherwise in accordance with the terms of, a certain Voting Trust Agreement (the
"Agreement") dated as of the ____ day of January , 2000 and made by and between
William R. Cruz, Ralph L. Cruz, Andrew A. Allen, Farshid Tafazzoli, E. Steven
Zum Tobel, Derek J. Hernquist, Benedict S. Gambino and [Name of Voting Trustee]
as the original Voting Trustee thereunder,
--------------------------------------------------------------------------------
(Name)
who is the registered holder of this Voting Trust Certificate, will, on
surrender hereof, be entitled to receive, except as otherwise provided in the
Agreement, a stock certificate or certificates for __________ shares of common
stock with a par value of $.01 per share in the capital of Online Trading Group,
Inc., or such number of shares of such other class of the capital stock of
Online Trading Group, Inc. as this Voting Trust Certificate may then represent
in accordance with the terms of the Agreement, be entitled to receive payment of
the amount of any distribution received in cash by the Voting Trustee in respect
of the shares or any thereof represented hereby to the extent not theretofore
distributed by the Voting Trustee in accordance with the terms of the Agreement
and to have the rights provided by the Agreement in respect of any dividend or
other distribution received other than in cash by the Voting Trustee in respect
of such shares.
This Voting Trust Certificate is issued under and pursuant to, and the rights of
the holder or holders hereof and of the Voting Trustee are subject to and
limited by, the terms of the Agreement, an executed copy of which is on file and
open to inspection at all reasonable times by holders of Voting Trust
Certificates at the offices of Online Trading Group, Inc. at 8700 West Flagler
Street, Suite 250, Miami, Florida 33174.
This Voting Trust Certificate and the beneficial interest under the Agreement in
all or any of the shares represented hereby are subject to the restrictions on
transferability which under the Agreement or applicable law exist or may from
time to time exist, transferable only by the registered holder hereof, in person
or by duly authorized attorney, on the books kept by the Voting Trustee at the
aforesaid offices, upon surrender of this Voting Trust Certificate duly endorsed
and/or accompanied
<PAGE>
by a sufficient instrument of transfer duly executed by the registered holder
hereof or the attorney of such registered holder with proof satisfactory to the
Voting Trustee of such due execution and, where applicable, of the appointment
of such attorney, and payment of a sum equal to all applicable security transfer
taxes (if any) payable in respect of such transfer.
The Voting Trustee is entitled at all times to treat and consider for all
purposes the registered holder hereof as the holder and legal and beneficial
owner hereof and of the beneficial interest under the Agreement in the shares
represented hereby and is not required to take notice of any interest, trust or
claim of any third party.
The voting trust under the Agreement will be dissolved on ___________, 2002,
unless sooner dissolved in accordance with the provisions of the Agreement.
IN WITNESS WHEREOF, the Voting Trustee has signed this certificate.
Date of Issuance:
____________________________________
[Insert Name], as Voting Trustee and
not individually
-2-
<PAGE>
APPENDIX G
ONLINETRADINGINC.COM CORP.
2700 N. MILITARY TRAIL
SUITE 200
BOCA RATON, FLORIDA 33431
January 19, 2000
Mr. Andrew A. Allen
4939 N.W. 23rd Court
Boca Raton, Florida 33471
Dear Andy:
onlinetradinginc.com corp., a Florida corporation (the "COMPANY"), is
entering into an Agreement and Plan of Merger and Reorganization (the "MERGER
AGREEMENT") with Omega Research, Inc., a Florida corporation ("OMEGA"), Online
Trading Group, Inc., a Florida corporation ("NEWCO"), Omega Acquisition
Corporation, a Florida corporation and wholly-owned subsidiary of Newco ("OMEGA
MERGER SUB"), and Onlinetrading Acquisition Corporation, a Florida corporation
and wholly-owned subsidiary of Newco ("ONLINE MERGER SUB"), pursuant to which,
among other things, upon the terms and subject to the conditions thereof, Online
Merger Sub will be merged with and into Omega with the Omega continuing as the
surviving corporation, and Omega Merger Sub will be merged with and into Omega
with Omega continuing as the surviving corporation (collectively, the "MERGER").
It is a material condition to the Merger that you enter into this letter
agreement (the "LETTER AGREEMENT") with the Company, and you have agreed to
enter into this Letter Agreement in consideration of, among other things, the
benefits to be received by you in connection with the Merger and the payments to
be made hereunder. This Letter Agreement and all of the terms hereof shall
become effective as of and after the Effective Time (as defined in the Merger
Agreement).
This Letter Agreement (i) confirms that, effective as of the Effective
Time, you will no longer serve as the Chairman of the Board, Chief Executive
Officer or a director of the Company, (ii) terminates, effective as of the
Effective Time, the Employment Agreement (other than Articles 10 and 11 thereof)
dated as of February 1, 1999, together with the Addendum dated as of February 1,
1999 (collectively, the "EMPLOYMENT AGREEMENT"), between you and the Company,
and (iii) provides for the severance you will be paid by the Company on and
after the Effective Time.
1. Effective as of the Effective Time, you will resign as the Chairman
of the Board and Chief Executive Officer of the Company and from all positions
you then occupy as an officer or director of the Company and any subsidiary or
affiliate of the Company and will terminate as an employee of the Company and
any subsidiary or affiliate of the Company.
2. In consideration of your entering into this Letter Agreement and in
lieu of any other severance or other payments or benefits that may be owed to
you in connection with your employment or your acting as or resigning as a
director, officer and employee of the Company as of the Effective Time or
otherwise by the Company (including, without limitation, under the Employment
Agreement), the Company agrees to pay you severance in the aggregate amount of
<PAGE>
$600,000 subject to the consummation of the Merger as follows: $200,000 at the
Effective Time and $200,000 on each of the first and second anniversaries of the
Effective Time.
3. (a) In view of the consideration to be received by you in
connection with the Merger and under this Letter Agreement and as a material
inducement to Omega and Newco to enter into the Merger, effective on and after
the Effective Time, you hereby waive, release and forever discharge the Company,
Omega and Newco and their respective subsidiaries and their respective
divisions, branches, predecessors, successors, assigns, directors, officers,
employees, agents, partners, members, stockholders, representatives and
attorneys, in their individual and representative capacities (collectively, the
"RELEASEES"), of and from any and all claims, rights, damages, demands, causes
of action or liabilities of any nature whatsoever, known or unknown, contingent
or fixed, whether due or to become due, that you have had, now have or may have
at any future time by reason of any cause, matter or thing whatsoever, directly
or indirectly, related to the Employment Agreement or otherwise in connection
with your employment with or acting as an officer or director of any Releasees
(collectively, "CLAIMS"), including without limitation under Title VII of the
Civil Rights Act of 1964, as amended, 42 U.S.C.ss.2000 et seq.; the Fair Labor
Standards Act, as amended, 29 U.S.C.ss.201 et seq.; the Age Discrimination in
Employment Act, 29 U.S.C.ss.621 et seq. (the "ADEA"); the Americans With
Disabilities Act, 42 U.S.C.ss.1001 et seq. and ss.12,112. et seq.; the Employee
Retirement Income Security Act of 1974, as amended, 29 U.S.C.ss.1001 et seq.;
the Reconstruction Era Civil Rights Act, as amended, 42 U.S.C.ss.1981 et seq.;
and all other federal, state and local laws, statutes, rules or regulations of
any type or description, including, without limitation, contract law, tort law,
civil rights laws, express or implied covenants of good faith or fair dealing,
and otherwise, regarding employment discrimination or the employment of labor,
which you or your heirs, executors, administrators, successors and assigns ever
had, now have or hereafter can, shall or may have against the Releasees or any
of them whatsoever from the beginning of the world to the Effective Time, except
for Claims arising under or in connection with this Letter Agreement and under
COBRA to continue to the extent provided under COBRA your medical benefits under
the Company's health plan, at your own expense, after the Effective Time.
(b) Notwithstanding anything to the contrary set forth in
paragraph 2 or this paragraph 3, you do not waive, discharge or release your
rights against the Company with respect to any claims for or rights to
indemnification or contribution under agreement, at law or in equity with
respect to any liability, obligation, loss or expense incurred by you, or claims
made against you, in your capacity as a shareholder, director, officer or
employee of the Company.
(c) For the purpose of implementing a full and complete release
and discharge of the Releasees you expressly acknowledge that the release set
out in this Letter Agreement is intended to include in its effect, without
limitation, all claims or other matters described in this paragraph 3 that you
do not know or suspect to exist in your favor at the time of execution hereof,
and that the release set out in this Letter Agreement contemplates the
extinguishment of any and all such claims or other such matters.
4. On or after the Effective Time, you hereby agree to take any and
all actions and execute any and all documents reasonably requested from time to
time by the Company to effectuate
2
<PAGE>
your no longer being or acting as a director, officer or employee of the Company
and in connection with extricating yourself from the business and operations of
the Company, including, without limitation, in connection with removing yourself
as a signatory and/or authorized party on all of the Company's bank, securities
and other accounts.
7. This Letter Agreement shall be governed by and construed
pursuant to the laws of the State of Florida. Any and all disputes between the
parties which may arise pursuant to this Letter Agreement will be heard and
determined before an appropriate federal court in Florida, or, if not
maintainable therein, then in an appropriate Florida state court.
8. (a) This Letter Agreement is personal in its nature and the
parties shall not, without the prior written consent of the other, assign or
transfer this Letter Agreement or any rights or obligations hereunder, PROVIDED,
HOWEVER, the provisions hereof shall inure to the benefit of, and be binding
upon, (i) each successor of the Company or any of its affiliates, whether by
merger, consolidation, transfer of all or substantially all of its assets or
similar transaction, and (ii) your heirs, legatees, executors, administrators
and legal representatives.
(b) This Letter Agreement contains the entire understanding of
the parties hereto relating to the subject matter herein contained and
supersedes, on and after the Effective Time, all prior agreements or
understandings between the parties hereto with respect thereto, including,
without limitation, the Employment Agreement (other than (i) as set forth in
Articles 10 and 11 of the Employment Agreement which shall survive the
termination thereof and (ii) those certain agreements being executed by you
concurrently herewith in connection with the Merger, including, without
limitation, the Online Affiliate Agreement, the Online Shareholder Agreement,
the Non- Competition and Non-Disclosure Agreement and the Voting Trust
Agreement). This Letter Agreement can be changed only by a writing signed by the
parties hereto and Omega and Newco, which are deemed to be third party
beneficiaries of and to this Letter Agreement for all purposes hereof. No waiver
shall be effective against a party unless in writing and signed by the party
against whom such waiver shall be enforced and Omega and Newco as third party
beneficiaries hereof.
7. For purposes of this Letter Agreement, notices and other
communications provided for in this Letter Agreement shall be deemed to be
properly given if delivered personally or sent by United States certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to you: Andrew A. Allen
4939 N.W. 23rd Court
Boca Raton, Florida 33471
If to the Company: 2700 N. Military Trail
Suite 200
Boca Raton, Florida 33431
Attention: President
3
<PAGE>
If to Omega or Newco: 8700 W. Flagler Street
Suite 250
Miami, Florida 33174
Attention: President,
or to such other address as either party may have furnished to the other party
in writing in accordance with this paragraph. Such notices or other
communications shall be effective only upon receipt. Notices also may be given
by facsimile and in such case shall be deemed to be properly given when sent so
long as the sender uses reasonable efforts to confirm and does confirm the
receiver's receipt of the facsimile transmission.
8. This Letter Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement.
9. You acknowledge and agree that, in deciding to execute this
Letter Agreement, you have relied entirely upon your own judgment, that you have
read this Letter Agreement and have had adequate time to consider its terms and
effects and to ask any question that you may have of anyone, including your
legal counsel, and that you have executed this Letter Agreement voluntarily and
with full understanding of its terms and effects on you, and that no fact,
evidence, event or transaction currently unknown to you but which may later
become known to you will affect in any way or manner the final and unconditional
nature of this Letter Agreement. You further acknowledge that (a) you were
advised to consult with an attorney before you executed this Letter Agreement
and (b) you were afforded sufficient opportunity to and did consult with an
attorney.
10. If the Merger Agreement is terminated before the Effective
Time, this Letter Agreement shall be null and void and of no force or effect.
BY SIGNING THIS LETTER AGREEMENT, YOU STATE THAT:
(a) YOU HAVE READ THIS LETTER AGREEMENT AND HAVE HAD SUFFICIENT
TIME TO CONSIDER ITS TERMS;
(b) YOU UNDERSTAND ALL OF THE TERMS AND CONDITIONS OF THIS
LETTER AGREEMENT AND KNOW THAT YOU ARE GIVING UP IMPORTANT RIGHTS;
(c) YOU AGREE WITH EVERYTHING IN THE LETTER AGREEMENT;
(d) YOU ARE AWARE OF YOUR RIGHT TO CONSULT WITH AN ATTORNEY
BEFORE SIGNING THIS LETTER AGREEMENT AND HAVE BEEN ADVISED OF SUCH RIGHT; AND
(e) YOU HAVE SIGNED THIS LETTER AGREEMENT KNOWINGLY AND
VOLUNTARILY.
4
<PAGE>
If the foregoing correctly sets forth our understanding, please sign
one copy of this Letter Agreement and return it to the undersigned, whereupon
this letter shall constitute a binding agreement between us and for the benefit
of Omega and Newco as third party beneficiaries.
Sincerely,
onlinetradinginc.com corp.
By: /S/ E. STEVEN ZUM TOBEL
------------------------------
E. Steven zum Tobel, President
ACCEPTED AND AGREED TO:
/S/ ANDREW A. ALLEN
-----------------------
Andrew A. Allen
5
<PAGE>
ROBERTSON
STEPHENS APPENDIX H
January 19, 2000
Board of Directors
Omega Research, Inc.
8700 West Flagler Street
Miami, FL 33174
Members of the Board:
We understand that Onlinetradinginc.com Corp. ("Online"), Omega Research, Inc,
("Omega"), Online Trading Group, Inc. ("Newco"), Omega Acquisition Corporation
(a wholly owned subsidiary of Newco, "Omega Merger Sub") and Onlinetrading
Acquisition Corporation (a wholly owned subsidiary of Newco, "Online Merger
Sub") are proposing to enter into an Agreement and Plan of Merger and
Reorganization dated as of January 19, 2000 (the "Agreement") which will
provide, among other things, for (i) the merger of Online Merger Sub with and
into Online and (ii) the merger of Omega Merger Sub with and into Omega (which
mergers are collectively referred to herein as the "Merger"). Upon consummation
of the Merger, Online and Omega will become wholly owned subsidiaries of Newco.
Under the terms set forth in the Agreement, at the effective time of the Merger
(the "Effective Time"), (i) each share of common stock of Omega, per value $.01
per share ("Omega Common Stock"), other then certain shares to be canceled
pursuant to the Agreement, will be converted into the right to receive one (1)
share (the "Omega Exchange Ratio") of the common stock of Newco, par value $.01
per share ("Newco Common Stock"), and (ii) each share of common stock of Online,
par value $.01 per share ("Online Common Stock"), other than certain shares to
be canceled pursuant to the Agreement and shares held by persons who properly
exercise dissenters' rights ("0nline Dissenting Shares"), will be converted into
the right to receive the number of shares of Newco Common Stock equal to the
"Online Exchange Ratio". As more specifically set forth in the Agreement, the
"Online Exchange Ratio" shall be equal to the quotient of (i) the 10 trading day
average of the last sale price of a share of Online Common Stock as reported on
Nasdaq over the period ending on the trading day prior to the date of the
Agreement divided by (ii) the 10 trading day average of the last sale price of a
share of Omega Common Stock as reported on the Nasdaq National Market over the
period ending on the third trading day prior to the closing date under the
Agreement; provided, however, that in no event shall the Online Exchange Ratio
be less than 1.3817 or more than 1.7172. The terms and conditions of the Merger
are set out more fully in the Agreement.
You have asked us whether, in our opinion, the Online Exchange Ratio is fair
from a financial point of view and as of the date hereof to Omega.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and
other business and financial information of Online and Omega,
respectively;
555 CALIFORNIA STREET SUITE 2600 SAN FRANCISCO CALIFORNIA 94104 415-781-9700
INVESTMENT BANKERS MEMBER OF ALL MAJOR EXCHANGES
<PAGE>
Board of Directors
Omega Research, Inc.
January 19,2000
Page 2
(ii) reviewed certain internal financial statements and other
financial and operating data, including certain financial
forecasts and other forward looking financial information,
concerning Online and Omega prepared by the managements of
Online and Omega, respectively;
(iii) held discussions with the respective management of Online and
Omega concerning the businesses, past and current operations,
financial condition and future prospects of both Online and
Omega, independently and combined, including discussions with
the managements of Online and Omega concerning cost savings
and other synergies that are expected to result from the
Merger as well as their views regarding the strategic
rationale for the Merger;
(iv) reviewed the financial terms and conditions set forth in the
Agreement;
(v) reviewed the stock price and trading history of Online Common
Stock and Omega Common Stock;
(vi) compared the financial performance of Online an the prices and
trading activity of Online Common Stock with that of certain
other publicly traded companies comparable with Online;
(vii) compared the financial terms of the Merger with the financial
terms, to the extent publicly available, of other transactions
that we deemed relevant;
(viii) reviewed the pro forma impact of the Merger on the combined
company's revenues and earnings per share;
(ix) prepared a discounted cash flow analysis of Online;
(x) participated in discussions and negotiations among
representatives of Online and Omega and their financial and
legal advisors; and
(xi) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by the managements of Online and Omega) or publicly
available and have neither attempted to verify, nor assumed responsibility for
verifying, any of such information. We have relied upon the assurances of the
managements of Online and Omega that they are not aware of any facts that would
make such information inaccurate or misleading. Furthermore, we did not obtain
or make, or assume any responsibility for obtaining or making, any independent
evaluation or appraisal of the properties, assets or liabilities (contingent or
otherwise) of Online or Omega, nor were we furnished with any such evaluation or
appraisal. With respect to the financial forecasts and projections (and the
assumptions and
<PAGE>
Board of Directors
Omega Research, Inc.
January 19, 2000
Page 3
bases therefor) for each of Online and Omega that we have reviewed, upon the
advice of the managements of Online and Omega, we have assumed that such
forecasts and projections have been reasonably prepared in good faith on the
basis of reasonable assumptions and reflect the best currently available
estimates and judgments as to the future financial condition and performance of
Online and Omega, respectively, and we have further assumed that such
projections and forecasts will be realized in the amounts and in the time
periods currently estimated. In this regard, we note that each of Online and
Omega face exposure to the Year 2000 problem. We have not undertaken any
independent analysis to evaluate the reliability or accuracy of the assumptions
made with respect to the potential effect that the Year 2000 problem might have
an Online's and Omega's respective forecasts. We have assumed that the Merger
will be consummated upon the terms set forth in the Agreement without material
alteration thereof, including, among other things, that the Merger will be
accounted for as a "pooling-of-interests" business combination in accordance
with U.S. generally accepted accounting principles ("GAAP") and that the Merger
will be treated as a tax-free reorganization pursuant to the Internal Revenue
Code of 1986, as amended. In addition, we have assumed that the historical
financial statements of each of Online and Omega reviewed by us have been
prepared and fairly presented in accordance with U.S. GAAP consistently applied.
We have relied as to all legal matters relevant to rendering our opinion on the
advice of counsel.
This opinion is necessarily based upon market, economic and other conditions as
in effect on, and information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect the conclusion
expressed in this opinion and that we disclaim any undertaking or obligation to
advise any person of any change in any matter affecting this opinion which may
come or be brought to our attention after the date of this opinion. Our opinion
is limited to the fairness, from a financial point of view and as to the date
hereof, to Omega of the Online Exchange Ratio. We do not express any opinion as
to (i) the value of any employee agreement or other arrangement entered into in
connection with the Merger, (ii) any tax or other consequences that might result
from the Merger or (iii) what the value of Newco Common Stock will be when
issued to the shareholders of Online and Omega pursuant to the Merger or the
price at which shares of Newco Common Stock may be traded in the future. Our
opinion does not address the relative merits of the Merger and the other
business strategies that Omega's Board of Directors has considered or may be
considering, nor does it address the decision of Omega's Board of Directors to
proceed with the Merger.
We are acting as financial advisor to Omega in connection with the Merger and
will receive (i) a fee contingent upon the delivery of this opinion and (ii) an
additional fee contingent upon the consummation of the Merger. In addition,
Omega has agreed to indemnify us for certain liabilities that may arise out of
our engagement. In the past, we have provided certain investment banking
services to Omega, including acting as lead manager on Omega's initial public
offering. We maintain a market in the shares of Omega Common Stock. In the
ordinary course of business, we may trade in Omega's securities and Online's
securities for our own account and the account of our customers and,
accordingly, may at any time hold a long or short position in Omega's securities
or Online's securities.
Our opinion expressed herein is provided for the information of the Board of
Directors of Omega in connection with its evaluation of the Merger. Our opinion
is not intended to be and does not constitute a recommendation to any
stockholder of Omega or Online as to how such stockholder should vote, or take
any other action, with respect to the Merger. This opinion may not be
summarized, described or referred to or furnished to any party except with our
express prior written consent.
<PAGE>
Board of Directors
Omega Research, Inc.
January 19, 2000
Page 4
Based upon and subject to the foregoing considerations, it is our opinion that,
as of the date hereof, the Online Exchange Ratio is fair to Omega from a
financial point of view.
Very truly yours,
/s/ FleetBoston Robertson Stephens Inc.
---------------------------------------
FLEETBOSTON ROBERTSON STEPHENS INC.
<PAGE>
RAYMOND JAMES &
ASSOCIATES, INC. APPENDIX I
January 19, 2000
Board of Directors
onlinetradinginc.com corp.
2700 North Military Trail
Suite 200
Boca Raton, FL 33431
Members of the Board:
We understand that onlinetradinginc.com corp. ("Online" or the
"Company") is contemplating a transaction whereby Online and Omega Research,
Inc. ("Omega") will be merged with and into a new, as yet unnamed holding
company ("NewCo") pursuant to the terms of an Agreement and Plan of Merger and
Reorganization and the exhibits and schedules thereto dated as of January 19,
2000 (the "Merger Agreement"), such that Online becomes a wholly owned
subsidiary of NewCo (the "Transaction"). Pursuant to the Transaction, each
outstanding share of common stock of Online, $.01 par value (the "Online Common
Stock"), shall be converted into shares of NewCo common stock (the "NewCo Common
Stock"), based on an exchange ratio (the "Exchange Ratio") as set forth in the
Merger Agreement. The Exchange Ratio shall be determined by dividing (i) the
weighted average of the closing prices of Online Common Stock as reported on the
Small Capitalization Market System of the National Association of Securities
Dealers for a period consisting of 10 days ending on January 18, 2000 by (ii)
the weighted average of the closing prices of Omega Common Stock as reported on
the National Market System of the National Association of Securities Dealers for
a period consisting of 10 days ending on the third day prior to the closing date
of the Transaction, subject to a minimum Exchange Ratio of 1.3817. The terms and
conditions of the Transaction are more fully set forth in the Merger Agreement.
You have requested our opinion as to whether the Exchange Ratio is fair
to the holders of Online Common Stock (the "Holders"), from a financial point of
view.
In connection with our review of the proposed Transaction and the
preparation of our opinion herein, we have, among other things:
1. reviewed Online's annual report to stockholders on Form SB-2/A
filed June 10, 1999, Online's quarterly reports to
stockholders on Forms 10-QSB filed December
<PAGE>
onlinetradinginc.com corp.
January 19, 2000
Page 2 of 4
15, 1999 and September 10, 1999, and other publicly available
financial information of Online;
2. reviewed Omega's annual report to stockholders on Form 10-K405
filed March 30, 1999, Omega's Form 8-K/A filed January 7,
2000, Omega's quarterly reports to stockholders on Forms 10-Q
filed November 12, 1999 and August 6, 1999, and other publicly
available financial information of Omega;
3. reviewed certain non-public information prepared by the
management of Online, including financial statements,
financial projections, and other financial and operating data
concerning Online;
4. reviewed certain non-public information prepared by the
management of Omega, including financial statements, financial
projections, and other financial and operating data concerning
Omega;
5. discussed the past and current operations and financial
condition and the prospects of Online and Omega with senior
executives of Online and Omega, respectively;
6. reviewed publicly available financial and stock market data
with respect to certain other companies in lines of business
we believe to be generally comparable to those of Online and
Omega;
7. considered the pro forma effects of the Transaction on the
financial statements of NewCo and reviewed certain estimates
of synergies prepared by the managements of Online and Omega;
8. reviewed the historical market prices of the Online Common
Stock and the common stock of Omega;
9. compared the financial terms of the Transaction with the
financial terms of certain other transactions which we believe
to be generally comparable to the Transaction;
10. reviewed a draft of the Merger Agreement; and
11. conducted other financial analyses, studies, and
investigations, and considered other information as we deemed
necessary or appropriate.
In connection with our review, we have not assumed any responsibility
for independent verification for any of the information reviewed by us for the
purpose of this opinion and have relied on its being complete and accurate in
all material respects. In addition, we have not made or
<PAGE>
onlinetradinginc.com corp.
January 19, 2000
Page 3 of 4
received any independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of Online and Omega, nor have we been
furnished with any such evaluation or appraisal. With respect to the financial
forecasts, estimates, projections, pro forma effects, calculations of synergies
and other information referred to above, we have assumed, at your direction,
that they have been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of each company, and we have
relied upon each party to advise us promptly if any such information previously
provided to or discussed with us became inaccurate or was required to be updated
during the period of our review. In addition, we have assumed the Transaction
will be consummated substantially in accordance with the terms set forth in the
draft of the Merger Agreement.
In rendering our opinion, we have assumed, with your consent, that the
Transaction will receive pooling-of-interests accounting treatment and will
qualify as a tax-free reorganization. Our opinion is necessarily based on the
economic, market financial and other circumstances and conditions in effect on
January 19, 1999, and any material change in such circumstances or conditions
would require reevaluation of this opinion, which we are under no obligation to
undertake.
We express no opinion as to the underlying business decision to effect
the Transaction, the structure or tax consequences of the Merger Agreement, or
the availability or advisability of any alternatives to the Transaction. This
letter does not express any opinion as to the likely trading range for the NewCo
Common Stock following the consummation of the Transaction, which may vary
depending on numerous factors that generally impact the price of securities. Our
opinion is limited to the fairness, from a financial point of view, of the
Exchange Ratio to the Holders. We express no opinion with respect to any other
reasons, legal, business, or otherwise, that may support the decision of the
Board of Directors to approve, or in Online's decision to consummate, the
Transaction.
In conducting our investigation and analyses and in arriving at our
opinion expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including the review of (i) historical and projected revenues, operating
earnings, net income and capitalization of Online and Omega and certain other
publicly held companies in businesses we believe to be comparable to Online and
Omega; (ii) the current and projected financial position and results of
operations of Online and Omega; (iii) the historical market prices and trading
activity of the Online Common Stock and the common stock of Omega; (iv)
financial and operating information concerning selected business combinations
which we deemed comparable in whole or in part; and (v) the general condition of
the securities markets.
Raymond James & Associates ("Raymond James") is actively involved in
the investment banking business and regularly undertakes the valuation of
investment securities in connection with public offerings, private placements,
business combinations and similar transactions. In the past, Raymond James has
performed certain investment banking services for Omega and has received
<PAGE>
onlinetradinginc.com corp.
January 19, 2000
Page 4 of 4
customary fees for such services. Raymond James has acted as financial advisor
to the Board of Directors of Online in connection with the Transaction and will
receive a fee upon the consummation thereof, which fee is contingent upon the
value of the Transaction. In the ordinary course of business, Raymond James may
trade in the securities of Online and Omega for its own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that our advisory services and opinion expressed
herein were prepared for the use of the Board of Directors of Online in
evaluating the proposed Transaction and do not constitute a recommendation to
any shareholder of Online regarding how such shareholder should vote on the
proposed Transaction. This opinion is not to be quoted or referred to, in whole
or in part, without the prior written consent of Raymond James, which will not
be unreasonably withheld. We have consented to the inclusion of this letter in
its entirety in the proxy statement to be filed by Online with the Securities
and Exchange Commission in connection with the Transaction.
In arriving at this opinion, Raymond James did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Raymond James believes that its analyses must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying this
opinion.
Based upon and subject to the foregoing, it is our opinion that, as of
January 19, 1999, the Exchange Ratio pursuant to the Merger Agreement is fair,
from a financial point of view, to the Holders.
Respectfully submitted,
/s/ Raymond James & Associates, Inc.
RAYMOND JAMES & ASSOCIATES, INC.
<PAGE>
DEALER PROSPECTUS DELIVERY OBLIGATION
Until _____________, 2000, all dealers that effect transactions in
these securities, whether or not participating in this offering, may be required
to deliver this joint proxy statement/prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
REVOCABLE PROXY
OMEGA RESEARCH, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Omega Research, Inc. ("Omega Research")
hereby appoints William R. Cruz and Ralph L. Cruz, or either of them, with full
power of substitution in each, as proxies to cast all votes which the
undersigned shareholder is entitled to cast at the special meeting of
shareholders (the "Omega Research Meeting") to be held at _______ a.m. on
________________, 2000 at _______________________, ___________________________,
Florida and at any adjournments or postponements thereof, upon the matters
described in this proxy. The undersigned shareholder hereby revokes any proxy or
proxies heretofore given.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO CHOICE IS SPECIFIED, this proxy will be voted:
(A) to approve and adopt an agreement and plan of merger and reorganization,
dated as of January 19, 2000, among Omega Research, OnlineTrading.com corp.
("OnlineTrading.com"), OnlineTrading.com Group, Inc. ("OnlineTrading.com
Group"), Omega Acquisition Corporation ("Omega Acquisition") and Onlinetrading
Acquisition Corporation ("Online Acquisition") and the mergers and other
transactions provided for therein, pursuant to which (i) Online Acquisition, a
wholly-owned subsidiary of OnlineTrading.com Group, will merge with and into
OnlineTrading.com, with OnlineTrading.com surviving the merger as a wholly-owned
subsidiary of OnlineTrading.com Group, (ii) Omega Acquisition, a wholly- owned
subsidiary of OnlineTrading.com Group, will merge with and into Omega Research,
with Omega Research, surviving the merger as a wholly-owned subsidiary of
OnlineTrading.com Group, and (iii) each share of Omega Research common stock
will be converted into the right to receive one share of OnlineTrading.com Group
common stock, and (B) to approve and adopt an amendment to Omega Research's
Amended and Restated 1996 Incentive Stock Plan (the "Incentive Stock Plan") to
increase the number of shares of common stock, $.01 par value, reserved for
issuance under the Incentive Stock Plan from 4,500,000 shares to 7,500,000
shares, subject to further antidilution requirements.
The undersigned shareholder may revoke this proxy at any time before it
is voted by (i) delivering to the Corporate Secretary of Omega Research a
written notice of revocation prior to the Omega Research Meeting, (ii)
delivering to Omega Research prior to the Omega Research Meeting a duly executed
proxy bearing a later date, or (iii) attending the Omega Research Meeting and
voting in person. The undersigned shareholder hereby acknowledges receipt of
Omega Research's Notice of Special Meeting and Joint Proxy Statement/Prospectus
dated _______________, 2000.
If you receive more than one proxy card, please sign and return all
cards in the accompanying envelope.
(CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE)
<PAGE>
Proposal 1: To approve and adopt the Agreement and Plan of Merger and
Reorganization, dated as of January 19, 2000, among Omega Research,
OnlineTrading.com, OnlineTrading.com Group, Omega Acquisition and Online
Acquisition, and the mergers and other transactions provided for therein,
pursuant to which (i) Online Acquisition will be merged with and into
OnlineTrading.com, with OnlineTrading.com surviving the merger as a wholly-owned
subsidiary of OnlineTrading.com Group, (ii) Omega Acquisition will be merged
with and into Omega Research, with Omega Research surviving the merger as a
wholly-owned subsidiary of OnlineTrading.com Group, and (iii) each share of
Omega Research common stock will be converted into the right to receive one
share of OnlineTrading.com Group common stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Proposal 2: To approve and adopt an amendment to the Incentive Stock Plan to
increase the number of shares of common stock, $.01 par value, reserved for
issuance under the Incentive Stock Plan from 4,500,000 shares to 7,500,000
shares, subject to further antidilution requirements.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Other Matters: In their discretion, to transact such other business as may
properly come before the meeting or any adjournments or postponements thereof.
This proxy card must be properly completed, signed and dated and returned in
order to have your shares voted.
Date: , 2000
---------------------- -----------------------------------------
Signature of Authorized Representative(s)
Please date and sign exactly as name appears hereon. Each executor,
administrator, trustee, guardian, attorney-in-fact and other fiduciary should
sign and indicate his or her full title. When stock has been issued in the name
of two or more persons, all should sign.
