SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 3)
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
ONLINETRADINGINC.COM CORP.
................................................................................
(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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[OnlineTrading.com Letterhead]
Dear onlinetradinginc.com Shareholders:
I am writing to you today about the proposed merger and combination of
onlinetradinginc.com corp. with Omega Research, Inc. pursuant to which a new
holding company will be formed to own both Omega Research and
OnlineTrading.com. The board of directors of OnlineTrading.com and Omega
Research 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 TradeStation Group, Inc. pursuant to the formula
described in this joint proxy statement/prospectus. The exchange ratio formula
will provide Omega Research shareholders with one share of TradeStation 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 TradeStation Group common stock for each
outstanding share of OnlineTrading.com common stock, resulting in
OnlineTrading.com shareholders owning between 38% and 43% of TradeStation
Group. Omega Research shareholders will own the remaining shares of
TradeStation Group. The merger is described more fully in this joint proxy
statement/prospectus. The merger is intended to qualify as a tax-free
reorganization. TradeStation Group is to be the publicly-traded company, its
shares of common stock issued to you will be listed on The Nasdaq National
Market.
Your board of directors has determined that the terms and conditions of
the merger 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 and the merger.
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 TradeStation Group with and into each
of Omega Research and OnlineTrading.com to accomplish the merger and
reorganization transaction. 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.
OnlineTrading.com shareholders owning approximately 77% of the shares of
OnlineTrading.com have already contractually agreed to vote in favor of the
merger. In addition, Omega Research shareholders owning approximately 74% of
the shares of Omega Research 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, you MUST vote "FOR" the proposal 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 proposal. We urge you to vote FOR this
proposal.
Sincerely yours,
___________________________________________
E. Steven zum Tobel
President
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of this transaction or the securities of
TradeStation 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 OnlineTrading.com shareholders on or about , 2000.
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REFERENCES TO ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Omega Research, OnlineTrading.com and TradeStation
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 .
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onlinetradinginc.com corp.
2700 N. Military Trail
Suite 200
Boca Raton, Florida 33431
(561) 995-1010
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2000
We will hold a special meeting of shareholders of onlinetradinginc.com
corp. 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.,
onlinetradinginc.com corp., TradeStation Group, Inc., 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 TradeStation 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 TradeStation Group.
o An exchange ratio formula for Omega Research's common stock fixed at
one share of TradeStation 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 TradeStation Group common
stock for each outstanding share of OnlineTrading.com common stock,
resulting in OnlineTrading.com shareholders owning between 38% and 43%
of TradeStation Group.
o Each outstanding option or warrant to purchase shares of Omega
Research or OnlineTrading.com common stock to be assumed by
TradeStation Group and converted into an option or warrant to purchase
shares of TradeStation Group common stock, as more fully described in
this joint proxy statement/prospectus.
o TradeStation Group to be the publicly-traded company and its shares of
common stock to be listed on The Nasdaq National Market.
(2) To transact such other business as may properly come before the meeting
or any agreements or postponements thereof.
OnlineTrading.com's board of directors has determined that the merger is
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.
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, OnlineTrading.com's shareholders have
dissenters' rights as described in this joint proxy statement/prospectus. A
copy of the Florida laws governing dissenters'
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rights, which is required by law to be delivered to you with this Notice, has
been reprinted under "Dissenters' or Appraisal Rights" in this joint proxy
statement/prospectus.
Only OnlineTrading.com shareholders of record at the close of business on
December 1, 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
OnlineTrading.com common stock representing a majority of the outstanding
shares of OnlineTrading.com common stock entitled to vote at the special
meeting.
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 certificates at this time. If the merger is
consummated, TradeStation Group will send instructions to you explaining how to
exchange your shares for the appropriate number of shares of TradeStation
Group.
If you have any questions about the merger, please call OnlineTrading.com
Investor Relations at (561) 995-1010.
By Order of the Board of Directors
_______________________________________
E. Steven zum Tobel
President
Boca Raton, Florida
, 2000
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TABLE OF CONTENTS
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SUMMARY .................................................................................. 1
RISK FACTORS ............................................................................. 7
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 TradeStation Group Common Stock may Decline as a Result of the
Merger ............................................................................... 7
We May Need Cash in the Foreseeable Future ............................................. 7
Failure of the Merger to Qualify as a Pooling-of-Interests Would Negatively Affect
TradeStation Group's Financial Results ............................................... 8
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 ..................... 9
The Change of Business Model Will Result in us Engaging in Businesses in Which we do
not Have Much Experience ............................................................. 9
Our Transition to the New Business Model Requires the Creation and Integration of
Complex Technology, and May Result in Errors or Other Problems Which Could
Negatively Affect Customer Acceptance ................................................ 9
Our Transition to the New Business Model Requires Rapid and Substantial Changes to
Our Infrastructure ................................................................... 10
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 .......................................................................... 11
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 ............................................................... 11
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 ................. 12
Systems Failure May Result in Our Inability to Deliver on Time, or at all, Important and
Time-Sensitive Services to Our Customers ............................................. 12
There are Several Factors that May Cause Fluctuations in TradeStation Group's Quarterly
Operating Results, Which Would Likely Result in Significant Volatility in its Stock 13
Price Our Industry is Intensely Competitive, Which Makes it Difficult to Attract and
Retain Customers ..................................................................... 13
We May Not Adequately Transition Our Business to the Internet .......................... 14
The Internet, as it Grows, May Have Problems That Affect Our Business .................. 14
Fluctuations in the Securities and Financial Markets may Affect Our Rates of Customers
Acquisition, Retention and Trading Activity .......................................... 14
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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 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 TradeStation 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 ............................................................. 20
COMPARATIVE PER SHARE DATA ............................................................... 21
Omega Research Market Price Data ....................................................... 22
Listing of TradeStation Group Common Stock ............................................. 22
Omega Research/TradeStation Group Dividend Policy ...................................... 22
OnlineTrading.com Market Price Data .................................................... 23
OnlineTrading.com Dividend Policy ...................................................... 23
Recent Closing Prices .................................................................. 24
THE SPECIAL MEETINGS ..................................................................... 24
Joint Proxy Statement/Prospectus ....................................................... 24
Date, Time and Place of Special Meetings ............................................... 24
Matters to be Considered at Each Special Meeting ....................................... 24
Record Date and Shares Entitled to Vote ................................................ 25
Voting of Proxies ...................................................................... 25
Vote Required .......................................................................... 25
Quorum; Abstentions and Broker Non-Votes ............................................... 26
Solicitation of Proxies and Expenses ................................................... 26
Dissenters' or Appraisal Rights ........................................................ 26
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THE PROPOSED MERGER ................................................................... 28
Background of the Merger ............................................................ 28
Omega Research's Reasons for the Merger ............................................. 31
Recommendation of Omega Research's Board of Directors ............................... 32
OnlineTrading.com's Reasons for the Merger .......................................... 33
Recommendation of OnlineTrading.com's Board of Directors ............................ 34
Opinion of Financial Advisor to Omega Research ...................................... 34
Projected Financial Information for OnlineTrading.com Considered by
Omega Research's Board ............................................................ 42
Opinion of Financial Advisor to OnlineTrading.com ................................... 42
Projected Financial Information Considered by OnlineTrading.com's Board ............. 48
Interests of Certain Directors, Officers and Affiliates in the Merger ............... 49
Regulatory Approvals ................................................................ 49
Regulatory Matters Following the Merger ............................................. 50
Federal Income Tax Considerations ................................................... 51
Accounting Treatment ................................................................ 52
Dissenters' or Appraisal Rights ..................................................... 53
Listing of TradeStation Group Common Stock .......................................... 58
Restrictions on Sale of Shares By Affiliates of Omega Research and OnlineTrading.com 59
Operations Following the Merger ..................................................... 59
THE MERGER AGREEMENT AND RELATED AGREEMENTS ........................................... 60
The Merger .......................................................................... 60
Effective Time ...................................................................... 60
Directors and Officers After the Merger ............................................. 60
Voting Trust Agreement .............................................................. 61
Conversion of Shares in the Merger .................................................. 63
Price Sensitivity Analysis .......................................................... 63
Omega Research and OnlineTrading.com Stock Options, Warrants and Stock Plans ........ 65
No Fractional Shares ................................................................ 65
The Exchange Agent .................................................................. 66
Exchange of Omega Research and OnlineTrading.com Stock Certificates for TradeStation
Group Stock Certificates .......................................................... 66
Distributions with Respect to Unexchanged Shares .................................... 66
Representations and Warranties ...................................................... 66
Conduct of Business before Completion of the Merger ................................. 68
No Solicitation of Transactions ..................................................... 70
Director and Officer Indemnification and Insurance .................................. 72
Conditions to the Merger ............................................................ 72
Termination of the Merger Agreement ................................................. 74
Payment of Fees and Expenses ........................................................ 76
Extension, Waiver and Amendment of the Merger Agreement ............................. 78
Shareholder Agreements .............................................................. 79
Employment Agreements ............................................................... 79
Non-Competition and Non-Disclosure Agreements ....................................... 80
Stock Option Agreements ............................................................. 80
Affiliate Agreements ................................................................ 80
AMENDMENT OF OMEGA RESEARCH INCENTIVE STOCK PLAN ...................................... 81
PRO FORMA COMBINED FINANCIAL STATEMENTS ............................................... 82
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BUSINESS AND FINANCIAL INFORMATION REGARDING OMEGA RESEARCH ............................ 89
Overview and Recent Developments ..................................................... 89
Industry Background .................................................................. 90
Products and Services ................................................................ 91
Sales and Marketing .................................................................. 94
Strategic Relationships .............................................................. 95
Product Development and Year 2000 Compliance ......................................... 96
Customer Support and Training ........................................................ 98
Competition .......................................................................... 98
Intellectual Property ................................................................ 99
Employees ............................................................................ 100
Properties ........................................................................... 101
Legal Proceedings .................................................................... 101
Selected Consolidated Financial Data ................................................. 102
Management's Discussion and Analysis of Financial Condition and Results of Operations 103
BUSINESS AND FINANCIAL INFORMATION REGARDING ONLINETRADING.COM ......................... 116
Overview and Recent Developments ..................................................... 116
Industry Trends ...................................................................... 116
OnlineTrading.com's Business ......................................................... 116
OnlineTrading.com's Business Strategy ................................................ 118
Strategic Relationships .............................................................. 119
Competition .......................................................................... 119
Government Regulation ................................................................ 120
Net Capital Requirements; Liquidity .................................................. 120
Additional Regulation ................................................................ 121
Employees ............................................................................ 122
Properties ........................................................................... 122
Legal Proceedings .................................................................... 122
Management's Discussion and Analysis of Financial Condition and Results of Operations 123
SELECTED INFORMATION WITH RESPECT TO OMEGA RESEARCH .................................... 130
Executive Officers and Directors ..................................................... 130
Independent Directors; Committees of the Board of Directors .......................... 132
Section 16(a) Beneficial Ownership Reporting Compliance .............................. 132
Executive Compensation Tables ........................................................ 133
Other Compensation Arrangements ...................................................... 135
Non-Competition Agreements ........................................................... 144
Compensation Committee Interlocks and Insider Participation .......................... 144
Director Compensation ................................................................ 144
Certain Transactions ................................................................. 145
Security Ownership of Certain Beneficial Owners and Management of Omega Research ..... 146
SELECTED INFORMATION WITH RESPECT TO ONLINETRADING.COM ................................. 147
Executive Officers and Directors ..................................................... 147
Section 16(a) Beneficial Ownership Reporting Compliance .............................. 148
Executive Compensation ............................................................... 149
Employment Agreements ................................................................ 149
Stock Option Plan .................................................................... 150
Certain Transactions ................................................................. 151
Security Ownership of Certain Beneficial Owners and Management of OnlineTrading.com .. 152
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DESCRIPTION OF SECURITIES OF TRADESTATION GROUP ............. 153
COMPARISON OF RIGHTS OF HOLDERS OF
ONLINETRADING.COM COMMON STOCK AND
OMEGA RESEARCH AND TRADESTATION GROUP COMMON STOCK ......... 156
Authorized Capital ........................................ 156
Voting Power of Common Stock .............................. 157
Board of Directors ........................................ 157
Removal of Directors ...................................... 157
Filling Vacancies on the Board of Directors ............... 157
Actions by Written Consent ................................ 158
Amendment of Articles of Incorporation .................... 158
Amendment of Bylaws ....................................... 159
Notice of Certain Shareholder Actions ..................... 159
Special Meetings .......................................... 160
Dissenters' or Appraisal Rights ........................... 161
EXPERTS ..................................................... 161
LEGAL MATTERS ............................................... 162
WHERE YOU CAN FIND MORE INFORMATION ......................... 162
SHAREHOLDER PROPOSALS ....................................... 163
OTHER MATTERS ............................................... 163
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ........... 163
INDEX TO FINANCIAL STATEMENTS ............................... F-1
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APPENDICES
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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
This summary highlights important information contained in this joint
proxy statement/prospectus relating to the pending merger of Omega Research and
OnlineTrading.com. After reading this summary, you should carefully read this
entire document and the other documents we refer to for a more complete
understanding of the merger. In particular, you should read the documents
attached as appendices to this joint proxy statement/prospectus, which include
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 TradeStation 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.
Omega Research and OnlineTrading.com are Merging (See Page )
Omega Research and OnlineTrading.com, currently each a publicly-traded
company, have entered into an agreement to merge. Under the structure of the
merger, TradeStation Group, which was recently formed solely for purposes of
the merger, will be the publicly-traded company in which Omega Research and
OnlineTrading.com shareholders will own shares. Those TradeStation Group shares
are to be listed on The Nasdaq National Market. Omega Research and
OnlineTrading.com will be independent operating subsidiaries of TradeStation
Group. OnlineTrading.com will operate as a brokerage firm, and Omega Research
will operate as a technology company that will design and provide real-time
trading platforms and support services to the brokerage operations, as well as
certain trading strategy tools and services to the public. We expect to
complete the merger in December 2000.
Merger Consideration is Determined by an Exchange Ratio Formula (See Page )
When the merger is consummated, Omega Research and OnlineTrading.com
shareholders will each receive a certain number of TradeStation Group shares in
exchange for their Omega Research and OnlineTrading.com shares. The number of
shares of TradeStation Group shares received will be determined by an exchange
ratio formula.
Under that formula, each share of Omega Research common stock will be
exchanged for one share of TradeStation Group common stock, a 1-to-1 ratio. The
OnlineTrading.com exchange ratio is more complex. The exchange ratio for
OnlineTrading.com shareholders will, subject to a "floor" and "ceiling," be
determined by the market price of Omega Research common stock prior to closing.
If the market price of Omega Research common stock is higher than $8.00 prior
to closing of the merger, OnlineTrading.com shareholders will receive 1.3817
shares of TradeStation Group common stock in exchange for each of their shares
of TradeStation Group, or approximately 38% aggregate ownership of TradeStation
Group. If the market price of Omega Research common stock is lower than $6.45
prior to the closing of the merger, they will receive 1.7172 shares, or
approximately 43% aggregate ownership, of TradeStation Group. If the market
price of Omega Research common stock prior to closing of the merger is between
$6.45 and $8.00, the exchange ratio for OnlineTrading.com shares will be
between 1.3817 and 1.7172 shares of TradeStation Group common stock, and the
OnlineTrading.com shareholders will own, in the aggregate, between 38% and 43%
of TradeStation Group. This ratio, subject to the "floor" and "ceiling,"
compares the market price of Omega Research common stock prior to the closing
of the merger against OnlineTrading.com's $11.0625 average market price
immediately prior to the signing of the merger agreement. The market price of
Omega Research's common stock prior to closing of the merger is determined by
calculating the average of the last sale prices of a share of Omega Research
common stock for the 10-day trading period ending on the third day prior to the
closing of the merger.
1
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Based upon the average market price of Omega Research common stock over
the 10-day trading period ended November 20, 2000, OnlineTrading.com
shareholders would receive 1.7172 shares of TradeStation Group common stock for
each of their shares, and own in the aggregate approximately 43% of
TradeStation Group.
Please see "THE MERGER AGREEMENT AND RELATED AGREEMENTS--Price Sensitivity
Analysis" for a more detailed description of how the OnlineTrading.com exchange
ratio formula works and to see illustrations of how it would operate under
various scenarios.
Each outstanding option and warrant to purchase shares of Omega Research
and OnlineTrading.com common stock will be assumed by TradeStation Group and
converted into an option or warrant to purchase shares of TradeStation 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 TradeStation Group.
Restrictions on the Ability to Sell TradeStation Group Stock (See Page )
All shares of TradeStation 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 TradeStation 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.
Control and Management of TradeStation Group (See Pages and )
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 41.3% and 45.3% of the outstanding shares
of TradeStation Group common stock. In addition, the Cruzes should be able to
elect at least five of TradeStation Group's eight directors for at least the
next two years. Upon consummation of the merger, the board of directors of
TradeStation Group will consist of eight directors, five of whom will be
designated by Omega Research and three of whom will be designated by
OnlineTrading.com. The executive officers of TradeStation Group will be
comprised of certain current executive officers of Omega Research and
OnlineTrading.com.
Affiliated Shareholders Owning a Majority of the Outstanding Shares of Each
Company Have Already Agreed to Vote in Favor of the Merger, Assuring its
Approval (See Page )
Approximately 74% of the outstanding shares of Omega Research are owned by
its Co-Chairmen and Co-Chief Executive Officers, brothers William and Ralph
Cruz. Approximately 77% of the outstanding shares of OnlineTrading.com are
owned by its officers and directors and a former director. All of these people
have signed shareholder agreements in the forms attached as Exhibits B and C,
respectively, under which they have promised to vote all of their shares in
favor of the merger. This means that no matter how you vote, the merger will be
approved by the required number of shareholders of both companies.
Risks Involved with the Merger (See Page )
An investment in TradeStation Group common stock will involve a high
degree of risk. You should carefully consider the risk factors set forth in the
section entitled "RISK FACTORS."
Interests of Executive Officers, Directors and Affiliates in the Merger (See
Pages and )
Farshid Tafazzoli (Chief Information Officer of OnlineTrading.com), E.
Steven zum Tobel (President, Acting Chief Financial Officer and Treasurer of
OnlineTrading.com) and Derek Hernquist
2
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(Vice President of Operations and Secretary of OnlineTrading.com) have each
entered into new employment agreements with OnlineTrading.com. These new
employment agreements, which are for a two year term and contain different
salary and bonus arrangements than Messrs. Tafazzoli, zum Tobel and Hernquist's
current employment agreements, are contingent and effective upon completion of
the merger.
Andrew A. Allen, Chairman of the Board and Chief Executive Officer of
OnlineTrading.com, is entitled to a severance payment of approximately $600,000
if he elects to terminate his employment following the change in control
produced by the merger. Due to a personal tragedy, Mr. Allen has indicated that
those rights will be triggered, and the parties have entered into a severance
agreement, effective upon closing of the merger, to formalize his employment
termination as of such time and the payment to him of the $600,000 severance
amount.
The directors and officers of both Omega Research and OnlineTrading.com
have continuing indemnification against liabilities under customary
indemnification agreements of the type normally given to directors and
executive officers of public companies.
Shareholders of Both Companies Need to Vote on the Merger (See Page )
The holders of a majority of the outstanding shares of each of Omega
Research and OnlineTrading.com common stock must formally approve the merger
agreement and the merger. Even though shareholders owning a majority of each
company's shares have agreed by contract to vote in favor of 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 December 1, 2000, and for OnlineTrading.com common stock is December
1, 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.
Rights of Shareholders Who Oppose the Merger (See Page )
OnlineTrading.com shareholders are entitled to dissenters' rights under
Florida law. An Omega Research shareholder who does not vote in favor of the
merger is not entitled to dissenters', appraisal or any equivalent or similar
rights under Florida law.
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.
Financial Advisors Opined that the Consideration is Fair to Omega Research and
to OnlineTrading.com Shareholders (See Pages and )
FleetBoston Robertson Stephens Inc. 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 TradeStation 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 the opinion.
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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. 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 TradeStation 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. Each of the boards of directors of Omega Research and
OnlineTrading.com considered that it was agreeing on the merger exchange ratio
formula based on, among other things, the relative market values of Omega
Research and OnlineTrading.com at the time of entering into the merger
agreement, and that each party would bear the risks of market changes after
that date. In addition, in November 2000 Omega Research restated its
consolidated financial statements for the six consecutive fiscal quarters ended
June 30, 2000 and we encourage you to consider the opinions in light of such
restatements. The boards of directors of each of Omega Research and
OnlineTrading.com have not changed their recommendation that their respective
shareholders vote for the merger.
How to Vote (See Page )
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.
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 TradeStation 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 TradeStation
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.
TradeStation 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 TradeStation Group's financial statements for periods prior to the
effective time of the merger we will be treated as
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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.
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
other 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
TradeStation Group, Inc.
8700 West Flagler Street
Miami, Florida 33174
(305) 485-7000
TradeStation Group is a holding company formed by Omega Research under the
laws of the State of Florida. TradeStation Group was initially formed under the
name Online Trading Group, Inc.; its name was shortly thereafter changed to
OnlineTrading.com Group, Inc. and its name was further changed to TradeStation
Group, Inc. by filing Second Articles of Amendment to its Articles of
Incorporation with the Department of State of the State of Florida on July 28,
2000. After the consummation of the merger, Omega Research and
OnlineTrading.com will be wholly-owned subsidiaries of TradeStation Group.
TradeStation Group will engage in business only through its wholly-owned
subsidiaries, each of which shall operate a separate, independent business.
Accordingly, prior to the consummation of the merger, TradeStation Group will
not engage in any business. Balance sheets of TradeStation Group as of
September 30, 2000 (unaudited) and June 30, 2000 (audited) (including a note
thereto) are included on pages F-48 through F-50.
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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 200
Boca Raton, Florida 33431
(561) 995-1010
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, TradeStation 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.
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RISK FACTORS
By voting in favor of the merger, you will be choosing to invest in
TradeStation Group common stock. An investment in TradeStation 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 TradeStation Group, Omega
Research and/or OnlineTrading.com may be seriously harmed. In such case, the
trading price of TradeStation 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 TradeStation 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 TradeStation 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 TradeStation 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 the date of this joint proxy
statement/prospectus, 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
TradeStation Group common stock after the completion of the merger. See "THE
MERGER AGREEMENT AND RELATED AGREEMENTS--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 TradeStation Group shares in the merger,
TradeStation Group's financial results, including earnings per share, could be
materially adversely affected. Specifically, TradeStation Group expects to
record a one-time charge of approximately $4.5 million related to the merger
during the quarter in which the merger is completed.
The Market Price of TradeStation Group Common Stock may Decline as a Result of
the Merger
The market price of TradeStation 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.
We May Need Cash in the Foreseeable Future
Omega Research is experiencing a period of net losses. As of September 30,
2000, Omega Research had approximately $1.5 million in cash, cash equivalents
and marketable securities to
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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 $16
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.
Failure of the Merger to Qualify as a Pooling-of-Interests Would Negatively
Affect TradeStation 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 TradeStation Group's reported earnings and, likely, the price of
TradeStation 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.
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
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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 TradeStation 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 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, and May Result in Errors or Other Problems 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 proprietary order routing and execution
technology, and the integration of that technology with TradeStation Pro, which
itself is currently under development, in order to be able to access electronic
order execution from the TradeStation Pro 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
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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 business operations: 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 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
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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 December (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 one year. 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 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
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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 displayed
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.
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.
12
<PAGE>
There are Several Factors that May Cause Fluctuations in TradeStation 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 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;
o Omega Research's development and launch of TradeStation Pro and other
trading strategy platforms;
o development and launch of the proprietary electronic order routing and
execution technology;
o the integration and launch of TradeStation Pro as a platform for the
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 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
13
<PAGE>
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; reliability; customer service and support;
and sales and marketing efforts. See "Business and Financial Information
Regarding Omega Research--Competition."
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
14
<PAGE>
orders or suspend, enjoin or expel OnlineTrading.com or any of its officers or
employees who violate 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. 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
15
<PAGE>
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.
Failure to Receive the Benefits of the Bridge Telerate Royalty Fees in 2001
could Cause Cash Problems and Negatively Affect Revenues and Earnings
Omega Research is party to a Software License, Maintenance and Development
Agreement with Telerate, Inc. relating to TradeStation. The agreement provides
a substantial, high-margin, minimum royalty stream in 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 2001. 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 Telerate, Inc.
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, TradeStation 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 TradeStation 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
16
<PAGE>
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."
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 TradeStation 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 TradeStation Group common stock. Assuming the minimum and maximum exchange
ratio of 1.3817 and 1.7172 shares of TradeStation Group common stock for each
share of OnlineTrading.com common stock, the Cruzes will own between
approximately 41.3% and 45.3% of the outstanding shares of TradeStation 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
TradeStation Group. As a result, the Cruzes will control TradeStation Group.
17
<PAGE>
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 nine months
ended September 30, 2000 and 1999 and the consolidated balance sheet data as of
September 30, 2000 have been derived from Omega Research's unaudited interim
financial statements included in pages F-2 through F-27 of this joint proxy
statement/prospectus. The consolidated balance sheet data as of September 30,
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 in pages F-2 through F-27 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 14 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
Nine Months Ended As of and for the
September 30, Year Ended December 31,
--------------------- --------------------------------------------------------------
2000 1999 1999(1) 1998 1997 1996 1995
---------- ---------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF (In thousands, except per share data)
OPERATIONS DATA:
Total net revenues ...................... $ 27,076 $ 17,922 $ 23,737 $ 28,217 $ 29,226 $ 17,820 $ 9,415
Total operating expenses ................ 36,680 20,404 30,218 25,633 20,432 10,798 6,127
(Loss) income from operations ........... (9,604) (2,482) (6,481) 2,584 8,794 7,022 3,288
Historical net (loss) income ............ (9,518) (1,265) (3,723) 1,956 9,874 7,082 3,312
Pro forma net income(2) ................. 5,452 4,285 2,004
Historical net (loss) earnings per share:
Basic .................................. $ (0.39) $ (0.06) $ (0.16) $ 0.09 $ 0.49 $ 0.36 $ 0.17
Diluted ................................ (0.39) (0.06) (0.16) 0.09 0.47 0.34 0.16
Pro forma earnings per share(2):
Basic .................................. $ 0.27 $ 0.22 $ 0.10
Diluted ................................ 0.26 0.21 0.10
Weighted average shares outstanding:
Basic .................................. 24,568 22,374 22,759 22,256 20,172 19,480 19,480
Diluted ................................ 24,568 22,374 22,759 22,758 20,885 20,541 20,541
CONSOLIDATED BALANCE SHEET DATA:
Total assets ............................ $ 32,110 $ 29,572 $ 39,559 $ 29,642 $ 27,470 $ 5,803 $ 3,288
Long term debt .......................... -- -- -- -- -- -- --
Shareholders' equity .................... 25,440 26,753 34,496 27,492 25,233 4,835 2,970
</TABLE>
----------------
(1) Amounts reflect the October 26, 1999 acquisition of Window On WallStreet,
which was accounted for under the purchase method. See Note 3 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.
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<PAGE>
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 the six months ended July 31, 2000 and 1999 and the
balance sheet data as of July 31, 2000 have been derived from
OnlineTrading.com's unaudited interim financial statements included in pages
F-28 through F-47 of this joint proxy statement/prospectus. The balance sheet
data as of July 31, 1999 have been derived from OnlineTrading.com's unaudited
interim financial statements not included herein. 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 in pages F-28
through F-47 of 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 period ended 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
Six Months Ended As of and for the
July 31, Year Ended January 31,
----------------------- ---------------------------------------------------------
2000 1999 2000 1999 1998 1997 1996(2)
----------- ----------- ------------ ----------- ----------- ----------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Total revenues ......................... $ 8,729 $ 4,735 $ 11,516 $ 5,992 $ 3,548 $ 1,606
Total operating expenses ............... 7,206 4,086 9,908 5,832 3,570 1,504
Income (loss) from operations. ......... 1,523 649 1,608 160 (22) 102
Net income (loss) ...................... 935 508 1,081 108 (19) 87
Earnings (loss) per share(1):
Basic ................................. $ 0.08 $ 0.06 $ 0.11 $ 0.01 $ (0.00) $ 0.01
Diluted ............................... 0.08 0.06 0.10 0.01 (0.00) 0.01
Weighted average shares
outstanding(1):
Basic ................................. 11,281 8,780 10,078 8,444 8,444 8,444
Diluted ............................... 11,504 9,228 10,630 8,857 8,444 8,444
BALANCE SHEET DATA:
Total assets ........................... $19,995 $18,581 $ 19,361 $ 2,155 $ 1,342 $ 1,178 $ 386
Long term debt ......................... 145 425 72 525 500 500 400
Shareholders' equity ................... 18,179 16,672 17,244 628 494 515 (19)
</TABLE>
----------------
(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.
19
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
The selected unaudited pro forma combined consolidated financial data of
TradeStation Group gives effect to the proposed mergers of separate
wholly-owned subsidiaries of TradeStation Group into and with Omega Research
and OnlineTrading.com on a pooling-of-interests basis. TradeStation Group's
unaudited pro forma combined consolidated statements of operations data assume
that the merger of separate wholly-owned subsidiaries of TradeStation 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 nine months ended September 30, 2000 and 1999
and the years ended December 31, 1999, 1998 and 1997, with OnlineTrading.com's
consolidated statements of operations for the nine months ended July 31, 2000
and 1999 and the years ended January 31, 2000, 1999 and 1998, respectively.
OnlineTrading.com's results of operations for the nine months ended July 31,
2000 and 1999 were calculated by adding the six months ended July 31, 2000 and
1999 with the three months ended January 31, 2000 and 1999, which also
represent the last quarter of the respective previous fiscal years.
TradeStation Group's unaudited pro forma combined balance sheet data assume
that the mergers of separate wholly-owned subsidiaries of TradeStation Group
into and with Omega Research and OnlineTrading.com took place on September 30,
2000 and combine the Omega Research consolidated balance sheet as of September
30, 2000 with the OnlineTrading.com consolidated balance sheet as of July 31,
2000. TradeStation 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 nine months ended September 30,
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
Nine Months Ended For the Year Ended
September 30, 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 ........................ $ 39,644 $ 24,861 $ 35,252 $ 34,208 $ 32,775
Total operating expenses .............. 47,543 26,369 40,073 31,428 23,931
(Loss) income from operations ......... (7,899) (1,508) (4,821) 2,780 8,844
Net (loss) income ..................... (8,425) (560) (2,642) 2,063 5,432
(Loss) earnings per share:
Basic ................................ $ (0.19) $ (0.01) $ (0.07) $ 0.06 $ 0.16
Diluted .............................. (0.19) (0.01) (0.07) 0.05 0.15
Weighted average shares outstanding:
Basic ................................ 43,795 37,638 40,065 36,756 34,672
Diluted .............................. 43,795 37,638 40,065 37,968 35,385
CONSOLIDATED BALANCE SHEET DATA:
Total assets .......................... $ 47,605
Long term debt ........................ 145
Shareholders' equity .................. 39,119
</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
TradeStation Group common stock is issued for each share of Omega Research
common stock and 1.7172 shares of TradeStation 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>
Nine Months Ended Fiscal Year Ended
September 30, December 31,
------------------------- -------------------------------------
2000 1999 1999 1998 1997
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unaudited Pro Forma Combined(1)(2):
(Loss) earnings per share--basic .............. $ (0.19) $ (0.01) $ (0.07) $ 0.06 $ 0.16
(Loss) earnings per share--diluted ............ (0.19) (0.01) (0.07) 0.05 0.15
Book value per share(3) ....................... 0.88 1.07
Omega Research Historical:
(Loss) earnings per share--basic(4) ........... (0.39) (0.06) (0.16) 0.09 0.27
(Loss) earnings per share--diluted(4) ......... (0.39) (0.06) (0.16) 0.09 0.26
Book value per share(3) ....................... 1.03 1.19 1.41 1.23 1.13
Unaudited Pro Forma Omega Research
Per Share Equivalents(5):
(Loss) earnings per share--basic .............. (0.39) (0.06) (0.16) 0.09 0.27
(Loss) earnings per share--diluted ............ (0.39) (0.06) (0.16) 0.09 0.26
Book value per share .......................... 1.03 1.41
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Fiscal Year Ended
July 31, January 31,
----------------------- -------------------------------------
2000 1999 2000 1999 1998
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
OnlineTrading.com Historical(6):
Earnings (loss) per share--basic ............. $ 0.10 $ 0.08 $ 0.11 $ 0.01 $ (0.00)
Earnings (loss) per share--diluted ........... 0.09 0.08 0.10 0.01 (0.00)
Book value per share(3) ...................... 1.58 1.45 1.50 0.07 0.06
Unaudited Pro Forma OnlineTrading.com .........
Per Share Equivalents(7):
(Loss) earnings per share--basic ............. (0.33) (0.03) (0.11) 0.10 0.27
(Loss) earnings per share--diluted ........... (0.33) (0.03) (0.11) 0.09 0.26
Book value per share ......................... 1.52 1.84
</TABLE>
----------------
(1) The unaudited pro forma combined per share information combines financial
information of Omega Research for the nine months ended September 30, 2000
and 1999 and the fiscal years ended December 31, 1999, 1998 and 1997 with
the financial information of OnlineTrading.com for the nine months ended
July 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 banking fees, attorneys, accountants, financial printing and
other related charges of approximately $4.5 million. 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.
21
<PAGE>
(4) Earnings per share amounts for 1997 represent pro forma earnings per share
reflecting pro forma income tax adjustments. See Note 9 of Notes to
Consolidated Financial Statements of Omega Research.
(5) 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 TradeStation Group common stock for each
share of Omega Research common stock).
(6) OnlineTrading.com's per share data reflect the 11.11111-for-10 stock split
which occurred on April 3, 1999.
(7) 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 TradeStation 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 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>
Closing Sales Price
-----------------------
High Low
---------- ----------
<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 ..................................... 4 7/16 2 1/2
Third Quarter ...................................... 3 3/4 2 1/2
Fourth Quarter (through November 17, 2000) ......... 2 13/16 1 13/16
</TABLE>
As of December 1, 2000, there were approximately 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 beneficial owners.
Listing of TradeStation Group Common Stock
Upon the closing of the merger, TradeStation Group is to be the
publicly-traded company and its common stock is to be listed on The Nasdaq
National Market under the symbol "TRAD." A condition to the closing of the
merger is the completion of such listing, subject to official notice of
issuance.
Omega Research/TradeStation Group Dividend Policy
Prior to the merger, Omega Research, and after the merger, TradeStation
Group, expects operating losses for at least the first quarter of 2001 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
22
<PAGE>
requirements of TradeStation 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.
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:
<TABLE>
<CAPTION>
Closing Sales Price
---------------------
High Low
---------- --------
<S> <C> <C>
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 ..................................... 6 1/4 4 3/32
Third Quarter ...................................... 5 13/16 2 25/32
Fourth Quarter (through November 17, 2000) ......... 4 5/16 3 21/32
</TABLE>
As of December 1, 2000, there were 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
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
23
<PAGE>
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.
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 TradeStation 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 TradeStation 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.
24
<PAGE>
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.
Record Date and Shares Entitled to Vote
Omega Research's board of directors has fixed the close of business on
December 1, 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 December 1, 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
December 1, 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 December 1,
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
25
<PAGE>
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 74% of the outstanding shares
of Omega Research, have each entered into shareholder agreements with
OnlineTrading.com and TradeStation 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 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 TradeStation
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', appraisal or any equivalent or similar rights as a result of the
merger or to demand cash payment for your shares under Florida law.
26
<PAGE>
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 TradeStation 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 Omega Research or OnlineTrading.com stock
certificates for TradeStation Group stock certificates, see the section titled
"Exchange of Omega Research or OnlineTrading.com Stock Certificates for
TradeStation Group Stock Certificates" on page of this joint proxy
statement/prospectus.
27
<PAGE>
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 TradeStation 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 directors of OnlineTrading.com the substance of their meeting with the
Cruzes. OnlineTrading.com's board urged
28
<PAGE>
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
29
<PAGE>
parties had concluded substantially all of their due diligence investigations
and agreed upon substantially all terms and conditions of the merger agreement
and the 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 TradeStation 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.
As a result of it becoming apparent that the merger could not be completed
by July 31, 2000, as originally contemplated, the board of directors of each of
Omega Research and OnlineTrading.com in July and September 2000 ratified
extensions of the date after which the parties have the right to terminate the
merger agreement. That date is December 31, 2000.
On November 17, 2000, OnlineTrading.com's board of directors met and
considered, among other factors, Omega Research's financial restatements, the
changes, and the relative changes, in the share prices of Omega Research and
OnlineTrading.com, and the changes to equity market capitalizations of
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<PAGE>
companies comparable to OnlineTrading.com. At such meeting, the board of
directors of OnlineTrading.com voted to affirm its prior recommendation that
its shareholders vote for the merger.
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 primary reason Omega Research's board of directors approved the merger
is the synergy it believes is created by 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, the
first seven of which relate to the synergy the board believes the merger will
create:
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 Pro 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 Pro 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 Pro 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;
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 TradeStation 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;
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<PAGE>
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;
and
o OnlineTrading.com is expected to contribute up to $16 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;
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
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<PAGE>
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
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 primary reason OnlineTrading.com's board of directors approved the
merger is the synergy it believes is created by 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, the first six of which relate to the synergy the board believes the
merger will create:
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 Pro platform is to be offered with such brokerage
services;
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.
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; and
o reports from management, legal, financial and accounting advisors of
the due diligence investigations of Omega Research.
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:
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<PAGE>
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 TradeStation 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;
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. to render an opinion as to the
fairness of the OnlineTrading.com exchange ratio, the exchange ratio for shares
of TradeStation Group common stock to be received for each share of common
stock of OnlineTrading.com, from a financial point of view, to Omega Research.
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<PAGE>
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 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 noted below, 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.
Since January 19, 2000, the U.S. financial markets have been volatile. On
January 19, 2000, the Nasdaq Composite Index was at 4151. Since then, the
Nasdaq Composite Index peaked at 5,049 on March 10, 2000 and declined to a low
of 2,967 on November 13, 2000, before closing at 3,032 on November 16, 2000.
Over this same period, the trading price of Omega Research's stock declined
62.1% from $6.59 on January 18, 2000 to $2.50 on November 16, 2000, while the
trading price of OnlineTrading.com's stock declined approximately the same
amount, 65.4%, from $11.75 on January 18, 2000 to $4.06 on November 16, 2000.
Over this same period, the stock prices for the comparable companies listed
below also decreased significantly, with the median decrease being 47.9%. In
agreeing to the merger, the board of directors of Omega Research considered
that it was agreeing on the exchange ratio formula based on, among other
things, the relative market values of Omega Research and OnlineTrading.com at
the time of entering into the merger agreement, and that each party would bear
the risks of market changes after that date. Accordingly, and taking into
account that the trading prices of Omega Research and OnlineTrading.com and
comparable companies have been similarly affected, the board of directors of
Omega Research has not changed its recommendation that its shareholders vote
for the merger.
In November 2000, Omega Research restated its consolidated financial
statements for the six consecutive fiscal quarters ended June 30, 2000 to
respond to certain concerns expressed by the Staff of the SEC in connection
with its review of the Registration Statement on Form S-4 of which this joint
proxy statement/prospectus is a part. As a result of the restatement: (i)
beginning in 1999, revenues with respect to Omega Research's sales of its 2000i
software products are recognized on an as due basis in accordance with the
payment terms of the sales; and (ii) Omega Research's October 1999 merger with
Window On WallStreet is accounted for under the purchase method of accounting.
See Note 2 of Notes to Consolidated Financial Statements of Omega Research for
a further discussion of the restatement.
The restatement does not, in Omega Research's opinion, (i) reflect any
material difference in the manner one would view Omega Research's business or
operations, particularly in the context of the new business model, or (ii)
result in any changes to Omega Research's cash flows, liquidity or capital
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<PAGE>
resources. Accordingly, the board of directors of Omega Research, which last
met November 12, 2000, has not changed its recommendation that its shareholders
vote for the merger.
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;
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
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<PAGE>
(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;
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. generally accepted accounting principles
consistently applied.
Robertson Stephens relied as to all legal matters relevant to rendering
its opinion on the advice of counsel.
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 and in light of the restatement of certain
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financial statements of Omega Research. 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 TradeStation 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 TradeStation 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:
<TABLE>
<CAPTION>
Ratio of Closing Prices of
Omega Research Common Stock
Compared to
OnlineTrading.com Common Stock
---------------------------------------
Period Ending January 18, 2000 Spot High Low
--------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
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
</TABLE>
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
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.
Robertson Stephens selected the foregoing companies for comparison because
the primary business of each of the companies is providing online trading
services to individual traders. As noted below, none of these companies is
identical to OnlineTrading.com. Many of these companies have longer operating
histories and greater financial resources and brand recognition than
OnlineTrading.com.
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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>
Equity Value
Multiple Range Equity Value Per 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
Control Premium Equity Value Per 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)
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:
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<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:
<TABLE>
<CAPTION>
Equity Value
Equity Value Per Share Exchange Ratio
------------------------ -------------------- ------------------
<S> <C> <C>
$ 121 - $158 million $ 10.35 - $13.49 1.570 - 2.045
</TABLE>
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:
<TABLE>
<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
40
<PAGE>
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 $1.0 million based on closing stock prices as of November 17,
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 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
41
<PAGE>
and their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
other purposes.
Projected Financial Information for OnlineTrading.com Considered by Omega
Research's Board
In its evaluation of the merger, the board of directors of Omega Research
considered projected financial information for OnlineTrading.com. The
information that the board of directors of Omega Research considered was based
on information that had been prepared by the management of OnlineTrading.com in
January 2000 and provided to Omega Research and Robertson Stephens as part of
the discussions that ultimately led to the merger, as discounted by the
management of Omega Research. This projected financial information was prepared
in the context of the merger negotiations and has not been updated since such
time. In addition, the projected financial information does not reflect revised
prospects for the businesses of OnlineTrading.com, changes in general business
and economic conditions, potential effects of the merger or any other
transaction or event that has occurred or that may occur and that was not
anticipated at the time such information was prepared. The following table
summarizes the material portions of this information.
<TABLE>
<CAPTION>
Fiscal Year Ended January 31, 2001 Fiscal Year Ended January 31, 2002
------------------------------------ -----------------------------------
<S> <C> <C>
Revenues ............ $18.2 million $24.0 million
Net income .......... $ 1.8 million $ 3.4 million
</TABLE>
The information contained in this section was not prepared with a view
toward public disclosure or compliance with published guidelines of the SEC or
the American Institute of Certified Public Accountants regarding
forward-looking information or generally accepted accounting principles and was
not examined, reviewed or compiled by independent public accountants to
OnlineTrading.com or Omega Research. The projected financial information is
included in this joint proxy statement/
prospectus only because such information was provided to Omega Research and
Robertson Stephens and considered by the board of directors of Omega Research
in its evaluation of the merger.
The projected financial information was based upon a variety of estimates
and assumptions. The estimates and assumptions underlying the projected
financial information involved judgments with respect to, among other things,
future economic, competitive, regulatory and financial market conditions and
future business decisions which may not be realized and are inherently subject
to significant business, economic, competitive and regulatory uncertainties,
all of which are difficult to predict and many of which are beyond the control
of OnlineTrading.com and Omega Research and will be beyond the control of
TradeStation Group. In addition, the projected financial information does not
reflect revised prospects for the businesses of OnlineTrading.com or Omega
Research, changes in general business and economic conditions, or any other
transaction or event that has occurred or that may occur and that was not
anticipated at the time such information was prepared. In particular, the
projected financial information does not take into account any changes that may
result from the merger of OnlineTrading.com and Omega Research.
For these reasons, the management of OnlineTrading.com and Omega Research
do not believe that the projected financial information is still relevant or
that the projected financial information will be realized. Actual results may
vary materially from those shown. The projected financial information should
not be regarded as an indication that OnlineTrading.com, Omega Research, their
respective financial advisors or anyone who received this information
considered or considers the projections a reliable predictor of future
operating results and they should not be relied on as such. Shareholders of
OnlineTrading.com and Omega Research should not rely upon the projected
financial information in making any decision about investment in
OnlineTrading.com, Omega Research or TradeStation Group or in deciding whether
or not to approve the merger. None of OnlineTrading.com, Omega Research or
TradeStation Group have updated or supplemented this information or intend to
do so.
Opinion of Financial Advisor to OnlineTrading.com
OnlineTrading.com retained Raymond James & Associates, Inc. in connection
with its consideration of the merger because of Raymond James' qualifications,
expertise and reputation.
42
<PAGE>
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. From that time until the date of
this joint proxy statement/prospectus, the equity market capitalizations of
many technology-oriented companies have fluctuated significantly. The Nasdaq
Composite Index, which is indicative of the equity market capitalizations of
technology-oriented companies, decreased approximately 23.8% from the closing
prices on January 19 to November 15, 2000.
Since January 18, 2000, the equity market capitalizations of Omega
Research and OnlineTrading.com have also fluctuated significantly. The equity
prices of both companies have each fallen by approximately the same percentage
amount during the period from January 18 to November 15, 2000. The price of
Omega Research stock decreased by approximately 60.2% during the period while
the price of OnlineTrading.com stock decreased by approximately 64.9%. Since
January 18, 2000, the equity market capitalizations of companies comparable to
OnlineTrading.com have also fluctuated significantly. An equally weighted index
of the share prices of the companies comparable to OnlineTrading.com that
Raymond James considered in its fairness opinion decreased approximately 34.0%
from January 18, 2000 to November 15, 2000.
On November 17, 2000, OnlineTrading.com's board of directors met and
considered, among other factors, Omega Research's financial restatements, the
changes, and the relative changes, in the share prices of Omega Research and
OnlineTrading.com, and the changes to equity market capitalizations of
companies comparable to OnlineTrading.com. At such meeting, the board of
directors of OnlineTrading.com voted to affirm its prior recommendation that
its shareholders vote for the merger.
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; 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
43
<PAGE>
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 of their respective principal trading markets of
$11.125 and $6.625, respectively, and for each of the selected companies based
on the most recent publicly available information as of January 14, 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 Ratio from
Comparable 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>
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:
44
<PAGE>
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 Ratio from
Comparable 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>
While many of the companies listed in the Comparable Companies Analysis
and Precedent Transaction Analysis may have greater assets, higher name
recognition or operations that are more stable than those of OnlineTrading.com,
Raymond James selected these companies because many aspects of these companies'
businesses, including components of their business models, competitive
environments and operations, are closely comparable to those of
OnlineTrading.com. No company, business or transaction compared in the
Comparable Companies Analysis or Precedent Transaction Analysis is identical to
OnlineTrading.com. Accordingly, the results of the analysis involve complex
considerations and judgments concerning differences between the characteristics
of the companies being compared and those of OnlineTrading.com.
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
45
<PAGE>
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.
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.
<TABLE>
<CAPTION>
Equity Value (in million $'s)
Assuming Terminal Value Revenue
Multiple of:
------------------------------------
Equity Value (in million $'s) Assuming Discount Rate of: 4.00 5.00 6.00
---------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
12.50% ................................................ 100.8 121.1 141.3
15.00% ................................................ 83.7 99.7 115.7
17.50% ................................................ 70.2 82.8 95.4
</TABLE>
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.
46
<PAGE>
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 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 November 17, 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.
47
<PAGE>
Projected Financial Information Considered by OnlineTrading.com's Board
Raymond James' presentation to the OnlineTrading.com board of directors
included the results of a discounted cash flow analysis based on projected
financial information for OnlineTrading.com that was prepared by the management
of OnlineTrading.com. Raymond James' presentation also included projected
financial information for Omega Research that was prepared by the management of
Omega Research. The projections prepared by the management of OnlineTrading.com
and Omega Research were provided to Raymond James by OnlineTrading.com and
Omega Research, respectively, and were part of the discussions that ultimately
led to the merger. This projected financial information was prepared in the
context of the merger negotiations and has not been updated since such time. In
addition, the projected financial information does not reflect the restatement
of certain financial statements of Omega Research as previously discussed
herein, revised prospects for the businesses of OnlineTrading.com or Omega
Research, changes in general business and economic conditions, potential
effects of the merger or any other transaction or event that has occurred or
that may occur and that was not anticipated at the time such information was
prepared. The following tables summarize the material portions of this
information.
OnlineTrading.com (FYE 1/31)
<TABLE>
<CAPTION>
2001 2002
------------------ -------------------
<S> <C> <C>
Revenues ................ $ 19.8 million $ 25.6 million
Net income .............. $ 2.4 million $ 3.9 million
</TABLE>
Omega Research (FYE 12/31)
<TABLE>
<CAPTION>
2000 2001
------------------ -------------------
<S> <C> <C>
Revenues ................... $ 56.3 million $ 116.8 million
Net (loss) income .......... $ (4.3 million) $ 12.1 million
</TABLE>
The projections and the information contained in this section were not
prepared with a view toward public disclosure or compliance with published
guidelines of the SEC or the established guidelines of the American Institute
of Certified Public Accountants regarding forward-looking information or
generally accepted accounting principles and were not examined, reviewed or
compiled by independent public accountants to OnlineTrading.com or Omega
Research. The projected financial information is included in this joint proxy
statement/prospectus only because such information was provided to
OnlineTrading.com and/or Raymond James.
The projected financial information was based upon a variety of estimates
and assumptions. The estimates and assumptions underlying the projected
financial information involved judgments with respect to, among other things,
future economic, competitive, regulatory and financial market conditions and
future business decisions which may not be realized and are inherently subject
to significant business, economic, competitive and regulatory uncertainties,
all of which are difficult to predict and many of which are beyond the control
of OnlineTrading.com and Omega Research and will be beyond the control of
TradeStation Group. In addition, the projected financial information does not
reflect the restatement of certain financial statements of Omega Research as
previously discussed herein, revised prospects for the businesses of
OnlineTrading.com or Omega Research, changes in general business and economic
conditions, or any other transaction or event that has occurred or that may
occur and that was not anticipated at the time such information was prepared.
In particular, the projected financial information does not take into account
any changes that may result from the merger of OnlineTrading.com and Omega
Research.
For these reasons, the management of OnlineTrading.com and Omega Research
do not believe that the projected financial information is still relevant or
that the projected financial information will be realized. Actual results may
vary materially from those shown. The projected financial information should
not be regarded as an indication that OnlineTrading.com, Omega Research or
their respective financial advisors or anyone who received this information
considered or considers the projections a
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reliable predictor of future operating results and they should not be relied on
as such. Shareholders of OnlineTrading.com and Omega Research should not rely
upon the projected financial information in making any decision about
investment in OnlineTrading.com, Omega Research or TradeStation Group or in
deciding whether or not to approve the merger. None of OnlineTrading.com, Omega
Research or TradeStation Group have updated or supplemented this information or
intend to do so.
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.
Andrew A. Allen, Chairman of the Board and Chief Executive Officer of
OnlineTrading.com, is entitled under his existing employment agreement with
OnlineTrading.com to a severance payment of approximately $600,000 if he elects
to terminate his employment following the change in control produced by the
merger. Due to a personal tragedy, Mr. Allen has indicated that those rights
will be triggered. As a result, OnlineTrading.com modified its existing
employment agreement with Mr. Allen, effective as of the 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 approximately the same as the one to which Mr.
Allen would have been entitled had his employment terminated after the merger
under the terms of his existing employment agreement with OnlineTrading.com not
been so modified, except that under his existing agreement Mr. Allen would have
received the entire severance payment in one lump sum. 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 TradeStation 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
TradeStation 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.
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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 TradeStation 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 TradeStation 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 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
TradeStation Group's business, financial condition, results of operations and
prospects.
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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 TradeStation 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 which shares of Omega Research or OnlineTrading.com
common stock are acquired or shares of TradeStation Group common stock
are disposed of; or
o the assumption by TradeStation Group of Omega Research or
OnlineTrading.com options or warrants or the tax consequences of any
receipt of rights to acquire TradeStation 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 TradeStation 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 TradeStation
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 TradeStation Group common stock or to the
extent cash is received upon the exercise of dissenters' rights.
o The aggregate tax basis of TradeStation 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 TradeStation 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.
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o Cash payments received in lieu of a fractional share will be treated as
if such fractional share of TradeStation Group common stock had been
issued in the merger and then redeemed by TradeStation 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 TradeStation 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, 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 TradeStation Group surrendered equal to the difference between
the fair market value, as of the effective time of the merger, of TradeStation
Group stock received in exchange therefor, and the shareholder's basis in such
share. In such event, a shareholder's aggregate basis in TradeStation 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 TradeStation 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.
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Dissenters' or Appraisal Rights
If you are an Omega Research shareholder, you are not entitled to exercise
dissenters', appraisal or equivalent or similar 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 TradeStation 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:
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.
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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 ss.ss.607.1301, 607.1302 and 607.1320, the exact
text of the relevant sections is set forth below:
607.1301 Dissenters' rights; definitions. The following definitions apply to
ss.ss.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.
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;
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(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 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
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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.
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.
(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
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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.
(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
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<PAGE>
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.
Listing of TradeStation Group Common Stock
It is a condition to the closing of the merger that TradeStation 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 TradeStation Group common
stock to be issued in the merger and the shares of TradeStation Group common
stock to be reserved for issuance in connection with the assumption of
outstanding Omega Research and OnlineTrading.com stock options and warrants.
58
<PAGE>
Restrictions on Sale of Shares By Affiliates of Omega Research and
OnlineTrading.com
The shares of TradeStation 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
TradeStation 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 TradeStation 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.
TradeStation 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 TradeStation 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
TradeStation 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 TradeStation
Group, and their rights as shareholders will be governed by TradeStation
Group's articles of incorporation and bylaws and the laws of the State of
Florida. Pursuant to the merger agreement, upon consummation of the merger, the
name of Omega Research will be changed to TradeStation Technologies, Inc. and
the name of OnlineTrading.com will be changed to TradeStation Securities, Inc.
For a discussion of the executive officers and directors of TradeStation
Group, Omega Research and OnlineTrading.com after the merger, see "THE MERGER
AGREEMENT AND RELATED AGREEMENTS--Directors and Executive Officers After the
Merger."
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<PAGE>
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.
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 Florida corporation
and wholly-owned subsidiary of TradeStation Group, with Omega Research
continuing as the surviving corporation and as a wholly-owned subsidiary of
TradeStation Group. OnlineTrading.com will merge with Onlinetrading Acquisition
Corporation, a Florida corporation and wholly-owned subsidiary of TradeStation
Group, with OnlineTrading.com continuing as the surviving corporation and as a
wholly-owned subsidiary of TradeStation 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 December 2000. However,
the merger is subject to various closing conditions including the approval for
listing of TradeStation 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 December 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
TradeStation Group will be comprised of eight directors. The directors of
TradeStation 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
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<PAGE>
designate three directors, one of whom will be an independent director.
Accordingly, the initial board of directors of TradeStation 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, who was
an independent director of OnlineTrading.com until October 4, 2000.
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 TradeStation 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 TradeStation Group who does not currently serve 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 TradeStation Group
for as long as he owns at least 5.0% of the outstanding shares of TradeStation
Group common stock. However, TradeStation 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
TradeStation 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
TradeStation Group.
The executive officers of TradeStation Group at the effective time of the
merger are expected to be as follows:
<TABLE>
<S> <C>
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, General Counsel and Secretary Marc J. Stone
Chief Financial Officer, Vice President of Finance and Treasurer Gregg F. Stewart
Vice President of Advertising Janette Perez
</TABLE>
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 TradeStation 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
18,313,208 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 TradeStation Group shares
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<PAGE>
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 TradeStation 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 TradeStation Group, 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
TradeStation 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 TradeStation 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 TradeStation 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 TradeStation Group will be
made, the voting trustee will vote the shares owned by each TradeStation 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;
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<PAGE>
o the date when TradeStation 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.
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 TradeStation 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
TradeStation 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 TradeStation
Group common stock, resulting in a 38% OnlineTrading.com shareholder/62% Omega
Research shareholder ownership of TradeStation Group on a fully diluted basis,
or higher than 1.7172 shares of TradeStation Group common stock, resulting in
an approximate 43% OnlineTrading.com shareholder/57% Omega Research shareholder
ownership of TradeStation Group on a fully diluted basis. The number of shares
of TradeStation 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. For a more detailed
description of how the OnlineTrading.com exchange ratio operates under various
Omega Research share prices, see "Price Sensitivity Analysis" below.
Price Sensitivity Analysis
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
<TABLE>
<CAPTION>
OnlineTrading.com
Shareholders
Omega Research OnlineTrading.com Aggregate OnlineTrading.com
Price Exchange Ratio Ownership Per Share Value
---------------- ------------------- ------------------ ------------------
<S> <C> <C> <C>
$ 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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
OnlineTrading.com
Shareholders
Omega Research OnlineTrading.com Aggregate OnlineTrading.com
Price Exchange Ratio Ownership Per Share Value
---------------- ------------------- ------------------ ------------------
<S> <C> <C> <C>
$ 4.50 1.7172 43.2% $ 7.73
$ 5.00 1.7172 43.2% $ 8.59
$ 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
</TABLE>
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
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------------
2000 1999
------------------------------------ -----------------------
Earnings (Loss) Earnings (Loss)
Per Share Per Share
----------------------- -----------------------
Omega Book Value
Price Basic Diluted Per Share Basic Diluted
------------------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
$2.00 - $6.00 $ (0.19) $ (0.19) $ 0.88 $ (0.01) $ (0.01)
$ 6.50 $ (0.19) $ (0.19) $ 0.89 $ (0.01) $ (0.01)
$ 7.00 $ (0.20) $ (0.20) $ 0.92 $ (0.02) $ (0.02)
$ 7.50 $ (0.21) $ (0.21) $ 0.94 $ (0.02) $ (0.02)
$ 8.00 $ (0.21) $ (0.21) $ 0.97 $ (0.02) $ (0.02)
$8.50 - $10.00 $ (0.21) $ (0.21) $ 0.97 $ (0.02) $ (0.02)
<CAPTION>
Fiscal Year Ended December 31,
------------------------------------------------------------------------------
1999 1998 1997
----------------------------------- -------------------- ---------------------
Earnings (Loss) Earnings (Loss) Earnings (Loss)
Per Share Per Share Per Share
----------------------- -------------------- ---------------------
Omega Book Value
Price Basic Diluted Per Share Basic Diluted Basic Diluted
------------------- ----------- ----------- ----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$2.00 - $6.00 $ (0.07) $ (0.07) $ 1.07 $ 0.06 $ 0.05 $ 0.16 $ 0.15
$ 6.50 $ (0.07) $ (0.07) $ 1.07 $ 0.06 $ 0.05 $ 0.16 $ 0.15
$ 7.00 $ (0.07) $ (0.07) $ 1.11 $ 0.06 $ 0.06 $ 0.16 $ 0.16
$ 7.50 $ (0.07) $ (0.07) $ 1.14 $ 0.06 $ 0.06 $ 0.17 $ 0.16
$ 8.00 $ (0.07) $ (0.07) $ 1.17 $ 0.06 $ 0.06 $ 0.17 $ 0.17
$8.50 - $10.00 $ (0.07) $ (0.07) $ 1.17 $ 0.06 $ 0.06 $ 0.17 $ 0.17
</TABLE>
Unaudited Pro Forma OnlineTrading.com Per Share Equivalent Sensitivity Analysis
<TABLE>
<CAPTION>
Six Months Ended July 31,
------------------------------------------------------------
2000 1999
------------------------------------ -----------------------
Earnings (Loss) Earnings (Loss)
Per Share Per Share
----------------------- -----------------------
Omega Book Value
Price Basic Diluted Per Share Basic Diluted
------------------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
$2.00 - $6.00 $ (0.33) $ (0.33) $ 1.52 $ (0.03) $ (0.03)
$ 6.50 $ (0.33) $ (0.33) $ 1.51 $ (0.03) $ (0.03)
$ 7.00 $ (0.32) $ (0.32) $ 1.45 $ (0.02) $ (0.02)
$ 7.50 $ (0.30) $ (0.30) $ 1.39 $ (0.02) $ (0.02)
$ 8.00 $ (0.29) $ (0.29) $ 1.34 $ (0.02) $ (0.02)
$8.50 - $10.00 $ (0.29) $ (0.29) $ 1.34 $ (0.02) $ (0.02)
<CAPTION>
Fiscal Year Ended January 31,
------------------------------------------------------------------------------
2000 1999 1998
----------------------------------- -------------------- ---------------------
Earnings (Loss) Earnings (Loss) Earnings (Loss)
Per Share Per Share Per Share
----------------------- -------------------- ---------------------
Omega Book Value
Price Basic Diluted Per Share Basic Diluted Basic Diluted
------------------- ----------- ----------- ----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$2.00 - $6.00 $ (0.11) $ (0.11) $ 1.84 $ 0.10 $ 0.09 $ 0.27 $ 0.26
$ 6.50 $ (0.11) $ (0.11) $ 1.83 $ 0.10 $ 0.09 $ 0.27 $ 0.26
$ 7.00 $ (0.11) $ (0.11) $ 1.75 $ 0.09 $ 0.09 $ 0.26 $ 0.25
$ 7.50 $ (0.10) $ (0.10) $ 1.68 $ 0.09 $ 0.08 $ 0.25 $ 0.24
$ 8.00 $ (0.10) $ (0.10) $ 1.62 $ 0.08 $ 0.08 $ 0.24 $ 0.23
$8.50 - $10.00 $ (0.10) $ (0.10) $ 1.62 $ 0.08 $ 0.08 $ 0.24 $ 0.23
</TABLE>
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Omega Research and OnlineTrading.com Stock Options, Warrants and Stock Plans
At the effective time of the merger, TradeStation 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 TradeStation 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 TradeStation Group at the same exercise price;
o each OnlineTrading.com stock option and OnlineTrading.com warrant will
be exercisable for shares of TradeStation Group common stock, and the
number of shares of TradeStation 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 TradeStation 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. TradeStation Group has
agreed to file a registration statement on Form S-8 for the shares of
TradeStation 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 TradeStation 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 TradeStation 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 TradeStation 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.
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<PAGE>
The Exchange Agent
Prior to the effective time, TradeStation 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 TradeStation 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
TradeStation 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 TradeStation 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
TradeStation Group stock certificates representing the number of full shares of
TradeStation 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.
Distributions with Respect to Unexchanged Shares
TradeStation Group will issue a TradeStation 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
TradeStation 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 TradeStation Group stock certificates.
If there is any dividend or other distribution on TradeStation 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 TradeStation Group stock certificates, you will
receive it with respect to the whole shares of TradeStation Group common stock
issued to you promptly after they are issued. If there is any dividend or other
distribution on TradeStation 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 TradeStation Group stock
certificates, you will receive it with respect to the whole shares of
TradeStation 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
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affiliates (including TradeStation Group and the separate TradeStation 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;
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;
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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 TradeStation Group cover the following topics
as they relate to TradeStation 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;
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 TradeStation 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
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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;
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);
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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
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
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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:
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
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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 TradeStation 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, TradeStation 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 TradeStation Group is unable to obtain or
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 TradeStation 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 TradeStation 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 TradeStation Group common stock to be issued in the merger
shall have been filed; and
o TradeStation Group, its wholly-owned merger subsidiaries, Omega
Research and OnlineTrading.com and their respective subsidiaries, if
applicable, shall have obtained from
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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 TradeStation 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 TradeStation 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
TradeStation Group as a whole;
o TradeStation Group, Omega Research and TradeStation 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;
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 TradeStation
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, TradeStation Group's and TradeStation 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:
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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 TradeStation
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;
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 December 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;
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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:
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;
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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
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
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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
TradeStation 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;
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;
77
<PAGE>
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 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 TradeStation 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.
78
<PAGE>
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 TradeStation
Group, and certain Omega Research shareholders, affiliates of William Cruz and
Ralph Cruz, have entered into shareholder agreements with OnlineTrading.com and
TradeStation 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 November 20, 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 74% 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 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
79
<PAGE>
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:
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
80
<PAGE>
have entered into affiliate agreements with TradeStation Group under which they
agreed to restrict their transfer of any TradeStation 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) TradeStation 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 TradeStation Group, Omega
Research or OnlineTrading.com common stock and options or warrants to purchase
TradeStation 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, TradeStation 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.
81
<PAGE>
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 will be wholly-owned subsidiaries of TradeStation Group.
TradeStation Group's unaudited pro forma combined balance sheet assumes that
the mergers took place on September 30, 2000 and combines the Omega Research
consolidated balance sheet at September 30, 2000 with OnlineTrading.com's
consolidated balance sheet as of July 31, 2000. TradeStation Group's unaudited
pro forma combined statements of operations 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 nine months ended September 30,
2000 and 1999 and the years ended December 31, 1999, 1998 and 1997 with
OnlineTrading.com's statements of operations for the nine months ended July 31,
2000 and 1999 and the years ended January 31, 2000, 1999 and 1998,
respectively. OnlineTrading.com's results of operations for the nine months
ended July 31, 2000 and 1999 were calculated by adding the six months ended
July 31, 2000 and 1999 with the three months ended January 31, 2000 and 1999,
which also represent the last quarter of the respective previous fiscal years.
TradeStation Group's unaudited pro forma combined financial statements are
based on Omega Research and OnlineTrading.com's historical financial statements
and related notes thereto, as amended, 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 $4.5 million, comprised of approximately $2.1 million in banking
fees, $1.4 million in legal, accounting and tax service fees, $0.6 million in
severance expenses and $0.4 million in printing and miscellaneous expenses,
will be incurred in connection with the merger. Such expenses are not reflected
in the unaudited pro forma combined statements of operations, but are reflected
as a reduction of equity and cash in the unaudited pro forma combined balance
sheet.
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.
82
<PAGE>
TRADESTATION GROUP
PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
Omega TradeStation
Research OnlineTrading.com Pro Forma Group Combined
9/30/00 7/31/00 Adjustments Pro Forma
--------------- ------------------- ---------------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................... $ 1,523,334 $11,701,375 $ (4,500,000)(A) $ 8,724,709
Marketable securities ......................... -- 4,196,851 -- 4,196,851
Accounts receivable, net ...................... 694,000 -- -- 694,000
Receivable from clearing organization ......... -- 622,172 -- 622,172
Income tax receivable ......................... 8,242,105 -- -- 8,242,105
Other current assets .......................... 646,615 313,115 -- 959,730
Deferred income taxes ......................... 4,983,000 -- -- 4,983,000
------------ ----------- ------------- -------------
Total current assets ........................ 16,089,054 16,833,513 (4,500,000) 28,422,567
------------ ----------- ------------- -------------
PROPERTY, AND EQUIPMENT, net ................... 2,146,603 552,697 -- 2,699,300
GOODWILL, net .................................. 1,258,769 -- -- 1,258,769
INTANGIBLE ASSETS, net ......................... 10,445,138 2,324,400 -- 12,769,538
OTHER ASSETS ................................... 1,585,454 284,740 -- 1,870,194
DEFERRED INCOME TAXES .......................... 585,000 -- -- 585,000
------------ ----------- ------------- -------------
Total assets ................................ $ 32,110,018 $19,995,350 $ (4,500,000) $ 47,605,368
============ =========== ============= =============
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................. $ 3,685,472 $ 337,564 $ -- $ 4,023,036
Accrued expenses and other
current liabilities ......................... 1,978,788 933,493 -- 2,912,281
Income taxes payable .......................... -- 262,373 -- 262,373
Current portion of capital lease .............. -- 103,748 -- 103,748
Deferred revenue .............................. 1,005,915 -- -- 1,005,915
------------ ----------- ------------- -------------
Total current liabilities ................... 6,670,175 1,637,178 -- 8,307,353
------------ ----------- ------------- -------------
DEFERRED INCOME TAXES .......................... -- 34,300 -- 34,300
------------ ----------- ------------- -------------
CAPITAL LEASE PAYABLE,
net of current portion ....................... -- 145,056 -- 145,056
------------ ----------- ------------- -------------
Total liabilities ........................... 6,670,175 1,816,534 -- 8,486,709
------------ ----------- ------------- -------------
SHAREHOLDERS' EQUITY:
Preferred stock ............................... -- -- -- --
Common stock .................................. 246,031 114,763 82,310 (B) 443,104
Additional paid-in capital .................... 35,078,519 15,943,179 (82,310)(B) 50,939,388
Accumulated (deficit) earnings ................ (9,884,707) 2,120,874 (4,500,000)(A) (12,263,833)
------------ ----------- ------------- -------------
Total shareholders' equity .................. 25,439,843 18,178,816 (4,500,000) 39,118,659
------------ ----------- ------------- -------------
Total liabilities and
shareholders' equity ..................... $ 32,110,018 $19,995,350 $ (4,500,000) $ 47,605,368
============ =========== ============= =============
</TABLE>
----------------
(A) To reflect payment of non-recurring merger expenses.
(B) To reflect the common stock to be issued by TradeStation Group in
connection with the merger.
83
<PAGE>
TRADESTATION GROUP
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Omega
Research OnlineTrading.com TradeStation
Nine Months Nine Months Group
Ended Ended Pro Forma Combined
9/30/00 7/31/00 Adjustments Pro Forma
--------------- ------------------- --------------------- ---------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees .................................. $ 14,948,460 $ -- $ -- $ 14,948,460
Commissions and fees ............................ -- 11,123,956 -- 11,123,956
Subscription services ........................... 5,472,961 -- -- 5,472,961
Net investment gains ............................ -- 458,707 -- 458,707
Other revenues .................................. 6,654,971 984,635 -- 7,639,606
------------ ----------- ------------- ------------
Total net revenues ............................ 27,076,392 12,567,298 -- 39,643,690
------------ ----------- ------------- ------------
OPERATING EXPENSES:
Cost of licensing fees .......................... 494,045 -- -- 494,045
Clearing and other transaction costs ............ -- 3,214,089 -- 3,214,089
Cost of subscription services ................... 2,767,012 -- -- 2,767,012
Product development ............................. 5,640,827 621,353 -- 6,262,180
Sales and marketing ............................. 17,805,915 2,641,152 -- 20,447,067
General and administrative ...................... 5,959,838 4,073,207 (52,507)(A) 9,980,538
Amortization of goodwill ........................ 306,189 -- -- 306,189
Amortization of other intangible assets ......... 3,706,251 365,798 -- 4,072,049
------------ ----------- ------------- ------------
Total operating expenses ...................... 36,680,077 10,915,599 (52,507) 47,543,169
------------ ----------- ------------- ------------
(Loss) income from operations ................. (9,603,685) 1,651,699 52,507 (7,899,479)
------------ ----------- ------------- ------------
OTHER INCOME (EXPENSE), net:
Interest expense ................................ -- -- (52,507)(A) (52,507)
Other income (expense), net ..................... 85,970 174,315 -- 260,285
------------ ----------- ------------- ------------
Total other income (expense), net ............. 85,970 174,315 (52,507) 207,778
------------ ----------- ------------- ------------
(Loss) income before income taxes ............. (9,517,715) 1,826,014 -- (7,691,701)
INCOME TAX PROVISION ............................. -- 733,702 -- 733,702
------------ ----------- ------------- ------------
Net (loss) income ............................. $ (9,517,715) $ 1,092,312 $ -- $ (8,425,403)
============ =========== ============= ============
Loss per share:
Basic ........................................... $ (0.39) $ (0.19)
============ ============
Diluted ......................................... $ (0.39) $ (0.19)
============ ============
Weighted average common stock:
Basic ........................................... 24,568,404 19,226,721 (B) 43,795,125
============ ============= ============
Diluted ......................................... 24,568,404 19,226,721 (B) 43,795,125
============ ============= ============
</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 TradeStation Group common
stock in connection with the merger.
84
<PAGE>
TRADESTATION GROUP
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Omega
Research TradeStation
Nine Months OnlineTrading.com Group
Ended Nine Months Ended Pro Forma Combined
9/30/99 7/31/99 Adjustments Pro Forma
--------------- ------------------- --------------------- ---------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees ........................... $ 12,288,532 $ -- $ -- $ 12,288,532
Commissions and fees ..................... -- 5,775,543 -- 5,775,543
Net investment gains ..................... -- 872,427 -- 872,427
Other revenues ........................... 5,633,784 290,652 -- 5,924,436
------------ ---------- ------------- ------------
Total net revenues ..................... 17,922,316 6,938,622 -- 24,860,938
------------ ---------- ------------- ------------
OPERATING EXPENSES:
Cost of licensing fees ................... 1,397,818 -- -- 1,397,818
Clearing and other transaction costs ..... -- 1,773,422 -- 1,773,422
Product development ...................... 3,301,462 -- -- 3,301,462
Sales and marketing ...................... 12,826,516 2,032,596 -- 14,859,112
General and administrative ............... 2,878,801 2,181,214 (23,376)(A) 5,036,639
------------ ---------- ------------- ------------
Total operating expenses ............... 20,404,597 5,987,232 (23,376) 26,368,453
------------ ---------- ------------- ------------
(Loss) income from operations .......... (2,482,281) 951,390 23,376 (1,507,515)
------------ ---------- ------------- ------------
OTHER INCOME (EXPENSE), net:
Interest expense ......................... -- -- (23,376)(A) (23,376)
Other income, net ........................ 321,411 175,000 -- 496,411
------------ ---------- ------------- ------------
Total other income (expense), net ...... 321,411 175,000 (23,376) 473,035
------------ ---------- ------------- ------------
(Loss) income before income taxes ...... (2,160,870) 1,126,390 -- (1,034,480)
INCOME TAX (BENEFIT) PROVISION............. (896,000) 421,877 -- (474,123)
------------ ---------- ------------- ------------
Net (loss) income ...................... $ (1,264,870) $ 704,513 $ -- $ (560,357)
============ ========== ============= ============
Loss per share:
Basic .................................... $ (0.06) $ (0.01)
============ ============
Diluted .................................. $ (0.06) $ (0.01)
============ ============
Weighted average common stock:
Basic .................................... 22,374,055 15,263,740 (B) 37,637,795
============ ============= ============
Diluted .................................. 22,374,055 15,263,740 (B) 37,637,795
============ ============= ============
</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 TradeStation Group common
stock in connection with the merger.
85
<PAGE>
TRADESTATION GROUP
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Omega TradeStation
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 .................................. $ 16,217,922 $ -- $ -- $ 16,217,922
Commissions and fees ............................ -- 9,471,435 -- 9,471,435
Subscription services ........................... 304,382 -- -- 304,382
Net investment gains ............................ -- 1,129,493 -- 1,129,493
Other revenues .................................. 7,214,231 914,912 -- 8,129,143
------------ ----------- ------------- ------------
Total net revenues ............................ 23,736,535 11,515,840 -- 35,252,375
------------ ----------- ------------- ------------
OPERATING EXPENSES:
Cost of licensing fees .......................... 1,850,826 -- -- 1,850,826
Clearing and other transaction costs ............ -- 3,012,284 -- 3,012,284
Cost of subscription services ................... 80,905 -- -- 80,905
Product development ............................. 4,698,319 279,387 -- 4,977,706
Sales and marketing ............................. 18,161,741 3,048,623 -- 21,210,364
General and administrative ...................... 4,534,084 3,472,384 (51,863)(A) 7,954,605
Amortization of goodwill ........................ 68,042 -- -- 68,042
Amortization of other intangible assets ......... 823,611 95,432 -- 919,043
------------ ----------- ------------- ------------
Total operating expenses ...................... 30,217,528 9,908,110 (51,863) 40,073,775
------------ ----------- ------------- ------------
(Loss) income from operations ................. (6,480,993) 1,607,730 51,863 (4,821,400)
------------ ----------- ------------- ------------
OTHER INCOME (EXPENSE), net:
Interest expense ................................ -- -- (51,863)(A) (51,863)
Other income, net ............................... 422,475 175,000 -- 597,475
------------ ----------- ------------- ------------
Total other income (expense), net ............. 422,475 175,000 (51,863) 545,612
------------ ----------- ------------- ------------
(Loss) income before income taxes ............. (6,058,518) 1,782,730 -- (4,275,788)
INCOME TAX (BENEFIT) PROVISION ................... (2,336,000) 702,224 -- (1,633,776)
------------ ----------- ------------- ------------
Net (loss) income ............................. $ (3,722,518) $ 1,080,506 $ -- $ (2,642,012)
============ =========== ============= ============
Loss per share:
Basic ........................................... $ (0.16) $ (0.07)
============ ============
Diluted ......................................... $ (0.16) $ (0.07)
============ ============
Weighted average common stock:
Basic ........................................... 22,758,654 17,306,706 (B) 40,065,360
============ ============= ============
Diluted ......................................... 22,758,654 17,306,706 (B) 40,065,360
============ ============= ============
</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 TradeStation Group common
stock in connection with the merger.
86
<PAGE>
TRADESTATION GROUP
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Omega TradeStation
Research OnlineTrading.com Group
Year Ended Year Ended Pro Forma Combined
12/31/98 1/31/99 Adjustments Pro Forma
-------------- ------------------- --------------------- ---------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees ............................... $22,005,324 $ -- $ -- $22,005,324
Commissions and fees ......................... -- 5,525,427 -- 5,525,427
Net investment gains ......................... -- 328,495 -- 328,495
Other revenues ............................... 6,211,181 138,142 -- 6,349,323
----------- ---------- ------------- -----------
Total net revenues ......................... 28,216,505 5,992,064 -- 34,208,569
----------- ---------- ------------- -----------
OPERATING EXPENSES:
Cost of licensing fees ....................... 1,798,078 -- -- 1,798,078
Clearing and other transaction costs ......... -- 2,002,055 -- 2,002,055
Product development .......................... 3,318,310 -- -- 3,318,310
Sales and marketing .......................... 14,381,923 1,174,998 -- 15,556,921
General and administrative ................... 6,134,608 2,654,988 (36,566)(A) 8,753,030
----------- ---------- ------------- -----------
Total operating expenses ................... 25,632,919 5,832,041 (36,566) 31,428,394
----------- ---------- ------------- -----------
Income from operations ..................... 2,583,586 160,023 36,566 2,780,175
----------- ---------- ------------- -----------
OTHER INCOME (EXPENSE), net:
Interest expense ............................. -- -- (36,566)(A) (36,566)
Other income, net ............................ 423,961 -- -- 423,961
----------- ---------- ------------- -----------
Total other income (expense), net .......... 423,961 -- (36,566) 387,395
----------- ---------- ------------- -----------
Income before income taxes ................. 3,007,547 160,023 -- 3,167,570
INCOME TAX PROVISION 1,052,000 52,080 -- 1,104,080
----------- ---------- ------------- -----------
Net income ................................. $ 1,955,547 $ 107,943 $ -- $ 2,063,490
=========== ========== ============= ===========
Earnings per share:
Basic ........................................ $ 0.09 $ 0.06
=========== ===========
Diluted ...................................... $ 0.09 $ 0.05
=========== ===========
Weighted average common stock:
Basic ........................................ 22,255,627 14,500,799 (B) 36,756,426
=========== ============= ===========
Diluted ...................................... 22,757,913 15,209,635 (B) 37,967,548
=========== ============= ===========
</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 TradeStation Group common
stock in connection with the merger.
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TRADESTATION GROUP
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Omega TradeStation
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 ............................... $24,364,990 $ -- $ -- $24,364,990
Commissions and fees ......................... -- 3,673,728 -- 3,673,728
Net investment losses ........................ -- (187,973) -- (187,973)
Other revenues ............................... 4,861,284 62,630 -- 4,923,914
----------- ---------- ------------- -----------
Total net revenues ......................... 29,226,274 3,548,385 -- 32,774,659
----------- ---------- ------------- -----------
OPERATING EXPENSES:
Cost of licensing fees ....................... 1,848,993 -- -- 1,848,993
Clearing and other transaction costs ......... -- 1,751,472 -- 1,751,472
Product development .......................... 1,890,392 -- -- 1,890,392
Sales and marketing .......................... 11,272,290 229,562 -- 11,501,852
General and administrative ................... 5,420,760 1,589,329 (71,805)(A) 6,938,284
----------- ---------- ------------- -----------
Total operating expenses ................... 20,432,435 3,570,363 (71,805) 23,930,993
----------- ---------- ------------- -----------
Income (loss) from operations .............. 8,793,839 (21,978) 71,805 8,843,666
----------- ---------- ------------- -----------
OTHER INCOME (EXPENSE), net:
Interest expense ............................. -- -- (71,805)(A) (71,805)
Other income, net ............................ 146,474 -- -- 146,474
----------- ---------- ------------- -----------
Total other income (expense), net .......... 146,474 -- (71,805) 74,669
----------- ---------- ------------- -----------
Income (loss) before income taxes .......... 8,940,313 (21,978) -- 8,918,335
INCOME TAX BENEFIT (934,000) (2,550) -- (936,550)
----------- ---------- ------------- -----------
Income (loss) before pro forma
tax adjustments ............................ 9,874,313 (19,428) -- 9,854,885
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) ................ $ 5,451,582 $ (19,428) $ -- $ 5,432,154
=========== ========== ============= ===========
Pro forma earnings per share:
Basic ........................................ $ 0.27 $ 0.16
=========== ===========
Diluted ...................................... $ 0.26 $ 0.15
=========== ===========
Weighted average common stock:
Basic ........................................ 20,171,527 14,500,799 (B) 34,672,326
=========== ============= ===========
Diluted ...................................... 20,884,675 14,500,799 (B) 35,385,474
=========== ============= ===========
</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 TradeStation Group common
stock in connection with the merger.
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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., 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 design service.
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
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brokerage services that are integrated with TradeStation Pro, thereby creating
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.
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.
In the fourth quarter of 2000, Omega Research expects to launch to its
client software customer base TradeStation Pro, a monthly subscription service
that will include the premium trading strategy tools of TradeStation seamlessly
integrated with the FDCN's streaming real-time market quotes and news (which
has been renamed TradeStation Network). TradeStation Pro will serve as the
platform upon which OnlineTrading.com's high-speed electronic brokerage
services will be based.
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 200 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 first quarter
of 2000 there were nearly 16 million online brokerage accounts in North
America, up 88% from a year ago. U.S. Bancorp Piper Jaffray estimated that over
$1.1 trillion in assets were held in online brokerage accounts at March 31,
2000. 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 1.4 million online trades in the first quarter of
2000.
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
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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 and New York Stock Exchange composite volumes
experienced the largest jump in history. Volume on the Nasdaq Stock Market
reached 271 billion in 1999, a 37% increase over the 1998 volume of 198
billion. Volume on the New York Stock Exchange also increased in 1999, to 209
billion, a 24% increase over 1998 volume of 169 billion.
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. In the
fourth quarter of 2000, Omega Research expects to launch to its client software
customer base, TradeStation Pro, a monthly subscription service that will
include the premium trading strategy tools of TradeStation seamlessly
integrated with FDCN's streaming real-time market quotes and news (which has
been renamed TradeStation Network). TradeStation Pro will serve as the platform
upon which OnlineTrading.com's high-speed electronic brokerage services will be
based.
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.
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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 compatible
with real-time datafeeds, Omega Research's 2000i software products are able to
access and display end-of-day market data. In connection with its transition to
the new business model, Omega Research discontinued marketing efforts with
respect to client software products in May 2000.
Omega Research's principal client software products currently are:
<TABLE>
<CAPTION>
Product Current Version Operating System List 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
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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 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 Pro. 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 New York Stock Exchange, The Nasdaq Stock Market,
American Stock Exchange and Options Price Reporting Authority. 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 the New York Stock
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Exchange, The Nasdaq Stock Market, the American Stock Exchange and the Options
Price Reporting Authority for non-professional subscribers, which currently
total $4.00 per month, are included in the pricing, except for fees payable to
Nasdaq Level II data, which currently costs $10.00 per month. Exchange fees
payable by professional subscribers are also not included in the
above-described pricing.
TradeStation Pro. Later this year, Omega Research intends to launch
TradeStation Pro to its client software customer base. TradeStation Pro will be
an Internet-based monthly subscription service that includes 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 historically tested and then automated to produce buy and sell signals in
real time. TradeStation Pro's tools will likely eventually also include the
functions of RadarScreen. Conceptually, TradeStation Pro is being designed as
an Internet-based platform for the active online trader who wishes to develop,
test and implement in real time objective trading strategies. The monthly
subscription price at which TradeStation Pro is to be offered has not yet been
determined. Sometime following the launch of TradeStation Pro, Omega Research
plans to launch OptionStation.com, either as a separate trading platform for
options traders or as premium service within TradeStation Pro.
Integration with OnlineTrading.com's Online Brokerage Services. After the
merger, Omega Research intends to integrate the TradeStation Pro 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 Pro 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 Pro. 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, have changed and are
expected to continue 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
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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 have been and will be
created in connection with Omega Research's Internet-based offerings.
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
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. Other than its web site, marketing efforts for 2000i
products were discontinued in May 2000.
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
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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 and TradeStation Pro is 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.
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 Pro 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 its
delivery of 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 $4.7
million, $3.3 million and $1.9 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 on the development of a proprietary order routing
and execution technology to be used in the new business model and are sharing
the costs thereof. Omega Research also may 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
45 as of December 31, 1998, a 60% increase. That number of persons was 91 as of
October 31, 2000, a 26% increase from December 31, 1999.
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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 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 and TradeStation Pro are 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. As of the date of this joint proxy statement/prospectus, Omega
Research believes that no contractual obligations exist to provide Year 2000
modifications or solutions for any Omega Research or Window On WallStreet
products. Omega Research has not received any material complaints about
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not providing Year 2000 modifications or solutions for older versions, or older
or discontinued products, nor has it received any material complaints that
challenge the effectiveness of Year 2000 functionality in its most recent
product versions or its other Year 2000 solutions offered to customers.
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.
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
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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
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
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SuperCharts, ProSuite, RadarScreen, 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.
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 October 31, 2000, Omega Research had 229 full-time equivalent
employees consisting of 91 in product development, including software
engineering, product management, documentation and quality assurance, 94 in
sales and marketing, including sales, marketing, customer support and order
fulfillment, and 44 in general administration, including executive management,
finance, information technology services and administration. Omega Research's
employees are not represented by any
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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 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 space for its server
farms at two co-location sites in Dallas, Texas and Miami, Florida. 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.
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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 nine months ended September 30, 2000
and 1999 and the consolidated balance sheet data as of September 30, 2000 have
been derived from Omega Research's unaudited interim financial statements
included in pages F-2 through F-27 of this joint proxy statement/prospectus.
The consolidated balance sheet data as of September 30, 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 in pages F-2 through F-27 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 14 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
Nine Months Ended As of and for the
September 30, Year Ended December 31,
------------------------- ------------------------------------------------------
2000 1999 1999(2) 1998 1997 1996 1995
------------ ------------ ----------- ---------- ---------- ---------- ---------
(In thousands, except per share data)(1)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA(1):
Net revenues:
Licensing fees(3) .......................... $ 14,948 $ 12,288 $ 16,218 $22,006 $24,365 $13,943 $ 7,913
Subscription services ...................... 5,473 -- 305 -- -- -- --
Other revenues ............................. 6,655 5,634 7,214 6,211 4,861 3,877 1,502
-------- -------- -------- ------- ------- ------- -------
Total net revenues ........................ 27,076 17,922 23,737 28,217 29,226 17,820 9,415
-------- -------- -------- ------- ------- ------- -------
Total operating expenses .................... 36,680 20,404 30,218 25,633 20,432 10,798 6,127
-------- -------- -------- ------- ------- ------- -------
(Loss) income from operations ............... (9,604) (2,482) (6,481) 2,584 8,794 7,022 3,288
-------- -------- -------- ------- ------- ------- -------
Historical net (loss) income ................ $ (9,518) $ (1,265) $ (3,723) $ 1,956 $ 9,874 $ 7,082 $ 3,312
======== ======== ======== ======= ======= ======= =======
Pro forma net income(4) ..................... $ 5,452 $ 4,285 $ 2,004
======= ======= =======
Historical net (loss) earnings per share
Basic ...................................... $ (0.39) $ (0.06) $ (0.16) $ 0.09 $ 0.49 $ 0.36 $ 0.17
Diluted .................................... $ (0.39) $ (0.06) $ (0.16) $ 0.09 $ 0.47 $ 0.34 $ 0.16
Pro forma earnings per share(4):
Basic ...................................... $ 0.27 $ 0.22 $ 0.10
Diluted .................................... $ 0.26 $ 0.21 $ 0.10
Weighted average shares outstanding:
Basic ...................................... 24,568 22,374 22,759 22,256 20,172 19,480 19,480
Diluted .................................... 24,568 22,374 22,759 22,758 20,885 20,541 20,541
CONSOLIDATED BALANCE SHEET DATA(1):
Cash and cash equivalents ................... $ 1,523 $ 6,697 $ 2,176 $ 7,437 $12,324 $ 142 $ 311
Marketable securities ....................... -- 4,473 1,695 5,737 1,015 -- --
Working capital ............................. 9,419 24,201 15,695 25,635 24,170 3,629 1,997
Total assets ................................ 32,110 29,572 39,559 29,642 27,470 5,803 3,288
Shareholders' equity ........................ 25,440 26,753 34,496 27,492 25,233 4,835 2,970
</TABLE>
---------------
(1) The selected financial data as of and for the year ended December 31, 1999
and as of and for the nine months ended September 30, 1999 has been
restated. The amounts above for 1995 through 1998 are the same as Omega
Research had previously reported prior to the Window On WallStreet
acquisition since Omega Research is accounting for that transaction under
the purchase method of accounting and not under the pooling-of-interest
method of accounting. See Notes 2 and 3 of Notes to Consolidated Financial
Statements of Omega Research.
(2) Amounts reflect the acquisition of Window On WallStreet, which was
accounted for under the purchase method beginning October 26, 1999. See
Note 3 of Notes to Consolidated Financial Statements of Omega Research.
(3) Prior to 1999, licensing fees were recognized in full (net of provision for
anticipated returns) upon shipment. Upon the release of Omega Research's
2000i product line, Omega Research began recognizing sales on an as due
basis in accordance with the payment terms of the sale (generally over a
period of up to 12 to 16 months). See Note 1 of Notes to Consolidated
Financial Statements of Omega Research.
(4) 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 Consolidated Financial Statements of Omega Research.
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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 of Omega Research contained in this joint proxy
statement/prospectus.
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 to transform itself from a trading strategy client
software company to one that includes an online brokerage firm that intends to
provide to active traders a best-of-breed, Internet-based trading platform: One
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, and by offering on-line
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.
To support the change in the business model, Omega Research expects to
increase significantly its product development and infrastructure expenditures.
As a result, Omega Research expects to incur net losses at least through the
first quarter of 2001. 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.
On February 22, 1999, Omega Research released its latest generation of
premium client 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.
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 are sold primarily by Omega
Research's telesales force. To date, a majority of the licensing fees have been
generated through sales of TradeStation and the Omega Research ProSuite (see
Note 13 of Notes to Consolidated Financial Statements of Omega Research). 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 up to
12 months and, for Omega Research ProSuite 2000i sales, over the course of up
to 16 months. The concentration of Omega Research's marketing efforts have
migrated 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. Revenues from licensing fees are expected to
decrease quarter over quarter in 2000 and it is difficult to predict when, if
at all, or to what extent, revenues from Omega Research's Internet subscription
services will offset such reductions.
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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, beginning in October
1999, revenue from Window On WallStreet's Financial Data Cast Network or FDCN
subscription service. Prior to February 1999, licensing fees were recognized
upon product shipment in accordance with Statement of Position 97-2, Software
Revenue Recognition and an estimate for returns was provided in accordance with
Statement of Financial Accounting Standards No. 48, Revenue Recognition When
Right of Return Exists. Beginning in 1999 with the launch of Omega Research's
2000i product line, changes in Omega Research's client software product sales,
including introduction of a new, higher-priced product and longer financing
terms, were deemed to alter the predictability of return reserves and the
future collectibility of receivables. Accordingly, all 2000i product sales are
recognized as they become due (generally over the 12 to 16 month financing
terms for these sales, as monthly payments are due). The revenue recognition
changes relate solely to the timing of revenue recognition with respect to
sales of 2000i products and have no impact on cash flow. The 2000i products are
legacy products of Omega Research. These revenue recognition timing changes do
not impact revenue recognition for Omega Research's Internet subscription
services or other revenues, or any of Omega Research's planned service
offerings, which are expected to generate the majority of Omega Research's
revenues in the future. See Note 1 of Notes to Consolidated Financial
Statements of Omega Research.
Omega Research provides client software customers with a 30-day right of
return and, prior to 1999, recorded a provision for estimated returns at the
time of sale. To maintain a positive, customer-friendly environment, Omega
Research has historically accepted returns in excess of 30 days. Approximately
90% of all returns accepted under the 30-day right of return policy are
initiated within 60 days following the date of sale. The reserve for returns,
recorded in accordance with Statement of Financial Accounting Standards No. 48,
was estimated based on historical experience and other relevant factors. Omega
Research maintained an allowance for returns of approximately $0, $83,000, $7.4
million and $4.2 million at September 30, 2000 and December 31, 1999, 1998 and
1997, respectively. Actual returns processed during 1999, for sales made on or
prior to December 31, 1998, were approximately $7.4 million and actual returns
processed during 1998, for sales made on or prior to December 31, 1997, were
approximately $4.3 million. Total actual returns processed were approximately
$83,000, $7.4 million, $22.1 million and $13.4 million in 2000, 1999, 1998 and
1997, respectively. The decrease in actual returns in 2000 and 1999 was due to
the change in the recognition of 2000i licensing fee revenue to an as due
basis. The increase in actual returns processed in 1998 when compared to 1997
occurred on a gradual basis from the beginning to the end of 1998. Management
believes this increase relates to an expanded marketing and sales effort which
included television advertising, and an increasing public awareness of trading,
which resulted in Omega Research reaching a broader audience that included more
individuals who may not have necessarily been suited to use Omega Research's
products.
Omega Research maintained an allowance for bad debts of $716,000 at
September 30, 2000 and December 31, 1999 and $3.7 million and $3.2 million as
of December 31, 1998 and 1997, respectively. Provision for bad debts was $0,
$25,000, $2.2 million and $2.5 million in 2000, 1999, 1998 and 1997,
respectively. The decrease in bad debts during 1999 was due to the change in
the recognition of 2000i licensing fees to an as due basis. Omega Research
wrote off $3.0 million, $1.7 million and $52,000 in delinquent accounts in
1999, 1998, and 1997, respectively.
While Omega Research has no obligation to perform future services
subsequent to shipment of client software, for a limited time, Omega Research
voluntarily provides support on its web site, periodic "bug" fixes, and
telephone and electronic mail customer support as an accomodation 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. The costs associated with these services are insignificant
in relation to product sales value and are accrued at the date the
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software is delivered. As of September 30, 2000 and December 31, 1999, 1998 and
1997, Omega Research had accrued $161,000, $161,000, $174,000 and $166,000,
respectively.
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. The Consolidated Financial Statements of Omega Research contained
herein reflect the transaction under the purchase method of accounting. In
November 1999, Omega Research announced that it would focus on serving active
on-line traders by offering a new monthly subscription, Internet-based trading
strategy portal that is to be named TradeStation Pro. TradeStation Pro is
expected to be launched by the end of 2000. On January 19, 2000, Omega Research
signed a definitive, 100% share-exchange merger agreement with
OnlineTrading.com, a direct access on-line broker. That merger is expected to
be accounted for as a pooling-of-interests. OnlineTrading.com provides
electronic order execution technology that directly accesses ECN's, 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. 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.
The majority of Omega Research's other revenues 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 for
users of Omega Research products. Omega Research's decision to focus its
marketing resources on WindowOnWallStreet.com and future Internet subscription
services is expected to result in reduced commission revenue from data service
vendors. However, it is difficult to predict when, if at all, or to what
extent, revenues from Omega Research's Internet subscription services 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.
In accordance with Statement of Financial Accounting Standards 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 September 30, 2000, or
December 31, 1999 or 1998. In the future, Omega Research believes that the time
between the technological 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 of 1986, as amended, 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 non-recurring credit represents the recognition of
net deferred tax assets arising from the book and tax basis differences that
arise
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primarily as a result of accounts receivable reserves. The non-recurring
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.
On November 2, 2000, Omega Research announced the restatement of its
financial results for a six-quarter period from the first quarter of 1999
through the second quarter of 2000. This restatement addresses: (1) the timing
of revenue recognition with respect to sales of Omega Research's 2000i product
line for which revenues will be recognized as they become due (generally over
the 12 to 16 month financing terms for these sales, as monthly payments are
due) as compared to recognition of revenue, net of provision for anticipated
returns, upon shipment of these products; and (2) Omega Research's October 1999
merger with Window On WallStreet being accounted for under the purchase method
of accounting and not under the pooling-of-interests method of accounting. (See
Notes 2 and 3 in Notes to Consolidated Financial Statements).
Results of Operations
The following table presents, for the periods indicated, certain items in
Omega Research's consolidated statement of operations reflected as a percentage
of total net revenues:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
--------------------------- --------------------------------------
2000 1999 1999 1998 1997
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Revenues:
Licensing fees .................................. 55.2% 68.6% 68.3% 78.0% 83.4%
Subscription services ........................... 20.2 -- 1.3 -- --
Other revenues .................................. 24.6 31.4 30.4 22.0 16.6
---- ---- ---- ---- ----
Total net revenues ............................. 100.0 100.0 100.0 100.0 100.0
Operating Expenses:
Cost of licensing fees .......................... 1.8 7.8 7.8 6.4 6.3
Cost of subscription services ................... 10.2 -- 0.3 -- --
Product development ............................. 20.9 18.4 19.8 11.7 6.5
Sales and marketing ............................. 65.8 71.6 76.5 51.0 38.6
General and administrative ...................... 22.0 16.1 19.1 21.7 18.5
Amortization of goodwill ........................ 1.1 -- 0.3 -- --
Amortization of other intangible assets ......... 13.7 -- 3.5 -- --
----- ----- ----- ----- -----
Total operating expenses ....................... 135.5 113.9 127.3 90.8 69.9
----- ----- ----- ----- -----
(Loss) income from operations .................... (35.5)% (13.9)% (27.3)% 9.2% 30.1%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended September 30, 2000 and 1999
Net Revenues
Total Net Revenues. Omega Research's total net revenues increased 51% from
$17.9 million in the nine months ended September 30, 1999 to $27.1 million in
the comparable period of 2000.
Licensing Fees. Licensing fees are derived from sales of Omega Research's
client software products. Licensing fees increased 22% from $12.3 million in
the nine months ended September 30,
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1999 to $14.9 million in the comparable period of 2000 primarily due to a
change in the recognition of revenue in 1999 offset by a decrease in the number
of new licensing fee transactions during 2000 as compared to 1999 resulting
from Omega Research's change in its business model. Prior to 1999, licensing
fees were recognized in full (net of provision for anticipated returns) upon
shipment. In 1999, upon the release of Omega Research's 2000i product line,
Omega Research began recognizing sales on an as due basis in accordance with
the payment terms of the sale (generally over a period of up to 12 to 16
months). Licensing fees for the nine months ended September 30, 2000 was higher
than the comparable period of 1999 primarily due to the recognition of 1999
sales on an as due basis during 2000. In future quarters, as a result of Omega
Research's focus on building its Internet subscriber base, it is expected that
licensing fees will decrease quarter over quarter as the balance of the 1999
product sales are recognized during 2000 and the number of new licensing fee
transactions decreases. It is difficult to predict when, if at all, or to what
extent, revenues from Omega Research's Internet subscription services will
offset such reductions in licensing fees.
Subscription Services. Subscription services revenue totaled $5.5 million
in the nine months ended September 30, 2000 primarily due to the January 25,
2000 launch of WindowOnWallStreet.com, which contributed $4.5 million during
the period, and, to a lesser extent, revenue from FDCN, the real time market
data subscription service acquired in the October 1999 acquisition of Window on
WallStreet.
Other Revenues. Other revenues increased 18% from $5.6 million in the nine
months ended September 30, 1999 to $6.7 million in the comparable period of
2000, primarily due to minimum royalties under Omega Research's license
agreement with Telerate, Inc., a subsidiary of Bridge Information Systems,
Inc., increasing by $500,000 per quarter, partially offset by decreases in
end-of-day data vendor royalties and revenues generated from OmegaWorld, Omega
Research's annual conference for users of Omega Research's products.
Operating Expenses
Cost of Licensing Fees. Cost of licensing fees consists primarily of
product media, packaging and inventory costs that are recognized upon shipment
of client software products. Cost of licensing fees decreased from
approximately $1.4 million in the nine months ended September 30, 1999 to
approximately $494,000 in the comparable period of 2000 due to decreased
shipments of client software during the nine months ended September 30, 2000 as
compared to the same period during the prior year. Cost of licensing fees as a
percentage of net licensing fees decreased from 11% in the nine months ended
September 30, 1999 to 3% in the comparable period of 2000, primarily due to a
shift in the recognition of revenue from upon shipment to an as due basis in
accordance with the payment terms of the sale.
Cost of Subscription Services. Cost of subscription services consists
primarily of expenses related to the operation, maintenance and support of
Omega Research's server farm, and data distribution and exchange fees. Cost of
subscription services for the nine months ended September 30, 2000 was
approximately $2.8 million or 51% of subscription service revenues due to the
launch of Omega Research's WindowOnWallStreet.com subscription service and
FDCN. 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 71% from $3.3 million in the nine months ended September 30, 1999 to
$5.6 million in the comparable period of 2000, primarily due to an increase in
personnel and related costs of $1.9 million due to the number of personnel in
product development increasing 84% from 50 at September 30, 1999 to 92 at
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September 30, 2000 (inclusive of 17 product development employees at Window on
WallStreet), and, to a lesser extent, increased facility expenses and
consulting fees. Omega Research anticipates that the absolute dollar amount of
product development expenses will increase for the foreseeable future as Omega
Research develops new products and services and enhances existing products and
services in connection with its new business model, including completion of the
development of TradeStation Pro and integration of TradeStation Pro with direct
access order execution technology.
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, personnel
costs for the customer support center and marketing personnel, web site
maintenance and administration costs, and shipping expenses. Sales and
marketing expenses increased from $12.8 million in the nine months ended
September 30, 1999 to $17.8 million in the comparable period of 2000, primarily
due to increased advertising of $5.0 million (primarily television
advertising).
General and Administrative. General and administrative expenses consist
primarily of employee-related costs for administrative personnel such as
executive, human resources, finance and information technology, consulting and
professional fees, rent and other facilities expense. General and
administrative expenses increased from $2.9 million in the nine months ended
September 30, 1999 to $6.0 million in the comparable period of 2000, primarily
due to increases in facility expenses of $971,000, personnel costs of $881,000
and, to a lesser extent consulting and professional fees. In addition,
approximately 28% of the overall increase in general and administrative
expenses is related to the addition of administrative costs associated with
Window on WallStreet's operations. 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 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.
Amortization of Goodwill and Other Intangible Assets. The October 26, 1999
acquisition of Window on WallStreet was accounted for under the purchase method
of accounting. The excess purchase price paid (including acquisition costs of
$1.2 million) over the net book value of assets was allocated to goodwill and
other identifiable intangible assets (the value of which was determined by an
independent appraisal). Other intangible assets consist of purchased technology
and workforce, trademarks, patents, customer lists and non-compete agreements
with useful lives ranging from three to four years. For the nine months ended
September 30, 2000, amortization of goodwill and other intangible assets was
approximately $306,000 and $3.7 million, respectively.
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 $321,000 in the nine months ended September
30, 1999 to $86,000 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 decreased 16% from
$28.2 million in 1998 to $23.7 million in 1999.
Licensing Fees. Licensing fees decreased 26% from $22.0 million in 1998 to
$16.2 million in 1999, primarily due to a change in the method for recognizing
revenue on sales of Omega Research's 2000i
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products in 1999. Prior to 1999, licensing fees were recognized in full (net of
provision for anticipated returns) upon shipment. Upon the release of Omega
Research's 2000i product line at the beginning of 1999, Omega Research began
recognizing sales on an as due basis based upon the payment terms of the sale
(generally over a period of up to 12 to 16 months) as changes in Omega
Research's product sales, including introduction of a new, higher-priced
product and longer financing terms, were deemed to alter the predictability of
return reserves and the future collectibility of receivables. As a result of
Omega Research's focus on building its Internet subscriber base, it is expected
that licensing fees will decrease quarter over quarter as the balance of the
1999 product sales are recognized and the number of new licensing fee
transactions decrease. It is difficult to predict when, if at all, or to what
extent, revenues from Omega Research's Internet subscription services will
offset such reductions in licensing fees.
Subscription Services. Subscription services totaled $304,000 in the 1999
due to revenue from FDCN subsequent to the October 1999 acquisition of Window
On WallStreet.
Other Revenues. Other revenues increased 16% from $6.2 million in 1998 to
$7.2 million in 1999, primarily due to an increase in minimum royalties of $1.0
million under Omega Research's license agreement with Telerate, Inc. and
revenues generated from OmegaWorld, Omega Research's annual conference for
users of Omega Research products.
Operating Expenses
Cost of Licensing Fees. Cost of licensing fees was approximately $1.9
million in 1999 as compared to $1.8 million in 1998. Cost of licensing fees as
a percentage of licensing fee revenue increased from 8% in 1998 to 12% in 1999,
primarily due to the 1999 shift in recognition of revenue to an as due basis in
accordance with the payment terms of the sale, partially offset by 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 for the 1999
was approximately $81,000 or 27% of subscription service revenues due to
revenues from FDCN.
Product Development. Product development expenses increased from $3.3
million in 1998 to $4.7 million in 1999 primarily due to increased personnel
and related costs of $1.2 million due to an increase in the number of
individuals employed in product development from 45 at December 31, 1998 to 72
at December 31, 1999 (inclusive of 13 product development employees from Window
On WallStreet). Product development expenses as a percentage of total net
revenues increased from 12% in 1998 to 20% in 1999 primarily due to an increase
in personnel and related costs and the change in 1999 revenue recognition of
2000i licensing fees to an as due basis. Omega Research anticipates that the
absolute dollar amount of product development expense will increase for the
foreseeable future as Omega Research develops new products and services in
connection with its new business model and enhances existing products and
services.
Sales and Marketing. Sales and marketing expenses were $18.2 million in
1999 compared to $14.4 million in 1998, primarily due to increased personnel
and related costs of $2.8 million due to a 60% increase in marketing and sales
personnel from 108 at December 31, 1998 to 173 at December 31, 1999 (inclusive
of 16 sales and marketing employees from Window On WallStreet), increased
travel expenses and increased costs related to OmegaWorld. Sales and marketing
expenses as a percentage of total net revenues increased from 51% in 1998 to
77% in 1999 primarily due to the change in 1999 revenue recognition of 2000i
licensing fees to an as due basis.
General and Administrative. General and administrative expenses were $4.5
million in 1999 compared to $6.1 million in 1998 primarily as a result of a
decrease in bad debt expense of $2.2 million related to the 1999 shift in
licensing fee revenue recognition to an as due basis, and decreased consulting
and professional expenses of $528,000 mainly as a result of the favorable
settlement of the
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class action law suit brought against Omega Research in 1998, partially offset
by an increase in personnel and related costs and facility expenses. General
and administrative expenses as a percentage of total net revenues improved from
22% in 1998 to 19% in 1999, primarily as a result of a decrease in bad debt
expense partially offset by the change in 2000i licensing fee revenue
recognition to an as due basis. 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 hiring of additional personnel to
support the expected growth of Omega Research and Omega Research's change in
its business model.
Amortization of Goodwill and Other Intangible Assets. In 1999,
amortization of goodwill and other intangible assets was approximately $68,000
and $824,000, respectively.
Other Income, Net
Other income, net was approximately $422,000 in 1999 and $424,000 in 1998.
Years Ended December 31, 1998 and 1997
Net Revenues
Total Net Revenues. Omega Research's total net revenues were $28.2 million
in 1998 compared to $29.2 million in 1997.
Licensing Fees. Licensing fees were $22.0 million in 1998 as compared to
$24.4 million in 1997, 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 software products, which
were released on February 22, 1999.
Other Revenues. Other revenues increased 28% from $4.9 million in 1997 to
$6.2 million in 1998, primarily due to an increase 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 conference
for users of Omega Research products.
Operating Expenses
Cost of Licensing Fees. Cost of licensing fees was approximately $1.8
million in both 1998 and 1997. Cost of licensing fees as a percentage of
licensing fees increased slightly in 1998, primarily due to a one-time payment
made to a third party in conjunction with the development of certain technology
for Omega Research.
Product Development. Product development expenses increased from $1.9
million in 1997 to $3.3 million in 1998 primarily due to increased personnel
and related costs of $1.3 million due to a 55% increase in the number of
individuals employed in product development from 29 at December 31, 1997 to 45
at December 31, 1998. Product development expenses as a percentage of net
revenues increased from 7% in 1997 to 12% in 1998, primarily due to increased
personnel and related expenses as well as decreased licensing fees.
Sales and Marketing. Sales and marketing expenses were $14.4 million in
1998 compared to $11.3 million in 1997, primarily due to increased personnel
and related costs of $1.4 million due to a 21% increase in marketing and sales
personnel from 89 at December 31, 1997 to 108 at December 31, 1998, increased
advertising and promotional expenses (including print advertising, the use of
sales seminars, television advertising and direct mailers) of $1.1 million,
and, to a lesser extent, increased shipping costs and costs related to
OmegaWorld, partially offset by decreased communications expenses. Sales and
marketing expenses as a percentage of net revenues increased from 39% in 1997
to 51% in 1998 as a result of the increased marketing expenses discussed above
and decreased licensing fees.
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General and Administrative. General and administrative expenses were $6.1
million in 1998 compared to $5.4 million in 1997 primarily as a result of
increased professional fees related to the defense of the class action lawsuit
brought against Omega Research in 1998, costs of being a public company and
expenses related to the implementation and lease of a new telephone system,
partially offset by a decrease in bad debt expense. General and administrative
expenses as a percentage of net revenues increased from 19% in 1997 to 22% in
1998 primarily as a result of the increase in those expenses and decrease in
net licensing fees.
Other Income, Net
Other income, net increased from approximately $146,000 in 1997 to
$424,000 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
Statement of Financial Accounting Standards 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 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 non-recurring
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.
For the nine months ended September 30, 2000, a valuation allowance was
recognized to offset the tax benefit associated with losses for the period. The
effective tax rate of 41% for the nine months ended September 30, 1999 was
slightly higher than the 38.6% statutory rate due primarily to the impact of
tax-free investment income. The effective tax rate for 1999 approximated the
38.6% statutory rate. The effective tax rate for 1998 was 35%, 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 its new business and revenue models. Such fluctuations may result
in volatility in the price of Omega Research's common stock. As budgeted
expenses are based upon expected 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
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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's common stock. See Note 14 of Notes to Consolidated Financial
Statements of Omega Research for quarterly financial information.
Liquidity and Capital Resources
Omega Research believes that, after giving effect to the pending merger
with OnlineTrading.com, it will have cash resources and cash flows from
operations sufficient to meet currently anticipated working capital and capital
expenditure requirements for at least the next twelve months. The merger has
already been approved, through agreements with each company's affiliated
shareholders, by a majority of the outstanding shares of each company, and has
received regulatory approval from the NASD. Closing of the merger is expected
by the end of December 2000. The combined cash, cash equivalents and marketable
securities of the companies as of September 30, 2000 are approximately $17.9
million (approximately $1.5 million from Omega Research and approximately $16.4
million from OnlineTrading.com). In addition, Omega Research has an income tax
receivable of $8.2 million as of September 30, 2000 related to carryback claims
for prior periods that is expected to be realized subsequent to the filing of
Omega Research's 2000 federal income tax return.
Omega Research is experiencing a period of net losses which is expected to
continue at least through the first quarter of 2001. As Omega Research
transitions to its new business model, it may need to raise additional funds in
order to execute that transition (including the completion of the development
and integration of TradeStation Pro and order execution technology), support
more rapid expansion, develop new or enhanced services and products, respond to
competitive pressures, acquire complementary businesses or technologies and/or
take advantage of unanticipated opportunities. Omega Research's future
liquidity and capital requirements will depend upon numerous factors, including
the period of time it takes Omega Research to close the merger and 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.
Given the regulatory approval of the merger by the NASD and the
contractually promised approval by the requisite shareholders and Omega
Research's belief that certain accounting issues raised by the SEC Staff have
been resolved, Omega Research does not believe that the merger will not close
or that the closing will be further delayed beyond December 2000. However, in
the event this should occur and/or Omega Research's limited available cash and
cash equivalents are depleted sooner than expected, Omega Research would likely
reposition and restructure its business strategies as necessary, such as
appropriate marketing, sales and general and administrative cost reductions and
appropriate shifts of focus on its available product and service offerings, and
explore possible debt and/or equity financing arrangements. These matters have
been explored and several implemented, and Omega Research is reasonably
comfortable that, in the event of a further delay, or failure, to close the
merger and/or the depletion of its current limited available cash and cash
equivalents sooner than expected, Omega Research should have cash resources and
cash flows from operations sufficient to meet currently anticipated working
capital and capital expenditure requirements for approximately the next twelve
months. To further support the transition to the business model, Omega Research
is in the process of finalizing a short-term revolving credit facility in the
amount of $3.0 million to provide Omega Research with additional liquidity,
should it be required, prior to the closing of the merger. The facility is
expected to be a one-year loan that is guaranteed by Omega Research's Co-Chief
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Executive Officers with an interest rate of London Interbank Offered Rate plus
1.70% and without any equity participation rights or warrants of any kind.
There can be no assurance that additional financing (debt or equity),
including the short-term revolving credit facility discussed above, if or to
the extent required, will be available when needed on terms favorable to Omega
Research, or, after the merger, TradeStation 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, TradeStation Group's,
business, financial condition, results of operations and prospects. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of the shareholders of Omega Research or, after the
merger, TradeStation 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, TradeStation Group common stock.
As of September 30, 2000, Omega Research had cash and cash equivalents of
approximately $1.5 million, with working capital of approximately $9.4 million.
Cash used in operating activities during the nine months ended September
30, 2000 totaled approximately $2.1 million compared to approximately $1.2
million in the comparable period of 1999. The increase in net cash used in
operations in 2000 compared to the same period of 1999 was primarily due to
higher net losses, net of non-cash charges for depreciation and amortization,
during the nine months ended September 30, 2000.
Cash used in operating activities in 1999 totaled approximately $2.8
million, compared to cash provided by operating activities of approximately
$1.0 million and $3.3 million in 1998 and 1997, respectively. The decrease in
net cash provided by operations in 1999 was primarily due to an increase over
1998 in cash paid for income taxes of $3.8 million by Omega Research prior to
the Window On WallStreet acquisition, and the overall increase in the income
tax assets related to 1999 losses, partially offset by decreases in accounts
receivable. The decrease in net cash provided by operations in 1998 was
primarily attributable to lower net income of the Company and an increase in
cash paid for income taxes of $1.6 million. 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 provided cash of approximately $1.1
million during the nine months ended September 30, 2000 compared to
approximately $60,000 in the comparable period of 1999. Cash was provided from
the redemption or maturity of marketable securities partially offset by capital
expenditures related to the acquisition of computers and related equipment and
software required to support the transition by Omega Research into its new
business model.
Omega Research's investing activities provided cash of $1.2 million during
1999 and used cash of $6.1 million and $2.0 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 as well as $1.1 million (net of cash acquired) paid for
costs associated with the acquisition of Window on WallStreet. 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
$346,000 and $419,000 in the nine months ended September 30, 2000 and 1999,
respectively. Cash provided was from the
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issuance of common stock upon the exercise of stock options under Omega
Research's Amended and Restated 1996 Incentive Stock Plan during 1999 and 2000.
In 1999, Omega Research's financing activities used cash of $3.6 million
as compared to cash provided of $190,000 and $10.9 million in 1998 and 1997,
respectively. Net cash used in financing activities during 1999 was related to
the repayment of existing debt of Window On WallStreet of $4.1 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 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 in
"Comparative Per Share Data--Omega Research/TradeStation Group 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 the Omega Research's Amended and Restated 1996
Incentive Stock Plan.
Cash provided during 1997 of $10.9 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. A portion of the distributions was 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 Statement of
Financial Accounting Standards 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, as
amended by SFAS No. 138, will require Omega Research to recognize all
derivatives on the balance sheet as either assets or liabilities measured at
fair value. Derivatives that do not qualify for hedge accounting 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 December 1999, the SEC issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, to provide guidance on the
recognition, presentation and disclosure of revenue in financial statements.
Omega Research will be required to adopt Staff Accounting Bulletin No. 101 by
the fourth quarter of 2000. The adoption of Staff Accounting Bulletin No. 101
is not expected to have a material impact on the consolidated financial
position or results of operations of Omega Research.
In March 2000, the Emerging Issues Task Force reached a consensus on Issue
No. 00-2, Accounting for Web Site Development Costs, 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. The adoption of Issue No. 00-2 during the quarter ended September
30, 2000 did not have a material impact on the financial statements of Omega
Research.
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Year 2000 Compliance
Omega Research has not encountered any material difficulties with respect
to Year 2000 compliance issues with respect to the 2000i versions of its
products or WindowOnWallStreet.com, or any of its Year 2000 solutions offered
to customers relating to prior product versions. In addition, Omega Research
has not encountered any material difficulties with respect to Year 2000
compliance issues with respect to its customer integrated support and general
ledger system, its telephone system, or any vendor products or services.
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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 New York Stock Exchange was 209 billion shares, representing a
24% increase over 1998 volume of 169 billion shares. Likewise, composite
transaction volume on The Nasdaq Stock Market increased 37% to 271 billion
shares in 1999 up from 198 billion shares in 1998.
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
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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.
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.
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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
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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.
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.
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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 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.
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Employees
As of October 31, 2000, OnlineTrading.com employed a total of 69 full-time
employees, of which 6 are engaged in executive management, 31 in trading
activities, 19 in client services/back office, 3 in sales, 9 in office
personnel, and 1 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 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 1,443
square feet of office space for its branch office in Pittsburgh, Pennsylvania.
This space is occupied pursuant to a lease expiring on April 1, 2002 at an
annual rent of $23,810. 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. On September 9, 2000, OnlineTrading.com received notification from
NASD Dispute Resolution, Inc. that the Whighams had filed a statement of claim
and initiated arbitration against all parties named in the former civil action.
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
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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, negligent supervision and fraud in violation of
18 U.S.C. ss.1962. The Whighams seek total alleged damages of $561,000 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 and Analysis 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.
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.
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 on an "at will"
basis. 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.
Six months Ended July 31, 2000 Compared with Six Months Ended July 31, 1999
Revenues
Total Revenues. OnlineTrading.com's total revenues increased $3,994,327,
or 84% from $4,735,028 for the six months ended July 31, 1999 to $8,729,355 for
the six months ended July 31, 2000.
Commission Revenue. Commission revenue increased $3,745,188, or 95% from
$3,957,494 for the six months ended July 31, 1999 to $7,702,682 for the six
months ended July 31, 2000. The increase was the primary result of our
continued customer growth and the acquisition of Newport Discount Brokerage's
clients.
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Investment Gains, net. OnlineTrading.com's proprietary trading net profits
decreased $334,703 to $198,941 for the six months ended July 31, 2000 as
compared to $533,644 for the six months ended July 31, 1999. OnlineTrading.com
is in the process of winding down proprietary trading operations in
anticipation of the merger with Omega Research.
Interest--Revenue Sharing. Interest revenue sharing represents a revenue
sharing agreement with our clearing firm. Interest revenue sharing increased by
$174,008 to $311,218 for the six months ended July 31, 2000 as compared to
$137,210 for the six months ended July 31, 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.
Interest and Dividends. Interest and dividend income increased $386,124 to
$492,804 for the six months ended July 31, 2000 as compared to $106,680 for the
six months ended July 31, 1999. The increase was primarily as a result of
OnlineTrading.com's increased cash position available for investment and the
prevailing interest rates.
Other Revenues. Other revenues consist primarily of other service fees
shared with OnlineTrading.com's clearing agent and licensing fees for the
Internet trading platform. For the six months ended July 31, 2000 other
revenues totaled $23,710. There were no other revenues for the six months ended
July 31, 1999.
Expenses
Total Operating Expenses. Total operating expenses increased by 76% from
$4,085,667 for the six months ended July 31, 1999 to $7,206,022 for the six
months ended July 31, 2000.
Employee Compensation and Benefits. Employee compensation and related
benefits increased by $956,116, or 40%, from $2,402,478 for the six months
ended July 31, 1999 to $3,358,594 for the six months ended July 31, 2000.
Included in this amount are commissions paid to OnlineTrading.com's brokers
which increased $320,171 from $1,462,146 for the six months ended July 31, 1999
to $1,782,317 for the six months ended July 31, 2000 as a result of the
increased commission revenue. However, because the majority of
OnlineTrading.com's commission revenue growth is attributable to its online
accounts, commissions paid to OnlineTrading.com's brokers as a percentage of
commission revenue has been decreasing and should continue to do so. Also
included in this amount are commissions paid to OnlineTrading.com's traders
which decreased by $244,610 to $59,932 for the six months ended July 31, 2000
due to the decrease in investment gains. In addition, OnlineTrading.com has
employed various customer support, back office and management staff to support
the current growth. The percentage of employee compensation and related
benefits to revenue decreased from 51% for the six months ended July 31, 1999
to 38% for the six months ended July 31, 2000.
Floor Brokerage. Floor brokerage decreased from $27,051 for the six months
ended July 31, 1999 to $11,370 for the six months ended July 31, 2000.
Clearing and Other Transactions Costs. Clearing and other transaction
costs represents the cost to execute and clear customer trades. These expenses
increased $848,368, or 70%, from $1,218,466 to $2,066,834 as a result of the
increase in OnlineTrading.com's volume of transactions and the acquisition of
clients from Newport Discount Brokerage, Inc. However, as a percentage of
commission revenue for the six months ended July 31, 2000, clearing costs
decreased to 27% as compared to 31% for the six months ended July 31, 1999.
Communications. Communication costs increased $87,955 or 136% from $64,465
for the six months ended July 31, 1999 to $152,420 for the six months ended
July 31, 2000. This increase is primarily due to increased customer trading
activity.
Occupancy and Equipment. Occupancy and equipment expenses consist
primarily of facilities rent and leasing and depreciation of fixed assets.
Occupancy and equipment expenses increased $118,650 or 90%, from $131,127 for
the six months ended July 31, 1999 to $249,777 for the six months ended July
31, 2000. This increase is the primary result of increased rent for additional
space and depreciation and leasing costs on equipment and other fixed assets
necessary to accommodate OnlineTrading.com's growth.
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Promotional Costs. Promotional costs consist of advertising and public
relations. Promotional costs totaled $17,116 for the six months ended July 31,
2000 compared to $11,953 for the six months ended July 31, 1999.
Product Development. Product development costs represent the cost to
develop OnlineTrading.com's new order execution system. These costs totaled
$341,966 for the six months ended July 31, 2000. There were no product
development costs for the six months ended July 31, 1999.
Interest Expense. Interest expense increased $6,000 from $14,249 for the
six months ended July 31, 1999 to $20,249 for the six months ended July 31,
2000. This increase is primarily due to interest paid on a capital lease.
Regulatory Fees and Expenses. Regulatory fees and expenses represent the
fees paid to regulatory organizations such as the NASD and state regulatory
agencies for licensing OnlineTrading.com and its registered agents. These costs
increased $18,902 or 73%, from $25,871 for the six months ended July 31, 1999
to $44,773 for the six months ended July 31, 2000. This increase is primarily
due to increased assessment fees to the NASD based upon OnlineTrading.com's
increase in gross revenues and licensing fees for additional registered
employees.
Amortization Expense. Amortization expense increased $266,500 from $3,866
for the six months ended July 31, 1999 to $270,366 for the six months ended
July 31, 2000. The increase is due to the goodwill amortization related to the
acquisition of clients from Newport Discount Brokerage, Inc.
Other Expenses. Other expenses consist primarily of market data expenses,
general office expenses and all other expenses related to the operation of
OnlineTrading.com. These expenses increased by $486,415 from $186,141 for the
six months ended July 31, 1999 to $672,556 for the six months ended July 31,
2000. This increase is primarily due to OnlineTrading.com's expansion and the
acquisition of Newport Discount Brokerage, Inc.
Income Taxes. OnlineTrading.com recorded a provision for income taxes of
$587,865 for the six months ended July 31, 2000 as compared to $316,267 for the
six months ended July 31, 1999. The effective tax rate was 38.6% for the six
months ended July 31, 2000 and 38.4% for the six months ended July 31, 1999.
Non-Operating Items
Loss on disposal of assets. OnlineTrading.com sold phone equipment, which
resulted in a loss of $685 for the six months ended July 31, 2000.
Settlement payment received. OnlineTrading.com received an arbitration
settlement payment of $175,000 in July 1999.
As a result of the above, results improved from net income of $508,094 for
the six months ended July 31, 1999 to net income of $934,783 for the six months
ended July 31, 2000. This represents an increase of 84%.
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 $11,515,840 an increase of 92% 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,
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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 increased by $193,813
to $295,934 for Fiscal 2000 as 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, comprised of a consulting fee, totaled
$15,000 for Fiscal 2000. Other revenues were $0 for Fiscal 1999.
Operating 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. 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.
Floor Brokerage. Floor brokerage decreased $3,947 from $51,895 for Fiscal
1999 to $47,948 for Fiscal 2000.
Clearing and Other Transaction Costs. Clearing and other transaction costs
increased by $1,014,176, or 52%, from $1,950,160 for Fiscal 1999 to $2,964,336
for Fiscal 2000, primarily as a result of the increase in OnlineTrading.com's
volume of transactions. However, these costs decreased from 35% of commission
revenue for Fiscal 1999 to 31% of commission revenue for Fiscal 2000 as a
result of changes in the charges to OnlineTrading.com by the clearing firm.
Communications. Communications costs increased by $67,992, or 70%, from
$97,785 for Fiscal 1999 to $165,777 for Fiscal 2000. This increase is primarily
due to the increased customer trading activity.
Occupancy and Equipment. Occupancy and equipment expenses increased
$152,560 from $150,490 for Fiscal 1999 to $303,050 for Fiscal 2000. This
increase primarily resulted from leasing of additional office space and office
equipment and furniture to facilitate expansion.
Promotional Costs. Promotional costs increased $72,618 from $30,382 for
Fiscal 1999 to $103,000 for Fiscal 2000 due to advertising in a national
business publication.
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Product Development. Product development expenses totaled $279,387 for
Fiscal 2000. Product development expenses were $0 for Fiscal 1999.
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.
Regulatory Fees and Expenses. Regulatory fees and expenses increased
$19,125 from $41,317 for Fiscal 1999 to $60,442 for Fiscal 2000 due primarily
to additional state registrations and registered representatives.
Amortization Expense. Amortization expense increased $93,218 from $2,214
for Fiscal 1999 to $95,432 for Fiscal 2000. The increase is the result of the
amortization of the intangible assets acquired from the Newport Discount
Brokerage acquisition.
Other Expenses. Other expenses increased by $382,166 from $114,544 for
Fiscal 1999 to $496,710 for Fiscal 2000.
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.
Non-Operating Item
Settlement Payment Received. OnlineTrading.com received an arbitration
settlement payment of $175,000 in July 1999.
As a result of the above, net income improved from $107,943 for Fiscal
1999 to $1,080,506 for Fiscal 2000.
Liquidity and Capital Resources
As of July 31, 2000, OnlineTrading.com had cash and cash equivalents of
$11,701,375, consisting of cash and money market funds as compared to
$15,127,790 as of January 31, 2000. The decrease in cash and cash equivalents
as compared to January 31, 2000 is primarily due to the purchase of a treasury
note partially offset by cash provided by operating activities.
Cash provided by operating activities was $716,899 and $110,684 for the
six months ended July 31, 2000 and 1999, respectively. 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 $4,099,588 and $86,175 for the six
months ended July 31, 2000 and 1999, respectively. The primary use of cash for
the six months ended July 31, 2000 was for the purchase of a treasury note as a
short-term investment. 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 during Fiscal 2000 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 used in financing activities was $43,726 for the six months ended
July 31, 2000 due to repayment of a capital lease obligation discussed below.
Cash provided by financing activities was $15,380,991 for the six months ended
July 31, 1999 due to the issuance of common stock, redemption of preferred
stock and repayment of subordinated loan. 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
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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 decrease in cash and cash
equivalents of $3,426,415 for the six months ended July 31, 2000 compared to a
net increase of $15,405,500 for the six months ended July 31, 1999.
OnlineTrading.com had a net increase of 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 July 31,,
2000, OnlineTrading.com had net capital of $14,587,934, which was $14,337,934
in excess of the minimum required. In addition, OnlineTrading.com's aggregate
indebtedness may not exceed 15 times its net capital (i.e., its net capital
ratio). As of July 31, 2000, OnlineTrading.com had a net capital ratio of .12
to 1. OnlineTrading.com remains well within the regulatory required minimums.
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.
On May 11, 2000, National Association of Securities Dealers, Inc. (NASD)
granted a change in business application, which enables OnlineTrading.com to
expand its scope and conduct a commission recapture business. The expanded
business increases OnlineTrading.com's minimum net capital requirement to
$250,000 or 1/15 of aggregate indebtedness, whichever is greater.
OnlineTrading.com remains well within these regulatory required minimums and
does not anticipate having any problems meeting these requirements in the
future.
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 Statement of
Financial Accounting Standards 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 Statement of Financial Accounting
Standards 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, as amended by SFAS No. 138, 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 reached a consensus on Issue
No. 00-2, "Accounting for Web Site Development Costs", 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
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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 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. There were no 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 during the two fiscal years ended January 31, 1999 or the nine month
period ended October 31, 1999. The termination of OnlineTrading.com's
relationship with Ahearn, Jasco + Company, P.A. was not the result of any such
disagreement. 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 November 17, 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 37 Co-Chairman of the Board and Co-Chief Executive Officer
Salomon Sredni(1) 33 President and Chief Operating Officer and Director
Peter A. Parandjuk 38 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 39 Chief Financial Officer, Vice President of Finance and Treasurer
Janette Perez 43 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.
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
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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,
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 recently retired and formerly served as Chief
Online Trading Officer of E* Trade Group, Inc., a position he held from March
1999 to June 2000. 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, a provider of market data services, from 1990
until 1996. Prior to becoming President, Mr. Smith, since 1983, held several
key positions with Data Broadcasting Corporation 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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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.
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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.
<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) $9,000 of this amount was earned in 1998, but paid in 1999.
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OPTION GRANTS IN 1999 FISCAL YEAR
The following table summarizes the options which were granted during the
fiscal year ended December 31, 1999 to the Named Executive Officers.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------- Potential Realizable
Percent of Value at Assumed
Total Annual Rate of
Number of Options Market Value at Stock Price
Securities Granted to Exercise Price Grant-Date Appreciation for
Underlying Employees or Base on Grant- Market Option Term(1)
Options in Fiscal Price Date Expiration Price ------------------------
Name Granted(#)(sh) Year(3) ($)(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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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 Unexercised Value of Unexercised
Options at In-the-Money Options at
Acquired Shares December 31, 1999(#) December 31, 1999($)(1)
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, subject to the
approval by Omega Research's shareholders of the merger agreement and
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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. 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
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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 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
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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 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
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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 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.
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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 of 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.
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
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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 TradeStation 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 TradeStation
Group.
Outstanding Awards As of September 30, 2000, options to purchase 4,087,533
shares were outstanding under the Incentive Stock Plan, of which options to
purchase 1,501,000 shares had been granted to executive officers of Omega
Research. During 1999 and for the nine months ended September 30, 2000, options
granted to executive officers totaled options to purchase 220,000 and 175,000
shares, respectively, 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 September 30, 2000 have a weighted
average exercise price of $3.82 per share. To date, Omega Research has not
granted any stock appreciation rights, 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.
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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.
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
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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 September 30, 2000, there
were 167,773 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 permitted him to exercise any or all such options for 180 days
following his retirement from the board. Mr. Cotsakos subsequently exercised
all those options during January 2000. As of September 30, 2000, options to
purchase 53,000 shares were outstanding under the Nonemployee Director Stock
Plan.
The board of directors has the power to amend the Nonemployee Director
Stock 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
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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.
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
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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/TradeStation 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 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
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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 November 21, 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.
<TABLE>
<CAPTION>
Shares Beneficially
Owned(1)
-------------------------
Name of Beneficial Owner(1) Number Percent
---------------------------- ------------ ----------
<S> <C> <C>
William R. Cruz(2) ..................................................... 9,156,654 37.2%
Ralph L. Cruz(3) ....................................................... 9,156,554 37.2
Peter A. Parandjuk ..................................................... 294,550 1.2
Salomon Sredni ......................................................... 196,750 *
Marc J. Stone .......................................................... 110,000 *
Janette Perez .......................................................... 66,400 *
Brian D. Smith ......................................................... 26,000 *
Stephen C. Richards .................................................... 22,333 *
All executive officers and directors as a group (9 persons)(4) ......... 19,046,241 75.2%
</TABLE>
----------------
* 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 November 23, 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
TradeStation 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 partne rship 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 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.
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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 as of November 17, 2000:
<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 29 Vice President of Operations, Secretary and Director
Eldren P. Nalley 81 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.
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.
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On October 4, 2000, Lothar Mayer resigned as a member of the board of
directors of OnlineTrading.com. Mr. Mayer's resignation was prompted by the
NASD's investment restrictions imposed on directors of brokerage firms and Mr.
Mayer's desire to make certain personal investments. However, upon completion
of OnlineTrading.com's merger with Omega Research, Mr. Mayer has agreed to
serve on the board of directors of TradeStation Group and, accordingly, remains
one of OnlineTrading.com's designees to TradeStation Group's board of
directors. 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.
On November 17, 2000 prior to the meeting of the board of directors held
on that date, Robert Scarpetti resigned as a member of the board of directors
of OnlineTrading.com. Mr. Scarpetti's resignation letter did not indicate any
disagreements with OnlineTrading.com on any matter relating to its operations,
policies or practices or with any actions taken by OnlineTrading.com's board of
directors.
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.
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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.
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------
Fiscal Salary Bonus All Other
Name and Principal Position Year $ $(1) Compensation $
----------------------------------------- ------- --------- ---------- ---------------
<S> <C> <C> <C> <C>
Andrew A. Allen 2000 200,000 -- --
Chairman and Chief Executive Officer 1999 74,000 525,000 --
Farshid Tafazzoli 2000 193,333 -- --
Chief Information Officer and Director 1999 72,000 293,100
E. Steven zum Tobel 2000 120,000 -- --
President, Treasurer and Director(2) 1999 60,000 55,000 26,000(3)
Derek J. Hernquist 2000 38,662 -- 495,473(4)
Vice President of Operations, 1999 60,000 82,000 --
Secretary and Director
</TABLE>
----------------
(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
until November 17, 2000, 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 $100,000.
Options granted under the stock option plan will be exercisable after the
period or periods specified in the option agreement. Incentive stock options
granted to employees will vest in equal installments over a period of five
years commencing on the first anniversary of the date of grant. Options granted
under the stock option plan are not exercisable after the expiration of ten
years from the date of the grant and are not transferable other than by will or
by the laws of descent and distribution. Adjustments in the number of shares
subject to options granted under the stock option
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plan can be made by the board of directors or the appropriate committee in the
event of a stock dividend or recapitalization resulting in a stock split-up,
combination or exchange of shares.
Options Granted During Fiscal Year End January 31, 2000
All options granted to the Named Executive Officers and the former Chief
Financial Officer, Anthony M. Palermo, are stated in the table below. No
options have been exercised by any of the Named Executive Officers. All of the
options granted to such officers and directors terminate on the ten-year
anniversary of their grant dates.
<TABLE>
<CAPTION>
Percent of
Number of Total Options
Securities Granted to Exercise or
Underlying Employees in Base Price Expiration
Name Options Granted Fiscal Year ($)(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.
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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 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 November 17, 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.
<TABLE>
<CAPTION>
Shares Beneficially
Owned(1)
------------------------
Name and Address of Beneficial Owner(2) Number Percent
--------------------------------------- ----------- ----------
<S> <C> <C>
Andrew A. Allen(3) .................................................. 2,725,926 23.8%
Farshid Tafazzoli(4) ................................................ 2,725,926 23.8
E. Steven zum Tobel(5) .............................................. 444,444 3.9
Derek J. Hernquist .................................................. 266,666 2.3
Benedict S. Gambino ................................................. 2,725,926 23.8
Eldren P. Nalley(6) ................................................. 14,000 *
All Directors and executive officers as a group (5 persons) ......... 6,176,962 53.8%
</TABLE>
----------------
* 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.
(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) Includes (i) 10,000 Shares held by Eldren P. Nalley Declaration of Trust
DTD, and (ii) 4,000 options which are currently exercisable by Mr. Nalley.
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DESCRIPTION OF SECURITIES
OF TRADESTATION GROUP
The authorized capital stock of TradeStation 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 the date of this filing, 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 44,310,335 shares of TradeStation Group
common stock will be issued and outstanding assuming the maximum exchange ratio
of 1.7172 shares of TradeStation Group common stock for each share of
OnlineTrading.com common stock.
The following description of the capital stock of TradeStation Group and
certain provisions of TradeStation 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 TradeStation 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 TradeStation 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 TradeStation 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 TradeStation 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 TradeStation Group. Upon liquidation, dissolution or winding up
of TradeStation Group, the holders of common stock are entitled to receive, pro
rata, the assets of TradeStation 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 TradeStation 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
TradeStation 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.
TradeStation 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 TradeStation Group. TradeStation Group has no
present intention to issue any preferred stock.
Certain Provisions of Florida Law
TradeStation 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
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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
TradeStation Group, shares acquired in a transaction which effects a certain
threshold change in the ownership of TradeStation 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 TradeStation Group.
Certain Charter and Bylaw Provisions
TradeStation 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 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 TradeStation Group. The Articles require that, upon completion of the
merger, any actions to be taken by the shareholders of TradeStation 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 TradeStation
Group's Articles and Bylaws may have the effect of discouraging a change in
control of TradeStation 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
TradeStation 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 TradeStation 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.
TradeStation Group's Articles and Bylaws provide that TradeStation Group
will indemnify its directors and officers, and may indemnify its employees and
other agents, to the fullest extent permitted by law. TradeStation 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. TradeStation Group intends to obtain liability
insurance for its directors and officers.
In addition to the indemnification provided for in TradeStation Group's
Articles and Bylaws, TradeStation Group intends to enter into agreements to
indemnify its directors and its executive officers. These agreements, among
other things will indemnify TradeStation 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 TradeStation Group or any third
person, and liabilities of any type whatsoever, including, but not
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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 TradeStation Group, arising out of such persons' services as a
director, officer, employee or other agent of TradeStation Group, any
subsidiary of TradeStation Group or any other company or enterprise to which
such persons provide services at the request of TradeStation Group.
TradeStation 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 TradeStation Group where
indemnification will be required or permitted. TradeStation 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 TradeStation Group common stock will
be American Stock Transfer & Trust Company, New York, New York.
Nasdaq National Market List and Symbol
TradeStation 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 "TRAD."
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COMPARISON OF RIGHTS OF HOLDERS OF
ONLINETRADING.COM COMMON STOCK AND
OMEGA RESEARCH AND TRADESTATION 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/TradeStation 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 TradeStation 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 TradeStation Group
shareholders are currently governed by TradeStation Group's Articles of
Incorporation, Articles of Amendment to Articles of Incorporation and Second
Articles of Amendment to Articles of Incorporation, as currently in effect, and
TradeStation 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 TradeStation 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 TradeStation Group is also a
Florida corporation, the rights of the former OnlineTrading.com and Omega
Research shareholders (now shareholders of TradeStation Group) will continue to
be governed by Florida law.
The articles of incorporation and bylaws of TradeStation 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 TradeStation
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
TradeStation 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 December 1, 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 December 1, 2000, there were shares of Omega Research common
stock outstanding.
TradeStation Group. The authorized capital stock of TradeStation Group
consists of 200 million shares of TradeStation Group common stock, par value
$0.01 per share, and 25 million shares of
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TradeStation Group preferred stock, par value $0.01 per share. As of the date
of this prospectus, there were 100 shares of TradeStation 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/TradeStation Group. According to the respective Omega
Research and TradeStation 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 TradeStation 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/TradeStation Group. The respective bylaws of Omega Research
and TradeStation 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,
TradeStation 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/TradeStation Group. The respective bylaws of Omega Research
and TradeStation 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.
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.
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Omega Research/TradeStation Group. The respective bylaws of Omega Research
and TradeStation 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/TradeStation 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 TradeStation 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, TradeStation
Group's articles of incorporation and bylaws provide that no action required or
permitted to be taken by TradeStation 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/TradeStation Group. The respective bylaws of Omega Research
and TradeStation 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.
In addition, specified provisions of the respective articles of
incorporation of Omega Research and TradeStation Group relating to the
following matters cannot be amended, modified or repealed
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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/TradeStation Group. The respective bylaws of Omega Research
and TradeStation 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
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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 following the day on which notice of the
special meeting was mailed or public disclosure was made, whichever occurred
first.
Omega Research/TradeStation Group. According to the respective bylaws of
Omega Research and TradeStation 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.
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Omega Research/TradeStation Group. According to the respective articles of
incorporation of Omega Research and TradeStation 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.
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/TradeStation 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, TradeStation 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 TradeStation 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 thereto, 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, as set forth in their report with respect thereto, 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.
The balance sheet of TradeStation Group, Inc. included elsewhere in this
joint proxy statement/prospectus as of June 30, 2000 has been audited by Arthur
Andersen LLP, independent certified public accountants, as set forth in their
report with respect thereto, and is included herein in reliance upon the
authority of such firm as experts in giving said report.
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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 TradeStation 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 TradeStation 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 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.
TradeStation Group has filed a registration statement with the SEC to
register TradeStation 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 TradeStation 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 TradeStation 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 TradeStation 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
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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
TradeStation 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 , 2001 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.
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
TradeStation 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
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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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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants ........................ F-2
Consolidated Balance Sheets
as of September 30, 2000 (unaudited) and December 31, 1999 and 1998 ...... F-3
Consolidated Statements of Operations
for the nine months ended September 30, 2000 and 1999 (unaudited)
and for the years ended December 31, 1999, 1998 and 1997 ................. F-4
Consolidated Statements of Shareholders' Equity
for the nine months ended September 30, 2000 (unaudited)
and for the years ended December 31, 1999, 1998 and 1997 ................. F-5
Consolidated Statements of Cash Flows
for the nine months ended September 30, 2000 and 1999 (unaudited)
and for the years ended December 31, 1999, 1998 and 1997 ................. F-6
Notes to Consolidated Financial Statements ................................ F-8
ONLINETRADINGINC.COM CORP.
Reports of Independent Certified Public Accountants ....................... F-28
Statements of Financial Condition
as of July 31, 2000 (unaudited) and January 31, 2000 and 1999 ............ F-30
Statements of Income
for the six months ended July 31, 2000 and 1999 (unaudited)
and for the years ended January 31, 2000 and 1999 ........................ F-31
Statement of Changes in Stockholders' Equity
for the six months ended July 31, 2000 (unaudited)
and for the years ended January 31, 2000 and 1999 ........................ F-32
Statements of Cash Flows
for the six months ended July 31, 2000 and 1999 (unaudited)
and for the years ended January 31, 2000 and 1999 ........................ F-33
Notes to Financial Statements ............................................. F-34
TRADESTATION GROUP, INC.
Report of Independent Certified Public Accountants ........................ F-48
Balance Sheets as of September 30, 2000 (unaudited) and June 30, 2000 ..... F-49
Note to Balance Sheets .................................................... F-50
</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 (as restated--See Note 2). 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,
November 2, 2000.
F-2
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------------
2000 1999 1998
-------------- -------------- -------------
(Unaudited) (Restated) (Restated)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 1,523,334 $ 2,175,852 $ 7,436,980
Marketable securities .................................... -- 1,695,304 5,736,958
Accounts receivable, net ................................. 694,000 1,976,000 9,246,474
Inventory ................................................ -- 67,371 131,659
Income tax receivable .................................... 8,242,105 589,106 --
Other current assets ..................................... 646,615 1,033,277 692,273
Deferred income taxes .................................... 4,983,000 13,221,000 4,541,000
------------ ----------- -----------
Total current assets ................................... 16,089,054 20,757,910 27,785,344
PROPERTY AND EQUIPMENT, net ............................... 2,146,603 2,611,454 1,670,925
GOODWILL, net ............................................. 1,258,769 1,564,958 --
OTHER INTANGIBLE ASSETS, net .............................. 10,445,138 14,151,389 --
OTHER ASSETS .............................................. 1,585,454 473,344 185,854
DEFERRED INCOME TAXES ..................................... 585,000 -- --
------------ ----------- -----------
Total assets ........................................... $ 32,110,018 $39,559,055 $29,642,123
============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................... $ 3,685,472 $ 2,786,739 $ 1,082,521
Accrued expenses ......................................... 1,978,788 1,861,321 962,464
Deferred revenue ......................................... 1,005,915 414,824 105,035
------------ ----------- -----------
Total current liabilities .............................. 6,670,175 5,062,884 2,150,020
COMMITMENTS & CONTINGENCIES (Note 12)
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, 24,603,081, 24,475,104 and 22,269,964 issued
and outstanding at September 30, 2000, December 31,
1999 and 1998, respectively ............................ 246,031 244,751 222,700
Additional paid-in capital ............................... 35,078,519 34,618,412 23,913,877
Accumulated (deficit) earnings ........................... (9,884,707) (366,992) 3,355,526
------------ ----------- -----------
Total shareholders' equity ............................. 25,439,843 34,496,171 27,492,103
------------ ----------- -----------
Total liabilities and shareholders' equity ............. $ 32,110,018 $39,559,055 $29,642,123
============ =========== ===========
</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>
Nine Months Ended
September 30, For the Years Ended December 31,
--------------------------------- ----------------------------------------------
2000 1999 1999 1998 1997
---------------- ---------------- ---------------- -------------- --------------
(Restated) (Restated) (Restated) (Restated)
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Licensing fees ....................... $ 14,948,460 $ 12,288,532 $ 16,217,922 $22,005,324 $24,364,990
Subscription services ................ 5,472,961 -- 304,382 -- --
Other revenues ....................... 6,654,971 5,633,784 7,214,231 6,211,181 4,861,284
------------ ------------ ------------ ----------- -----------
Total net revenues ................. 27,076,392 17,922,316 23,736,535 28,216,505 29,226,274
------------ ------------ ------------ ----------- -----------
OPERATING EXPENSES:
Cost of licensing fees ............... 494,045 1,397,818 1,850,826 1,798,078 1,848,993
Cost of subscription services ........ 2,767,012 -- 80,905 -- --
Product development .................. 5,640,827 3,301,462 4,698,319 3,318,310 1,890,392
Sales and marketing .................. 17,805,915 12,826,516 18,161,741 14,381,923 11,272,290
General and administrative ........... 5,959,838 2,878,801 4,534,084 6,134,608 5,420,760
Amortization of goodwill ............. 306,189 -- 68,042 -- --
Amortization of other intangible
assets .............................. 3,706,251 -- 823,611 -- --
------------ ------------ ------------ ----------- -----------
Total operating expenses ........... 36,680,077 20,404,597 30,217,528 25,632,919 20,432,435
------------ ------------ ------------ ----------- -----------
(Loss) income from operations ...... (9,603,685) (2,482,281) (6,480,993) 2,583,586 8,793,839
OTHER INCOME, net ..................... 85,970 321,411 422,475 423,961 146,474
------------ ------------ ------------ ----------- -----------
(Loss) income before income
taxes ............................ (9,517,715) (2,160,870) (6,058,518) 3,007,547 8,940,313
INCOME TAX (BENEFIT)
PROVISION ............................ -- (896,000) (2,336,000) 1,052,000 (934,000)
------------ ------------ ------------ ----------- -----------
Historical net (loss) income ....... $ (9,517,715) $ (1,264,870) $ (3,722,518) $ 1,955,547 9,874,313
============ ============ ============ ===========
PRO FORMA INCOME TAX
ADJUSTMENTS (Notes 1 and 9):
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 ............... $ 5,451,582
===========
HISTORICAL (LOSS) EARNINGS
PER SHARE (Note 11):
Basic .............................. $ (0.39) $ (0.06) $ (0.16) $ 0.09 $ 0.49
============ ============ ============ =========== ===========
Diluted ............................ $ (0.39) $ (0.06) $ (0.16) $ 0.09 $ 0.47
============ ============ ============ =========== ===========
PRO FORMA EARNINGS PER
SHARE (Note 11):
Basic .............................. $ 0.27
===========
Diluted ............................ $ 0.26
===========
</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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
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 ................... 19,480,000 $194,800 $ 2,517 $ 4,638,160 $ 4,835,477
Issuance 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 ............................... -- -- (3,792,091) 3,792,091 --
Compensation expense on stock option grants -- -- 122,041 -- 122,041
Net income (restated) ....................... -- -- -- 9,874,313 9,874,313
---------- -------- ------------ ------------- -------------
BALANCE, December 31, 1997 ................... 22,246,108 222,461 23,745,251 1,264,957 25,232,669
Issuance of common stock .................... 23,856 239 54,749 -- 54,988
Repayment of distributions .................. -- -- -- 135,022 135,022
Compensation expense on stock option grants -- -- 113,877 -- 113,877
Net income (restated) ....................... -- -- -- 1,955,547 1,955,547
---------- -------- ------------ ------------- -------------
BALANCE, December 31, 1998 ................... 22,269,964 222,700 23,913,877 3,355,526 27,492,103
Issuance of common stock .................... 205,145 2,051 463,671 -- 465,722
Issuance of common stock in connection with
acquisition ............................... 1,999,995 20,000 8,605,009 -- 8,625,009
Issuance of stock options in connection with
acquisition ............................... -- -- 1,495,059 -- 1,495,059
Compensation expense on stock option grants -- -- 140,796 -- 140,796
Net loss (restated) ......................... -- -- -- (3,722,518) (3,722,518)
---------- -------- ------------ ------------- -------------
BALANCE, December 31, 1999 ................... 24,475,104 244,751 34,618,412 (366,992) 34,496,171
Issuance of common stock (unaudited) ........ 127,977 1,280 344,850 -- 346,130
Compensation expense on stock option grants
(unaudited) ............................... -- -- 115,257 -- 115,257
Net loss (unaudited) ........................ -- -- -- (9,517,715) (9,517,715)
---------- -------- ------------ ------------- -------------
BALANCE, September 30, 2000 (unaudited) ...... 24,603,081 $246,031 $ 35,078,519 $ (9,884,707) $ 25,439,843
========== ======== ============ ============= =============
</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>
Nine Months Ended
September 30,
---------------------------------
2000 1999
---------------- ----------------
(Restated)
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income .............................................................. $ (9,517,715) $ (1,264,870)
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Depreciation and amortization ................................................ 5,153,245 645,183
Provision for doubtful accounts .............................................. -- --
Compensation expense on stock option grants .................................. 115,257 106,644
Deferred income tax provision (benefit) ...................................... 10,458,000 (6,866,000)
(Increase) decrease in:
Accounts receivable ......................................................... 1,282,000 6,243,355
Inventory ................................................................... 67,371 45,658
Other current assets ........................................................ 386,662 301,640
Other assets ................................................................ (1,177,341) (135,971)
Income tax receivable ....................................................... (10,458,000) (963,106)
Increase (decrease) in:
Accounts payable ............................................................ 898,733 344,008
Accrued expenses ............................................................ 117,468 326,831
Deferred revenue ............................................................ 591,091 (1,660)
------------- ------------
Net cash (used in) provided by operating activities ......................... (2,083,229) (1,218,288)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................................................... (610,723) (1,084,063)
Capitalized software development costs ........................................ -- --
Purchases of marketable securities ............................................ -- --
Redemption of/proceeds from maturity of marketable securities ................. 1,695,304 1,263,815
Acquisition of data rights and customer lists ................................. -- (120,000)
Cash paid in acquisition, net of cash acquired ................................ -- --
------------- ------------
Net cash provided by (used in) investing activities ......................... 1,084,581 59,752
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net ................................... 346,130 418,627
Repayments from (distributions to) shareholders, net .......................... -- --
Proceeds from borrowings of debt .............................................. -- --
Repayment of borrowings of debt ............................................... -- --
------------- ------------
Net cash provided by (used in) financing activities ......................... 346,130 418,627
------------- ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS .............................................................. (652,518) (739,909)
CASH AND CASH EQUIVALENTS, beginning of period ................................. 2,175,852 7,436,980
------------- ------------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 1,523,334 $ 6,697,071
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ........................................................ $ -- $ --
============= ============
Cash paid for income taxes .................................................... $ -- $ 6,933,366
============= ============
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------
1999 1998 1997
---------------- --------------- ----------------
(Restated) (Restated) (Restated)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income .............................................................. $ (3,722,518) $ 1,955,547 $ 9,874,313
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Depreciation and amortization ................................................ 1,844,050 466,628 606,820
Provision for doubtful accounts .............................................. 25,000 2,222,834 2,450,736
Compensation expense on stock option grants .................................. 140,796 113,877 122,041
Deferred income tax provision (benefit) ...................................... (8,478,000) (1,578,000) (2,963,000)
(Increase) decrease in:
Accounts receivable ......................................................... 7,497,044 (2,031,091) (7,531,906)
Inventory ................................................................... 74,185 15,162 (54,633)
Other current assets ........................................................ (340,601) (171,736) (514,847)
Other assets ................................................................ (217,293) 128,672 (1,315)
Income tax receivable ....................................................... (791,106) -- --
Increase (decrease) in:
Accounts payable ............................................................ 1,078,777 (36,681) 636,540
Accrued expenses ............................................................ 17,833 (108,088) 585,363
Deferred revenue ............................................................ 36,439 57,640 47,395
------------ ------------- --------------
Net cash (used in) provided by operating activities ......................... (2,835,394) 1,034,764 3,257,507
------------ ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................................................... (1,594,178) (1,166,041) (899,296)
Capitalized software development costs ........................................ -- -- (29,358)
Purchases of marketable securities ............................................ -- (5,722,368) (1,014,590)
Redemption of/proceeds from maturity of marketable securities ................. 4,041,654 1,000,000 --
Acquisition of data rights and customer lists ................................. (120,000) (222,900) (40,000)
Cash paid in acquisition, net of cash acquired ................................ (1,134,441) -- --
------------ ------------- --------------
Net cash provided by (used in) investing activities ......................... 1,193,035 (6,111,309) (1,983,244)
------------ ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net ................................... 465,722 54,988 27,440,445
Repayments from (distributions to) shareholders, net .......................... -- 135,022 (16,532,826)
Proceeds from borrowings of debt .............................................. -- -- 15,000,000
Repayment of borrowings of debt ............................................... (4,084,491) -- (15,000,000)
------------ ------------- --------------
Net cash provided by (used in) financing activities ......................... (3,618,769) 190,010 10,907,619
------------ ------------- --------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS .............................................................. (5,261,128) (4,886,535) 12,181,882
CASH AND CASH EQUIVALENTS, beginning of period ................................. 7,436,980 12,323,515 141,633
------------ ------------- --------------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 2,175,852 $ 7,436,980 $ 12,323,515
============ ============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest .. $ -- $ -- $ 17,979
============ ============= ==============
Cash paid for income taxes .................................................... $ 6,933,366 $ 3,138,740 $ 1,520,000
============ ============= ==============
</TABLE>
(Continued)
F-6
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Effective October 26, 1999, Omega Research, Inc. acquired Window On WallStreet
Inc. See Note 3 of Notes to Consolidated Financial Statements. Information with
respect to the acquisition is summarized below:
<TABLE>
<S> <C>
Consideration paid:
Fair market value of common stock issued ......... $ 8,625,009
Fair market value of options issued .............. 1,495,059
Acquisition costs ................................ 1,200,000
-----------
Total consideration paid ........................ 11,320,068
Fair value of net identifiable assets acquired .... 9,687,068
-----------
Goodwill .......................................... $ 1,633,000
===========
</TABLE>
Effective June 30, 1997, Omega Research declared a dividend, distributing land
and a building with a carrying value of $506,781, to its shareholders.
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All notes and related disclosures applicable to the
nine months ended September 30, 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.
since the acquisition of such subsidiaries on October 26, 1999. 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
September 30, 2000, the results of operations for the nine months ended
September 30, 2000 and 1999 and cash flows for the nine months ended September
30, 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
As of September 30, 2000 and December 31, 1999, accounts receivable are
primarily comprised of receivables earned under royalty agreements with
entities that market and sell financial market data
F-8
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES--(Continued)
subscriptions (see Other Revenues below and Note 12). Omega Research performs
periodic credit evaluations and maintains allowances for potential credit
losses of approximately $716,000, $716,000 and $3.7 million at September 30,
2000, December 31, 1999 and 1998, respectively, and allowances for potential
returns of approximately $0, $83,000 and $7.4 million at September 30, 2000,
December 31, 1999 and 1998, respectively.
Omega Research provides all client software customers with a 30-day right
of return and, prior to 1999, recorded a provision for anticipated returns at
the time of sale in accordance with Statement of Financial Accounting Standards
("SFAS") No. 48, Revenue Recognition When Right of Return Exists. To maintain a
positive, customer-friendly environment, Omega Research has historically
accepted returns in excess of 30 days. Approximately 90% of all returns
accepted under the 30-day right of return policy are initiated within 60 days
following the date of sale. The reserve for returns and the provision for bad
debts are estimated based on historical experience and other relevant
information.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, marketable securities,
accounts receivable and accounts payable approximate fair value as of September
30, 2000, 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 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
F-9
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES--(Continued)
capitalization are immaterial. There were no capitalized software development
costs as of September 30, 2000, December 31, 1999 or 1998.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets are stated at cost less accumulated
amortization and are amortized using the straight-line method. Goodwill is
being amortized over four years. Other intangible assets are being amortized
over three to four years.
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.
Revenue Recognition
Licensing Fees
Prior to 1999, sales of client software products, net of provisions for
anticipated returns, were recognized at the time the product was shipped, in
accordance with the provisions of the American Institute of Certified Public
Accountants Statement of Position ("SOP") 97-2, Software Revenue Recognition,
and an estimate for returns was provided in accordance with SFAS No. 48.
Beginning in 1999 with the launch of Omega Research's 2000i product line,
changes in Omega Research's client software product sales, including
introduction of a new, higher-priced product and longer financing terms, were
deemed to alter the predictability of return reserves and the future
collectibility of receivables. Accordingly, all 2000i product sales are
recognized as they become due (generally over a period of up to 12 months and,
for Omega Research ProSuite 2000i sales, over the course of up to 16 months).
While Omega Research has no obligation to perform future services
subsequent to shipment of client software, for a limited time, Omega Research
voluntarily provides support on its web site, periodic "bug" fixes and
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 insignificant
in relation to product sales value and are accrued at the date the software is
delivered in accordance with SOP 97-2.
Certain products have been sold with bundled services (see discussion of
Other Revenues 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,
F-10
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES--(Continued)
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 12 (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 nine months ended September 30, 2000 and
the years ended December 31, 1999, 1998 and 1997 were $8.9 million, $5.6
million, $5.8 million and $5.4 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, Accounting for Stock Issued to
Employees. See Note 8.
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
F-11
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES--(Continued)
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.
(Loss) Earnings Per Share
(Loss) earnings per share is calculated in accordance with SFAS No. 128,
Earnings per Share. SFAS No. 128 requires presentation of basic and diluted
(loss) earnings per share on the face of the statement of operations. Basic
(loss) earnings per share is computed by dividing the net (loss) income
available to common shareholders by the weighted average shares of outstanding
common stock. The calculation of diluted (loss) earnings per share is similar
to basic (loss) earnings per share except that the denominator includes
dilutive common stock equivalents such as stock options and warrants. See Note
11.
Use of Estimates
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.
Such estimates include established reserves for returns and reserves for
potentially uncollectible accounts receivable.
Computer Software Developed or Obtained for Internal Use
Computer software developed or obtained for internal use is accounted for
in accordance with the 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 (loss) income is equal to net
(loss) income for all periods presented.
Segment Information
Segment information is required to be presented in accordance with SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 is based on a management
F-12
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES--(Continued)
approach, which requires segmentation based upon Omega Research's internal
organization and disclosure of revenue and operating income based upon internal
accounting methods. During the nine months ended September 30, 2000 and the
three years ended December 31, 1999, management evaluated and operated the
business of Omega Research as a single segment. See Note 13.
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, as amended by SFAS No. 138, will
require Omega Research to recognize all derivatives on the balance sheet as
either assets or liabilities measured at fair value. Derivatives that do not
qualify for hedge accounting 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 December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, to provide guidance on the recognition, presentation and disclosure
of revenue in financial statements. Omega Research will be required to adopt
SAB 101 by the fourth quarter of 2000. The adoption of SAB 101 is not expected
to have a material impact on the financial statements of Omega Research.
In March 2000, the Emerging Issues Task Force (the "EITF") reached a
consensus on Issue No. 00-2, Accounting for Web Site Development Costs, 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. The adoption of Issue No. 00-2 during
the quarter ended September 30, 2000 did not have a material impact on the
financial statements of Omega Research.
(2) RESTATEMENT
Subsequent to the filing of Omega Research's Consolidated Financial
Statements for each of the three years ended December 31, 1999 on Form 10-K and
for the six months ended June 30, 2000 on Form 10-Q and in connection with its
review of a Registration Statement on Form S-4 related to the proposed merger
with onlinetradinginc.com corp. ("OnlineTrading.com") (see Note 3), the Staff
of the SEC expressed concerns about the method of accounting for revenue
recognition of licensing fees used by Omega Research and its method of
accounting for the acquisition of Window On WallStreet. As a result of
consultation with the Staff of the SEC, Omega Research restated certain of its
annual and quarterly financial statements as discussed below.
F-13
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(2) RESTATEMENT--(Continued)
Beginning in 1999 with the launch of Omega Research's 2000i product line,
changes in Omega Research's client software product sales, including
introduction of a new, higher-priced product and longer financing terms, were
deemed to alter the predictability of return reserves and the future
collectibility of receivables. Accordingly, all 2000i product sales are
recognized as they become due (generally over a period of up to 12 to 16
months). Prior to 1999, sales of client software products were recognized, net
of anticipated returns, at the time the product was shipped. In addition, Omega
Research's acquisition of Window On WallStreet has been restated to be
accounted for under the purchase method. A summary of the effects of the
restatement for the nine months ended September 30, 1999 and the three-year
period ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Purchase Revenue
Previously Accounting Recognition As
Reported Adjustments Adjustments Restated
-------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 1999:
-------------------------------------------
Net revenues .............................. $33,542,044 $ (2,331,532) $ (13,288,196) $ 17,922,316
Income (loss) before income taxes ......... 3,556,177 3,659,149 (9,376,196) (2,160,870)
Net income (loss) ......................... 835,177 3,659,149 (5,759,196) (1,264,870)
Earnings (loss) per share:
Basic and diluted ........................ 0.03 0.17 (0.26) (0.06)
Year Ended December 31, 1999:
--------------------------------------------
Net revenues .............................. 42,869,969 (2,679,375) (16,454,059) 23,736,535
Income (loss) before income taxes ......... 879,391 3,939,150 (10,877,059) (6,058,518)
Net loss .................................. (966,609) 3,939,150 (6,695,059) (3,722,518)
Loss per share:
Basic and diluted ........................ (0.04) 0.17 (0.29) (0.16)
Year Ended December 31, 1998:
--------------------------------------------
Net revenues .............................. 31,710,753 (3,494,248) -- 28,216,505
Income before income taxes ................ 623,453 2,384,094 -- 3,007,547
Net (loss) income ......................... (428,547) 2,384,094 -- 1,955,547
(Loss) earnings per share:
Basic and diluted ........................ (0.02) 0.11 0.00 0.09
Year Ended December 31, 1997:
--------------------------------------------
Net revenues .............................. 32,950,448 (3,724,174) -- 29,226,274
Income before income taxes ................ 8,153,922 786,391 -- 8,940,313
Pro forma net income ...................... 4,665,191 786,391 -- 5,451,582
Pro forma earnings per share:
Basic .................................... 0.21 0.06 0.00 0.27
Diluted .................................. 0.21 0.05 0.00 0.26
</TABLE>
The revenue recognition timing changes do not impact revenue recognition
for Omega Research's Internet subscription services or other revenues, or any
of Omega Research's planned service
F-14
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(2) RESTATEMENT--(Continued)
offerings, which are expected to generate the majority of Omega Research's
revenues in the future. The amounts reported for 1997 and 1998 are the same as
Omega Research had previously reported prior to the Window On WallStreet
acquisition in its Annual Report on Form 10-K for the year ended December 31,
1998 filed with the SEC on March 30, 1999.
(3) BUSINESS COMBINATIONS
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 on-line 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, (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 and issued to employees 335,000 stock options to
purchase Omega Research's common stock, and (iii) paid fees and costs relating
to the acquisition of $1.2 million. The consolidated financial statements
contained herein reflect this acquisition under the purchase method of
accounting.
At the acquisition date, the shares of Omega Research's common stock
issued were valued at $8.6 million and the options were valued at $1.5 million.
The resulting goodwill of $1.6 million and identifiable intangible assets of
$15.0 million are being amortized over a period of three to four years. See
Note 5.
Under purchase accounting, the results of operations of the acquired
company are included from the acquisition date forward. Accordingly, the
consolidated financial statements include the results of operations of Window
on WallStreet beginning October 26, 1999. The following pro forma financial
information assumes the acquisition of Window On WallStreet occurred on January
1, 1998:
<TABLE>
<CAPTION>
1999 1998
---------------- --------------
<S> <C> <C>
Pro forma net revenues ............ $ 26,415,910 $ 31,710,753
Pro forma net loss ................ (11,811,588) (5,778,467)
Pro forma loss per share .......... (0.49) (0.24)
</TABLE>
There were no material relationships or intercompany transactions between
Omega Research and Window On WallStreet prior to the acquisition.
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 ("ECN's"), and electronically-centered
exchanges and market makers, in order to provide OnlineTrading.com's customers
with prompt 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"), and subject to closing, a newly-formed holding
company named TradeStation Group,
F-15
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(3) BUSINESS COMBINATIONS--(Continued)
Inc. (f/k/a OnlineTrading.com Group, Inc.) ("TradeStation Group") will own 100%
of the issued and outstanding capital stock of Omega Research (which, upon
consummation of the merger, is to be renamed TradeStation Technologies, Inc.)
and OnlineTrading.com. (which, as soon as practicable after the consummation of
the merger, is to be renamed TradeStation Securities, Inc.). Upon completion of
the merger, as a result of share exchanges between TradeStation Group and each
of Omega Research and OnlineTrading.com, and the listing of TradeStation Group
shares, TradeStation Group will be the sole publicly-traded company in the
group with its outstanding shares of common stock listed on The Nasdaq National
Market. TradeStation Group will 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 effectiveness of a registration
statement on Form S-4, originally filed with the SEC on April 17, 2000, as
amended, the approval of the shareholders of each of Omega Research and
OnlineTrading.com, and the satisfaction of other conditions precedent.
Accordingly, the financial statements herein have not been restated to give
effect to this pending merger.
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following as of September 30,
2000 and December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Useful Life September 30, December 31, December 31,
In Years 2000 1999 1998
------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Computers and software .......... 3-5 $ 4,972,338 $ 4,682,353 $ 2,648,974
Furniture and equipment ......... 3-7 504,950 495,877 413,075
Leasehold improvements .......... 3-5 269,040 178,811 122,449
Autos ........................... 5 -- -- 110,205
------------ ------------ ------------
5,746,328 5,357,041 3,294,703
Accumulated depreciation
and amortization ............... (3,599,725) (2,745,587) (1,623,778)
------------ ------------ ------------
$ 2,146,603 $ 2,611,454 $ 1,670,925
============ ============ ============
</TABLE>
F-16
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(5) GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill and other intangible assets consist of the following as of
September 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
Amortization
Period September 30, December 31,
In Years 2000 1999
------------- --------------- ---------------
<S> <C> <C> <C>
Goodwill ................................... 4 $ 1,633,000 $ 1,633,000
Accumulated amortization ................... (374,231) (68,042)
------------ -----------
Goodwill, net ............................. $ 1,258,769 $ 1,564,958
============ ===========
Purchased technology and workforce ......... 3 $ 11,600,000 $11,600,000
Trade names and patents .................... 3 1,500,000 1,500,000
Customer lists ............................. 3 1,275,000 1,275,000
Non-compete agreements ..................... 4 600,000 600,000
------------ -----------
Total other intangible assets ............. 14,975,000 14,975,000
Accumulated amortization ................... (4,529,862) (823,611)
------------ -----------
Other intangible assets, net .............. $ 10,445,138 $14,151,389
============ ===========
</TABLE>
(6) ACCRUED EXPENSES
Accrued expenses consist of the following as of September 30, 2000 and
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
September 30, December 31, December 31,
2000 1999 1998
--------------- -------------- -------------
<S> <C> <C> <C>
Payroll and related accruals ........................ $ 579,556 $ 579,153 $542,218
Accrued data distribution and exchange fees ......... 781,000 550,977 --
Accrued technical support costs ..................... 161,000 161,000 173,500
Other ............................................... 457,232 570,191 246,746
---------- ---------- --------
$1,978,788 $1,861,321 $962,464
========== ========== ========
</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.
(7) DEFERRED REVENUE
Deferred revenue is comprised of deferrals for (i) payments received in
advance of service provided or bundled with client software purchases, (ii)
payments received for licensing fees prior to the completion of Omega
Research's 30-day trial period or licensing fee revenue for which amounts are
paid for obligations which have not yet been fulfilled (such as committed
upgrades) and (iii) registration fees and sponsorship and exhibitor deposits
for OmegaWorld, Omega Research's
F-17
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(7) DEFERRED REVENUE--(Continued)
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 September 30, 2000 and December 31, 1999 and
1998:
<TABLE>
<CAPTION>
September 30, December 31, December 31,
2000 1999 1998
--------------- -------------- -------------
<S> <C> <C> <C>
Subscription services ......... $ 924,915 $290,300 $ --
Licensing fees ................ 81,000 -- 48,450
OmegaWorld .................... -- 124,524 56,585
---------- -------- --------
$1,005,915 $414,824 $105,035
========== ======== ========
</TABLE>
(8) 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, 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
F-18
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(8) SHAREHOLDERS' EQUITY--(Continued)
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.
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 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 3) with 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 3, 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.
F-19
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(8) SHAREHOLDERS' EQUITY--(Continued)
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 ......... 582,000 $1.25 $ 1.25 $1.25
Granted ............................... 559,175 1.25 11.00 4.90
Canceled .............................. (25,350) 2.00 11.00 3.51
Exercised ............................. (8,000) 1.25 1.25 1.25
-------
Outstanding, December 31, 1997 ......... 1,107,825 1.25 11.00 3.04
Granted ............................... 1,856,216 1.59 5.34 2.27
Canceled .............................. (59,355) 2.00 11.00 4.70
Exercised ............................. (11,350) 1.25 2.00 1.47
---------
Outstanding, December 31, 1998 ......... 2,893,336 1.25 11.00 2.52
Granted ............................... 1,050,625 1.66 10.25 5.80
Assumed WOW Options ................... 182,529 .48 8.06 4.62
Canceled .............................. (131,278) .48 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>
Additional information regarding options outstanding at December 31, 1999
is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ -------------------------
Range of Number Weighted Weighted Number Weighted
Exercise 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
F-20
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(8) SHAREHOLDERS' EQUITY--(Continued)
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 options issued to
consultants of Omega Research, accounted for under the provisions of SFAS No.
123. Such options were issued in connection with the procurement of training
services and product content. The exercise prices of the consultant option
grants in 1999, 1998 and 1997 were $5.97, $1.66 and $11.00, respectively, and
the option grants vest over a period of 3-years, 5-years and 6-months,
respectively. The fair values of these grants at the date of issue were
$102,000, $2,000 and $31,000, respectively. In determining the fair value of
these grants, the assumptions set forth below for employee option grants were
used in the application of the Black-Scholes model for these grants except for
the weighted average life of three years used for the 1997 grant. The
provisions of EITF 96-18, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in conjunction with Selling, Goods or
Services, were applied in determining the amount of expense recorded in each of
the periods noted above.
Options to purchase 930,360, 323,450 and 110,900 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 $4.6
million ($0.20 per share) for the year ended December 31, 1999 and pro forma
net income (and pro forma earnings per share on a diluted basis) would have
been $1.4 million ($0.06 per share) and $5.2 million ($0.25 per share) for the
years ended December 31, 1998 and 1997, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes model
with the following assumptions:
<TABLE>
<CAPTION>
1/1/97 - 10/1/97 -
9/30/97 12/31/97 1998 1999
---------- ---------- ------ -------
<S> <C> <C> <C> <C>
Risk free interest rate ............... 6% 5% 5% 5%
Dividend yield ........................ -- -- -- --
Volatility factors .................... 70% 81% 81% 75%
Weighted average life (years) ......... 7 7 5 5
</TABLE>
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.
F-21
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(8) SHAREHOLDERS' EQUITY--(Continued)
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.
(9) INCOME TAXES
The components of income tax (benefit) provision for the nine months ended
September 30, 2000 and 1999 and for the years ended December 31, 1999, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
For the nine months ended
September 30, For the year ended December 31,
---------------------------------- ---------------------------------------------------
2000 1999 1999 1998 1997
---------------- --------------- --------------- --------------- ---------------
Current:
<S> <C> <C> <C> <C> <C>
Federal ...................... $ (9,003,000) $ 5,119,000 $ 5,263,000 $ 2,254,000 $ 1,739,894
State ........................ (1,455,000) 851,000 879,000 376,000 289,106
------------- ------------ ------------ ------------ ------------
Total current taxes .......... (10,458,000) 5,970,000 6,142,000 2,630,000 2,029,000
------------- ------------ ------------ ------------ ------------
Deferred:
Federal ...................... 9,003,000 (5,887,000) (7,268,000) (1,353,000) (2,540,811)
State ........................ 1,455,000 (979,000) (1,210,000) (225,000) (422,189)
------------- ------------ ------------ ------------ ------------
Total deferred taxes ......... 10,458,000 (6,866,000) (8,478,000) (1,578,000) (2,963,000)
------------- ------------ ------------ ------------ ------------
Total income tax
(benefit) provision ......... $ -- $ (896,000) $ (2,336,000) $ 1,052,000 $ (934,000)
============= ============ ============ ============ ============
</TABLE>
F-22
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(9) INCOME TAXES--(Continued)
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:
<TABLE>
<CAPTION>
September 30, December 31, December 31,
2000 1999 1998
--------------- --------------- -------------
Deferred income taxes, short term:
<S> <C> <C> <C>
Reserves and allowances .......................... $ 385,000 $ 387,000 $4,351,000
Difference in revenue recognition ................ 3,923,000 12,260,000 --
Deferred revenue and accrued liabilities ......... 675,000 425,000 190,000
Other ............................................ -- 385,000 220,000
------------ ------------ ----------
Total deferred income taxes, short term ......... 4,983,000 13,457,000 4,761,000
Valuation allowance .............................. -- (236,000) (220,000)
------------ ------------ ----------
Deferred income taxes, short term, net .......... $ 4,983,000 $ 13,221,000 $4,541,000
============ ============ ==========
Deferred income taxes, long term:
Net operating loss carryforwards ................. 4,065,000 2,533,000 --
Other ............................................ 1,361,000 -- --
------------ ------------ ----------
Total deferred income taxes, long term .......... 5,426,000 2,533,000 --
Valuation allowance .............................. (4,841,000) (2,533,000) --
------------ ------------ ----------
Deferred income taxes, long term, net ........... $ 585,000 $ -- $ --
============ ============ ==========
</TABLE>
Omega Research had an income tax receivable of approximately $8.2 million
and $589,000 at September 30, 2000 and December 31, 1999, respectively. The
receivable at September 30, 2000 is expected to be realized upon filing 2000
tax returns based primarily upon Omega Research's ability to carryback its
expected tax loss during 2000 to recoup approximately $8.6 million of federal
income taxes paid during 1998 and 1999. The remaining deferred tax assets are
expected to be realized through future taxable income.
Omega Research has available net operating loss carryforwards totaling
approximately $6.7 million (through its acquisition of Window On WallStreet),
which will begin to expire in 2012. Omega Research 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-23
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(9) INCOME TAXES--(Continued)
A reconciliation of the difference between the expected (benefit)
provision for income taxes using the statutory federal tax rate and Omega
Research's actual (benefit) provision is as follows:
<TABLE>
<CAPTION>
For the nine months ended
September 30, For the year ended December 31,
--------------------------------- --------------------------------------------------
2000 1999 1999 1998 1997
---------------- -------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Income tax (benefit)
provision using statutory
Federal tax rate ........... $ (3,331,200) $ (756,305) $ (2,120,481) $1,052,641 $ 3,129,110
Pro forma taxes for
periods prior to
September 30, 1997 ......... -- -- -- -- (3,255,731)
Tax credits ................. -- -- -- -- (1,167,000)
Change in valuation
allowance .................. 2,072,000 -- -- -- --
Other ....................... 1,259,200 (139,695) (215,519) (641) 359,621
------------ ---------- ------------ ---------- ------------
Total income tax (benefit)
provision .................. $ -- $ (896,000) $ (2,336,000) $1,052,000 $ (934,000)
============ ========== ============ ========== ============
</TABLE>
For the nine months ended September 30, 2000, a valuation allowance was
recognized to offset the tax benefit associated with losses for the periods.
The effective tax rates for 1999 and 1998 were 39% and 35%, 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.
(10) 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.
F-24
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(11) (LOSS) EARNINGS PER SHARE
Weighted average shares outstanding for the nine months ended September
30, 2000 and 1999 and for the years ended December 31, 1999, 1998 and 1997 are
calculated as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30, For the year ended December 31,
--------------------------- -------------------------------------------
2000 1999 1999 1998 1997
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Weighted average shares
outstanding (basic) .................. 24,568,404 22,374,055 22,758,654 22,255,627 20,171,527
Impact of dilutive options
after applying the treasury
stock method ......................... -- -- -- 502,286 713,148
---------- ---------- ---------- ---------- ----------
Weighted average shares
outstanding (diluted) ................ 24,568,404 22,374,055 22,758,654 22,757,913 20,884,675
========== ========== ========== ========== ==========
Options outstanding which are
not included in the
calculation of diluted (loss)
earnings per share because
their impact is antidilutive ......... 4,308,306 3,262,275 3,813,652 415,250 78,075
========== ========== ========== ========== ==========
</TABLE>
(12) 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 certain computer equipment.
Future minimum lease payments as of December 31, 1999 under all operating
leases are as follows:
<TABLE>
<S> <C>
2000 ................... $ 2,783,700
2001 ................... 2,689,514
2002 ................... 1,076,065
2003 ................... 131,556
2004 ................... 131,556
Thereafter ............. 10,963
-----------
$ 6,823,354
===========
</TABLE>
Total rent expense for 1999, 1998 and 1997 was approximately $584,000,
$329,000 and $256,000, respectively.
F-25
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(12) COMMITMENTS AND CONTINGENCIES--(Continued)
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 six years.
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.
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.
(13) SEGMENT AND RELATED INFORMATION
During the three years ended December 31, 1999, management evaluated and
operated the business of Omega Research as a single segment. The internal
financial reporting systems present data in formats directed to enable
management to run the business as a single operating segment.
Net revenues from the licensing of Omega Research's client software
products represented 68%, 78% and 83% of total consolidated net revenues in
1999, 1998 and 1997, respectively. Royalties under the Agreement with Bridge
Telerate represented 17%, 11% and 7% of total consolidated net revenues in
1999, 1998 and 1997, respectively.
F-26
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
nine months ended September 30, 2000 and 1999 are unaudited)
(13) SEGMENT AND RELATED INFORMATION--(Continued)
The mix of net revenue from Omega Research's client software products are
broken down as follows for the three years ended December 31, 1999:
<TABLE>
<CAPTION>
Product 1999 1998 1997
---------------------------------------- ------- ------- ------
<S> <C> <C> <C>
Omega Research ProSuite .......... 67 % -- % -- %
TradeStation ..................... 18 59 65
OptionStation .................... 4 28 23
SuperCharts ...................... 2 4 7
Other ............................ 9 9 5
-- -- --
100 % 100 % 100 %
====== ====== =====
</TABLE>
Omega Research engages 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 total consolidated net revenues were derived from customers outside
of the United States for the years ended December 31, 1999, 1998 and 1997.
(14) UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following tables summarize selected quarterly financial data of Omega
Research for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------------------------------
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
------------- ------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Net revenues ............... $5,618,410 $6,207,859 $6,096,047 $ 5,814,219 $ 23,736,535
Gross profit* .............. $5,135,619 $5,752,470 $5,636,409 $ 5,280,306 $ 21,804,804
Net loss ................... $ (457,762) $ (546,935) $ (260,173) $ (2,457,648) $ (3,722,518)
Loss per share:
Basic and diluted ......... $ (.02) $ (.02) $ (.01) $ (.10) $ (.16)
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------------
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net revenues ............... $7,030,794 $7,651,597 $6,469,473 $7,064,641 $28,216,505
Gross profit* .............. $6,579,542 $7,132,764 $6,156,909 $6,549,212 $26,418,427
Net income ................. $ 801,954 $ 817,018 $ 216,103 $ 120,472 $ 1,955,547
Earnings per share:
Basic and diluted ......... $ .04 $ .04 $ .01 $ .01 $ .09
</TABLE>
----------------
* Gross profit is defined as total net revenues less cost of licensing fees.
F-27
<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-28
<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-29
<PAGE>
ONLINETRADINGINC.COM CORP.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
January 31,
July 31, ------------------------------
2000 2000 1999
------------- -------------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $11,701,375 $15,127,790 $1,005,944
Receivable from clearing organization .......................... 622,172 759,183 572,433
Securities owned, at market value .............................. 4,196,851 155,012 381,084
Other current assets ........................................... 313,115 103,987 15,583
----------- ----------- ----------
TOTAL CURRENT ASSETS .......................................... 16,833,513 16,145,972 1,975,044
PROPERTY AND EQUIPMENT, net ..................................... 552,697 400,776 136,146
INTANGIBLE ASSET, net ........................................... 2,324,400 2,592,600 --
OTHER ASSETS .................................................... 284,740 221,456 43,398
----------- ----------- ----------
TOTAL ASSETS .................................................. $19,995,350 $19,360,804 $2,154,588
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease ............................... $ 103,748 $ 39,944 $ --
Accounts payable and accrued liabilities ....................... 1,271,057 1,291,317 948,422
Income taxes payable ........................................... 262,373 653,141 38,230
Securities sold but not yet purchased, at market value ......... -- 25,938 --
----------- ----------- ----------
TOTAL CURRENT LIABILITIES ..................................... 1,637,178 2,010,340 986,652
----------- ----------- ----------
DEFERRED INCOME TAXES ........................................... 34,300 34,300 15,400
----------- ----------- ----------
CAPITAL LEASE PAYABLE, net of current portion ................... 145,056 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 ........................................ 114,763 114,763 88,888
Additional paid-in capital ..................................... 15,943,179 15,943,179 103,063
Retained earnings .............................................. 2,120,874 1,186,091 135,585
----------- ----------- ----------
TOTAL STOCKHOLDERS' EQUITY .................................... 18,178,816 17,244,033 627,536
----------- ----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ........................................ $19,995,350 $19,360,804 $2,154,588
=========== =========== ==========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these statements.
F-30
<PAGE>
ONLINETRADINGINC.COM CORP.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended For the Years Ended
July 31, January 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Commissions .............................. $7,702,682 $3,957,494 $9,471,435 $5,525,427
Investment gains, net .................... 198,941 533,644 1,129,493 328,495
Interest and dividends ................... 492,804 106,680 603,978 36,021
Interest revenue sharing ................. 311,218 137,210 295,934 102,121
Other .................................... 23,710 -- 15,000 --
----------- ---------- ---------- ----------
TOTAL REVENUES ......................... 8,729,355 4,735,028 11,515,840 5,992,064
----------- ---------- ---------- ----------
OPERATING EXPENSES:
Employee compensation and benefits ....... 3,358,594 2,402,478 5,340,165 3,356,688
Floor Brokerage .......................... 11,370 27,051 47,948 51,895
Clearing and other transaction costs ..... 2,066,834 1,218,466 2,964,336 1,950,160
Communications ........................... 152,420 64,465 165,777 97,785
Occupancy and equipment .................. 249,777 131,127 303,050 150,490
Promotional costs ........................ 17,116 11,953 103,000 30,382
Product development ...................... 341,966 -- 279,387 --
Interest expense ......................... 20,249 14,249 51,863 36,566
Regulatory fees and expenses ............. 44,773 25,871 60,442 41,317
Amortization expense ..................... 270,366 3,866 95,432 2,214
Other expenses ........................... 672,557 186,141 496,710 114,544
----------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES ............... 7,206,022 4,085,667 9,908,110 5,832,041
----------- ---------- ---------- ----------
INCOME FROM OPERATIONS ................. 1,523,333 649,361 1,607,730 160,023
NON-OPERATING ITEMS:
Settlement payment received .............. -- 175,000 175,000 --
Loss on disposal of assets ............... (685) -- -- --
----------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ............. 1,522,648 824,361 1,782,730 160,023
PROVISION FOR INCOME TAXES ................ 587,865 316,267 702,224 52,080
----------- ---------- ---------- ----------
NET INCOME ............................. $ 934,783 $ 508,094 $1,080,506 $ 107,943
=========== ========== ========== ==========
EARNINGS PER SHARE:
Basic .................................... $ 0.08 $ 0.06 $ 0.11 $ 0.01
=========== ========== ========== ==========
Diluted .................................. $ 0.08 $ 0.06 $ 0.10 $ 0.01
=========== ========== ========== ==========
Weighted average common shares
outstanding--basic ..................... 11,281,028 8,780,403 10,078,445 8,444,444
=========== ========== ========== ==========
Weighted average common shares
outstanding--diluted ................... 11,504,085 9,227,778 10,630,263 8,857,230
=========== ========== ========== ==========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these statements.
F-31
<PAGE>
ONLINETRADINGINC.COM CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JULY 31, 2000 (UNAUDITED) AND
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
Series A
Preferred Stock Common Stock
---------------------- ------------------------
Amount at Amount at Additional
Shares Stated Shares Par Paid-In Retained
Issued Value Issued 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
Net income (unaudited) ........ -- -- -- -- 934,783 934,783
---- ---------- ---------- -------- ----------- ---------- -----------
BALANCE,
July 31, 2000 (unaudited) -- $ -- 11,476,388 $114,763 $15,943,179 $2,120,874 $18,178,816
==== ========== ========== ======== =========== ========== ===========
</TABLE>
The accompanying notes to the financial statements are an integral
part of these statements.
F-32
<PAGE>
ONLINETRADINGINC.COM CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
July 31,
-------------------------------
2000 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 934,783 $ 508,094
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ...................................... 319,070 21,355
Common stock granted to officer .................................... -- --
Loss on disposal of assets ......................................... 685 --
Deferred income taxes .............................................. -- (1,919)
Other non cash charges ............................................. 89,974 --
Changes in operating assets and liabilities:
Receivable from clearing organization ............................. 137,011 252,415
Other receivables ................................................. -- (19,754)
Securities owned at market value .................................. (53,079) (1,123,600)
Other current assets .............................................. (209,128) 8,224
Other assets ...................................................... (65,451) (18,792)
Accounts payable and accrued expenses ............................. (20,260) (124,372)
Income taxes payable .............................................. (390,768) 258,865
Other current liabilities ......................................... -- 54,668
Securities sold but not yet purchased, at market value ............ (25,938) 295,500
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ......................... 716,899 110,684
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets ........................................ 5,300 --
Cash paid for intangible asset ...................................... -- --
Other assets ........................................................ -- --
Purchase of securities owned ........................................ (3,988,760) --
Purchase of property and equipment .................................. (116,128) (86,175)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .............................. (4,099,588) (86,175)
------------ ------------
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 ........................ -- --
Repayment of capital lease obligation ............................... (43,726) --
Repayment of subordinated loans ..................................... -- (100,000)
Redemption of preferred stock ....................................... -- (330,000)
------------ ------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES ............................................. (43,726) 15,380,991
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ................................................. (3,426,415) 15,405,500
CASH AND CASH EQUIVALENTS, beginning of year ......................... 15,127,790 1,005,944
------------ ------------
CASH AND CASH EQUIVALENTS, end of year ............................... $ 11,701,375 $ 16,411,444
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes .......................................... $ 978,633 $ 56,111
============ ============
Cash paid for interest .............................................. $ 20,249 $ 14,249
============ ============
<CAPTION>
For the Years Ended
January 31,
-----------------------------
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
Other non cash charges ............................................. -- --
Changes in operating assets and liabilities:
Receivable from clearing organization ............................. (186,750) (271,533)
Other receivables .................................................
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
Other current liabilities .........................................
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 securities owned ........................................ -- --
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 capital lease obligation ............................... -- --
Repayment of subordinated loans ..................................... (885,000) --
Redemption of preferred stock ....................................... (330,000) --
------------ ----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES ............................................. 14,955,991 25,000
------------ ----------
NET (DECREASE) 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
============ ==========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
During the six months ended July 31, 2000 and during the year ended January 31,
2000, the Company acquired $180,455 and $112,075, respectively, 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 the financial statements are an integral part of
these statements.
F-33
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
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 six months ended July 31, 2000 and 1999 and for the
years ended January 31, 2000 and 1999, there were no write-downs in value.
F-34
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
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.
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 period incurred. Such expense items totaled $17,116 and
$11,953 for the six months ended July 31, 2000 and 1999, respectively, and
$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
F-35
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
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."
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, as amended by SFAS No. 138, 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
F-36
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
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.
Reclassifications
Certain prior year amounts in the accompanying financial statements have
been reclassified to conform with the current presentation.
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 July 31, 2000,
OnlineTrading.com had net capital of $14,587,934 (unaudited), which was
$14,337,934 (unaudited) in excess of its required net capital of $250,000. 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.
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.
F-37
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
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 at July 31, 2000 and January 31, 2000 and
1999:
<TABLE>
<CAPTION>
July 31, 2000 January 31, 2000 January 31, 1999
-------------------------- ------------------------- ------------------------
Sold Sold Sold
Not Yet Not Yet Not Yet
Owned Purchased Owned Purchased Owned Purchased
------------ ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Corporate stocks ............... $ 3,372 $-- $ 5,200 $25,938 $224,428 $--
Certificate of Deposit ......... 49,625
Obligations of
U.S. Government ............... 4,143,854 -- 149,812 -- 156,656 --
---------- --- -------- ------- -------- ---
Total ........................ $4,196,851 $-- $155,012 $25,938 $381,084 $--
========== === ======== ======= ======== ===
</TABLE>
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consist of the following at July 31, 2000 and
January 31, 2000 and 1999:
<TABLE>
<CAPTION>
July 31, January 31, January 31,
2000 2000 1999
------------ ------------- ------------
<S> <C> <C> <C>
Computers, software, and equipment ......... $ 429,876 $ 307,915 $ 145,009
Furniture and fixtures ..................... 160,345 122,784 36,651
Leasehold improvements ..................... 49,914 38,773 14,521
--------- --------- ---------
Total cost ............................... 640,135 469,472 196,181
Less: Accumulated depreciation ............. (87,438) (68,696) (60,035)
--------- --------- ---------
Property and equipment, net .............. $ 552,697 $ 400,776 $ 136,146
========= ========= =========
</TABLE>
Depreciation expense for the six months ended July 31, 2000 and 1999 was
$48,704 (unaudited) and $21,355 (unaudited), respectively, and for the years
ended January 31, 2000 and 1999 was $39,236 and $29,918, respectively.
F-38
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
NOTE 6--ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at July 31, 2000 and January 31,
2000 and 1999 consist of the following:
<TABLE>
<CAPTION>
July 31, January 31, January 31,
2000 2000 1999
------------- ------------- ------------
<S> <C> <C> <C>
Accounts payable ...................... $ 608,799 $ 497,694 $163,074
Accrued liabilities:
Research fees ........................ 217,830 177,918 124,828
Payroll and related expenses ......... 338,662 521,115 644,148
Clearing deposit ..................... 76,176 50,000 --
Professional fees and other .......... 29,590 44,590 16,372
---------- ---------- --------
Total ............................... $1,271,057 $1,291,317 $948,422
========== ========== ========
</TABLE>
NOTE 7--SUBORDINATED LOANS
The borrowings under subordinated agreements as of January 31, 1999 are as
follows:
<TABLE>
<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, was
not included in the statement of financial condition as of January 31, 2000.
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-39
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
NOTE 8--CAPITAL LEASE--(Continued)
Anticipated future minimum payments based on the amount of furniture and
equipment received are as follows:
<TABLE>
<CAPTION>
Year ending January 31,
-----------------------------------------------
<S> <C>
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
=========
</TABLE>
NOTE 9--INCOME TAXES
A summary of the income tax provision for the six months ended July 31,
2000 and 1999 and for the years ended January 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
July 31, January 31,
------------------------- ------------------------
2000 1999 2000 1999
----------- ----------- ----------- ----------
Current taxes:
<S> <C> <C> <C> <C>
Federal ............................... $481,555 $270,927 $587,587 $29,730
State ................................. 106,310 45,340 95,737 8,500
Total current taxes .................. 587,865 316,267 683,324 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 ........... $587,865 $316,267 $702,224 $52,080
======== ======== ======== =======
</TABLE>
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:
<TABLE>
<CAPTION>
July 31, January 31, January 31,
2000 2000 1999
------------ ------------- ------------
<S> <C> <C> <C>
Property and equipment, due to differences in
depreciation ................................................ $ 60,000 $ 60,000 $15,400
Intangible asset, due to differences in amortization ......... (25,700) (25,700) --
--------- --------- -------
Net deferred income tax liability .......................... $ 34,300 $ 34,300 $15,400
========= ========= =======
</TABLE>
F-40
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
NOTE 9--INCOME TAXES--(Continued)
The effective income tax rate varied from the statutory federal tax rate
as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
July 31, January 31,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Federal statutory rate ....................................... 35.0% 34.0% 35.0% 34.0%
State income taxes, net of federal income tax effect ......... 4.5 5.3 4.5 5.3
Other, including permanent differences, non-deductible
expenses and the effect of the rate brackets ................ (.9) (.9) (.1) (6.8)
---- ---- ---- ----
Effective income tax rate .................................. 38.6% 38.4% 39.4% 32.5%
==== ==== ==== ====
</TABLE>
NOTE 10--STOCKHOLDERS' EQUITY
(a) Capital Stock
On March 24, 1999, the shareholders and directors effected 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. The effect of the stock split
has been retroactively reflected in the accompanying financial statements.
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.
Each holder of the new $0.01 par value common stock is entitled to one
vote for each share held on all matters presented to a vote of shareholders,
including the election of directors.
Holders of common stock have no cumulative voting rights or preemptive
rights to purchase or subscribe for any stock or other securities, and there
are no conversion rights or redemption or sinking fund provisions with respect
to this stock.
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),
F-41
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
NOTE 10--STOCKHOLDERS' EQUITY--(Continued)
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:
<TABLE>
<S> <C>
Underwriting discounts and commissions ......... $1,539,563
Expenses paid to/for underwriters .............. 486,461
Other offering expenses ........................ 465,452
----------
$2,491,476
==========
</TABLE>
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-42
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
NOTE 11--EARNINGS PER SHARE
Weighted average shares outstanding for the six months ended July 31, 2000
and 1999 and for the years ended January 31, 2000 and 1999 are calculated as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
July 31, January 31,
-------------------------- ---------------------------
2000 1999 2000 1999
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding (basic) ........... 11,281,028 8,780,403 10,078,445 8,444,444
Impact of shares subject to repurchase by
OnlineTrading.com ................................... 195,360 444,444 444,444 412,786
Impact of dilutive options and warrants after
applying the treasury stock method .................. 27,697 2,931 107,374 --
---------- --------- ---------- ---------
Weighted average shares outstanding (diluted) ......... 11,504,085 9,227,778 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 ........... 647,500 60,000 384,000 --
========== ========= ========== =========
</TABLE>
In February 1998, an officer of OnlineTrading.com 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 his cost basis if he
resigns from his employment or is terminated for cause prior to February 28,
2001. The redemption provision with respect to 296,296 of the shares expired on
February 29, 2000. The remaining shares are excluded from basic earnings per
share until the redemption provision expires on February 28, 2001 but are
reflected in diluted earnings per share.
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 as of January 31,
2000:
<TABLE>
<CAPTION>
Option Price Per Share
--------------------------------
Type Shares Low High Weighted
------------------------------------- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
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
</TABLE>
No stock options have been exercised during the year ended January 31,
2000 or the six months ended July 31, 2000.
F-43
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
NOTE 12--STOCK OPTIONS--(Continued)
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.
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. The intangible assets consist of the following:
<TABLE>
<CAPTION>
July 31, January 31,
2000 2000
------------------ ---------------
<S> <C> <C>
Covenants not to compete ......... $ 500,000 $ 500,000
Customer lists ................... 2,182,000 2,182,000
----------- -----------
2,682,000 2,682,000
Accumulated amortization ......... (357,600) (89,400)
----------- -----------
$ 2,324,400 $ 2,592,600
=========== ===========
</TABLE>
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
F-44
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
NOTE 14--CONCENTRATIONS AND CREDIT RISKS--(Continued)
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.
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.
F-45
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
NOTE 15--COMMITMENTS AND CONTINGENCIES--(Continued)
Rent expense for the six months ended July 31, 2000 and 1999 and for the
years ended January 31, 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
Six Months Ended Years Ended
July 31, January 31,
------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Base rent--office space .................. $ 207,584 $ 125,167 $ 259,655 $ 119,705
Sublease income .......................... (72,958) (57,000) (118,975) (14,300)
Base rent--furniture & equipment ......... 46,911 29,097 73,020 --
--------- --------- ---------- ---------
Rent expense, net ........................ $ 181,537 $ 97,264 $ 213,700 $ 105,405
========= ========= ========== =========
</TABLE>
As of January 31, 2000, future minimum rental payments required under the
leases are as follows:
<TABLE>
<CAPTION>
Rental Sublease Net Minimum
Year ending January 31, Payments Payments Payments
------------------------- ------------- ---------- ------------
<S> <C> <C> <C>
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
========== ======== ==========
</TABLE>
Litigation
On January 11, 2000, Robert A. Whigham, Jr. and Patricia F. Whigham filed
a civil action against OnlineTrading.com, 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 Whigham's civil action without prejudice. On
September 9, 2000, OnlineTrading.com received notification from NASD Dispute
Resolution, Inc. that the Whighams had filed a statement of claim and initiated
arbitration against all parties named in the former civil action.
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, negligent supervision and fraud in violation of U.S.C. ss.1962.
The Whighams seek total alleged damages of $561,000 plus interest, costs, fees
and treble damages. OnlineTrading.com intends to present a vigorous defense and
to seek reimbursement for certain costs associated with OnlineTrading.com's
defense. OnlineTrading.com believes the claim to be without merit; however,
there can be no assurance that OnlineTrading.com's defense of any future claim
will be successful.
F-46
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All notes and related disclosures applicable to the
six months ended July 31, 2000 and 1999 are unaudited)
NOTE 15--COMMITMENTS AND CONTINGENCIES--(Continued)
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.
NOTE 16--SUBSEQUENT EVENT
On May 11, 2000, National Association of Securities Dealers, Inc. (NASD)
granted a change in business application, which enables OnlineTrading.com to
expand its scope and conduct a commission recapture business. The expanded
business increases OnlineTrading.com's minimum net capital requirement to
$250,000 or 1/15 of aggregate indebtedness, whichever is greater.
OnlineTrading.com remains well within these regulatory required minimums and
does not anticipate having any problems meeting these requirements in the
future.
F-47
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To TradeStation Group, Inc.:
We have audited the accompanying balance sheet of TradeStation Group, Inc.
(a Florida corporation) as of June 30, 2000. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet 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 balance sheet referred to above presents fairly, in
all material respects, the financial position of TradeStation Group, Inc. as of
June 30, 2000 in conformity with accounting principles generally accepted in
the United States.
/s/ Arthur Andersen LLP
----------------------------------
ARTHUR ANDERSEN LLP
Miami, Florida,
July 14, 2000.
F-48
<PAGE>
TRADESTATION GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
--------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Total Assets .............................................................. $ -- $ --
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES ............................................................... $ -- $ --
--------- ---------
SHAREHOLDER'S EQUITY:
Preferred stock, $.01 par value; 25,000,000 shares authorized, none issued
or outstanding ......................................................... -- --
Common stock, $.01 par value; 200,000,000 shares authorized, 100 issued
and outstanding ........................................................ 1 1
Additional paid-in capital ............................................... 99 99
Subscription receivable .................................................. (100) (100)
--------- ---------
Total shareholder's equity ............................................... -- --
--------- ---------
Total liabilities and shareholder's equity .............................. $ -- $ --
========= =========
</TABLE>
The accompanying note is an integral part of these balance sheets.
F-49
<PAGE>
TRADESTATION GROUP, INC.
NOTE TO BALANCE SHEETS
(1) ORGANIZATION AND BASIS OF PRESENTATION
TradeStation Group, Inc. ("TradeStation Group"), a Florida corporation,
was incorporated on January 18, 2000. TradeStation Group was formed in
connection with the contemplated merger (the "Merger") between Omega Research,
Inc. ("Omega Research") and onlinetradinginc.com corp. ("OnlineTrading.com").
Upon completion of the Merger, Omega Research and OnlineTrading.com will each
become a wholly-owned subsidiary of TradeStation Group. Upon completion of the
Merger, as a result of share exchanges between TradeStation Group and each of
Omega Research and OnlineTrading.com, and the listing of TradeStation Group's
shares, TradeStation Group will be the sole publicly-traded company in the
group with its outstanding shares of common stock listed on The Nasdaq National
Market. Other than its formation, TradeStation Group has not conducted any
operations.
On April 13, 2000, Omega Research, the sole shareholder at June 30, 2000,
paid $48,205 on behalf of TradeStation Group for the filing fee required to
register the common stock to be issued as a result of the share exchanges
discussed above. Such transaction will be recorded on the books of TradeStation
Group upon completion of the Merger.
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 amounts reported in the balance
sheet.
New Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137, Accounting for
Derivative Instruments and Hedging Activities-Deferral of FASB Statedment 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, as amended by SFAS No. 138, will require TradeStation Group
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. TradeStation Group will adopt SFAS No.
133 effective for the year ended December 31, 2001. TradeStation Group 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 December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), Revenue Recognition in Financial Statements, to provide guidance on the
recognition, presentation and disclosure of revenue in financial statements.
TradeStation Group will be required to adopt SAB 101 by the fourth quarter of
2000. The adoption of SAB 101 is not expected to have a material impact on the
financial statements of TradeStation Group.
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. The adoption of Issue
No. 00-2 during the quarter ended September 30, 2000 did not have a material
impact on the financial statements of TradeStation Group.
F-50
<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
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
ARTICLE I THE MERGER ..................................................... A-6
1.1 The Merger ...................................................... A-6
1.2 Closing, Effective Time ......................................... A-6
1.3 Effect of the Merger ............................................ A-6
1.4 Articles of Incorporation, Bylaws ............................... A-6
1.5 Directors and Officers .......................................... A-7
1.6 Effect on Capital Stock ......................................... A-8
1.7 Surrender of Certificates ....................................... A-10
1.8 No Further Ownership Rights in Omega Capital Stock or Online
Capital Stock .................................................. A-11
1.9 Lost, Stolen or Destroyed Certificates .......................... A-11
1.10 Tax and Accounting Consequences ................................. A-12
1.11 Withholding Rights .............................................. A-12
1.12 Taking of Necessary Action, Further Action ...................... A-12
ARTICLE II REPRESENTATIONS AND WARRANTIES OF OMEGA ....................... A-12
2.1 Organization, Standing and Power ................................ A-12
2.2 Capital Structure ............................................... A-13
2.3 Authority ....................................................... A-14
2.4 Omega SEC Documents; Omega Financial Statements ................. A-14
2.5 Absence of Certain Changes ...................................... A-15
2.6 Absence of Undisclosed Liabilities .............................. A-15
2.7 Litigation ...................................................... A-15
2.8 Restrictions on Business Activities ............................. A-16
2.9 Compliance With Laws ............................................ A-16
2.10 Title to Property ............................................... A-16
2.11 Intellectual Property ........................................... A-16
2.12 Environmental Matters ........................................... A-18
2.13 Taxes ........................................................... A-18
2.14 Employee Benefit Plans .......................................... A-19
2.15 Employee Matters ................................................ A-21
2.16 Interested Party Transactions ................................... A-22
2.17 Insurance ....................................................... A-22
2.18 Regulatory Matters .............................................. A-23
2.19 Material Contracts .............................................. A-24
2.20 Omega Options ................................................... A-25
2.21 Registration Statement, Joint Proxy Statement/Prospectus ........ A-26
2.22 Opinion of Financial Advisor .................................... A-26
2.23 Omega Affiliate Agreements ...................................... A-26
2.24 State Takeover Statutes ......................................... A-26
2.25 Tax and Accounting Treatment .................................... A-26
2.26 Brokers' and Finders' Fees ...................................... A-27
2.27 Representations Complete ........................................ A-27
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ONLINE ..................... A-27
3.1 Organization, Standing and Power ................................ A-27
3.2 Capital Structure ............................................... A-28
3.3 Authority ....................................................... A-28
3.4 Online SEC Documents; Online Financial Statements ............... A-29
3.5 Absence of Certain Changes ...................................... A-29
3.6 Absence of Undisclosed Liabilities .............................. A-30
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
3.7 Litigation ...................................................... A-30
3.8 Restrictions on Business Activities ............................. A-30
3.9 Compliance With Laws ............................................ A-30
3.10 Title to Property ............................................... A-31
3.11 Intellectual Property ........................................... A-31
3.12 Environmental Matters ........................................... A-32
3.13 Taxes ........................................................... A-33
3.14 Employee Benefit Plans .......................................... A-33
3.15 Employee Matters ................................................ A-35
3.16 Interested Party Transactions ................................... A-36
3.17 Insurance ....................................................... A-36
3.18 Regulatory Matters .............................................. A-37
3.19 Material Contracts .............................................. A-38
3.20 Online Options .................................................. A-40
3.21 Registration Statement, Joint Proxy Statement/Prospectus ........ A-40
3.22 Opinion of Financial Advisor .................................... A-40
3.23 Online Affiliate Agreements ..................................... A-40
3.24 State Takeover Statutes ......................................... A-40
3.25 Tax and Accounting Treatment .................................... A-41
3.26 Brokers' and Finders' Fees ...................................... A-41
3.27 Representations Complete ........................................ A-41
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NEWCO ....................... A-41
4.1 Organization, Standing and Power ................................ A-41
4.2 Capital Structure ............................................... A-41
4.3 Authority ....................................................... A-42
4.4 Absence of Undisclosed Liabilities .............................. A-42
4.5 Litigation ...................................................... A-42
4.6 Registration Statement; Joint Proxy Statement/Prospectus ........ A-42
4.7 Tax Treatment ................................................... A-43
4.8 Broker's and Finders' Fees ...................................... A-43
4.9 Representations Complete ........................................ A-43
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME ............................ A-43
5.1 Conduct of Businesses of Omega and Online ....................... A-43
5.2 Online Conduct of Business ...................................... A-44
5.3 Omega Conduct of Business ....................................... A-44
5.4 No Solicitation ................................................. A-45
ARTICLE VI ADDITIONAL AGREEMENTS ......................................... A-46
6.1 Registration Statement, Joint Proxy Statement/Prospectus ........ A-46
6.2 Meetings of Shareholders ........................................ A-47
6.3 Access to Information ........................................... A-47
6.4 Confidentiality ................................................. A-48
6.5 Public Disclosure ............................................... A-48
6.6 Consents; Cooperation ........................................... A-48
6.7 Reasonable Best Efforts and Further Assurances .................. A-49
6.8 Blue Sky Laws ................................................... A-49
6.9 Nasdaq Quotation ................................................ A-49
6.10 Public Accounting ............................................... A-49
6.11 Affiliate Agreements ............................................ A-49
6.12 Tax Treatment ................................................... A-49
6.13 Omega and Online Options ........................................ A-50
6.14 Nasdaq Listing of Newco Common Stock ............................ A-51
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
6.15 Form 8-A ..................................................................... A-51
6.16 Form S-8 ..................................................................... A-51
6.17 Employees .................................................................... A-51
6.18 Director and Officer Indemnification ......................................... A-51
6.19 Comfort Letters .............................................................. A-52
6.20 Shareholder Litigation ....................................................... A-52
6.21 Observation Rights ........................................................... A-52
6.22 Errors and Omissions Insurance ............................................... A-53
ARTICLE VII CONDITIONS TO THE MERGER .................................................. A-53
7.1 Conditions to Obligations of Each Party to Effect the Merger ................. A-53
7.2 Additional Conditions to Obligations of Online ............................... A-54
7.3 Additional Conditions to the Obligations of Newco, Merger Subs and Omega ..... A-55
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER ........................................ A-56
8.1 Termination .................................................................. A-56
8.2 Effect of Termination ........................................................ A-57
8.3 Expenses and Termination Fees ................................................ A-57
8.4 Amendment .................................................................... A-58
8.5 Extension; Waiver ............................................................ A-58
ARTICLE IX GENERAL PROVISIONS ......................................................... A-58
9.1 Non-Survival at Effective Time ............................................... A-58
9.2 Notices ...................................................................... A-58
9.3 Interpretation ............................................................... A-59
9.4 Counterparts ................................................................. A-59
9.5 Entire Agreement; Nonassignability; Parties in Interest ...................... A-59
9.6 Severability ................................................................. A-60
9.7 Remedies Cumulative .......................................................... A-60
9.8 Governing Law ................................................................ A-60
9.9 Rules of Construction ........................................................ A-60
9.10 Definitions .................................................................. A-60
9.11 Specific Performance ......................................................... A-60
9.12 Prevailing Party Legal Fees .................................................. A-61
</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
A-4
<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") 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
A-5
<PAGE>
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 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
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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 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:
<TABLE>
<S> <C>
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 Farshid Tafazzoli
Vice President E. Steven zum Tobel
Vice President, General Counsel and Secretary Marc J. Stone
Vice President of Advertising and Sales Janette Perez
Chief Financial Officer and Vice President of Finance and Gregg Stewart
Treasurer
</TABLE>
(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
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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 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
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
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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.
(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
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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 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
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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 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.
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
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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:
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
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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, 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
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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,
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
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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 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 Entity,
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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.
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.
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(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) 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.
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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.
(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
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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
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, 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
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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 (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
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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.
(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
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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 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.
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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 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.
(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
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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, 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;
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(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;
(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.
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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 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.
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
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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
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.
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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, 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
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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 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
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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 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 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
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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.
(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.
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(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.
(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
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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 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), (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
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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 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
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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
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.
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(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 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 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
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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 BD)s 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"):
(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
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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;
(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
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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 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
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.
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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.
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
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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 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
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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. 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,
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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
(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; 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
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(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 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
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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 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
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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 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
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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.
(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 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.
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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.
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.
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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
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
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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.
(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
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or omissions occurring at or prior to the Effective Time now existing in favor
of the officers 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, 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
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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 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
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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 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).
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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 "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, among other things, reasonable assumptions as well as
representations of Newco, Merger Subs, Omega and Online.
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(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 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;
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(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 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
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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 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 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
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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 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.
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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]
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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
-----------------------------------
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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
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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
A-64
<PAGE>
SCHEDULE 6.17(a)
INDIVIDUALS EXECUTING EMPLOYMENT AGREEMENT
Farshid Tafazzoli
E. Steven zum Tobel
Derek J. Hernquist
A-65
<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
A-66
<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:
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.
EXB-1
<PAGE>
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 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
EXB-2
<PAGE>
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:
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)
EXB-3
<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:_______________________________
EXB-4
<PAGE>
EXHIBIT C
FORM OF ONLINE AFFILIATE AGREEMENT
January 19, 2000
Online Trading Group, Inc.
8700 West Flagler Street
Miami, Florida 233174
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:
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.
EXC-1
<PAGE>
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 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
EXC-2
<PAGE>
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:
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)
EXC-3
<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:_________________________________
EXC-4
<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, 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.
----------------
(1) The following individuals are entering into new Employment Agreements:
Farshid Tafazzoli, E. Steven zum Tobel and Derek J. Hernquist.
EXD-1
<PAGE>
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 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
EXD-2
<PAGE>
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 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
EXD-3
<PAGE>
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 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 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
EXD-4
<PAGE>
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 (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,
EXD-5
<PAGE>
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 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,
EXD-6
<PAGE>
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.
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
EXD-7
<PAGE>
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 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. 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
EXD-8
<PAGE>
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.
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, licencee,
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).
EXD-9
<PAGE>
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."
EXD-10
<PAGE>
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:_____________________________________
EXD-11
<PAGE>
SCHEDULE A Position and Compensation
Position:(3)
Annual Base Salary:(4)
Bonus:(5)
----------------
(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."
EXD-12
<PAGE>
SCHEDULE B
Permitted Activities
See attached list of activities.
EXD-13
<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.
EXD-14
<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 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
EXDD-1
<PAGE>
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:
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
EXDD-2
<PAGE>
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.
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 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.
----------------
(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.
EXDD-3
<PAGE>
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, 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
EXDD-4
<PAGE>
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, 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.
EXDD-5
<PAGE>
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 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]
EXDD-6
<PAGE>
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:____________________________________
EXDD-7
<PAGE>
EXHIBIT A
Permitted Activities
See attached list of activities.
EXDD-8
<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.
EXDD-9
<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."
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.
AA-1
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
AA-2
<PAGE>
SECOND AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Second Amendment ("Amendment") hereby amends effective July 19, 2000
the Agreement and Plan of Merger and Reorganization (the "Agreement"), dated
January 19, 2000, by and among Omega Research, Inc., a Florida corporation
("Omega"), onlinetradinginc.com corp., a Florida corporation ("Online"),
OnlineTrading.com 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 entered into the First Amendment to the Agreement and
Plan of Merger and Reorganization (the "First Amendment") effective as of March
7, 2000 to change the name of Online Trading Group, Inc. to OnlineTrading.com
Group, Inc. and to change the names of Omega Merger Sub and Online Merger Sub;
and
WHEREAS, the parties desire to amend the terms of the Agreement, as
amended by the First Amendment, 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 TradeStation
Technologies, Inc."
2. Section 8.1 (b) shall be amended and restated in its entirety to read
as follows:
"(b) by either Omega or Online, if the Closing shall not have occurred
on or before September 30, 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);"
3. Online Surviving Corporation hereby agrees that, immediately after the
Effective Time, unless otherwise instructed in writing by Newco, it will use
its best efforts to obtain all necessary federal and state regulatory approvals
and consents to change its name from onlinetradinginc.com corp. to TradeStation
Securities, Inc. Upon obtaining the necessary approvals and consents, Online
Surviving Corporation will file an amendment to its Articles of Incorporation
(the "Articles of Amendment") pursuant to which Article I of the Articles of
Incorporation shall be amended to change the name of Online Surviving
Corporation to "TradeStation Securities, Inc." The parties hereto hereby
authorize and consent to Online Surviving Corporation's filing of the Articles
of Amendment. The parties hereto hereby further agree that, upon such filing
with the Secretary of State of the State of Florida, all references to "Online
Surviving Corporation," "onlinetradinginc.com corp." or "OnlineTradinginc.com
Corp." 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 be, and to reflect the name change to, "TradeStation Securities,
Inc."
AA-3
<PAGE>
4. 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 "TradeStation Group, Inc." and, upon such filing with the Secretary of State
of the State of Florida, all references to "Online Trading Group, Inc." or
"OnlineTrading.com 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 be, and to reflect the name change
to, "TradeStation Group, Inc."
Except as otherwise specifically set forth in this Amendment, the
Agreement, as amended by the First Amendment, 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. Crus 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
AA-4
<PAGE>
THIRD AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Third Amendment ("Amendment") hereby amends effective September 21,
2000 the Agreement and Plan of Merger and Reorganization (the "Agreement"),
dated January 19, 2000, by and among Omega Research, Inc., a Florida
corporation ("Omega"), onlinetradinginc.com corp., a Florida corporation
("Online"), TradeStation 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 entered into the First Amendment to the Agreement and
Plan of Merger and Reorganization (the "First Amendment") effective as of March
7, 2000 to change the name of Online Trading Group, Inc. to OnlineTrading.com
Group, Inc. and to change the names of the Surviving Corporations at the
Effective Time; and
WHEREAS, the parties entered into the Second Amendment to the Agreement
and Plan of Merger and Reorganization (the "Second Amendment") effective as of
July 19, 2000 to extend the date after which the parties have the right to
terminate the Agreement if the Closing has not occurred from July 31, 2000 to
September 30, 2000, to change the name of OnlineTrading.com Group, Inc. to
TradeStation Group, Inc., to change the name of Omega Surviving Corporation at
the Effective Time and to change the name of Online Surviving Corporation as
soon as practicable after the Effective Time; and
WHEREAS, the parties desire to further amend the terms of the Agreement,
as amended by the First Amendment and the Second Amendment, 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 8.1 (b) shall be amended and restated in its entirety to read
as follows:
"(b) by either Omega or Online, if the Closing shall not have occurred
on or before December 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)."
2. Except as otherwise specifically set forth in this Amendment, the
Agreement, as amended by the First Amendment and the Second Amendment, 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. A facsimile
signature to this Amendment shall have the same force and effect as an original
signature hereto.
AA-5
<PAGE>
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
TRADESTATION GROUP, INC. OMEGA ACQUISITION CORPORATION
By: /s/ Ralph L. Crus 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
AA-6
<PAGE>
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 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,
B-1
<PAGE>
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 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
B-2
<PAGE>
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.
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.
B-3
<PAGE>
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 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
B-4
<PAGE>
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]
B-5
<PAGE>
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:_______________________ __________________________________________
Name:_____________________ (Print Name of Shareholder)
Title:____________________
__________________________________________
(Print Streeet 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
B-6
<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 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.
B-7
<PAGE>
Dated:_______, 2000
_________________________________________
(Signature of Shareholder)
_________________________________________
(Print Name of Shareholder)
Shares beneficially owned:
___________shares of Company Common Stock
B-8
<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 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.
C-1
<PAGE>
(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 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
C-2
<PAGE>
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.
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.
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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 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.
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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 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:_______________________ __________________________________________
(Signature)
Name:_____________________
__________________________________________
Title:____________________ (Signature of Spouse)
OMEGA RESEARCH, INC. __________________________________________
(Print Name of Shareholder)
By:_______________________
__________________________________________
Name:_____________________ (Print Street Address)
Title:____________________ __________________________________________
(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
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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 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.
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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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SCHEDULE I
LIEN
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<PAGE>
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 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
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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 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
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<PAGE>
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, 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;
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(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 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 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,
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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 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,
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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).
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
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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.
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
(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
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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) 374-780
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 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 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
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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 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
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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, 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;
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(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 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 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,
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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.
(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,
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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).
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
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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.
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
(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
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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
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 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, 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.
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(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.
(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;
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(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 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.
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(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 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
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
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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 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
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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;
(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
F-6
<PAGE>
(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
(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
F-7
<PAGE>
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):
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.
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.
F-8
<PAGE>
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.
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]
F-9
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the date first above written.
NEWCO SHAREHOLDERS:
<TABLE>
<CAPTION>
<S> <C>
WRCF-I 1997 Limited Partnership /s/ Andrew A. Allen
-----------------------------
By: WRCF-I GP, Inc., general partner Andrew A. Allen
By: /s/ William R. Cruz Andrew A. Allen Family Limited Partnership
-----------------------------
William R. Cruz, President By: Allen Holdings Corp., general partner
By: /s/ Andrew A. Allen
WRCF-II 1997 Limited Partnership --------------------------------
Andrew A. Allen, President
By: WRCF-II GP, LLC, general partner
Tafazzoli Family Limited Partnership
By: WRCF-II Manager, Inc.,
managing member By: PMA Corp., general partner
By: /s/ Ralph L. Cruz By: /s/ Farshid Tafazzoli
----------------------------- --------------------------------
Ralph L. Cruz, President Farshid Tafazzoli, 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 By: /s/ E. Steven zum Tobel
----------------------------- ---------------------------------
Ralph L. Cruz, President E. Steven zum Tobel, President
RLCF-II 1997 Limited Partnership /s/ Derek J. Hernquist
-----------------------------
By: RLCF-II GP, LLC, general partner Derek J. Hernquist
By: RLCF-II Manager, Inc., managing /s/ Benedict S. Gambino
member -----------------------------
Benedict S. Gambino
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>
F-10
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
Number of Shares of
Name of Newco Shareholder Omega Common Stock
------------------------- --------------------
<S> <C>
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
=========
</TABLE>
F-11
<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 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.
F-12
<PAGE>
IN WITNESS WHEREOF, the Voting Trustee has signed this certificate.
Date of Issuance:_______________
________________________________________
[Insert Name], as Voting Trustee and
not individually
F-13
<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
$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
G-1
<PAGE>
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 el 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 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
G-2
<PAGE>
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
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;
G-3
<PAGE>
(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 THM 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.
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
G-4
<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, par value $.01
per share ("Omega Common Stock"), other than 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;
H-1
<PAGE>
(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 and 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
(ix) 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 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
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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.
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.
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[GRAPHIC]
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 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;
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<PAGE>
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 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
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<PAGE>
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
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.
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<PAGE>
DEALER PROSPECTUS DELIVERY OBLIGATION
Until _____________, 2001, 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.
<PAGE>
REVOCABLE PROXY
ONLINETRADINGINC.COM CORP.
This Proxy is Solicited on Behalf of The Board of Directors
The undersigned shareholder of onlinetradinginc.com corp.
("OnlineTrading.com") hereby appoints Roger L. Shaffer, Jr. and E. Steven zum
Tobel, 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 "OnlineTrading.com 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:
to approve and adopt an agreement and plan of merger and reorganization, dated
as of January 19, 2000, among Omega Research, Inc., OnlineTrading.com,
TradeStation Group, Inc. ("TradeStation 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
TradeStation Group, will merge with and into OnlineTrading.com, with
OnlineTrading.com surviving the merger as a wholly-owned subsidiary of
TradeStation Group, (ii) Omega Acquisition, a wholly-owned subsidiary of
TradeStation Group, will merge with and into Omega Research, Inc., with Omega
Research, Inc. surviving the merger as a wholly-owned subsidiary of
TradeStation Group, and (iii) each share of OnlineTrading.com common stock will
be converted into the right to receive a number of shares of TradeStation Group
common stock equal to the exchange ratio described in the joint proxy
statement/prospectus dated , 2000.
The undersigned shareholder may revoke this proxy at any time before it is
voted by (i) delivering to the Corporate Secretary of OnlineTrading.com a
written notice of revocation prior to the OnlineTrading.com Meeting, (ii)
delivering to OnlineTrading.com prior to the OnlineTrading.com Meeting a duly
executed proxy bearing a later date, or (iii) attending the OnlineTrading.com
Meeting and voting in person. The undersigned shareholder hereby acknowledges
receipt of OnlineTrading.com'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: To approve and adopt the Agreement and Plan of Merger and
Reorganization, dated as of January 19, 2000, among Omega Research, Inc.,
OnlineTrading.com, TradeStation 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 TradeStation Group, (ii) Omega Acquisition will be
merged with and into Omega Research, Inc., with Omega Research, Inc. surviving
the merger as a wholly-owned subsidiary of TradeStation Group, and (iii) each
share of OnlineTrading.com common stock will be converted into the right to
receive a number of shares of TradeStation Group common stock equal to the
exchange ratio set forth in the joint proxy statement/prospectus.
[ ] 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.
Dated:____________________________________, 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.
