SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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. ("OnlineTrading.com") with Omega Research, Inc.
("Omega Research") pursuant to which a new holding company will be formed to own
both Omega Research and OnlineTrading.com. The board of directors of
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 OnlineTrading.com Group, Inc. ("Holding Company") pursuant to
the formula described in this joint proxy statement/prospectus. The exchange
ratio formula in the agreement and plan of merger and organization (including
the exchange ratio "floor" and "ceiling" relating to OnlineTrading.com
shareholders) is designed so that, upon completion of the merger,
OnlineTrading.com shareholders will own no less than 38% and no more than
approximately 43% of the shares of common stock of Holding Company on a fully
diluted basis as of the date of the merger and reorganization. Omega Research
shareholders will own the remaining shares of Holding Company (62% to
approximately 57% on a fully diluted basis). The merger is described more fully
in this joint proxy statement/prospectus. The merger is intended to qualify as a
tax-free reorganization. Holding Company 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 Holding Company 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.
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
HOLDING COMPANY 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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PRELIMINARY COPY
FOR SEC USE ONLY
ONLINETRADINGINC.COM CORP
2700 N. MILITARY TRAIL
SUITE 200
BOCA RATON, FLORIDA 33431
(501) 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. ("Omega Research"), onlinetradinginc.com
corp. ("OnlineTrading.com"), OnlineTrading.com Group, Inc.
("Holding Company"), Omega Acquisition Corporation and
Onlinetrading Acquisition Corporation, which provides for:
/bullet/ The mergers of separate wholly-owned subsidiaries of
Holding Company with and into Omega Research and
OnlineTrading.com.
/bullet/ 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 Holding Company .
/bullet/ An exchange ratio formula for Omega Research's common
stock fixed at one share of Holding Company common
stock for each outstanding share of Omega Research
common stock owned by Omega Research shareholders.
/bullet/ An exchange ratio (subject to the "floor" and
"ceiling" described below) for OnlineTrading.com
common stock of (a) $11.0625 (the average of the last
sale prices of the shares of OnlineTrading.com common
stock over the 10-day trading period that ended on
January 18, 2000), divided by (b) the average of the
last sale prices of Omega Research common stock over
the 10-day trading period that ends on the third
trading day prior to the closing of this merger
transaction.
/bullet/ Regardless of the result of the above formula, the
exchange ratio related to the OnlineTrading.com
common stock to be no lower than 1.3817 (which
results in a 38% OnlineTrading.com shareholder/62%
Omega Research shareholder ownership of Holding
Company on a fully diluted basis) nor higher than
1.7172 (which results in an approximate 43%
OnlineTrading.com shareholder/57% Omega Research
shareholder ownership of Holding Company on a fully
diluted basis).
/bullet/ Each outstanding option or warrant to purchase shares
of Omega Research or OnlineTrading.com common stock
to be assumed by Holding Company and converted into
an option or warrant to purchase shares of Holding
Company common stock, as more fully described in this
joint proxy statement/prospectus.
/bullet/ Holding Company 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.
<PAGE>
We describe these items of business more fully in this joint proxy
statement/prospectus, which we urge you to read carefully.
With respect to proposal (1) above, OnlineTrading.com's shareholders
have dissenters' rights as described in this joint proxy statement/prospectus. A
copy of the Florida laws governing dissenters' 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 ___________, 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.
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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QUESTIONS AND ANSWERS ABOUT THE MERGER............................................................................1
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS...................................................................3
RISK FACTORS.....................................................................................................10
OMEGA RESEARCH
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA..............................................................21
ONLINETRADING.COM
SELECTED HISTORICAL FINANCIAL DATA...........................................................................22
SELECTED UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA................................................22
COMPARATIVE PER SHARE DATA.......................................................................................23
Omega Research Market Price Data.............................................................................25
Listing of Holding Company Common Stock......................................................................26
Omega Research/Holding Company Dividend Policy...............................................................26
OnlineTrading.com Market Price Data..........................................................................26
OnlineTrading.com Dividend Policy...........................................................................27
Recent Closing Prices........................................................................................27
THE SPECIAL MEETINGS.............................................................................................27
Joint Proxy Statement/Prospectus.............................................................................27
Date, Time and Place of Special Meetings.....................................................................28
Matters to be Considered at Each Special Meeting.............................................................28
Record Date and Shares Entitled to Vote......................................................................28
Voting of Proxies............................................................................................28
Vote Required................................................................................................29
Quorum; Abstentions and Broker Non-Votes.....................................................................29
Solicitation of Proxies and Expenses.........................................................................30
Dissenters' or Appraisal Rights..............................................................................30
THE PROPOSED MERGER..............................................................................................30
Background of the Merger.....................................................................................30
Omega Research's Reasons for the Merger......................................................................33
Recommendation of Omega Research's Board of Directors........................................................35
OnlineTrading.com's Reasons for the Merger...................................................................35
Recommendation of OnlineTrading.com's Board of Directors.....................................................36
Opinion of Financial Advisor to Omega Research...............................................................37
Opinion of Financial Advisor to OnlineTrading.com............................................................43
Interests of Certain Directors, Officers and Affiliates in the Merger........................................47
Regulatory Approvals.........................................................................................48
Regulatory Matters Following the Merger......................................................................48
Certain Federal Income Tax Considerations....................................................................49
Accounting Treatment.........................................................................................51
Dissenters' or Appraisal Rights..............................................................................51
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Listing of Holding Company Common Stock.....................................................................57
Operations Following the Merger..............................................................................57
THE MERGER AGREEMENT AND RELATED AGREEMENTS......................................................................58
The Merger...................................................................................................58
Effective Time...............................................................................................58
Directors and Officers After the Merger......................................................................58
Voting Trust Agreement.......................................................................................59
Conversion of Shares in the Merger...........................................................................61
Omega Research and OnlineTrading.com Stock Options, Warrants and Stock Plans.................................61
No Fractional Shares.........................................................................................62
The Exchange Agent...........................................................................................62
Exchange of Omega Research and OnlineTrading.com Stock Certificates
for Holding Company Stock Certificates..................................................................62
Distributions with Respect to Unexchanged Shares.............................................................63
Representations and Warranties...............................................................................63
Conduct of Business before Completion of the Merger..........................................................65
No Solicitation of Transactions..............................................................................67
Director and Officer Indemnification and Insurance...........................................................69
Conditions to the Merger.....................................................................................69
Termination of the Merger Agreement..........................................................................71
Payment of Fees and Expenses.................................................................................74
Extension, Waiver and Amendment of the Merger Agreement......................................................75
Shareholder Agreements.......................................................................................76
Employment Agreements........................................................................................76
Non-Competition and Non-Disclosure Agreements................................................................77
Stock Option Agreements......................................................................................77
Affiliate Agreements.........................................................................................77
AMENDMENT OF OMEGA RESEARCH INCENTIVE STOCK PLAN ................................................................78
PRO FORMA COMBINED FINANCIAL STATEMENTS..........................................................................78
BUSINESS AND FINANCIAL INFORMATION REGARDING OMEGA RESEARCH......................................................83
Overview and Recent Developments.............................................................................83
Industry Background .........................................................................................84
Products and Services........................................................................................85
Sales and Marketing..........................................................................................88
Strategic Relationships......................................................................................89
Product Development and Year 2000 Compliance.................................................................90
Customer Support and Training................................................................................91
Competition..................................................................................................92
Intellectual Property........................................................................................93
Employees....................................................................................................94
Properties ..................................................................................................94
Legal Proceedings............................................................................................94
Selected Consolidated Financial Data.........................................................................95
Management's Discussion and Analysis of Financial Condition and Results of Operations........................96
BUSINESS AND FINANCIAL INFORMATION REGARDING ONLINETRADING.COM..................................................104
Overview and Recent Developments............................................................................104
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Industry Trends.............................................................................................105
OnlineTrading.com's Business................................................................................105
OnlineTrading.com's Business Strategy......................................................................107
Strategic Relationships.....................................................................................107
Competition.................................................................................................108
Government Regulation.......................................................................................108
Net Capital Requirements; Liquidity.........................................................................109
Additional Regulation.......................................................................................110
Employees...................................................................................................110
Properties..................................................................................................110
Legal Proceedings...........................................................................................111
Management's Discussion of Financial Condition and Results of Operations....................................111
SELECTED INFORMATION WITH RESPECT TO OMEGA RESEARCH.............................................................114
Executive Officers and Directors............................................................................114
Independent Directors; Committees of the Board of Directors.................................................116
Section 16(a) Beneficial Ownership Reporting Compliance.....................................................116
Executive Compensation Tables...............................................................................117
Other Compensation Arrangements.............................................................................120
Non-Competition Agreements..................................................................................128
Compensation Committee Interlocks And Insider Participation.................................................128
Director Compensation.......................................................................................128
Certain Transactions........................................................................................129
Security Ownership of Certain Beneficial Owners and Management of Omega Research............................130
SELECTED INFORMATION WITH RESPECT TO ONLINETRADING.COM..........................................................131
Executive Officers and Directors............................................................................131
Section 16(a) Beneficial Ownership Reporting Compliance.....................................................132
Executive Compensation......................................................................................132
Employment Agreements.......................................................................................133
Stock Option Plan...........................................................................................134
Certain Transactions........................................................................................135
Security Ownership of Certain Beneficial Owners and Management of OnlineTrading.com.........................136
DESCRIPTION OF SECURITIES
OF HOLDING COMPANY..........................................................................................137
COMPARISON OF RIGHTS OF HOLDERS OF
ONLINETRADING.COM COMMON STOCK and
OMEGA RESEARCH and HOLDING COMPANY COMMON STOCK.............................................................139
Authorized Capital..........................................................................................139
Voting Power of Common Stock................................................................................140
Board of Directors..........................................................................................140
Removal of Directors........................................................................................140
Filling Vacancies on the Board of Directors.................................................................140
Actions by Written Consent..................................................................................141
Amendment of Articles of Incorporation......................................................................141
Amendment of Bylaws.........................................................................................142
Notice of Certain Shareholder Actions.......................................................................142
Special Meetings............................................................................................143
Dissenters' or Appraisal Rights.............................................................................143
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EXPERTS.........................................................................................................144
LEGAL MATTERS...................................................................................................144
WHERE YOU CAN FIND MORE INFORMATION.............................................................................144
SHAREHOLDER PROPOSALS...........................................................................................145
OTHER MATTERS...................................................................................................145
INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
APPENDICES
APPENDIX A Agreement and Plan of Merger and Reorganization, as amended
APPENDIX B Form of Omega Research Shareholder Agreement
APPENDIX C Form of OnlineTrading.com Shareholder Agreement
APPENDIX D Omega Research Stock Option Agreement
APPENDIX E OnlineTrading.com Stock Option Agreement
APPENDIX F Voting Trust Agreement
APPENDIX G Letter Agreement with Andrew A. Allen
APPENDIX H Opinion of FleetBoston Robertson Stephens Inc.
APPENDIX I Opinion of Raymond James & Associates, Inc.
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed and you are an Omega Research shareholder, you
will receive one share of common stock of Holding Company for each
outstanding share of Omega Research common stock that you own (a fixed 1 to
1 ratio). If you are an OnlineTrading.com shareholder, you will receive a
number of shares of common stock of Holding Company based upon an exchange
ratio formula. The exchange ratio (subject to the "floor" and "ceiling"
described below) for OnlineTrading.com common stock is (a) $11.0625 (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
(b) 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 trading 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 common stock
of Holding Company (which results in a 38% OnlineTrading.com shareholder/62%
Omega Research shareholder ownership of Holding Company on a fully diluted
basis) or higher than 1.7172 shares of common stock of Holding Company
(which results in an approximate 43% OnlineTrading.com shareholder/57% Omega
Research shareholder ownership of Holding Company on a fully diluted basis).
Holding Company will not issue fractional shares of common stock. You will
receive cash based on the market price of a share of Omega Research common
stock instead of a fractional share.
The number of shares of Holding Company common stock to be issued for each
share of OnlineTrading.com common stock is not fixed and, accordingly, may
be adjusted based upon changes in the value of Omega Research common stock.
As a result, the value of Holding Company common stock you receive in the
merger may not be determined at the time you vote on the merger and may go
up or down as the market price of Omega Research common stock goes up or
down prior to the merger. Neither party can terminate the merger agreement
based on changes in the value of Omega Research common stock prior to the
closing of the merger. 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, the exchange ratio for OnlineTrading.com common
stock would be _________.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We expect to complete the merger in June 2000. However, the merger is
subject to various closing conditions. As a result, it is possible that we
may not be able to complete the merger when expected. After July 31, 2000,
either Omega Research or OnlineTrading.com may terminate the merger
agreement.
Q: WHAT ARE THE CHANCES THAT THE SHAREHOLDERS OF EACH COMPANY WILL APPROVE THE
MERGER?
A: Shareholders owning three-quarters or more of the shares of each company who
are officers and directors (and in one case a former director) of the
companies have already contractually agreed to vote in favor of the merger.
As long as those shareholders vote as they have agreed, the merger will be
approved by the shareholders of both companies, regardless of how other
shareholders of either company vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If we complete the merger, Holding Company will send instructions to you
explaining how to exchange your shares of either Omega Research or
OnlineTrading.com common stock for the appropriate number of shares of
Holding Company common stock.
Q: HOW DO I VOTE?
A: Attend the special shareholders meeting or mail your signed proxy card in
the enclosed return envelope as soon as possible so that your shares may be
represented at the special shareholders meeting of Omega Research or
OnlineTrading.com. If your shares are held in "street name" by your broker,
your broker will vote your shares only
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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 agreement and the merger.
Q: HOW CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY?
A: 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
(Omega Research or OnlineTrading.com) in which you hold shares before the
shareholders meeting of such company, or by attending the shareholders
meeting and voting in person.
Q: WHO CAN I CALL WITH QUESTIONS?
A: If you have any questions about the merger and you are an Omega Research
shareholder, please call Omega Research Investor Relations at (305) 485-7000
or, if you are an OnlineTrading.com shareholder, please call
OnlineTrading.com Investor Relations at (561) 995-1010.
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SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
The following summary highlights selected information from this joint proxy
statement/prospectus and 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 merger agreement
and the merger. In particular, you should read the documents attached as
appendices to this joint proxy statement/prospectus, including the merger
agreement, the Omega Research stock option agreement, the OnlineTrading.com
stock option agreement, the form of shareholder agreement for each of Omega
Research and OnlineTrading.com shareholders, the voting trust agreement among
certain shareholders of Omega Research and OnlineTrading.com and the voting
trustee related to the voting of Holding Company 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.
THE COMPANIES
ONLINETRADING.COM GROUP, INC.
8700 West Flagler Street
Miami, Florida 33174
(305) 485-7000
OnlineTrading.com Group, Inc. is a holding company recently formed by Omega
Research under the laws of the State of Florida ("Holding Company"). Holding
Company is to be the publicly-traded company after the merger, its shares of
common stock to be listed on The Nasdaq National Market. Shares of Holding
Company common stock are to be exchanged for the shares of common stock owned by
the Omega Research and OnlineTrading.com shareholders pursuant to the terms of
the merger agreement. After the closing of the separate mergers involving
Holding Company's recently-formed, wholly-owned subsidiaries, the surviving
corporations in the merger (Omega Research and OnlineTrading.com) will be
wholly-owned subsidiaries of Holding Company. Holding Company will engage in
business only through its wholly-owned subsidiaries, each of which shall operate
a separate, independent business.
OMEGA RESEARCH, INC.
8700 West Flagler Street
Miami, Florida 33174
(305) 485-7000
Omega Research, a Florida corporation, was incorporated in 1982 to develop,
market and sell investment analysis and trading strategy testing and automation
(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
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completion of the merger, use the online brokerage services of OnlineTrading.com
or, at a minimum, Omega Research's trading strategy subscription services.
ONLINETRADING.COM CORP.
2700 North Military Trail
Suite 2000
Boca Raton, Florida 33431
(561) 945-1010
OnlineTrading.com provides financial brokerage services primarily to
experienced investors and small to mid-sized financial institutions through a
variety of communication mediums, including the Internet. 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 (like traditional market makers and other
broker-dealers) 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, it acquired the world-wide-web domain
name WWW.ONLINETRADING.COM and subsequently registered to do business under the
name OnlineTrading.com.
SUMMARY OF THE MERGER (SEE PAGE __)
On January 19, 2000, Omega Research and OnlineTrading.com entered into an
Agreement and Plan of Merger and Reorganization which contains the terms and
conditions of the proposed merger of the companies.
The parties to the merger agreement are Omega Research, OnlineTrading.com,
Holding Company, Omega Acquisition Corporation, a recently-formed Florida
corporation that is owned by Holding Company, and Onlinetrading Acquisition
Corporation, a recently-formed Florida corporation that is owned by Holding
Company. Under the merger agreement, Omega Acquisition Corporation will merge
with and into Omega Research and Onlinetrading Acquisition Corporation will
merge with and into OnlineTrading.com (collectively, the "merger"). Omega
Research and OnlineTrading.com, as surviving corporations of the merger, shall
then be wholly-owned subsidiaries of Holding Company. In connection with the
merger, shareholders of Omega Research and OnlineTrading.com will exchange their
respective shares of common stock in those companies for shares of common stock
of Holding Company pursuant to the formula later described. Holding Company is
to be the publicly-traded company, its shares of common stock to be listed on
The Nasdaq National Market.
THE MERGER CONSIDERATION WILL BE BASED ON A SEPARATE EXCHANGE RATIO FOR EACH
SHARE OF OMEGA RESEARCH COMMON STOCK AND ONLINETRADING.COM COMMON STOCK
(SEE PAGE ___).
The exchange ratio for Omega Research common stock is fixed at one share of
Holding Company common stock for each outstanding share of Omega Research common
stock (a fixed 1 to 1 ratio). The exchange ratio (subject to the "floor" and
"ceiling" described below) for OnlineTrading.com common stock is (a) $11.0625
(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
(b) the average of the last sale prices of share of Omega Research common stock
over the 10-day trading period that ends on the third trading 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
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(which results in a 38% OnlineTrading.com shareholder/62% Omega Research
shareholder ownership of Holding Company on a fully diluted basis) or higher
than 1.7172 (which results in an approximate 43% OnlineTrading.com
shareholder/57% Omega Research shareholder ownership of Holding Company on a
fully diluted basis). 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, the exchange ratio for OnlineTrading.com common stock
would be __________.
In addition, each outstanding option and warrant to purchase shares of Omega
Research and OnlineTrading.com common stock will be assumed by Holding Company
and converted into an option or warrant to purchase shares of Holding Company
common stock in a manner consistent with the exchange ratio formula, as later
described in this document.
APPROVAL REQUIRED BY MAJORITY OF THE OUTSTANDING SHARES OF EACH OF OMEGA
RESEARCH AND ONLINETRADING.COM COMMON STOCK (SEE PAGE ___)
The holders of a majority of the outstanding shares of each of Omega
Research and OnlineTrading.com common stock must approve the merger agreement
and the merger. You are entitled to cast one vote per share of the Omega
Research or OnlineTrading.com common stock you owned at the close of business on
the applicable record date. The record date for holders of Omega Research common
stock is _______________, and for OnlineTrading.com common stock is
______________, 2000. On Omega Research's record date, _____________ shares of
Omega Research's common stock were outstanding and entitled to vote, and on
OnlineTrading.com's record date, __________ shares of OnlineTrading.com common
stock were outstanding and entitled to vote.
Under shareholder agreements in the form attached as Appendix B, Omega
Research shareholders owning in the aggregate approximately 75% of Omega
Research's common stock outstanding as of the Omega Research record date
(comprised of affiliates of the Co-Chairmen and Co-Chief Executive Officers of
Omega Research) have agreed to vote all of their shares of Omega Research common
stock for approval and adoption of the merger agreement and the merger. Under
shareholder agreements in the form attached as Appendix C, OnlineTrading.com
shareholders owning in the aggregate approximately 77% of OnlineTrading.com's
common stock outstanding as of the OnlineTrading.com record date (comprised of
certain officers and directors of OnlineTrading.com and their respective
affiliates and a former director of OnlineTrading.com) have agreed to vote all
their shares of OnlineTrading.com common stock for approval and adoption of the
merger agreement and the merger. Accordingly, holders of a sufficient number of
shares of outstanding common stock of each of Omega Research and
OnlineTrading.com required to approve and adopt the merger agreement and merger
have already committed to vote in favor of this transaction.
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
Holding Company 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 Holding Company 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.
RESTRICTIONS ON THE ABILITY TO SELL HOLDING COMPANY STOCK (SEE PAGE ____ )
All shares of Holding Company 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 Holding Company common stock held by affiliates may be
sold only pursuant to a registration statement or exemption from registration
under the Securities Act of 1933.
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DISSENTERS' OR APPRAISAL RIGHTS (SEE PAGE ___ )
Under Florida law, if you are an Omega Research shareholder you are not
entitled to dissenters' or appraisal rights in the merger, but if you are an
OnlineTrading.com shareholder, you are entitled to dissenters' rights.
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 PAGE ___)
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 Holding Company 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, dated January 19, 2000,
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. 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 Holding Company 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,
dated January 19, 2000, 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.
INTERESTS OF EXECUTIVE OFFICERS, DIRECTORS AND AFFILIATES IN THE MERGER
(SEE PAGE ____)
Certain directors and officers of OnlineTrading.com have employment
agreements, and directors and officers of both companies have continuing
indemnification against liabilities that provide them with interests in the
merger that are in addition to those held by OnlineTrading.com and Omega
Research shareholders generally.
EACH OF US HAS AGREED TO PAY THE OTHER FEES AND EXPENSES IF THE MERGER AGREEMENT
IS TERMINATED (SEE PAGE ___ )
Each of us has agreed to pay the other a termination fee of $5 million or
reimburse the other for its out-of-pocket expenses incurred in connection with
the merger if the merger agreement is terminated under circumstances which are
described on pages ___ to ____ under the heading "Payment of Fees and Expenses."
EACH COMPANY REQUIRED THE OTHER TO ENTER INTO A STOCK OPTION AGREEMENT WHICH MAY
DISCOURAGE PARTIES WHO ARE INTERESTED IN ACQUIRING A STAKE IN EITHER COMPANY
(SEE PAGE ___).
In connection with the execution of 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 on a pro forma basis, or
approximately 16.66% assuming and after issuance of the shares subject to the
option. Neither option is currently
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exercisable, and may be exercised only if the merger agreement is terminated
under circumstances in which a termination fee is payable or upon the occurrence
of a takeover proposal or similar event involving a third party which obligates
payment of that termination fee. Otherwise, the option will terminate and may
not be exercised by either of us.
The stock options, the termination fees and the nonsolicitation provisions
of the merger agreement agreed to by us 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. You are urged to read the stock option agreements in their
entireties.
HOLDING COMPANY 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 Holding Company's financial statements for periods prior to the
effective time of the merger we will be treated as if we had previously been
combined for accounting and financial reporting purposes. It is a condition to
completion of the merger that Omega Research receives letters from Omega
Research's 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. The following
conditions, among others, must be satisfied or waived before the completion of
the merger:
/bullet/ the representations and warranties of the respective parties
to the merger agreement must remain true and correct except
where the failure of a representation or warranty 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 a
material adverse effect, in the case of OnlineTrading.com, on
Omega Research and Holding Company as a whole and, in the case
of Omega Research, on OnlineTrading.com as a whole;
/bullet/ each company must perform and comply in all material respects
with its respective covenants and obligations in the merger
agreement;
/bullet/ each company must each receive an opinion of its tax counsel
to the effect that the merger will qualify as a tax- free
reorganization;
/bullet/ Omega Research must receive letters from its and
OnlineTrading.com's independent auditors confirming that
pooling-of-interests accounting is appropriate with respect to
the merger;
/bullet/ no event, change, condition or effect that is or could
reasonably be expected to be materially adverse to either
Omega Research or OnlineTrading.com and its subsidiaries,
taken as a whole, shall have occurred; and
/bullet/ Holding Company common stock must have been listed for trading
on The Nasdaq National Market, subject to official notice of
issuance, and Holding Company must file an application with
The Nasdaq National Market for the listing of the shares of
Holding Company common stock to be issued in the merger.
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CERTAIN CIRCUMSTANCES UNDER WHICH THE MERGER MAY BE TERMINATED BEFORE COMPLETION
(SEE PAGE ____)
The merger agreement may be terminated under certain circumstances at any
time before the completion of the merger, as summarized below:
The merger agreement may be terminated by our mutual consent.
The merger agreement may be terminated by either company under any of the
following circumstances:
/bullet/ if the conditions to completion of the merger would not be
satisfied because of either (A) a breach of a covenant or
agreement in the merger agreement by the other party or (B) a
breach of a representation or warranty of the other party in
the merger agreement, either of which is not cured within
twenty business days of written notice of such breach;
/bullet/ if the merger is not completed, without the fault of the
terminating party, by July 31, 2000; or
/bullet/ any permanent injunction or other order preventing the merger
is issued and is final and not appealable.
In addition, the merger agreement may be terminated by Omega Research if any
of the following occurs:
/bullet/ OnlineTrading.com's board of directors withdraws or modifies
in a manner adverse to Omega Research its recommendation as to
the merger agreement, the merger or any transaction
contemplated under the merger agreement, or resolves to do so;
/bullet/ OnlineTrading.com fails to comply in any material respect with
the nonsolicitation provision or provisions related to the
holding of a special shareholders meeting of
OnlineTrading.com, which are discussed in more detail on page
____;
/bullet/ OnlineTrading.com fails to comply in any material respect with
the OnlineTrading.com stock option agreement;
/bullet/ OnlineTrading.com's board of directors recommends, endorses,
accepts or agrees to a takeover proposal (including a proposal
to acquire 10% or more of the outstanding capital stock, or a
significant portion of the assets, of OnlineTrading.com or any
of its subsidiaries) by a third party, or resolves to do so;
/bullet/ a third party acquires securities, or commences a tender or
exchange offer or other public initiative to acquire
securities, representing 10% or more of the voting power of
OnlineTrading.com a ("trigger event"), or a third party makes
a takeover proposal as described above, and in either event,
within five business days, OnlineTrading.com's board of
directors does not reconfirm its approval and recommendation
of the merger agreement and the merger and the other
transactions contemplated under the merger agreement and does
not reject such third party trigger event or takeover
proposal;
/bullet/ Omega Research receives a takeover proposal and Omega
Research's board of directors, in compliance with the
procedures set forth in the merger agreement determines in
good faith that the takeover proposal is a superior proposal
and it is required by its fiduciary duty to accept the
takeover proposal and so advises OnlineTrading.com in writing;
or
/bullet/ a trigger event occurs in connection with Omega Research and
Omega Research's board of directors determines in good faith,
within five business days of the occurrence of the trigger
event, that it is required by its fiduciary duty to withdraw
its recommendation of the merger agreement and the merger.
Furthermore, the merger agreement may be terminated by OnlineTrading.com if
any of the following occurs:
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/bullet/ Omega Research's board of directors withdraws or modifies in a
manner adverse to OnlineTrading.com its recommendation as to
the merger agreement, the merger or any transaction
contemplated under the merger agreement, or resolves to do so;
/bullet/ Omega Research fails to comply in any material respect with
the nonsolicitation or special shareholders meeting
provisions, which are discussed in more detail on page ____;
/bullet/ Omega Research fails to comply in any material respect with
the Omega Research stock option agreement; or
/bullet/ OnlineTrading.com receives a takeover proposal and
OnlineTrading.com's board of directors in compliance with the
procedures set forth in the merger agreement determines in
good faith that the takeover proposal is a superior proposal
and it is required by its fiduciary duty to accept the
takeover proposal and so advises OnlineTrading.com in writing.
WE MUST HAVE NASD APPROVAL TO COMPLETE THE MERGER (SEE PAGE ____)
As a broker-dealer registered with the Securities and Exchange Commission
("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.
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
OnlineTrading.com and Omega Research has generally agreed not to directly or
indirectly take any of the following actions:
/bullet/ solicit, initiate or encourage any takeover proposal,
including a proposal by a third party to acquire 10% or more
of its outstanding capital stock, or a significant portion of
its assets, or any of its subsidiaries; or
/bullet/ engage in negotiations with, or disclose any nonpublic
information relating to it or any of its subsidiaries to, or
afford access to the properties, books or records of it or any
of its subsidiaries to, any person that has advised it that
the person may be considering making, or that has made, such a
takeover proposal.
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, Holding Company 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" on page __.
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THIS DOCUMENT CONTAINS TRADEMARKS AND SERVICE MARKS
This document contains trademarks and service marks of Omega Research and
OnlineTrading.com and may contain trademarks and service marks of others.
RISK FACTORS
By voting in favor of the merger, you will be choosing to invest in Holding
Company common stock. An investment in Holding Company 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 Holding Company, Omega Research and/or
OnlineTrading.com may be seriously harmed. In such case, the trading price of
Holding Company common stock would decline, and you could lose all or part of
your investment.
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 and business, the expected financial
performance, business and prospects of Holding Company as a result of the
merger, and the parties' plans to execute the objectives of the merger. Words
such as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" "would," "should," "could," "will," "might," "may," "predicts" and
similar expressions indicate forward-looking statements. These forward-looking
statements are not guarantees of future events, performance or results and are
subject to risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking statements. In
evaluating the merger agreement and the merger, you should carefully consider
the discussion of risks and uncertainties described below and elsewhere in this
joint proxy statement/prospectus.
POTENTIAL IMPACT ON EXCHANGE RATIO RESULTING FROM CHANGES IN MARKET VALUE OF
OMEGA RESEARCH COMMON STOCK
If you are an Omega Research shareholder you will receive a fixed number of
shares (a fixed 1 to 1 ratio) of Holding Company common stock regardless of
changes in the market value of Omega Research common stock. If you are an
OnlineTrading.com shareholder, the number of shares you receive of Holding
Company 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
Holding Company shares you receive most likely will not fully reflect the change
in market value of Omega Research's common stock.
Upon completion of the merger, each share of OnlineTrading.com common stock
will be exchanged for a number of shares of Holding Company common stock
(subject to the "floor" and "ceiling" described below) equal to (a) $11.0625,
the average of the last sale prices of OnlineTrading.com common stock over the
ten-day trading period that ended on January 18, 2000, divided by (b) the
average of the last sale prices of Omega Research common stock over the ten-day
trading period that ends on the third trading day prior to closing of the
merger. Regardless of such quotient, in no event will the exchange ratio related
to OnlineTrading.com common stock be lower than a "floor" of 1.3817 (which
results in a 38% OnlineTrading.com shareholder/62% Omega Research shareholder
ownership of Holding Company stock on a fully diluted basis) or higher than a
"ceiling" of 1.7172 (which results in an approximate 43% OnlineTrading.com
shareholder/57% Omega Research shareholder ownership of Holding Company on a
fully diluted basis). Omega Research and OnlineTrading.com are not permitted to
terminate the merger agreement or "walk away" from the merger unless specified
conditions under the merger agreement are not fulfilled or the merger does not
occur on or prior to July 31, 2000. Neither company is permitted to resolicit
the vote of its shareholders solely because of changes in the market price of
Omega Research common stock. Accordingly, the specific dollar value of Holding
Company common stock to be received by OnlineTrading.com shareholders upon
completion of the merger will depend on the market value of Omega Research
common stock at the time of completion of the merger and may decrease from
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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. 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
Holding Company common stock after the completion of the merger. See "Potential
Fluctuations in Quarterly Operating Results" below.
ALTHOUGH OMEGA RESEARCH AND ONLINETRADING.COM EXPECT THAT THE MERGER WILL RESULT
IN BENEFITS, THOSE BENEFITS MAY NOT BE REALIZED
Omega Research and OnlineTrading.com entered into the merger agreement with
the expectation that the merger will result in significant benefits. Achieving
the benefits of the merger will depend upon many factors and events, some within
and some outside of the control of the combined company. See "Change in Business
Model," "Failure to Close Merger; Other Risks of Combination of the Two
Companies," "Liquidity Concerns," "Competition," "Risks Associated with Reliance
on the Internet," "Systems Failure," "Risks Associated with Fluctuations in the
Securities and Financial Markets," and "Dependence Upon Outside Data Services"
below.
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 Holding Company shares in the merger, Holding
Company's financial results, including earnings per share, could be materially
adversely affected. Specifically, the combined company expects to record a
one-time charge of approximately $4.1 million related to the merger during the
quarter in which the merger is completed.
THE MARKET PRICE OF HOLDING COMPANY COMMON STOCK MAY DECLINE AS A RESULT OF THE
MERGER
The market price of Holding Company common stock may decline as a result of
the merger if:
/bullet/ the combination of Omega Research and OnlineTrading.com is
unsuccessful;
/bullet/ we do not achieve the perceived benefits of the merger as
rapidly or to the extent anticipated by financial or industry
analysts; or
/bullet/ the effect of the merger on our financial results is not
consistent with the expectations of financial or industry
analysts.
FAILURE OF THE MERGER TO QUALIFY AS A POOLING-OF-INTERESTS WOULD NEGATIVELY
AFFECT COMBINED FINANCIAL RESULTS
The failure of the merger to qualify for pooling-of-interests accounting
treatment for financial reporting purposes would materially and adversely affect
Holding Company's reported earnings and, likely, the price of Holding Company'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:
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/bullet/ either of them may be required to pay the other a termination
fee of $5 million;
/bullet/ the stock option granted to each of them by the other may
become exercisable under certain circumstances;
/bullet/ 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
/bullet/ costs related to the merger, such as legal, accounting and
financial advisor fees, must be paid even if the merger is not
completed.
In addition, each company's customers, suppliers and potential strategic
partners may, in response to the announcement of the merger, delay or defer
decisions concerning that company. Any delay or deferral in those decisions by
such customers, suppliers or potential strategic partners could have a material
adverse effect on OnlineTrading.com's or Omega Research's (as applicable)
business, regardless of whether or not the merger is ultimately completed.
Similarly, current and prospective Omega Research and/or OnlineTrading.com
employees may experience uncertainty about their future roles after the merger
until Holding Company'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.
Further, 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 described on page ___ of this joint proxy statement/prospectus 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. See
"Failure to Close the Merger; Other Risks of Combination of the Two Companies"
below.
CHANGE OF BUSINESS MODEL
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
(i.e., Holding 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.
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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.
The decision to change the business model also means that we must develop
and depend upon a different operational infrastructure than the one which
supported a client software business, and substantially modify our approaches to
product development and sales and marketing. Our infrastructure must be changed
to support three separate kinds of businesses (development of trading strategy
tools, organization and delivery of streaming real-time data and news, and
online brokerage services) that 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 services (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 (monthly subscription
revenues). 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
(trading tools/real-time data/online brokerage services), 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 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.
Because the new business model is one with no historical record for either
company, and, to our knowledge, one with no historical record for any other
company, our attempts to anticipate revenues and costs, to prepare budgets which
organize the implementation of the transition to the new business model, and to
make decisions regarding obtaining third-party financing that may be required,
will generally be based upon theoretical assumptions. Future events and results
may differ drastically from those planned or anticipated, which, if negative,
would result in a material adverse effect on our business, financial condition,
results of operations and prospects. See "Liquidity Concerns" and "Potential
Fluctuations in Quarterly Operating Results" below.
The substantial risks 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 June (even though there is
risk that the merger will close later or not at all) and that the new business
model will be fully launched in a relatively short period of time after closing
of the merger. If that occurs, Omega Research will have changed its business
entirely in a period of approximately eight months. The rapid pace obviously
increases the likelihood of occurrence of the possible mistakes and failures
discussed above, and increases the risks of the likelihood of resulting material
adverse effects that will damage our business, financial condition, results of
operations and prospects.
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FAILURE TO CLOSE MERGER; OTHER RISKS OF COMBINATION OF THE TWO COMPANIES
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.
OnlineTrading.com believes that the merger is necessary to distinguish it, in
the long-term, from other online brokerages because after the merger
OnlineTrading.com will have the exclusive right to offer some of Omega
Research's real-time trading strategy tools as a unique trading platform to
brokerage clients. If the merger does not occur, OnlineTrading.com's choices
would be to develop internally a powerful trading strategy platform or seek to
license one from a third party. Developing internally trading strategy tools of
the quality and sophistication of Omega Research's is unlikely to occur in a
reasonable period of time, if ever, and licensing from third parties, even
assuming trading strategy tools of comparable quality exist and are available,
could be expensive, insecure by reason of possible termination of the license,
and would likely be nonexclusive, and, therefore, of less value. The merger
transaction agreements are subject to conditions precedent which, if not
fulfilled, would result in failure to complete the merger. Those conditions
precedent include, but are not limited to, another company making a superior
proposal to merge with either company which such company's board of directors
believes it is duty-bound to accept, satisfying all broker-dealer regulatory
requirements relating to the merger, approval by the shareholders of Omega
Research and of OnlineTrading.com of the merger, the effectiveness of the
registration statement of which this joint proxy statement/prospectus is a part,
and the listing of Holding Company shares on The Nasdaq National Market. Failure
of the merger to occur as and when planned, or at all, would likely have a
material adverse effect on the business, financial condition, results of
operations and prospects of both Omega Research and OnlineTrading.com.
Assuming the merger does occur, the success of the new business model will
be dependent, in part, upon the two companies being able to rapidly integrate
with one another from technological, operational and marketing aspects. The two
companies are currently working on the completion of OnlineTrading.com's
proprietary order routing and execution technology, the integration of that
technology with TRADESTATION.COM (which itself is currently under development)
in order to be able to access electronic order execution from the
TRADESTATION.COM platform, and the required operational, information technology
and marketing integrations. Given the rapid pace and the number of items
currently in development, there are substantial risks that the completion of
those tasks and expected integrations will not occur as or when planned, will
contain significant errors or problems, or will not be completed at a time
and/or in a manner that results in commercial viability. To the extent such
errors, problems or failures occur, they are likely to have a material adverse
effect on our business, financial condition, results of operations and
prospects.
LIQUIDITY CONCERNS
Omega Research is experiencing a period of net losses. As of April 10, 2000,
Omega Research had less than $4.3 million in cash, cash equivalents and
marketable securities to address current and anticipated losses and other cash
requirements of Omega Research as it transitions to its new business model. As
Omega Research implements the transition to the new business model and
thereafter, the combined company may use at a rapid pace all of its and
OnlineTrading.com's cash, cash equivalents and marketable securities (currently
approximating $15 million) and
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<PAGE>
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.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Quarterly revenues and operating results of the companies have fluctuated
significantly in the past and will likely fluctuate in the future. These
fluctuations may be expected to be even greater during 2000, and thereafter, due
to the unpredictability inherent in the change to the new business model the
merger will effectuate. Causes of such significant fluctuations may include, but
are not limited to:
/bullet/ the timing, completion (if any) and costs of: the merger;
Omega Research's development and launch of TRADESTATION.COM
and other trading strategy platforms; development and launch
of OnlineTrading.com's proprietary electronic order routing
and execution technology; the integration and launch of
TRADESTATION.COM as a platform for OnlineTrading.com's
electronic order routing and execution technology; and
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;
/bullet/ cash flow problems that may occur;
/bullet/ 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;
/bullet/ OnlineTrading.com's shift from high net-worth individual and
institutional clients to active traders;
/bullet/ Omega Research's actual returns and bad debt exceeding or
being smaller than its reserves (which are estimates) for
returns and bad debt;
/bullet/ costs and payment obligations associated with debt and/or
equity financings, if any;
/bullet/ the level of product/service and price competition;
/bullet/ continuous changes in sales incentive or marketing strategies
(which have undergone significant change recently and are
expected to continue to evolve);
/bullet/ changes in demand for our products and services;
/bullet/ costs that may occur with respect to regulatory compliance or
other regulatory issues;
/bullet/ changes in operating expenses;
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<PAGE>
/bullet/ adverse results in the Whigham lawsuit against
OnlineTrading.com or other lawsuits that may be filed in the
future;
/bullet/ attempts to enter additional related new markets or expand
into additional related businesses and the cost, timing and
success thereof;
/bullet/ the incurrence of significant costs in one quarter related to
revenues anticipated to be realized in a subsequent quarter;
and
/bullet/ general economic and market factors, including changes in the
securities and financial markets.
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.
The new business model embraces this evolution and consolidation. However, we
believe that due to the current and anticipated rapid growth of the market for
integrated trading tools, real-time market data and online brokerage services,
competition, as well as consolidation, will substantially increase and intensify
in the future. We believe our ability to compete will depend upon many factors
both within and outside our control. These include: the timing and market
acceptance of new products and services and enhancements developed by us and our
competitors; our ability to integrate the respective businesses in an orderly,
efficient and otherwise successful manner; the operation and support of
efficient, materially error-free Internet-based systems; product and service
functionality; data availability; ease of use; pricing; reliability; customer
service and support; and sales and marketing efforts.
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. 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. 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. Any such litigation could
result in substantial damages and significant costs in terms of the deployment
of financial and managerial resources. See "Systems Failure" and "Absence of
Errors & Omissions Insurance of the Type Carried by Brokerage Firms" below.
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ABSENCE OF ERRORS & OMISSIONS INSURANCE OF THE TYPE CARRIED BY BROKERAGE FIRMS
Since its formation, OnlineTrading.com has not carried any errors or
omissions insurance of the kind often carried by brokerage firms to cover
mistakes and negligent acts made by brokers or brokerage services relating to
the brokerage firm's clients. Although OnlineTrading.com is in the process of
obtaining such an insurance policy, there can be no assurance that such
insurance policy, if and when issued, will sufficiently cover any claims which
may be made by brokerage clients relating to events, acts or omissions which
occurred prior to, or which occur following, the issuance of such policy. Until
such policy is issued, OnlineTrading.com is fully exposed to liability and
settlement amounts that may arise from all claims made against it by brokerage
clients. Whether or not such policy is obtained, any liability that results from
the Whigham litigation shall not be covered. The Whigham litigation is discussed
in more detail under "Business and Financial Information Regarding
OnlineTrading.com -- Legal Proceedings" below.
RETURNS AND BAD DEBT
Historically, Omega Research's net revenues from licensing fees for sales of
client software have been determined by estimating reserves for returns and bad
debt quarterly based upon historical experience and other relevant factors.
There can be no assurance, in particular given the possible effects of Omega
Research's announcements of its change in business model, that actual returns
and bad debt will not exceed estimated reserves for returns and bad debt. See
"Potential Fluctuations in Quarterly Operating Results" above.
RISKS ASSOCIATED WITH RELIANCE ON 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 discussion
forums, electronic discussion groups, educational content, 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. In
addition to the risk that we may not adequately transition our business to the
Internet, 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. See "Systems
Failure" and "Internet Business Risks Relating to Customer Privacy and Security
and Increasing Regulation" below.
SYSTEMS FAILURE
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
17
<PAGE>
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 "Potential Liability to Customers" above.
RISKS ASSOCIATED WITH FLUCTUATIONS IN THE SECURITIES AND FINANCIAL MARKETS
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, 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 "Potential Liability to Customers" above.
OPERATION IN A HIGHLY-REGULATED INDUSTRY AND COMPLIANCE FAILURES
The securities industry is subject to extensive regulation covering all
aspects of the securities business. Regulatory authorities are currently
focusing intensely on the online trading industry, particularly the segment that
seeks the accounts of active traders by offering well-integrated, sophisticated
trading platforms and order execution. The various government authorities and
industry self-regulatory organizations that supervise and regulate and will
supervise and regulate OnlineTrading.com generally have broad enforcement powers
to censure, fine, issue cease-and-desist orders or suspend, enjoin or expel
OnlineTrading.com or any of its officers or employees who violate 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
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.
See "Systems Failures" and "Potential Liability to Customers" above.
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LOSS OF BEAR STEARNS RELATIONSHIP
OnlineTrading.com's primary clearing relationship is with Bear Stearns
Securities Corp., a premier, well-known clearing firm ("Bear Stearns"). The
clearing relationship may be terminated by either party on 60 days advance
written notice. If the clearing relationship terminates, OnlineTrading.com's
credibility and image as a brokerage firm would likely decrease in value unless
OnlineTrading.com was able to replace Bear Stearns with a comparable clearing
firm, as to which no assurance may be given. If OnlineTrading.com is unable to
engage the services of any clearing firm, it would need to provide its own
clearing to remain in business. If it was to provide its own clearing, it would
need first to obtain regulatory approval (which could be time-consuming), and
would subject itself to substantial additional infrastructure costs and
increased net capital reserve requirements and other complex and intense
regulatory requirements. See "Operation in a Highly-Regulated Industry" above,
and "Net Capital Requirements" below.
DEPENDENCE ON KEY EMPLOYEES
Our success depends to a very significant extent on the continued
availability and performance of a number of senior management, engineering and
sales and marketing personnel. The loss of one or more of these key employees,
including William R. Cruz or Ralph L. Cruz, Omega Research's Co-Chairmen and
Co-Chief Executive Officers, or certain key technology personnel of Omega
Research, or Farshid Tafazzoli, co-founder and Chief Information Officer of
OnlineTrading.com, E. Steven zum Tobel, President of OnlineTrading.com, or
certain key senior brokerage operations management personnel of
OnlineTrading.com, could have a material adverse effect on the combined company.
DEPENDENCE ON RELATIONSHIP WITH BRIDGE TELERATE
Omega Research is party to a Software License, Maintenance and Development
Agreement with Bridge Telerate relating to TRADESTATION. The agreement provides
a substantial, high-margin, minimum royalty stream in 2000 and 2001, the loss of
which would materially adversely affect our revenues and earnings (or size of
our losses) and could cause cash flow problems in those years. While the
agreement is non-cancelable, there can be no assurance that Omega Research's
anticipated royalties and other anticipated benefits from its relations with
Bridge Telerate will be realized. See "Liquidity Concerns" above.
NET CAPITAL REQUIREMENTS
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, Holding Company'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
Holding Company'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
"Liquidity Concerns" above.
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INTERNET BUSINESS RISKS RELATING TO CUSTOMER PRIVACY AND SECURITY AND INCREASING
REGULATION
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. See "Risks Associated with Reliance on
the Internet" and "Systems Failure" above.
RISK OF INTELLECTUAL PROPERTY LITIGATION
There has been substantial litigation in the software industry involving
intellectual property rights. Although we do not believe that we are or will be
infringing upon the intellectual property rights of others, there can be no
assurance that infringement claims, if asserted, would not have a material
adverse effect on our business, financial condition and results of operations,
or result in our being unable to use intellectual property which is integral to
one or more of our products or services. The risk of infringement claims is
heightened with respect to the new business model technology in development
because any new business model technology, as opposed to Omega Research's
historical client software technology, will not have stood any "test of time."
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 HOLDING COMPANY BY CRUZES
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 Holding Company common stock. Assuming the minimum and maximum exchange ratio
of 1.3817 and 1.7172 shares of Holding Company common stock for each share of
OnlineTrading.com common stock, the Cruzes will own between approximately 41.4%
and 45.3% of the outstanding shares of Holding Company 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 Holding Company. As a result,
the Cruzes will control Holding Company.
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OMEGA RESEARCH
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of Omega Research are
qualified by reference to and should be read in conjunction with "Omega
Research's Management's Discussion and Analysis of Financial Condition and
Results of Operations" in "Business and Financial Information Regarding Omega
Research" and Omega Research's Consolidated Financial Statements and Notes
thereto included elsewhere in this joint proxy statement/prospectus. The
consolidated statement of operations data presented below for 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 Consolidated Financial Statements included on pages F-1 through
F-22 in this joint proxy statement/prospectus, which have been audited by
Arthur Andersen LLP. The consolidated balance sheet data as of December 31, 1997
have been derived from audited financial statements not included in this joint
proxy statement/prospectus. The consolidated statement of operations data
presented below for the years ended December 31, 1996 and 1995 and the
consolidated balance sheet data as of December 31, 1996 and 1995 have been
derived from unaudited financial statements not included in this joint proxy
statement/prospectus. See also Note 12 of Notes to Omega Research's Consolidated
Financial Statements for quarterly financial information for fiscal years 1999
and 1998.
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands, except per share data) (1)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net revenues ..................... $ 42,870 $ 31,711 $ 32,950 $ 20,112 $ 10,999
Total operating expenses ............... 40,745 30,616 24,727 13,616 7,731
Income from operations ................. 2,125 1,095 8,223 6,496 3,268
Pro forma net (loss) income (2) ........ (967) (429) 4,665 3,690 1,980
Pro forma (loss) earnings per share: (2)
Basic ............................... $ (0.04) $ (0.02) $ 0.21 $ 0.18 $ 0.09
Diluted ............................. (0.04) (0.02) 0.21 0.17 0.09
Weighted average shares outstanding:
Basic ............................... 24,294 23,914 21,829 20,886 20,934
Diluted ............................. 24,294 23,914 22,620 22,033 22,018
CONSOLIDATED BALANCE SHEET DATA:
Total assets ........................... $ 31,380 $ 30,774 $ 29,153 $ 7,571 $ 3,747
Long term debt ......................... -- 2,641 2,365 2,167 --
Shareholders' equity ................... 25,475 24,495 24,017 4,304 3,200
</TABLE>
- ------------------
(1) Amounts have been restated to reflect the acquisition of Window On
WallStreet, which was accounted for under the pooling-of-interests method. See
Note 2 of Notes to Omega Research's Consolidated Financial Statements.
(2) Omega Research was treated as an S corporation for federal and state income
tax purposes prior to September 30, 1997. Pro forma income taxes have been
provided as if Omega Research had been a C corporation for all periods prior to
September 30, 1997. Upon terminating its S corporation election, Omega Research
was required to record a non- recurring credit. See Note 9 of Notes to Omega
Research's Consolidated Financial Statements.
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ONLINETRADING.COM
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data of OnlineTrading.com are qualified by
reference to and should be read in conjunction with OnlineTrading.com's
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in "Business and Financial Information Regarding OnlineTrading.com"
and OnlineTrading.com's Financial Statements and Notes thereto included
elsewhere in this joint proxy statement/prospectus. The statement of operations
data presented below for each of the years in the two-year period ended January
31, 2000 and the consolidated balance sheet data as of January 31, 2000 and 1999
have been derived from OnlineTrading.com's financial statements included on
pages F-23 through F-40 in this joint proxy statement/prospectus, which have
been audited by Arthur Andersen LLP as of and for the year ended January 31,
2000 and Ahearn, Jasco + Company, P.A. as of and for the year ended January 31,
1999. The statement of operations data for the year ended January 31, 1998 and
the balance sheet data as of January 31, 1998, have been derived from audited
financial statements not included in this joint proxy statement/prospectus.
AS OF AND FOR THE
YEAR ENDED JANUARY 31,
------------------------------
2000 1999 1998
------- ------- -------
(In thousands, except
per share data)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues ............................... $11,691 $ 5,992 $ 3,548
Total operating expenses ..................... 9,908 5,832 3,570
Income (loss) from operations ................ 1,783 160 (22)
Net income (loss) ............................ 1,081 108 (19)
Earnings (loss) per share(1):
Basic ..................................... $ 0.10 $ 0.01 $ (0.00)
Diluted ................................... 0.10 0.01 (0.00)
Weighted average shares outstanding(1):
Basic ..................................... 10,523 8,857 8,444
Diluted ................................... 10,630 8,857 8,444
CONSOLIDATED BALANCE SHEET DATA:
Total assets ................................. $19,361 $ 2,155 $ 1,342
Long term debt ............................... 72 525 500
Shareholders' equity ......................... 17,244 628 494
- ------------------
(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.
SELECTED UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
The selected unaudited pro forma combined consolidated financial data of
Holding Company give effect to the proposed mergers of separate wholly-owned
subsidiaries of Holding Company into and with Omega Research and
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OnlineTrading.com on a pooling-of-interests basis. Holding Company's unaudited
pro forma combined consolidated statements of operations data assume that the
merger of separate wholly-owned subsidiaries of Holding Company 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 years ended December 31, 1999, 1998 and 1997, with
OnlineTrading.com's consolidated statements of operations for the years ended
January 31, 2000, 1999 and 1998, respectively. Holding Company's unaudited pro
forma combined balance sheet data assume that the mergers of separate
wholly-owned subsidiaries of Holding Company into and with Omega Research and
OnlineTrading.com took place on December 31, 1999 and combine the Omega Research
consolidated balance sheet as of December 31, 1999 with the OnlineTrading.com
consolidated balance sheet as of January 31, 2000. Holding Company'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 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."
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
-------- -------- --------
(In thousands, except
per share data)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues ............................... $ 54,561 $ 37,703 $ 36,499
Total operating expenses ..................... 50,601 36,411 28,226
Income from operations ....................... 3,960 1,292 8,273
Net income (loss) ............................ 114 (321) 4,646
Earnings (loss) per share:
Basic ..................................... $ 0.00 $ (0.01) $ 0.13
Diluted ................................... 0.00 (0.01) 0.13
Weighted average shares outstanding:
Basic ..................................... 42,364 39,123 36,330
Diluted ................................... 44,594 39,123 37,121
CONSOLIDATED BALANCE SHEET DATA:
Total assets ................................. $ 50,741
Long term debt ............................... 72
Shareholders' equity ......................... 42,719
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 Holding
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Company common stock is issued for each share of Omega Research common stock and
1.7172 shares of Holding Company 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.
FISCAL YEAR ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
------ ------- ------
Unaudited Pro Forma Combined (1)(2):
Earnings (loss) per share--basic ................. $ 0.00 $ (0.01) $ 0.13
Earnings (loss) per share--diluted ............... 0.00 (0.01) 0.13
Book value per share(3) .......................... 0.97 0.64 0.63
Omega Research Historical:
Earnings (loss) per share--basic ................. (0.04) (0.02) 0.21
Earnings (loss) per share--diluted ............... (0.04) (0.02) 0.21
Book value per share(3) .......................... 1.04 1.01 1.00
FISCAL YEAR ENDED
JANUARY 31,
-----------------------
2000 1999 1998
------ ------ -------
OnlineTrading.com Historical(4):
Earnings (loss) per share-basic .................. $ 0.10 $ 0.01 $ (0.00)
Earnings (loss) per share--diluted ............... 0.10 0.01 (0.00)
Book value per share(3) .......................... 1.50 0.07 0.06
Unaudited Pro Forma OnlineTrading.com Per Share
Equivalents(5):
Earnings (loss) per share--basic ................. 0.00 (0.02) 0.22
Earnings (loss) per share--diluted ............... 0.00 (0.02) 0.22
Book value per share(3) .......................... 1.67 1.10 1.08
- -------------------
(1) The unaudited pro forma combined per share information combines financial
information of Omega Research for the fiscal years ended December 31, 1999, 1998
and 1997 with the financial information of OnlineTrading.com for 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.
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(2) Omega Research and OnlineTrading.com estimate that they will incur
merger-related expenses, consisting primarily of transaction costs for
investment banker fees, attorneys, accountants, financial printing and other
related charges of approximately $4.1 million. The unaudited pro forma combined
consolidated balance sheet data and the unaudited pro forma combined
consolidated statement of operations data do not give effect to such expenses.
(3) Historical book value per share is computed by dividing shareholders' equity
by the number of shares of common stock outstanding at the end of each period.
Unaudited pro forma combined book value per share is computed by dividing
unaudited pro forma combined shareholders' equity by the unaudited pro forma
combined number of shares of common stock outstanding at the end of the period.
(4) OnlineTrading.com's per share data reflect the 11.11111-for-10 stock split
which occurred on April 3, 1999.
(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 (1.7172 shares of Holding Company 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:
HIGH LOW
------- --------
CLOSING SALES PRICE
-------------------
1998:
First Quarter ............................. $ 5 3/8 $ 2 3/4
Second Quarter ............................ 6 3 5/8
Third Quarter ............................. 4 5/8 2 1/8
Fourth Quarter ............................ 3 1 3/16
1999:
First Quarter ............................. 14 5/16 2 15/16
Second Quarter ............................ 12 7/8 8
Third Quarter ............................. 12 7/16 3 7/8
Fourth Quarter ............................ 10 3 13/16
2000:
First Quarter ............................. 8 1/8 4 5/8
Second Quarter
(through ________, 2000) .............. _____ _____
As of April 10, 2000, there were approximately 52 holders of record of Omega
Research's common stock, and, based upon information previously provided to
Omega Research by depositories and brokers, Omega Research believes it has in
excess of 3,900 beneficial owners.
25
<PAGE>
LISTING OF HOLDING COMPANY COMMON STOCK
Upon the closing of the merger, Holding Company is to be the publicly-traded
company and its common stock is to be listed on The Nasdaq National Market under
the symbol "OTRD." A condition to the closing of the merger is the completion of
such listing, subject to official notice of issuance.
OMEGA RESEARCH/HOLDING COMPANY DIVIDEND POLICY
Prior to the merger, Omega Research, and after the merger, Holding Company,
expects operating losses for at least the next several quarters and intends to
retain any future earnings to finance its growth and development and therefore
does not anticipate paying any cash dividends in the foreseeable future. Payment
of any future dividends will depend upon the future earnings and capital
requirements of Holding Company (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 which was paid immediately prior to the consummation of
Omega Research's initial public offering) to the then current shareholders
(William R. Cruz and Ralph L. Cruz and their affiliates) 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 (the "Dividend")
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:
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<PAGE>
CLOSING SALES PRICE
-------------------
HIGH LOW
--------- ------
2000 fiscal year:
Second Quarter
(commencing June 11, 1999) 16 15/16 8
Third Quarter 14 1/2 7 7/16
Fourth Quarter 12 5/8 7 3/4
2001 fiscal year:
First Quarter
(through ________, 2000) _____ _____
As of March 27, 2000, there were approximately 79 holders of record of
OnlineTrading.com's common stock based on information provided by its transfer
agent. The number of shareholders does not reflect the actual number of
individual or institutional shareholders that hold OnlineTrading.com stock
because certain stock is held in the name of nominees. Based on the best
information made available by the transfer agent, there are in excess of 1,800
beneficial holders of OnlineTrading.com's common stock.
ONLINETRADING.COM DIVIDEND POLICY
OnlineTrading.com has not declared or paid cash dividends on its common
stock. OnlineTrading.com currently intends to retain future earnings, if any,
for use in its business and does not anticipate paying any cash dividends in the
foreseeable future. If the merger is not consummated, the payment of any future
dividends would be at the discretion of OnlineTrading.com's board of directors
and would depend upon a number of factors, including future earnings, the
success of its business activities, capital requirements, the general financial
condition and future prospects of its business, general business conditions and
such other factors as its board of directors may deem relevant.
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 Holding Company 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 Holding Company 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.
27
<PAGE>
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:
/bullet/ to approve and adopt the merger agreement and the merger; and
/bullet/ to transact such other business as may properly come before
the special meeting.
In addition, at the special meeting of Omega Research shareholders,
shareholders will be asked to consider and vote upon a proposal to increase the
number of shares of Omega Research common stock reserved for issuance under
Omega Research's Amended and Restated 1996 Incentive Stock Plan from 4,500,000
shares to 7,500,000 shares.
RECORD DATE AND SHARES ENTITLED TO VOTE
Omega Research's board of directors has fixed the close of business on
___________, 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 ___________, 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
_____________, 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 ___________,
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
28
<PAGE>
with the instructions indicated on the proxies or, if no direction is indicated,
to approve and adopt the merger agreement and the merger, and, in the case of
Omega Research, to approve and adopt the amendment to the Incentive Stock Plan.
Neither Omega Research's nor OnlineTrading.com's board of directors presently
intends to bring any other business before its company's special meeting and, so
far as is known to each board of directors, no other matters are to be brought
before its company's special meeting. As to any other business that may properly
come before the special meeting, however, it is intended that proxies, in the
form enclosed, will be voted in respect thereof in accordance with the judgment
of the persons voting such proxies.
You may revoke your proxy at any time prior to its use by delivering to the
Secretary of Omega Research, if you are an Omega Research shareholder, or to the
Secretary of OnlineTrading.com, if you are an OnlineTrading.com shareholder, a
signed notice of revocation or a later-dated, signed proxy, or by attending the
special meeting and voting in person. Attendance at the special meeting does not
in itself constitute the revocation of a proxy.
VOTE REQUIRED
Approval and adoption of the merger agreement and the merger by each of our
shareholders is required by the Florida Business Corporation Act and our
respective articles of incorporation. This approval, in each of our cases,
requires the affirmative vote of the holders of a majority of each of our shares
of common stock outstanding and entitled to vote at our respective special
meetings. In connection with the execution of the merger agreement (i) certain
affiliates of William R. Cruz and Ralph L. Cruz (the Co-Chairmen and Co-Chief
Executive Officers of Omega Research) owning in the aggregate 18,313,208 shares
of Omega Research common stock, representing as of the Omega Research record
date approximately 75% of the outstanding shares of Omega Research, have each
entered into shareholder agreements with OnlineTrading.com and Holding Company,
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, and
(ii) certain officers and directors of OnlineTrading.com (Andrew A. Allen,
Farshid Tafazzoli, E. Steven zum Tobel and Derek Hernquist and/or 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 Holding Company, 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.
29
<PAGE>
SOLICITATION OF PROXIES AND EXPENSES
We will each bear our own cost of solicitation of proxies plus any
reasonable out-of-pocket expenses. In addition to solicitation by mail, each of
our directors, officers and employees may solicit proxies from their company's
shareholders by telephone, facsimile or in person without additional
remuneration. Following the original mailing of the proxies and other
solicitation materials, each of us will request brokers, custodians, nominees
and other record holders to forward copies of the proxy and other solicitation
materials to persons for whom they hold shares of our companies' common stock
and to request authority for the exercise of proxies. In such cases, each of us,
upon the request of the record holders, will reimburse such holders their
reasonable expenses.
DISSENTERS' OR APPRAISAL RIGHTS
If you are an Omega Research shareholder, you are not entitled to exercise
dissenters' or appraisal rights as a result of the merger or to demand cash
payment for your shares under Florida law.
If you are an OnlineTrading.com shareholder, you are entitled to exercise
dissenters' rights as a result of the merger and to demand cash payments for
your shares under Florida law in the manner described on pages ___ through ___
of this joint proxy statement/prospectus.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS ARE OF GREAT IMPORTANCE
TO OUR SHAREHOLDERS. ACCORDINGLY, YOU ARE URGED TO READ AND CAREFULLY CONSIDER
THE INFORMATION PRESENTED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND TO
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
A transmittal form with instructions for the surrender of certificates for
Holding Company 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
Holding Company stock certificates, see the section titled "Exchange of Omega
Research or OnlineTrading.com Stock Certificates for Holding Company Stock
Certificates" on page __ of this joint proxy statement/prospectus.
THE PROPOSED MERGER
This section and the next section of the joint proxy statement/prospectus
describes material aspects of the proposed merger. While the companies believe
that the description covers the material terms of the merger and the related
transactions, this summary may not contain all of the information that is
important. We strongly advise that this entire document and the documents
attached as appendices to this document be carefully read for a more complete
understanding of the merger agreement and the merger.
The following discussion of the background of the merger, the parties'
reasons for the merger and the potential benefits that could result from the
merger contains forward-looking statements which involve risks and
uncertainties. Readers are cautioned not to place undue reliance on these
forward-looking statements. The actual results of Holding Company 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
30
<PAGE>
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 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
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transaction between them. However, the parties had not yet agreed upon one
material term of the valuation/exchange ratio formula, specifically, the method
of calculation of a valuation/exchange ratio "ceiling" and "floor."
On January 3, 2000, the two companies signed an agreement under which each
agreed not to solicit or initiate any discussions with any third party regarding
a sale or business combination for a specified period of time. The parties also
agreed to continue to negotiate the last material term of the proposed business
combination, begin due diligence investigations, and move forward in the
preparation and negotiation of a complete set of transaction documents with the
goal of executing definitive merger transaction agreements and announcing the
transaction on or before January 21, 2000.
On January 11, 2000, Raymond James met with representatives of Omega
Research, and Robertson Stephens met with representatives of OnlineTrading.com,
to conduct their respective due diligence discussions of the respective affairs
of the companies. Additionally, on January 11, 2000, in a meeting in Ft.
Lauderdale attended by Messrs. Allen, Tafazzoli and zum Tobel, and Roger
Shaffer, General Counsel of OnlineTrading.com, and Messrs. Cruzes and Sredni,
and Marc J. Stone, Vice President of Corporate Development and General Counsel
of Omega Research, and Gregg F. Stewart, Vice President of Finance and Chief
Financial Officer of Omega Research, the parties reached preliminary agreement
as to the "ceiling" and "floor" formula related to valuation and the exchange
ratio. Accordingly, this was the date on which the parties reached preliminary
agreement as to all material terms of the business combination.
On January 14, 2000, Omega Research's legal counsel delivered a draft merger
agreement and related definitive documentation to OnlineTrading.com and its
outside advisors. Draft merger agreements were also delivered to the board
members of both companies. By January 18, 2000, the parties had concluded
substantially all of their due diligence investigations and agreed upon
substantially all terms and conditions of the merger agreement and the 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 Holding Company 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
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legal or financial advisors. After several hours, the meeting concluded with
Omega Research's board of directors unanimously approving the terms of the
merger agreement and related documents and the merger and all related
transactions, and authorizing Omega Research's senior management to proceed with
execution of the merger agreement and related documents.
Following Omega Research's board of directors meeting, Omega Research and
OnlineTrading.com executed and delivered the merger agreement and the related
agreements, including the stock option agreements, and certain shareholders of
each company executed and delivered shareholder agreements agreeing to vote in
favor of the merger agreement and the merger. The merger agreement and proposed
merger was jointly announced by Omega Research and OnlineTrading.com on the
morning of January 20, 2000.
OMEGA RESEARCH'S REASONS FOR THE MERGER
The Omega Research board of directors has unanimously approved the merger
agreement and determined that the merger is advisable and fair to, and in the
best interests of, Omega Research and its shareholders, and unanimously
recommends that the holders of shares of Omega Research common stock vote FOR
the approval and adoption of the merger agreement and the merger.
The Omega Research board of directors' decision to approve the merger
agreement and the merger was based on, among others, the following positive
factors and potential benefits:
/bullet/ 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;
/bullet/ the opinion of Robertson Stephens that, as of January 19,
2000, the exchange ratio for shares of Holding Company 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;
/bullet/ the expectation that the merger will qualify as a tax-free
reorganization and will be accounted for as a
pooling-of-interests;
/bullet/ reports from management, legal, financial and accounting
advisors of the results of the due diligence investigations of
OnlineTrading.com;
/bullet/ 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
(the "Primary Potential Benefit");
/bullet/ OnlineTrading.com is expected to deliver the high-speed order
routing and execution services that are a critical component
of the Primary Potential Benefit;
/bullet/ 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;
/bullet/ 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;
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/bullet/ Omega Research's products and services, most notably, its
planned TRADESTATION.COM service, should, as a result of its
planned integration with OnlineTrading.com's electronic order
execution services, be more attractive to the active trader
market because the active trader will not be required to leave
TRADESTATION.COM to connect with an online broker to execute
the trade upon making the trading decision;
/bullet/ OnlineTrading.com's online brokerage services should become
more attractive to the active trader market because the
seamlessly-integrated TRADESTATION.COM platform is planned to
be offered with its brokerage services;
/bullet/ Omega Research has large customer and prospect bases from
client software sales or inquiries to which the integrated
OnlineTrading.com brokerage services may be offered by direct
marketing; and
/bullet/ OnlineTrading.com is expected to contribute a significant
amount of cash and cash equivalents (up to $15 million) to the
combined company to help finance execution of the Primary
Potential Benefit.
Omega Research's board of directors also considered a number of potentially
negative factors in its deliberations concerning the merger, including the
following:
/bullet/ the risk that the potential benefits of the merger may not be
fully or even partially realized;
/bullet/ 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;
/bullet/ 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;
/bullet/ the substantial product development and marketing and sales
changes that would need to be accomplished to execute the
objectives of the merger;
/bullet/ the risk that the companies may not successfully integrate
their businesses from technological, operational and marketing
aspects;
/bullet/ the combined company's ability to sustain operating losses
pending execution of the combined company's business
strategies; and
/bullet/ 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.
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RECOMMENDATION OF OMEGA RESEARCH'S BOARD OF DIRECTORS
FOR THE REASONS DISCUSSED ABOVE, THE OMEGA RESEARCH BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS
ADVISABLE AND FAIR TO, AND IN THE BEST INTERESTS OF, OMEGA RESEARCH AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT OMEGA RESEARCH SHAREHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
In considering the recommendation of the board of directors of each of Omega
Research and OnlineTrading.com with respect to the merger agreement and merger,
you should be aware that certain directors and officers of each company have
interests in the merger that are different from, or are in addition to, the
interests of the shareholders of their company generally. Please see the section
titled "Interests of Certain Omega Research and OnlineTrading.com Directors,
Officers and Affiliates in the Merger" on page __ of this joint proxy
statement/prospectus.
ONLINETRADING.COM'S REASONS FOR THE MERGER
The OnlineTrading.com board of directors has unanimously approved the merger
agreement and determined that the merger is advisable and fair to, and in the
best interests of, OnlineTrading.com and its shareholders, and unanimously
recommends that the holders of shares of OnlineTrading.com common stock vote FOR
the approval and adoption of the merger agreement and the merger.
The OnlineTrading.com board of directors' decision to approve the merger
agreement and the merger was based on the following positive factors and
potential benefits:
/bullet/ 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;
/bullet/ 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;
/bullet/ the expectation that the merger will qualify as a tax-free
reorganization and will be accounted for as a
pooling-of-interests;
/bullet/ reports from management, legal, financial and accounting
advisors of the due diligence investigations of Omega
Research;
/bullet/ 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
(the "Primary Potential Benefit");
/bullet/ Omega Research is expected to deliver the powerful trading
strategy tools and streaming real-time market data and news
services that are critical components of the Primary Potential
Benefit;
/bullet/ Omega Research has large customer and prospect bases from
client sofware sales or inquiries that may include many
potential OnlineTrading.com brokerage clients;
/bullet/ 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;
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<PAGE>
/bullet/ OnlineTrading.com's online brokerage services should be more
attractive to the active trader market because the
seamlessly-integrated TRADESTATION.COM platform is to be
offered with such brokerage services; and
/bullet/ given the rapid consolidation of the companies' services in
the industry, and given OnlineTrading.com's belief that
high-speed, order-routing online execution services will
become an industry standard over the next several years,
OnlineTrading.com's long-term prospects may be dependent upon
the addition to its product and service offerings of the added
value of a powerful trading strategy platform.
The OnlineTrading.com board of directors also identified and considered a
number of potentially negative factors in its deliberations concerning the
merger, including, but not limited to:
/bullet/ the risk that the potential benefits of the merger may not be
fully or even partially realized;
/bullet/ the risks involved in the change of control of
OnlineTrading.com's executive management as a result of Omega
Research's management control of Holding Company;
/bullet/ 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;
/bullet/ 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;
/bullet/ the risk that the companies may not successfully integrate
their businesses from technological, operational and marketing
aspects; and
/bullet/ 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
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<PAGE>
company have interests in the merger that are different from, or are in addition
to, the interests of the shareholders of their respective company generally.
Please see the section titled "Interests of Certain Omega Research and
OnlineTrading.com Directors, Officers and Affiliates in the Merger" on page __
of this joint proxy statement/prospectus.
OPINION OF FINANCIAL ADVISOR TO OMEGA RESEARCH
Pursuant to an engagement letter dated December 28, 1999, Omega Research
engaged FleetBoston Robertson Stephens Inc. ("Robertson Stephens") to render an
opinion as to the fairness of the exchange ratio for shares of Holding Company
common stock to be received for each share of common stock of OnlineTrading.com
(the OnlineTrading.com exchange ratio), from a financial point of view, to Omega
Research.
On January 19, 2000 at the meeting of the Omega Research board held to
evaluate the proposed merger, Robertson Stephens delivered to the Omega Research
board its written opinion that, as of January 19, 2000 and based on the
assumptions made, the matters considered and the limitations on the review
undertaken described in the opinion, the OnlineTrading.com exchange ratio was
fair from a financial point of view to Omega Research. No limitations were
imposed by the Omega Research board on Robertson Stephens with respect to the
investigations made or procedures followed by it in furnishing its opinion. The
exchange ratio was determined through negotiations between the respective
managements of Omega Research and OnlineTrading.com. Although Robertson Stephens
did assist the management of Omega Research in those negotiations, it was not
asked by, and 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.
The Robertson Stephens opinion does not address:
/bullet/ the relative merits of the merger and the other business
strategies that the Omega Research board has considered or may
be considering; or
/bullet/ 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:
/bullet/ reviewed certain publicly available financial statements and
other business and financial information of OnlineTrading.com
and Omega Research, respectively;
/bullet/ reviewed certain internal financial statements and other
financial and operating data, including certain 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;
/bullet/ 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
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<PAGE>
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;
/bullet/ reviewed the financial terms and conditions set forth in the
merger agreement;
/bullet/ reviewed the stock price and trading history of
OnlineTrading.com common stock and Omega Research common
stock;
/bullet/ compared the financial performance of OnlineTrading.com and
the prices and trading activity of OnlineTrading.com common
stock with that of certain other publicly-traded companies
comparable with OnlineTrading.com;
/bullet/ compared the financial terms of the merger with the financial
terms, to the extent publicly available, of other transactions
it deemed relevant;
/bullet/ reviewed the pro forma impact of the merger on the combined
company's revenues and earnings per share;
/bullet/ prepared a discounted cash flow analysis of OnlineTrading.com;
/bullet/ participated in discussions and negotiations among
representatives of OnlineTrading.com and Omega Research and
their financial and legal advisors; and
/bullet/ made such other studies and inquiries, and reviewed such other
data, as it deemed relevant.
In its review and analysis, and in arriving at its opinion, Robertson
Stephens assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it (including information furnished
to it orally or otherwise discussed with it by the management 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:
/bullet/ had been reasonably prepared in good faith on the basis of
reasonable assumptions;
/bullet/ reflected the best available estimates and judgments as to the
future financial condition and performance of
OnlineTrading.com and Omega Research, respectively; and
/bullet/ will be realized in the amounts and in the time periods
estimated.
In this regard, Robertson Stephens noted that each of OnlineTrading.com and
Omega Research face exposure to the Year 2000 problem. 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.
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In addition, Robertson Stephens assumed that:
/bullet/ the merger will be consummated upon the terms set forth in the
merger agreement without material alteration thereof,
including, among other things, that the merger will be
accounted for as a "pooling-of- interests" business
combination in accordance with U.S. generally accepted
accounting principles ("U.S. GAAP");
/bullet/ the merger will be treated as a tax-free reorganization
pursuant to the Internal Revenue Code of 1986, as amended; and
/bullet/ the historical financial statements of each of
OnlineTrading.com and Omega Research reviewed by it had been
prepared and fairly presented in accordance with U.S. GAAP
consistently applied.
Robertson Stephens relied as to all legal matters relevant to rendering its
opinion on the advice of counsel.
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. 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:
/bullet/ the value of any employee agreement or other arrangement
entered into in connection with the merger;
/bullet/ any tax or other consequences that might result from the
merger; or
/bullet/ what the value of Holding Company 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 Holding Company 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 AND NO PARTICULAR PORTION OF THE ANALYSES HAS ANY MERIT
STANDING ALONE.
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 certain ratios of the closing prices of
Omega Research common stock compared to OnlineTrading.com common stock for the
period ending January 18, 2000:
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<PAGE>
RATIO OF CLOSING PRICES
OF OMEGA RESEARCH COMMON STOCK
COMPARED
PERIOD ENDING JANUARY 18, 2000 TO ONLINETRADING.COM COMMON STOCK
------------------------------ ---------------------------------
SPOT HIGH LOW
------ ------ ------
10 trading days average 1.717x 2.194x 1.033x
20 trading days average 1.795x 2.159x 1.276x
30 trading days average 1.739x 2.061x 1.282x
60 trading days average 1.590x 1.919x 1.484x
COMPARABLE COMPANIES ANALYSIS. Using publicly-available information,
Robertson Stephens analyzed, among other things, the total capitalization and
trading multiples of OnlineTrading.com and selected publicly-traded companies
that have similar business and operating profiles, including:
/bullet/ Ameritrade
/bullet/ Charles Schwab
/bullet/ DLJdirect
/bullet/ E*Trade Group
/bullet/ JB Oxford Holdings, Inc.
/bullet/ National Discount Brokers
/bullet/ Siebert Financial Corp.
/bullet/ TD Waterhouse Group Inc.
Multiples compared by Robertson Stephens included total capitalization
to revenues or estimated revenues for calendar years 1999 and 2000 and total
capitalization to net income or estimated net income for calendar years 1999 and
2000. All multiples were based on closing stock prices as of January 18, 2000.
Using the ranges of multiples set forth in the table below that
Robertson Stephens derived from multiples for the comparable companies, the
following OnlineTrading.com equity values, OnlineTrading.com equity values per
share and OnlineTrading.com exchange ratios are implied:
<TABLE>
<CAPTION>
MULTIPLE EQUITY VALUE PER
RANGE EQUITY VALUE SHARE EXCHANGE RATIO
------------- ------------------- -------------- --------------
<S> <C> <C> <C> <C>
1999 Revenues 6.0x - 11.0x $88 - $147 million $7.50 - $12.52 1.398 - 1.899
2000 Revenues 5.0x - 7.5x $108 - $153 million $9.21 - $13.08 1.397 - 1.984
1999 Net Income 50.0x - 60.0x $70 - $84 million $5.96 - $7.15 0.904 - 1.084
2000 Net Income 40.0x - 50.0x $71 - $89 million $6.10 - $7.62 0.925 - 1.156
</TABLE>
Robertson Stephens also applied a typical control premium of
25.0% - 40.0% to the results of the foregoing analysis, which implied the
following OnlineTrading.com equity values, equity values per share and
OnlineTrading.com exchange ratios:
40
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<TABLE>
<CAPTION>
EQUITY VALUE PER
CONTROL PREMIUM EQUITY VALUE SHARE EXCHANGE RATIO
--------------- ------------ ----- --------------
<S> <C> <C> <C> <C>
1999 Revenues 25.0% - 40.0% $110 - $206 million $9.52 - $17.53 1.422 - 2.659
2000 Revenues 25.0% - 40.0% $135 - $215 million $11.52 - $18.32 1.747 - 2.778
1999 Net Income 25.0% - 40.0% $87 - $117 million $7.45 - $10.01 1.130 - 1.518
2000 Net Income 25.0% - 40.0% $89 - $125 million $7.62 - $10.67 1.156 - 1.618
</TABLE>
PRECEDENT TRANSACTION ANALYSIS: Using publicly-available information, Robertson
Stephens analyzed the consideration offered and the implied transaction value
multiples paid or proposed to be paid in selected acquisition transactions in
the financial services industry, including:
/bullet/ Arbitrade Holdings LLC/Knight Trimark Group (November 18,
1999)
/bullet/ R.J. Forbes Group/Ameritrade (August 9, 1999)
/bullet/ Newport Discount Brokerage/onlinetradinginc.com (July 26,
1999)
/bullet/ Archipelago LLC/J.P. Morgan (June 10, 1999)
/bullet/ Island ECN/Paul Allen (June 10, 1999)
/bullet/ Equitrade Partners LLC (NDB)/Spear, Leeds & Kellogg LP (May
10, 1999)
/bullet/ E*Trade Group Inc./Softbank Corp. (July 10, 1998)
/bullet/ Quick & Reilly Group Inc./Fleet Financial Group Inc. (Sept.
17, 1997)
/bullet/ Dresdner-NY Inc./National Discount Brokers (May 2, 1997)
/bullet/ Citicorp Dealing Resources/Electronic Broker Service (July 8,
1996)
/bullet/ 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 ("LTM") revenues, next twelve months
estimated net income and book value. All multiples for the precedent
transactions were based on public information available at the time of the
announcement. Based on this information and other publicly-available
information, the following table illustrates the implied OnlineTrading.com
equity valuations, OnlineTrading.com equity valuations per share and exchange
ratios derived from applying a range of multiples that Robertson Stephens
derived from the precedent transactions:
<TABLE>
<CAPTION>
EQUITY VALUE
MULTIPLE RANGE EQUITY VALUATION PER SHARE EXCHANGE RATIO
-------------- ---------------- --------- --------------
<S> <C> <C> <C> <C>
1999 Revenues 3.0x - 6.0x $53 - $88 million $4.49 - $7.50 0.681 - 1.138
1999 Net Income 20.0x - 40.0x $28 - $56 million $2.38 - $4.77 0.361 - 0.723
Book Value 3.0x - 11.0x $51 - $188 million $4.37 - $16.03 0.663 - 2.431
</TABLE>
No company, business or transaction compared in the comparable companies
analysis or precedent transaction analysis is identical to OnlineTrading.com.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
could affect the acquisition, public trading and other values of the comparable
companies, precedent transactions or the business segment, company or
transactions to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. Robertson Stephens performed a discounted
cash flow analysis of the after-tax free cash flows of OnlineTrading.com for
fiscal years 2000 through 2005 using OnlineTrading.com forecasts. Robertson
Stephens first discounted the projected, after-tax free cash flows through
January 31, 2005 using discount rates ranging from 16.0% to 18.0%.
OnlineTrading.com after-tax free cash flows were calculated as the after-tax
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operating earnings of OnlineTrading.com adjusted to add back non-cash expenses
and deduct uses of cash not reflected in the income statement. Robertson
Stephens then added to the present value of the cash flows the terminal value of
OnlineTrading.com at January 31, 2005, discounted back at the same discount rate
to represent a present value. The terminal value was computed by multiplying the
projected revenues for OnlineTrading.com for fiscal year 2005 by terminal
multiples ranging from 3.5x to 4.5x. The range of terminal multiples selected
reflect Robertson Stephens' judgment as to an appropriate range of multiples at
the end of the reference period. The following table summarizes the resulting
implied range of OnlineTrading.com equity valuations, OnlineTrading.com equity
values per share and OnlineTrading.com exchange ratios:
EQUITY VALUE EXCHANGE
EQUITY VALUE PER SHARE RATIO
$121 - $158 million $10.35 - $13.49 1.570 - 2.045
PRO FORMA ANALYSES. Robertson Stephens analyzed certain pro forma effects
resulting from the merger, including, among other things, the impact of the
merger on the projected revenues per share and earnings per share of the
combined company for fiscal years 2000 and 2001. The following table summarizes
the results of such analysis:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year 2000 estimated revenue per share accretion/(dilution) (17.5)% - (24.4)%
Fiscal Year 2001 estimated revenue per share accretion/(dilution) (23.7)% - (30.0)%
Fiscal Year 2000 estimated earnings per share accretion/(dilution) 63.2% - 66.3%
Fiscal Year 2001 estimated earnings per share accretion/(dilution) (19.5)% - (26.1)%
</TABLE>
The actual results achieved by the combined company may vary from projected
results and the variations may be material.
OTHER FACTORS AND COMPARATIVE ANALYSES. In rendering its opinion, Robertson
Stephens considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of:
/bullet/ 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
/bullet/ selected published analysts' reports on Omega Research,
including analysts' estimates as to the earnings growth
potential of Omega Research.
While the foregoing summary describes certain analyses and factors that
Robertson Stephens deemed material in its presentation to the Omega Research
board, it is not a comprehensive description of all analyses and factors
considered by Robertson Stephens. The preparation of a fairness opinion is a
complex process that involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of those methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Robertson Stephens believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, would create an incomplete view of the evaluation process
underlying the Robertson Stephens opinion. Several analytical methodologies were
employed and no one method of analysis should be regarded as critical to the
overall conclusion reached by Robertson Stephens. Each analytical technique has
inherent strengths and weaknesses, and the nature of the available information
may further affect the value of particular techniques. The conclusions reached
by Robertson Stephens are based on all analyses and factors taken as a whole and
also on application of Robertson Stephens' own experience and judgment. Such
conclusions may involve significant elements of subjective judgment and
qualitative analysis. Robertson Stephens therefore gives no opinion as to the
value or merit standing alone of any one or more parts of the
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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 a fee for its services, a
substantial portion of which is contingent upon the consummation of the merger.
Omega Research has also agreed to reimburse Robertson Stephens for certain of
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 certain 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 maintains a market in the shares of Omega Research common stock. In the
ordinary course of its business, Robertson Stephens may trade in Omega
Research's securities and OnlineTrading.com's securities for its own account and
the account of its customers and, accordingly, may at any time hold a long or
short position in Omega Research's securities or OnlineTrading.com's securities.
Robertson Stephens was retained based on Robertson Stephens' experience as a
financial advisor in connection with mergers and acquisitions and in securities
valuations generally, as well as Robertson Stephens' investment banking
relationship and familiarity with Omega Research.
Robertson Stephens is an internationally recognized investment banking firm.
As part of its investment banking business, Robertson Stephens is frequently
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes.
OPINION OF FINANCIAL ADVISOR TO ONLINETRADING.COM
OnlineTrading.com retained Raymond James & Associates, Inc. ("Raymond
James") in connection with its consideration of the merger because of Raymond
James' qualifications, expertise and reputation.
OPINION OF RAYMOND JAMES. At the January 19, 2000 meeting of the
OnlineTrading.com board, Raymond James gave its oral and written opinion that,
as of such date and based upon and subject to various qualifications and
assumptions described with respect to its opinion, the exchange ratio was fair,
from a financial point of view, to the holders of OnlineTrading.com common stock
as of that date.
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 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
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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 certain non-public information prepared by the
management of OnlineTrading.com, including financial statements, financial
projections, 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 certain
non-public information prepared by the management of Omega Research, including
financial statements, financial projections, and other financial and operating
data concerning Omega Research; reviewed certain pro forma financial information
and cost savings and operating synergies projections prepared by management of
Omega Research and OnlineTrading.com; discussed the past and current operations
and financial condition and the prospects of Omega Research and
OnlineTrading.com with senior executives of Omega Research and
OnlineTrading.com, respectively; reviewed publicly-available financial and stock
market data with respect to certain 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 certain other transactions which Raymond James believes to be generally
comparable to the merger; reviewed a draft of the merger agreement; and
conducted other financial analyses, studies, and investigations, and considered
other information as Raymond James deemed necessary or appropriate.
PRESENTATION BY RAYMOND JAMES. The following summarizes the material
financial analyses presented by Raymond James to the OnlineTrading.com board of
directors at its meeting on January 19, 2000, which were considered by Raymond
James in rendering the opinion described below. The summary set forth below does
not purport to be a complete description of either the analyses underlying
Raymond James' opinion or the presentation made by Raymond James to the
OnlineTrading.com board, but it does summarize all of the material analyses
performed and presented by Raymond James.
Raymond James calculated and compared financial multiples, ratios, and
public market multiples for OnlineTrading.com and Omega Research based on the
closing price per share in their respective principal trading markets of $11.75
and $6.59, respectively, and for each of the selected companies based on the
most recent publicly available information as of January 18, 2000.
COMPARABLE COMPANIES ANALYSIS. Raymond James presented to the
OnlineTrading.com board a summary financial analysis of eight public online
brokerage companies, including Ameritrade Holding Corporation, E*Trade Group,
Inc., Charles Schwab Corp., Siebert Financial Corporation, TD Waterhouse Group,
Web Street, Inc., DLJ Direct, and A.B. Watley Group. The financial statistics
were calculated for the comparable companies by reviewing publicly-reported
financial information. Projected financial statistics for comparable companies
were derived from the projections of various research analysts in publicly-filed
research reports. Raymond James calculated the following financial ratio ranges
for the selected online brokerage companies:
/bullet/ Enterprise value to trailing twelve-month net revenue range of
3.9 to 13.3. This compares to a ratio of 11.1 for the implied
value of OnlineTrading.com in the merger.
/bullet/ Equity value to trailing twelve-month earnings before
advertising and taxes ("EBAT") range of 22.2 to 497.9. This
compares to a ratio of 65.4 for the implied value of
OnlineTrading.com in the merger.
/bullet/ Equity value to common book value range of 3.1 to 16.7. This
compares to a ratio of 7.6 for the implied value of
OnlineTrading.com in the merger.
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/bullet/ Equity value to calendar year 1999 net revenue range of 6.1 to
10.1. This compares to a ratio of 10.7 for the implied
value of OnlineTrading.com in the merger.
/bullet/ Equity value to calendar year 2000 projected net revenue range
of 4.5 to 7.7. This compares to a ratio of 6.5 for the implied
value of OnlineTrading.com in the merger.
/bullet/ Equity value to trailing twelve-month earnings per share range
of 39.8 to 308.9. This compares to a ratio of 83.3 for the
implied value of OnlineTrading.com in the merger.
/bullet/ Equity value to calendar year 1999 earnings per share range of
52.7 to 450.0. This compares to a ratio of 79.5 for the
implied value of OnlineTrading.com in the merger.
/bullet/ Equity value to calendar year 2000 projected earnings per
share range of 36.8 to 270.0. This compares to a ratio of 55.6
for the implied value of OnlineTrading.com in the merger.
/bullet/ Equity value to trades per day range of 33,125 to 290,609.
This compares to a ratio of 148,371 for the implied value of
OnlineTrading.com in the merger.
/bullet/ Equity value to accounts range of 3,372 to 24,645. This
compares to a ratio of 14,151 for the implied value of
OnlineTrading.com in the merger.
/bullet/ Equity value to assets under management range of 0.10 to 0.47.
This compares to a ratio of 0.17 for the implied value of
OnlineTrading.com in the merger.
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:
Wells Fargo & Co. combining with Ragen MacKenzie Group, Inc.; H&R Block, Inc.
combining with Olde Financial Corp.; Wachovia Corp. combining with
Interstate/Johnson Lane Inc.; BB&T Corp. combining with Scott & Stringfellow
Financial; BankAtlantic Bancorp combining with Ryan Beck & Co., and 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 ("EBITDA"); 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:
/bullet/ Target company enterprise value to target company revenue
range of 1.0 to 3.3. This compares to a ratio of 10.9 for the
implied value of OnlineTrading.com in the merger.
/bullet/ Target company enterprise value to target company EBITDA range
of 1.7 to 9.5. This compares to a ratio of 54.9 for the
implied value of OnlineTrading.com in the merger.
/bullet/ Target company enterprise value to target company operating
income range of 1.7 to 11.0. This compares to a ratio of 55.7
for the implied value of OnlineTrading.com in the merger.
/bullet/ Target company equity value to target company pretax income
range of 5.9 to 14.0. This compares to a ratio of 64.6 for the
implied value of OnlineTrading.com in the merger.
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/bullet/ Target company equity value to target company net income range
of 9.2 to 22.0. This compares to a ratio of 103.0 for the
implied value of OnlineTrading.com in the merger.
/bullet/ Target company equity value to target company book value range
of 2.0 to 5.9. This compares to a ratio of 7.5 for the implied
value of OnlineTrading.com in the merger.
/bullet/ Target company equity value to target company common equity
range of 2.0 to 6.3. This compares to a ratio of 7.5 for the
implied value of OnlineTrading.com in the merger.
ONLINETRADING.COM DISCOUNTED CASH FLOW ANALYSIS. Raymond James presented to
the OnlineTrading.com board the results of a discounted cash flow analysis for
fiscal years 2000 to 2002 to estimate the present value of the stand- alone
unleveraged free cash flows that OnlineTrading.com is expected to generate if
OnlineTrading.com performs in accordance with certain internal management
forecasts. For purposes of this analysis, unleveraged free cash flows were
defined as unleveraged net income plus depreciation plus amortization less
capital expenditures less investment in working capital. Raymond James performed
its analyses 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 from approximately $70.2 million to
$141.3 million. This range of equity values compares to the implied equity value
for OnlineTrading.com of $130.6 million under the merger.
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
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board in connection with the merger and will receive a fee upon the consummation
thereof, which fee is contingent upon the completion of the merger. In the
ordinary course of business, Raymond James may trade in the securities of Omega
Research and OnlineTrading.com for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
OnlineTrading.com and Raymond James have entered into a letter agreement,
dated December 16, 1999, relating to the services to be provided by Raymond
James in connection with the merger. Under this letter agreement, Raymond James
will receive a transaction fee, a substantial portion of which is contingent
upon the consummation of the merger. OnlineTrading.com has also agreed to
reimburse Raymond James for certain of its out-of-pocket expenses, including
legal fees, and to indemnify and hold harmless Raymond James and each of its
directors, officers, agents, employees and controlling persons for any and all
losses, suits, actions, judgments, penalties, fines, costs, damages, liabilities
or claims of any kind or nature relating to or arising out of services provided
by Raymond James as financial advisor to OnlineTrading.com. The terms of the fee
arrangement with Raymond James, which OnlineTrading.com and Raymond James
believe are customary in transactions of this nature, were negotiated at arm's
length between OnlineTrading.com and Raymond James, and the OnlineTrading.com
board was aware of such fee arrangements, including the fact that a significant
portion of the fees payable to Raymond James is contingent upon the completion
of the merger.
The financial projections and estimates of cost savings and operating
synergies of management constitute forward- looking statements and are subject
to risks and uncertainties. They were based on assumptions concerning various
factors, including economic conditions, technological developments and
anticipated changes in business conditions, all of which are difficult or
impossible to predict and many of which are beyond the control of
OnlineTrading.com, Omega Research or the combined company. Consequently, there
can be no assurances that OnlineTrading.com, Omega Research or the combined
company will achieve such results.
In connection with its review, Raymond James has not assumed any
responsibility for independent verification of any of the information reviewed
by Raymond James for the purpose of the opinion and has relied on its being
complete and accurate in all material respects. In addition, Raymond James has
not made or received any independent evaluation or appraisal of any of the
assets or liabilities (contingent or otherwise) of Omega Research and
OnlineTrading.com, nor has Raymond James been furnished with any such evaluation
or appraisal. With respect to the financial forecasts, estimates, projections,
pro forma effects, calculations of synergies and other information referred to
above, Raymond James has assumed, at the direction of Omega Research and
OnlineTrading.com, that they have been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the management of Omega
Research and OnlineTrading.com, and Raymond James has relied upon each party to
advise Raymond James promptly if any such information previously provided to or
discussed with Raymond James became inaccurate or was required to be updated
during the period of the review. In addition, Raymond James has assumed, with
the consent of Omega Research and OnlineTrading.com, that the merger will be
consummated substantially in accordance with the terms of the draft merger
agreement reviewed by Raymond James, that the merger will be accounted for as a
pooling-of-interests under generally accepted accounting principles, and that
the merger will be considered a tax-free reorganization for tax purposes.
Raymond James' opinion was based on economic, market, and other conditions
as in effect on, and the information available to it as of, the date of its
opinion. Raymond James' opinion does not address the underlying business
decision to effect the merger, the structure or tax consequences of the merger
or the availability or advisability of any alternatives to the merger. Raymond
James did not express any opinion as to the range of prices at which the
combined company common stock might trade subsequent to the merger.
INTERESTS OF CERTAIN DIRECTORS, OFFICERS AND AFFILIATES IN THE MERGER
In considering the recommendation of OnlineTrading.com's board of directors,
you should be aware that certain directors and officers of OnlineTrading.com
have interests in the merger that are in addition to those held by
OnlineTrading.com shareholders generally.
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In connection with entering into the merger agreement, OnlineTrading.com
modified its existing employment agreement with Andrew A. Allen, its Chairman of
the Board and Chief Executive Officer, effective as of the effective time of the
merger, to provide for, among other things, a severance payment to him
aggregating $600,000 as follows: $200,000 at the effective time of the merger
and $200,000 on each of the first and second anniversaries of such effective
time. This severance payment is a lower amount than the one to which Mr. Allen
would have been entitled had his employment terminated after the merger and the
terms of his existing employment agreement with OnlineTrading.com not been so
modified. The Allen severance agreement is attached as Appendix G and you are
urged to read it.
In addition, in connection with the entering into of the merger agreement,
OnlineTrading.com entered into new employment agreements with certain of its
officers (Farshid Tafazzoli, Chief Information Officer and a director, E. Steven
zum Tobel, its President 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 Holding Company 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 Holding Company will
use commercially reasonable efforts to provide directors and officers liability
insurance to cover any such liability for the next two years. See "THE MERGER
AGREEMENT AND RELATED AGREEMENTS--Director and Officer Indemnification and
Insurance" below.
REGULATORY APPROVALS
As a broker-dealer registered with the SEC pursuant to Section 15(a) of the
Securities Exchange Act of 1934 and as a member of the NASD, OnlineTrading.com
was required to file, and filed, a written notice of the proposed change in its
beneficial equity ownership and an application for continuance in membership
with the NASD. Such notice and application was delivered to NASD Regulation,
Inc. on February 15, 2000. On March 31, 2000, NASD Regulation, Inc. accepted the
application and approved OnlineTrading.com's right, after the merger, to
continue to engage in its broker-dealer business, as set forth in its new
membership agreement. OnlineTrading.com will also file any appropriate notices
with applicable state securities regulators and other self- regulatory
organizations of which it is a member.
Neither Omega Research nor OnlineTrading.com is aware of any other material
governmental or regulatory approval required for completion of the merger, other
than compliance with applicable corporate law of the State of Florida.
REGULATORY MATTERS FOLLOWING THE MERGER
If and when the merger is completed, OnlineTrading.com, which will then be a
wholly-owned subsidiary of Holding Company, will continue to be (as it currently
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. Neither Holding Company, 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
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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 (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.
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 Holding
Company's business, financial condition, results of operations and prospects.
CERTAIN 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 Holding Company 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 the merger under foreign, state or local tax
laws, the tax consequences of 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 Holding Company common stock are disposed of, or the
tax consequences of the assumption by Holding Company of Omega Research or
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OnlineTrading.com options or warrants or the tax consequences of any receipt of
rights to acquire Holding Company 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.
The merger is intended to constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. Provided that the merger does so
qualify as a reorganization, then, subject to the limitations and qualifications
referred to herein, the merger will generally result in the following federal
income tax consequences to Omega Research and OnlineTrading.com shareholders:
/bullet/ No gain or loss will be recognized solely upon receipt of
Holding Company 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
Holding Company common stock or to the extent cash is received
upon the exercise of dissenters' rights).
/bullet/ The aggregate tax basis of Holding Company 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.
/bullet/ The holding period of Holding Company 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.
/bullet/ Cash payments received in lieu of a fractional share will be
treated as if such fractional share of Holding Company common
stock had been issued in the merger and then redeemed by
Holding Company. 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 Holding Company, 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
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stock of Holding Company surrendered equal to the difference between the fair
market value, as of the effective time of the merger, of Holding Company stock
received in exchange therefor, and the shareholder's basis in such share. In
such event, a shareholder's aggregate basis in Holding Company 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 Holding Company, after the merger is consummated, will be treated as if
Omega Research and OnlineTrading.com had previously been combined for accounting
and financial reporting purposes. It is a condition to completion of the merger
that Omega Research be advised by Arthur Andersen LLP, Omega Research's and
OnlineTrading.com's independent auditors, that, based on material
representations by Omega Research and OnlineTrading.com, the transactions
contemplated by the merger agreement can properly be accounted for as a
pooling-of-interests business combination, although this condition may be waived
by Omega Research. Under the pooling-of-interests method of accounting, each of
the parties' historical recorded assets and liabilities will be carried forward
to the combined company at their recorded amounts. In addition, the operating
results of the combined company will include both parties' operating results for
the entire fiscal year in which the merger is completed and the parties'
historical reported operating results for prior periods will be combined and
restated as the operating results of the combined company.
DISSENTERS' OR APPRAISAL RIGHTS
If you are an Omega Research shareholder, you are not entitled to exercise
dissenters' or appraisal rights as a result of the merger or to demand cash
payment for your shares under Florida law.
If you are an OnlineTrading.com shareholder, you are entitled to dissenters'
rights as a result of the merger and, accordingly, to demand cash payment in
lieu of Holding Company 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:
/bullet/ 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.
/bullet/ A shareholder who wishes to assert dissenters' rights shall:
/bullet/ 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
/bullet/ not vote his shares in favor of the proposed action.
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/bullet/ 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.
/bullet/ 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.
/bullet/ 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.
/bullet/ 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.
/bullet/ 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:
/bullet/ 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
/bullet/ a profit and loss statement of the corporation for
the 12-month period ended on the date of the balance
sheet.
/bullet/ 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.
/bullet/ 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.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.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.
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(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;
(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;
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5. Making noncumulative, in whole or in part,
dividends of any of the shareholder's
preferred shares which had theretofore been
cumulative;
6. Reducing the stated dividend preference of
any of the shareholder's preferred shares;
or
7. Reducing any stated preferential amount
payable on any of the shareholder's
preferred shares upon voluntary or
involuntary liquidation; or
(f) Any corporate action taken, to the extent the
articles of incorporation provide that a voting or
nonvoting shareholder is entitled to dissent and
obtain payment for his or her shares.
(2) A shareholder dissenting from any amendment specified in
paragraph 1(e) has the right to dissent only as to those of
his or her shares which are adversely affected by the
amendment.
(3) A shareholder may dissent as to less than all the shares
registered in his or her name. In that event, the
shareholder's rights shall be determined as if the shares as
to which he or she has dissented and his or her other shares
were registered in the names of different shareholders.
(4) Unless the articles of incorporation otherwise provide, this
section does not apply with respect to a plan of merger or
share exchange or a proposed sale or exchange of property, to
the holders of shares of any class or series which, on the
record date fixed to determine the shareholders entitled to
vote at the meeting of shareholders at which such action is to
be acted upon or to consent to any such action without a
meeting, were either registered on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc., or held of record by not fewer than
2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his
or her shares may not challenge the corporate action creating
his or her entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
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
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a notice of intent to demand payment for his or her shares
pursuant to paragraph (1)(a) or, in the case of action
authorized by written consent, to each shareholder, excepting
any who voted for, or consented in writing to, the proposed
action.
(3) Within 20 days after the giving of notice to him or her, any
shareholder who elects to dissent shall file with the
corporation a notice of such election, stating the
shareholder's name and address, the number, classes, and
series of shares as to which he or she dissents, and a demand
for payment of the fair value of his or her shares. Any
shareholder failing to file such election to dissent within
the period set forth shall be bound by the terms of the
proposed corporate action. Any shareholder filing an election
to dissent shall deposit his or her certificates for
certificated shares with the corporation simultaneously with
the filing of the election to dissent. The corporation may
restrict the transfer of uncertificated shares from the date
the shareholder's election to dissent is filed with the
corporation.
(4) Upon filing a notice of election to dissent, the shareholder
shall thereafter be entitled only to payment as provided in
this section and shall not be entitled to vote or to exercise
any other rights of a shareholder. A notice of election may be
withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection
(5), to pay for his or her shares. After such offer, no such
notice of election may be withdrawn unless the corporation
consents thereto. However, the right of such shareholder to be
paid the fair value of his or her shares shall cease, and the
shareholder shall be reinstated to have all his or her rights
as a shareholder as of the filing of his or her notice of
election, including any intervening preemptive rights and the
right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been
completed, in lieu thereof, at the election of the
corporation, the fair value thereof in cash as determined by
the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that
may have been taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or
rescinded or the shareholders revoke the authority to
effect such action;
(c) No demand or petition for the determination of fair
value by a court has been made or filed within the
time provided in this section; or
(d) A court of competent jurisdiction determines that
such shareholder is not entitled to the relief
provided by this section.
(5) Within 10 days after the expiration of the period in which
shareholders may file their notices of election to dissent, or
within 10 days after such corporate action is effected,
whichever is later (but in no case later than 90 days from the
shareholders' authorization date), the corporation shall make
a written offer to each dissenting shareholder who has made
demand as provided in this section to pay an amount the
corporation estimates to be the fair value for such shares. If
the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders'
authorization date, the offer may be made conditional upon the
consummation of such action. Such notice and offer shall be
accompanied by:
(a) A balance sheet of the corporation, the shares of
which the dissenting shareholder holds, as of the
latest available date and not more than 12 months
prior to the making of such offer; and
(b) A profit and loss statement of such corporation for
the 12-month period ended on the date of such balance
sheet or, if the corporation was not in existence
throughout such 12-month period, for the portion
thereof during which it was in existence.
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(6) If within 30 days after the making of such offer any
shareholder accepts the same, payment for his or her shares
shall be made within 90 days after the making of such offer or
the consummation of the proposed action, whichever is later.
Upon payment of the agreed value, the dissenting shareholder
shall cease to have any interest in such shares.
(7) If the corporation fails to make such offer within the period
specified therefor in subsection (5) or if it makes the offer
and any dissenting shareholder or shareholders fail to accept
the same within the period of 30 days thereafter, then the
corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the
date on which such corporate action was effected, shall, or at
its election at any time within such period of 60 days may,
file an action in any court of competent jurisdiction in the
county in this state where the registered office of the
corporation is located requesting that the fair value of such
shares be determined. The court shall also determine whether
each dissenting shareholder, as to whom the corporation
requests the court to make such determination, is entitled to
receive payment for his or her shares. If the corporation
fails to institute the proceeding as herein provided, any
dissenting shareholder may do so in the name of the
corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have
agreed with the corporation as to the value of their shares,
shall be made parties to the proceeding as an action against
their shares. The corporation shall serve a copy of the
initial pleading in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner
provided by law for the service of a summons and complaint and
upon each nonresident dissenting shareholder either by
registered or certified mail and publication or in such other
manner as is permitted by law. The jurisdiction of the court
is plenary and exclusive. All shareholders who are proper
parties to the proceeding are entitled to judgment against the
corporation for the amount of the fair value of their shares.
The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers shall have such power
and authority as is specified in the order of their
appointment or an amendment thereof. The corporation shall pay
each dissenting shareholder the amount found to be due him or
her within 10 days after final determination of the
proceedings. Upon payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a
fair rate of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be
determined by the court and shall be assessed against the
corporation, but all or any part of such costs and expenses
may be apportioned and assessed as the court deems equitable
against any or all of the dissenting shareholders who are
parties to the proceeding, to whom the corporation has made an
offer to pay for the shares, if the court finds that the
action of such shareholders in failing to accept such offer
was arbitrary, vexatious, or not in good faith. Such expenses
shall include reasonable compensation for, and reasonable
expenses of, the appraisers, but shall exclude the fees and
expenses of counsel for, and experts employed by, any party.
If the fair value of the shares, as determined, materially
exceeds the amount which the corporation offered to pay
therefor or if no offer was made, the court in its discretion
may award to any shareholder who is a party to the proceeding
such sum as the court determines to be reasonable compensation
to any attorney or expert employed by the shareholder in the
proceeding.
(10) Shares acquired by a corporation pursuant to payment of the
agreed value thereof or pursuant to payment of the judgment
entered therefor, as provided in this section, may be held and
disposed of by such corporation as provided but unissued
shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger
otherwise provides. The shares of the surviving corporation
into which the shares of such dissenting shareholder would
have been converted had they assented to the merger shall have
the status of authorized but unissued shares of the surviving
corporation.
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LISTING OF HOLDING COMPANY COMMON STOCK
It is a condition to the closing of the merger that Holding Company 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 Holding Company common stock
to be issued in the merger and the shares of Holding Company common stock to be
reserved for issuance in connection with the assumption of outstanding Omega
Research and OnlineTrading.com stock options and warrants.
RESTRICTIONS ON SALE OF SHARES BY AFFILIATES OF OMEGA RESEARCH AND
ONLINETRADING.COM
The shares of Holding Company 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
Holding Company 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
Holding Company common stock acquired in connection with the merger except
pursuant to:
/bullet/ an effective registration statement under the Securities Act
of 1933 covering the resale of those shares;
/bullet/ an exemption under paragraph (d) of Rule 145 under the
Securities Act of 1933; or
/bullet/ another applicable exemption under the Securities Act of 1933.
Holding Company'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
Holding Company 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 Holding
Company, 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 Holding Company, and
their rights as shareholders will be governed by Holding Company's articles of
incorporation and bylaws and the laws of the State of Florida.
For a discussion of the executive officers and directors of Holding Company,
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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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 recently-formed
Florida corporation and wholly-owned subsidiary of Holding Company, with Omega
Research continuing as the surviving corporation and as a wholly-owned
subsidiary of Holding Company. OnlineTrading.com will merge with Onlinetrading
Acquisition Corporation, a recently formed Florida corporation and wholly-owned
subsidiary of Holding Company, with OnlineTrading.com continuing as the
surviving corporation and as a wholly-owned subsidiary of Holding Company.
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 June 2000. However, the merger
is subject to various closing conditions including the approval for listing of
Holding Company common stock on The Nasdaq National Market. No assurances can be
given that we will obtain that approval or that all conditions will be met
and/or waived. After July 31, 2000, either Omega Research or OnlineTrading.com
may terminate the merger agreement.
DIRECTORS AND OFFICERS AFTER THE MERGER
At the effective time of the merger, Salomon Sredni (the President and Chief
Operating Officer and a director of Omega Research), Marc J. Stone (Vice
President of Corporate Development, General Counsel and Secretary and a director
of Omega Research), and E. Steven zum Tobel (the President and Treasurer and a
director of OnlineTrading.com) will be the directors of Omega Research and the
then current officers of Omega Research will initially remain the officers of
Omega Research.
At the effective time of the merger, Messrs. Sredni, Stone and zum Tobel,
Ralph L. Cruz (the Co-Chairman of the Board and Co-Chief Executive Officer of
Omega Research) and Farshid Tafazzoli (the Chief Information Officer and a
director of OnlineTrading.com) will be the directors of OnlineTrading.com and
the then current officers of OnlineTrading.com, except for Andrew A. Allen, who
has resigned (effective as of the closing of the merger) for personal family
reasons, will initially remain the officers of OnlineTrading.com.
At the effective time of the merger, the board of directors of Holding
Company will be comprised of eight directors. The directors of Holding Company
from and after the effective time will initially be designated as follows: Omega
Research shall designate five directors (including two Co-Chairmen of the Board
and two who will be independent directors) and OnlineTrading.com will designate
three directors (one of whom will be an independent director). Accordingly, the
initial board of directors of Holding Company will be comprised of William R.
Cruz and Ralph L. Cruz
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(Co-Chairmen of the Board and Co-Chief Executive Officers of Omega Research),
Salomon Sredni (President and Chief Operating Officer and a director of Omega
Research), Brian D. Smith and Stephen C. Richards (independent directors of
Omega Research), E. Steven zum Tobel (President and Treasurer and a director of
OnlineTrading.com), Fashid Tafazzoli (Chief Information Officer and a director
of OnlineTrading.com), and Lothar Mayer (an independent director of
OnlineTrading.com).
An "independent director" means an individual who both (i) meets the
definition of a "non-employee director" set forth in Rule 16b-3 of the
Securities Exchange Act of 1934 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 Holding Company's audit committee, including
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 Holding Company 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 (Chairman of the Board and Chief Executive Officer of
OnlineTrading.com) will be entitled to attend as an observer all meetings of the
board of directors of Holding Company (including telephone meetings); provided,
however, that (a) Holding Company'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 Holding Company's board
determines should be considered by it without Mr. Allen being in attendance; and
(b) such rights shall exist for him only for as long as he owns at least 5.0% of
the outstanding shares of Holding Company common stock. 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 Holding Company.
The executive officers of Holding Company at the effective time of the
merger are expected to be as follows:
Co-Chairman of the Board and Co-Chief
Executive Officer William R. Cruz
Co-Chairman of the Board and Co-Chief
Executive Officer Ralph L. Cruz
President and Chief Operating Officer Salomon Sredni
Vice President of Brokerage Operations E. Steven zum Tobel
Vice President of Brokerage Technology Farshid Tafazzoli
Vice President of Corporate Development,
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
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 Holding Company owned by them after the effective time will be subject to the
terms of such
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voting trust. The shareholders of Omega Research are affiliates of William R.
Cruz and Ralph L. Cruz and hold an aggregate of 18,313,108 shares of Omega
Research common stock (the "Cruz Group"). The shareholders of OnlineTrading.com
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 "Online Group"). 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 Holding
Company shares subject to the voting trust ("Voting Trust Shares") all rights of
voting and abstaining from voting or otherwise to participate in shareholder
actions, including executing written consents, in all matters relating to
Holding Company as provided in the voting trust agreement.
From and after the effective time of the merger, the Cruz Group will have
the right to direct the voting trustee to vote all of the Voting Trust Shares in
a manner such that five of the total of eight directors constituting the board
of directors of Holding Company (eight being the total number of directors
contemplated to constitute the Board at the effective time), two of which five
are required to be independent directors, are designated by the Cruz Group. The
Online Group shall have the right to direct the voting trustee to vote all of
the Voting Trust Shares 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 the Online Group. In the event that the number of directors
constituting the board of directors of Holding Company is increased or decreased
from time to time on or after the effective time of the merger, then the Cruz
Group and the Online Group will be entitled to designate its number of the total
number of directors of Holding Company based upon a ratio of 62.5% for the Cruz
Group and 37.5% for the Online Group. If the foregoing ratio yields other than
whole numbers as to the number of directors for which each of the Cruz Group and
the Online Group are entitled to designate the Voting Trust 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 Cruz
Group.
A Cruz designee and an Online designee 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 so certifying (the "Certifying Group") will deliver, within
three 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 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 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
Holding Company, 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 Holding Company will be made, the
voting trustee will vote the Voting Trust Shares owned by each Holding Company
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 Voting Trust 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
Voting Trust 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:
/bullet/ the second anniversary of the effective time of the merger;
/bullet/ 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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/bullet/ the date when Holding Company shareholders who are parties to
the voting trust agreement holding 67% or more of the Voting
Trust Shares then subject to the agreement shall execute a
written instrument so declaring; or
/bullet/ the date when less than 75% of the aggregate number of Voting
Trust Shares owned by the Cruz Group or the Online Group (as
the case may be) as of the effective time of the merger
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 Holding Company 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 Holding Company common
stock based on the following exchange ratio (subject to the "floor" and
"ceiling" described below) for OnlineTrading.com common stock: (i) $11.0625 (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 Holding Company common stock (which results in a 38%
OnlineTrading.com shareholder/62% Omega Research shareholder ownership of
Holding Company on a fully diluted basis) or higher than 1.7172 shares of
Holding Company common stock (which results in an approximate 43%
OnlineTrading.com shareholder/57% Omega Research shareholder ownership of
Holding Company on a fully diluted basis). The number of shares of Holding
Company 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.
OMEGA RESEARCH AND ONLINETRADING.COM STOCK OPTIONS, WARRANTS AND STOCK PLANS
At the effective time of the merger, Holding Company will assume:
/bullet/ 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
(collectively, the "Omega Research Stock Option Plans");
/bullet/ all options to purchase Omega Research common stock ("Omega
Research Options") then outstanding under 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;
/bullet/ the OnlineTrading.com 1999 Stock Option Plan;
/bullet/ all options to purchase the OnlineTrading.com common stock
("OnlineTrading.com Options") then outstanding under the
OnlineTrading.com 1999 Stock Option Plan; and
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/bullet/ warrants to purchase up to 225,000 shares of OnlineTrading.com
common stock ("OnlineTrading.com Warrants") at an exercise
price of $11.55 issued to the underwriters of
OnlineTrading.com's initial public offering.
Each Omega Research Option, OnlineTrading.com Option and OnlineTrading.com
Warrant will be assumed by Holding Company under the same terms and conditions
that were applicable to the option or warrant immediately prior to the effective
time, except that:
/bullet/ each Omega Research Option will be exercisable for the same
number of shares of Holding Company at the same exercise
price;
/bullet/ each OnlineTrading.com Option and OnlineTrading.com Warrant
will be exercisable for shares of Holding Company common
stock, and the number of shares of Holding Company 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
/bullet/ the per share exercise price of any given OnlineTrading.com
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 Holding Company 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. Holding Company has agreed to file a
registration statement on Form S-8 for the shares of Holding Company common
stock issuable with respect to the assumed OnlineTrading.com and Omega Research
stock options as soon as practicable (and in any event within 20 business days)
after the effective time, and Holding Company 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 Holding Company 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 Holding Company common stock, equal
to the product of the fraction multiplied by the last sale price for a share of
Omega Research common stock as quoted on The Nasdaq National Market on the last
full trading day prior to the effective time.
THE EXCHANGE AGENT
Prior to the effective time, Holding Company 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 Holding Company 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 HOLDING
COMPANY 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 Holding Company 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
Holding Company stock certificates
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representing the number of full shares of Holding Company 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
Holding Company will issue a Holding Company 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
Holding Company 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 Holding Company stock certificates.
If there is any dividend or other distribution on Holding Company 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 Holding Company stock certificates, you will receive it with
respect to the whole shares of Holding Company common stock issued to you
promptly after they are issued. If there is any dividend or other distribution
on Holding Company 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 Holding Company stock
certificates, you will receive it with respect to the whole shares of Holding
Company common stock issued to you promptly after the payment date.
REPRESENTATIONS AND WARRANTIES
We each made a number of representations and warranties in the merger
agreement regarding authority to enter into the merger agreement and to
consummate the other transactions contemplated by the merger agreement and with
regard to aspects of our respective businesses, financial conditions, structures
and other facts pertinent to the merger.
The representations given by OnlineTrading.com relate to OnlineTrading.com
and its subsidiaries and the representations given by Omega Research relate to
Omega Research and its corporate affiliates (including Holding Company and the
separate Holding Company subsidiaries that will merge with and into Omega
Research and OnlineTrading.com, respectively). The representations cover the
following topics:
/bullet/ organization, qualification to do business and power;
/bullet/ capitalization;
/bullet/ authorization of the merger agreement, the merger and the
transaction agreements;
/bullet/ filings and reports with the SEC;
/bullet/ financial statements;
/bullet/ changes in business since December 31, 1998 for Omega Research
and January 31, 1999 for OnlineTrading.com;
/bullet/ undisclosed liabilities;
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/bullet/ litigation, proceedings and investigations;
/bullet/ restrictions on business activities;
/bullet/ the possession of and compliance with permits required to
conduct such company's business and compliance with laws;
/bullet/ title to the properties owned and leased;
/bullet/ intellectual property;
/bullet/ environmental laws and matters;
/bullet/ taxes;
/bullet/ employee benefit plans;
/bullet/ matters relating to employees;
/bullet/ transactions with interested parties;
/bullet/ insurance;
/bullet/ regulatory matters and compliance with applicable laws, rules
and regulations of governmental entities and self regulatory
organizations;
/bullet/ material contracts and obligations;
/bullet/ options and other rights to acquire securities;
/bullet/ information supplied in registration statement on Form S-4 and
joint proxy statement/prospectus;
/bullet/ opinion of financial advisor;
/bullet/ affiliates and affiliate agreements related to Rule 145 of the
Securities Act of 1933 and required with respect to
pooling-of-interests accounting;
/bullet/ the inapplicability of state anti-takeover statutes to the
merger;
/bullet/ the treatment of the merger as a pooling-of-interests and as a
tax-free reorganization;
/bullet/ brokers' and finders' fees in connection with the merger; and
/bullet/ completeness of information supplied.
The representations given by Holding Company cover the following topics as
they relate to Holding Company:
/bullet/ organization, qualification to do business and power;
/bullet/ capitalization;
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/bullet/ authorization of the merger agreement and merger and
transaction agreements;
/bullet/ undisclosed liabilities;
/bullet/ litigation, proceedings and investigations;
/bullet/ information supplied in registration statement on Form S-4 and
joint proxy statement/prospectus;
/bullet/ the treatment of the merger as a tax-free reorganization;
/bullet/ brokers' and finders' fees in connection with the merger; and
/bullet/ 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 Holding Company 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:
/bullet/ modify, amend, alter or rescind its articles of incorporation
or bylaws;
/bullet/ declare or pay any dividends or make any other distributions
(whether in cash, stock or property);
/bullet/ 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;
/bullet/ 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;
/bullet/ grant any options, stock appreciation rights, or any other
right to acquire securities other than stock options to
employees and consultants in accordance with the ordinary
course of its business pursuant to past practice (meaning,
with respect to Omega Research, grants of stock options to
employees (other than executive officers) and to new employees
consistent with past practices not exceeding in the aggregate
stock options to purchase 200,000 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 50,000 shares of
OnlineTrading.com common stock); or
/bullet/ 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.
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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:
/bullet/ preserving intact their assets and current business
organizations;
/bullet/ keeping available the services of their current executive
officers and key employees; and
/bullet/ maintaining their material contracts and preserving their
relationships with:
/bullet/ customers;
/bullet/ suppliers;
/bullet/ distributors;
/bullet/ licensors;
/bullet/ licensees; and
/bullet/ 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:
/bullet/ enter into, amend, violate or waive any material term of any
material contract or commitment;
/bullet/ issue or propose to issue any shares of its capital stock;
/bullet/ acquire or dispose of, or obtain or grant licenses for, any
intellectual property rights;
/bullet/ sell, lease, license, dispose of or acquire any material
asset;
/bullet/ incur any indebtedness for borrowed money or assume,
guarantee, cancel, release, pay, discharge, assign or modify
any material obligation or amount of indebtedness;
/bullet/ make any loan;
/bullet/ enter into, modify or cancel any real property, operating or
capital lease (or waive any material right or obligation
thereunder);
/bullet/ make any material capital expenditure;
/bullet/ modify any insurance provided by existing insurance policies;
/bullet/ 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
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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;
/bullet/ commence any action, suit or proceeding (legal or
quasi-legal);
/bullet/ 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;
/bullet/ enter into or agree to enter into any strategic alliance with
any business or part thereof;
/bullet/ 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;
/bullet/ revalue or restate any of its assets, liabilities, revenues,
expenses or cash flows;
/bullet/ change any of its accounting methods, procedures, policies or
practices; or
/bullet/ 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 (which shall not include 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:
/bullet/ solicit, initiate or encourage any takeover proposal; or
/bullet/ engage in negotiations with, disclose any nonpublic
information relating to it or any of its subsidiaries to, or
afford access to its properties, books or records or any of
its subsidiaries to, any person that has advised it that it
may be considering making, or that has made, a takeover
proposal or whose efforts to formulate a takeover proposal
would be assisted thereby.
However, Omega Research's or OnlineTrading.com's board of directors is not
prohibited from taking and disclosing to its shareholders a position with
respect to an unsolicited tender offer pursuant to Rules 14d-9 and 14e-2
promulgated under the Securities Exchange Act of 1934.
Each of Omega Research and OnlineTrading.com has agreed to provide the other
with detailed information about any takeover proposal it receives, any notice
that any person is considering making a takeover proposal or any request for
nonpublic information or access to its properties, books or records by any
person considering or that has made a takeover proposal and is required to keep
the other party fully informed of the status and details of any such takeover
proposal, notice, request or correspondence or communications.
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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:
/bullet/ 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;
/bullet/ 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
/bullet/ 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 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:
/bullet/ 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;
/bullet/ OnlineTrading.com has terminated the merger agreement; and
/bullet/ 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:
/bullet/ Omega Research has provided OnlineTrading.com at least five
business days prior notice of the takeover proposal;
/bullet/ Omega Research has terminated the merger agreement; and
/bullet/ 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:
/bullet/ 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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/bullet/ 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
/bullet/ 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 Holding Company 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, Holding Company 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 Holding Company 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:
/bullet/ 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;
/bullet/ 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 Holding Company 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;
/bullet/ 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;
/bullet/ Holding Company 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 Holding Company common stock
to be issued in the merger shall have been filed; and
/bullet/ Holding Company, its wholly-owned merger subsidiaries, Omega
Research and OnlineTrading.com and their respective
subsidiaries, if applicable, shall have obtained from each
governmental entity and each regulatory entity all approvals,
waivers and consents, if any, necessary for consummation of
the merger and the other transactions contemplated under the
merger agreement, including such approvals, waivers and
consents as may
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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 Holding
Company 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:
/bullet/ Holding Company 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
Holding Company as a whole;
/bullet/ Holding Company, Omega Research and Holding Company'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;
/bullet/ 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;
/bullet/ 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 Holding Company, Omega Research
or OnlineTrading.com or would prevent or materially restrict
or impede the consummation and effectiveness of the merger;
/bullet/ 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;
/bullet/ no material adverse change in the condition (financial or
otherwise), properties, assets (including intangible assets),
liabilities, business, operations, results of operations or
prospects of Omega Research and its subsidiaries, taken as a
whole, shall have occurred; and
/bullet/ 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, Holding Company's and Holding Company'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:
/bullet/ 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
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not have and is not reasonably likely to have, individually or
in the aggregate, a material adverse effect on
OnlineTrading.com as a whole;
/bullet/ 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;
/bullet/ 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;
/bullet/ 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 Holding Company, Omega Research
or OnlineTrading.com or would prevent or materially restrict
or impede the consummation and effectiveness of the merger;
/bullet/ 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;
/bullet/ no material adverse change in the condition (financial or
otherwise), properties, assets (including intangible assets),
liabilities, business, operations, results of operations or
prospects of OnlineTrading.com and its subsidiaries, taken as
a whole, shall have occurred;
/bullet/ 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;
/bullet/ 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
/bullet/ 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:
/bullet/ by mutual written consent of Omega Research and
OnlineTrading.com;
/bullet/ by either Omega Research or OnlineTrading.com, if:
/bullet/ without fault of the terminating party, the closing
does not occur on or before July 31, 2000;
/bullet/ any permanent injunction or other order of a court or
other competent authority preventing the consummation
of the merger has become final and nonappealable;
/bullet/ by Omega Research, if:
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/bullet/ 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;
/bullet/ 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;
/bullet/ the OnlineTrading.com board of directors recommends, endorses,
accepts or agrees to a takeover proposal or resolves to do so;
/bullet/ 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;
/bullet/ OnlineTrading.com fails to comply in any material respect with
the OnlineTrading.com stock option agreement;
/bullet/ 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;
/bullet/ 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:
/bullet/ reconfirm its approval and recommendation of the
merger agreement, the merger and the other
transactions contemplated by the merger agreement;
and
/bullet/ reject such takeover proposal or trigger event;
/bullet/ 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;
/bullet/ 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;
/bullet/ by OnlineTrading.com, if:
/bullet/ 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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/bullet/ 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;
/bullet/ Omega Research fails to comply in any material respect with
the Omega Research stock option agreement;
/bullet/ 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;
/bullet/ 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
/bullet/ 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:
/bullet/ 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;
/bullet/ the acquisition of 10% or more of the outstanding shares of
capital stock of Omega Research or OnlineTrading.com; or
/bullet/ 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:
/bullet/ acquires securities representing 10% or more of the voting
power of Omega Research's or OnlineTrading.com's securities,
/bullet/ commences a tender or exchange offer,
/bullet/ commences an open market purchase program, or
/bullet/ 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.
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PAYMENT OF FEES AND EXPENSES
Whether or not the merger is consummated (subject to certain exceptions
discussed in this joint proxy statement/prospectus), all costs and expenses
incurred in connection with the merger agreement and the merger will be paid by
the party incurring the expense except that expenses incurred in connection with
printing the joint proxy statement/prospectus and the registration statement,
and registration and filing fees incurred in connection with the joint proxy
statement/prospectus, the registration statement and The Nasdaq National Market
listing of the Holding Company common stock shall be shared equally.
If the merger agreement is terminated because:
/bullet/ 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;
/bullet/ 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
/bullet/ 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:
/bullet/ 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;
/bullet/ 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
/bullet/ 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:
/bullet/ 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;
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/bullet/ 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;
/bullet/ 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
/bullet/ 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:
/bullet/ 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;
/bullet/ 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
/bullet/ 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:
/bullet/ to the number of shares of Holding Company common stock into
which Omega Research or OnlineTrading.com common stock will be
converted; or
/bullet/ 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.
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Either of us may, in writing, extend the other's time for the performance of
any of the obligations or other acts under the merger agreement, waive any
inaccuracies in the other's representations and warranties and waive compliance
by the other with any of the agreements or conditions contained in the merger
agreement.
SHAREHOLDER AGREEMENTS
In connection with the merger, (a) Andrew A. Allen and his affiliates,
affiliates of Farshid Tafazzoli and E. Steven zum Tobel, Derek Hernquist and a
former director of OnlineTrading.com (the "OnlineTrading.com Shareholders") have
entered into shareholder agreements with Omega Research and Holding Company, and
(b) certain affiliates of William Cruz and Ralph Cruz (the "Omega Research
Shareholders") have entered into shareholder agreements with OnlineTrading.com
and Holding Company (collectively, the "Shareholder Agreements"). The terms of
the respective Shareholders Agreements provide (i) that the OnlineTrading.com
Shareholders 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 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), and (ii) 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 April 10, 2000, the OnlineTrading.com
Shareholders 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
collectively held 18,313,208 shares of Omega Research common stock, which
represents approximately 75% of the outstanding Omega Research common stock.
None of the shareholders who are parties to the Shareholder Agreements was paid
additional consideration in connection with the Shareholder Agreements.
EMPLOYMENT AGREEMENTS
OnlineTrading.com has entered into employment agreements with three of its
employees, Farshid Tafazzoli, E. Steven zum Tobel and Derek Hernquist. The
employment agreements are contingent upon the occurrence of the closing of the
merger, will become effective upon closing of the merger and will replace their
existing employment agreements. The term of employment under each new employment
agreement is two years commencing on the effective date of the merger, unless
terminated earlier by the employer for "due cause," or by the employee upon a
change in control of the employer in connection with which the employee's duties
are materially diminished or the employee is required to relocate outside of
Broward or Palm Beach County, Florida. If the term of employment is terminated
by the employer without due cause, or by the employee upon a change in control
resulting in materially diminished duties or the relocation requirement
discussed above, the employee is entitled to receive as severance pay base
salary for the remainder of the employment term (subject to a minimum of three
months base salary) plus any bonus amount accrued and unpaid on the date of
termination.
Under the respective new employment agreements, Mr. Tafazzoli's base salary
shall be $200,000 per annum, Mr. zum Tobel's $150,000 per annum, and Mr.
Hernquist's $100,000 per annum. Currently, their respective base salaries are
$200,000, $120,000 and $50,000. Each employee will be eligible for annual
discretionary bonuses based upon, in the case of Mr. Tafazzoli, the criteria
used to determine bonuses, if any, for William and Ralph Cruz, in the case of
Mr. zum Tobel, the criteria to determine bonuses, if any, for other executive
officers, and in the case of Mr. Hernquist, as determined by the board of
directors of the employer. These are different than the bonus arrangements
contained in their existing employment agreements, which are described in the
section called "Employment Agreements" under the caption "SELECTED INFORMATION
WITH RESPECT TO ONLINETRADING.COM."
Each employment agreement contains nondisclosure and confidentiality
obligations, a two-year covenant-not-to- compete (however, as shareholders of
OnlineTrading.com, each employee also executed a separate non-competition
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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, exercisable under certain
circumstances (including, without limitation, the acceptance by
OnlineTrading.com's board of directors of an alternative takeover proposal), 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.
Pursuant to the Omega Research stock option agreement, Omega Research granted
OnlineTrading.com an option, 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), 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.
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: (i) the effective time of the merger; (ii) the termination of the
merger agreement pursuant to certain terms thereof; and (iii) 180 days following
termination of the merger agreement in circumstances under which the $5 million
termination fee is payable. The Omega Research stock option agreement and the
OnlineTrading.com stock option agreement are attached as Appendices D and E,
respectively, and you are urged to read each of them.
AFFILIATE AGREEMENTS
In connection with the merger, the directors of each of Omega Research and
OnlineTrading.com, and certain Omega Research principal shareholders and
OnlineTrading.com principal shareholders have entered into affiliate agreements
with Holding Company under which they agreed to restrict their transfer of any
Holding Company, 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
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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) Holding Company'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 Holding Company, Omega Research or OnlineTrading.com common
stock and options or warrants to purchase Holding Company 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, Holding Company will be assuming the Incentive Stock
Plan and filing a registration statement on Form S-8 to register the unissued
shares of common stock reserved for future issuance thereunder. For more
information on the Incentive Stock Plan, see "Selected Information with Respect
to Omega Research -- Other Compensation Arrangements" below. Subject to
shareholder approval of the merger, the affirmative vote of a majority of the
shares of common stock represented in person or by proxy which are voted at the
special meeting is necessary for the adoption and approval of the proposed
amendment to the Incentive Stock Plan.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE INCENTIVE
STOCK PLAN.
PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements give effect to the
proposed merger of Omega Acquisition Corporation, a recently-formed corporation
wholly-owned by Holding Company, with and into Omega Research, and the merger of
Onlinetrading Acquisition Corporation, a recently-formed corporation also
wholly-owned by Holding Company with and into OnlineTrading.com, on a
pooling-of-interests basis. Immediately after the mergers, Omega Research and
OnlineTrading.com would be wholly-owned subsidiaries of Holding Company. Holding
Company's unaudited pro forma combined balance sheet assumes that the mergers
took place on December 31, 1999 and combines the Omega Research consolidated
balance sheet at December 31, 1999 with OnlineTrading.com's consolidated balance
sheet as of January 31, 2000. Holding Company'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 years ended December 31, 1999, 1998 and 1997 with
OnlineTrading.com's statements of operations for the years ended January 31,
2000, 1999 and 1998, respectively. Holding Company's unaudited pro forma
combined financial statements are based on Omega Research and
OnlineTrading.com's historical annual financial statements and related notes
thereto, which have not been restated for the effect of the merger and are set
forth elsewhere in this joint proxy statement/prospectus.
It is anticipated that nonrecurring merger expenses in the amount of
approximately $4.1 million will be incurred in connection with the merger. Such
expenses are not reflected in the unaudited pro forma combined statements of
operations.
The unaudited pro forma combined financial statements are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had the entities been a single entity
during these periods.
Certain amounts presented in the unaudited pro forma combined financial
statements have been reclassified for comparative purposes.
78
<PAGE>
HOLDING COMPANY
PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
OMEGA HOLDING COMPANY
RESEARCH ONLINETRADING.COM PRO FORMA COMBINED
12/31/99 1/31/00 ADJUSTMENTS PRO FORMA
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,175,852 $ 15,127,790 $ -- $ 17,303,642
Marketable securities 1,695,304 155,012 -- 1,850,316
Accounts receivable, net 13,695,059 -- -- 13,695,059
Receivable from clearing organization -- 759,183 -- 759,183
Inventories 67,371 -- -- 67,371
Other current assets 1,469,383 103,987 -- 1,573,370
Deferred income taxes 9,192,000 -- -- 9,192,000
------------ ------------- ------------ ------------
TOTAL CURRENT ASSETS 28,294,969 16,145,972 -- 44,440,941
------------ ------------- ------------ ------------
PROPERTY, AND EQUIPMENT, NET 2,611,454 400,776 -- 3,012,230
INTANGIBLE ASSETS, NET -- 2,592,600 -- 2,592,600
OTHER ASSETS 473,344 221,456 -- 694,800
------------ ------------- ------------ ------------
TOTAL ASSETS $ 31,379,767 $ 19,360,804 $ -- $ 50,740,571
============ ============= ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,786,739 $ 497,694 $ -- $ 3,284,433
Accrued expenses and other current liabilities 1,861,321 793,623 -- 2,654,944
Income taxes payable -- 653,141 -- 653,141
Current portion of capital lease -- 39,944 -- 39,944
Securities sold but not yet purchased, at
market value -- 25,938 -- 25,938
Deferred revenue 1,256,824 -- -- 1,256,824
------------ ------------- ------------ ------------
TOTAL CURRENT LIABILITIES 5,904,884 2,010,340 -- 7,915,224
------------ ------------- ------------ ------------
DEFERRED INCOME TAXES -- 34,300 -- 34,300
------------ ------------- ------------ ------------
CAPITAL LEASE PAYABLE, NET OF CURRENT
PORTION -- 72,131 -- 72,131
------------ ------------- ------------ ------------
TOTAL LIABILITIES 5,904,884 2,116,771 -- 8,021,655
------------ ------------- ------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock -- -- -- --
Common stock 244,751 114,763 82,310 (A) 441,824
Additional paid-in capital 26,560,893 15,943,179 (82,310)(A) 42,421,762
Retained (deficit) earnings (1,330,761) 1,186,091 -- (144,670)
------------ ------------- ------------ ------------
TOTAL SHAREHOLDERS' EQUITY 25,474,883 17,244,033 -- 42,718,916
------------ ------------- ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 31,379,767 $ 19,360,804 $ -- $ 50,740,571
============ ============= ============ ============
</TABLE>
- --------------------------------------------------------------------------------
(A) To reflect the common stock to be issued by Holding Company in connection
with the merger.
79
<PAGE>
HOLDING COMPANY
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
OMEGA
RESEARCH ONLINETRADING.COM HOLDING COMPANY
YEAR ENDED YEAR ENDED PRO FORMA COMBINED
12/31/99 1/31/00 ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $ 33,767,832 $ -- $ -- $ 33,767,832
Commissions and fees -- 9,471,435 -- 9,471,435
Net investment gains -- 1,129,493 -- 1,129,493
Other revenues 9,102,137 1,089,912 -- 10,192,049
------------ ------------ ------------ ------------
Total net revenues 42,869,969 11,690,840 -- 54,560,809
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees and services 2,985,409 -- -- 2,985,409
Clearing and other transaction costs -- 3,012,284 -- 3,012,284
Product development 5,144,658 279,387 -- 5,424,045
Sales and marketing 18,979,103 3,048,623 -- 22,027,726
General and administrative 12,435,758 3,567,816 (51,863)(A) 15,951,711
Acquisition costs 1,200,000 -- -- 1,200,000
------------ ------------ ------------ ------------
Total operating expenses 40,744,928 9,908,110 (51,863) 50,601,175
------------ ------------ ------------ ------------
Income from operations 2,125,041 1,782,730 51,863 3,959,634
------------ ------------ ------------ ------------
OTHER (EXPENSE) INCOME, NET:
Interest expense (1,691,185) -- (51,863)(A) (1,743,048)
Other income, net 445,535 -- -- 445,535
------------ ------------ ------------ ------------
Total other expense, net (1,245,650) -- (51,863) (1,297,513)
------------ ------------ ------------ ------------
Income before income taxes 879,391 1,782,730 -- 2,662,121
INCOME TAX PROVISION 1,846,000 702,224 -- 2,548,224
------------ ------------ ------------ ------------
Net (loss) income $ (966,609) $ 1,080,506 $ -- $ 113,897
============ ============ ============ ============
(Loss) earnings per share:
Basic $ (0.04) $ 0.00
============ ============
Diluted $ (0.04) $ 0.00
============ ============
Weighted average common stock:
Basic 24,294,179 18,069,905 (B) 42,364,084
============ ============ ============
Diluted 24,294,179 20,299,288 (B) 44,593,467
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
(A) To reclass interest expense.
(B) To reflect the conversion of Omega Research and OnlineTrading.com's weighted
average shares outstanding to shares of Holding Company common stock in
connection with the merger.
80
<PAGE>
HOLDING COMPANY
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
OMEGA
RESEARCH ONLINETRADING.COM HOLDING COMPANY
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 $ 25,057,098 $ -- $ -- $ 25,057,098
Commissions and fees -- 5,525,427 -- 5,525,427
Net investment gains -- 328,495 -- 328,495
Other revenues 6,653,655 138,142 -- 6,791,797
------------ ------------ ------------ ------------
Total net revenues 31,710,753 5,992,064 -- 37,702,817
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees and services 2,494,445 -- -- 2,494,445
Clearing and other transaction costs -- 2,002,055 -- 2,002,055
Product development 4,001,981 -- -- 4,001,981
Sales and marketing 15,573,786 1,174,998 -- 16,748,784
General and administrative 8,545,073 2,654,988 (36,566)(A) 11,163,495
------------ ------------ ------------ ------------
Total operating expenses 30,615,285 5,832,041 (36,566) 36,410,760
------------ ------------ ------------ ------------
Income from operations 1,095,468 160,023 36,566 1,292,057
------------ ------------ ------------ ------------
OTHER (EXPENSE) INCOME, NET:
Interest expense (907,196) -- (36,566)(A) (943,762)
Other income, net 435,181 -- -- 435,181
------------ ------------ ------------ ------------
Total other expense, net (472,015) -- (36,566) (508,581)
------------ ------------ ------------ ------------
Income before income taxes 623,453 160,023 -- 783,476
INCOME TAX PROVISION 1,052,000 52,080 -- 1,104,080
------------ ------------ ------------ ------------
Net (loss) income $ (428,547) $ 107,943 $ -- $ (320,604)
============ ============ ============ ============
Loss per share:
Basic $ (0.02) $ (0.01)
============ ============
Diluted $ (0.02) $ (0.01)
============ ============
Weighted average common stock:
Basic 23,913,762 15,209,636 (B) 39,123,398
============ ============ ============
Diluted 23,913,762 15,209,636 (B) 39,123,398
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
(A) To reclass interest expense.
(B) To reflect the conversion of Omega Research and OnlineTrading.com's weighted
average shares outstanding to shares of Holding Company common stock in
connection with the merger.
81
<PAGE>
HOLDING COMPANY
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
OMEGA
RESEARCH ONLINETRADING.COM HOLDING COMPANY
YEAR ENDED YEAR ENDED PRO FORMA COMBINED
12/31/97 1/31/98 ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $ 27,729,549 $ -- $ -- $ 27,729,549
Commissions and fees -- 3,673,728 -- 3,673,728
Net investment losses -- (187,973) -- (187,973)
Other revenues 5,220,899 62,630 -- 5,283,529
------------ ------------ ------------ ------------
Total net revenues 32,950,448 3,548,385 -- 36,498,833
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees and services 2,688,277 -- -- 2,688,277
Clearing and other transaction costs -- 1,751,472 -- 1,751,472
Product development 2,355,716 -- -- 2,355,716
Sales and marketing 12,217,117 229,562 -- 12,446,679
General and administrative 7,465,942 1,589,329 (71,805)(A) 8,983,466
------------ ------------ ------------ ------------
Total operating expenses 24,727,052 3,570,363 (71,805) 28,225,610
------------ ------------ ------------ ------------
Income (loss) from operations 8,223,396 (21,978) 71,805 8,273,223
------------ ------------ ------------ ------------
OTHER (EXPENSE) INCOME, NET:
Interest expense (265,469) -- (71,805)(A) (337,274)
Other income, net 195,995 -- -- 195,995
------------ ------------ ------------ ------------
Total other expense, net (69,474) -- (71,805) (141,279)
------------ ------------ ------------ ------------
Income (loss) before income
taxes 8,153,922 (21,978) -- 8,131,944
INCOME TAX BENEFIT (934,000) (2,550) -- (936,550)
------------ ------------ ------------ ------------
Income (loss) before pro forma
income tax adjustments 9,087,922 (19,428) -- 9,068,494
PRO FORMA INCOME TAX
ADJUSTMENTS:
Pro forma income taxes for periods
prior to September 30, 1997 3,255,731 -- -- 3,255,731
Non-recurring tax credit 1,167,000 -- -- 1,167,000
------------ ------------ ------------ ------------
Pro forma net income (loss) $ 4,665,191 $ (19,428) $ -- $ 4,645,763
============ ============ ============ ============
Earnings per share:
Basic $ 0.21 $ 0.13
============ ============
Diluted $ 0.21 $ 0.13
============ ============
Weighted average common stock:
Basic 21,829,417 14,500,799 (B) 36,330,216
============ ============ ============
Diluted 22,620,064 14,500,799 (B) 37,120,863
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
(A) To reclass interest expense.
(B) To reflect the conversion of Omega Research and OnlineTrading.com's weighted
average shares outstanding to shares of Holding Company common stock in
connection with the merger.
82
<PAGE>
BUSINESS AND FINANCIAL INFORMATION REGARDING OMEGA RESEARCH
OVERVIEW AND RECENT DEVELOPMENTS
Omega Research, Inc., a Florida corporation, was incorporated in 1982 to
develop, market and sell investment analysis and trading strategy testing and
automation (collectively, "trading strategy") software tools to individual and
professional investors and traders (collectively, "traders"). Omega Research's
current products and services provide traders with the ability to develop,
historically test and computer automate trading strategies and to access
streaming real-time charts, quotes and news via the Internet.
Omega Research is in the process of changing its business model. Omega
Research has taken steps, one of which is the proposed merger, to transform
itself from a trading strategy client software company to one that includes an
online brokerage firm -- a company which intends to provide to active traders a
trading platform that incorporates and seamlessly integrates powerful trading
strategy tools, historical and streaming real-time market data and news, and
high- speed access directly to an electronic order execution system. Omega
Research's historical business model has consisted of sales of client software
products, payment for which is committed to in full by the customer at the time
of sale. Under the new business model, Omega Research will seek to derive
recurring revenues from customers by offering monthly subscription services for
trading strategy tools integrated with streaming real-time market data and news
for which a monthly fee is payable, and by offering through OnlineTrading.com
(subject to completion of the merger) online brokerage services for which
commissions are payable. Omega Research believes that it will be able to
leverage its historical success in selling trading strategy tools to build a
subscriber base of active traders that will, assuming completion of the merger,
use the online brokerage services of OnlineTrading.com or, at a minimum, Omega
Research's trading strategy subscription services.
Omega Research has been, and remains, a leading provider of real-time trading
strategy client software for the Microsoft Windows operating system. In February
1999, Omega Research released its current generation of premium software
products, branded "2000I," which included upgrade versions of its then-existing
products and new products. As of February 22, 1999, Omega Research's client
software product line has consisted of TRADESTATION 2000I, OPTIONSTATION 2000I,
RADARSCREEN 2000I, OMEGA RESEARCH PROSUITE 2000I and SUPERCHARTS 4.
TRADESTATION enables traders to historically test the profitability of their
own trading strategies, and then computer- automate those strategies to generate
real-time buy and sell signals. OPTIONSTATION enables traders to benefit from
stock, index and futures options trading strategies. RADARSCREEN enables traders
to scan the markets in real time to identify favorable buying and selling
opportunities based upon their own trading strategies. OMEGA RESEARCH PROSUITE
is an integrated suite of TRADESTATION, OPTIONSTATION and RADARSCREEN.
SUPERCHARTS provides traders with state-of-the-art technical analysis tools.
In October 1999, Omega Research began to implement the change in its business
model. On October 26, 1999, Omega Research acquired Window on WallStreet Inc.
("Window On WallStreet"), a leading provider of Internet-based streaming
real-time market data (FINANCIAL DATA CAST NETWORK, or "FDCN") and a developer
of client software and online trading strategy tools, in a merger transaction in
which the Window On WallStreet shareholders received 1,999,995 newly-issued
shares of Omega Research common stock.
On November 8, 1999, Omega Research announced that it would focus on serving
active online traders through the design, marketing and implementation of a
monthly-subscription, Internet-based, trading strategy portal that is to be
named TRADESTATION.COM. TRADESTATION.COM, expected to be launched later this
year, will include premium trading strategy tools of TRADESTATION seamlessly
integrated with the FDCN's streaming real-time market quotes and news.
TRADESTATION.COM is also expected to contain features that support the use of
real-time trading strategies, such as subject-focused discussion forums,
electronic discussion groups, educational content and online technical support.
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<PAGE>
On January 19, 2000, Omega Research signed the merger agreement with
OnlineTrading.com. The prime objective of the pending merger with
OnlineTrading.com is to offer to active traders online brokerage services that
are integrated with TRADESTATION.COM, thereby creating a trading platform that
incorporates and seamlessly integrates powerful trading strategy tools,
historical and streaming real-time market data and news, and high-speed access
directly to an electronic order execution system.
On January 25, 2000, Omega Research launched WINDOWONWALLSTREET.COM, its
first Internet subscription service. WINDOWONWALLSTREET.COM offers streaming
real-time charts, quotes and news powered by some of Omega Research's
award-winning trading tools. Omega Research believes that the subscriber base
being built with WINDOWONWALLSTREET.COM will contain many potential
OnlineTrading.com brokerage clients.
On February 29, 2000, Omega Research announced that in light of the apparent
successful launch of WINDOWONWALLSTREET.COM, Omega Research was accelerating its
transition to its new business model by focusing its marketing efforts and
resources on WINDOWONWALLSTREET.COM (as opposed to its client software).
Omega Research's principal executive offices are located at 8700 West Flagler
Street, Miami, Florida 33174, and its telephone number is (305) 485-7000.
INDUSTRY BACKGROUND
In the last several years there has been dramatic growth in the electronic
brokerage industry. In the early 1990s, several broker-dealers gave customers
the ability to enter orders with them through private computer networks. In
1995, broker-dealers introduced the first systems that allowed customers to
submit orders through the Internet. More than 160 broker-dealers now offer
online trading. In fewer than five years, online brokerage has become an
important channel for conducting retail brokerage transactions.
U.S. Bancorp Piper Jaffray ("Piper Jaffray") estimated that by the end of the
third quarter of 1999 there were over 10.8 million online brokerage accounts, up
from 3.7 million in 1997 and 7.3 million in 1998. Piper Jaffray estimated that
over $900 billion in assets were held in online brokerage accounts at year-end
1999. Online equity trading volume has also grown dramatically over the past
several years. Piper Jaffray reported that there was a daily average of
approximately 807,000 online trades in the fourth quarter of 1999.
Not only have online equity trading volumes risen, they are accounting for an
increasing percentage of overall equity trading. CS First Boston reported that
in the first quarter of 1999 almost one in six equity trades (15.91%) took place
online. Online trading accounts for an even higher percentage of overall equity
and options trades by retail investors. 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, Piper Jaffray
estimated that online firms processed 43% of all retail trades, up from 27% in
1998.
Industry analysts foresee continued growth both in the number of online
brokerage accounts and account assets. Forrester Research predicted that, by
2003, 9.7 million U.S. households will manage more than $3 trillion in 20.4
million online accounts. Jupiter Communications estimated that, by 2003, 20.3
million households will trade online, and also predicted total online account
assets at more than $3 trillion. Forrester Research has also recently predicted
that, by 2004, Europe will have 14 million online brokerage accounts.
Concurrently with the growth of online trading, there has been, in the last
several years, dramatic growth in the financial markets as increasing amounts of
capital have been actively invested in an effort to generate superior returns.
Traditionally, financial instruments were held to maturity or for long
investment horizons, but in today's environment of abundant data flow and low
transaction costs, financial instruments are increasingly being actively traded.
Robertson Stephens reported that during 1999 The Nasdaq Stock Market ("Nasdaq")
and New York Stock Exchange ("NYSE") composite volumes experienced the largest
jump in history. Nasdaq volume reached 271 billion in 1999, a 37% increase
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<PAGE>
over the 1998 volume of 198 billion. NYSE volume also increased in 1999, to 209
billion, a 24% increase over 1998 volume of 169 billion.
The broad availability of financial market information online has enabled
individuals to become more sophisticated and knowledgeable about trading, having
experienced greater access to stock quotes, other financial market data, trading
advice and other trading information through the Internet or through other
online services. In addition to increased information flows, the increased
popularity and proliferation of online brokerage services have resulted in
reduced transaction costs to the individual trader, facilitating the increase in
trading activity.
While both brokerage services and financial market data have been available
for some time, historically only large institutional investors with access to
mainframe or minicomputer-based systems, and direct or personal access to
securities exchanges, have had the capability to manipulate, organize and
analyze such data to support their trading decisions, and then execute with
efficiency those trading decisions. Historically, such organizational and
analytical data activities have been expensive and time consuming, and usually
performed in the "back office" of institutional traders through custom
programming by information technology professionals. With the proliferation of
online brokerage services, the increasing and less-expensive accessibility to
large quantities of various types of market data, the increasingly-powerful
processing capabilities of personal computers, and the rapidly-growing
capabilities of the Internet, Omega Research believes that individual traders
are demanding powerful, Internet-based, real-time trading platforms that are
seamlessly integrated with the best-available order execution technology.
Individual traders desire to improve both their decision-making regarding, and
their execution of, trades. Omega Research believes that a need has arisen for
an online brokerage to provide to the growing market of active traders an
institutional quality, Internet-based platform that includes analytical tools
which support the design and testing of trading strategies, the automation of
those strategies in real-time, and the execution of those strategies through
state-of-the-art electronic order execution systems.
PRODUCTS AND SERVICES
As a result of Omega Research's decision to change its business model, the
beginning of this "Products and Services" discussion is set forth in two parts.
The first part discusses Omega Research's client software products (principally
the 2000I line released in February 1999), which constituted virtually all
products sold by Omega Research during 1999. The second part discusses Omega
Research's recently-implemented and future-planned Internet-based services.
Those consist of trading tools seamlessly integrated with streaming real-time
market quotes and news, which, after the merger, are to be integrated with
OnlineTrading.com's online brokerage services.
The first of Omega Research's Internet-based, monthly-subscription services,
WINDOWONWALLSTREET.COM, was first marketed on Window On WallStreet's web site in
December 1999, and was launched by Window On WallStreet in late January 2000. In
February 2000, the focus of Omega Research's marketing efforts were shifted from
the 2000I product line to WINDOWONWALLSTREET.COM.
Omega Research's products and services are sophisticated trading tools. They
do not provide investment or trading advice or recommendations, or recommend the
use of any particular strategy.
CLIENT SOFTWARE
In the first quarter of 1999, Omega Research released its current generation
of client software products: TRADESTATION 2000I, RADARSCREEN 2000I,
OPTIONSTATION 2000I and OMEGA RESEARCH PROSUITE 2000I. Omega Research's 2000I
software products contain numerous new features, functions and improvements when
compared to the prior versions, including 32-bit architecture and Microsoft COM
technology (most notably, this technology 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
85
<PAGE>
and broadcast financial market datafeeds: BMI (broadcast); DTN Real Time
(broadcast); DTNstant (broadcast); eSignal (Internet); Hyperfeed (Internet and
broadcast) and InSite (Internet). An agreement is also in place to add
compatibility with FutureSource Information Systems, Inc.'s MDS network and
stand-alone datafeeds (broadcast). 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.
Omega Research's principal client software products currently are:
CURRENT OPERATING LIST
PRODUCT VERSION SYSTEM PRICE
------- ------- ------ -----
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
TRADESTATION 2000I. TRADESTATION has been the flagship product of Omega
Research, serving as a platform for numerous third-party software solutions.
TRADESTATION has been marketed to equities, futures and foreign currency
traders. TRADESTATION empowers the trader to design and develop trading
strategies based upon the trader's objective rules and criteria, test the
profitability of such trading strategies against historical data, and then
computer-automate a chosen trading strategy to monitor the applicable market and
alert the trader in real-time when the criteria of the trading strategy have
been met and an order should, therefore, be placed. The principal features of
TRADESTATION which enable the trader to design and develop trading strategies
are EASYLANGUAGE and the POWEREDITOR. EASYLANGUAGE is a proprietary computer
language developed by Omega Research consisting of English-like statements and
trading terms which can be input by the trader to describe particular objective
rules and criteria. The POWEREDITOR is a compiler of EASYLANGUAGE statements
that provides the trader with considerable flexibility to modify and combine
different trading rules and criteria which ultimately result in the design of
the trader's trading strategies. Omega Research's TRADESTATION product has also
been marketed worldwide to institutional traders on a monthly subscription basis
by Telerate, Inc., a subsidiary of Bridge Information Systems, Inc. See
"Strategic Relationships" below.
RADARSCREEN 2000I. RADARSCREEN, a product officially released in February
1999, enables traders to scan up to hundreds or thousands (depending upon the
data service and computer hardware used) of stocks or other securities to
identify favorable buying and selling opportunities based upon their own trading
strategies, which may be designed through the use of EASYLANGUAGE and the
POWEREDITOR. The program also updates dynamically and ranks securities in
real-time based upon user-defined criteria and alerts the trader in real-time
when the strategies' criteria are met.
OPTIONSTATION 2000I. OPTIONSTATION is an options trading analysis product for
stock, index and futures options which enables traders to explore options
trading strategies. Specifically, OPTIONSTATION is designed to sort through all
of the possible options positions on one or more securities and identify the
most favorable risk-reward profile based upon user- defined assumptions.
EASYLANGUAGE and the POWEREDITOR can be used with OPTIONSTATION to customize the
user's options analyses. OPTIONSTATION is designed to perform two critical tasks
of options trading--position search and position analysis. OPTIONSTATION's
Position Search helps the trader find the best risk-reward profile based upon
the trader's market assumptions. The OPTIONSTATION Position Analysis and
OPTIONSTATION Position Chart features enable traders to design and customize
options positions and then graphically view and analyze each position's
profitability and risk. The program will alert the trader in real-time when the
trader's specified criteria have been met.
OMEGA RESEARCH PROSUITE 2000I. OMEGA RESEARCH PROSUITE is Omega Research's
premium client software product, as it includes, as an integrated suite,
TRADESTATION 2000I, RADARSCREEN 2000I and OPTIONSTATION 2000I. Due to the
utilization of Microsoft COM technology, all three programs (plus additional
third party programs, such as, e.g.,
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<PAGE>
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.COM. In particular, FDCN is intended to serve as the backbone
of the streaming real-time market data and news services that are and will be
part of those Internet-based services.
NEW BUSINESS MODEL
WINDOWONWALLSTREET.COM. On January 25, 2000, Omega Research launched
WINDOWONWALLSTREET.COM. WINDOWONWALLSTREET.COM offers to its subscribers, on a
monthly-subscription basis, browser-based streaming real-time charts, quotes and
news presented and powered by some of Omega Research's award-winning trading
tools. The features of WINDOWONWALLSTREET.COM include powerful analytical
charting, Nasdaq Level II market maker data, time and sales data, quote lists,
option chains, market leaders data, streaming news, Internet SmartSearch (a
feature that enables the trader to access relevant Internet research services),
live ticker, portfolio management, profit/loss tracking, discussion forum, and
wireless access. The streaming real-time financial market data currently
included are NYSE, Nasdaq, American Stock Exchange ("AMEX") and Options Price
Reporting Authority ("OPRA"). The subscription price currently being offered is
$79.95 per month. If the subscriber commits to a one-year subscription, and pays
in advance, the price currently offered is $839.40 ($69.95 per month). All
exchange fees payable to NYSE, Nasdaq, AMEX and OPRA for non-professional
subscribers are included in the pricing (those currently total $5.00, and will
soon total $4.00, per month), other than those payable to receive Nasdaq Level
II data (which currently costs $50.00 per month). Exchange fees payable by
professional subscribers are also not included in the above-described pricing.
TRADESTATION.COM. Later this year, Omega Research intends to launch
TRADESTATION.COM, which is currently under development. Omega Research has
targeted late Spring for the launch, but given the substantial development yet
to be completed, the launch date may be considerably later than currently
anticipated. TRADESTATION.COM is planned to be an Internet-based monthly
subscription service that will include substantially all of the features and
functions of WINDOWONWALLSTREET.COM, including streaming real-time charts,
quotes and news, plus the powerful trading strategy tools of TRADESTATION: tools
that enable the development of trading strategies that may be historically
tested and then
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automated to produce buy and sell signals in real time. TRADESTATION.COM's tools
will likely also include the functions of RADARSCREEN. TRADESTATION.COM is also
expected to include discussion forums, electronic discussion groups, educational
content and detailed technical support information that support the use of its
trading strategy tools. Conceptually, TRADESTATION.COM is being designed as a
web-based "portal" for the active online trader who wishes to develop, test and
implement in real time objective trading strategies. Omega Research has not yet
determined the monthly subscription price at which TRADESTATION.COM will be
offered. Such decision is expected to be made shortly before its launch.
Sometime following the launch of TRADESTATION.COM, Omega Research plans to
launch OPTIONSTATION.COM, either as a separate trading platform for options
traders or as premium service within TRADESTATION.COM.
INTEGRATION WITH ONLINETRADING.COM'S ON-LINE BROKERAGE SERVICES. After the
merger, Omega Research intends to integrate the TRADESTATION.COM platform with
OnlineTrading.com's high-speed electronic order execution brokerage services.
These development efforts are in progress. The planned benefit of such
integration is that OnlineTrading.com's online brokerage customers will be able
to utilize TRADESTATION.COM to develop real-time trading strategies and then
electronically generate buy and sell orders, including buy and sell orders that
result from alerts generated in real time by TRADESTATION.COM. Those buy and
sell orders would then, upon confirmation by the user, be transmitted to, and
executed through, OnlineTrading.com's high-speed electronic order execution
system. Assuming that all additional regulatory requirements are satisfied, it
is possible that the users may also be enabled to program their trading
strategies to generate real-time buy and sell signals that automatically,
without the need for confirmation, initiate execution of trades through
OnlineTrading.com's electronic order execution system. Omega Research has not
yet made a decision as to whether WINDOWONWALLSTREET.COM shall be usable in such
fashion with OnlineTrading.com's order execution technology; however, it is
currently intended that OPTIONSTATION.COM, if and when launched, will be so
integrated.
SALES AND MARKETING
Omega Research has marketed its client software products using a combination
of methods, including inbound telesales, the use of distributors, and, most
recently, online sales through its web site. Marketing efforts in support of
sales have included television advertising and print media, direct mail,
advertising on Omega Research's web site, hundreds of sales seminars conducted
annually throughout the United States (which were discontinued in February 2000
in connection with Omega Research's transition to its new business model), and
establishment of marketing and other relationships with data vendors, online
brokerages and software and service solution providers. In connection with Omega
Research's transition to its new business model, its marketing and sales
methods, and the mix of such methods, is expected to change significantly. For
example, those relationships, as related to the new business model, with data
vendors and online brokerages (companies that Omega Research is now or soon will
be directly or indirectly competing with) will likely no longer be desirable or
available, and the mix of television, print, web site, direct mail and in-person
marketing methods will be determined and continually modified as Omega Research
tests such methods and mixtures and analyzes and interprets the results.
In February 1999, Omega Research launched a redesigned and expanded web site
for its client software business. In addition to enabling online ordering and
payment for virtually all 1999 products and services, the new web site included
the following features: online registration for Omega Research conferences and
online subscriptions to Omega Research newsletters; expanded free access to
downloadable technical files, indicators and studies; online search functions
that enable users to find Omega Research product distributors and user groups by
geographic area; an expanded industry events section; online search capabilities
for locating Omega Research Solution Providers (as described below in "Strategic
Relationships - Omega Research Solution Provider Network"); online search
capabilities that allow users to find answers to technical issues by having
access to Omega Research's technical assistance knowledge base; and
comprehensive information about Omega Research's products and services. The web
site will be substantially redesigned, and new web sites will be created (as,
for example, a new web site was created for WINDOWONWALLSTREET.COM) in
connection with Omega Research's planned offering of TRADESTATION.COM and,
possibly, OPTIONSTATION.COM, as a result of the merger.
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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 CDs.
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, software and service solution
providers, 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. However, Omega Research's solution
provider network (discussed below) should be able to use TRADESTATION.COM as a
platform.
BRIDGE TELERATE AGREEMENT. In August 1994, Omega Research entered into a
Software License, Maintenance and Development Agreement (the "Bridge Telerate
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. ("Bridge Telerate") the right to market and
distribute TRADESTATION to its data subscribers worldwide, who are primarily
institutional traders. In 1999, Omega Research and Bridge Telerate completed
development of technical compatibility between TRADESTATION 2000I and the
Bridgefeed technology on which the Bridge Telerate datafeeds currently run. The
Bridge Telerate Agreement expires in January 2002. The Bridge Telerate Agreement
requires Bridge Telerate 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 Bridge
Telerate, but is obligated to provide limited technical support to Bridge
Telerate managers. During the term of the Bridge Telerate Agreement, Omega
Research is not permitted to enter into a similar licensing arrangement
regarding TRADESTATION with five enumerated competitors of Bridge Telerate.
Bridge Telerate is not prohibited by the agreement from offering to its data
service subscribers its own or another company's trading strategy software.
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MARKET DATA SERVICES. The real-time market data included in
WINDOWONWALLSTREET.COM is, and the real-time market data to be included in
TRADESTATION.COM will be, licensed from S&P ComStock, Inc. A portion of the
technology used to deliver real-time market data services is licensed from a
third-party development company. A significant portion of the computer hardware
and software used by Omega Research to provide market data services is located
at facilities leased to Window On WallStreet by Verio Inc. located in Dallas,
Texas.
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.
OMEGA RESEARCH SOLUTION PROVIDER NETWORK. 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 (collectively, the "Omega Research
Platform"). The Omega Research Platform was 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 ("Omega
Research Solution Providers") have developed specific trading strategies or
other trading applications for the Omega Research Platform. This is attributable
chiefly to EASYLANGUAGE, Omega Research's proprietary computer language
comprised of English-like statements and trading terms that can be used by
traders and third-party developers to describe their own trading rules and
criteria. Omega Research expects that TRADESTATION.COM shall also serve as a
platform for solution providers.
PRODUCT DEVELOPMENT AND YEAR 2000 COMPLIANCE
Omega Research believes that its future success depends in large part on its
ability to transfer and implement, on a high-quality, efficient and
user-friendly basis, the functions and features of its 2000I line of products to
Internet, browser-based platforms, and to integrate those platforms with the
FDCN's streaming real-time market data and news and with state-of-the-art online
order execution technology, and to develop and implement well-designed and user-
friendly web sites. To date, Omega Research has relied primarily on internal
development of its products and services, but is currently relying and will rely
to some extent on licenses from third parties with respect to market data
services technology and order execution technology. Omega Research currently
performs all quality assurance and develops documentation and other training
materials internally, but this, too, may change to some extent with respect to
market data services technology and order execution technology. In 1999, 1998
and 1997, product development expenses were approximately $5.1 million, $4.0
million and $2.4 million, respectively. Omega Research may, in the near future,
explore acquisitions of, or strategic or other relationships with, quality
software development companies as a means of expanding its product development
resources. Omega Research and OnlineTrading.com are currently working together
(with the assistance of a third-party development company) on the development of
a proprietary order routing and execution technology to be used in the new
business model. Omega Research also intends to continue to improve the speed and
efficiency of its 2000I line of products. As of December 31, 1999, Omega
Research's product development team was comprised of 72 persons, as compared to
54 as of December 31, 1998, a 33% increase. That number of persons was 82 as of
April 10, 2000, a 14% increase from December 31, 1999.
Omega Research views its product development cycle (with respect to both
client software and its new business model) as a four-step process to achieve
technical feasibility. The first step is to conceptualize in detail the defining
features and functions that the targeted trader group requires from the product
or service, and to undertake a cost-benefit analysis to determine the proper
scope and integration of such features and functions. Once the functional
requirements of the product or service have been determined, the second step is
to technically design the product or service. The third step is the detailed
implementation, or engineering, of this technical design. The fourth step is
rigorous quality assurance testing to ensure that the final product or service
generally meets the functional requirements determined in the first step.
Several refinements are typically added in the quality assurance phase of
development. Once this process is completed, technological feasibility has been
achieved and the working model is available for final testing.
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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 is also Year 2000 compliant in all material respects, as
are Window On WallStreet's 6.5, 7.0 and 7.5 versions of Internet Trader,
Internet Trader Deluxe, Internet Trader Pro, Day Trader and Professional
Investor.
With respect to the shipping versions of Omega Research's client software
products immediately prior to the 2000I line, TradeStation 4, OptionStation 1.2,
TradeStation ProSuite 4 and SuperCharts 4, Omega Research offered, in June 1999,
to all registered customers in good-payment standing of those versions, as a
courtesy, an appropriate solution to those products' Year 2000 compliance
issues. No versions prior to version 6.0 of any Window On WallStreet product,
all of which are discontinued products, are Year 2000 compliant. With respect to
the 5.0 shipping versions of those discontinued client software products, Window
On WallStreet offered, in December 1999, to all registered customers of version
5.0 products in good-payment standing, as a courtesy, a free upgrade to a Year
2000 compliant Window On WallStreet product. Omega Research did not incur any
material expenditures specifically to provide Year 2000 solutions for its
products. During 1999, Omega Research utilized internal resources having an
approximate aggregate value of under $200,000 to provide all requisite Year 2000
solutions.
There have not been, and will not be, any Year 2000 modifications or
solutions for any versions of Omega Research's (or Window On WallStreet's)
products introduced prior to those versions specifically mentioned above, or for
any other products not specifically named above, or any other discontinued
products.
CUSTOMER SUPPORT AND TRAINING
Omega Research provides customer support and product-use training in the
following ways:
CUSTOMER SUPPORT. Omega Research provides technical support to its customers
by telephone, electronic mail and fax. The majority of these services are
provided during the first sixty days of ownership of an Omega Research client
software product and the related costs associated with such support are accrued
at the date of sale. With respect to monthly subscription services, technical
support is provided as a courtesy to subscribers during the subscription period.
Omega Research also provides a substantial amount of technical support
information on its web sites.
PRODUCT-USE TRAINING. Omega Research considers product-use and service-use
training important to try to ensure that its customers develop the ability to
use its products and services as fully and effectively as is possible. The
majority of Omega Research's training materials consist of extensive online
documentation and technical assistance information on its web sites.
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COMPETITION
The markets for (i) online brokerage services, (ii) client software and
Internet-based trading tools and (iii) real-time market data services are
intensely competitive and rapidly evolving, and there appears to be substantial
consolidation of those three products and services occurring in the industry.
Omega Research's new business model embraces this evolution and consolidation.
However, Omega Research believes that due to the current and anticipated rapid
growth of the market for integrated trading tools, real-time market data and
online brokerage services, competition, as well as consolidation, will
substantially increase and intensify in the future. Omega Research believes its
ability to compete will depend upon many factors both within and outside its
control, including: the timing and market acceptance of new products and
services and enhancements developed by Omega Research and its competitors; the
ability of Omega Research to complete the merger with OnlineTrading.com and to
integrate the respective businesses in an orderly, efficient and otherwise
successful manner; the ability of Omega Research to operate and support
efficient, materially error-free Internet-based systems; product and service
functionality; data availability; ease of use; pricing; reliability; customer
service and support; and sales and marketing efforts.
Omega Research faces and after the merger the combined company will face
direct competition from several publicly-traded and privately-held companies
with respect to its new business model, principally (i) online brokerages and
(ii) 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 is being or 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., TradeCast Securities, Ltd., TRADESCAPE.com Inc.
and Waterhouse Securities, Inc. Those brokers currently serve, in the aggregate,
more than 92% of existing online accounts, and many are focusing on attracting
more active traders to use their services. Omega Research's principal data
vendor competitors include, but are not limited to, Bridge Information Systems,
Inc. (Bridge Channel, Telerate Channel), Data Broadcasting Corporation
(eSignal), Data Transmission Network Corporation (DTN.IQ and InterQuote),
Hyperfeed Technologies, Inc. (Hyperfeed), Quote.com, Inc. (Quote.com), S&P
ComStock, Inc. (ComStock on the Net and MyComStock.com), Telescan, Inc. (Wall
Street City) and Track Data Corporation (MyTrack). Omega Research's competitors
in the trading tools industry include, but are not limited to, Equis
International, Inc. (a subsidiary of Reuters Group PLC) and each of the data
vendors and online brokers listed above (all of whom develop, are in the process
of developing or seek to develop or otherwise obtain, trading tools as
value-added front ends for their data services and/or, as noted above, value-
added tools for their brokerage services). Omega Research also will compete with
trading tools and data services on the Internet that are available for free, and
believes that trading tools and data services that are available on the Internet
either for free or at modest prices will increase in sophistication over time.
There can be no assurance that Omega Research and the combined company will be
able to compete effectively with their competitors, adequately educate potential
customers as to the benefits that their products and services provide, or
continue to offer such products and services.
Many of Omega Research and the combined company's existing and potential
competitors, which include (i) large, established software or Internet companies
that do not currently focus on trading tools/market data services, (ii) 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 (iii) data vendors that are adding online brokerages (such as Track
Data Corporation has done) 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
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products and services than may Omega Research. There can be no assurance that
Omega Research's existing or potential competitors will not develop products and
services comparable or superior to those developed by Omega Research or adapt
more quickly than Omega Research to new technologies, evolving industry trends
or changing customer requirements, or that Omega Research will be able to timely
and adequately complete the implementation of its new business model (in
particular, consummation of the merger with OnlineTrading.com), and integrate,
implement and offer products and services competitive with those of its
competitors. Increased competition could result in price reductions, reduced
margins, failure to obtain any significant market share, or loss of market
share, any of which could materially adversely affect Omega Research's business,
results of operations and financial condition. There can be no assurance that
Omega Research or the combined company will be able to compete successfully
against current or future competitors, or that competitive pressures faced by
Omega Research or the combined company will not have a material adverse effect
on its business, financial condition and results of operations.
INTELLECTUAL PROPERTY
Omega Research and the combined company's success is and will be heavily
dependent on proprietary technology, including Internet, web site and order
execution technology currently in development. Omega Research views its software
technology as proprietary, and relies, and will be relying, on a combination of
copyright, trade secret and trademark laws, nondisclosure agreements and other
contractual provisions and technical measures to establish and protect its
proprietary rights. Omega Research has no material patents or patents pending,
and has not to date registered any of its copyrights. Omega Research has
obtained registrations in the United States and Canada for the trademarks
TRADESTATION and OPTIONSTATION, and registrations in the United States for the
trademarks SUPERCHARTS, PROSUITE, EASYLANGUAGE and POWEREDITOR, 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,
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litigation may be necessary to establish, enforce and protect trade secrets,
copyrights, trademarks and other intellectual property rights of Omega Research
or the combined company. Omega Research or the combined company may also be
subject to litigation to defend against claimed infringement of the rights of
others or to determine the scope and validity of the intellectual property
rights of others. Any such litigation could be costly and divert management's
attention, either of which could have a material adverse effect on Omega
Research's or the combined company's business, financial condition and results
of operations. Adverse determinations in such litigation could result in the
loss of proprietary rights, subject Omega Research or the combined company to
significant liabilities, require Omega Research or the combined company to seek
licenses from third parties, which could be expensive, or prevent Omega Research
or the combined company from selling its products or services or using its
trademarks, any one of which could have a material adverse effect on Omega
Research's or the combined company's business, financial condition and results
of operations.
EMPLOYEES
As of December 31, 1999, Omega Research had 282 full-time equivalent
employees consisting of 72 in product development (including software
engineering, product management, documentation and quality assurance), 173 in
sales and marketing (including sales, marketing, customer support and order
fulfillment), and 37 in general administration (including executive management,
finance, information technology services and administration). Omega Research's
employees are not represented by any collective bargaining organization, and
Omega Research has never experienced a work stoppage and considers its relations
with its employees to be good.
Omega Research's future success depends, in significant part, upon the
continued service of its key senior management, technical and sales and
marketing personnel. The loss of the services of one or more of these key
employees, including William R. Cruz or Ralph L. Cruz, Omega Research's Co-Chief
Executive Officers, or of certain key technology personnel, could have a
material adverse effect on Omega Research. There can be no assurance that Omega
Research will be able to retain its key personnel. Departures and additions of
personnel, to the extent disruptive, could have a material adverse effect on
Omega Research's business, financial condition and results of operations.
PROPERTIES
Omega Research's corporate headquarters are located in Miami, Florida, in a
leased facility originally consisting of approximately 17,300 square feet of
office space under a lease which commenced in February 1997 and which expires in
August 2002. Omega Research has entered into a sublease and two lease amendments
with respect to its corporate headquarters which, taken together, had the effect
of significantly expanding these facilities to approximately 60,500 square feet
of office space. Omega Research recently opened a leased facility in Boca Raton,
Florida, consisting of approximately 6,000 square feet of space to be used for
additional product development and data services operations. That lease expires
January 1, 2005, and has a five-year renewal option. Omega Research acquired an
approximate 13,500 square foot leased facility in Richardson, Texas in
connection with the Window On WallStreet acquisition, at which most Window On
WallStreet employees are based and at which certain data services development
and technical operations are based. That lease expires July 31, 2002, and has a
three-year renewal option. Omega Research also leases warehouse space south of
Miami, Florida consisting of approximately 4,800 square feet, which is used for
fulfillment of orders. The warehouse lease is on a month to month term. Omega
Research's corporate headquarters contain all of Omega Research's facilities
except for data services, a portion of product development, and fulfillment.
Omega Research believes that its existing facilities are adequate to support its
existing operations and that, if needed, it will be able to obtain suitable
additional facilities on commercially reasonable terms.
LEGAL PROCEEDINGS
Omega Research is not a party to any material legal proceedings.
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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 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 Consolidated
Financial Statements included on pages F-1 through F-22 of this report, which
have been audited by Arthur Andersen LLP. The Consolidated Balance Sheet Data as
of December 31, 1997 have been derived from audited financial statements not
included in this report. 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 report. See also Note 12 of
Notes to Omega Research's Consolidated Financial Statements for quarterly
financial information for fiscal years 1999 and 1998.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands, except per share date)(1)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net revenues:
Licensing fees $ 33,768 $ 25,057 $ 27,729 $ 15,994 $ 9,404
Other revenues 9,102 6,654 5,221 4,118 1,595
-------- -------- -------- -------- --------
Total net revenues 42,870 31,711 32,950 20,112 10,999
Total operating expenses 40,745 30,616 24,727 13,616 7,731
-------- -------- -------- -------- --------
Income from operations 2,125 1,095 8,223 6,496 3,268
-------- -------- -------- -------- --------
Pro forma net (loss) income (2) $ (967) $ (429) $ 4,665 $ 3,690 $ 1,980
======== ======== ======== ======== ========
Pro forma (loss) earnings per share: (2)
Basic $ (0.04) $ (0.02) $ 0.21 $ 0.18 $ 0.09
Diluted $ (0.04) $ (0.02) $ 0.21 $ 0.17 $ 0.09
Weighted average shares outstanding:
Basic 24,294 23,914 21,829 20,886 20,934
Diluted 24,294 23,914 22,620 22,033 22,018
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $ 2,176 $ 7,650 $ 12,827 $ 1,097 $ 364
Marketable securities 1,695 5,737 1,015 -- --
Working capital 22,390 24,928 24,983 5,051 2,154
Total assets 31,380 30,774 29,153 7,571 3,747
Long term debt -- 2,641 2,365 2,167 --
Shareholders' equity 25,475 24,495 24,017 4,304 3,200
</TABLE>
- ------------------
(1) Amounts have been restated to reflect the acquisition of Window On
WallStreet, which was accounted for under the pooling-of-interests
method. See Note 2 of Notes to Omega Research's Consolidated Financial
Statements.
(2) Omega Research was treated as an S corporation for federal and state
income tax purposes prior to September 30, 1997. Pro forma income taxes
have been provided as if Omega Research had been a C corporation for
all periods prior to September 30, 1997. Upon terminating its S
corporation election, Omega Research was required to record a
non-recurring credit. See Note 9 of Notes to Omega Research's
Consolidated Financial Statements.
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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 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, one of which is the proposed merger, to transform
itself from a trading strategy client software company to one that includes an
online brokerage firm -- a company that intends to provide to active traders a
trading platform that incorporates and seamlessly integrates powerful trading
strategy development tools, historical and streaming real-time market data and
news, and high-speed access directly to an electronic order execution system.
Omega Research's historical business model has consisted of sales of client
software products, payment for which is committed to in full by the customer at
the time of sale. Under the new business model, Omega Research will seek to
derive recurring revenues from customers by offering monthly subscription
services for trading strategy development tools integrated with streaming
real-time market data and news for which a monthly fee is payable. Omega
Research believes that it will be able to leverage its historical success in
selling trading strategy tools to build a subscriber base of active traders that
will, assuming completion of the merger, use the online brokerage services of
OnlineTrading.com or, at a minimum, Omega Research's trading strategy
subscription services.
To support the change in the business model, Omega Research expects to
increase significantly its sales and marketing, product development and
infrastructure expenditures. As a result, Omega Research expects to incur net
losses through the year 2000. These anticipated losses could reduce Omega
Research's available cash resources, increase its capital requirements and
require Omega Research to seek debt and/or equity financing. See "Liquidity and
Capital Resources" below.
Historically, Omega Research's revenues have been derived principally from
two sources: (i) licensing fees for use of Omega Research's client software
products, and (ii) other revenues consisting primarily of royalties, fees and
commissions paid to Omega Research in accordance with its agreements with
third-party data vendors and other third parties and revenue from Window On
WallStreet's FINANCIAL DATA CAST NETWORK ("FDCN") subscription service.
Licensing fees are recognized upon product shipment in accordance with the
American Institute of Certified Public Accountants Statement of Position ("SOP")
97-2, Software Revenue Recognition. See Note 1 of Notes to Consolidated
Financial Statements.
While Omega Research has no obligation to perform future services
subsequent to shipment of client software, Omega Research voluntarily provides
telephone, electronic mail and fax customer support to purchasers of its
products. Omega Research currently does not charge a fee for the use of customer
support. The costs associated with these services are insignificant in relation
to product value.
On February 22, 1999, Omega Research released its latest generation of
premium software products, branded "2000I," which included upgrade versions of
its then existing products and new products. Accordingly, as of February 22,
1999, Omega Research's client software product line consisted of TRADESTATION
2000I, RADARSCREEN 2000I, OPTIONSTATION 2000I, OMEGA RESEARCH PROSUITE 2000I and
SUPERCHARTS 4.
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Omega Research began to implement the change in its business model with its
October 1999 acquisition of Window On WallStreet, a provider of Internet-based
streaming real-time market data through its FDCN subscription service. Omega
Research's Consolidated Financial Statements have been restated to reflect the
acquisition of Window On WallStreet, which was accounted for as a
pooling-of-interests. In November 1999, Omega Research announced that it would
focus on serving active online traders by offering a new monthly subscription,
Internet-based, trading strategy portal that is to be named TRADESTATION.COM.
TRADESTATION.COM is expected to be launched later this year. On January 19,
2000, Omega Research signed the merger agreement with OnlineTrading.com. The
merger is also expected to be accounted for as a pooling-of-interests. Omega
Research launched its first Internet subscription service,
WINDOWONWALLSTREET.COM, on January 25, 2000. WINDOWONWALLSTREET.COM offers
streaming real-time charts, quotes and news, powered by certain of Omega
Research's award-winning trading tools.
Through 1999, substantially all of Omega Research's licensing fees were
derived from the licensing of client software products to individual traders.
Omega Research's client software products have been sold primarily by Omega
Research's telesales force. To date, a majority of the licensing fees have been
generated through sales of TRADESTATION and OMEGA RESEARCH PROSUITE. For sales
of most of Omega Research's client software products, customers have typically
provided Omega Research with a credit card number and were billed for their
purchases automatically and on a monthly basis over the course of 12 months.
Omega Research has offered a 16-month payment term for OMEGA RESEARCH PROSUITE
2000I sales. That payment plan results in deferred revenues with respect to the
amounts not due within twelve months from the date of sale. The concentration of
Omega Research's revenues is expected to migrate towards its subscription
services during 2000. Furthermore, as a result of Omega Research's transition
from a seller of client software to a provider of Internet subscription
services, it is expected that net revenues will be adversely impacted and it is
difficult to predict when, if at all, or to what extent, Omega Research's
Internet subscription services will offset such reductions.
The majority of Omega Research's other revenues for the year ended December
31, 1999 were derived from royalties associated with a licensing agreement with
Bridge Telerate relating to TRADESTATION. Under that agreement, Bridge Telerate
has the right to offer TRADESTATION to its customers on a subscription basis.
Bridge Telerate pays a per unit royalty to Omega Research, subject to a minimum
annual royalty commitment. The remaining other revenues has been comprised of
fees and commissions paid to Omega Research pursuant to cross-marketing
agreements with data service vendors and other third parties, revenues from the
FDCN subscription service and revenues generated from OMEGAWORLD, Omega
Research's annual trading strategy development conference. Omega Research's
decision to focus its marketing resources on WINDOWONWALLSTREET.COM and future
Internet subscription services is expected to result in reduced commission
revenues from data service vendors. However, it is difficult to predict when, if
at all, or to what extent, Omega Research's Internet subscription service
revenues will offset such reductions. Other revenues are recognized as earned in
accordance with the terms of the applicable contract; Internet subscription
services are recognized monthly as service is provided; and, with respect to
OMEGAWORLD, at the time the conference is conducted.
Omega Research provides client software customers with a 30-day right of
return and, as a result, records a provision for estimated returns at the time
of sale. Depending on the circumstances, Omega Research has often allowed
customers to return client software after the 30-day period. The reserve for
returns and the provision for bad debt, in accordance with generally accepted
accounting principles, are estimated based on historical experience and other
relevant factors and there is no certainty that future returns or bad debt will
not exceed established estimates. Due to expanded marketing and sales efforts
including television advertising and free audiotape or book offers, and an
increased awareness of trading, Omega Research has reached a broader audience
that includes more individuals who may not necessarily be suited to use Omega
Research's client software products. Consequently, Omega Research's rate of
returns and provision for bad debt have increased over the last three years,
particularly in the last of those years. There can be no assurance that this
trend will not continue, particularly in light of Omega Research's recent
decision to transition its business from a client software company to a provider
of subscription-based services and to merge with an online brokerage firm.
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In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, Accounting for the Cost of Capitalized Software to be Sold, Leased or
Otherwise Marketed, Omega Research examines its software development costs after
technological feasibility has been established to determine the amount of
capitalization that is required. Based on Omega Research's product development
process, technological feasibility is established upon completion of a working
model. The costs that are capitalized are amortized on the straight-line basis
over a one-year period, the period of benefit of the related products. There
were no capitalized software development costs as of December 31, 1999 or 1998.
In the future, Omega Research believes that the time between the technological
feasibility of Omega Research's Internet-based services and the general release
of such services will be insignificant, and, as a result, development costs
qualifying for capitalization are expected to be immaterial.
In 1988, Omega Research elected to be taxed under Subchapter S of the
Internal Revenue Code and, as a result, Omega Research's earnings prior to
September 30, 1997 (the effective date of Omega Research's initial public
offering) were taxed at the federal level directly to Omega Research's
shareholders (the State of Florida does not have a personal income tax).
Effective September 30, 1997, Omega Research terminated its S corporation
election and became subject to corporate-level federal and state income taxes.
As a result of terminating this election, Omega Research was required to record
a non-recurring credit (the "SFAS No. 109 Credit"). The SFAS No. 109 Credit
represents the recognition of net deferred tax assets arising from the book and
tax basis differences that arise primarily as a result of accounts receivable
reserves. The SFAS No. 109 Credit, net of a $1.8 million provision for income
taxes payable, was approximately $1.2 million as of September 30, 1997, the date
the S corporation election was terminated. See "Income Taxes" below.
The pro forma income tax adjustments for the year ended December 31, 1997
in Omega Research's historical financial statements reflect the federal and
state income taxes which would have been recorded if Omega Research had been
treated as a C corporation during the periods presented. Omega Research has
calculated these amounts based upon an estimated combined effective tax rate of
39.5% for Omega Research (as a stand-alone company, prior to its merger with
Window On WallStreet) for the period prior to September 30, 1997. In addition,
the non-recurring net tax credit of $1.2 million has been excluded from pro
forma net income.
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RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items in
Omega Research's statement of operations reflected as a percentage of total net
revenues:
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
------ ------ ------
Net Revenues:
Licensing fees 78.8% 79.0% 84.2%
Other net revenues 21.2 21.0 15.8
------ ------ ------
Total net revenues 100.0 100.0 100.0
Operating Expenses:
Cost of licensing fees and services 6.9% 7.9% 8.2%
Product development 12.0 12.6 7.1
Sales and marketing 44.3 49.1 37.1
General and administrative 29.0 26.9 22.7
Acquisition costs 2.8 -- --
------ ------ ------
Total operating expenses 95.0 96.5 75.1
------ ------ ------
Income from operations 5.0% 3.5% 24.9%
====== ====== ======
YEARS ENDED DECEMBER 31, 1999 AND 1998
NET REVENUES
TOTAL NET REVENUES. Omega Research's total net revenues increased 35% from
$31.7 million in 1998 to $42.9 million in 1999.
LICENSING FEES. Licensing fees increased 35% from $25.1 million in 1998 to
$33.8 million in 1999, primarily due to an increase in net revenues resulting
from the release, on February 22, 1999, of Omega Research's 2000I line of client
software products. As a result of Omega Research's recent announcement regarding
the acceleration of its Internet subscription services, it is expected that in
the short term the level of licensing fees will decrease as Omega Research
focuses on building a subscriber base from its Internet subscription services.
Omega Research has provided what it believes are appropriate provisions for
returns, in light of its 30-day right of return policy, but no assurance can be
given that the rate of returns will not increase beyond the reserved levels,
particularly due to Omega Research's announcements regarding its new business
model.
OTHER REVENUES. Other revenues increased 37% from $6.7 million in 1998 to
$9.1 million in 1999, primarily due to increases in data service revenues
associated with FDCN, Window On WallStreet's real-time market data subscription
service, and, to a lesser extent, an increase in minimum royalties under Omega
Research's license agreement with Bridge Telerate, as well as revenues generated
from OMEGAWORLD, Omega Research's annual trading strategy conference.
OPERATING EXPENSES
COST OF LICENSING FEES AND SERVICES. Cost of licensing fees and services
consisted primarily of costs related to data redistribution, product media,
packaging and storage and inventory costs. Cost of licensing fees and services
was approximately $3.0 million in 1999 as compared to $2.5 million in 1998. Cost
of licensing fees and services as a percentage of total net revenues decreased
from 8% in 1998 to 7% in 1999, primarily due to a shift in product mix to
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<PAGE>
higher-priced products during 1999 as well as the impact of a one-time payment
made to a third party in conjunction with the development of certain technology
for Omega Research during 1998, offset by decreased margins for the FDCN
subscription services.
PRODUCT DEVELOPMENT. Product development expenses included expenses
associated with the development of new products and services, enhancements to
existing products and services, testing of products and services and the
creation of documentation, and consisted primarily of salaries, other personnel
costs and depreciation of computer and related equipment. Product development
expenses increased from $4.0 million in 1998 to $5.1 million in 1999 primarily
due to an increase in the number of individuals employed in product development.
Product development expenses as a percentage of total net revenues decreased
from 13% in 1998 to 12% in 1999, primarily due to a higher rate of growth in net
revenues compared to the increase in personnel and related expenses. 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 have consisted primarily
of marketing programs, including advertising, brochures, direct mail programs
and seminars to promote Omega Research's client software products to traders,
sales commissions, salaries for the customer support center and marketing
personnel, other personnel costs, web site design and administration costs, and
shipping expenses. Sales and marketing expenses were $19.0 million in 1999
compared to $15.6 million in 1998, primarily due to increased marketing and
sales personnel, increased commissions resulting from higher net revenues,
increased travel expenses and increased costs related to OMEGAWORLD. Sales and
marketing expenses as a percentage of total net revenues decreased from 49% in
1998 to 44% in 1999 primarily due to a higher rate of growth in net revenues
compared to the increase in personnel and related expenses. Omega Research
expects sales and marketing expenses to increase significantly in the near term,
as Omega Research redirects its resources towards marketing Internet
subscription services and the other components of its new business model.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of provision for bad debt, employee-related costs for administrative
personnel such as executive, human resources, finance and information technology
employees, as well as professional fees, rent and other facilities expense.
General and administrative expenses were $12.4 million in 1999 compared to $8.5
million in 1998 primarily as a result of an increase in bad debt expense, and,
to a lesser extent, an increase in personnel and related costs as well as
facility expenses, partially offset by decreased consulting and professional
expenses as a result of the favorable settlement of the class action law suit
brought against Omega Research in 1998. General and administrative expenses as a
percentage of total net revenues increased from 27% in 1998 to 29% in 1999,
primarily as a result of the increase in the provision for bad debt. Omega
Research believes that the absolute dollar amount of its general and
administrative expenses in the future will depend, to a large extent, on the
level of provision required for bad debt, the level of hiring of additional
personnel to support the expected growth of Omega Research and Omega Research's
change in its business model.
ACQUISITION COSTS. Acquisition expenses of $1.2 million were recognized in
the fourth quarter of fiscal year 1999 for transaction costs associated with the
Window On WallStreet acquisition. Significant additional costs in conjunction
with the merger are expected to be incurred during fiscal year 2000.
OTHER INCOME (EXPENSE), NET
INTEREST EXPENSE. Interest expense increased from approximately $907,000 in
1998 to approximately $1.7 million in 1999 due to the issuance of common stock
of the pooled company (Window On WallStreet) associated with nonpayment and
consolidation of its debt with related parties. Interest expense during 1999
included $1.3 million of noncash charges related to the issuance of common stock
of Window On WallStreet, as compared to $600,000 during 1998. Window On
WallStreet outstanding debt of approximately $4.1 million was repaid, in
accordance with its terms, by Omega Research upon consummation of that merger.
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OTHER INCOME, NET. Other income, net consists primarily of investment
income from cash and cash equivalents. 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 was approximately $445,000 in 1999 and $435,000 in 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
NET REVENUES
TOTAL NET REVENUES. Omega Research's total net revenues were $31.7 million
in 1998 compared to $33.0 million in 1997.
LICENSING FEES. Licensing fees were $25.1 million in 1998 as compared to
$27.7 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 line of client software
products, which were released on February 22, 1999.
OTHER REVENUES. Other revenues increased 27% from $5.2 million in 1997 to
$6.7 million in 1998, primarily due to increases in minimum royalties under
Omega Research's license agreement with Bridge Telerate, and, to a lesser
extent, revenues generated from OMEGAWORLD, Omega Research's annual trading
strategy development conference.
OPERATING EXPENSES
COST OF LICENSING FEES AND SERVICES. Cost of licensing fees and services
was $2.5 million in 1998 compared to $2.7 million in 1997. Cost of licensing
fees and services as a percentage of total net revenues remained relatively
unchanged at 8%.
PRODUCT DEVELOPMENT. Product development expenses increased from $2.4
million in 1997 to $4.0 million in 1998, primarily due to an increase in the
number of individuals employed in product development. Product development
expenses as a percentage of total net revenues increased from 7% in 1997 to 13%
in 1998, primarily due to increased personnel and related expenses as well as
decreased revenues.
SALES AND MARKETING. Sales and marketing expenses were $15.6 million in
1998 compared to $12.2 million in 1997, primarily due to increased marketing and
sales personnel, increased advertising (including print advertising, the use of
sales seminars, television advertising and direct mailers), and increased
shipping costs and costs related to OMEGAWORLD, offset by decreased
telecommunications expenses. Sales and marketing expenses as a percentage of
total net revenues increased from 37% in 1997 to 49% in 1998 as a result of the
increased marketing expenses and decreased revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $8.5
million in 1998 compared to $7.5 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,
expenses related to the implementation and lease of a new telephone system, and
increased personnel costs. General and administrative expenses as a percentage
of total net revenues increased from 23% in 1997 to 27% in 1998, primarily as a
result of the increase in those expenses and decrease in revenues.
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OTHER INCOME (EXPENSE), NET
INTEREST EXPENSE. Interest expense increased from approximately $265,000 in
1997 to approximately $907,000 in 1998, primarily due to noncash interest
associated with the conversion of Window On WallStreet's detachable warrants
into its common stock upon nonpayment of certain debt with related parties.
OTHER INCOME, NET. Other income, net increased from approximately $196,000
in 1997 to approximately $435,000 in 1998, primarily due to income earned on the
proceeds from Omega Research's initial public offering.
INCOME TAXES
For income tax purposes, Omega Research was an S corporation prior to
September 30, 1997. Accordingly, net income and related timing differences which
arose in the recording of income and expense items for financial reporting and
tax reporting purposes were included in the individual tax returns of the S
corporation shareholders. Effective September 30, 1997, Omega Research
terminated its S corporation election, and, as a result, adopted SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires that deferred income tax
balances be recognized based on the differences between the financial statement
and income tax bases of assets and liabilities using the enacted tax rates.
Upon adoption of SFAS No. 109 during the third quarter of 1997, Omega
Research recorded a benefit for income taxes which reflects the SFAS No. 109
Credit, a non-recurring deferred income tax credit of approximately $3.0
million, which was partially offset by a $1.8 million provision for income taxes
payable. The SFAS No. 109 Credit recognized net deferred tax assets arising from
book and tax basis differences that arose primarily as a result of accounts
receivable reserves. The $1.8 million in income taxes payable relate to federal
and state income taxes owed by Omega Research as a result of an approximate $4.6
million in S corporation taxable earnings which were recognized by Omega
Research for tax purposes in the fourth quarter of 1997 and the year ended
December 31, 1998.
The pro forma income tax adjustments for the year ended December 31, 1997
in Omega Research's historical financial statements reflect the federal and
state income taxes which would have been recorded if Omega Research had been
treated as a C corporation during the periods presented. Omega Research
calculated those amounts based upon an estimated combined effective tax rate of
39.5% for Omega Research for periods prior to September 30, 1997.
The effective tax rates for 1999 and 1998 were 210% and 169%, respectively.
The increase as compared with the 38.6% statutory rate is primarily due to an
increase in the valuation allowance established at Window On WallStreet to
offset net operating loss carryforwards. The effective tax rates of Omega
Research as a stand-alone company were approximately 37% and 35% during 1999 and
1998, below the 38.6% statutory rate primarily as a result of the impact of
tax-free investment income.
VARIABILITY OF RESULTS
The operating results for any quarter are not necessarily indicative of
results for any future period or for the full year. Omega Research's quarterly
revenues and operating results have varied in the past, and are likely to vary
even further from quarter to quarter in the future due to Omega Research's
transition to a new business model. Such fluctuations may result in volatility
in the price of Omega Research common stock before the merger and Holding
Company common stock after the merger. 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 expenses varies
with its revenues in the short term. In addition, operating results may
fluctuate based upon the timing, level and rate of acceptance of releases of new
products and services and/or enhancements, increased competition, variations in
the revenue mix, and announcements of new products and services and/or
enhancements by Omega Research or its competitors and other factors. Such
fluctuations may result in volatility in the price of Omega Research common
stock before the merger and Holding Company
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common stock after the merger. See Note 12 of Notes to Consolidated Financial
Statements for quarterly financial information.
LIQUIDITY AND CAPITAL RESOURCES
Omega Research currently anticipates that its available cash resources and
cash flows from operations will be sufficient to meet its presently anticipated
working capital and capital expenditure requirements for at least the next 12
months. However, Omega Research is experiencing a period of net losses which is
expected to continue at least through the year 2000. Further, as Omega Research
transitions to its new business model, it may need to raise additional funds in
order to execute that transition, support more rapid expansion, develop new or
enhanced services and products, respond to competitive pressures, to acquire
complementary businesses or technologies and/or take advantage of unanticipated
opportunities. Omega Research has also recently substantially increased its
rental obligations under real property, facilities and equipment leases. Omega
Research's future liquidity and capital requirements will depend upon numerous
factors, including the period of time it takes Omega Research to execute its
transition to its new business model, and customer acceptance thereof, costs and
timing of expansion of research and development and marketing efforts and the
success of such efforts, the success of Omega Research's existing and new
product and service offerings, and competing technological and market
developments. Omega Research's forecast of the period of time through which its
financial resources will be adequate to support its operations involves risks
and uncertainties, and actual results could vary. The factors described earlier
in this paragraph, as well as other factors, will impact Omega Research's future
capital requirements and the adequacy of its available funds. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of the shareholders of Omega Research (or, after the merger, Holding
Company) 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, Holding Company's) common stock.
There can be no assurance that additional financing (debt or equity), if
required, will be available when needed on terms favorable to Omega Research
(or, after the merger, Holding Company), 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, Holding Company's) business, financial
condition, results of operations and prospects.
As of December 31, 1999, Omega Research had cash and cash equivalents of
approximately $2.2 million, investments in short term marketable securities of
$1.7 million, and working capital of approximately $22.4 million. Marketable
securities consist of investment grade municipal bonds maturing, on average,
within a year.
Cash used in operating activities in 1999 totaled approximately $5.0
million, compared to cash provided by operating activities of approximately
$33,000 and $2.8 million in 1998 and 1997, respectively. The decrease in net
cash provided by operations in 1999 was primarily due to an increase in net loss
by Omega Research and an increase over 1998 in cash paid for income taxes of
$3.8 million by Omega Research prior to the Window On WallStreet acquisition.
The decrease in net cash provided by operations in 1998 was primarily
attributable to lower net income of Omega Research and an increase in cash paid
for income taxes of $1.6 million by Omega Research. Omega Research began paying
taxes in the fourth quarter of 1997 and, in addition, paid during 1998 the
remaining $900,000 of the $1.8 million tax liability recognized in September
1997.
Omega Research's investing activities provided cash of $2.3 million during
1999 and used cash of $6.3 million and $2.2 million in 1998 and 1997,
respectively. During 1999, cash provided from investing activities was made up
of $4.0 million of proceeds from maturity of marketable securities primarily
offset by capital expenditures related to the acquisition of computer and
related equipment and software required to support expansion of Omega Research's
operations. The principal use of cash in investing activities in 1998 and 1997
was for investments in marketable securities, net of marketable securities that
matured. The balance of such investing activities during 1998 and 1997 was
primarily for capital expenditures related to the acquisition of computer and
related equipment and software required
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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.
In 1999, Omega Research's financing activities used cash of $2.8 million as
compared to cash provided of $1.0 million and $11.1 million in 1998 and 1997,
respectively. Net cash used in financing activities during 1999 was related to
the payment of existing debt of Window On WallStreet (net of current year
borrowings) of $3.3 million, offset by proceeds from the issuance of common
stock from Omega Research's 1997 Employee Stock Purchase Plan and the exercise
of stock options under Omega Research's Amended and Restated 1996 Incentive
Stock Plan.
Cash provided during 1998 related primarily to borrowings of debt from
related parties by Window On WallStreet in addition to the repayment of the
excess portion of the Dividend distributed on September 30, 1997 to Omega
Research's then shareholders, which is described in more detail later in this
document. See "Comparative Per Share Data -- Omega Research Dividend Policy."
The balance of the cash provided during 1998 related to the issuance of common
stock from Omega Research's 1997 Employee Stock Purchase Plan and the exercise
of stock options under Omega Research's Amended and Restated 1996 Incentive
Stock Plan.
Cash provided during 1997 of $11.1 million was primarily attributable to
$27.4 million of net proceeds from Omega Research's initial public offering
completed during the fourth quarter of 1997, offset by cash distributions
totaling $16.5 million (net of the 1997 repayment discussed above) to Omega
Research's S corporation shareholders prior to Omega Research's initial public
offering, and to a lesser extent, related party borrowings of approximately
$240,000 by Window On WallStreet. A portion of the distributions were financed
with a $15 million short-term bank loan which was repaid with the proceeds of
the initial public offering.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities-Deferral of FASB
Statement No. 133. SFAS No. 137 defers for one year the effective date of SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 will now apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133 will require Omega Research to recognize all
derivatives on the balance sheet as either assets or liabilities measured at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. Omega Research will adopt SFAS No. 133 effective for the year
ended December 31, 2001. Omega Research believes that the adoption of SFAS No.
133 will not have a material impact on its consolidated financial statements, as
it has entered into no derivative contracts and has no current plans to do so in
the future.
YEAR 2000 COMPLIANCE
Omega Research has not encountered any significant difficulties with
respect to Year 2000 compliance issues in connection with its customer
integrated support and general ledger system, its telephone system, or any
vendor products or services.
BUSINESS AND FINANCIAL INFORMATION REGARDING ONLINETRADING.COM
OVERVIEW AND RECENT DEVELOPMENTS
OnlineTrading.com provides financial brokerage services primarily to
experienced investors and small to mid-sized financial institutions through a
variety of communication mediums, including the Internet. While its products
allow clients to trade directly over the Internet, OnlineTrading.com also
provides a full range of brokerage services including access to the various
securities markets via its computerized infrastructure. This enhances its
ability to obtain the simplest, most direct execution of orders for its clients
at the best possible price. In addition, as a result of the technology it uses,
its registered representatives and clients have access to the most up-to-date
electronic information on stocks, market indices, analysts' research and news.
OnlineTrading.com's manner of executing trades using its computerized
infrastructure eliminates middlemen (like traditional market makers and other
broker-dealers) to save costs and increase
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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 (the "IPO") 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. ("Newport"), a National
Association of Securities Dealers, ("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's current staff.
INDUSTRY TRENDS
The Securities Industry Association ("SIA") 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 ("NYSE") and
composite Nasdaq experienced record increases in transaction volumes during
1999. Transaction volume on the NYSE was 209 billion shares, representing a 24%
increase over 1998 volume of 169 billion shares. Likewise, composite transaction
volume on Nasdaq increased 37% to 271 billion shares in 1999 up from 198 billion
shares in 1998.
The SIA 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 SIA, by 2003 online brokerage accounts are projected to make up
approximately 50 percent of total brokerage accounts representing an increase in
customer assets to $3.1 trillion.
ONLINETRADING.COM'S BUSINESS
GENERAL FINANCIAL BROKERAGE SERVICES.
OnlineTrading.com provides financial brokerage services to individuals and
small to mid-sized institutions (such as hedge funds, money managers, mutual
funds and pension funds). To support the investment services provided to these
investors, OnlineTrading.com effects transactions in equity securities strictly
on an agency basis. This means that OnlineTrading.com always charges only an
agreed upon commission and never earns income from marking up or marking down
its clients' equity transactions. OnlineTrading.com's customer accounts are
carried on a "fully disclosed" basis by its clearing firms. OnlineTrading.com's
clearing agreements provide that its clients' securities positions and credit
balances carry insurance that is supplemental to standard SIPC protection.
OnlineTrading.com executes its clients' equity transactions on an agency
basis only--as opposed to a principal basis. That is, OnlineTrading.com acts as
the agent for its clients directly in the market. When brokerage firms perform a
transaction on a principal basis, they are permitted to accept a client's order
to purchase, immediately purchase the securities in the market for the firm, and
then sell the securities to the client with a mark-up. OnlineTrading.com does
not mark-up its clients' equity transactions.
OnlineTrading.com also does not allow other brokerage firms to mark-up its
clients' equity transactions. OnlineTrading.com provides its non-internet
clients with access to the financial markets via its professionally staffed
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trading desks. OnlineTrading.com's trading desks are directly connected to the
national stock exchanges and electronic communication networks ("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
(if applicable) 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.
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.
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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 (1) access to
professional-type trade executions, (2) access to up-to-date market
information, and (3) 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:
/bullet/ 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;
/bullet/ 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;
/bullet/ providing its clients with value-added services, including
access to registered representatives and up-to-date market
information; and
/bullet/ 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.
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:
/bullet/ quality safekeeping and protection on the net equity (cash and
securities) on all accounts;
/bullet/ elimination of significant self-clearing regulatory
requirements and the associated overhead costs;
/bullet/ ability to participate in initial public offerings and other
investment banking transactions; and
/bullet/ 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.
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COMPETITION
The market for discount brokerage services, and particularly electronic
brokerage services, is rapidly evolving, intensely competitive and has few
barriers to entry. OnlineTrading.com expects competition to continue and
intensify in the future. OnlineTrading.com encounters direct competition from
numerous other brokerage firms, many of which provide electronic brokerage
services which OnlineTrading.com currently does not provide. These competitors
include discount brokerage firms like Charles Schwab & Co., Inc. and Quick &
Reilly, Inc., as well as electronic brokerage firms such as E*Trade Group, Inc.,
Ameritrade, CyperCorp, TradeScape, and ABWatley. OnlineTrading.com also
encounters competition from established full-commission brokerage firms as well
as financial institutions, mutual fund sponsors and other organizations, some of
which provide electronic brokerage services.
OnlineTrading.com believes that the principal competitive factors affecting
the market for its brokerage services are speed and accuracy of order execution,
price and reliability of trading systems, quality of client service, amount and
timeliness of information provided, ease of use, and ability to provide clients
with innovative products and services. Due to its trading systems and its
decision to merge with Omega Research, OnlineTrading.com believes that it should
be able to compete effectively with respect to each of these factors, as related
to active trader accounts, and will continue to do so in the future.
However, a number of OnlineTrading.com's competitors have significantly
greater financial, technical, marketing and other resources. Some of
OnlineTrading.com's competitors also offer a wider range of services and
financial products and have greater name recognition and more extensive client
bases. These competitors may be able to respond more quickly to new or changing
opportunities, technologies, and client requirements, and may be able to
undertake more extensive promotional activities, offer more attractive terms to
clients, and adopt more aggressive pricing policies. Moreover, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties or may consolidate to
enhance their services and products. OnlineTrading.com expects that new
competitors will emerge and may acquire significant market share.
There can be no assurance that OnlineTrading.com will be able to compete
effectively with current or future competitors or that the competitive pressures
we face will not harm our business.
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
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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 (assets minus liabilities), plus
qualifying subordinated borrowings and certain discretionary liabilities, and
less certain mandatory deductions that result from excluding assets that are not
readily convertible into cash and from valuing conservatively certain other
assets. Among these deductions are adjustments (called "haircuts"), which
reflect the possibility of a decline in the market value of an asset prior to
disposition.
Failure to maintain the required net capital may subject a firm to
suspension or revocation of registration by the SEC and suspension or expulsion
by the NASD and other regulatory bodies and ultimately could require the firm's
liquidation. The Net Capital Rule prohibits payments of dividends, redemption of
stock, the prepayment of subordinated indebtedness and the making of any
unsecured advance or loan to a shareholder, employee or affiliate, if the
payment would reduce the firm's net capital below a certain level.
The Net Capital Rule also provides that the SEC may restrict for up to 20
business days any withdrawal of equity capital, or unsecured loans or advances
to shareholders, employees or affiliates ("capital withdrawal") if the capital
withdrawal, together with all other net capital withdrawals during a 30-day
period, exceeds 30% of excess net capital and the SEC concludes that the capital
withdrawal may be detrimental to the financial integrity of the broker-dealer.
In addition, the Net Capital Rule provides that the total outstanding principal
amount of a broker-dealer's indebtedness under certain subordination agreements,
the proceeds of which are included in its net capital, may not exceed 70% of the
sum of the outstanding principal amount of all subordinated indebtedness
included in 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.
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ADDITIONAL REGULATION
Due to the increasing popularity and use of the Internet and other online
services, various regulatory authorities are considering laws and/or regulations
with respect to the Internet or other online services covering issues such as
user privacy, pricing, content, copyrights and quality of services. In addition,
the growth and development of the market for online commerce may prompt more
stringent consumer protection laws that may impose additional burdens on those
companies conducting business online. Moreover, the recent increase in the
number of complaints by online traders could lead to more stringent regulations
of online trading firms and their practices by the SEC, the NASD and other
regulatory agencies. Furthermore, the applicability to the Internet and other
online services of existing laws in various jurisdictions governing issues such
as property ownership, sales and other taxes and personal privacy is uncertain
and may take years to resolve. Also, as OnlineTrading.com's services are
available over the Internet in multiple states and foreign countries, and as
OnlineTrading.com has numerous clients residing in these states and foreign
countries, these jurisdictions may claim that OnlineTrading.com is required to
qualify to do business as a foreign corporation in each such state and foreign
country. While OnlineTrading.com is currently registered as a broker-dealer in
every state, it is qualified to do business as a foreign corporation in only a
few states; failure by OnlineTrading.com to qualify as a broker-dealer in other
jurisdictions or as an out-of-state or "foreign" corporation in a jurisdiction
where it is required to do so could subject OnlineTrading.com to taxes and
penalties for the failure to qualify. OnlineTrading.com's business could be
harmed by new legislation or regulation, the application of laws and regulations
from jurisdictions whose laws do not currently apply to its business or the
applications of existing laws and regulations to the Internet and other online
services.
EMPLOYEES
As of January 31, 2000, OnlineTrading.com employed a total of 68 full-time
employees, of which 6 are engaged in executive management, 32 in trading
activities, 9 in client services/back office, 9 in office personnel, and 12 in
information technology. The employees are operating from the following branch
locations:
Boca Raton, FL
Boston, MA
Osterville, MA
Pittsburgh, PA
Hudson, 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 1,300
square feet of office space for its branch office in Pittsburgh, Pennsylvania.
This space is occupied pursuant to a month-to-month lease at a monthly rent of
$1,783. OnlineTrading.com leases approximately 750 square feet of office space
for its branch office in Hudson, Ohio. This office is occupied pursuant to a
month-to-month lease at a monthly rent of $500.
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OnlineTrading.com has a branch office in Boston, Massachusetts; 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.
The existence of these branch offices, and the manner in which they are set
up, are helpful in the event of certain system failures (e.g., natural
disasters, power failures, etc.). 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, where the matter is currently pending.
OnlineTrading.com believes the case to be without merit, however, there can
be no assurance that OnlineTrading.com's defense of the case will be successful.
The Whighams' lawsuit alleges excessive trading and commissions, violation of
Massachusetts General Laws c.93A and c.110A ss.101 and 102 and violation of NASD
conduct rules. The Whigham's seek total alleged damages of $566,345 plus
interest, costs, fees and treble damages. OnlineTrading.com intends to present a
vigorous defense and to seek reimbursement for certain costs associated with its
defense.
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of OnlineTrading.com should be read in conjunction with
OnlineTrading.com's Consolidated Financial Statements and notes thereto
appearing elsewhere herein.
OVERVIEW
OnlineTrading.com provides financial brokerage services primarily to
experienced investors and small to mid-sized financial institutions through a
variety of communication mediums, including the Internet. While its products
allow clients to trade directly over the Internet, OnlineTrading.com also
provides a full range of brokerage services including direct access to the
various securities markets via OnlineTrading.com's computerized infrastructure.
This enhances OnlineTrading.com's ability to obtain the simplest, most direct
execution of orders for its clients at the best possible price. In addition, as
a result of the technology OnlineTrading.com uses, its registered
representatives and clients have access to the most up-to-date electronic
information on stocks, market indices, analysts' research and news.
OnlineTrading.com's manner of executing trades using its computerized
infrastructure eliminates middlemen (like traditional market makers and other
broker-dealers) to save costs and increase investing efficiency.
RECENT DEVELOPMENTS
On December 6, 1999, OnlineTrading.com completed the purchase of the
principal assets of Newport. 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's
current staff. The total consideration paid by OnlineTrading.com in connection
with this acquisition included cash of $2,682,000 and up to 125,000 shares of
OnlineTrading.com's common stock. The cash consideration is payable as follows:
(i) $2,182,000 to Newport; (ii) $250,000 to Robert Scarpetti, Newport's
President and sole shareholder, in exchange for a 15 year non-compete agreement
and (iii) $250,000 to Raymond Chodkowski, a key Newport employee, in exchange
for a 15 year non-compete agreement. Issuance and delivery of the common stock
consideration is contingent upon the acquired assets
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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 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's Pennsylvania office over the first one-year
period.
YEAR ENDED JANUARY 31, 2000 COMPARED WITH YEAR ENDED JANUARY 31, 1999
REVENUES
TOTAL REVENUES. OnlineTrading.com's total revenues for the year ended
January 31, 2000 ("Fiscal 2000") were $11,690,840 an increase of 95% from
$5,992,064 for the year ended January 31, 1999 ("Fiscal 1999").
COMMISSION REVENUE. Commission revenue increased by $3,946,008 or 71% from
$5,525,427 for Fiscal 1999 to $9,471,435 for Fiscal 2000. The increase was the
result of opening two new branch offices, the acquisition of the principal
assets of Newport and the increase in client base. During Fiscal 2000, the new
branch offices generated commission revenue of $891,425, while
OnlineTrading.com's other branches increased commission revenues by $383,738
from Fiscal 1999. The acquisition of the principal assets, consisting of the
right, title and interest in and to the clients of Newport, increased commission
revenue by $459,455. The balance of the increase was due to the expansion in
OnlineTrading.com's customer base from approximately 750 accounts to 1,200
accounts.
INVESTMENT GAINS (LOSSES). OnlineTrading.com's proprietary trading profits
increased by $800,998 to $1,129,493 for Fiscal 2000 as compared to $328,495 for
Fiscal 1999. The increase in trading profits was the result of several factors
namely, greater short term stock volatility, a better trading environment,
record share volumes adding to liquidity and better technology for order
execution.
INTEREST AND DIVIDENDS. Interest and dividend income increased by $567,957,
primarily as a result of OnlineTrading.com's increased cash position available
for investment and the prevailing interest rates.
INTEREST-REVENUE SHARING. Interest-revenue sharing represents a revenue
sharing agreement with OnlineTrading.com's clearing firm. Interest-revenue
sharing increased by $193,813 to $295,934 for Fiscal 2000 as compared to
$102,121 for Fiscal 1999. The increase was due primarily to a change in the
percentage of revenue OnlineTrading.com receives and the increase of its
customer balances being maintained by the clearing firm.
OTHER REVENUES. Other revenues increased by $190,000 primarily from an
arbitration settlement received by OnlineTrading.com in July 1999.
EXPENSES
TOTAL OPERATING EXPENSES. Total operating expenses increased by 70% from
$5,832,041 for Fiscal 1999 to $9,908,110 for Fiscal 2000.
EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and related
benefits increased by $1,983,477, or 59%, from $3,356,688 for Fiscal 1999 to
$5,340,165 for Fiscal 2000. Included in this amount are commissions paid to
OnlineTrading.com's brokers and traders which increased $2,426,884 from
$1,144,616 for Fiscal 1999 to $3,571,500 for Fiscal 2000 as a result of the
increased commission revenue. OnlineTrading.com anticipates this expense to
continue to increase to the extent, if any, OnlineTrading.com expands its
business and customer base. In addition, OnlineTrading.com has expanded its back
office and customer support staff due to the increased trading volume, acquired
fifteen employees from Newport 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.
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CLEARING AND OTHER TRANSACTION COSTS. Clearing and other transaction costs
represent the cost to execute and clear customer trades. These expenses
increased by $1,010,229, or 50%, from $2,002,055 for Fiscal 1999 to $3,012,284
for Fiscal 2000, primarily as a result of the increase in OnlineTrading.com's
volume of transactions. However, these costs decreased from 36% of commission
revenue for Fiscal 1999 to 32% of commission revenue for Fiscal 2000 as a result
of changes in the charges to OnlineTrading.com by the clearing firm.
OCCUPANCY AND ADMINISTRATIVE. Occupancy and administrative expenses consist
primarily of advertising, telephone and communication, rent and professional
fees. Occupancy and administrative expenses increased $686,434 from $406,814 for
Fiscal 1999 to $1,093,248 for Fiscal 2000. This increase primarily resulted from
advertising in a national business publication, increased telephone and
communication expenses due to increased customer activity, leasing of additional
office equipment and furniture to facilitate OnlineTrading.com's expansion,
increased professional fees for costs incurred relating to the proposed merger
with Omega Research, and licenses and registrations for the additional offices
and registered representatives.
PRODUCT DEVELOPMENT. Product development represents those costs relating to
the development of electronic order routing and execution software.
INTEREST EXPENSE. Interest expense increased $15,297 from $36,566 for
Fiscal 1999 to $51,863 for Fiscal 2000 primarily due to the recording of margin
interest charged to OnlineTrading.com's proprietary accounts as interest expense
as opposed to netting with interest revenue as earned by our accounts.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $101,245 from $29,918 for Fiscal 1999 to $131,163 for Fiscal
2000. The increase is the result of $246,790 in additional fixed assets being
placed into service during Fiscal 2000 and the amortization of the intangible
assets acquired from the Newport acquisition.
INCOME TAXES. OnlineTrading.com recorded a provision for income taxes of
$702,224 for Fiscal 2000 as compared to $52,080 for Fiscal 1999. The effective
tax rate was 39% for Fiscal 2000 and 33% for Fiscal 1999.
As a result of the above, net income improved from $107,943 for Fiscal 1999
to $1,080,506 for Fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 2000, OnlineTrading.com had cash and cash equivalents of
$15,127,790, consisting of money market funds and short term commercial paper.
Cash provided by operating activities was $2,078,352 and $837,167 for
Fiscal 2000 and Fiscal 1999, respectively. The increase in cash provided by
operations in Fiscal 2000 was primarily the result of an increase in
OnlineTrading.com's net income of $972,563 for Fiscal 2000 and an increase in
its income tax liability of $614,911 as a result of its increased net income.
Cash used in investing activities was $2,912,497 and $74,558 for Fiscal
2000 and Fiscal 1999, respectively. The primary use of cash in investing
activities was $2,682,000 for the acquisition of the principal assets of
Newport. In addition, OnlineTrading.com expended $234,097 for the purchase of
office furniture and computer equipment. During Fiscal 1999, OnlineTrading.com
expended $48,891 for the purchase of office furniture and equipment.
Cash provided by financing activities was $14,955,991 and $25,000 for
Fiscal 2000 and Fiscal 1999, respectively. The primary source of funds was
$15,810,891 from OnlineTrading.com's initial public offering and $360,000 from
issuance of subordinated loans. The primary use of funds was $885,000 for the
repayment of all outstanding subordinated loans and $330,000 for the redemption
of the outstanding preferred stock.
As a result, OnlineTrading.com had a net increase in cash and cash
equivalents of $14,121,846 for Fiscal 2000 and $787,609 for Fiscal 1999.
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On December 1, 1999, OnlineTrading.com entered into a capital lease for
office furniture, computer equipment and phone system. As of January 31, 2000,
the leasing company had funded $112,075 representing a portion of the total
furniture and computer equipment to be received. The balance of the equipment
totaling $180,450 was not received as of January 31, 2000 and accordingly, not
included in the statement of financial condition. The lease is to be paid over
36 months with an estimated monthly payment expected to commence on April 1,
2000 of $8,698 with a final payment of 7% of the original invoice amounts.
OnlineTrading.com is subject to the SEC uniform net capital rule, which
requires the maintenance of minimal net capital as defined. As of January 31,
2000 and 1999, OnlineTrading.com had net capital of $14,051,801 and $902,078,
which was $13,914,699 and $802,078 in excess of the minimum required of $137,102
and $100,000 respectively.
OnlineTrading.com currently anticipates that its available cash resources,
including the net proceeds from the IPO, 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.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On February 8, 2000, OnlineTrading.com terminated its relationship with the
accounting firm of Ahearn, Jasco + Company, P.A. as independent auditor of
OnlineTrading.com's financial statements. The termination of the relationship
with Ahearn, Jasco + Company, P.A. was not the result of any disagreements
between OnlineTrading.com and Ahearn, Jasco + Company, P.A. on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. On February 8, 2000, OnlineTrading.com retained the
accounting firm of Arthur Andersen LLP as its new independent auditor to audit
OnlineTrading.com's financial statements for the fiscal year ended January 31,
2000. The decision to change accounting firms to audit OnlineTrading.com's
financial statements was approved by OnlineTrading.com's board of directors on
February 8, 2000.
SELECTED INFORMATION WITH RESPECT TO OMEGA RESEARCH
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Omega Research and their ages and
positions with Omega Research as of April 1, 2000 are as follows:
NAME AGE POSITION WITH OMEGA RESEARCH
- ---- --- ----------------------------
William R. Cruz 38 Co-Chairman of the Board and Co-Chief
Executive Officer
Ralph L. Cruz 36 Co-Chairman of the Board and Co-Chief
Executive Officer
Salomon Sredni(1) 32 President and Chief Operating Officer
and Director
Peter A. Parandjuk 37 Chief Technology Officer, Vice President
of Research and Technology and Director
Marc J. Stone 39 Vice President of Corporate Development,
General Counsel, Secretary and Director
Gregg F. Stewart 38 Chief Financial Officer, Vice President
of Finance and Treasurer
Janette Perez 42 Executive Vice President of Marketing
and Sales
Stephen C. Richards(1)(2) 46 Director
Brian D. Smith(1)(2) 55 Director
- --------------------
(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.
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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 Development in January 1995 and was named a director of
Omega Research in July 1997. In October 1998, Mr. Parandjuk was appointed Chief
Technology Officer and Vice President of Research and Technology. Mr. Parandjuk
has a bachelor's degree in Applied Mathematics from the State University of New
York at Buffalo.
MARC J. STONE joined Omega Research in May 1997 as its Vice President of
Corporate Development, General Counsel and Secretary and was named a director of
Omega Research in July 1997. From January 1993 to May 1997, Mr. Stone was a
partner at a predecessor law firm of Bilzin Sumberg Dunn Price & Axelrod LLP
("Bilzin Sumberg"), which currently serves as Omega Research's regular outside
counsel. Prior to that time, from 1985 to 1992, Mr. Stone was an associate with
that predecessor law firm. Mr. Stone is of counsel to Bilzin Sumberg. Mr. Stone
has bachelor's degrees in English and American Literature and Theatre Arts and
Dramatic Literature from Brown University, and received his law degree from
University of California (Boalt Hall) School of Law at Berkeley. Mr. Stone is a
member of the Bar of the State of New York, The Florida Bar, the American Bar
Association and the New York State Bar Association.
GREGG F. STEWART joined Omega Research in September 1999 as its Chief
Financial Officer, Vice President of Finance and Treasurer. Before joining Omega
Research, he served as Vice President - Finance & Treasurer of Interim
HealthCare, Inc. from October 1998 until September 1999. Prior to that, from
1990 to 1998, he held several positions with Alamo Rent-A-Car, Inc., including
Executive Director, Replacement Division (1996 to 1998), Controller,
Consolidated Group (1995 to 1996) and Assistant Treasurer (1990 to 1995). Prior
to that, from 1986 to 1990, he served in several financial positions with USAir,
Inc. Mr. Stewart is a Certified Public Accountant and holds a Bachelor of
Science in Accounting from Marquette University, Milwaukee, Wisconsin.
JANETTE PEREZ joined Omega Research in January of 1996 as its Public
Relations Manager and was appointed Corporate Relations Director in November
1997. In July 1998, she was appointed Vice President of Marketing and, in
September 1999, she was appointed Executive Vice President of Marketing and
Sales. During 1994 and 1995, Ms.
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Perez traveled abroad. Prior to that, from 1979 to January 1994, Ms. Perez was
Office Manager and Controller for Simon Bolivar International, a specialty
advertising firm.
STEPHEN C. RICHARDS is currently Chief Online Trading Officer of E*Trade
Group, Inc. ("E*Trade"), a position he has held since March 1999. From 1998 to
February 1999, Mr. Richards served as Senior Vice President, Corporate
Development and New Ventures at E*Trade following two years as E*Trade's Senior
Vice President of Finance, Chief Financial Officer and Treasurer. Prior to
joining E*Trade in April 1996, Mr. Richards was Managing Director and Chief
Financial Officer of Correspondent Clearing at Bear Stearns & Companies, Inc.,
where he was employed for more than 11 years. He is also a former Vice
President/Deputy Controller of Becker Paribas, and former First Vice
President/Controller of Jefferies and Company, Inc. Mr. Richards also serves as
a director of Versus Technologies, Inc. which is listed on the Montreal and
Toronto Stock Exchanges. He received a Bachelor of Arts in Statistics and
Economics from the University of California at Davis and an MBA in Finance from
the University of California at Los Angeles. Mr. Richards is a Certified Public
Accountant. Mr. Richards became a director in August 1999, at which time he was
also elected to the Compensation Committee and the Audit Committee of the board
of directors.
BRIAN D. SMITH, who is currently a private investor, served as President of
Data Broadcasting Corporation ("DBC"), a provider of market data services, from
1990 until 1996. Prior to becoming President, Mr. Smith, since 1983, held
several key positions with DBC and its predecessor companies. Prior to that, Mr.
Smith worked for 13 years for General Electric Company in engineering, sales and
management positions, and for Texas Instruments in engineering. Mr. Smith also
served as Chief Executive Officer of Mobile Broadcasting Corp., a wireless
communications company, from December 1996 to December 1997. Mr. Smith became a
director in December 1997, and was elected to the Compensation Committee and the
Audit Committee of the board of directors in January 1998.
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 (the "Independent 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 (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 (the "Incentive Stock Plan"), and the Omega Research, Inc. 1997
Employee Stock Purchase Plan, as amended (the "Purchase Plan").
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 (the
"Exchange Act"), requires Omega Research's officers (as defined under the
Exchange Act) 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.
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Based solely on review of the copies of such forms furnished to Omega
Research and written representations that no Forms 5 were required when
applicable, Omega Research believes that during the fiscal year ended December
31, 1999 all Section 16(a) filing requirements applicable to such officers,
directors and greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION TABLES
The following tables provide information about executive compensation.
The following table sets forth information with respect to all compensation
paid or earned for services rendered to Omega Research in the three years ended
December 31, 1999 by the Co-Chief Executive Officers of Omega Research and the
four other most highly compensated executive officers of Omega Research whose
aggregate annual compensation exceeded $100,000 (together, the "Named Executive
Officers"). Omega Research did not have a pension plan or a long-term incentive
plan, had not issued any restricted stock awards and had not granted any stock
appreciation rights as of December 31, 1999. The value of all perquisites and
other personal benefits received by each Named Executive Officer did not exceed
10% of the Named Executive Officer's total annual compensation.
<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.
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(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) $9,000 of this amount was earned in 1998, but paid in 1999.
OPTION GRANTS IN 1999 FISCAL YEAR
The following table summarizes the options which were granted during
the fiscal year ended December 31, 1999 to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER TOTAL ANNUAL RATE OF
OF OPTIONS MARKET VALUE AT STOCK PRICE
SECURITIES GRANTED TO EXERCISE PRICE GRANT-DATE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE ON GRANT MARKET PRICE OPTION TERM (1)
OPTIONS IN FISCAL PRICE DATE EXPIRATION ------------ -------------------
NAME GRANTED(#)(2) YEAR (3) ($)(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 VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999(#) DECEMBER 31, 1999($)(1)
-------------------- -----------------------
ACQUIRED SHARES
ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William R. Cruz -- -- -- -- -- --
Ralph L. Cruz -- -- -- -- -- --
Salomon Sredni 20,000 $148,750 94,000 276,000 $411,080 $694,320
Peter A. Parandjuk -- -- 191,000 264,000 874,480 1,122,920
Marc J. Stone (2) -- -- 54,000 146,000 179,200 506,800
Janette Perez 1,000 7,688 23,800 137,200 78,590 303,360
</TABLE>
(1) Based on a per share price of $6.00 on December 31, 1999, which was the
closing market price of Omega Research's common stock on the last day
of Omega Research's 1999 fiscal year.
(2) See footnote (7) to "SUMMARY COMPENSATION TABLE" above.
OTHER COMPENSATION ARRANGEMENTS
EXECUTIVE OFFICER BONUS PLAN.
In February 1998, the Compensation Committee of the board of directors
approved a cash bonus plan for the 1998 fiscal year for the then executive
officers of Omega Research, other than William R. Cruz and Ralph L. Cruz who
have no bonus plan, that provided for cash bonuses of up to 40% of the executive
officer's base salary determined by the extent, if any, to which Omega
Research's 1998 net income exceeded its 1997 net income. The Co-Chief Executive
Officers were also authorized to grant up to a $10,000 bonus to each such
executive officer regardless of whether application of the bonus formula would
result in a bonus payout. As 1998 net income of Omega Research was lower than
1997 net income, no bonus was paid other than the $10,000 per executive officer
bonus. In February 1999, the Compensation Committee of the board of directors
approved a cash bonus plan for the 1999 fiscal year for the executive officers
of Omega Research, other than William R. Cruz and Ralph L. Cruz who have no
bonus plan, that provides for cash bonuses of up to 50% of the executive
officer's base salary depending upon the extent, if any, to which Omega Research
achieves its net income goals for 1999. As 1999 net income goals of Omega
Research were not met, no bonus was paid other than a $25,000 special bonus paid
to Salomon Sredni in connection with his promotion to President and Chief
Operating Officer.
1996 INCENTIVE STOCK PLAN.
The Incentive Stock Plan, pursuant to which officers, employees and
nonemployee consultants may be granted stock options, stock appreciation rights,
stock awards, performance shares and performance units, was adopted by the board
of directors and approved by the shareholders in June 1996. It was amended and
restated in August 1997 and further amended by the board of directors in
February 1998. In December 1998 the board of directors increased, subject to
shareholder approval, the authorized number of shares of common stock for
issuance under the Incentive Stock Plan from 3,000,000 to 4,500,000, subject to
future antidilution adjustments, which was approved at Omega Research's annual
meeting of shareholders held on August 13, 1999. In January 2000, the board of
directors, as part of its authorization of the merger agreement with
OnlineTrading.com, authorized an increase, subject to the approval by
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Omega Research's shareholders of the merger agreement and merger with
OnlineTrading.com, in the number of shares of common stock reserved for issuance
under the Incentive Stock Plan from 4,500,000 to 7,500,000, subject to future
antidilution adjustments.
PURPOSE. The purpose of the Incentive Stock Plan is to provide incentives
which will attract and retain highly competent persons as officers and key
employees of Omega Research, as well as independent contractors providing
consulting or advisory services to Omega Research ("nonemployee consultants").
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), prospective employees
(conditioned upon and effective not earlier than their becoming employees) 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 ("ISOs"), nonqualified stock options ("NSOs"), stock appreciation
rights, stock awards, performance shares and performance units (collectively,
"Awards"). These Awards are described below.
STOCK OPTIONS. Stock options consist of awards from Omega Research, in the
form of agreements, which enable the holder (an "optionee") to purchase a
specific number of shares of common stock, at set terms and at a fixed purchase
price. ISOs are options that qualify for preferred tax treatment under Section
422 of the Code. NSOs are options that do not qualify as ISOs. Options
designated as ISOs that fail to continue to meet the requirements of Section 422
of the Code shall be redesignated as NSOs 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.
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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 ISO may not exceed ten years
from the date of grant and the term of an NSO 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 ISO 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 ISO may not be less than 110%
of the fair market value on the date of grant and the term of such ISO 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 (or such other consolidated transaction
reporting system on which such common stock is primarily traded) 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 ISOs are exercisable for the
first time by a participant during any calendar year (under all option plans of
Omega Research) shall not exceed $100,000 and, to the extent in excess of such
$100,000, such excess options shall be treated as NSOs.
If an optionee 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 optionee 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 optionee's employment with Omega
Research or upon the optionee'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 optionee may pay the exercise
price of an option. The Incentive Stock Plan specifically states that a check is
an acceptable form of consideration and that, subject to the discretion of the
Compensation Committee and as provided in the agreement evidencing the grant,
payment may also be made by delivery of shares of common stock of Omega
Research, or by a combination of check and shares, or by delivery to Omega
Research of a properly executed exercise notice together with a copy of
irrevocable instructions to a broker to deliver to Omega Research the
appropriate amount of proceeds from the sale of or loan against the shares
exercised (often referred to as a "cashless exercise"), if the payment method
used does not result in a charge to earnings of Omega Research for financial
accounting purposes. Subject to certain restrictions and the discretion of the
Compensation Committee, an optionee 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.
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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 (an "SAR") is a right
to participate in the appreciation of the fair market value of the shares of
common stock subject to the right. SARs may be granted to the holders of stock
options or may be granted independently of and without relation to stock
options. An SAR 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 an SAR 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 SAR 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. An SAR relating to an
NSO may be made as part of the NSO at the time of its grant or at any time
thereafter up to six months prior to its expiration. An SAR relating to an ISO
may be made a part of such ISO only at the time of its grant. Each SAR will be
exercisable at the times and to the extent set forth therein, but no SAR 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 (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 ("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 (defined below). A "Performance Period"
relates to the period during which the receipt of the shares of common stock
will be deferred. Performance Shares may be awarded either alone or in addition
to other Awards under the Incentive Stock Plan. The Compensation Committee will
determine the number of Performance Shares to be awarded to any grantee, the
duration of the Performance Period and the conditions under which receipt of the
shares of common stock will be deferred, and the other terms and conditions of
the grant. The Compensation Committee may condition the grant of Performance
Shares upon the attainment of certain specified performance goals or other
factors or criteria as the Compensation Committee shall determine. Unless
otherwise determined by the Compensation Committee at the time of the award of a
Performance Share, any dividends payable during the Performance Period with
respect to the shares covered by a Performance Share award will not be paid to
the grantee. Subject to the provisions of the Performance Share award and the
Incentive Stock Plan, at the expiration of the Performance Period, shares of
common stock and/or cash of an equivalent value shall be delivered to the
grantee, or his or her legal representative, in a number equal to the vested
shares covered by the Performance Share award. If the grantee's employment or
consulting arrangement with Omega Research terminates during the Performance
Period, the Performance Shares in question will vest or be forfeited in
accordance with the terms and conditions established by the Compensation
Committee.
PERFORMANCE UNITS. Performance units ("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 (the "Performance Cycle") 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 Performance
Cycle, the Compensation Committee shall determine the extent
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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
Performance Cycle, 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 Performance Cycle 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
(including a qualified domestic relations order as defined by the Code or Title
I of the Employment Retirement Income Security Act, or the rules thereunder), 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
(i) 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 (ii) to the
extent that the deceased participant was entitled to do so at the date of his or
her death.
If Omega Research at any time changes the number of issued common stock
without new consideration to Omega Research (such as by stock dividend, stock
split, recapitalization, reorganization, exchange of shares, liquidation,
combination or other change in corporate structure affecting the common stock)
or makes a distribution of cash or property which has a substantial impact on
the value of issued common stock, the total number of shares available for
Awards under the Incentive Stock Plan shall be appropriately adjusted and the
number of shares covered by each outstanding Award and the reference price or
fair market value for each outstanding Award shall be adjusted so that the net
value of such Award shall not be changed.
In the event any sale of assets, merger, consolidation, combination or
other corporate reorganization or restructuring of Omega Research with or into
another corporation which results in the outstanding common stock being
converted into or exchanged for different securities, cash or other property,
each outstanding Award, subject to the other provisions of the Incentive Stock
Plan and any limitation applicable to a particular Award, may be assumed or
substituted by the successor corporation (or a parent or subsidiary or such
successor corporation) and the grantee will be entitled to receive, upon
exercise of the Award, an equivalent amount of securities, cash or other
property received with respect to the common stock in such transaction as would
have been received upon exercise of the Award immediately prior to such
transaction.
All payments or distributions made pursuant to the Incentive Stock Plan
shall be net of any amounts required to be withheld pursuant to applicable
federal, state and local tax withholding requirements. If Omega Research
proposes or is required to distribute common stock pursuant to the Incentive
Stock Plan, it may require the recipient to remit to it an amount sufficient to
satisfy such tax withholding requirements prior to the delivery of any
certificates for such common stock. The Compensation Committee may, in its
discretion and subject to such rules as it may adopt, permit an Award holder to
pay all or a portion of the federal, state and local withholding taxes arising
in connection with (i) the exercise of an NSO or an SAR, (ii) the receipt or
vesting of Stock Awards, or (iii) the receipt of common stock upon the
expiration of the Performance Period or the Performance Cycle, respectively,
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
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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 Exchange
Act, 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 (i) 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
(ii) 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 Exchange Act,
referred to as "Section 16 Insiders," are subject to any additional applicable
restrictions under Rule 16b-3.
REGISTRATION OF UNDERLYING COMMON STOCK. On November 24, 1997, Omega
Research filed a Registration Statement on Form S-8 with the SEC in order to
register the 3,000,000 shares of common stock then reserved for issuance under
the Incentive Stock Plan. To the extent that such Registration Statement is
effective under the Securities Act of 1933, shares of common stock issued upon
the exercise of outstanding stock options granted under the Incentive Stock Plan
will be immediately and freely tradable without restriction under the Securities
Act of 1933, subject to applicable volume limitations, if any, under Rule 144
promulgated under the Securities Act of 1933 and, in the case of executive
officers of Omega Research, Section 16 of the Exchange Act. 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 Holding Company 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 Holding Company.
OUTSTANDING AWARDS. As of December 31, 1999, options to purchase 3,478,869
shares were outstanding under the Incentive Stock Plan, of which options to
purchase 1,326,000 shares had been granted to executive officers of Omega
Research. During 1999, options granted to executive officers totaled options to
purchase 220,000 shares of common stock which were granted at exercise prices
ranging from $5.54 to $8.57 per share. In general, options granted under the
Incentive Stock Plan vest at the rate of 20% per year and have a total term of
ten years. The options which have been granted under the Incentive Stock Plan to
the executive officers of Omega Research immediately vest and become exercisable
upon termination of employment due to death or permanent disability, or upon a
sale or a change in control of Omega Research, and, in the case of Mr.
Parandjuk, upon termination of employment by Omega Research without cause. The
options to purchase the shares granted under the Incentive Stock Plan, the
Window On WallStreet options assumed by Omega Research (discussed below) and the
Nonemployee Director Stock Plan (defined and discussed below) that were
outstanding as of December 31, 1999 have a weighted average exercise price of
$3.49 per share. See Note 7 of Notes to Omega Research Consolidated Financial
Statements. To date, Omega Research has not granted any SARs, Stock Awards,
Performance Shares or Performance Units under the Incentive Stock Plan.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief summary of the
applicable Federal income tax consequences of Awards granted under the Incentive
Stock Plan based on U.S. Federal income tax laws in effect on the
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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 (an "optionee")
upon the grant or exercise of an ISO. No taxable ordinary income is recognized
by the optionee upon the disposition of an ISO by an optionee (except to the
extent the ISO 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
ISO is made by the optionee within two (2) years from the date of the grant of
the ISO nor within one (1) year after the transfer of such share to him or her
(a disposition within either of such periods is hereinafter referred to as a
"disqualifying disposition"); and (ii) the optionee was an employee of Omega
Research at all times from the date of the grant of the ISO to the date,
generally, three (3) months before the date of such exercise (the optionee is
"continuously employed") (that is, the optionee may exercise the ISO within
three (3) 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 an optionee pursuant to his
or her exercise of an ISO, 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,
(i) 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); (ii) any loss sustained is a long-term capital loss; and (iii)
no deduction under Section 162 of the Internal Revenue Code (relating to trade
or business expenses) ("employer tax deduction") is allowed to Omega Research
for Federal income tax purposes.
If any share of common stock transferred to an optionee pursuant to his or
her exercise of an ISO is disposed of by the optionee in a disqualifying
disposition, then for the taxable year of such disposition (i) 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; (ii) 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 (iii) Omega Research is allowed an
employer tax deduction in an amount equal to the optionee's ordinary
compensation income described in (i) above.
With respect to NSOs: (i) no income is recognized by the optionee at the
time the option is granted; (ii) 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 (iii) 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 an NSO 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.
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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 either the Performance Period or the Performance Cycle
and Omega Research is entitled to an employer tax deduction in the same amount.
The exercise by an optionee of an ISO granted under the Incentive Stock
Plan may subject the optionee to alternative minimum tax ("AMT") 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
("AMTI") of an individual for any taxable year, (i) Section 83 (relating to
NSOs) as opposed to Section 421 (relating to ISOs) 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 ISO is treated as an NSO) and (ii) the optionee must treat
the difference, if any, between the fair market value of the ISO and the option
exercise price as an adjustment in determining AMTI 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. An optionee
may alter the timing and amount of such an AMTI 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 ISO. Such an AMTI adjustment, if any, is also added to the basis of such
share for purposes of determining adjusted gain or loss under the AMT upon
disposition of such share. No such AMT adjustment is required if the exercise of
an ISO 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 ("WOW Options"), 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 WOW Options generally vest ratably over
a four-year period and their terms are ten years. As of December 31, 1999, there
were 176,783 WOW Options outstanding.
1997 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN.
The 1997 Nonemployee Director Stock Option Plan, as amended (the
"Nonemployee Director Stock Plan"), 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 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. As of December 31,
1999, options to purchase 128,000 shares were outstanding under the Nonemployee
Director Stock Plan.
The board of directors has the power to amend the Nonemployee Director
Stock 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.
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1997 EMPLOYEE STOCK PURCHASE PLAN.
The Purchase Plan was adopted by the board of directors and approved by
Omega Research's shareholders in July 1997. The Purchase Plan provides for the
issuance of a maximum of 500,000 shares of common stock pursuant to the exercise
of nontransferable options granted to participating employees.
The Purchase Plan is administered by the Compensation Committee of the
board of directors. All employees of Omega Research whose customary employment
is more than 20 hours per week and more than five months in any calendar year
and who have completed at least three months of employment are eligible to
participate in the Purchase Plan. Employees who would immediately after the
grant own 5% or more of the total combined voting power or value of Omega
Research's stock and the nonemployee directors of Omega Research may not
participate in the Purchase Plan. To participate in the Purchase Plan, an
employee must authorize Omega Research to deduct an amount (not less than one
percent nor more than ten percent of a participant's total cash compensation)
from his or her pay during six-month periods (each a "Plan Period"). The maximum
number of shares of common stock an employee may purchase in any Plan Period is
500 shares. The exercise price for the option for each Plan Period is 85% of the
lesser of the market price of the common stock on the first or last business day
of the Plan Period. If an employee is not a participant on the last day of the
Plan Period, such employee is not entitled to exercise his or her option, and
the amount of his or her accumulated payroll deductions will be refunded. An
employee's rights under the Purchase Plan terminate upon his or her voluntary
withdrawal from the Purchase Plan at any time or upon termination of employment.
No options were granted under the Purchase Plan during 1997. The first Plan
Period began January 1, 1998. During the years ended December 31, 1999 and 1998,
23,585 and 12,506 shares, respectively, of common stock were issued under the
plan at an average price of $3.27 and $3.06, respectively.
The board of directors has the power to amend or terminate the Purchase
Plan. Shareholder approval of an amendment is only required to the extent that
it is necessary to maintain the Purchase Plan's status as a protected plan under
applicable securities laws or as a qualified plan under applicable tax laws.
401(K) PLAN.
Omega Research has a defined contribution retirement plan which complies
with Section 401(k) of the Code. All employees with at least three months of
continuous service are eligible to participate and may contribute up to 15% of
their compensation. Company contributions are vested 20% for each year of
service. Matching contributions accrued under the 401(k) Plan amounted to
approximately $242,000, $0 and $63,000 in 1999, 1998 and 1997, respectively.
NON-COMPETITION AGREEMENTS.
Virtually all employees of Omega Research, including the Named Executive
Officers, have entered into agreements with Omega Research which generally
contain certain non-competition, non-disclosure and non-solicitation
restrictions and covenants, including a provision prohibiting such employees
from competing with Omega Research during their employment with Omega Research
and for a period of two years thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
Omega Research formed the Compensation Committee of the board of directors
in January 1998, at which time the two Independent Directors were appointed as
members. The compensation (including salaries, bonuses and stock options) of
Omega Research's executive officers for 1999 was determined by the Compensation
Committee. In 1999, neither member of the Compensation Committee had any
relationship with Omega Research requiring disclosure under Item 404 of
Regulation S-K.
DIRECTOR COMPENSATION.
Omega Research's Independent Directors receive $750 for attendance at each
meeting of the board of directors and each committee thereof, with an additional
$150 paid for each committee meeting which is chaired by an Independent
Director. Pursuant to the Nonemployee Director Stock Plan, each Independent
Director also receives an option to
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<PAGE>
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 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/Holding
Company 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 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
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 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 (the "Change in Accounting Method"), 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 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.
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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 March 8, 2000 by (i) each
person who is known to Omega Research to own beneficially more than 5% of Omega
Research's common stock, (ii) each director of Omega Research, (iii) each Named
Executive Officer, and (iv) all directors and executive officers of Omega
Research as a group. Except as otherwise described in the footnotes below, Omega
Research believes that the beneficial owners of the common stock listed below,
based on information provided by such owners, have sole investment and voting
power with respect to such shares. The address of each person who beneficially
owns more than 5% of the common stock is Omega Research's principal executive
office.
SHARES BENEFICIALLY OWNED(1)
----------------------------
NAME OF BENEFICIAL OWNER (1) NUMBER PERCENT
---------------------------- ------ -------
William R. Cruz(2) 9,156,654 37.3%
Ralph L. Cruz(3) 9,156,554 37.3
Peter A. Parandjuk 199,550 *
Salomon Sredni 126,750 *
Marc J. Stone 62,000 *
Janette Perez 36,000 *
Brian D. Smith 16,666 *
Stephen C. Richards 4,000 *
All executive officers and
directors as a group (9 persons)(4) 18,758,174 75.1%
- --------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC that deem shares to be beneficially owned by any person who has or
shares voting or investment power with respect to such shares. Includes
options held by executive officers and/or directors which are
exercisable within 60 days of March 8, 2000. Does not include any
shares of common stock that may be deemed beneficially owned by
OnlineTrading.com as a result of that certain Omega Shareholder
Agreement dated January 19, 2000 among OnlineTrading.com Group,
OnlineTrading.com and certain of Omega Research's shareholders or that
certain Omega Stock Option Agreement dated January 19, 2000 between
Omega Research and OnlineTrading.com, both of which were executed in
connection with the merger agreement.
(2) Includes 1,950,000 shares held by a Texas limited partnership as to
which William R. Cruz possesses sole voting and dispositive powers
through his direct and indirect 100% ownership of a Texas limited
liability company that is the 1% sole general partner of such limited
partnership. William R. Cruz and the William R. Cruz 1999 Grantor
Retained Annuity Trust #1 are the limited partners. The William R. Cruz
1999 Grantor Retained Annuity Trust #1 provides for annual
distributions of principal and income to William R. Cruz for 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:
NAME AGE POSITION
- ---- --- --------
Andrew A. Allen 40 Chief Executive Officer, Chairman of the Board
and Director
E. Steven zum Tobel 33 President, Treasurer and Director
Farshid Tafazzoli 28 Chief Information Officer and Director
Derek J. Hernquist 28 Vice President of Operations, Secretary and
Director
Anthony M. Palermo 35 Chief Financial Officer
Lothar Mayer 60 Director
Eldren P. Nalley 80 Director
Robert A. Scarpetti 41 Director
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 ("CBOE") from 1985 to 1995 and served on the
CBOE 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. 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.
ANTHONY M. PALERMO. Mr. Palermo is OnlineTrading.com's Chief Financial Officer.
Mr. Palermo has over 11 years experience as a certified public accountant with
Ahearn, Jasco + Company, P.A. Mr. Palermo has a B.B.A. degree in accounting from
Florida Atlantic University. In conjunction with the pending merger and
consolidation of certain accounting and financial reporting responsibilities,
effective April 18, 2000 Anthony M. Palermo will resign his position as CFO 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, shall assume the
responsibilities of CFO until a successor is appointed.
ROBERT SCARPETTI. Mr. Scarpetti is a director and employee of OnlineTrading.com.
Mr. Scarpetti has over 15 years experience in the brokerage industry as
president of Newport Discount Brokerage, Inc., an NASD registered broker-dealer.
In December of 1999, in connection with OnlineTrading.com's acquisition of the
principal assets of Newport, Mr. Scarpetti joined OnlineTrading.com as an
employee and director.
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LOTHAR MAYER. Mr. Mayer is a director of OnlineTrading.com. Mr. Mayer is the
President of Liberty Hardware Manufacturing Corp., a subsidiary of Masco Corp.
(NYSE: MAS). Mr. Mayer has held this position for over 21 years. Mr. Mayer is
also a chartered and certified public accountant.
ELDREN P. NALLEY. Mr. Nalley is a director of OnlineTrading.com. He is currently
retired but, in addition to serving on OnlineTrading.com's board, serves on the
board of directors of Invacare Corp. (NYSE: IVC) and Royal Appliance
Manufacturing (NYSE: RAM). Mr. Nalley has served on the boards of Invacare and
Royal Appliance for over twenty years.
There is no family relationship between any of the officers, key employees
and directors.
Directors hold their offices until the next annual meeting of our
shareholders and until their successors have been duly elected and qualified or
their earlier resignation, removal from office or death. Officers serve at the
pleasure of the board of directors and until the first meeting of the board of
directors following the next annual meeting of our shareholders and until their
successors have been chosen and qualified.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
OnlineTrading.com's officers and directors, and persons who own more than ten
percent of a registered class of OnlineTrading.com's equity securities, to file
reports of ownership and changes in ownership with the SEC. Officers, directors
and greater than ten percent shareholders are required by SEC regulations to
furnish OnlineTrading.com with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to
OnlineTrading.com and written representations that no Forms 5 were required when
applicable, OnlineTrading.com believes that during the fiscal year ended January
31, 2000 all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with,
except with respect to the Forms 3 for Messrs. Scarpetti and Nalley which were
filed late on April 4, 2000 due to an administrative oversight.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid by OnlineTrading.com
during the fiscal years ended January 31, 1999 and January 31, 2000 to
OnlineTrading.com's Chief Executive Officer and each other executive officer
whose annual compensation exceeded $100,000 during said fiscal years
(collectively the "Named Executive Officers"). OnlineTrading.com's directors do
not receive compensation for serving in this capacity.
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<PAGE>
<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,
Secretary and Director 1999 60,000 82,000 --
</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, OnlineTrading.com entered into a three-year
employment agreement with Mr. Scarpetti (currently a director of the company)
which provides for an annual base compensation of $100,000 and a discretionary
bonus. Mr. Scarpetti's employment agreement contains a provision that Mr.
Scarpetti will not compete or engage in a business competitive with
OnlineTrading.com's current or anticipated business during the term of the
employment agreement and for a period of two years thereafter unless Mr.
Scarpetti's involvement with a competitor does not represent activities which
comprise more than 20% of OnlineTrading.com's revenue.
Upon closing of the merger with Omega Research, the current employment
agreements of Messrs. Tafazzoli, zum Tobel and Hernquist shall be replaced by
new two-year employment agreements which shall provide for annual base
compensation of $200,000, $150,000 and $100,000 respectively. Due to personal
family matters, Mr. Allen has decided to resign upon closing of the merger with
Omega Research. In connection with such resignation, Mr. Allen shall be entitled
to severance payment as discussed elsewhere in this joint proxy
statement/prospectus.
STOCK OPTION PLAN
Under OnlineTrading.com's 1999 Stock Option Plan (the "1999 Plan"),
1,000,000 shares of common stock are reserved for issuance upon exercise of the
options. The 1999 Plan is designed to serve as an incentive for retaining
qualified and competent directors, employees, consultants and independent
contractors. Options will be granted to certain persons in proportion to their
contributions to the overall success of 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 1999 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 1999 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 1999 Plan on the terms
and at the prices determined by the board, or a committee thereof, except that
the per share exercise price of incentive stock options granted under the 1999
Plan will not be less than the fair market value of the common stock on the date
of grant and, in the case of an incentive stock option granted to a 10%
shareholder, the per share exercise price will not be less than 110% of the fair
market value as defined in the 1999 Plan. The per share exercise price of
nonstatutory stock options granted under the 1999 Plan will not be less than 85%
of the fair market value of the common stock on the date of grant.
Options under the 1999 Plan that would otherwise qualify as incentive stock
options will not be treated as incentive stock options to the extent that the
aggregate fair market value of the shares covered by the incentive stock options
which are exercisable for the first time by any individual during any calendar
year exceeds $100,000.
Options granted under the 1999 Plan will be exercisable after the period or
periods specified in the option agreement. Incentive stock options granted to
employees will vest in equal installments over a period of five years commencing
on the first anniversary of the date of grant. Options granted under the 1999
Plan are not exercisable after the expiration of ten years from the date of the
grant and are not transferable other than by will or by the laws of descent and
distribution. Adjustments in the number of shares subject to options granted
under the 1999 Plan can be made by the board of directors or the appropriate
committee in the event of a stock dividend or recapitalization resulting in a
stock split-up, combination or exchange of shares.
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OPTIONS GRANTED DURING FISCAL YEAR END JANUARY 31, 2000
All options granted to the Named Executive Officers and the Chief Financial
Officer, Anthony M. Palermo, are stated in the table below. No options have been
exercised by any of the Named Executive Officers. All of the options granted to
such officers and directors terminate on the ten-year anniversary of their grant
dates.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
NUMBER OF OPTIONS EXERCISE OR
SECURITIES GRANTED TO BASE PRICE
UNDERLYING EMPLOYEES IN ($)(SH) EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR 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 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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<PAGE>
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 March 15, 2000, by (1) each person who
owns beneficially more than 5% of OnlineTrading.com's outstanding common stock,
(2) each of the Named Executive Officers, and (3) all directors and executive
officers as a group.
SHARES BENEFICIALLY OWNED (1)
-----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(2) NUMBER PERCENT
- --------------------------------------------------------------------------------
Andrew A. Allen (3) 2,725,926 23.4%
Farshid Tafazzoli (4) 2,725,926 23.4
E. Steven zum Tobel (5) 444,444 3.9
Derek J. Hernquist 266,666 2.3
Benedict S. Gambino 2,725,926 23.4
Anthony M. Palermo -- --
Lothar Mayer (6) 22,500 *
Eldren P. Nalley (7) 10,000 *
Robert A. Scarpetti -- --
All Directors and executive officers as a group 6,195,462 53.4%
(8 persons)
- --------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC that deem shares to be beneficially owned by any person who has or
shares voting or investment power with respect to such shares.
(2) The business address of all employee directors, executive officers and
Mr. Nalley is c/o OnlineTrading.com, 2700 North Military Trail, Suite
200, Boca Raton, Florida 33431. The business address of Mr. Mayer is
5200 Town Center Circle, Suite 105, Boca Raton, Florida 33486.
(3) Includes shares held Andrew A. Allen Family Limited Partnership.
(4) Shares held by Tafazzoli Family Limited Partnership.
(5) Includes shares which may be redeemed by OnlineTrading.com if Mr. zum
Tobel terminates his employment with OnlineTrading.com on or before
February 28, 2001. Shares held by zum Tobel Family Limited Partnership.
(6) Shares held by Mayer Investments, LP.
(7) Shares held by Eldren P. Nalley Declaration of Trust DTD.
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DESCRIPTION OF SECURITIES
OF HOLDING COMPANY
The authorized capital stock of Holding Company consists of 225 million
shares, of which 200 million shares are common stock, par value $0.01 per share,
and 25 million shares are preferred stock, par value $0.01 per share. As of
April 10, 2000, there were 100 shares of common stock outstanding held of record
by Omega Research, which will be cancelled upon consummation of the merger, and
no shares of preferred stock outstanding. Upon completion of the merger a
maximum of approximately 44,264,594 shares of Holding Company common stock will
be issued and outstanding assuming the maximum exchange ratio of 1.7172 shares
of Holding Company common stock for each share of OnlineTrading.com common
stock.
The following description of the capital stock of Holding Company and
certain provisions of Holding Company'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 Holding Company'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 Holding Company 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
Holding Company 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 Holding Company 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 Holding
Company. Upon liquidation, dissolution or winding up of Holding Company, the
holders of common stock are entitled to receive, pro rata, the assets of Holding
Company 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 Holding Company
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
Holding Company'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. Holding Company
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
Holding Company. Holding Company has no present intention to issue any preferred
stock.
CERTAIN PROVISIONS OF FLORIDA LAW
Holding Company is subject to Sections 607.0901 and 607.0902 of the Florida
Business Corporation Act. In general, Section 607.0901 restricts the ability of
a greater than 10% shareholder of a company to engage in a wide range of
specified transactions between such company and such shareholder or a person or
entity controlled by or controlling such shareholder. The statute provides that
such a transaction must be approved by the affirmative vote of the holders of
two-thirds of such company's voting shares, other than the shares beneficially
owned by the interested shareholder, unless it is approved by a majority of the
disinterested directors. Section 607.0902 restricts the ability of a third party
to effect an unsolicited change in control of a company. In general, the statute
provides that, unless approved by the board of directors of Holding Company,
shares acquired in a transaction which effects a certain threshold change in the
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ownership of Holding Company'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
Holding Company.
CERTAIN CHARTER AND BYLAW PROVISIONS
Holding Company'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 Holding
Company. The Articles require that, upon completion of the merger, any actions
to be taken by the shareholders of Holding Company 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 Holding Company's Articles and Bylaws may
have the effect of discouraging a change in control of Holding Company 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
Holding Company'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 Holding Company 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.
Holding Company's Articles and Bylaws provide that Holding Company will
indemnify its directors and officers, and may indemnify its employees and other
agents, to the fullest extent permitted by law. Holding Company'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. Holding Company intends to obtain liability insurance for its
directors and officers.
In addition to the indemnification provided for in Holding Company's
Articles and Bylaws, Holding Company intends to enter into agreements to
indemnify its directors and its executive officers. These agreements, among
other things will indemnify Holding Company'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 Holding Company or any third person) and
liabilities of any type whatsoever (including, but not limited to, judgments,
fines and amounts paid in settlement) actually and reasonably incurred by such
persons in connection with either the investigation, defense, settlement or
appeal of any threatened, pending or completed action, suit or other proceeding,
including any action by or in the right of Holding Company, arising out of such
persons' services as a director, officer, employee or other agent of Holding
Company, any subsidiary of Holding Company or any other company or enterprise to
which such persons provide services at the request of Holding Company. Holding
Company 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 Holding Company where indemnification
will be required or permitted. Holding Company is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
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TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Holding Company common stock will be
American Stock Transfer & Trust Company, New York, New York.
NASDAQ NATIONAL MARKET LIST AND SYMBOL
Holding Company common stock, subject to being approved for listing on The
Nasdaq National Market (which is a condition to the closing of the merger), will
trade under the symbol "OTRD."
COMPARISON OF RIGHTS OF HOLDERS OF
ONLINETRADING.COM COMMON STOCK AND
OMEGA RESEARCH AND HOLDING COMPANY 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/Holding Company 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 Holding Company.
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 Holding Company shareholders
are currently governed by Holding Company's Articles of Incorporation and
Articles of Amendment to Articles of Incorporation, as currently in effect, and
Holding Company'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 Holding Company's capital stock in exchange
for their respective shares of capital stock in OnlineTrading.com or Omega
Research, as the case may be. Because Holding Company is also a Florida
corporation, the rights of the former OnlineTrading.com and Omega Research
shareholders (now shareholders of Holding Company) will continue to be governed
by Florida law.
The articles of incorporation and bylaws of Holding Company 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 Holding Company.
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 Holding
Company.
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 ________, 2000, there were _____ shares of
OnlineTrading.com common stock outstanding.
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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 ______, 2000, there were ____ shares of Omega Research common stock
outstanding.
HOLDING COMPANY. The authorized capital stock of Holding Company consists
of 200 million shares of Holding Company common stock, par value $0.01 per
share, and 25 million shares of Holding Company preferred stock, par value $0.01
per share. As of ______, 2000, there were 100 shares of Holding Company 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/HOLDING COMPANY. According to the respective Omega Research
and Holding Company 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 Holding Company 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/HOLDING COMPANY. The respective bylaws of Omega Research and
Holding Company 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, Holding
Company'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/HOLDING COMPANY. The respective bylaws of Omega Research and
Holding Company 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
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ONLINETRADING.COM. According to OnlineTrading.com's bylaws, vacancies
arising on the board of directors may be filled by the affirmative vote of a
majority of the remaining directors, even if no quorum remains. The shareholders
may not fill a vacancy on the board of directors.
OMEGA RESEARCH/HOLDING COMPANY. The respective bylaws of Omega Research and
Holding Company 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/HOLDING COMPANY. 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 Holding Company 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, Holding Company's articles of
incorporation and bylaws provide that no action required or permitted to be
taken by Holding Company 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/HOLDING COMPANY. The respective bylaws of Omega Research and
Holding Company provide that the board of directors may adopt specified limited
amendments to the articles of incorporation without shareholder action,
including:
/bullet/ the deletion of information of historical interest;
/bullet/ 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;
/bullet/ the removal of authorization for a class or series of shares,
if no shares of such class or series have been issued; and
/bullet/ 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 Holding Company relating to the following
matters cannot be amended, modified or repealed unless such amendment,
modification or repeal is adopted by an affirmative vote of holders of not less
than two-thirds of the outstanding shares entitled to vote thereon unless
recommended to the shareholders by a majority of the then directors of the
corporation, in which case only an affirmative vote of a majority of the
outstanding shares shall be required: (i) advance notice of shareholder
nominations for election of directors and of new business to be brought at a
shareholders' meeting; (ii) the calling of special meetings of shareholders;
(iii) the elimination of shareholders' actions by written consent without a
meeting; and (iv) liability of directors.
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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/HOLDING COMPANY. The respective bylaws of Omega Research and
Holding Company state that the bylaws may be altered, amended or repealed by
either the board of directors or the shareholders. However, the board may not
alter, amend or repeal the bylaws generally or a particular bylaw adopted by the
shareholders if the shareholders expressly preclude the board from doing so.
NOTICE OF CERTAIN SHAREHOLDER ACTIONS
ONLINETRADING.COM. According to the OnlineTrading.com bylaws,
OnlineTrading.com is required to notify shareholders of the date, time and place
of each annual and special meeting not less than ten or more than sixty days
before the meeting date. Only notices of special meetings must include a
description of the purpose or purposes for which the meeting is called. Meetings
may be held without notice if all the shareholders entitled to vote are present
and do not object at the beginning of the meeting or if notice is waived by
those not present.
Notice must be given at the direction of the president, the secretary or
the officer or persons calling the meeting. Notice must be written and must be
given to each shareholder at the shareholder's address as it appears on the
stock transfer records of OnlineTrading.com.
For nominations or other business to be properly brought before an annual
meeting by a shareholder, the shareholder must give written notice, which
includes information concerning the shareholder as well as information as to the
person whom the shareholder proposes to nominate or a description of and reason
for the business desired, to the secretary of OnlineTrading.com at its principal
executive offices. Such notice must be delivered to OnlineTrading.com not later
than the 60th day, nor earlier than the 90th day, prior to the meeting. If
notice to the shareholders or public disclosure of the date of the meeting is
made less than seventy days before the date of the meeting, notice by the
shareholder must be delivered not later than the close of business on the 10th
day following the day on which notice of the meeting was mailed or public
disclosure was made, whichever occurred first.
Furthermore, nominations of persons for election to the board may be made
at a special meeting of shareholders at which directors are to be elected
pursuant to notice of meeting by or at the direction of the board by any
shareholder entitled to vote for the election of directors at the meeting. If
OnlineTrading.com calls a special meeting for the purpose of electing directors,
any such shareholder may nominate a person(s) for election if the shareholder's
notice described above is delivered to the secretary of OnlineTrading.com at its
principal executive offices not later than the 60th day, nor earlier than the
90th day, prior to the special meeting. If notice to the shareholders or public
disclosure of the date of the special meeting is made less than seventy days
before the date of the meeting, notice by the shareholder must be delivered not
later than the close of business on the 10th day following the day on which
notice of the special meeting was mailed or public disclosure was made,
whichever occurred first.
OMEGA RESEARCH/HOLDING COMPANY. According to the respective bylaws of Omega
Research and Holding Company, 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.
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No notice of a shareholders' meeting need be given to a shareholder if (i)
an annual report and proxy statement for two consecutive annual meetings or (ii)
all, and at least two checks in payment of dividends or interest during a
twelve-month period have been sent by first-class United States mail, addressed
to the shareholder at his, her or its address as it appears on the share
transfer books of the corporation, and returned undeliverable. The obligation of
the corporation to provide notice to a shareholder will be reinstated once the
corporation has received a new address for the shareholder.
Notice must be given at the direction of the president, the secretary or
the officer or persons calling the meeting. Notice must be written and may be
communicated in person, by telegraph, teletype or other form of electronic
communication or by mail.
For nominations or other business to be properly brought before an annual
meeting by a shareholder, the shareholder must give written notice, which
includes information concerning the shareholder as well as information as to the
person whom the shareholder proposes to nominate or a description of and reason
for the business desired, to the secretary of the corporation at its principal
executive offices. Such notice must be delivered to the corporation not later
than the close of business on the 60th day, nor earlier than the close of
business on the 90th day, prior to the first anniversary of the preceding year's
annual meeting. If such annual meeting is more than thirty days before or more
than sixty days after such anniversary date, notice by the shareholder must be
delivered not earlier than the close of business on the 90th day prior to such
annual meeting and not later than the close of business on the later of the 60th
day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
corporation.
Furthermore, nominations of persons for election to the board of directors
may be made at a special meeting of shareholders at which directors are to be
elected pursuant to notice of meeting (i) by or at the direction of the board or
(ii) provided that the board has determined that directors will be elected at
such meeting, by any shareholder who (A) is a shareholder of record at the time
of giving notice, (B) is entitled to vote for the election of directors at the
meeting and (C) complies with notice procedures. If the corporation calls a
special meeting for the purpose of electing directors, any such shareholder may
nominate a person(s) for election if the shareholder's notice described above is
delivered to the secretary of the corporation at its principal executive offices
no earlier than the close of business on the 90th day prior to such special
meeting and not later than the 60th day prior to such annual meeting or the 10th
day following the day on which public announcement is first made of the special
meeting and the nominees proposed by the board.
SPECIAL MEETINGS
ONLINETRADING.COM. The articles of incorporation and bylaws of
OnlineTrading.com provide that special meetings of the shareholders may be
called only by (i) the board of directors pursuant to a resolution approved by a
majority of the board, (ii) the chief executive officer or (iii) the holders of
at least one-third (1/3) of the outstanding shares of capital stock.
OMEGA RESEARCH/HOLDING COMPANY. According to the respective articles of
incorporation of Omega Research and Holding Company, 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.
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OMEGA RESEARCH/HOLDING COMPANY. 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, Holding Company 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 Holding
Company articles of incorporation or the bylaws contain any provisions granting
dissenters' or appraisal rights.
EXPERTS
The consolidated financial statements of Omega Research, Inc. and
subsidiaries included elsewhere in this joint proxy statement/prospectus have
been audited by Arthur Andersen LLP, independent certified public accountants,
as set forth in their report with respect hereto, and are included herein in
reliance upon the authority of such firm as experts in giving said report.
The financial statements of onlinetradinginc.com corp. included elsewhere
in this joint proxy statement/prospectus as of and for the year ended January
31, 2000 have been audited by Arthur Andersen LLP, independent certified public
accountants, and are included herein in reliance upon the authority of such firm
as experts in giving said report.
The statement of financial condition of onlinetradinginc.com corp. as of
January 31, 1999 and the related statements of income, changes in stockholders'
equity and cash flows for the year ended January 31, 1999 included in this joint
proxy statement/prospectus have been audited by Ahearn, Jasco + Company, P.A.,
independent auditors, as stated in their report appearing with the financial
statements herein, and this report is included in reliance on their authority as
experts in accounting and auditing.
Representatives of Arthur Andersen LLP and Ahearn, Jasco + Company, P.A.
are not expected to be present at the special meetings of Omega Research or
OnlineTrading.com.
LEGAL MATTERS
The validity of the shares of Holding Company'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 Holding Company 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.
Holding Company has filed a registration statement with the SEC to register
Holding Company'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 Holding Company 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.
143
<PAGE>
As allowed by the SEC's rules, this joint proxy statement/prospectus does
not contain all of the information relating to Holding Company, 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 Holding Company and Omega Research, and
OnlineTrading.com has supplied all information contained in this joint proxy
statement/prospectus relating to OnlineTrading.com. Neither Omega Research nor
OnlineTrading.com warrants the accuracy or completeness of information relating
to the other.
You should rely only on the information contained in this joint proxy
statement/prospectus to vote on the merger. Neither Omega Research nor
OnlineTrading.com has authorized anyone to provide you with information that is
different from what is contained in this joint proxy statement/prospectus. This
joint proxy statement/prospectus is dated __________, 2000. You should not
assume that the information contained in the joint proxy statement/prospectus is
accurate as of any other date, and neither the mailing of this joint proxy
statement/prospectus to shareholders nor the issuance of Holding Company 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 May 14, 2000 or at OnlineTrading.com at 2700
N. Military Trail, Suite 200, Boca Raton, Florida 33431, no later than sixty
days nor more than ninety days prior to the publicly- announced date of its
annual meeting of shareholders. If such proposal is in compliance with the
bylaws of the applicable company and all of the requirements of Rule 14a-8 of
the Securities Exchange Act of 1934, it will be included in the proxy statement
and set forth on the form of proxy issued for the 2000 annual meeting of
shareholders in the event that the merger is not consummated.
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.
144
<PAGE>
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 December 31, 1999 and 1998....................................................F-3
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997......................F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997............F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997......................F-6
Notes to Consolidated Financial Statements...................................................................F-7-22
ONLINETRADINGINC.COM CORP.
Reports of Independent Certified Public Accountants.........................................................F-23-24
Financial Statements
Statements of Financial Condition.........................................................................F-25
Statements of Income......................................................................................F-26
Statement of Changes in Stockholders' Equity..............................................................F-27
Statements of Cash Flows..................................................................................F-28
Notes to Financial Statements...............................................................................F-29-40
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Omega Research, Inc.:
We have audited the accompanying consolidated balance sheets of Omega
Research, Inc. (a Florida corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Omega Research, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/s/ ARTHUR ANDERSEN LLP
- ----------------------------------
ARTHUR ANDERSEN LLP
Miami, Florida,
February 18, 2000.
F-2
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,175,852 $ 7,649,771
Marketable securities 1,695,304 5,736,958
Accounts receivable, net 13,695,059 9,659,700
Inventory 67,371 283,065
Other current assets 1,469,383 696,440
Deferred income taxes 9,192,000 4,541,000
------------ ------------
Total current assets 28,294,969 28,566,934
PROPERTY AND EQUIPMENT, net 2,611,454 2,020,832
OTHER ASSETS 473,344 186,676
------------ ------------
Total assets $ 31,379,767 $ 30,774,442
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,786,739 $ 1,487,128
Notes payable -- 600,000
Accrued expenses 1,861,321 1,171,452
Deferred revenue 1,256,824 380,133
------------ ------------
Total current liabilities 5,904,884 3,638,713
LONG TERM DEBT -- 2,640,925
------------ ------------
Total liabilities 5,904,884 6,279,638
------------ ------------
COMMITMENTS & CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 25,000,000
shares authorized, none issued and outstanding -- --
Common stock, $.01 par value; 100,000,000
shares authorized, 24,475,104 and 24,269,959 issued
and outstanding at December 31, 1999 and 1998,
respectively 244,751 242,700
Additional paid - in capital 26,560,893 24,616,256
Accumulated deficit (1,330,761) (364,152)
------------ ------------
Total shareholders' equity 25,474,883 24,494,804
------------ ------------
Total liabilities and shareholders' equity $ 31,379,767 $ 30,774,442
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET REVENUES:
Licensing fees $ 33,767,832 $ 25,057,098 $ 27,729,549
Other revenues 9,102,137 6,653,655 5,220,899
------------ ------------ ------------
Total net revenues 42,869,969 31,710,753 32,950,448
------------ ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees and services 2,985,409 2,494,445 2,688,277
Product development 5,144,658 4,001,981 2,355,716
Sales and marketing 18,979,103 15,573,786 12,217,117
General and administrative 12,435,758 8,545,073 7,465,942
Acquisition costs 1,200,000 -- --
------------ ------------ ------------
Total operating expenses 40,744,928 30,615,285 24,727,052
------------ ------------ ------------
Income from operations 2,125,041 1,095,468 8,223,396
------------ ------------ ------------
OTHER INCOME (EXPENSE), net:
Interest expense (1,691,185) (907,196) (265,469)
Other income, net 445,535 435,181 195,995
------------ ------------ ------------
Total other expense, net (1,245,650) (472,015) (69,474)
------------ ------------ ------------
Income before income taxes 879,391 623,453 8,153,922
INCOME TAX PROVISION (BENEFIT) 1,846,000 1,052,000 (934,000)
------------ ------------ ------------
(Loss) income before pro forma income
tax adjustments (966,609) (428,547) 9,087,922
PRO FORMA INCOME TAX
ADJUSTMENTS (Note 1):
Pro forma income taxes for periods
prior to September 30, 1997 -- -- 3,255,731
Non-recurring tax credit -- -- 1,167,000
------------ ------------ ------------
Pro forma net (loss) income $ (966,609) $ (428,547) $ 4,665,191
============ ============ ============
(LOSS) EARNINGS PER SHARE (Note 10):
Basic and Diluted $ (0.04) $ (0.02) $ 0.21
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 21, 479, 995 $ 214,800 $ -- $ 4,088,967 $ 4,303,767
Issuances of common stock 2,766,108 27,661 27,412,784 -- 27,440,445
Cash distributions to shareholders,
net -- -- -- (16,532,826) (16,532,826)
Non-cash distributions to
shareholders -- -- -- (506,781) (506,781)
Conversion from S corporation to
C corporation -- -- (3,792,091) 3,792,091 --
Compensation expense on stock
option grants -- -- 122,041 -- 122,041
Issuance of detachable warrants by
pooled company in conjunction
with issuance of notes -- -- 102,896 -- 102,896
Net income -- -- -- 9,087,922 9,087,922
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1997 24,246,103 242,461 23,845,630 (70,627) 24,017,464
Issuances of common stock 23,856 239 54,749 -- 54,988
Compensation expense on stock
option grants -- -- 113,877 -- 113,877
Issuance of detachable warrants by
pooled company in conjunction
with issuance of notes -- -- 126,000 -- 126,000
Conversion of detachable warrants
into common stock by pooled
company upon non-payment of
notes -- -- 476,000 -- 476,000
Repayment of distributions -- -- -- 135,022 135,022
Net loss -- -- -- (428,547) (428,547)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1998 24,269,959 242,700 24,616,256 (364,152) 24,494,804
Issuances of common stock 205,145 2,051 463,671 -- 465,722
Compensation expense on stock
option grants -- -- 140,796 -- 140,796
Issuance of common stock by pooled
company upon non-payment of
notes -- -- 1,340,170 -- 1,340,170
Net loss -- -- -- (966,609) (966,609)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1999 24,475,104 $ 244,751 $ 26,560,893 $ (1,330,761) $ 25,474,883
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are in an integral part of these consolidated financial
statements.
F-5
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) income before pro forma income tax adjustments $ (966,609) $ (428,547) $ 9,087,922
Adjustments to reconcile (loss) income before pro forma
income tax adjustments to net cash (used in) provided by
operating activities:
Depreciation and amortization 1,097,104 742,966 717,083
Provision for doubtful accounts 5,721,857 2,222,834 2,450,736
Compensation expense on stock option grants 140,796 113,877 122,041
Noncash interest associated with the conversion of
detachable warrants into common stock by pooled
company upon nonpayment of notes 1,340,170 476,000 --
Deferred income tax benefit (4,651,000) (1,578,000) (2,963,000)
(Increase) decrease in:
Accounts receivable (9,757,216) (1,877,540) (7,543,001)
Inventory 215,694 132,803 (276,061)
Other current assets (773,118) (168,380) (515,476)
Other assets (217,293) 128,672 (1,315)
Increase (decrease) in:
Accounts payable 1,299,611 (25,042) 942,453
Accrued expenses 689,869 558,239 235,784
Income taxes payable -- (509,000) 509,000
Deferred revenue 876,691 243,863 --
------------ ------------ ------------
Net cash (used in) provided by operating activities (4,983,444) 32,745 2,766,166
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,608,782) (1,310,391) (1,081,398)
Capitalized software development costs -- -- (48,694)
Purchases of marketable securities -- (5,722,368) (1,014,590)
Proceeds from maturity of marketable securities 4,041,654 1,000,000 --
Acquisition of data rights and customer lists (120,000) (222,900) (40,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities 2,312,872 (6,255,659) (2,184,682)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 465,722 54,988 27,440,445
Proceeds from issuance of warrants by pooled company -- -- 3,222
Repayments from (distributions to) shareholders, net -- 135,022 (16,532,826)
Proceeds from borrowings of debt 815,422 855,750 15,238,712
Repayment of borrowings of debt (4,084,491) -- (15,001,594)
------------ ------------ ------------
Net cash (used in) provided by financing activities (2,803,347) 1,045,760 11,147,959
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (5,473,919) (5,177,154) 11,729,443
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,649,771 12,826,925 1,097,482
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,175,852 $ 7,649,771 $ 12,826,925
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ -- $ 17,979
============ ============ ============
Cash paid for income taxes $ 6,933,366 $ 3,138,740 $ 1,520,000
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION:
Effective June 30, 1997, Omega Research declared a dividend, distributing land
and a building with a carrying value of $506,781, to its shareholders.
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Omega Research, Inc. (together with its subsidiaries, "Omega Research"), a
Florida corporation, was incorporated in 1982 to develop, market and sell
trading strategy tools to individual and professional investors and traders.
Omega Research's products and services provide investors and traders with the
ability to develop, historically test and computer automate trading strategies
and to access streaming real-time charts, quotes and news via the Internet.
The following is a summary of significant accounting policies followed in
the preparation of these financial statements:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Omega
Research and its direct and indirect wholly owned subsidiaries, Window on
WallStreet Inc. ("Window On WallStreet") and Direct XChange Securities, Inc. All
significant intercompany transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Omega Research considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents consist primarily of overnight investments, tax exempt commercial
paper and short-term municipal bonds with an original maturity of three months
or less.
MARKETABLE SECURITIES
Marketable securities consist of investment grade municipal bonds maturing,
on average, within a year. The cost of these investments approximates fair
market value and management has designated the securities as available for sale.
ACCOUNTS RECEIVABLE
Accounts receivable are principally from individuals and distributors of
Omega Research's products. Omega Research performs periodic credit evaluations
and maintains allowances for potential credit losses of approximately $6.3
million and $3.7 million at December 31, 1999 and 1998, respectively, and
allowances for potential returns of approximately $23.2 million and $7.5 million
at December 31, 1999 and 1998, respectively.
Omega Research provides all client software customers with a 30-day right
of return, and, as a result, records a provision for returns at the time of
sale. Omega Research, depending on the circumstances, permits customers to
return client software products after the 30-day period in order to maintain as
high a level of customer satisfaction as possible. The reserve for returns and
the provision for bad debt, in accordance with generally accepted accounting
principles, are estimated based on historical experience and other relevant
information. There is no certainty that future returns or bad debt will not
exceed established estimates. In addition, Omega Research is subject to rapid
changes in technology and shifts in consumer demand which could result in
product returns, in the near term, that are materially different than Omega
Research's reserves that have been provided.
F-7
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, marketable securities,
accounts receivable, accounts payable, notes payable and long term debt
approximate fair value as of December 31, 1999 and 1998.
INVENTORY
Inventory, which consists primarily of software media, manuals and related
packaging materials, are stated at the lower of cost or market with cost
determined on a first-in, first-out ("FIFO") basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets.
Maintenance and repairs are charged to expense when incurred; betterments
are capitalized. Upon the sale or retirement of assets, the cost and accumulated
depreciation are removed from the accounts, and any gain or loss is recognized
currently.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, ACCOUNTING FOR THE COST OF CAPITALIZED SOFTWARE TO BE SOLD, LEASED OR
OTHERWISE MARKETED, Omega Research examines its software development costs after
technological feasibility has been established to determine the amount of
capitalization that is required. Based on Omega Research's product development
process, technological feasibility is established upon completion of a working
model. The costs that are capitalized are amortized on the straight-line basis
over a one-year period, the period of benefit, of the related products. For
certain periods, the technological feasibility of Omega Research's products and
the general release of such software substantially coincide, and, as a result,
software development costs qualifying for capitalization are immaterial. There
were no capitalized software development costs as of December 31, 1999 or 1998.
LONG-LIVED ASSETS
Omega Research reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
REVENUE RECOGNITION
LICENSING FEES
Sales of client software products, net of provisions for estimated returns,
are recognized at the time the product is shipped, in accordance with the
provisions of the American Institute of Certified Public Accountants Statement
of Position ("SOP") 97-2, SOFTWARE REVENUE RECOGNITION. SOP 97-2 requires
companies to defer revenue and profit recognition if four required criteria of a
sale are not met. In addition, SOP 97-2 requires revenue recognized from
software arrangements to be allocated to each element of an arrangement based on
the relative fair values of the elements, such as software products, upgrades,
enhancements, post contract customer support, installation, or training. SOP
97-2 was adopted by Omega Research effective January 1, 1998 and did not have a
material impact on Omega Research's financial position or results of operations.
While Omega Research has no obligation to perform future services
subsequent to shipment of client software, Omega Research provides telephone and
electronic mail customer support as an accommodation to purchasers of its
products as a means of fostering customer satisfaction. The majority of such
services are provided during the first 60
F-8
<PAGE>
days of ownership of Omega Research's products. Costs associated with this
effort are generally insignificant in relation to product sales value.
Certain products have been sold with bundled services (see discussion of
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.
OTHER REVENUES
Omega Research has, with respect to its client software products, entered
into certain agreements with entities that market and sell financial market data
subscriptions. Except for the agreement described in Note 11 (which is a royalty
arrangement), Omega Research receives, in certain cases, monthly payments in the
nature of commissions based on the use by Omega Research's client software
customers of financial market data feed subscriptions which are accessed through
one of Omega Research's client software products. Omega Research records these
revenues as they are earned in accordance with the terms of the applicable
contracts.
In addition, 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. Revenue 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.
ADVERTISING COSTS
Advertising costs are expensed when the initial advertisement is run, and
are included in sales and marketing expenses in the accompanying statements of
operations. Advertising costs for the years ended December 31, 1999, 1998 and
1997 were $6.2 million, $7.0 million and $6.4 million, respectively.
STOCK-BASED COMPENSATION
In accordance with SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
in accounting for stock-based transactions with non-employees, Omega Research
records compensation expense in the statement of operations when these types of
options are issued. As permitted by SFAS No. 123, Omega Research accounts for
its stock-based compensation paid to employees in accordance with Accounting
Principles Board ("APB") Opinion No. 25.
INCOME TAXES
For income tax purposes, Omega Research was an S corporation prior to
September 30, 1997. Accordingly, net income and related timing differences which
arose in the recording of income and expense items for financial reporting and
tax reporting purposes were included in the individual tax returns of the S
corporation shareholders. Effective September 30, 1997, Omega Research
terminated its S corporation election, and, as a result, adopted SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires that deferred income tax
balances be recognized based on the differences between the financial statement
and income tax bases of assets and liabilities using the enacted tax rates (see
Note 9).
PRO FORMA INCOME TAX ADJUSTMENTS
The pro forma income tax adjustments included in the accompanying statement
of operations for the year ended December 31, 1997 are for informational
purposes only. Pro forma income taxes have been provided at an estimated
effective rate of 39.5% for Omega Research for periods prior to September 30,
1997. In addition, a non-recurring tax credit of $1.2 million has been excluded
from pro forma net income (see Note 9).
F-9
<PAGE>
EARNINGS PER SHARE
Earnings per share is calculated in accordance with SFAS No. 128, EARNINGS
PER SHARE. SFAS No.128 requires presentation of basic and diluted earnings per
share on the face of the statement of operations. Basic earnings per share is
computed by dividing the net income (loss) available to common shareholders by
the weighted average shares of outstanding common stock. The calculation of
diluted earnings per share is similar to basic earnings per share except that
the denominator includes dilutive common stock equivalents such as stock options
and warrants (see Note 10).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Such
estimates include established reserves for returns and reserves for potentially
uncollectable accounts receivable.
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE
Computer software developed or obtained for internal use is accounted for
in accordance with SOP 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 establishes criteria for
determining which costs of developing or obtaining internal-use computer
software should be charged to expense and which should be capitalized. Omega
Research adopted SOP 98-1 prospectively effective January 1, 1999. Such adoption
did not have a material effect on Omega Research's financial position or results
of operations.
COMPREHENSIVE INCOME
Comprehensive income is defined as the change in a business enterprise's
equity during a period arising from transactions, events or circumstances
relating to non-owner sources, such as foreign currency translation adjustments
and unrealized gains or losses on available-for-sale securities. It includes all
changes in equity during a period except those resulting from investments by or
distributions to owners. Comprehensive income is equal to net income (loss) for
all periods presented.
SEGMENT INFORMATION
During the three years ended December 31, 1999, management evaluated and
operated the business of Omega Research as a single segment.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL OF FASB
STATEMENT NO. 133. SFAS No. 137 defers for one year the effective date of SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 will now apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133 will require Omega Research to recognize all
derivatives on the balance sheet as either assets or liabilities measured at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. Omega Research will adopt SFAS No. 133 effective for the year
ended December 31, 2001. Omega Research believes that the adoption of SFAS No.
133 will not have a material impact on its consolidated financial statements, as
it has entered into no derivative contracts and has no current plans to do so in
the future.
F-10
<PAGE>
(2) ACQUISITIONS
Effective October 26, 1999, Omega Research acquired Window On WallStreet, a
leading provider of Internet-based streaming real-time market data and a
developer of client software and online trading strategy tools. Under the terms
of the merger agreement, Window On WallStreet shareholders received 1,999,995
newly issued shares of Omega Research's common stock for all of the issued and
outstanding shares of Window On WallStreet's common stock. In addition, Omega
Research (i) repaid in accordance with its terms approximately $4.1 million of
debt and (ii) assumed all outstanding stock options to purchase Window On
WallStreet common stock which, based on an exchange ratio of 0.210974, were
exercisable for an aggregate of 182,529 shares of Omega Research's common stock.
The acquisition of Window On WallStreet was accounted for as a
pooling-of-interests. Accordingly, the financial statements herein have been
restated to give retroactive effect to this acquisition. Below is a
reconciliation of Net revenues and Pro forma net (loss) income amounts
previously reported with amounts included herein:
1998 1997
------------ ------------
Net revenues:
Omega Research, as previously reported $ 28,216,505 $ 29,226,274
Window On WallStreet 3,494,248 3,724,174
------------ ------------
Omega Research, as restated $ 31,710,753 $ 32,950,448
============ ============
Pro forma net (loss) income:
Omega Research, as previously reported $ 1,955,547 $ 5,451,582
Window On WallStreet (2,384,094) (786,391)
------------ ------------
Omega Research, as restated $ (428,547) $ 4,665,191
============ ============
There were no material relationships or intercompany transactions between
Omega Research and Window On WallStreet prior to the merger.
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following as of December 31,
1999 and 1998:
USEFUL LIFE
IN YEARS 1999 1998
----------- ----------- -----------
Computers and software 3-5 $4,682,353 $3,195,754
Furniture and equipment 3-7 495,877 448,048
Leasehold improvements 3-5 178,811 144,015
Autos 5 - 110,205
----------- -----------
5,357,041 3,898,022
Accumulated depreciation
and amortization (2,745,587) (1,877,190)
----------- -----------
$2,611,454 $ 2,020,832
========== ===========
F-11
<PAGE>
(4) ACCRUED EXPENSES
Accrued expenses consist of the following as of December 31, 1999 and 1998:
1999 1998
----------- -----------
Payroll and related accruals $ 579,153 $ 654,883
Accrued data distribution and exchange fees 550,977 --
Accrued technical support costs 161,000 173,500
Other 570,191 343,069
----------- -----------
$ 1,861,321 $ 1,171,452
=========== ===========
(5) DEFERRED REVENUE
Deferred revenue is comprised of deferrals for (i) licensing fees revenue
for which amounts are not due within the next twelve months and for obligations
which have not yet been fulfilled (such as committed upgrades), (ii) payments
received in advance of service or bundled with client software purchases and
(iii) registration fees and sponsorship and exhibitor deposits for OmegaWorld,
Omega Research's annual conference, designed to highlight the benefits of
trading strategy development, held during the second quarter of each year.
Deferred revenue consists of the following as of December 31, 1999 and 1998:
1999 1998
---------- ----------
Licensing fees revenue $ 842,000 $ 58,095
Subscription service revenues 290,300 265,453
OmegaWorld 124,524 56,585
---------- ----------
$1,256,824 $ 380,133
========== ==========
(6) RELATED PARTY DEBT
SHORT TERM DEBT
Short term debt consists of the following as of December 31, 1999 and 1998:
1999 1998
-------- --------
Note payable to Red Oak Capital dated June 11, 1998, bearing
interest at 10%, due December 31, 1998 $ -- $495,000
Note payable to individual dated June 11, 1998, bearing
interest at 10%, due December 31, 1998 -- 5,000
Note payable to Red Oak Capital dated December 23, 1998,
bearing interest at 10%, due February 28, 1999 -- 100,000
-------- --------
$ -- $600,000
======== ========
The above notes dated June 11, 1998 were issued by Window On WallStreet
together with detachable warrants which entitled the holders, related parties to
Window On WallStreet, to purchase 425,000 shares of Window On
F-12
<PAGE>
WallStreet's common stock, no par value, at $2.48 per share. Such warrants
resulted in a charge to interest expense of $126,000 during 1998. Furthermore,
the debt agreement provided for the conversion of all warrants into shares of
Window On WallStreet's common stock to the holder if the notes were not paid as
of December 31, 1998. As the notes were not paid as of December 31, 1998, under
the terms of the note, the holders converted the warrants into 425,000 shares of
Window On WallStreet's common stock at zero cost. Accordingly, an additional
charge reflected in interest expense was recorded by Window on WallStreet at
December 31, 1998 in the amount of $476,000.
Furthermore, as the above notes dated June 11, 1998 were not paid as of the
end of March 1999, Window On WallStreet issued an additional 75,000 shares of
its common stock, no par value, to the note holders in accordance with the
agreement. In addition, in accordance with the terms of the above note dated
December 23, 1998, Window On WallStreet issued 120,000 shares of its common
stock, no par value, to the holders of the notes. Accordingly, a charge
reflected in interest expense was recorded by Window on WallStreet during the
year ended December 31, 1999 in the aggregate amount of approximately $218,000.
These notes were later consolidated and paid by Omega Research.
LONG TERM DEBT
Long term debt consists of the following as of December 31, 1999 and 1998:
1999 1998
--------- ----------
Notes payable to Red Oak Capital dated
August 14, 1996, bearing interest at 10%,
payable at various dates beginning
September 2000, net of unamortized discount
at December 31, 1998 of $52,035. Amount
includes accrued interest recharacterized as
notes payable $ -- $2,631,167
Notes payable to individual dated August 14,
1996, bearing interest at 10%, payable at
various dates beginning September 2000,
net of unamortized discount at December 31,
1998 of $242. Amount includes accrued interest
recharacterized as notes payable -- 9,758
--------- ----------
$ -- $2,640,925
========= ==========
On April 13, 1999, Window On WallStreet signed an agreement with the
related parties holding the notes, consolidating all of the existing debt, short
term and long term, into two notes in the aggregate principal amount of
approximately $3.9 million (the "New Notes"). The New Notes accrued interest at
10% per annum in cash plus one fully paid and non-assessable share of Window On
WallStreet common stock, no par value, for each $45.26 of principal amount
outstanding (rounded up to the nearest share) at the end of each month. Interest
not paid was capitalized as part of the principal amount of the New Notes on a
monthly basis.
As part of this refinancing of debt, Window On WallStreet issued an
additional 400,000 shares of its common stock as a financing fee. Excluding the
financing fee of 400,000 issued shares, during 1999 Window On WallStreet issued
601,580 shares of its common stock to the holders of the New Notes related to
the common stock component of interest expense. Accordingly, Window on
WallStreet recorded additional charges reflected in interest expense of $448,000
for the financing fee and $674,000 for the common stock component of interest
expense. Charges to interest expense totaled approximately $1.3 million
including the $218,000 discussed above.
At the time of the acquisition of Window On WallStreet, Omega Research
repaid all existing debt in accordance with the terms of the agreement.
F-13
<PAGE>
(7) SHAREHOLDERS' EQUITY
SHARE SPLIT
Effective January 29, 1997, Omega Research authorized an increase in the
amount of its authorized common stock to 100 million shares and changed the par
value of each share to $.01. In addition, on January 30, 1997, Omega Research
declared a 97,400-for-1 split of its outstanding common stock. The split has
been retroactively reflected in the financial statements for all periods
presented.
PREFERRED STOCK
On July 16, 1997, Omega Research authorized 25 million shares of preferred
stock with a par value of $.01 per share. No specific preferences or rights have
been established to date with respect to any of these shares nor have any of
these shares been issued.
INITIAL PUBLIC OFFERING
On October 6, 1997, Omega Research closed its initial public offering of
2.6 million shares of common stock of Omega Research at $11.00 per share (the
"Initial Public Offering"). On November 5, 1997, Omega Research closed the
underwriters' purchase of 158,108 additional shares of common stock pursuant to
the exercise of a portion of their over-allotment option granted in the Initial
Public Offering. Total proceeds to Omega Research, net of underwriting discounts
and offering expenses of approximately $2.9 million, were $27.4 million.
DISTRIBUTIONS TO SHAREHOLDERS
On September 30, 1997, Omega Research terminated its S corporation status
and Omega Research became a C corporation making it subject to federal and state
income taxes on its earnings. In conjunction with Omega Research becoming a C
corporation, Omega Research declared and paid a cash dividend to Omega
Research's existing shareholders of $15.4 million (the "Dividend"). The Dividend
was equal to Omega Research's estimate at that time of its cumulative taxable
income prior to its conversion to a C corporation to the extent such taxable
income had not been previously distributed. Subsequent to the payment of the
Dividend, Omega Research preliminarily determined that the actual cumulative
taxable income would be less than was originally estimated. Accordingly, in the
fourth quarter of 1997, the recipients of the Dividend repaid $800,000, plus
interest, to Omega Research. During the third quarter of 1998, upon finalization
of Omega Research's 1997 tax returns and final determination of S corporation
earnings at the date of conversion to a C corporation, the recipients of the
Dividend repaid an additional $135,000, plus interest, to Omega Research,
reducing the Dividend to $14.5 million.
ISSUANCE OF STOCK BY POOLED COMPANY
During 1998, Window On WallStreet issued detachable warrants in association
with the issuance of certain notes to related parties, which entitled the
holders to purchase 425,000 shares of Window On WallStreet's common stock, no
par value, at $2.48 per share. At that time, a charge was made to Additional
Paid-in Capital of $126,000. The related debt agreement provided for the
conversion of all warrants into shares of Window On WallStreet's common stock at
zero cost to the holder if the notes were not paid as of December 31, 1998. As
the notes were not paid as of December 31, 1998, under the terms of the note,
the holder converted the warrants into 425,000 shares of Window On WallStreet's
common stock at zero cost, resulting in a charge to Additional Paid-in Capital
of $476,000.
During 1999, Window On WallStreet issued 1,196,580 shares of its common
stock, no par value, due to nonpayment, consolidation and interest on debt to
related parties. The resulting charge to Additional Paid-in Capital was
approximately $1.3 million.
F-14
<PAGE>
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 13) with onlinetradinginc.com corp. ("OnlineTrading.com")
authorized an increase, subject to approval by Omega Research's shareholders of
the merger agreement and the merger with OnlineTrading.com, in the number of
shares of common stock reserved for issuance under the Option Plan from
4,500,000 to 7,500,000, subject to future anti-dilution adjustments.
Omega Research has reserved 175,000 shares of its common stock for issuance
under its 1997 Director Stock Option Plan, as amended (the "Director Plan").
Under the Director Plan, an independent director is awarded an initial grant of
up to 75,000 non-qualified stock options and annual grants of up to 3,000
non-qualified stock options. The terms of each option grant are determined by
the board of directors.
As discussed in Note 2, Omega Research assumed all outstanding stock
options to purchase Window On WallStreet common stock ("WOW Options"). The WOW
Options generally vest ratably over a four-year period and their terms are ten
years.
A summary of stock option activity including stock options granted under
the Option Plan, Director Plan and the WOW Options is as follows:
F-15
<PAGE>
OPTION PRICE PER SHARE
NUMBER ---------------------------
OF SHARES LOW HIGH WEIGHTED
--------- -------- --------- --------
Outstanding, December 31, 1996 689,328 $ .48 $ 8.06 $ 1.40
Granted 584,692 1.25 11.00 5.04
Canceled (38,004) 2.00 11.00 5.02
Exercised (8,000) 1.25 1.25 1.25
---------
Outstanding, December 31, 1997 1,228,016 .48 11.00 3.02
Granted 1,902,214 1.59 8.06 2.41
Canceled (68,635) 2.00 11.00 5.15
Exercised (11,350) 1.25 2.00 1.47
---------
Outstanding, December 31, 1998 3,050,245 .48 11.00 2.60
Granted 1,076,245 1.66 10.25 5.86
Canceled (131,278) 1.66 11.00 3.91
Exercised (181,560) 1.25 11.00 2.14
---------
Outstanding, December 31, 1999 3,813,652 .48 11.00 3.49
=========
Additional information regarding options outstanding at December 31, 1999
is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
RANGE OF ---------------------------------- -----------------------
EXERCISABLE NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
PRICES OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
- ------------------- AS OF CONTRACTUAL EXERCISE AS OF EXERCISE
LOW HIGH 12/31/99 LIFE PRICE 12/31/99 PRICE
- -------- --------- --------- ---- --------- -------- ---------
$ 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
========= =======
All options issued during 1996 were issued to key employees at an exercise
price that was subsequently determined to be approximately $291,000 in the
aggregate below fair market value at the date of grant as determined by an
independent appraisal. Several of the options issued during 1997 were determined
to be, in the aggregate, approximately $341,000 below fair value as determined
by an independent appraisal. These differences are being amortized over the
five-year vesting period of the related stock options. For the years ended
December 31, 1999, 1998 and 1997, Omega Research recorded compensation expense
of approximately $141,000, $114,000 and $122,000, respectively. Included in
compensation expense in 1999, 1998 and 1997 was approximately $5,000, $7,000 and
$23,000, respectively, related to options issued to consultants of Omega
Research, accounted for under the provisions of SFAS No. 123. Options to
purchase 930,360, 421,979 and 176,238 shares were exercisable at December 31,
1999, 1998 and 1997, respectively.
Omega Research, as permitted by SFAS No. 123, applies APB Opinion No. 25
for options granted to employees. Accordingly, no compensation is recognized for
such grants to the extent their exercise price is equal to the fair market value
of the underlying stock at the date of grant. Had compensation cost for Omega
Research's stock options been based on fair value at the grant dates consistent
with the methodologies of SFAS No. 123, Omega Research's pro forma
F-16
<PAGE>
net loss (and pro forma loss per share) would have been approximately $1.8
million ($0.07 per share) and $1.0 million ($0.04 per share) for the years ended
December 31, 1999 and 1998, and pro forma net income (and pro forma earnings per
share on a diluted basis) would have been $4.5 million ($0.20 per share) for the
year ended December 31, 1997. The fair value of each option grant is estimated
on the date of grant using the Black-Scholes model with the following
assumptions:
1/1/97 - 10/1/97 -
9/30/97 12/31/97 1998 1999
------- -------- ---- ----
Risk free interest rate 6% 5% 5% 5%
Dividend yield - - - -
Volatility factors 70% 81% 81% 75%
Weighted average life (years) 7 7 5 5
EMPLOYEE STOCK PURCHASE PLAN
In July 1997, the board of directors of Omega Research adopted and the
shareholders approved the 1997 Employee Stock Purchase Plan (the "Purchase
Plan") and reserved 500,000 shares of common stock pursuant to the exercise of
nontransferable options granted to participating employees. The exercise price
for the option for each six-month Purchase Plan period is 85% of the lesser of
the fair market value of Omega Research's common stock on the first or last
business day of the Purchase Plan period. The Purchase Plan provides for the
first options to be granted for the Purchase Plan period which commenced January
1, 1998. During the years ended December 31, 1999 and 1998, 23,585 and 12,506
shares of common stock were issued under the plan at an average price of $3.27
and $3.06, respectively.
(8) EMPLOYEE BENEFIT PLAN
Omega Research provides retirement benefits through a defined contribution
401(k) plan (the "401(k) Plan") which was established during 1994. Employees
become eligible based upon meeting certain service requirements. Omega Research
matches employee contributions based upon a formula defined in the 401(k) Plan.
Matching contributions accrued under the 401(k) Plan amounted to approximately
$242,000, $0 and $63,000 in 1999, 1998 and 1997, respectively.
(9) INCOME TAXES
The components of income tax provision (benefit) for the years ended
December 31, 1999, 1998 and 1997 are as follows:
F-17
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current taxes:
Federal $ 5,568,000 $ 2,254,000 $ 1,739,894
State 929,000 376,000 289,106
----------- ----------- -----------
Total current taxes 6,497,000 2,630,000 2,029,000
----------- ----------- -----------
Deferred tax benefit:
Federal (3,988,000) (1,353,000) (2,540,811)
State (663,000) (225,000) (422,189)
----------- ----------- -----------
Total deferred tax benefit (4,651,000) (1,578,000) (2,963,000)
----------- ----------- -----------
Total income tax provision (benefit) $ 1,846,000 $ 1,052,000 $ (934,000)
=========== =========== ===========
</TABLE>
Deferred income taxes are recorded when revenues and expenses are
recognized in different periods for financial statement and tax return purposes.
The temporary differences that created deferred income taxes are as follows:
Deferred tax assets: 1999 1998
------------ ------------
Reserves and allowances $ 8,371,425 $ 4,355,665
Net operating loss carryforwards 2,390,220 961,213
Deferred revenue and accrued liabilities 749,708 176,615
Other 403,647 324,118
------------ ------------
Total deferred tax assets 11,915,000 5,817,611
Valuation allowance (2,723,000) (1,276,611)
------------ ------------
Deferred income taxes, net $ 9,192,000 $ 4,541,000
============ ============
The valuation allowance is primarily due to losses incurred by the pooled
company which historically had unprofitable operations.
A reconciliation of the difference between the expected provision (benefit)
for income taxes using the statutory Federal tax rate and Omega Research's
actual provision (benefit) is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Provision (benefit) using statutory Federal tax
rate $ 307,787 $ 218,209 $ 2,853,873
Pro forma taxes for periods prior to September
30, 1997 -- -- (3,255,731)
Tax credits -- (26,463) (1,229,911)
Change in valuation allowance 1,446,389 578,143 306,692
Other 91,824 282,111 391,077
----------- ----------- -----------
Total income tax provision (benefit) $ 1,846,000 $ 1,052,000 $ (934,000)
=========== =========== ===========
</TABLE>
The effective tax rates for 1999 and 1998 were 210% and 169%, respectively.
The increase as compared with the 35% Federal statutory rate is primarily due to
an increase in the valuation allowance established at Window On
F-18
<PAGE>
WallStreet to offset net operating loss carryforwards. The effective tax rates
of Omega Research as a stand-alone company were approximately 37% and 35% during
1999 and 1998, respectively.
For income tax purposes, Omega Research was an S corporation prior to
September 30, 1997. Accordingly, net income and related timing differences which
arose in the recording of income and expense items for financial reporting and
tax reporting purposes were included in the individual tax returns of the S
corporation shareholders. Effective September 30, 1997, Omega Research
terminated its S corporation election. The $1.2 million benefit for income taxes
recorded during the third quarter of 1997 is comprised of a non-recurring
deferred income tax credit (the "SFAS 109 Credit") of approximately $3.0 million
partially offset by a $1.8 million provision for income taxes payable. The SFAS
109 Credit recognized net deferred tax assets arising from book and tax basis
differences that arose primarily as a result of accounts receivable reserves.
The $1.8 million in income taxes payable relate to federal and state income
taxes owed by Omega Research as a result of an approximate $4.6 million in S
corporation taxable earnings paid by Omega Research during the fourth quarter of
1997 and the year-ended December 31, 1998.
Window On WallStreet has available net operating loss carryforwards
totaling approximately $6.3 million, which will begin to expire in 2012. Window
On WallStreet also has tax credit carryforwards totaling approximately $100,000,
which will begin to expire in 2012. The utilization of these net operating
losses and tax credits will be subject to limitations of approximately $518,000
per year which are cumulative to the extent not utilized by Omega Research. The
deferred tax asset related to these carryforwards has been reduced to zero by a
valuation allowance.
(10) (LOSS) EARNINGS PER SHARE
Weighted average shares outstanding for the years ended December 31, 1999,
1998 and 1997 are calculated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares outstanding (basic) 24,294,179 23,913,762 21,829,417
Impact of dilutive options after applying
the treasury stock method -- -- 790,647
---------- ---------- ----------
Weighted average shares outstanding (diluted) 24,294,179 23,913,762 22,620,064
========== ========== ==========
Options outstanding which are not included in the
calculation of diluted earnings per share because their
impact is antidilutive 3,793,652 3,050,245 115,483
========== ========== ==========
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Omega Research has seven non-cancelable operating leases for facilities.
The only significant facility operating leases are for Omega Research's
corporate headquarters. The original lease is for five and one-half years and
commenced in February 1997. In December 1998, February 1999 and January 2000,
Omega Research entered into a sub-lease and two lease amendments for additional
space at the facilities with lease terms ending on the same day as the original
lease. In addition to the leases for facilities, Omega Research leases its
telephone system and computer equipment server farm.
F-19
<PAGE>
Future minimum lease payments as of December 31, 1999 under all operating
leases are as follows:
2000 $2,783,700
2001 2,689,514
2002 1,076,065
2003 131,556
2004 131,556
Thereafter 10,963
----------
$6,823,354
==========
Total rent expense for 1999, 1998 and 1997 was approximately $689,000,
$439,000 and $343,000, respectively.
BRIDGE TELERATE ROYALTY AGREEMENT
Omega Research has entered into a Software License, Maintenance and
Development Agreement (the "Agreement") with Dow Jones Markets, Inc. (then known
as Dow Jones Telerate, Inc., now known as Telerate, Inc., and a subsidiary of
Bridge Information Systems, Inc.) ("Bridge Telerate"). Under the Agreement,
Omega Research modified one of its software products to create a Bridge Telerate
version and granted Bridge Telerate a license to promote, market, sublicense and
distribute the Bridge Telerate version for 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.
LITIGATION
On January 28, 1998, a class action lawsuit, captioned Richard M. Rhodes v.
William R. Cruz; Ralph L. Cruz; Omega Research, Inc.; BancAmerica Robertson
Stephens; Lehman Brothers; and Hambrecht & Quist (Case No. 98- 0174-CIV-Lenard),
was filed in the United States District Court for the Southern District of
Florida. On July 1, 1999, pursuant to the stipulation of the parties, the Court
of Appeals for the Eleventh Circuit issued a final order which dismissed with
prejudice all claims against Omega Research and all other defendants.
In addition to the above, from time to time Omega Research may become
engaged in routine litigation incidental to its business. Omega Research does
not believe that such routine litigation would have a material adverse effect on
its financial position or results of operations.
(12) QUARTERLY FINANCIAL INFORMATION
The following tables summarize selected quarterly financial data of Omega
Research for the years ended December 31, 1999 and 1998 as restated for the
acquisition of Window On WallStreet, which was accounted for as a pooling-of-
interests.
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
<S> <C> <C> <C> <C> <C>
NET REVENUES:
- -------------
Previously reported $ 9,440,788 $10,977,164 $10,792,560
Window On WallStreet 994,596 646,872 690,064
----------- ----------- -----------
Restated $10,435,384 $11,624,036 $11,482,624 $ 9,327,925 $42,869,969
=========== =========== =========== =========== ===========
GROSS PROFIT: *
- ------------
Previously reported $ 8,957,997 $10,521,775 $10,332,922
Window On WallStreet 634,599 264,494 346,523
----------- ----------- -----------
Restated $ 9,592,596 $10,786,269 $10,679,445 $ 8,826,250 $39,884,560
=========== =========== =========== =========== ===========
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS):
- -----------------
Previously reported $ 1,210,616 $ 1,644,370 $ 1,639,340
Window On WallStreet (560,511) (1,826,075) (1,272,563)
----------- ----------- -----------
Restated $ 650,105 $ (181,705) $ 366,777 $ (1,801,786) $ (966,609)
=========== =========== =========== ============= ============
EARNINGS (LOSS) PER SHARE:
- -------------------------
Previously reported-
Basic and Diluted $ . 05 $ .07 $ .07
Restated-
Basic $ .03 $ (.01) $ .02 $ (.07) $ (.04)
Diluted .02 (.01) .01 (.07) (.04)
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
<S> <C> <C> <C> <C> <C>
NET REVENUES:
- ------------
Previously reported $ 7,030,794 $ 7,651,597 $ 6,469,473 $ 7,064,641 $ 28,216,505
Window On WallStreet 1,065,236 766,382 192,152 1,470,478 3,494,248
------------ ------------ ------------ ------------ ------------
Restated $ 8,096,030 $ 8,417,979 $ 6,661,625 $ 8,535,119 $ 31,710,753
============ ============ ============ ============ ============
GROSS PROFIT: *
- ------------
Previously reported $ 6,579,542 $ 7,132,764 $ 6,156,909 $ 6,549,212 $ 26,418,427
Window On WallStreet 875,186 667,944 108,439 1,146,312 2,797,881
------------ ------------ ------------ ------------ ------------
Restated $ 7,454,728 $ 7,800,708 $ 6,265,348 $ 7,695,524 $ 29,216,308
============ ============ ============ ============ ============
NET INCOME (LOSS):
- -----------------
Previously reported $ 801,954 $ 817,018 $ 216,103 $ 120,472 $ 1,955,547
Window On WallStreet (359,842) (475,045) (870,110) (679,097) (2,384,094)
------------ ------------ ------------ ------------ ------------
Restated $ 442,112 $ 341,973 $ (654,007) $ (558,625) $ (428,547)
============ ============ ============ ============ ============
EARNINGS (LOSS) PER SHARE:
- -------------------------
Previously reported-
Basic and diluted $ .04 $ .04 $ .01 $ .01 $ .09
Restated-
Basic and diluted $ .02 $ .01 $ (.03) $ (.02) $ (.02)
</TABLE>
* Gross profit is defined as total net revenues less cost of licensing
fees and services.
(13) SUBSEQUENT EVENTS (UNAUDITED)
On January 19, 2000, Omega Research signed a definitive, 100%
share-exchange merger agreement with OnlineTrading.com, an online broker.
OnlineTrading.com provides order execution technology that directly accesses
electronic communications networks ("ECN's"), exchanges and market makers, in
order to provide
F-21
<PAGE>
OnlineTrading.com's customers with high speed and efficient order execution that
avoids traditional market maker participation and brokerage order-flow
arrangements.
Pursuant to an Agreement and Plan of Merger and Reorganization, as amended
(the "Merger Agreement"), a recently-formed holding company named
OnlineTrading.com Group, Inc. ("Holding Company") will own 100% of the issued
and outstanding capital stock of Omega Research and OnlineTrading.com. Upon
completion of the merger, as a result of share exchanges between Holding Company
and each of Omega Research and OnlineTrading.com, and the listing of Holding
Company shares, Holding Company will be the sole publicly-traded company in the
group with its outstanding shares of common stock listed on The Nasdaq National
Market. Holding Company, based upon the exchange ratio set forth in the Merger
Agreement, would initially be owned between 62% and approximately 57% (on a
fully diluted basis) by Omega Research's shareholders and between 38% and
approximately 43% (on a fully diluted basis) by OnlineTrading.com's
shareholders. The precise percentages will be determined by the formula set
forth in the Merger Agreement. Closing of the Merger Agreement is conditioned
upon and subject to the filing and effectiveness of a registration statement on
Form S-4, the approval of the shareholders of each of Omega Research and
OnlineTrading.com, and the satisfaction of the other conditions precedent to
consummating the Merger Agreement.
Omega Research is currently in the process of changing its business model.
Omega Research has taken certain steps to transform itself from a trading
strategy client software company to one that includes an online brokerage firm
- -- a company which intends to provide to active traders a trading platform that
incorporates and seamlessly integrates powerful trading strategy development
tools, historical and streaming real-time market data and news, and a high speed
electronic order execution system.
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To onlinetradinginc.com corp.:
We have audited the accompanying statement of financial condition of
onlinetradinginc.com corp. (a Florida corporation, formerly doing business as
Online Trading, Inc.) as of January 31, 2000, and the related statements of
income, changes in stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of onlinetradinginc.com corp. as
of January 31, 2000, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States.
/s/ ARTHUR ANDERSEN LLP
- ---------------------------------
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 15, 2000.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors onlinetradinginc.com corp.
We have audited the accompanying statement of financial condition of
onlinetradinginc.com corp. (the "Company") as of January 31, 1999, and the
related statements of income, changes in stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of onlinetradinginc.com corp. as
of January 31, 1999, and the results of its operations and its cash flow for the
year then ended in conformity with generally accepted accounting principles.
/s/AHEARN, JASCO + COMPANY, P.A.
- --------------------------------------
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
March 2, 1999, except for Note 10, for
which the date is March 25, 1999
F-24
<PAGE>
ONLINETRADINGINC.COM CORP.
STATEMENTS OF FINANCIAL CONDITION
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
2000 1999
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $15,127,790 $ 1,005,944
Receivable from clearing organization 759,183 572,433
Securities owned, at market value 155,012 381,084
Other current assets 103,987 15,583
----------- -----------
TOTAL CURRENT ASSETS 16,145,972 1,975,044
PROPERTY AND EQUIPMENT, net 400,776 136,146
INTANGIBLE ASSET, net 2,592,600 --
OTHER ASSETS 221,456 43,398
----------- -----------
TOTAL ASSETS $19,360,804 $ 2,154,588
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease $ 39,944 $ --
Accounts payable and accrued liabilities 1,291,317 948,422
Income taxes payable 653,141 38,230
Securities sold but not yet purchased, at market value 25,938 --
----------- -----------
TOTAL CURRENT LIABILITIES 2,010,340 986,652
----------- -----------
DEFERRED INCOME TAXES 34,300 15,400
----------- -----------
CAPITAL LEASE PAYABLE, net of current portion 72,131 --
----------- -----------
SUBORDINATED LOANS -- 525,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 14 and 15)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 1,000,000
shares authorized; issued and outstanding,
none in 2000 and 300 shares of Series A,
stated value $1,000, voting, redeemable at
110% of stated par value in 1999 -- 300,000
Common stock, $0.01 par value;
100,000,000 shares authorized; issued and
outstanding, 11,476,388 in 2000 and
8,888,888 in 1999 114,763 88,888
Additional paid-in capital 15,943,179 103,063
Retained earnings 1,186,091 135,585
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 17,244,033 627,536
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,360,804 $ 2,154,588
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-25
<PAGE>
ONLINETRADINGINC.COM CORP.
STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Commissions $ 9,471,435 $ 5,525,427
Net dealer inventory and investment gains and losses 1,129,493 328,495
Interest and dividends 603,978 36,021
Interest revenue sharing 295,934 102,121
Other 190,000 --
----------- -----------
TOTAL REVENUES 11,690,840 5,992,064
----------- -----------
OPERATING EXPENSES:
Employee compensation and benefits 5,340,165 3,356,688
Clearing and other transaction costs 3,012,284 2,002,055
Occupancy and administration 1,093,248 406,814
Product development 279,387 --
Interest expense 51,863 36,566
Depreciation and amortization 131,163 29,918
----------- -----------
TOTAL OPERATING EXPENSES 9,908,110 5,832,041
----------- -----------
INCOME BEFORE INCOME TAXES 1,782,730 160,023
PROVISION FOR INCOME TAXES 702,224 52,080
----------- -----------
NET INCOME $ 1,080,506 $ 107,943
=========== ===========
EARNINGS PER SHARE:
Basic $ 0.10 $ 0.01
=========== ===========
Diluted $ 0.10 $ 0.01
=========== ===========
Weighted average common shares outstanding - basic 10,522,889 8,857,230
=========== ===========
Weighted average common shares outstanding - diluted 10,630,263 8,857,230
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-26
<PAGE>
ONLINETRADINGINC.COM CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SERIES A
PREFERRED STOCK COMMON STOCK
--------------------- ---------------------
AMOUNT AT ADDITIONAL
SHARES STATED SHARES AMOUNT AT PAID-IN RETAINED
ISSUED VALUE ISSUED PAR VALUE CAPITAL EARNINGS TOTAL
-------- ---------- ---------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January
31, 1998 300 $ 300,000 8,444,444 $ 84,444 $ 81,507 $ 27,642 $ 493,593
Common stock
granted to officer -- -- 444,444 4,444 21,556 -- 26,000
Net income -- -- -- -- -- 107,943 107,943
-------- ---------- ---------- --------- ------------ ----------- ------------
BALANCE, January
31, 1999 300 300,000 8,888,888 88,888 103,063 135,585 627,536
Issuance of common
stock for cash -- -- 2,587,500 25,875 15,785,016 -- 15,810,891
Redemption of
preferred stock (300) (300,000) -- -- -- (30,000) (330,000)
Options and warrants
granted to
non-employees -- -- -- -- 55,100 -- 55,100
Net income -- -- -- -- -- 1,080,506 1,080,506
-------- ---------- ---------- --------- ------------ ----------- ------------
BALANCE, January
31, 2000 -- $ -- 11,476,388 $ 114,763 $ 15,943,179 $ 1,186,091 $ 17,244,033
======== ========== ========== ========= ============ =========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-27
<PAGE>
ONLINETRADINGINC.COM CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,080,506 $ 107,943
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 131,163 29,918
Common stock granted to officer -- 26,000
Loss on disposal of assets 38,706 --
Deferred income taxes 18,900 13,850
Changes in operating assets and liabilities:
Receivable from clearing organization (186,750) (271,533)
Securities owned at market value 226,072 302,251
Other current assets (88,404) (15,022)
Other assets (125,585) --
Accounts payable and accrued expenses 342,895 737,312
Income taxes payable 614,911 38,230
Securities sold but not yet purchased, at market value 25,938 (131,782)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,078,352 837,167
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 3,600 --
Cash paid for intangible asset (2,682,000) --
Other assets -- (25,667)
Purchase of property and equipment (234,097) (48,891)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (2,912,497) (74,558)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 15,810,891 --
Proceeds from issuance of common stock warrants 100 --
Proceeds from issuance of subordinated loans 360,000 25,000
Repayment of subordinated loans (885,000) --
Redemption of preferred stock (330,000) --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,955,991 25,000
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 14,121,846 787,609
CASH AND CASH EQUIVALENTS, beginning of year 1,005,944 218,335
------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 15,127,790 $ 1,005,944
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 75,279 $ --
============ ============
Cash paid for interest $ 57,806 $ 35,831
============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
During the year ended January 31, 2000, the Company acquired $112,075 of office
furniture and equipment through a capital lease. During the year ended January
31, 2000, the Company granted 40,000 options valued at $55,000 to acquire a
domain name.
The accompanying notes to financial statements are an integral part of these
statements.
F-28
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Online Trading, Inc. was incorporated in the State of Florida
on September 7, 1995 and operates as a registered securities
broker/dealer under the rules of the National Association of Securities
Dealers ("NASD"). In February 1999, OnlineTrading.com changed its name
to onlinetradinginc.com corp. ("OnlineTrading.com"). OnlineTrading.com
is headquartered in Boca Raton, Florida and has branch offices in
Massachusetts, Pennsylvania and Ohio.
OnlineTrading.com manages its customer accounts through Bear
Stearns Securities Corp., and US Clearing Corporation (collectively,
the "Clearing Firms") on a fully disclosed basis. The Clearing Firms
provide services, handle OnlineTrading.com's customers' funds, hold
securities, and remit monthly activity statements to the customers on
behalf of OnlineTrading.com. The amount receivable from brokers and
dealers relates to commissions earned by OnlineTrading.com for trades
executed by the Clearing Firms on behalf of OnlineTrading.com.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
MARKETABLE SECURITIES
Marketable securities are valued at market value and
securities not readily marketable (if any) are valued at fair value as
determined by the board of directors. The resulting difference between
cost and market (or fair value) is included in the statements of
income.
PROPERTY AND EQUIPMENT
Furniture, equipment and leasehold improvements are recorded
at cost and depreciated over the estimated useful lives of those assets
using the straight-line and accelerated methods. Expenditures for
routine maintenance and repairs are charged to expenses as incurred.
INTANGIBLE ASSET
The intangible asset is a result of the acquisition as
described in Note 13, and is being amortized on a straight-line basis
over five years.
LONG-LIVED ASSETS
OnlineTrading.com reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. For the years ended January
31, 2000 and 1999, there were no write-downs in value.
SECURITIES TRANSACTIONS
Proprietary securities transactions in regular-way trades are
recorded on the trade date, as if they settled. Profit and loss arising
from all securities transactions entered into for the account and risk
of OnlineTrading.com are recorded on a trade date basis. Customers'
securities transactions are reported on a settlement date basis to the
customer with related commission income and expenses reported on a
trade date basis.
F-29
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
COMMISSIONS
Commissions and related clearing expenses are recorded on a
trade-date basis as securities transactions occur.
ADVERTISING
The costs of advertising, promotion, and marketing programs
are charged to operations in the year incurred. Such expense items
totaled $103,000 and $30,382, respectively, for the years ended January
31, 2000 and 1999.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid
investments purchased with an original maturity of three months or
less. Cash and cash equivalents consist primarily of money market funds
and commercial paper with an original maturity of three months or less.
OnlineTrading.com occasionally maintains cash balances in financial
institutions in excess of the federally insured limits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, and accounts payable and accrued
expenses are reflected in the financial statements at cost, which
approximates fair value because of the short-term maturity of those
instruments. The fair value of OnlineTrading.com's subordinated loans
payable, as described in Note 7, and OnlineTrading.com's capital lease
obligation, as described in Note 8, are the same as the recorded
amounts because rates and terms approximate current market conditions.
INCOME TAXES
OnlineTrading.com accounts for income taxes in accordance with
the Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," which requires the recognition of
deferred tax liabilities and assets at currently enacted tax rates for
the expected future tax consequences of events that have been included
in the financial statements and tax returns.
EARNINGS PER SHARE
Earnings per share is calculated in accordance with SFAS No.
128, "Earnings Per Share," which requires companies with complex
capital structures or common stock equivalents to present both basic
and diluted earnings per share ("EPS") on the face of the income
statement. Basic EPS is calculated as income available to common
stockholders divided by the weighted average number of common shares
outstanding during the period. Diluted EPS is calculated using the "if
converted" method for convertible securities and the treasury stock
method for options and warrants as previously prescribed by Accounting
Principles Board Opinion No. 15, "Earnings Per Share."
F-30
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
COMPREHENSIVE INCOME
In accordance with SFAS No. 130, "Reporting Comprehensive
Income," OnlineTrading.com is required to report its other
comprehensive income. Other comprehensive income refers to revenue,
expenses, gains, and losses that under accounting principles generally
accepted in the United States are included in comprehensive income but
are excluded from net income, as these amounts are recorded directly as
an adjustment to stockholders' equity. A statement of comprehensive
income is not presented since OnlineTrading.com had no items of other
comprehensive income. Comprehensive income is the same as net income
for all periods presented herein.
SEGMENT INFORMATION
OnlineTrading.com adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," effective January
31, 1999. SFAS No. 131 establishes standards for the way that public
companies report selected information about operating segments in
annual and interim financial reports to shareholders. It also
establishes standards for related disclosures about an enterprise's
business segments, products, services, geographic areas and major
customers. OnlineTrading.com operates its business as a single segment.
As a result, no additional disclosure was required.
RECENT ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board
("FASB") issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of FASB Statement No. 133." SFAS No.
137 defers for one year the effective date of SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 will
now apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133 will require OnlineTrading.com to recognize
all derivatives on the balance sheet as either assets or liabilities
measured at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. OnlineTrading.com will adopt
SFAS No. 133 effective for the year ending January 31, 2002.
OnlineTrading.com has not yet determined the impact SFAS No. 133 will
have on its financial position or results of operations when such
statement is adopted.
NOTE 2 - NET CAPITAL REQUIREMENTS
OnlineTrading.com is subject to the Securities and Exchange
Commission uniform net capital rule (Rule 15c3-1), which requires the
maintenance of minimal net capital and requires that the ratio of
aggregate indebtedness to net capital, both as defined, shall not
exceed 15 to 1. As of January 31, 2000, OnlineTrading.com had net
capital of $14,051,801, which was $13,914,699 in excess of its required
net capital of $137,102.
NOTE 3 - PENSION PLAN
OnlineTrading.com had maintained a "SIMPLE" retirement plan
for all eligible employees. Eligible employees may contribute up to
$500 per month for which OnlineTrading.com will match
dollar-for-dollar, up to 3% of the employees' compensation.
Contributions by OnlineTrading.com under this plan totaled $39,928 and
$46,987 for the years ended January 31, 2000 and 1999, respectively.
Effective December 31, 1999, OnlineTrading.com decided to terminate the
plan.
F-31
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
NOTE 3 - PENSION PLAN (continued)
Effective January 15, 2000, OnlineTrading.com started a
defined contribution 401(k) plan. Eligible employees can contribute up
to 15% of their eligible salary for which OnlineTrading.com will match
fifty percent up to $2,500. Contributions by OnlineTrading.com under
this plan totaled $6,658 for the year ended January 31, 2000.
NOTE 4 - SECURITIES OWNED AND SECURITIES SOLD BUT NOT YET PURCHASED
Securities owned and securities sold but not yet purchased
consist of marketable trading and investment securities at quoted
market values. These securities consist of the following:
<TABLE>
<CAPTION>
2000 1999
---------------------------------- ---------------------------------
SOLD SOLD
NOT YET NOT YET
OWNED PURCHASED OWNED PURCHASED
-------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Corporate stocks $ 5,200 $ 25,938 $ 224,428 $ --
Obligations of U.S. Government 149,812 -- 156,656 --
-------------- --------------- ------------- --------------
Total $ 155,012 $ 25,938 $ 381,084 $ --
============== =============== ============= ==============
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at January 31,
2000 and 1999:
2000 1999
--------- ---------
Computers, software, and equipment $ 307,915 $ 145,009
Furniture and fixtures 122,784 36,651
Leasehold improvements 38,773 14,521
--------- ---------
Total cost 469,472 196,181
Less: Accumulated depreciation (68,696) (60,035)
--------- ---------
Property and equipment, net $ 400,776 $ 136,146
========= =========
Depreciation expense for the years ended January 31, 2000 and
1999 was $39,236 and $29,918, respectively.
F-32
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at January 31, 2000
and 1999 consist of the following:
2000 1999
---------- ----------
Accounts payable $ 497,694 $ 163,074
Accrued liabilities:
Research fees 177,918 124,828
Payroll, and related expenses 521,115 644,148
Clearing deposit 50,000 --
Professional fees and other 44,590 16,372
---------- ----------
Total $1,291,317 $ 948,422
========== ==========
NOTE 7 - SUBORDINATED LOANS
The borrowings under subordinated agreements as of January 31,
1999 are as follows:
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
===========
By being designated as subordinated, these loans were
available in computing net capital under the SEC's uniform net capital
rule at January 31, 1999.
NOTE 8 - CAPITAL LEASE
On December 1, 1999, OnlineTrading.com entered into a capital
lease for office furniture, computer equipment and phone system. As of
January 31, 2000, the leasing company had funded $112,075 representing
a portion of the total furniture and computer equipment to be received.
The balance of the equipment totaling $180,450 was not received as of
January 31, 2000 and accordingly, not included in the statement of
financial condition. The lease is to be paid over 36 months with an
estimated monthly payment expected to commence on April 1, 2000 of
$8,698 with a final payment of 7% of the original invoice amounts.
F-33
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
- ------------------------------------------------------------
NOTE 8 - CAPITAL LEASE (continued)
Anticipated future minimum payments based on the amount of
furniture and equipment received are as follows:
YEAR ENDING
JANUARY 31,
-----------
2001 $ 39,944
2002 39,944
2003 39,944
2004 7,845
---------
Total payments 127,677
Less: amount representing interest (15,602)
---------
Original capitalized cost $ 112,075
=========
NOTE 9 - INCOME TAXES
A summary of the income tax provision for the years ended
January 31, 2000 and 1999 is as follows:
2000 1999
-------- --------
Current taxes:
Federal $587,587 $ 29,730
State 95,737 8,500
-------- --------
Total current taxes 683,324 38,230
-------- --------
Deferred tax provision:
Federal 16,000 10,800
State 2,900 3,050
-------- --------
Total deferred tax provision 18,900 13,850
-------- --------
Total income tax provision $702,224 $ 52,080
======== ========
F-34
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (continued)
Temporary differences between the reported amounts in the
financial statements and tax bases of assets and liabilities that give
rise to the deferred income tax liabilities relate to the following:
2000 1999
-------- --------
Property and equipment, due to differences in
depreciation $ 60,000 $ 15,400
Intangible asset, due to differences in amortization (25,700) --
-------- --------
Net deferred income tax liability $ 34,300 $ 15,400
======== ========
The effective income tax rate varied from the statutory
Federal tax rate as follows:
2000 1999
------ ------
Federal statutory rate 35.0% 34.0%
State income taxes, net of federal income tax effect 4.5 5.3
Other, including permanent differences, non-deductible
expenses and the effect of the rate brackets (.1) (6.8)
------ ------
Effective income tax rate 39.4% 32.5%
====== ======
NOTE 10 - STOCKHOLDERS' EQUITY
(a) CAPITAL STOCK
On March 24, 1999, the shareholders and directors affected an
amendment to OnlineTrading.com's articles of incorporation to change
the number of authorized common shares to 30,000,000 with a par value
per share of $0.01 and to change the number of authorized preferred
shares to 1,000,000 with a par value of $0.01 per share. Prior to that
date, OnlineTrading.com had 1,000 authorized common shares with no par
value and authorized preferred shares of 300,000 with a stated value
per share of $1,000. All of the shares outstanding at that date were
converted into 8,000,000 shares of the new $0.01 par value common
stock, and into 300 shares of Series A preferred stock, stated value
$1,000 per share.
On April 3, 1999, a stock split of 11.11111 shares for each 10
shares of common stock outstanding was effected. All of the common
shares outstanding at that date were converted into 8,888,888 shares.
On May 8, 1999, the shareholders and directors affected an
amendment to OnlineTrading.com's articles of incorporation to change
the number of authorized common shares to 100,000,000 with a par value
per share of $0.01. The effect of the stock split has been
retroactively reflected in the accompanying financial statements.
Each holder of the new $0.01 par value common stock is
entitled to one vote for each share held on all matters presented to a
vote of shareholders, including the election of directors.
F-35
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
NOTE 10 - STOCKHOLDERS' EQUITY (continued)
Holders of common stock have no cumulative voting rights or
preemptive rights to purchase or subscribe for any stock or other
securities, and there are no conversion rights or redemption or sinking
fund provisions with respect to this stock.
OnlineTrading.com's directors have the authority to issue
1,000,000 shares of the new $0.01 par value preferred stock in one or
more series and to fix, by resolution, conditional, full, limited or no
voting powers, and the designations, preferences and relative,
participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions thereof, if any, including
the number of shares in the series (which the board may increase or
decrease as permitted by Florida law), liquidation preferences,
dividend rates, conversion or exchange rights, redemption provisions of
the shares constituting any series and such other special rights and
protective provisions with respect to any class or series as the board
may deem advisable without any further vote or action by the
shareholders. Any shares of preferred stock so issued could have
priority over the common stock with respect to dividend or liquidation
rights or both and could have voting and other rights of shareholders.
The board has authorized and issued a Series A preferred with
the following terms: 300 shares with a stated value of $1,000 per
share, one vote per share, and redeemable at 110% of stated value at
the option of OnlineTrading.com. In July 1999, OnlineTrading.com
redeemed all of the then outstanding preferred stock.
(b) INITIAL PUBLIC OFFERING
OnlineTrading.com completed its initial public offering (the
"IPO") by issuing 2,587,500 shares of common stock (including 337,500
shares to cover over-allotments), $0.01 par value (the "IPO Shares") on
June 11, 1999. The IPO shares were issued in a registered offering
pursuant to a Registration Statement on Form SB-2 (Commission File No.
333-75119; effective date June 11, 1999) through a syndicate of
underwriters, the principal representatives of which were Werbel-Roth
Securities, Inc., OnlineTrading.com, Seaboard Securities, Inc.
and The Agean Group, Inc.
The IPO shares were offered and sold by the underwriters at an
initial public offering price of $7.00 per share, resulting in
aggregate gross offering proceeds of $18,112,500, net concession and
management fee proceeds for participation in the underwriting of the
IPO of $189,867 and net proceeds to OnlineTrading.com of $15,810,891.
OnlineTrading.com incurred offering expenses in connection
with this offering as follows:
Underwriting discounts and commissions $ 1,539,563
Expenses paid to/for underwriters 486,461
Other offering expenses 465,452
-----------
$ 2,491,476
===========
Except for the concessions earned by OnlineTrading.com as a
result of participating in the underwriters syndicate, none of the
above expenses were paid either directly or indirectly to directors,
officers, general partners of OnlineTrading.com or its associates, or
to persons owning more than 10% of any class of equity security of
OnlineTrading.com or to affiliates of OnlineTrading.com.
In conjunction with the IPO, OnlineTrading.com issued 225,000
warrants to the underwriters for $100. The warrants have an exercise
price of $11.55 (165% of the $7.00 IPO price).
F-36
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
NOTE 11 - EARNINGS PER SHARE
Weighted average shares outstanding for the years ended
January 31, 2000 and 1999 are calculated as follows:
2000 1999
---------- ----------
Weighted average shares outstanding (basic) 10,522,889 8,857,230
Impact of dilutive options and warrants after
applying the treasury stock method 107,374 --
---------- ----------
Weighted average shares outstanding (diluted) 10,630,263 8,857,230
========== ==========
Options and warrants outstanding which are
not included in the calculation of diluted
earnings per share because their impact
is antidultive 384,000 --
========== ==========
NOTE 12 - STOCK OPTIONS
In June 1999, OnlineTrading.com adopted the 1999 Stock Option
Plan. Pursuant to the terms of this plan, employees, non-employee
directors, consultants and independent contractors are eligible to
receive options to purchase common stock. Up to 1,000,000 shares may be
issued under the plan and will be drawn from either authorized but
previously unissued shares or from treasury shares. Options granted
under this plan are granted at the fair market value of the common
stock at the date of grant. In general, the employee options become
exercisable over a five-year period beginning June 11, 2000. All
options expire ten years after the date of grant.
OnlineTrading.com has granted the following options:
OPTION PRICE PER SHARE
---------------------------------
TYPE SHARES LOW HIGH WEIGHTED
---- ------- --------- --------- ---------
Employee 390,500 $ 7.00 $ 11.93 $ 8.37
Non-employee directors 40,000 $ 7.00 $ 11.31 $ 9.16
Non-employee consultants 40,000 $ 13.50 $ 13.50 $ 13.50
No stock options have been exercised during the year ended
January 31, 2000.
OnlineTrading.com, as permitted by SFAS No. 123, applies the
APB Opinion No. 25 for options granted to employees. Accordingly, no
compensation is recognized for such grants to the extent their exercise
price is equal to the fair market value of the underlying stock at the
date of grant. Had compensation cost for OnlineTrading.com's stock
options been based on fair value at the grant dates consistent with the
methodologies of SFAS No. 123, OnlineTrading.com's pro forma net income
(and pro forma earnings per share on a diluted basis) for the year
ended January 31, 2000 would have been $919,424 (.07 per share). The
fair value of each option grant is estimated on the date of grant using
the Black-Scholes model with the following assumptions: risk free
interest rate - 6%; dividend yield - 0%; volatility factor - 70%; and
weighted average life (years) - 5.
F-37
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
NOTE 13 - ACQUISITION
On December 6, 1999, OnlineTrading.com acquired certain
intangible assets of Newport Discount Brokerage, Inc. ("Newport")
pursuant to an Asset Purchase Agreement dated September 21, 1999 (the
"Asset Purchase Agreement"). Pursuant to the Asset Purchase Agreement,
OnlineTrading.com purchased all of Newport's right, title and interest
in and to its clients. The total consideration paid by
OnlineTrading.com in connection with this acquisition included cash of
$2,682,000 and up to 125,000 shares of OnlineTrading.com's common
stock.
Issuance and delivery of the common stock consideration is
contingent upon the acquired assets achieving certain revenue goals and
maintaining customer accounts within one year from closing. For
accounting purposes, the transaction was treated as a purchase.
OnlineTrading.com recorded an intangible asset of $2,682,000 in
connection with this acquisition, which is being amortized over five
years. Amortization expense for the year ending January 31, 2000 was
$89,400.
NOTE 14 - CONCENTRATIONS AND CREDIT RISKS
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
OnlineTrading.com will periodically sell securities that it
does not currently own and will therefore be obligated to purchase such
securities at a future date. OnlineTrading.com has recorded these
obligations in the financial statements at January 31, 2000, at market
values of the related securities. As of January 31, 1999,
OnlineTrading.com had none of these transactions outstanding.
OnlineTrading.com's customer securities activities are
transacted on either a cash or margin basis. In margin transactions,
OnlineTrading.com extends credit to its customers, subject to various
regulatory and internal margin requirements, collateralized by cash and
securities in the customers' accounts. In connection with these
activities, OnlineTrading.com executes and clears customer transactions
involving the sale of securities not yet purchased, substantially all
of which are transacted on a margin basis subject to individual
exchange regulations. Such transactions may expose OnlineTrading.com to
significant off-balance-sheet risk in the event margin requirements are
not sufficient to fully cover losses that customers may incur. In the
event the customer fails to satisfy its obligations, OnlineTrading.com
may be required to purchase or sell financial instruments at prevailing
market prices to fulfill the customer's obligations.
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.
OnlineTrading.com's customer financing and securities
settlement activities require OnlineTrading.com to pledge customer
securities as collateral in support of various secured financing
sources such as bank loans and securities loaned. In the event the
counterparty is unable to meet its contractual obligation to return
customer securities pledged as collateral, OnlineTrading.com may be
exposed to the risk of acquiring the securities at prevailing market
prices in order to satisfy its customers obligations. OnlineTrading.com
controls this risk by monitoring the market value of securities pledged
on a daily basis and by requiring adjustments of collateral levels in
the event of excess market exposure. In addition, OnlineTrading.com
establishes credit limits for such activities and monitors compliance
on a daily basis.
F-38
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
NOTE 14 - CONCENTRATIONS AND CREDIT RISKS (continued)
CONCENTRATIONS OF CREDIT RISK
OnlineTrading.com is engaged in various trading and brokerage
activities in which counterparties primarily include broker-dealers,
banks, and other financial institutions. In the event counterparties do
not fulfill their obligations, OnlineTrading.com may be exposed to
risk. The risk of default depends on the creditworthiness of the
counterparty or issuer of the instrument. It is OnlineTrading.com's
policy to review, as necessary, the credit standing of each
counterparty.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
OnlineTrading.com is obligated under four non-cancelable
operating leases for office space with expiration dates ranging from
February 2000 to February 2007. OnlineTrading.com subleases space to
three unrelated entities in its corporate headquarters. On March 2,
1999, OnlineTrading.com entered into a three year operating lease for
office furniture and equipment.
Rent expense for the years ended January 31, 2000 and 1999 was
as follows:
2000 1999
--------- ---------
Base rent - office space $ 259,655 $ 119,705
Sublease income (118,975) (14,300)
Base rent - furniture & equipment 73,020 --
--------- ---------
Rent expense, net $ 213,700 $ 105,405
========= =========
As of January 31, 2000, future minimum rental payments
required under the leases are as follows:
YEAR ENDING RENTAL SUBLEASE NET MINIMUM
JANUARY 31, PAYMENTS PAYMENTS PAYMENTS
----------- ---------- ---------- ----------
2001 $ 381,216 $ 119,300 $ 261,916
2002 394,546 124,072 270,474
2003 340,335 129,034 211,301
2004 335,983 134,196 201,787
2005 321,379 139,564 181,815
Thereafter 703,567 308,718 394,849
---------- ---------- ----------
$2,477,026 $ 954,884 $1,522,142
========== ========== ==========
F-39
<PAGE>
ONLINETRADINGINC.COM CORP.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000 AND 1999
- --------------------------------------------------------------------------------
NOTE 15 - COMMITMENTS AND CONTINGENCIES (continued)
LITIGATION
OnlineTrading.com has been named in a civil action by a former
customer alleging excessive trading and commissions, violation of
Massachusetts General Laws c.93A ss. and c.110A ss.ss.101 and 102 and
violation of NASD conduct rules. The claimant is seeking total alleged
damages of $566,345 plus interest, costs, fees, and treble damages.
OnlineTrading.com's attorneys moved the case to the United States
District Court for the District of Massachusetts, Eastern Division,
where the matter is currently pending and awaiting ruling on our motion
to compel arbitration.
The case is in the early stages and no estimate of a potential
liability against OnlineTrading.com, if any, can be determined at this
time. Management believes the case to be completely without merit and
intends to present a vigorous defense and to seek reimbursement for all
costs and fees associated with our defense.
In addition, from time to time, OnlineTrading.com may become
engaged in ordinary routine litigation and/or arbitration incidental to
its business. OnlineTrading.com does not believe that such ordinary
routine litigation/arbitration would have a material adverse effect on
its financial position or results of operations.
F-40
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
OMEGA RESEARCH, INC.,
ONLINETRADINGINC.COM CORP.,
ONLINE TRADING GROUP, INC.,
OMEGA ACQUISITION CORPORATION,
AND
ONLINETRADING ACQUISITION CORPORATION
January 19, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE I
THE MERGER...............................................................................................2
1.1 The Merger.............................................................................2
1.2 Closing, Effective Time................................................................2
1.3 Effect of the Merger...................................................................3
1.4 Articles of Incorporation, Bylaws......................................................3
1.5 Directors and Officers.................................................................3
1.6 Effect on Capital Stock................................................................5
1.7 Surrender of Certificates..............................................................8
1.8 No Further Ownership Rights in Omega
Capital Stock or Online Capital Stock..................................................9
1.9 Lost, Stolen or Destroyed Certificates................................................10
1.10 Tax and Accounting Consequences.......................................................10
1.11 Withholding Rights....................................................................10
1.12 Taking of Necessary Action, Further Action............................................10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF OMEGA........................................................10
2.1 Organization, Standing and Power......................................................11
2.2 Capital Structure.....................................................................11
2.3 Authority.............................................................................12
2.4 Omega SEC Documents; Omega Financial Statements.......................................13
2.5 Absence of Certain Changes............................................................14
2.6 Absence of Undisclosed Liabilities....................................................14
2.7 Litigation............................................................................14
2.8 Restrictions on Business Activities...................................................15
2.9 Compliance With Laws..................................................................15
2.10 Title to Property.....................................................................15
2.11 Intellectual Property.................................................................16
2.12 Environmental Matters.................................................................17
2.13 Taxes.................................................................................18
2.14 Employee Benefit Plans................................................................19
2.15 Employee Matters......................................................................22
2.16 Interested Party Transactions.........................................................23
2.17 Insurance.............................................................................23
2.18 Regulatory Matters....................................................................23
2.19 Material Contracts....................................................................25
2.20 Omega Options.........................................................................27
2.21 Registration Statement, Joint Proxy Statement/Prospectus..............................27
2.22 Opinion of Financial Advisor..........................................................28
2.23 Omega Affiliate Agreements............................................................28
2.24 State Takeover Statutes...............................................................28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
2.25 Tax and Accounting Treatment..........................................................29
2.26 Brokers' and Finders' Fees............................................................29
2.27 Representations Complete..............................................................29
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ONLINE.........................................................29
3.1 Organization, Standing and Power......................................................29
3.2 Capital Structure.....................................................................30
3.3 Authority.............................................................................31
3.4 Online SEC Documents; Online Financial Statements.....................................32
3.5 Absence of Certain Changes............................................................32
3.6 Absence of Undisclosed Liabilities....................................................33
3.7 Litigation............................................................................33
3.8 Restrictions on Business Activities...................................................33
3.9 Compliance With Laws..................................................................34
3.10 Title to Property.....................................................................34
3.11 Intellectual Property.................................................................34
3.12 Environmental Matters.................................................................36
3.13 Taxes.................................................................................37
3.14 Employee Benefit Plans................................................................37
3.15 Employee Matters......................................................................40
3.16 Interested Party Transactions.........................................................41
3.17 Insurance.............................................................................41
3.18 Regulatory Matters....................................................................42
3.19 Material Contracts....................................................................43
3.20 Online Options........................................................................45
3.21 Registration Statement, Joint Proxy Statement/Prospectus..............................46
3.22 Opinion of Financial Advisor..........................................................46
3.23 Online Affiliate Agreements...........................................................46
3.24 State Takeover Statutes...............................................................46
3.25 Tax and Accounting Treatment..........................................................47
3.26 Brokers' and Finders' Fees............................................................47
3.27 Representations Complete..............................................................47
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF NEWCO...........................................................47
4.1 Organization, Standing and Power......................................................47
4.2 Capital Structure.....................................................................48
4.3 Authority.............................................................................48
4.4 Absence of Undisclosed Liabilities....................................................49
4.5 Litigation............................................................................49
4.6 Registration Statement; Joint Proxy Statement/Prospectus..............................49
4.7 Tax Treatment.........................................................................50
4.8 Brokers' and Finders' Fees............................................................50
4.9 Representations Complete..............................................................50
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME...............................................................50
5.1 Conduct of Businesses of Omega and Online.............................................50
5.2 Online Conduct of Business............................................................51
5.3 Omega Conduct of Business............................................................52
5.4 No Solicitation.......................................................................52
ARTICLE VI ADDITIONAL AGREEMENTS.............................................................................53
6.1 Registration Statement, Joint Proxy Statement/Prospectus..............................53
6.2 Meetings of Shareholders..............................................................55
6.3 Access to Information.................................................................55
6.4 Confidentiality.......................................................................56
6.5 Public Disclosure.....................................................................56
6.6 Consents; Cooperation.................................................................56
6.7 Reasonable Best Efforts and Further Assurances........................................57
6.8 Blue Sky Laws.........................................................................57
6.9 Nasdaq Quotation......................................................................57
6.10 Public Accounting.....................................................................57
6.11 Affiliate Agreements..................................................................57
6.12 Tax Treatment.........................................................................58
6.13 Omega and Online Options..............................................................58
6.14 Nasdaq Listing of Newco Common Stock..................................................60
6.15 Form 8-A..............................................................................60
6.16 Form S-8..............................................................................60
6.17 Employees.............................................................................60
6.18 Director and Officer Indemnification..................................................60
6.19 Comfort Letters.......................................................................61
6.20 Shareholder Litigation................................................................61
6.21 Observation Rights....................................................................62
6.22 Errors and Omissions Insurance........................................................62
ARTICLE VII CONDITIONS TO THE MERGER.........................................................................62
7.1 Conditions to Obligations of Each Party to Effect the Merger..........................62
7.2 Additional Conditions to Obligations of Online........................................63
7.3 Additional Conditions to the Obligations of Newco,
Merger Subs and Omega.................................................................64
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...............................................................66
8.1 Termination...........................................................................66
8.2 Effect of Termination.................................................................67
8.3 Expenses and Termination Fees.........................................................68
8.4 Amendment.............................................................................69
8.5 Extension; Waiver.....................................................................69
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IX GENERAL PROVISIONS................................................................................69
9.1 Non-Survival at Effective Time........................................................69
9.2 Notices...............................................................................69
9.3 Interpretation........................................................................70
9.4 Counterparts..........................................................................71
9.5 Entire Agreement; Nonassignability; Parties in Interest...............................71
9.6 Severability..........................................................................71
9.7 Remedies Cumulative...................................................................71
9.8 Governing Law.........................................................................71
9.9 Rules of Construction.................................................................72
9.10 Definitions...........................................................................72
9.11 Specific Performance..................................................................72
9.12 Prevailing Party Legal Fees...........................................................72
</TABLE>
SCHEDULES
Omega Disclosure Schedule
Online Disclosure Schedule
Newco Disclosure Schedule
Schedule 6.11(a)
Schedule 6.11(b)
Schedule 6.17(a)
Schedule 6.17(b)
EXHIBITS
Exhibit A - Intentionally Omitted
Exhibit B - Form of Omega Affiliate Agreement
Exhibit C - Form of Online Affiliate Agreement
Exhibit D-1 - Form of Employment Agreement
Exhibit D-2 - Form of Non-Competition and Non-Disclosure Agreement
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the
"Agreement") is made and entered into as of January 19, 2000, by and among Omega
Research, Inc., a Florida corporation ("Omega"), onlinetradinginc.com corp., a
Florida corporation ("Online"), Online Trading Group, Inc., a Florida
corporation ("Newco"), and Omega Acquisition Corporation, a Florida corporation
and wholly owned subsidiary of Newco ("Omega Merger Sub"), and Onlinetrading
Acquisition Corporation, a Florida corporation and wholly owned subsidiary of
Newco ("Online Merger Sub") (together, Omega Merger Sub and Online Merger Sub
are collectively referred to herein as "Merger Subs") .
R E C I T A L S
A. The Board of Directors of Omega has unanimously (i) determined that
it is advisable and fair to, and in the best interests of, Omega and its
shareholders that, upon the terms and subject to the conditions of this
Agreement, Omega Merger Sub merge with and into Omega, with Omega being the
surviving corporation (which merger, together with the merger described in
paragraph B below, is collectively referred to herein as the "Merger"), (ii)
approved this Agreement, the Merger and the other transactions contemplated
hereby and (iii) recommended the approval of this Agreement and the Merger by
the shareholders of Omega.
B. The Board of Directors of Online has unanimously (i) determined that
it is advisable and fair to, and in the best interests of, Online and its
shareholders that, upon the terms and subject to the conditions of this
Agreement, Online Merger Sub merge with and into Online, with Online being the
surviving corporation, (ii) approved this Agreement, the Merger and the other
transactions contemplated hereby and (iii) recommended the approval of this
Agreement and the Merger by the shareholders of Online.
C. The Board of Directors of Newco has (i) determined that the Merger
is advisable and in the best interests of Newco and its shareholder and (ii)
approved this Agreement, the Merger and the other transactions contemplated
hereby.
D. Pursuant to the Merger, among other things, the outstanding shares
of Common Stock, par value $.01 per share ("Omega Common Stock"), of Omega shall
be converted into the right to receive the consideration set forth herein and
the outstanding shares of Common Stock, par value $.01 per share ("Online Common
Stock"), of Online shall be converted into the right to receive the
consideration set forth herein.
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
"reorganization" under the provisions of Section 368(a)(1)(A) and 368(a)(2)(E)
of the Code, and as a pooling of interests for financial accounting purposes.
F. Concurrently with the execution of this Agreement and as an
inducement to Newco and Merger Subs, Omega and Online to enter into this
Agreement, (a) Omega and Online have entered into a stock option agreement dated
the date hereof (the "Online Option Agreement")
<PAGE>
providing for the purchase under certain circumstances by Omega of newly-issued
shares of Online Common Stock, (b) Omega and Online have entered into a stock
option agreement dated the date hereof (the "Omega Option Agreement") providing
for the purchase under certain circumstances by Online of newly issued shares of
Omega Common Stock, (c) certain affiliates of Omega have on the date hereof
entered into Shareholder Agreements (the"Omega Shareholder Agreements") pursuant
to which they have agreed, among other things, to vote the shares of Omega
Common Stock beneficially owned by such persons to approve this Agreement and
the Merger, and (d) certain affiliates of Online have on the date hereof entered
into Shareholder Agreements (the "Online Shareholder Agreements") pursuant to
which they have agreed, among other things, to vote the shares of Online Common
Stock beneficially owned by such persons to approve this Agreement and the
Merger. The Omega Option Agreement and Online Option Agreement are sometimes
referred to herein as the "Option Agreements."
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the plan of
merger (the "Plan of Merger") in the form of and as set forth in this Agreement
(or such other instrument setting forth the plan of merger as set forth in this
Article I) and the applicable provisions of the Florida Business Corporation Act
("Florida Law"), (i) Omega Merger Sub shall be merged with and into Omega, the
separate corporate existence of Omega Merger Sub shall cease and Omega shall
continue as the surviving corporation and (ii) Online Merger Sub shall be merged
with and into Online, the separate corporate existence of Online Merger Sub
shall cease and Online shall continue as the surviving corporation. Omega as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Omega Surviving Corporation," Online as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Online Surviving
Corporation," and Omega Surviving Corporation and Online Surviving Corporation
are sometimes hereinafter collectively referred to as the "Surviving
Corporations."
1.2 CLOSING, EFFECTIVE TIME. The consummation of the Merger (the
"Closing") shall take place as soon as practicable, and in any event not later
than two (2) business days, after the satisfaction or waiver of each of the
conditions set forth in Article VII hereof or at such other time as the parties
hereto may mutually in writing agree (the "Closing Date"). The Closing shall
take place at the offices of Bilzin Sumberg Dunn Price & Axelrod LLP, 2500 First
Union Financial Center, Miami, Florida 33131-2336, or at such other location as
the parties hereto may agree in writing. In connection with the Closing, the
parties hereto shall cause the Merger to be consummated by filing the Plan of
Merger with the Secretary of State of the State of Florida, in accordance with
the relevant provisions of Florida Law (the time of such filing, or such later
time
2
<PAGE>
as may be mutually in writing agreed to by the parties and set forth in the Plan
of Merger, being hereinafter referred to as the "Effective Time").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Plan of Merger and the
applicable provisions of Florida Law. Without limiting the generality of the
foregoing, and subject to the foregoing, at the Effective Time, (i) all the
property, rights, privileges, powers and franchises of Omega and Omega Merger
Sub shall vest in the Omega Surviving Corporation, and all debts, liabilities
and duties of Omega and Omega Merger Sub shall become the debts, liabilities and
duties of the Omega Surviving Corporation, and (ii) all the property, rights,
privileges, powers and franchises of Online and Online Merger Sub shall vest in
the Online Surviving Corporation, and all debts, liabilities and duties of
Online and Online Merger Sub shall become the debts, liabilities and duties of
the Online Surviving Corporation.
1.4 ARTICLES OF INCORPORATION, BYLAWS.
(a) At the Effective Time, the Articles of Incorporation (the
"Omega Articles of Incorporation") of Omega Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation of the Omega
Surviving Corporation; provided, however, that Article I of the Omega Articles
of Incorporation shall be amended to read as follows: "The name of the
corporation is OmegaResearch.com, Inc."
(b) The Bylaws of Omega Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Omega Surviving
Corporation until thereafter amended.
(c) At the Effective Time, the Articles of Incorporation (the
"Online Articles of Incorporation") of Online Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
of the Online Surviving Corporation; provided, however, that Article I of the
Online Articles of Incorporation shall be amended to read as follows: "The name
of the corporation is OnlineTradinginc.com corp."
(d) The Bylaws of Online Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Online Surviving
Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS.
(a) At the Effective Time, Salomon Sredni and Marc J. Stone
shall be the initial directors of the Omega Surviving Corporation and Steven zum
Tobel shall be elected an additional director, which directors shall serve until
their successors are duly elected or appointed and qualified. The officers of
Omega at the Effective Time shall be the initial officers of the Omega Surviving
Corporation, until their respective successors are duly elected or appointed and
qualified.
(b) At the Effective Time, Salomon Sredni and Marc J. Stone
shall be the initial directors of Online Surviving Corporation and Ralph L.
Cruz, Farshid Tafazzoli and Steven zum Tobel shall be elected additional
directors, which directors shall serve until their successors are duly
3
<PAGE>
elected or appointed and qualified. The officers of Online at the Effective Time
shall be the initial officers of the Online Surviving Corporation, until their
respective successors are duly elected or appointed and qualified.
(c) (i) At the Effective Time, the Board of Directors of Newco
shall be comprised of eight directors. The directors of Newco from and after the
Effective Time, who shall serve until their respective successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with Newco's Articles of Incorporation and Bylaws, shall
be designated as follows: Omega shall designate five directors (including two
Co- Chairman of the Board and two of whom shall be independent directors (as
hereinafter defined) and Online will designate three directors (including one
Vice Chairman of the Board and one of whom shall be an independent director).
(ii) The executive officers of Newco at the Effective Time,
who shall serve until their respective successors shall have been duly elected
or appointed and qualified or until their earlier death, resignation or removal
in accordance with Newco's Articles of Incorporation and Bylaws, shall be as
follows:
Co-Chairman of the Board and Co-Chief William R. Cruz
Executive Officer
Co-Chairman of the Board and Co-Chief Ralph L. Cruz
Executive Officer
President and Chief Operating Officer Salomon Sredni
Vice President Farshid Tafazzoli
Vice President E. Steven zum Tobel
Vice President, General Counsel and Marc J. Stone
Secretary
Vice President of Advertising and Sales Janette Perez
Chief Financial Officer and Vice Gregg Stewart
President of Finance and Treasurer
(iii) For purposes of this subsection (c), an "independent
director" shall mean an individual who both (i) meets the definition of a
"non-employee director" set forth in Rule 16b-3 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and (ii) meets the requirements of an
independent director pursuant to the rules of The Nasdaq National Market for
purposes of serving as a member of Newco's audit committee, including, without
limitation, being "financially literate" (as defined under such rules) and, in
the case of one of the independent directors designated by Omega, having
"financial expertise" (as defined under such rules). If, pursuant to subsection
(c)(i), Omega or Online shall designate an independent director to serve on the
Board of
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Directors of Newco who does not currently serve on such designating
corporation's Board of Directors, such designation shall require the approval of
the other corporation, which approval shall not be unreasonably withheld.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Newco, Merger Subs, Omega, Online
or the holders of any of the following securities:
(a) CONVERSION OF OMEGA AND ONLINE CAPITAL STOCK.
(i) Each share of Omega Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Omega Common
Stock to be canceled pursuant to Section 1.6(b)) will be canceled and
extinguished and be converted automatically into the right to receive one (1)
share (the "Omega Exchange Ratio") of Newco Common Stock, par value $.01 per
share ("Newco Common Stock"), upon surrender of the certificate representing
such share of Omega Common Stock in the manner provided in Section 1.7 (or, in
the case of a lost, stolen or destroyed certificate, upon delivery of an
affidavit and, if required, bond in the manner provided in Section 1.9).
(ii) Each share of Online Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Online Common
Stock to be canceled pursuant to date Section 1.6(b) or any shares of persons
who have not voted such shares for approval of the Merger and with respect to
which such persons shall become entitled to exercise dissenters' rights in
accordance with Florida Law ("Online Dissenting Shares")) will be canceled and
extinguished and be converted automatically into the right to receive the number
of shares of Newco Common Stock as determined pursuant to subparagraph (a)(iii)
hereinbelow (the "Online Exchange Ratio," and together with the Omega Exchange
Ratio, collectively referred to herein as the "Exchange Ratios") upon surrender
of the certificate representing such share of Online Common Stock in the manner
provided in Section 1.7 (or, in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit and, if required, bond in the manner
provided in Section 1.9).
(iii) The Online Exchange Ratio shall be equal to the
quotient, which shall be rounded to four decimal places (the "Quotient"), of (A)
the Average Online Closing Price (as hereinafter defined) divided by the Average
Omega Closing Price (as hereinafter defined); provided, however, that,
notwithstanding the Quotient, in no event shall the Online Exchange Ratio be
less than 1.3817 (the "Minimum Online Exchange Ratio") or more than 1.7172 (the
"Maximum Online Exchange Ratio") and, to the extent the Quotient is less than
the Minimum Online Exchange Ratio, the Online Exchange Ratio shall be adjusted
upward to and be equal to the Minimum Online Exchange Ratio and, to the extent
the Quotient is more than the Maximum Online Exchange Ratio, the Online Exchange
Ratio shall be adjusted downward to and be equal to the Maximum Online Exchange
Ratio. For purposes of this subsection (iii), the "Average Online Closing Price"
means and equals the 10 trading day average of the last sale price of a share of
Online Common Stock as reported on the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") over the period ending on the
trading day prior to the date of this Agreement; and the "Average
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Omega Closing Price" means and equals the 10 trading day average of the last
sale price of a share of Omega Common Stock as reported on The Nasdaq National
Market over the period ending on the third trading day prior to the Closing
Date.
(b) CANCELLATION OF OMEGA AND ONLINE CAPITAL STOCK OWNED BY NEWCO,
MERGER SUBS, OMEGA OR ONLINE. Each share of Omega Common Stock that is owned by
Omega as treasury stock and each share of Omega Common Stock owned by Newco,
Merger Subs or Online or any direct or indirect wholly owned subsidiary of
Newco, Merger Subs, Omega or Online immediately prior to the Effective Time
shall be canceled and extinguished without any conversion thereof. Each share of
Online Common Stock that is owned by Online as treasury stock and each share of
Online Common Stock owned by Newco, Merger Subs, Omega or Online or any direct
or indirect wholly owned subsidiary of Newco, Merger Subs, Omega or Online
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) OMEGA AND ONLINE STOCK OPTION PLANS AND WARRANTS. At the
Effective Time, (i) Omega's 1997 Employee Stock Purchase Plan, 1997 Nonemployee
Director Stock Option Plan, as amended, and Amended and Restated 1996 Incentive
Stock Plan, as amended (collectively, the "Omega Stock Option Plans"), (ii) all
options to purchase Omega Common Stock ("Omega Options") then outstanding under
the Omega Stock Option Plans and/or assumed by Omega in connection with Omega's
acquisition of Window on WallStreet Inc. ("WOW") and originally granted under
WOW's 1997 Long Term Incentive Plan or otherwise granted to employees of WOW
prior to the adoption of such plan, (iii) Online's 1999 Stock Option Plan, (iv)
all options to purchase Online Common Stock ("Online Options") then outstanding
under the Online 1999 Stock Option Plan and (v) warrants to purchase up to
225,000 shares of Online Common Stock ("Online Warrants") at an exercise price
of $11.55 issued to the underwriters of Online's initial public offering shall
be assumed by Newco in accordance with Section 6.13. It is hereby acknowledged
and agreed that as part of the Merger and obtaining the approval of the Merger
by the shareholders of Omega and Online, the number of shares reserved for
issuance under Omega's Amended and Restated 1996 Incentive Stock Plan, as
amended, shall be increased to 7,500,000.
(d) UNVESTED OMEGA COMMON STOCK AND ONLINE COMMON STOCK. If any
shares of Omega Common Stock or Online Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement, or other agreement with Omega or Online or under which Omega
or Online has any rights, then (unless such condition terminates by virtue of
the Merger pursuant to the express term of such agreement) the shares of Newco
Common Stock issued in exchange for such shares of Omega Common Stock or Online
Common Stock will also be unvested and subject to the same repurchase option,
risk of forfeiture or other condition, and the certificates representing such
shares of Newco Common Stock may accordingly be marked with appropriate legends.
Omega and Online shall take all action that may be necessary to ensure that,
from and after the Effective Time, Newco is entitled to exercise any such
repurchase option or other right set forth in any such restricted stock purchase
agreement or other agreement.
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(e) CAPITAL STOCK OF MERGER SUBS.
(i) At the Effective Time, each share of Common Stock, par
value $.01 per share, of Omega Merger Sub ("Omega Merger Sub Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the Omega
Surviving Corporation, and the Omega Surviving Corporation shall become a wholly
owned subsidiary of Newco. Each stock certificate of Omega Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Omega Surviving Corporation.
(ii) At the Effective Time, each share of Common Stock, par
value $.01 per share, of Online Merger Sub ("Online Merger Sub Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the Online
Surviving Corporation, and the Online Surviving Corporation shall become a
wholly owned subsidiary of Newco. Each stock certificate of Online Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such share of capital stock of the Online Surviving Corporation.
(f) ADJUSTMENTS TO EXCHANGE RATIO. Each of the Exchange Ratios
shall be appropriately adjusted to reflect the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into Omega Common Stock or Online Common Stock),
reorganization, recapitalization or other like change with respect to Omega
Common Stock or Online Common Stock occurring after the date hereof and prior to
the Effective Time so as to provide Omega and Online the same economic effect as
contemplated by this Agreement prior to such stock split, reverse split, stock
dividend, reorganization, recapitalization, like change.
(g) FRACTIONAL SHARES. No fraction of a share of Newco Common
Stock will be issued, but in lieu thereof each holder of shares of Omega Capital
Stock or Online Capital Stock who would otherwise be entitled to a fraction of a
share of Newco Common Stock (after aggregating all fractional shares of Newco
Common Stock to be received by such holder) shall receive from Newco an amount
of cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the last sale price for a share of Omega Common
Stock as quoted on The Nasdaq National Market on the last full trading day prior
to the Effective Time.
(h) DISSENTERS' RIGHTS. Any Online Dissenting Shares shall not be
converted into Newco Common Stock but shall instead be converted into the right
to receive such consideration as may be determined to be due with respect to
such Online Dissenting Shares pursuant to Florida Law. Online agrees that,
except with the prior written consent of Omega and Newco, or as required under
Florida Law, it will not voluntarily make any payment with respect to, or settle
or offer to settle, any such purchase demand. Each holder of Online Dissenting
Shares ("Dissenting Shareholder") who, pursuant to the provisions of Florida
Law, becomes entitled to payment of the fair value for shares of Online Common
Stock shall receive payment therefor (but only after the value therefor shall
have
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been agreed upon or finally determined pursuant to such provisions). If, after
the Effective Time, any Online Dissenting Shares shall lose their status as
Online Dissenting Shares, Newco shall issue and deliver, upon surrender by such
shareholder of certificate or certificates representing shares of Online Common
Stock, the number of shares of Newco Common Stock to which such shareholder
would otherwise be entitled under this Section 1.6 and the Agreement.
(i) EXISTING NEWCO CAPITAL STOCK. At the Effective Time, any
shares of common stock, par value $.01 per share, of Newco issued and
outstanding immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Omega's transfer agent or another institution
selected by Omega and reasonably acceptable to Online shall act as exchange
agent (the "Exchange Agent") in the Merger.
(b) NEWCO TO PROVIDE COMMON STOCK AND CASH. Promptly after the
Effective Time, Newco shall make available to the Exchange Agent for exchange in
accordance with this Article I, through such reasonable procedures as Newco may
adopt, (i) the shares of Newco Common Stock issuable pursuant to Section 1.6(a)
in exchange for shares of Omega Common Stock and Online Common Stock outstanding
immediately prior to the Effective Time and (ii) cash in an amount sufficient to
permit payment of cash in lieu of fractional shares pursuant to Section 1.6(g).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Omega Surviving Corporation and the Online Surviving Corporation shall cause to
be mailed to each holder of record of a certificate or certificates (the
"Certificates") which immediately prior to the Effective Time represented
outstanding shares of Omega Common Stock or Online Common Stock, as applicable,
whose shares were converted into the right to receive shares of Newco Common
Stock (and cash in lieu of fractional shares) pursuant to Section 1.6, (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Newco may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing shares of Newco Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Newco, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing the number of whole
shares of Newco Common Stock and payment in lieu of fractional shares which such
holder has the right to receive pursuant to Section 1.6, and the Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Omega
Common Stock or Online Common Stock will be deemed from and after the Effective
Time, for all corporate purposes, other than the payment of dividends, to
evidence the ownership of the number of whole shares of Newco Common Stock into
which such shares of Omega Common Stock or Online Common Stock shall have been
so converted
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and the right to receive an amount in cash in lieu of the issuance of any
fractional shares in accordance with Section 1.6.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends
or other distributions with respect to Newco Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
Certificate with respect to the shares of Newco Common Stock represented thereby
until the holder of record of such Certificate shall surrender such Certificate.
Subject to applicable law, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing whole shares
of Newco Common Stock issued in exchange therefor, without interest, at the time
of such surrender, the amount of any such dividends or other distributions with
a record date after the Effective Time theretofore payable (but for the
provisions of this Section 1.7(d)) with respect to such shares of Newco Common
Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of Newco
Common Stock is to be issued by the Exchange Agent in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it will be
a condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Newco or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Newco or a check in any name other than that of the registered
holder of the Certificate surrendered, or established to the satisfaction of
Newco or any agent designated by it that such tax has been paid or is not
payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, none of the Exchange Agent, the Omega Surviving Corporation or the
Online Surviving Corporation or any party hereto shall be liable to any person
for any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(g) ONLINE DISSENTING SHARES. The provisions of this Section 1.7
shall also apply to Online Dissenting Shares that lose their status as such,
except that the obligations of Newco under this Section 1.7 shall commence on
the date of loss of such status and the holder of such shares shall be entitled
to receive in exchange for such shares the number of shares of Newco Common
Stock to which such holder is entitled pursuant to Section 1.6.
1.8 NO FURTHER OWNERSHIP RIGHTS IN OMEGA CAPITAL STOCK OR ONLINE
CAPITAL STOCK. All shares of Newco Common Stock issued (and cash in lieu of
fractional shares paid) upon the surrender for exchange of shares of Omega
Common Stock or Online Common Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Omega Common Stock or Online Common Stock, and there shall be no
further registration of transfers on the records of the Omega Surviving
Corporation of shares of Omega Common Stock or the Online Surviving Corporation
of shares of Online Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Omega Surviving Corporation or the Online Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
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1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Newco
Common Stock (and cash in lieu of fractional shares) as may be required pursuant
to Section 1.6; provided, however, that Newco may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against Newco,
the Omega Surviving Corporation, the Online Surviving Corporation or the
Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
1.10 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368(a) of the Code and a pooling of interests for accounting purposes.
1.11 WITHHOLDING RIGHTS. Newco and the Surviving Corporations shall be
entitled to deduct and withhold from the number of shares of Newco Common Stock
otherwise deliverable under this Agreement, and from any other payments made
pursuant to this Agreement, such amounts as Newco and the Surviving Corporations
are required to deduct and withhold with respect to such delivery and payment
under the Code or any provision of state, local, provincial or foreign tax law.
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been delivered and paid to
the holder of shares of Omega Common Stock or Online Common Stock in respect of
which such deduction and withholding was made by Newco and the Surviving
Corporations.
1.12 TAKING OF NECESSARY ACTION, FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the respective Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Omega and Omega Merger Sub, on the one
hand, and Online and Online Merger Sub, on the other hand, the officers and
directors of Omega, Online, Newco and Merger Subs are fully authorized in the
name of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action, so long as such action is not inconsistent
with this Agreement and provided that any action taken by Merger subs must be
duly authorized by Newco.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF OMEGA
Except as disclosed in the document of even date herewith delivered by
Omega to Online prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "Omega
Disclosure Schedule"), any exception so disclosed in the Omega Disclosure
Schedule to specifically identify the Section or subsection of this Agreement to
which such exception relates, Omega represents and warrants to Online as
follows:
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2.1 ORGANIZATION, STANDING AND POWER. Each of Omega and its direct and
indirect subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of Omega
and its subsidiaries has the corporate power to own its properties and to carry
on its business as now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect (as defined in Section
9.10) on Omega. Omega has delivered to Online a true and correct copy of the
certificate or articles of incorporation, as amended, and bylaws, as amended,
and any other charter or organizational documents, each as amended, of Omega and
each of its direct and indirect subsidiaries. Neither Omega nor any of its
direct and indirect subsidiaries is in violation of any of the provisions of its
certificate or articles of incorporation or bylaws or other charter or
organizational documents, each as amended. Omega is the owner of all outstanding
shares of capital stock or voting securities of each of its subsidiaries and all
such shares and voting securities are duly authorized, validly issued, fully
paid and nonassessable. All of the outstanding shares of capital stock and
voting securities of each such subsidiary are owned by Omega, free and clear of
all liens, charges, claims or encumbrances or rights of others. Except as
disclosed in the Omega SEC Documents (as defined below), there are no
outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable
or convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock or other securities of any such
subsidiary, or otherwise obligating Omega or any such subsidiary to issue,
transfer, sell, purchase, redeem or otherwise acquire any such securities. The
Omega Disclosure Schedule sets forth all of the direct or indirect subsidiaries
of Omega and the authorized and outstanding capital stock thereof. Except as
disclosed in the Omega SEC Documents and the Omega Disclosure Schedule, Omega
does not directly or indirectly own any equity or similar interest in, or any
interest convertible or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
2.2 CAPITAL STRUCTURE. The authorized capital stock of Omega consists
of 100,000,000 shares of Omega Common Stock, and 25,000,000 shares of Omega's
Preferred Stock, par value $.0l per share ("Omega Preferred Stock"), of which
there were issued and outstanding as of the close of business on January 18,
2000, 24,475,104 shares of Omega Common Stock and no shares of Omega Preferred
Stock. There are no other outstanding shares of capital stock or voting
securities and no outstanding commitments to issue any shares of capital stock
or voting securities after January 18, 2000 other than pursuant to the exercise
of options outstanding as of such date under the Omega Stock Option Plans and
options assumed by Omega in connection with the acquisition of WOW ("WOW"). All
outstanding shares of Omega Common Stock are duly authorized, validly issued,
fully paid and non-assessable and are free and clear of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof, and are not subject to preemptive rights or rights of first
refusal created by statute, the Articles of Incorporation or Bylaws, each as
amended, of Omega or any agreement to which Omega is a party or by which it is
bound. As of the close of business on January 18, 2000, Omega has reserved an
aggregate of 5,175,000 shares of Common Stock for issuance to employees,
consultants and directors pursuant to the Omega Stock Option Plans, of which
237,001 shares have been issued pursuant to option exercises or direct stock
purchases, and 4,166,501 shares are subject to outstanding, unexercised options
(excluding any options to purchase shares of Omega Common Stock under the 1997
Employee Stock Purchase Plan,
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as amended). As of the close of business on January 18, 2000, there were 182,529
shares of Omega Common Stock subject to the WOW Options. Since January 18, 2000,
Omega has not issued or granted additional options under the Omega Stock Option
Plans or otherwise except for outstanding options to purchase by employees under
the Omega 1997 Employee Stock Purchase Plan, as amended. Omega has not issued or
granted any stock appreciation rights or performance units under the Omega Stock
Option Plans or otherwise. Except for the rights created pursuant to this
Agreement, the Omega Stock Option Plans, the WOW Options and the Omega Option
Agreement, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Omega is a party or by which it is bound
obligating Omega to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of capital stock of
Omega or obligating Omega to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except for this Agreement and as provided by
Section 6.11, there are no contracts, commitments or agreements relating to
voting, purchase or sale of Omega's capital stock (i) between or among Omega and
any of its shareholders or (ii) to Omega's knowledge, between or among any of
Omega's shareholders. The terms of the Omega Stock Option Plans and the WOW
Options permit the assumption of options to purchase Omega Common Stock as
provided in this Agreement, without the consent or approval of the holders of
such securities, the Omega shareholders, or otherwise. All agreements and
instruments relating to or issued under the Omega Stock Option Plans and in
connection with the WOW Options have not been amended, modified or supplemented,
and there are no agreements to amend, modify or supplement such agreements or
instruments in any case from the existing forms. All outstanding shares of Omega
Common Stock and all Omega Options (which include the WOW Options) were issued
in compliance with all applicable federal and state securities laws.
2.3 AUTHORITY. Omega has all requisite corporate power and authority to
enter into this Agreement and the Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Omega Option Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Omega, subject only to the approval of
the Merger by Omega's shareholders as contemplated by Section 7.1(a). Each of
this Agreement and the Omega Option Agreement has been duly executed and
delivered by Omega and constitutes the valid and binding obligation of Omega,
enforceable against Omega in accordance with its terms, except as such
enforcement may be limited by (i) the effect of bankruptcy, insolvency,
reorganization, receivership, conservatorship, arrangement, moratorium or other
laws affecting or relating to the rights of creditors generally, or (ii) the
rules governing the availability of specific performance, injunctive relief or
other equitable remedies and general principles of equity, regardless of whether
considered in a proceeding in equity or at law. The execution and delivery of
this Agreement and the Omega Option Agreement by Omega does not, and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (i)
any provision of the certificate or articles of incorporation, bylaws, or other
charter or organizational documents, each as amended, of Omega or any of its
subsidiaries, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law,
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ordinance, rule or regulation applicable to Omega or any of its subsidiaries or
any of their properties or assets. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission, self-regulatory organization ("SRO") or other foreign or
domestic governmental or quasi-governmental authority or instrumentality (each
of the foregoing, a "Governmental Entity") is required by or with respect to
Omega or any of its subsidiaries in connection with the execution and delivery
of this Agreement or the Omega Option Agreement, the performance of Omega's
obligations hereunder or thereunder or the consummation of the transactions
contemplated hereby or thereby, except for (i) the filing of the Plan of Merger
as provided in Section 1.2, (ii) the filing with the SEC and the National
Association of Securities Dealers, Inc. (the "NASD") of the Joint Proxy
Statement/Prospectus (as defined in Section 2.21), relating to the Omega
Shareholders Meeting (as defined in Section 2.21), (iii) such notices,
applications, consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal or state
securities (including, without limitation, under the Securities Act of 1933, as
amended (the "Securities Act") and the Exchange Act or the securities laws of
any foreign country in connection with the Merger, and (iv) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Omega and would not prevent,
or materially alter or delay, any of the transactions contemplated by this
Agreement or the Omega Option Agreement. Omega is not aware of any reason why
the approvals of all Governmental Entities necessary to permit consummation of
the Merger or the other transactions contemplated by this Agreement will not be
received without the imposition of a condition or requirement that would have a
Material Adverse Effect on Omega.
2.4 OMEGA SEC DOCUMENTS; OMEGA FINANCIAL STATEMENTS. Omega has
furnished or made available (including via EDGAR) to Online a true and complete
copy of each statement, report, registration statement (with the prospectus in
the form filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement and other filings filed with the SEC by Omega since the date of
initial filing of Omega's registration statement relating to its initial public
offering, and, prior to the Effective Time, Omega will have furnished Online
with true and complete copies of any additional documents filed with the SEC by
Omega prior to the Effective Time (collectively, the "Omega SEC Documents"). In
addition, Omega has made available to Online all exhibits to the Omega SEC
Documents filed prior to the date hereof, and will promptly make available to
Online all exhibits to any additional Omega SEC Documents filed prior to the
Effective Time. All documents required to be filed as exhibits to the Omega SEC
Documents have been so filed, and all material contracts so filed as exhibits
are in full force and effect, except those which have expired in accordance with
their terms, and neither Omega nor any of its subsidiaries is in material
default thereunder. As of their respective filing dates, the Omega SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the Securities Act, and none of the Omega SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Omega SEC Document. The financial statements
of Omega, including the notes thereto, included in the Omega SEC Documents (the
"Omega Financial Statements") were complete and correct in all material respects
as of their respective dates, complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with
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respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The Omega Financial Statements fairly present the consolidated
financial condition and operating results of Omega and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments).
2.5 ABSENCE OF CERTAIN CHANGES. Since December 31, 1998 (the "Omega
Balance Sheet Date"), Omega has conducted its business in the ordinary course
consistent with past practice and there has not occurred except as otherwise
disclosed in the Omega SEC Documents: (i) any change, event or condition
(whether or not covered by insurance) that has resulted in, or would reasonably
be expected to result in, a Material Adverse Effect on Omega; (ii) any
acquisition, sale or transfer of any material asset of Omega or any of its
subsidiaries other than in the ordinary course of business and consistent with
past practice; (iii) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by Omega or any
revaluation by Omega of any of its or any of its subsidiaries' assets; (iv) any
declaration, setting aside, or payment of a dividend or other distribution with
respect to the shares of Omega, or any direct or indirect redemption, purchase
or other acquisition by Omega of any of its shares of capital stock; (v) any
material contract entered into by Omega or any of its subsidiaries, other than
in the ordinary course of business and as provided to Online, or any material
amendment or termination of, or material default under, any material contract to
which Omega or any of its subsidiaries is a party or by which it is bound; (vi)
any amendment or change to the Articles of Incorporation or Bylaws of Omega;
(vii) any material increase in or material modification of the compensation or
benefits payable or to become payable by Omega to any of its directors, officers
or employees (except in the case of employees (other than officers) increases in
the ordinary course of business consistent with past practices; (viii) any
material change in the interest rate risk management and hedging policies,
procedures or practices of Omega or any of its subsidiaries, or any failure to
comply with such policies, procedures and practices; or (ix) any negotiation or
agreement by Omega or any of its subsidiaries to do any of the things described
in the preceding clauses (i) through (viii) (other than negotiations with Online
and its representatives regarding the transactions contemplated by this
Agreement).
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. None of Omega or any of its
subsidiaries has any material obligations or liabilities of any nature (matured
or unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the balance sheet of Omega and subsidiaries included in Omega's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999
(the "Omega Balance Sheet"), (ii) those incurred in the ordinary course of
business consistent with past practice since the Omega Balance Sheet Date and
which have not had and are not reasonably likely to have a Material Adverse
Effect on Omega, and (iii) those incurred in connection with the execution of
this Agreement.
2.7 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration, inquiry, examination, inspection or
investigation pending by or before any Governmental
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Entity, agency, court or tribunal, foreign or domestic or, to the knowledge of
Omega or any of its subsidiaries, threatened against Omega or any of its
subsidiaries or any of their respective properties or any of their respective
officers or directors (in their capacities as such) that, individually or in the
aggregate, would reasonably be expected to prevent, enjoin, alter or materially
delay any of the transactions contemplated hereby or would reasonably be
expected to have a Material Adverse Effect on Omega. There is no judgment,
decree or order against Omega or any of its subsidiaries, or, to the knowledge
of Omega and its subsidiaries, any of their respective directors or officers (in
their capacities as such), that, individually or in the aggregate, would
reasonably be expected to prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement or would reasonably be expected to
have a Material Adverse Effect on Omega.
2.8 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Omega or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any current or future business practice of
Omega or any of its subsidiaries, any acquisition of property by Omega or any of
its subsidiaries or the conduct of business by Omega or any of its subsidiaries
as currently conducted or as proposed to be conducted by Omega or any of its
subsidiaries.
2.9 COMPLIANCE WITH LAWS. Each of Omega and its subsidiaries has
complied in all material respects with all applicable federal, state, local,
self-regulatory and foreign laws, statutes, ordinances, rules and regulations,
and is not in violation in any material respect of, and has not received any
notices of material violation with respect to, its respective certificate or
articles of incorporation or bylaws or other charter or organizational
documents, or any federal, state, local, self-regulatory or foreign statute,
law, ordinance, rule or regulation applicable to the conduct of its business or
the ownership or operation of its business.
2.10 TITLE TO PROPERTY. Omega and its subsidiaries have good, valid and
marketable title to all of their respective properties, interests in properties
and assets, real and personal, reflected in the Omega Balance Sheet or acquired
after the Omega Balance Sheet Date (except properties, interests in properties
and assets sold or otherwise disposed of since the Omega Balance Sheet Date in
the ordinary course of business), or in the case of leased properties and
assets, valid leasehold interests in, free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character, except (i) the lien
of current taxes not yet due and payable, (ii) such imperfections of title,
liens and easements as do not and will not materially detract from or interfere
with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens
securing debt which is reflected on the Omega Balance Sheet or in any Omega SEC
document filed with respect to the Omega Balance Sheet Date. The plants,
property and equipment of Omega and its subsidiaries that are used in the
operations of their businesses are in generally good operating condition and
repair. All properties used in the operations of Omega and its subsidiaries are
reflected in the Omega Balance Sheet to the extent generally accepted accounting
principles require the same to be reflected. SCHEDULE 2.10 of the Omega
Disclosure Schedule identifies each parcel of real property owned or leased by
Omega or any of its subsidiaries.
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2.11 INTELLECTUAL PROPERTY.
(a) Omega and its subsidiaries are the sole and exclusive owners
of, or are licensed or otherwise possess legally enforceable and unencumbered
rights to use, all patents, trademarks, trade names, service marks, domain
names, database rights, copyrights, and any applications therefor, maskworks,
net lists, schematics, technology, know-how, trade secrets, inventory, ideas,
algorithms, processes, computer software programs or applications (in both
source code and object code form), and tangible or intangible proprietary
information or material ("Omega Intellectual Property") that are used in and are
material to the business of Omega and its subsidiaries as currently conducted by
Omega and its subsidiaries. Omega has not (i) licensed any Omega Intellectual
Property in source code form to any party or (ii) entered into any exclusive
agreements relating to Omega Intellectual Property.
(b) SCHEDULE 2.11 of the Omega Disclosure Schedule lists (i) all
patents and patent applications and all registered and unregistered trademarks,
trade names and service marks, registered and unregistered copyrights, and
maskworks included in Omega Intellectual Property, including the jurisdictions
in which each such Omega Intellectual Property right has been issued or
registered or in which any application for such issuance and registration has
been filed, (ii) all licenses, sublicenses and other agreements as to which
Omega is a party and pursuant to which any person is authorized to use Omega
Intellectual Property, and (iii) all licenses, sublicenses and other agreements
as to which Omega or any of its subsidiaries is a party and pursuant to which
Omega is authorized to use any third party patents, trademarks or copyrights,
including software or other intellectual property ("Omega Third Party
Intellectual Property Rights"), which is incorporated in, is, or forms a part of
any product or service of Omega or any of its subsidiaries or which is otherwise
used by Omega or any of its subsidiaries (excluding commercially available,
off-the-shelf software). No material royalties or other continuing payment
obligations are or will be due in respect of Omega Third Party Intellectual
Property Rights, except as disclosed in the Omega SEC Documents.
(c) To the knowledge of Omega, there is no unauthorized use,
improper disclosure, infringement or misappropriation of any Omega Intellectual
Property rights of Omega or any of its subsidiaries, or any Omega Intellectual
Property right of any third party to the extent licensed by or through Omega or
any of its subsidiaries, by any third party, including any employee or former
employee of Omega or any of its subsidiaries. Neither Omega nor any of its
subsidiaries has entered into any agreement to indemnify any other person
against any charge of unauthorized use, improper disclosure, misappropriation or
infringement of any Omega Intellectual Property.
(d) None of Omega or its subsidiaries is, nor will any of them be
as a result of the execution and delivery of this Agreement or the performance
of its obligations under this Agreement, in breach of or cause a right to
terminate any license, sublicense or other agreement relating to any Omega
Intellectual Property or Omega Third Party Intellectual Property Rights which
would have a Material Adverse Effect on Omega.
(e) All patents, registered trademarks, service marks and
copyrights held by Omega and its subsidiaries are valid and subsisting. Neither
Omega nor any of its subsidiaries (i)
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has been charged in any suit, action or proceeding with any infringement,
violation, misappropriation, improper disclosure or unauthorized use of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party or a breach of any license or
other agreement involving Omega Intellectual Property nor has a claim been made
with respect thereto or (ii) has brought any action, suit or proceeding for
infringement, violation, misappropriation, improper disclosure or unauthorized
use of Omega Intellectual Property or breach of any license or other agreement
involving Omega Intellectual Property against any third party. To the knowledge
of Omega, neither the manufacturing, use, marketing, licensing or sale of the
products or services of Omega or any of its subsidiaries constitutes an
infringement, violation, misappropriation, unauthorized use or improper
disclosure in any material respect of any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party.
(f) Omega has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Omega Intellectual Property of the rights to such contributions that Omega does
not already own by operation of law.
(g) Omega has taken reasonable steps consistent with prevailing
industry practice to protect and preserve the confidentiality of all Omega
Intellectual Property not otherwise protected by patents, patent applications or
copyright ("Omega Confidential Information"). All use, disclosure or
appropriation of Omega Confidential Information owned by Omega or any of its
subsidiaries by or to a third party has been pursuant to the terms of a written
agreement between Omega or its subsidiary and such third party. All use,
disclosure or appropriation by Omega and its subsidiaries of Omega Confidential
Information not owned by Omega or any such subsidiary has been pursuant to the
terms of a written agreement between Omega or its subsidiary and the owner of
such Omega Confidential Information, or is otherwise lawful.
2.12 ENVIRONMENTAL MATTERS.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal,
state or local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which are intended
to assure the safety of employees, workers or other persons, including the
public.
(ii) "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or infectious or
radioactive substance or material, including without limitation, those
substances, materials and wastes defined in or regulated under any Environmental
and Safety Laws.
(iii) For purposes of this Section 2.12 only, "Property" shall
mean all real property leased or owned by Omega or its subsidiaries either
currently or in the past.
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(iv) For purposes of this Section 2.12 only, "Facilities"
shall mean all buildings and improvements on the Property of Omega or its
subsidiaries.
(b) Omega represents and warrants as follows: (i) to Omega's
knowledge no ethylene chloride or asbestos is contained in or has been used at
or released from the Facilities; (ii) to Omega's knowledge all Hazardous
Materials have been disposed of in accordance with all Environmental and Safety
Laws; (iii) Omega and its subsidiaries have received no written notice of any
noncompliance of the Facilities or its past or present operations with
Environmental and Safety Laws; (iv) to Omega's knowledge no notices,
administrative actions or suits are pending or threatened relating to a
violation of any Environmental and Safety Laws; (v) to Omega's knowledge neither
Omega nor any of its subsidiaries are a potentially responsible party under the
federal Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), or state analog statute, arising out of events occurring prior to the
Effective Time; (vi) to Omega's knowledge there have not been in the past, and
are not now, any Hazardous Materials on, under or migrating to or from the
Facilities or any Property; (vii) to Omega's knowledge there have not been in
the past, and are not now, any underground tanks or underground improvements at,
on or under any Property including without limitation, treatment or storage
tanks, sumps, or water, gas or oil wells; (viii) to Omega's knowledge there are
no polychlorinated biphenyls (PCBs) deposited, stored, disposed of or located on
the Property or Facilities or any equipment on the Property containing PCBs at
levels in excess of 50 parts per million; (ix) to Omega's knowledge there is no
formaldehyde on the Property or in the Facilities, nor any insulating material
containing urea formaldehyde in the Facilities; (x) Omega's and its
subsidiaries' uses of and activities in Facilities and Property have at all
times complied in all material respects with all Environmental and Safety Laws;
and (xi) Omega and its subsidiaries have all the permits and licenses required
to be issued under Environmental and Safety Laws and are in compliance in all
material respects with the terms and conditions of those permits.
2.13 TAXES. Omega and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax (as defined below) purposes of
which Omega or any of its subsidiaries is or has been a member have properly
completed and timely filed all Tax Returns (as defined below) required to be
filed by them and have paid all Taxes shown thereon to be due, other than any
Taxes for which adequate reserves under generally accepted accounting principles
have been recorded in the Omega Financial Statements. Omega has provided
adequate accruals in accordance with generally accepted accounting principles in
its financial statements for any Taxes that have not been paid, whether or not
shown as being due on any Tax Returns. Omega has no material liability for
unpaid Taxes accruing after the date of its latest Financial Statements the
Omega Balance Sheet other than Taxes arising in the ordinary course of its
business. Except as disclosed in the Omega SEC Documents, there is (i) no
material claim for Taxes that is a lien against the property of Omega or any of
its subsidiaries or is being asserted against Omega or any of its subsidiaries
other than liens for Taxes not yet due and payable, (ii) Omega has not been
notified that any audit of any Tax Return of Omega or any of its subsidiaries is
being conducted by a Tax authority, (iii) no extension of the statute of
limitations on the assessment of any Taxes granted by Omega or any of its
subsidiaries is currently in effect, and (iv) there is no agreement, contract or
arrangement to which Omega or any of its subsidiaries is a party that may result
in the payment of any amount that would not be
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deductible by reason of Sections 280G, 162 or 404 of the Code. There has been no
change in ownership of Omega or any of its subsidiaries that has caused the
utilization of any losses of such entities to be limited pursuant to Section 382
of the Code. Omega has not been and will not be required to include any material
adjustment in Taxable income for any Tax period (or portion thereof) pursuant to
Section 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions, events or accounting methods
employed prior to the Merger. Neither Omega nor any of its subsidiaries has
filed or will file any consent to have the provisions of paragraph 341(f)(2) of
the Code (or comparable provisions of any state Tax laws) apply to Omega or any
of its subsidiaries. Neither Omega nor any of its subsidiaries is a party to any
Tax sharing or Tax allocation agreement nor does Omega or any of its
subsidiaries owe any amount under any such agreement. Neither Omega nor any of
its subsidiaries has filed any disclosures under Section 6662 or comparable
provisions of state, local or foreign law to prevent the imposition of penalties
with respect to any Tax reporting position taken on any Tax Return. Neither
Omega nor any of its subsidiaries has ever been a member of a consolidated,
combined or unitary group of which Omega was not the ultimate parent
corporation. Omega and each of its subsidiaries have in their possession
receipts for any Taxes paid to foreign Tax authorities. For purposes of this
Agreement, the following terms have the following meanings: "Tax" (and, with
correlative meaning, "Taxes" and "Taxable") means (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period and
(iii) any liability for the payment of any amounts of the type described in (i)
or (ii) as a result of any express or implied obligation to indemnify any other
person. As used herein, "Tax Return" shall mean any return, statement, report or
form (including, without limitation, estimated Tax returns and reports,
withholding Tax returns and reports and information reports and returns)
required to be filed with respect to Taxes. Omega and each of its subsidiaries
are in full compliance with all terms and conditions of any Tax exemptions and
the consummation of the Merger shall not have any adverse effect on the
continued validity and effectiveness of any such Tax exemptions.
2.14 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 2.14 of the Omega Disclosure Schedule lists, with
respect to Omega, any subsidiary of Omega and any trade or business (whether or
not incorporated) which is treated as a single employer with Omega (an "Omega
ERISA Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the
Code, (i) all material employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), (ii)
each loan to a non-officer employee in excess of Fifty Thousand Dollars
($50,000), loans to officers and directors and any stock option, stock purchase,
phantom stock, stock appreciation right, supplemental retirement, severance,
sabbatical, medical, dental, vision care, disability, employee relocation,
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cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, programs or arrangements, (iii) all
bonus, pension, profit sharing, savings, deferred compensation or incentive
plans, programs or arrangements, (iv) other fringe or employee benefit plans,
programs or arrangements that apply to senior management of Omega and that do
not generally apply to all employees, and (v) any current or former employment
or executive compensation or severance agreements, written or otherwise, are
still operative and in effect for the benefit of, or relating to, any present or
former employee, consultant or director of Omega (together, the "Omega Employee
Plans").
(b) Omega has furnished to Online a copy of each of the Omega
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and any material employee communications relating
thereto) and has, with respect to each Omega Employee Plan which is subject to
ERISA reporting requirements, provided copies of the Form 5500 reports filed for
the last three plan years. Any Omega Employee Plan intended to be qualified
under Section 401 (a) of the Code has either obtained from the Internal Revenue
Service a favorable determination letter as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has applied to the Internal Revenue Service
for such a determination letter prior to the expiration of the requisite period
under applicable Treasury Regulations or Internal Revenue Service pronouncements
in which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination. Omega has also furnished Online
with the most recent Internal Revenue Service determination letter issued with
respect to each such Omega Employee Plan, and nothing has occurred since the
issuance of each such letter which could reasonably be expected to cause the
loss of the tax-qualified status of any Omega Employee Plan subject to Code
Section 401 (a). Omega has also furnished Online with all registration
statements and prospectuses prepared in connection with each Omega Employee
Plan.
(c) (i) None of the Omega Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Omega Employee Plan,
which could reasonably be expected to have, in the aggregate, a Material Adverse
Effect; (iii) each Omega Employee Plan has been administered in accordance with
its terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect, and Omega and each
subsidiary or Omega ERISA Affiliate have performed in all material respects all
obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no knowledge of any material
default or material violation by any other party to, any of the Omega Employee
Plans; (iv) neither Omega nor any subsidiary or ERISA Affiliate is subject to
any material liability or penalty under Sections 4976 through 4980 of the Code
or Title I of ERISA with respect to any of the Omega Employee Plans; (v) all
material contributions required to be made by Omega or any subsidiary or Omega
ERISA Affiliate to any Omega Employee Plan have been made on or before their due
dates and a reasonable amount has been accrued for contributions to each Omega
Employee Plan for the current plan years; (vi) with respect to each Omega
Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA
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(excluding any such event for which the thirty (30) day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 or ERISA has occurred; (vii) each Omega
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Newco (other
than ordinary administrative expenses typically incurred in a termination
event); (viii) all premiums required by any Omega Employee Plan have been paid
thereunder or accrued on the books of Omega; (ix) all outstanding indebtedness
for services performed or accrued vacation, holiday pay, earned commissions,
accrued bonuses or other benefits owned to any present or former employee,
consultant or director have been paid when due or accrued on the books of Omega;
and (x) no action or failure to act with respect to any Omega Employee Plan
could subject Omega, Surviving Corporations or Newco or any of their respective
affiliates or any Omega Employee Plan to any material tax, penalty or other
liability, for breach of fiduciary duty or otherwise, under ERISA or any other
applicable law, whether by way of indemnity or otherwise. With respect to each
Omega Employee Plan subject to ERISA as either an employee pension plan within
the meaning of Section 3(2) of ERISA or an employee welfare benefit plan within
the meaning of Section 3(l) of ERISA, Omega has prepared in good faith and
timely filed all requisite governmental reports (which were true and correct in
all material respects as of the date filed) and has properly and timely filed
and distributed or posted all notices and reports to employees required to be
filed, distributed or posted with respect to each such Omega Employee Plan,
except to the extent the failure to timely or properly file or comply would not,
in the aggregate, have a Material Adverse Effect on Omega. No suit,
administrative proceeding, action or other litigation has been brought, or to
the knowledge of Omega is threatened, against or with respect to any such Omega
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor, and, to the knowledge of Omega, there are no facts that
could give rise to any material liability in the event of any such suit,
proceeding, action or other litigation. No payment or benefit which will or may
be made (either as a result of the Merger or otherwise) by Omega to any employee
will be characterized as an "excess parachute payment" within the meaning of
Section 280G(b)(1) of the Code. Neither Omega nor any Omega subsidiary or other
ERISA Affiliate is a party to, or has ever been a party to, or has made any
contribution to or otherwise incurred any obligation under, any "multiemployer
plan" as defined in Section 3(37) of ERISA. Neither Omega nor any Omega
subsidiary or Omega ERISA Affiliate currently maintain, sponsor, participate in
or contribute to, nor has it ever maintained, established, sponsored,
participated in, or contributed to, any pension plan (within the meaning of
Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(d) With respect to each Omega Employee Plan, Omega and each of
its subsidiaries have complied with (i) the applicable health care continuation
and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") and the regulations (including proposed regulations) thereunder,
(ii) the applicable requirements of the Family Medical and Leave Act of 1993 and
the regulations thereunder, except to the extent that such failure to comply
would not, in the aggregate, have a Material Adverse Effect and (iii) the
applicable requirements of the Health Insurance Portability and Accountability
Act of 1996 and the regulations (including proposed regulations) thereunder,
except to the extent that such failure to comply would not, in the aggregate,
have a Material Adverse Effect.
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(e) The consummation of the transactions contemplated by this
Agreement will not (either alone or when taken together with any additional or
subsequent events) (i) entitle any current or former employee or other service
provider of Omega, any Omega subsidiary or any other Omega ERISA Affiliate to
severance benefits or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or service provider.
(f) There has been no amendment to, or written interpretation or
announcement (whether or not written) by Omega, any Omega subsidiary or other
ERISA Affiliate relating to, or change in participation or coverage under, any
Omega Employee Plan which would materially increase the expense of maintaining
such Plan above the level of expense incurred with respect to that Plan for the
most recent fiscal year included in Omega's financial statements.
(g) There has been no deferral of any cash or securities under the
Omega Stock Option Plans.
2.15 EMPLOYEE MATTERS.
(a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any director or employee
of Omega or any of its subsidiaries, (ii) materially increase any benefits
otherwise payable by Omega or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
(b) Omega and each of its subsidiaries are in compliance in
all material respects with all currently applicable laws and regulations
respecting employment, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and employment
practices, and is not engaged in any unfair labor practice. Omega and each of
its subsidiaries has withheld all material amounts required by law or by
agreement to be withheld from the wages, salaries, and other payments to
employees, and is not liable for any material arrears of wages or any material
taxes or any material penalty for failure to comply with any of the foregoing.
Omega is not liable for any material payment to any trust or other fund or to
any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending material
claims against Omega or any of its subsidiaries under any workers compensation
plan or policy or for long term disability. Neither Omega nor any of its
subsidiaries has any obligations under COBRA with respect to any former
employees or qualifying beneficiaries thereunder, except for obligations that
would not, individually or in the aggregate, have a Material Adverse Effect on
Omega. There are no material controversies pending or, to the knowledge of
Omega, threatened between Omega or any of its subsidiaries, on the one hand, and
any of their respective employees, on the other hand, which controversies have
or would reasonably be expected to result in an action, suit, proceeding, claim,
arbitration or investigation before any agency, court or tribunal which would
have a Material
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Adverse Effect on Omega. Neither Omega nor any of its subsidiaries is a party to
any collective bargaining agreement or other labor union contract; nor does
Omega know of any activities or proceedings of any labor union to organize any
such employees. To Omega's knowledge, no employees of Omega are in violation in
any material respect of any term of any employment contract, patent disclosure
agreement, noncompetition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by Omega
because of the nature of the business conducted or presently proposed to be
conducted by Omega or to the use of trade secrets or proprietary information of
others. Except as disclosed in the Omega SEC Documents filed prior to the date
of this Agreement, Omega does not have any employment agreement with any of its
officers or other employees.
(c) All employees of Omega or any of its subsidiaries engaged in
the business of, acting as, or performing the duties of a registered
representative, registered principal or similar registered personnel or agent
(under the definition of such terms in the rules of the NASD, The Nasdaq
National Market, any other SRO or any state which has jurisdiction over Omega or
any of its subsidiaries (if applicable)) are properly registered to act in the
capacity of a registered representative, registered principal or similar
registered personnel or agent under the rules of the NASD, The Nasdaq National
Market, any other SRO or any state which has jurisdiction over Omega or any of
its subsidiaries (if applicable).
2.16 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the Omega
SEC Documents filed prior to the date of this Agreement, neither Omega nor any
of its subsidiaries is indebted to any director, officer, employee or agent of
Omega or any of its subsidiaries (except for amounts due as normal salaries and
bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to Omega or any of its subsidiaries other than an employee (who is not
an officer) for nonmaterial amounts, and there have been no other transactions
of the type required to be disclosed pursuant to Items 402 and 404 of Regulation
S-K under the Securities Act and the Exchange Act.
2.17 INSURANCE. Omega and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of Omega and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Omega and its subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds. Omega has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.18 REGULATORY MATTERS.
(a) Omega and each of its subsidiaries have obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which Omega or any
of its subsidiaries currently operates or holds any interest in any of its
properties or (ii) that is required for the operation or conduct of Omega's or
any of its subsidiaries' business or the holding of any such interest ((i) and
(ii) herein
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collectively called "Omega Authorizations"), and all of such Omega
Authorizations are in full force and effect and there are no circumstance which
indicate that any of such Omega Authorizations may not be renewed or withdrawn
or amended, in whole or in part, except where the failure to obtain or have any
of such Omega Authorizations would not reasonably be expected to have a Material
Adverse Effect on Omega.
(b) Omega and its subsidiaries have complied, and are in
compliance, in all material respects with all applicable federal, state, local
and self-regulatory laws, statutes, licensing requirements, rules, and
regulations. Each of Omega and its subsidiaries has, and is in compliance in all
material respects with, all material authorizations, consents, licenses, permits
(temporary or otherwise), orders, approvals, waivers, franchises and other
rights ("Governmental Permits") necessary to conduct their businesses,
including, but not limited to, Governmental Permits of the SEC, the NASD, the
NASD Regulation, Inc., The Nasdaq Stock Market, any state or foreign securities
or prosecutorial authority or any other Governmental Entity required to operate
their respective businesses and maintain their respective assets. Each of Omega
and its subsidiaries has obtained all material Governmental Permits of any and
all Governmental Entities required for the carrying on of its business and the
maintenance of its assets and such material Governmental Permits are in full
force and effect, and there are no circumstances of which Omega is aware which
indicate that any of such material Governmental Permits may be revoked or not
renewed or withdrawn or (except to an immaterial or beneficial extent) amended,
in whole or in part. SCHEDULE 2.18 to the Omega Disclosure Schedule sets forth a
true and complete list of all Governmental Permits held by Omega or any of its
subsidiaries or any of their respective employees (including all registered
personnel). Neither Omega nor any of its subsidiaries has received any notice
from any Governmental Entity (i) asserting that Omega or any of its Subsidiaries
is not in compliance in any material respect with any of the statutes,
regulations, or ordinances that such Governmental Entity enforces or (ii)
threatening to revoke cancel or not renew any Permit or (iii) restricting or
disqualifying their activities. After giving effect to the Merger all
Governmental Permits of the Omega Surviving Corporation and its subsidiaries
shall continue to be valid and in full force and effect to the same extent as
they presently are for Omega and its subsidiaries. There is no order issued,
investigation or proceeding pending or (to Omega's knowledge) threatened, or
notice served which remains outstanding or unresolved, with respect to any
material violation of any law, statute, ordinance, order, writ, decree, rule, or
regulation issued by any Governmental Entity applicable to either Omega or any
of its subsidiaries or any of their respective directors, officers, employees or
agents.
(c) Neither Omega nor any of its subsidiaries is a party or
subject to any agreement, consent decree or order, or other understanding or
arrangement with, or any directive of any Governmental Entity which imposes any
material restrictions on, or otherwise affects in any material respect, the
conduct of the business of Omega or any of its subsidiaries. SCHEDULE 2.18 of
the Omega Disclosure Schedule sets forth all compliance or enforcement
proceedings or, to the knowledge of Omega, examinations, inspections,
investigations or inquiries convened, and all fines, sanctions and other
measures imposed by any Governmental Entity or body against, concerning or
relating to Omega, any of its subsidiaries, any of their respective predecessor
entities, or any of their respective directors, officers, employees or agents.
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(d) Each of Omega and its subsidiaries, to the extent required to
so register (the "Broker-Dealers"), is duly registered as a broker-dealer with
the SEC and under all applicable state, federal, foreign or related laws and is
a member of the NASD and a member of Securities Investor Protection Act ("SIPC")
and the Municipal Securities Rulemaking Board. None of the Broker- Dealers has
exceeded in any material respect the business activities enumerated in any
applicable restriction or membership agreements or other limitations imposed in
connection with its registrations, forms (including Form BDs) and reports filed
with the NASD or any other Governmental Entity. The information contained in
such registrations, forms and reports was or will be true and complete in all
material respects as of the date hereof and, except as indicated on a subsequent
registration form or report filed before the Closing, will continue to be true
and complete in all material respects. Each such registration is in full force
and effect, except where the failure to be so would not have a Material Adverse
Effect on Omega.
(e) None of Omega or any of its subsidiaries is required to be
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended (the "Advisers Act") or under any state, federal and foreign
investment adviser or related laws.
(f) None of Omega, its subsidiaries or their respective operations
are required to be registered as an investment company under the Investment
Company Act of 1940, as amended.
2.19 MATERIAL CONTRACTS.
(a) Except for the contracts included as an exhibit to the Omega
SEC Documents or in connection with this transaction, neither Omega nor any of
its subsidiaries is a party to or bound by any of the following (collectively
and including the contracts which are included as exhibits to the Omega SEC
Documents, the "Omega Material Contracts"):
(i) any contract or agreement for the acquisition or sale of
securities or any material portion of the assets or business of or to any other
person or entity whether completed or pending other than pursuant to Omega
Options (including the WOW Options);
(ii) any contract or agreement for the purchase of materials,
supplies, equipment, services or data involving in the case of any such contract
or agreement more than Fifty Thousand Dollars ($50,000) over the life of the
contract or agreement;
(iii) any contract, agreement or instrument that expires or
may be renewed at the option of any person other than Omega or its subsidiaries
so as to expire more than six months after the date of this Agreement, or which
is not terminable by Omega or a subsidiary (as applicable) on sixty or fewer
days' notice at any time without penalty, and involves the receipt or payment by
Omega or any of its subsidiaries of more than Fifty Thousand Dollars ($50,000)
during any twelve month period;
(iv) any indenture, mortgage, note, loan agreement,
installment obligation or other contract, agreement or instrument for the
borrowing of money, any currency exchange,
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commodities or other hedging arrangement, any letter of credit or any leasing
transaction of the type required to be capitalized in accordance with generally
accepted accounting principles;
(v) any contract or agreement for capital expenditures in
excess of Fifty Thousand Dollars ($50,000) individually or in the aggregate with
other similar contracts or agreements;
(vi) any contract or agreement limiting the freedom of Omega
or any of its subsidiaries or (to the extent known to Omega) any of its officers
or key employees to engage in any line of business or to compete with any person
(as that term is defined in the Exchange Act) or any confidentiality, secrecy or
non-disclosure contract or agreement other than an ancillary provision included
as part of a contract or agreement entered into by Omega or any of its
subsidiaries in the ordinary course of business;
(vii) any contract or agreement involving payments during any
twelve- month period of Fifty Thousand Dollars ($50,000) or more, pursuant to
which Omega or any of its subsidiaries is a lessor or lessee of any real
property, machinery, equipment, motor vehicles, office furniture, fixtures or
other personal property;
(viii) any material contract or agreement with any person with
whom Omega or any of its subsidiaries does not deal at arm's length within the
meaning of the Code;
(ix) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person;
(x) any material consulting agreement;
(xi) any distribution, reseller, dealer, agency, franchise,
advertising, revenue sharing, marketing or similar agreement;
(xii) any clearing agency, investment banking, placement,
broker or similar agreement;
(xiii) any agreement with any Governmental Entity (including
any SRO);
(xiv) any agreement to provide brokerage services or directly
or indirectly participate in brokerage activities, commissions or fees in any
manner (including any forms of customer brokerage agreements);
(xv) any data redistribution or other agreement with any
vendor of financial market data or relating in any manner to financial market
data;
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(xvi) any product and/or service warranties, price protection
or return agreement or written policy or any similar written undertaking by or
for which Omega or any of its subsidiaries remains responsible to perform (a
form of any of the foregoing will be sufficient);
(xvii) any material agreement which would be terminable other
than by Omega or its subsidiaries or any agreement that provides for the payment
of money, accelerates or increases benefits, vesting or compensation or entitles
any person to take actions or receive benefits or otherwise triggers obligations
as a result of the Merger or consummation of any of the transactions
contemplated by this Agreement not otherwise disclosed in the Omega Disclosure
Schedule; or
(xviii) any other agreement which is material to the
operations of Omega's or any of its subsidiaries' businesses or operations or
which may have a material affect on Omega's assets, properties or the Merger.
(b) Each of Omega and its subsidiaries has performed all of
the material obligations required to be performed by it and is entitled to all
accrued benefits under, and is not in material default, nor to Omega's knowledge
has a claim been made that it is in material default in respect of, each Omega
Material Contract to which it is a party or by which it is bound. Each of the
Omega Material Contracts is in full force and effect and there exists no
material default or event of default or event, occurrence, condition or act,
with respect to Omega or any of its subsidiaries or, to Omega's knowledge, with
respect to any other contracting party, which, with the giving of notice, the
lapse of time or the happening of any other event or condition, would become a
material default or event of default under any Omega Material Contract. There
are no unwritten obligations or agreements or course of dealings contrary in any
material respect to the specific terms and conditions of any Material Contract.
True, correct and complete copies of all Omega Material Contracts have been
delivered to Online or filed as an exhibit to the Omega SEC Documents.
2.20 OMEGA OPTIONS. Since December 31, 1998,Omega has not granted any
options, stock appreciation rights or other rights to acquire securities other
than annual grants of stock options to its employees and grants of stock options
to new employees and consultants in accordance with the ordinary course of its
business consistent with past practices, or accelerated, amended or changed the
period of exercisability or vesting of options or other rights granted, under
the Omega Stock Option Plans or authorized cash payments in exchange for any
options or other rights granted under any of the Omega Stock Option Plans.
2.21 REGISTRATION STATEMENT, JOINT PROXY STATEMENT/PROSPECTUS. The
information supplied by Omega for inclusion in the registration statement on
Form S-4 (or such other successor form as shall be appropriate) pursuant to
which the shares of Newco Common Stock to be issued in the Merger will be
registered with the SEC (the "Registration Statement") shall not at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The information supplied by Omega for inclusion
in the joint proxy statement/prospectus to be sent to the shareholders of Omega
in connection with the
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meeting of Omega's shareholders to consider the Merger (the "Omega Shareholders
Meeting") and to the shareholders of Online in connection with the meeting of
Online's shareholders to consider the Merger (the "Online Shareholders Meeting"
and, together with the Omega Shareholders Meeting, collectively herein referred
to as "Shareholders Meetings") (such joint proxy statement/prospectus, together
with any amendments thereof or supplements thereto, in each case in the form or
forms sent as aforesaid, the "Joint Proxy Statement/Prospectus") shall not, on
the date the "Joint Proxy Statement/Prospectus" is first mailed to either the
shareholders of Omega or Online, at the time of the either of the Shareholders
Meetings or at the Effective Time, contain any statement which, at such time, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they are made, not false or misleading; or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for either of the
Shareholders Meetings which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Omega
which should be set forth in an amendment to the Registration Statement or a
supplement to the "Joint Proxy Statement/Prospectus", Omega shall promptly
inform Online of such event or information. Notwithstanding the foregoing, Omega
makes no representation, warranty or covenant with respect to any information
supplied by Online which is contained in any of the foregoing documents.
2.22 OPINION OF FINANCIAL ADVISOR. Omega has been advised by its
financial advisor, FleetBoston Robertson Stephens ("Robertson Stephens"), that
in such advisor's opinion, as of the date hereof, the Merger is fair, from a
financial point of view, to the shareholders of Omega. A copy of the written
opinion to the foregoing effect of Robertson Stephens dated as of the date of
this Agreement has been delivered to Online or will be delivered to Online
within five business days from the date of this Agreement.
2.23 OMEGA AFFILIATE AGREEMENTS. Each Affiliate (as defined below) of
Omega has entered into a Omega Affiliate Agreement in the form attached hereto
as EXHIBIT B (the "Omega Affiliate Agreements"). Omega shall use its best
efforts to obtain such a written agreement from any other person as soon as
practicable after the date on which such person becomes as an Affiliate of Omega
prior to the Effective Time. For purposes of this Agreement, persons and/or
entities deemed affiliates of an entity within the meaning of Rule 144 of the
rules and regulations of the SEC promulgated under the Securities Act for
purposes of Accounting Series, Releases 130 and 135, as amended, of the SEC are
referred to as "Affiliates."
2.24 STATE TAKEOVER STATUTES. The Board of Directors of Omega has taken
all actions so that the restrictions contained in Section 607.0902 of the
Florida Law applicable to "control shares" (as defined in such Section 607.0902)
will not apply to the execution, delivery or performance of this Agreement, the
Shareholder Agreements or the Option Agreement or the consummation of the Merger
or the other transactions contemplated by this Agreement, the Omega Shareholder
Agreements or the Omega Option Agreement. No other state takeover statute is
applicable to the Merger, this Agreement, the Omega Option Agreement, the Omega
Shareholder Agreements or the transactions contemplated hereby or thereby.
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2.25 TAX AND ACCOUNTING TREATMENT. Neither Omega nor any of its
directors or officers has taken any action that would interfere with Newco's or
the Surviving Corporations', Omega's or Online's ability to account for the
Merger as a pooling of interests or would prevent the Merger from constituting a
transaction qualifying as a reorganization within the meaning of Section 368(a)
of the Code. Neither Omega nor, to Omega's knowledge, any of its affiliates or
agents is aware of any agreement, plan or other circumstance that would
interfere with Newco's, the Surviving Corporations', Omega's or Online's ability
to account for the Merger as a pooling of interests or prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
2.26 BROKERS' AND FINDERS' FEES. Omega has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, other
than under its engagement letter with Robertson Stephens.
2.27 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Omega herein or in any schedule hereto, including the Omega
Disclosure Schedule, or certificate furnished by Omega pursuant to this
Agreement, or the Omega SEC Documents, when all such documents are read together
in their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ONLINE
Except as disclosed in the document of even date herewith delivered by
Online to Omega prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "Online
Disclosure Schedule"), any exception so disclosed in the Online Disclosure
Schedule to specifically identify the Section or subsection of this Agreement to
which such exception relates, Online represents and warrants to Omega, Newco and
Merger Subs as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Online and its direct and
indirect subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of Online
and its subsidiaries has the corporate power to own its properties and to carry
on its business as now being conducted and is duly qualified to do business and
is in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a Material Adverse Effect on Online. Online has
delivered to Omega a true and correct copy of the certificate or articles of
incorporation, as amended, and bylaws, as amended, and any other charter or
organizational documents, each as amended, of Online and each of its direct and
indirect subsidiaries. Neither Online nor any of its direct and indirect
subsidiaries is in violation of any of the provisions of its certificate or
articles of incorporation or bylaws or other charter or
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organizational documents, each as amended. Online is the owner of all
outstanding shares of capital stock or voting securities of each of its
subsidiaries and all such shares and voting securities are duly authorized,
validly issued, fully paid and nonassessable. All of the outstanding shares of
capital stock and voting securities of each such subsidiary are owned by Online
free and clear of all liens, charges, claims or encumbrances or rights of
others. Except as disclosed in the Online SEC Documents (as defined below),
there are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating Online or any such subsidiary to
issue, transfer, sell, purchase, redeem or otherwise acquire any such
securities. The Online Disclosure Schedule sets forth all of the direct and
indirect subsidiaries of Online and the authorized and outstanding capital stock
thereof. Except as disclosed in the Online SEC Documents and the Online
Disclosure Schedule, Online does not directly or indirectly own any equity or
similar interest in, or any interest convertible or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity.
3.2 CAPITAL STRUCTURE. The authorized capital stock of Online consists
of 100,000,000 shares of Online Common Stock, and 1,000,000 shares of Online
Preferred stock, par value $.0l per share ("Online Preferred Stock"), of which
there were issued and outstanding as of the close of business on January 18,
2000, 11,476,388 shares of Online Common Stock and no shares of Online Preferred
Stock. There are no other outstanding shares of capital stock or voting
securities and no outstanding commitments to issue any shares of capital stock
or voting securities after January 18, 2000 other than pursuant to the exercise
of options outstanding as of such date under the Online 1999 Stock Option Plan
and the Online Warrants. All outstanding shares of Online Common Stock are duly
authorized, validly issued, fully paid and non-assessable and are free and clear
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the Articles of Incorporation or
Bylaws, each as amended, of Online or any agreement to which Online is a party
or by which it is bound. As of the close of business on January 18, 2000, Online
has reserved an aggregate of 1,000,000 shares of Common Stock for issuance to
employees, consultants and directors pursuant to the Online 1999 Stock Option
Plan, of which no shares have been issued pursuant to option exercises and
460,500 shares are subject to outstanding, unexercised options. Since January
18, 2000, Online has not issued or granted additional options under the Online
1999 Stock Option Plan or otherwise. Online has not issued or granted any stock
appreciation rights or performance units under the Online 1999 Stock Option
Plans or otherwise. Except for the rights created pursuant to this Agreement,
the Online 1999 Stock Option Plan, the Online Warrants and the Online Option
Agreement, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Online is a party or by which it is bound
obligating Online to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of capital stock of
Online or obligating Online to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except for this Agreement and as provided by
Section 6.11, there are no contracts, commitments or agreements relating to
voting, purchase or sale of Online's capital stock (i) between or among Online
and any of its shareholders and (ii) to Online's knowledge,
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between or among any of Online's shareholders. The terms of the Online 1999
Stock Option Plan and Online Warrants permit the assumption of options and
warrants (as the case may be) to purchase Online Common Stock as provided in
this Agreement, without the consent or approval of the holders of such
securities, the Online shareholders, or otherwise. True and complete copies of
all agreements and instruments relating to or issued under the Online 1999 Stock
Option Plan and in connection with the Online Warrants have been provided to
Omega and such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments in any case from the form provided to Omega. All
outstanding shares of Online Common Stock and all Online Options and Online
Warrants were issued in compliance with all applicable federal and state
securities laws.
3.3 AUTHORITY. Online has all requisite corporate power and authority
to enter into this Agreement and the Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Online Option Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Online, subject only to the approval
of the Merger by Online's shareholders as contemplated by Section 7.1(a). Each
of this Agreement and the Online Option Agreement has been duly executed and
delivered by Online and constitutes the valid and binding obligation of Online,
enforceable against Online in accordance with its terms, except as such
enforcement may be limited by (i) the effect of bankruptcy, insolvency,
reorganization, receivership, conservatorship, arrangement, moratorium or other
laws affecting or relating to the rights of creditors generally, or (ii) the
rules governing the availability of specific performance, injunctive relief or
other equitable remedies and general principles of equity, regardless of whether
considered in a proceeding in equity or at law. The execution and delivery of
this Agreement and the Online Option Agreement by Online does not, and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (i)
any provision of the certificate or articles of incorporation, bylaws, or other
charter or organizational documents, each as amended, of Online or any of its
subsidiaries, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Online
or any of its subsidiaries or any of their properties or assets. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission, SRO or other Governmental
Entity is required by or with respect to Online or any of its subsidiaries in
connection with the execution and delivery of this Agreement or the Online
Option Agreement, the performance of Online's obligations hereunder or
thereunder or the consummation of the transactions contemplated hereby or
thereby, except for (i) the filing of the Plan of Merger as provided in Section
1.2, (ii) the filing with the SEC and the NASD of the Joint Proxy
Statement/Prospectus relating to the Online Shareholders Meeting, (iii) such
notices, applications, consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal or state securities laws (including, without limitation, under the
Securities Act and the Exchange Act) in connection with the Merger, (iv) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Online and
would not prevent, or materially alter or
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delay, any of the transactions contemplated by this Agreement or the Omega
Option Agreement. Online is not aware of any reason why the approvals of all
Governmental Entities necessary to permit consummation of the Merger or the
other transactions contemplated by this Agreement will not be received without
the imposition of a condition or requirement that would have a Material Adverse
Effect on Online.
3.4 ONLINE SEC DOCUMENTS; ONLINE FINANCIAL STATEMENTS. Online has
furnished or made available (including via EDGAR) to Omega a true and complete
copy of each statement, report, registration statement (with the prospectus in
the form filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement and other filings filed with the SEC by Online since the date of
initial filing of Online's registration statement relating to its initial public
offering, and, prior to the Effective Time, Online will have furnished Omega
with true and complete copies of any additional documents filed with the SEC by
Online prior to the Effective Time (collectively, the "Online SEC Documents").
In addition, Online has made available to Omega all exhibits to the Online SEC
Documents filed prior to the date hereof, and will promptly make available to
Omega all exhibits to any additional Online SEC Documents filed prior to the
Effective Time. All documents required to be filed as exhibits to the Online SEC
Documents have been so filed, and all material contracts so filed as exhibits
are in full force and effect, except those which have expired in accordance with
their terms, and neither Online nor any of its subsidiaries is in material
default thereunder. As of their respective filing dates, the Online SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the Online SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a subsequently filed Online SEC Document. The
financial statements of Online, including the notes thereto, included in the
Online SEC Documents (the "Online Financial Statements") were complete and
correct in all material respects as of their respective dates, complied as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-QSB, as permitted by Form 10-QSB of the SEC or except to the
extent corrected by a subsequently filed Online SEC Document filed prior to the
date hereof). The Online Financial Statements fairly present the consolidated
financial condition and operating results of Online and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments).
3.5 ABSENCE OF CERTAIN CHANGES. Since January 31, 1999 (the "Online
Balance Sheet Date"), Online has conducted its business in the ordinary course
consistent with past practice and there has not occurred except as otherwise
disclosed in the Online SEC Documents: (i) any change, event or condition
(whether or not covered by insurance) that has resulted in, or would reasonably
be expected to result in, a Material Adverse Effect on Online; (ii) any
acquisition, sale or transfer of any material asset of Online or any of its
subsidiaries other than in the ordinary course of business
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and consistent with past practice; (iii) any change in accounting methods or
practices (including any change in depreciation or amortization policies or
rates) by Online or any revaluation by Online of any of its or any of its
subsidiaries' assets; (iv) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of Online, or any
direct or indirect redemption, purchase or other acquisition by Online of any of
its shares of capital stock; (v) any material contract entered into by Online or
any of its subsidiaries, other than in the ordinary course of business and as
provided to Omega, or any material amendment or termination of, or material
default under, any material contract to which Online or any of its subsidiaries
is a party or by which it is bound; (vi) any amendment or change to the Articles
of Incorporation or Bylaws of Online; (vii) any material increase in or material
modification of the compensation or benefits payable or to become payable by
Online to any of its directors, officers or employees except in the case of
employees (other than officers) increases in the ordinary course of business
consistent with past practices; (viii) any material change in the interest rate
risk management and hedging policies, procedures or practices of Online or any
of its subsidiaries, or any failure to comply with such policies, procedures and
practices; or (ix) any negotiation or agreement by Online or any of its
subsidiaries to do any of the things described in the preceding clauses (i)
through (viii) (other than negotiations with Omega and its representatives
regarding the transactions contemplated by this Agreement).
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. None of Online or any of its
subsidiaries has any material obligations or liabilities of any nature (matured
or unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the balance sheet of Online and subsidiaries included in
Online's Quarterly Report on Form 10-QSB for the fiscal quarter ended November
30, 1999 (the "Online Balance Sheet"), (ii) those incurred in the ordinary
course of business consistent with past practice since the Online Balance Sheet
Date and which have not had and are not reasonably likely to have a Material
Adverse Effect on Online, and (iii) those incurred in connection with the
execution of this Agreement.
3.7 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration, inquiry, examination, inspection or
investigation pending by or before any Governmental Entity, agency, court or
tribunal, foreign or domestic or, to the knowledge of Online or any of its
subsidiaries, threatened against Online or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, would
reasonably be expected to prevent, enjoin, alter or materially delay any of the
transactions contemplated hereby or would reasonably be expected to have a
Material Adverse Effect on Online. There is no judgment, decree or order against
Online or any of its subsidiaries, or, to the knowledge of Online and its
subsidiaries, any of their respective directors or officers (in their capacities
as such), that, individually or in the aggregate, would reasonably be expected
to prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement or would reasonably be expected to have a
Material Adverse Effect on Online.
3.8 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Online or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any current or future business
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practice of Online or any of its subsidiaries, any acquisition of property by
Online or any of its subsidiaries or the conduct of business by Online or any of
its subsidiaries as currently conducted or as proposed to be conducted by Online
or any of its subsidiaries.
3.9 COMPLIANCE WITH LAWS. Each of Online and its subsidiaries has
complied in all material respects with all applicable federal, state, local,
self-regulatory and foreign laws, statutes, ordinances, rules and regulations,
and is not in violation in any material respect of, and has not received any
notices of material violation with respect to, its respective certificate or
articles of incorporation or bylaws or other charter or organizational
documents, or any federal, state, local, self-regulatory or foreign statute,
law, ordinance, rule or regulation applicable to the conduct of its business or
the ownership or operation of its business.
3.10 TITLE TO PROPERTY. Online and its subsidiaries have good, valid
and marketable title to all of their respective properties, interests in
properties and assets, real and personal, reflected in the Online Balance Sheet
or acquired after the Online Balance Sheet Date (except properties, interests in
properties and assets sold or otherwise disposed of since the Online Balance
Sheet Date in the ordinary course of business), or in the case of leased
properties and assets, valid leasehold interests in, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties and (iii) liens securing debt which is reflected on the Online
Balance Sheet or in any Online SEC Document filed subsequent to the Online
Balance Sheet Date. The plants, property and equipment of Online and its
subsidiaries that are used in the operations of their businesses are in
generally good operating condition and repair. All properties used in the
operations of Online and its subsidiaries are reflected in the Online Balance
Sheet to the extent generally accepted accounting principles require the same to
be reflected. SCHEDULE 3.10 of the Online Disclosure Schedule identifies each
parcel of real property owned or leased by Online or any of its subsidiaries.
3.11 INTELLECTUAL PROPERTY.
(a) Online and its subsidiaries are the sole and exclusive owners
of, or are licensed or otherwise possess legally enforceable and unencumbered
rights to use, all patents, trademarks, trade names, service marks, domain
names, database rights, copyrights, and any applications therefor, maskworks,
net lists, schematics, technology, know-how, trade secrets, inventory, ideas,
algorithms, processes, computer software programs or applications (in both
source code and object code form), and tangible or intangible proprietary
information or material ("Online Intellectual Property") that are used in and
are material to the business of Online and its subsidiaries as currently
conducted or as proposed to be conducted by Online and its subsidiaries. Online
has not (i) licensed any Online Intellectual Property in source code form to any
party or (ii) entered into any exclusive agreements relating to Online
Intellectual Property.
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(b) SCHEDULE 3.11 of the Online Disclosure Schedule lists (i) all
patents and patent applications and all registered and unregistered trademarks,
trade names and service marks, registered and unregistered copyrights, and
maskworks included in Online Intellectual Property, including the jurisdictions
in which each such Intellectual Property right has been issued or registered or
in which any application for such issuance and registration has been filed, (ii)
all licenses, sublicenses and other agreements as to which Online is a party and
pursuant to which any person is authorized to use Online Intellectual Property,
and (iii) all licenses, sublicenses and other agreements as to which Online or
any of its subsidiaries is a party and pursuant to which Online is authorized to
use any third party patents, trademarks or copyrights, including software or
other intellectual property ("Online Third Party Intellectual Property Rights"),
which is incorporated in, is, or forms a part of any product or service of
Online or any of its subsidiaries or which is otherwise used by Online or any of
its subsidiaries (excluding commercially available, off-the-shelf software). No
material royalties or other continuing payment obligations are or will be due in
respect of Online Third Party Intellectual Property Rights, except as disclosed
in the Online SEC Documents.
(c) To the knowledge of Online, there is no unauthorized use,
improper disclosure, infringement or misappropriation of any Online Intellectual
Property rights of Online or any of its subsidiaries, or any Online Intellectual
Property right of any third party to the extent licensed by or through Online or
any of its subsidiaries, by any third party, including any employee or former
employee of Online or any of its subsidiaries. Neither Online nor any of its
subsidiaries has entered into any agreement to indemnify any other person
against any charge of unauthorized use, improper disclosure, misappropriation or
infringement of any Online Intellectual Property.
(d) None of Online or its subsidiaries is, nor will any of them be
as a result of the execution and delivery of this Agreement or the performance
of its obligations under this Agreement, in breach of or cause a right to
terminate any license, sublicense or other agreement relating to any Online
Intellectual Property or Online Third Party Intellectual Property Rights which
would have a Material Adverse Effect on Online.
(e) All patents, registered trademarks, service marks and
copyrights held by Online and its subsidiaries are valid and subsisting. Neither
Online nor any of its subsidiaries (i) has been charged in any suit, action or
proceeding with any infringement, violation, misappropriation, improper
disclosure or unauthorized use of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party or a breach of any license or other agreement involving Online
Intellectual Property nor has a claim been made with respect thereto or (ii) has
brought any action, suit or proceeding for infringement, violation,
misappropriation, improper disclosure or unauthorized use of Online Intellectual
Property or breach of any license or agreement involving Online Intellectual
Property against any third party. To the knowledge of Online, neither the
manufacturing, use, marketing, licensing or sale of the products or services of
Online or any of its subsidiaries constitutes an infringement, violation,
misappropriation, unauthorized use or improper disclosure in any material
respect of any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party.
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(f) Online has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Online Intellectual Property of the rights to such contributions that Online
does not already own by operation of law.
(g) Online has taken reasonable steps consistent with prevailing
industry practice to protect and preserve the confidentiality of all Online
Intellectual Property not otherwise protected by patents, patent applications or
copyright ("Online Confidential Information"). All use, disclosure or
appropriation of Online Confidential Information owned by Online or any of its
subsidiaries by or to a third party has been pursuant to the terms of a written
agreement between Online or its subsidiary and such third party. All use,
disclosure or appropriation by Online and its subsidiaries of Online
Confidential Information not owned by Online or any such subsidiary has been
pursuant to the terms of a written agreement between Online or its subsidiary
and the owner of such Online Confidential Information, or is otherwise lawful.
3.12 ENVIRONMENTAL MATTERS.
(a) For purposes of this Section 3.12 only, the following terms
shall be defined as follows:
(i) For purposes of this Section 3.12 only, "Property" shall
mean all real property leased or owned by Online or its subsidiaries either
currently or in the past.
(ii) For purposes of this Section 3.12 only, "Facilities"
shall mean all buildings and improvements on the Property of Online or its
subsidiaries.
(b) Online represents and warrants as follows: (i) to Online's
knowledge, no methylene chloride or asbestos is contained in or has been used at
or released from the Facilities; (ii) to Online's knowledge, all Hazardous
Materials have been disposed of in accordance with all Environmental and Safety
Laws; (iii) Online and its subsidiaries have received no written notice of any
noncompliance of the Facilities or its past or present operations with
Environmental and Safety Laws; (iv) to Online's knowledge, no notices,
administrative actions or suits are pending or threatened relating to a
violation of any Environmental and Safety Laws; (v) to Online's knowledge,
neither Online nor any of its subsidiaries are a potentially responsible party
under CERCLA, or state analog statute, arising out of events occurring prior to
the Effective Time; (vi) to Online's knowledge, there have not been in the past,
and are not now, any Hazardous Materials on, under or migrating to or from the
Facilities or any Property; (vii) to Online's knowledge, there have not been in
the past, and are not now, any underground tanks or underground improvements at,
on or under any Property including without limitation, treatment or storage
tanks, sumps, or water, gas or oil wells; (viii) to Online's knowledge, there
are no PCBs deposited, stored, disposed of or located on the Property or
Facilities or any equipment on the Property containing PCBs at levels in excess
of 50 parts per million; (ix) to Online's knowledge, there is no formaldehyde on
the Property or in the Facilities, nor any insulating material containing urea
formaldehyde in the Facilities; (x) Online's and its subsidiaries' uses of and
activities in the Facilities and Property have at all times complied in all
material respects with all Environmental and Safety Laws; and (xi) Online and
its subsidiaries have
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all the permits and licenses required to be issued under Environmental and
Safety Laws and are in compliance in all material respects with the terms and
conditions of those permits.
3.13 TAXES. Online and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax (as defined below) purposes of
which Online or any of its subsidiaries is or has been a member have properly
completed and timely filed all Tax Returns required to be filed by them and have
paid all Taxes shown thereon to be due, other than any Taxes for which adequate
reserves under generally accepted accounting principles have been recorded in
the Online Financial Statements. Online has provided adequate accruals in
accordance with generally accepted accounting principles in its financial
statements for any Taxes that have not been paid, whether or not shown as being
due on any Tax Returns. Online has no material liability for unpaid Taxes
accruing after the date of the Online Balance Sheet other than Taxes arising in
the ordinary course of its business. Except as disclosed in the Online SEC
Documents, there is (i) no material claim for Taxes that is a lien against the
property of Online or any of its subsidiaries or is being asserted against
Online or any of its subsidiaries other than liens for Taxes not yet due and
payable, (ii) Online has not been notified that any audit of any Tax Return of
Online or any of its subsidiaries is being conducted by a Tax authority, (iii)
no extension of the statute of limitations on the assessment of any Taxes
granted by Online or any of its subsidiaries is currently in effect and (iv)
there is no agreement, contract or arrangement to which Online or any of its
subsidiaries is a party that may result in the payment of any amount that would
not be deductible by reason of Sections 280G, 162 or 404 of the Code. There has
been no change in ownership of Online or any of its subsidiaries that has caused
the utilization of any losses of such entities to be limited pursuant to Section
382 of the Code. Online has not been and will not be required to include any
material adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions, events or accounting
methods employed prior to the Merger. Neither Online nor any of its subsidiaries
has filed or will file any consent to have the provisions of paragraph 341(f)(2)
of the Code (or comparable provisions of any state Tax laws) apply to Online or
any of its subsidiaries. Neither Online nor any of its subsidiaries is a party
to any Tax sharing or Tax allocation agreement nor does Online or any of its
subsidiaries owe any amount under any such agreement. Neither Online nor any of
its subsidiaries has filed any disclosures under Section 6662 or comparable
provisions of state, local or foreign law to prevent the imposition of penalties
with respect to any Tax reporting position taken on any Tax Return. Neither
Online nor any of its subsidiaries has ever been a member of a consolidated,
combined or unitary group of which Online was not the ultimate parent
corporation. Online and each of its subsidiaries have in their possession
receipts for any Taxes paid to foreign Tax authorities. Online and each of its
subsidiaries are in full compliance with all terms and conditions of any Tax
exemptions and the consummation of the Merger shall not have any adverse effect
on the continued validity and effectiveness of any such Tax exemptions.
3.14 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.14 of the Online Disclosure Schedule lists, with
respect to Online, any subsidiary of Online and any trade or business (whether
or not incorporated) which is treated as a single employer with Online (an
"Online ERISA Affiliate") within the meaning of Section 414(b),
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(c), (m) or (o) of the Code, (i) all material employee benefit plans (as defined
in Section 3(3) of ERISA, (ii) each loan to a non-officer employee in excess of
Fifty Thousand Dollars ($50,000), loans to officers and directors and any stock
option, stock purchase, phantom stock, stock appreciation right, supplemental
retirement, severance, sabbatical, medical, dental, vision care, disability,
employee relocation, cafeteria benefit (Code Section 125) or dependent care
(Code Section 129), life insurance or accident insurance plans, programs or
arrangements, (iii) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (iv) other fringe or
employee benefit plans, programs or arrangements that apply to senior management
of Online and that do not generally apply to all employees, and (v) any current
or former employment or executive compensation or severance agreements, written
or otherwise, are still operative and in effect for the benefit of, or relating
to, any present or former employee, consultant or director of Online (together,
the "Online Employee Plans").
(b) Online has furnished to Online a copy of each of the Online
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and any material employee communications relating
thereto) and has, with respect to each Online Employee Plan which is subject to
ERISA reporting requirements, provided copies of the Form 5500 reports filed for
the last three plan years. Any Online Employee Plan intended to be qualified
under Section 401 (a) of the Code has either obtained from the Internal Revenue
Service a favorable determination letter as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has applied to the Internal Revenue Service
for such a determination letter prior to the expiration of the requisite period
under applicable Treasury Regulations or Internal Revenue Service pronouncements
in which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination. Online has also furnished Omega
with the most recent Internal Revenue Service determination letter issued with
respect to each such Online Employee Plan, and nothing has occurred since the
issuance of each such letter which could reasonably be expected to cause the
loss of the tax-qualified status of any Online Employee Plan subject to Code
Section 401 (a). Online has also furnished Omega with all registration
statements and prospectuses prepared in connection with each Online Employee
Plan.
(c) (i) None of the Online Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Online Employee Plan,
which could reasonably be expected to have, in the aggregate, a Material Adverse
Effect; (iii) each Online Employee Plan has been administered in accordance with
its terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect, and Online and each
subsidiary or Online ERISA Affiliate have performed in all material respects all
obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no knowledge of any material
default or material violation by any other party to, any of the Online Employee
Plans; (iv) neither Online nor any subsidiary or ERISA Affiliate is subject to
any material liability or penalty under Sections 4976 through 4980 of the Code
or Title I of ERISA with respect to any of the Online Employee Plans; (v) all
material contributions
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required to be made by Online or any subsidiary or Online ERISA Affiliate to any
Online Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Online Employee
Plan for the current plan years; (vi) with respect to each Online Employee Plan,
no "reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; (vii) each Online Employee
Plan can be amended, terminated or otherwise discontinued after the Effective
Time in accordance with its terms, without liability to Newco (other than
ordinary administrative expenses typically incurred in a termination event);
(viii) all premiums required by any Online Employee Plan have been paid
thereunder or accrued on the books of Online; (ix) all outstanding indebtedness
for services performed or accrued vacation, holiday pay, earned commissions,
accrued bonuses or other benefits owned to any present or former employee,
consultant or director have been paid when due or accrued on the books of
Online; and (x) no action or failure to act with respect to any Online Employee
Plan could subject Online, Surviving Corporations or Newco or any of their
respective affiliates or any Online Employee Plan to any material tax, penalty
or other liability, for breach of fiduciary duty or otherwise, under ERISA or
any other applicable law, whether by way of indemnity or otherwise. With respect
to each Online Employee Plan subject to ERISA as either an employee pension plan
within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan
within the meaning of Section 3(l) of ERISA, Online has prepared in good faith
and timely filed all requisite governmental reports (which were true and correct
in all material respects as of the date filed) and has properly and timely filed
and distributed or posted all notices and reports to employees required to be
filed, distributed or posted with respect to each such Online Employee Plan,
except to the extent the failure to timely or properly file or comply would not,
in the aggregate, have a Material Adverse Effect on Online. No suit,
administrative proceeding, action or other litigation has been brought, or to
the knowledge of Online is threatened, against or with respect to any such
Online Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor, and, to the knowledge of Online, there are no facts that
could give rise to any material liability in the event of any such suit,
proceeding, action or other litigation. No payment or benefit which will or may
be made (either as a result of the Merger or otherwise) by Online to any
employee will be characterized as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code. Neither Online nor any Online
subsidiary or other ERISA Affiliate is a party to, or has ever been a party to,
or has made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA. Neither Online nor
any Online subsidiary or Online ERISA Affiliate currently maintain, sponsor,
participate in or contribute to, nor has it ever maintained, established,
sponsored, participated in, or contributed to, any pension plan (within the
meaning of Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
(d) With respect to each Online Employee Plan, Online and each of
its subsidiaries have complied with (i) the applicable health care continuation
and notice provisions of COBRA and the regulations (including proposed
regulations) thereunder, (ii) the applicable requirements of the Family Medical
and Leave Act of 1993 and the regulations thereunder, except to the extent that
such failure to comply would not, in the aggregate, have a Material Adverse
Effect
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and (iii) the applicable requirements of the Health Insurance Portability and
Accountability Act of 1996 and the regulations (including proposed regulations)
thereunder, except to the extent that such failure to comply would not, in the
aggregate, have a Material Adverse Effect.
(e) The consummation of the transactions contemplated by this
Agreement will not (either alone or when taken together with any additional or
subsequent events) (i) entitle any current or former employee or other service
provider of Online, any Online subsidiary or any other Online ERISA Affiliate to
severance benefits or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or service provider.
(f) There has been no amendment to, or written interpretation or
announcement (whether or not written) by Online, any Online subsidiary or other
ERISA Affiliate relating to, or change in participation or coverage under, any
Online Employee Plan which would materially increase the expense of maintaining
such Plan above the level of expense incurred with respect to that Plan for the
most recent fiscal year included in Online's financial statements.
(g) There has been no deferral of any cash or securities under the
Online Stock Option Plans.
3.15 EMPLOYEE MATTERS.
(a) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any director or employee
of Online or any of its subsidiaries, (ii) materially increase any benefits
otherwise payable by Online or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
(b) Online and each of its subsidiaries are in compliance in all
material respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and is
not engaged in any unfair labor practice. Online and each of its subsidiaries
has withheld all material amounts required by law or by agreement to be withheld
from the wages, salaries, and other payments to employees, and is not liable for
any material arrears of wages or any material taxes or any material penalty for
failure to comply with any of the foregoing. Online is not liable for any
material payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending material claims against Online or any of
its subsidiaries under any workers compensation plan or policy or for long term
disability. Neither Online nor any of its subsidiaries has any obligations under
COBRA with respect to any former employees or qualifying beneficiaries
thereunder, except for obligations that would not, individually or in the
aggregate, have a Material Adverse Effect on Online. There are no
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material controversies pending or, to the knowledge of Online, threatened
between Online or any of its subsidiaries, on the one hand, and any of their
respective employees, on the other hand, which controversies have or would
reasonably be expected to result in an action, suit, proceeding, claim,
arbitration or investigation before any agency, court or tribunal which would
have a Material Adverse Effect on Online. Neither Online nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract; nor does Online know of any activities or proceedings of any
labor union to organize any such employees. To Online's knowledge, no employees
of Online are in violation in any material respect of any term of any employment
contract, patent disclosure agreement, noncompetition agreement, or any
restrictive covenant to a former employer relating to the right of any such
employee to be employed by Online because of the nature of the business
conducted or presently proposed to be conducted by Online or to the use of trade
secrets or proprietary information of others. Except as disclosed in the Online
SEC Documents filed prior to the date of this Agreement, Online does not have
any employment agreement with any of its officers or other employees.
(c) All employees of Online or any of its subsidiaries engaged in
the business of, acting as, or performing the duties of a registered
representative, registered principal or similar registered personnel or agent
(under the definition of such terms in the rules of the NASD, The Nasdaq
National Market, any other SRO or any state which has jurisdiction over Online
or any of its subsidiaries (if applicable)) are properly registered to act in
the capacity of a registered representative, registered principal or similar
registered personnel or agent under the rules of the NASD, The Nasdaq National
Market, any other SRO or any state which has jurisdiction over Online or any of
its subsidiaries (if applicable).
3.16 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the Online
SEC Documents filed prior to the date of this Agreement, neither Online nor any
of its subsidiaries is indebted to any director, officer, employee or agent of
Online or any of its subsidiaries (except for amounts due as normal salaries and
bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to Online or any of its subsidiaries other than an employee (who is not
an officer) for nonmaterial amounts, and there have been no other transactions
of the type required to be disclosed pursuant to Items 402 and 404 of Regulation
S-K under the Securities Act and the Exchange Act.
3.17 INSURANCE. Online and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of Online and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Online and its subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds. Online has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
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3.18 REGULATORY MATTERS.
(a) Online and each of its subsidiaries have obtained each
federal, state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to which
Online or any of its subsidiaries currently operates or holds any interest in
any of its properties or (ii) that is required for the operation or conduct of
Online's or any of its subsidiaries' business or the holding of any such
interest ((i) and (ii) herein collectively called "Online Authorizations"), and
all of such Online Authorizations are in full force and effect and there are no
circumstances which indicate that any of such Online Authorizations may not be
renewed or withdrawn or amended, in whole or in part, except where the failure
to obtain or have any of such Online Authorizations could not reasonably be
expected to have a Material Adverse Effect on Online.
(b) Online and its subsidiaries have complied, and are in
compliance, in all material respects with all applicable federal, state, local
and self-regulatory laws, statutes, licensing requirements, rules, and
regulations. Each of Online and its subsidiaries has, and is in compliance in
all material respects with, all material Governmental Permits necessary to
conduct their businesses, including, but not limited to, Governmental Permits of
the SEC, the NASD, the NASD Regulation, Inc., The Nasdaq Stock Market, any state
or foreign securities or prosecutorial authority or any other Governmental
Entity required to operate their respective businesses and maintain their
respective assets. Each of Online and its subsidiaries has obtained all material
Governmental Permits of any and all Governmental Entities required for the
carrying on of its business and the maintenance of its assets and such material
Governmental Permits are in full force and effect, and there are no
circumstances of which Online is aware which indicate that any of such material
Governmental Permits may be revoked or not renewed or withdrawn or (except to an
immaterial or beneficial extent) amended, in whole or in part. SCHEDULE 3.18 to
the Online Disclosure Schedule sets forth a true and complete list of all
Governmental Permits held by Online or any of its subsidiaries or any of their
respective employees (including all registered personnel). Neither Online nor
any of its subsidiaries has received any notice from any Governmental Entity (i)
asserting that Online or any of its Subsidiaries is not in compliance in any
material respect with any of the statutes, regulations, or ordinances that such
Governmental Entity enforces or (ii) threatening to revoke cancel or not renew
any Permit or (iii) restricting or disqualifying their activities. After giving
effect to the Merger all Governmental Permits of the Online Surviving
Corporation and its subsidiaries shall continue to be valid and in full force
and effect to the same extent as they presently are for Online and its
subsidiaries. There is no order issued, investigation or proceeding pending or
(to Online's knowledge) threatened, or notice served which remains outstanding
or unresolved, with respect to any material violation of any law, statute,
ordinance, order, writ, decree, rule, or regulation issued by any Governmental
Entity applicable to either Online or any of its subsidiaries or any of their
respective directors, officers, employees or agents.
(c) Neither Online nor any of its subsidiaries is a party or
subject to, any agreement, consent decree or order, or other understanding or
arrangement with, or any directive of any Governmental Entity which imposes any
material restrictions on, or otherwise affects in any material respect, the
conduct of the business of Online or any of its subsidiaries. SCHEDULE 3.18 of
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the Online Disclosure Schedule sets forth all compliance or enforcement
proceedings or, to the knowledge of Online, examinations, inspections,
investigations or inquiries convened, and all fines, sanctions and other
measures imposed by any Governmental Entity or body against, concerning or
relating to Online, any of its subsidiaries, any of their respective predecessor
entities, or any of their respective directors, officers, employees or agents.
(d) Each of Online and its subsidiaries, to the extent required to
so register (the "Online Broker-Dealers"), is duly registered as a broker-dealer
with the SEC and under all applicable state, federal, foreign or related laws
and is a member of the NASD and a member of SIPC and the Municipal Securities
Rulemaking Board. Online has delivered or made available to Omega a true and
complete copy of Online's currently effective Form BD as filed with the NASD, a
copy of any restriction agreement, its NASD membership agreement, and all
Government Permits, including, all currently effective SEC, NASD, and state
registrations. Online has also made available to Omega all prior Form BD's filed
with the NASD and any state, as well as any state registration filings submitted
on state specific forms. Online has also made available to Omega all
correspondence between Online and any Governmental Entity, including the SEC,
NASD and all applicable state regulators, within the last five years, and will
provide Omega such forms and reports as are filed from and after the date hereof
and prior to the Closing. None of the Online Broker-Dealers has exceeded in any
material respect the business activities enumerated in any applicable
restriction or membership agreements or other limitations imposed in connection
with its registrations, forms (including Form BDs) and reports filed with the
NASD or any other Governmental Entity. The information contained in such
registrations, forms and reports was or will be true and complete in all
material respects as of the date hereof and, except as indicated on a subsequent
registration form or report filed before the Closing, will continue to be true
and complete in all material respects. Each such registration is in full force
and effect, except where the failure to be so would not have a Material Adverse
Effect on Online.
(e) None of Online or any of its subsidiaries is required to be
registered as an investment adviser under the Advisers Act or under any state,
federal and foreign investment adviser or related laws.
(f) None of Online, its subsidiaries or their respective
operations are required to be registered as an investment company under the
Investment Company Act of 1940, as amended.
(g) Schedule 3.18(g) of the Online Disclosure Schedule sets forth
a list of all bank, brokerage and proprietary trading accounts maintained by or
on behalf of Online, and the persons authorized as signatories or to conduct
transactions relating thereto.
3.19 MATERIAL CONTRACTS.
(a) Except for the contracts included as an exhibit to the Online
SEC Documents or in connection with this transaction, neither Online nor any of
its subsidiaries is a party to or bound by any of the following (collectively
and including the contracts which are included as exhibits to the Online SEC
Documents, the "Online Material Contracts"):
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(i) any contract or agreement for the acquisition or sale of
securities or any material portion of the assets or business of or to any other
person or entity whether completed or pending other than pursuant to Online
Options or Online Warrants;
(ii) any contract or agreement for the purchase of materials,
supplies, equipment, services or data involving in the case of any such contract
or agreement more than Fifty Thousand Dollars ($50,000) over the life of the
contract or agreement;
(iii) any contract, agreement or instrument that expires or
may be renewed at the option of any person other than Online or its subsidiaries
so as to expire more than six months after the date of this Agreement, or which
is not terminable by Online or a subsidiary (as applicable) on sixty or fewer
days' notice at any time without penalty, and involves the receipt or payment by
Online or any of its subsidiaries of more than Fifty Thousand Dollars ($50,000)
during any twelve month period;
(iv) any indenture, mortgage, note, loan agreement,
installment obligation or other contract, agreement or instrument for the
borrowing of money, any currency exchange, commodities or other hedging
arrangement, any letter of credit or any leasing transaction of the type
required to be capitalized in accordance with generally accepted accounting
principles;
(v) any contract or agreement for capital expenditures in
excess of Fifty Thousand Dollars ($50,000) individually or in the aggregate with
other similar contracts or agreements;
(vi) any contract or agreement limiting the freedom of Online
or any of its subsidiaries or (to the extent known to Online) any of its
officers or key employees to engage in any line of business or to compete with
any person (as that term is defined in the Exchange Act) or any confidentiality,
secrecy or non-disclosure contract or agreement other than an ancillary
provision included as part of a contract or agreement entered into by Online or
any of its subsidiaries in the ordinary course of business;
(vii) any contract or agreement involving payments during any
twelve- month period of Fifty Thousand Dollars ($50,000) or more, pursuant to
which Online or any of its subsidiaries is a lessor or lessee of any real
property, machinery, equipment, motor vehicles, office furniture, fixtures or
other personal property;
(viii) any material contract or agreement with any person with
whom Online or any of its subsidiaries does not deal at arm's length within the
meaning of the Code;
(ix) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person;
(x) any material consulting agreement;
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(xi) any distribution, reseller, dealer, agency, franchise,
advertising, revenue sharing, marketing or similar agreement;
(xii) any clearing agency, investment banking, placement,
broker or similar agreement;
(xiii) any agreement with any Governmental Entity (including
any SRO);
(xiv) any agreement to provide brokerage services or directly
or indirectly participate in brokerage activities, commissions or fees in any
manner (including any forms of customer brokerage agreements);
(xv) any data redistribution or other agreement with any
vendor of financial market data or relating in any manner to financial market
data;
(xvi) any product and/or service warranties, price protection
or return agreement or written policy or any similar written undertaking by or
for which Online or any of its subsidiaries remains responsible to perform (a
form of any of the foregoing will be sufficient);
(xvii) any material agreement which would be terminable other
than by Online or its subsidiaries or any agreement that provides for the
payment of money, accelerates or increases benefits, vesting or compensation or
entitles any person to take actions or receive benefits or otherwise triggers
obligations as a result of the Merger or consummation of any of the transactions
contemplated by this Agreement not otherwise disclosed in the Online Disclosure
Schedule; or
(xviii) any other agreement which is material to the
operations of Online's or any of its subsidiaries' businesses or operations or
which may have a material affect on Online's assets, properties or the Merger.
(b) Each of Online and its subsidiaries has performed all of the
material obligations required to be performed by it and is entitled to all
accrued benefits under, and is not in material default, nor to Online's
knowledge has a claim been that it is in material default in respect of, each
Online Material Contract to which it is a party or by which it is bound. Each of
the Online Material Contracts is in full force and effect and there exists no
material default or event of default or event, occurrence, condition or act,
with respect to Online or any of its subsidiaries or, to Online's knowledge,
with respect to any other contracting party, which, with the giving of notice,
the lapse of time or the happening of any other event or condition, would become
a material default or event of default under any Online Material Contract. There
are no unwritten obligations or agreements or course of dealings contrary in any
material respect to the specific terms and provisions of any Material Contract.
True, correct and complete copies of all Online Material Contracts have been
delivered to Omega or filed as an exhibit to the Online SEC Documents.
3.20 ONLINE OPTIONS. Since January 31, 1999, Online has not granted any
options, stock appreciation rights or other rights to acquire securities other
than grants of stock options to new
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employees in accordance with the ordinary course of its business consistent with
past practices, or accelerated, amended or changed the period of exercisability
or vesting of options or other rights granted, under Online's 1999 Stock Option
Plan or authorized cash payments in exchange for any options or other rights
granted under such plan.
3.21 REGISTRATION STATEMENT, JOINT PROXY STATEMENT/PROSPECTUS. The
information supplied by Online for inclusion in the Registration Statement shall
not at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The information
supplied by Online for inclusion in the Joint Proxy Statement/Prospectus shall
not, on the date the Joint Proxy Statement/Prospectus is first mailed to either
the shareholders of Omega or Online, at the time of either of the Shareholders
Meetings or at the Effective Time, contain any statement which, at such time, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they are made, not false or misleading; or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for either of the
Shareholders Meetings which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Online
which should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, Online shall promptly inform
Omega of such event or information. Notwithstanding the foregoing, Online makes
no representation, warranty or covenant with respect to any information supplied
by Omega, Newco or the Merger Subs which is contained in any of the foregoing
documents.
3.22 OPINION OF FINANCIAL ADVISOR. Online has been advised by its
financial advisor, Raymond James & Associates, Inc. ("Raymond James") that in
such advisor's opinion, as of the date hereof, the consideration to be received
by the shareholders of Online in the Merger is fair, from a financial point of
view, to the shareholders of Online. A copy of the written opinion to the
foregoing effect of Raymond James dated as of the date of the Agreement has been
delivered to Omega or will be delivered to Omega within five business days from
the date of this Agreement.
3.23 ONLINE AFFILIATE AGREEMENTS. Each Affiliate (as defined below) of
Online has entered into a Online Affiliate Agreement in the form attached hereto
as Exhibit C (the "Online Affiliate Agreements"). Online shall use its best
efforts to obtain such a written agreement from any other person as soon as
practicable after the date on which such person becomes as an Affiliate of
Online prior to the Effective Time. For purposes of this Agreement, persons
and/or entities deemed affiliates of an entity within the meaning of Rule 144 of
the rules and regulations of the SEC promulgated under the Securities Act for
purposes of Accounting Series, Releases 130 and 135, as amended, of the SEC are
referred to as "Affiliates."
3.24 STATE TAKEOVER STATUTES. The Board of Directors of Online has
taken all actions so that the restrictions contained in Section 607.0902 of the
Florida Law applicable to "control shares" (as defined in such Section 607.0902)
will not apply to the execution, delivery or performance of this
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Agreement, the Shareholder Agreements or the Option Agreement or the
consummation of the Merger or the other transactions contemplated by this
Agreement, the Online Shareholder Agreements or the Online Option Agreement. No
other state takeover statute is applicable to the Merger, this Agreement, the
Online Option Agreement, the Online Shareholder Agreements or the transactions
contemplated hereby or thereby.
3.25 TAX AND ACCOUNTING TREATMENT. Neither Online nor any of its
directors or officers has taken any action that would interfere with Newco's,
the Surviving Corporations', Omega's or Online's ability to account for the
Merger as a pooling of interests or would prevent the Merger from constituting a
transaction qualifying as a reorganization within the meaning of Section 368(a)
of the Code. Neither Online nor, to Online's knowledge, any of its affiliates or
agents is aware of any agreement, plan or other circumstance that would
interfere with Newco's, the Surviving Corporations', Omega's or Online's ability
to account for the Merger as a pooling of interests or prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
3.26 BROKERS' AND FINDERS' FEES. Online has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, other
than under its engagement letter with Raymond James.
3.27 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Online herein or in any schedule hereto, including the Online
Disclosure Schedule, or certificate furnished by Online pursuant to this
Agreement, or the Online SEC Documents, when all such documents are read
together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWCO
Except as disclosed in the document of even date herewith delivered by
Newco to Omega and Online prior to the execution and delivery of this Agreement
and referring to the representations and warranties in this Agreement (the
"Newco Disclosure Schedule'), any exception so disclosed in the Newco Disclosure
Schedule to specifically identify the Section, Subsection or clause of this
Agreement to which such exception relates, Newco represents and warrants to
Omega and Online as follows:
4.1 ORGANIZATION, STANDING AND POWER. Each of Newco and Merger Subs are
corporations duly organized, validly existing and in good standing under the
laws of the State of Florida. Newco and Merger Subs have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby and thereby.
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4.2 CAPITAL STRUCTURE. The authorized capital stock of Newco consists
of 200,000,000 shares of Newco Common Stock and 25,000,000 shares of Newco
preferred stock, par value $.01 per share, of which there were issued and
outstanding as of the close of business on January 18, 2000, 100 shares of Newco
Common Stock. There are no other outstanding shares of capital stock or voting
securities and no outstanding commitments to issue any shares of capital stock
or voting securities after January 18, 2000, other than as contemplated pursuant
to this Agreement. All outstanding shares of Newco Common Stock are duly
authorized, validly issued, fully paid and non- assessable and are free and
clear of any liens or encumbrances other than any liens or encumbrances created
by or imposed upon the holders thereof, and are not subject to preemptive rights
or rights of first refusal created by statute, the Certificate of Incorporation
or Bylaws, each as amended, of Newco or any agreement to which Newco is a party
or by which it is bound. Except for (i) the rights created pursuant to this
Agreement, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Newco is a party or by which it is bound
obligating Newco to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of capital stock of
Newco or obligating Newco to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. There are no contracts, commitments or
agreements relating to voting, purchase or sale of Newco's capital stock (i)
between or among Newco and any of its stockholders and (ii) to Newco's
knowledge, between or among any of Newco's stockholders. All outstanding shares
of Newco Common Stock were issued in compliance with all applicable federal and
state securities laws.
4.3 AUTHORITY. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Newco and Merger
Subs. This Agreement has been duly executed and delivered by Newco and Merger
Subs, and constitutes the valid and binding obligations of Newco and Merger
Subs, enforceable against them in accordance with its terms, except as such
enforcement may be limited by (i) the effect of bankruptcy, insolvency,
reorganization, receivership, conservatorship, arrangement, moratorium or other
laws affecting or relating to the rights of creditors generally, or (ii) the
rules governing the availability of specific performance, injunctive relief or
other equitable remedies and general principles of equity, regardless of whether
considered in a proceeding in equity or at law. The execution and delivery of
this Agreement do not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a benefit
under (i) any provision of the Articles of Incorporation or Bylaws of Newco or
Merger Subs, as amended, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Newco or Merger Subs or their respective properties or assets. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, is required by or with respect to Newco or
Merger Subs in connection with the execution and delivery of this Agreement by
Newco and Merger Subs or the consummation by Newco and Merger Subs of the
transactions contemplated hereby, except for (i) the filing of the Plan of
Merger as provided in Section 1.2 hereof, (ii) the filing with the SEC and the
NASD of the Registration Statement and the
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effectiveness thereof, (iii) the filing of a Form 8-K with the SEC and the NASD,
(iv) any filings, applications and consents as may be required under applicable
federal, SRO or state securities laws or the securities laws of any foreign
country, (v) the filing of a registration statement on Form 8-A ("Form 8-A") to
register the Newco Common Stock under the Exchange Act, (vi) the filing with The
Nasdaq National Market of a listing application and agreement with respect to,
and The Nasdaq National Market's acceptance for listing of, the shares of Newco
Common Stock issuable upon conversion of the Omega Common Stock and the Online
Common Stock in the Merger and upon exercise of the options under the Omega
Stock Option Plans and Online 1999 Stock Option Plan, the WOW Options and the
Online Warrants assumed by Newco, (vii) the filing of a registration statement
on Form S-8 (or other applicable form) with the SEC covering the shares of Newco
Common Stock issuable pursuant to outstanding options under the Omega Stock
Option Plans, the Online 1999 Stock Option Plan and the WOW Options assumed by
Newco, and (viii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Newco and would not prevent or materially alter or delay any of the
transactions contemplated by this Agreement.
4.4 ABSENCE OF UNDISCLOSED LIABILITIES. Newco has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than those incurred or to be incurred in connection with the
Merger and the transactions related thereto and/or contemplated pursuant hereto
and which have not had and are not reasonably likely to have a Material Adverse
Effect on Newco.
4.5 LITIGATION. There is no judgment, decree or order against Newco or
any of its subsidiaries or, to the knowledge of Newco, any of their respective
directors or officers (in their capacities as such) that could prevent, enjoin,
alter or materially delay any of the transactions contemplated by this
Agreement.
4.6 REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS. The
information supplied by Newco for inclusion in the Registration Statement (or
such other successor form as shall be appropriate) shall not at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The information supplied by Newco for inclusion
in the Joint Proxy Statement/Prospectus shall not, on the date the Joint Proxy
Statement/Prospectus is first mailed to either of Omega's or Online's
shareholders, at the times of the Shareholders Meetings and at the Effective
Time, contain any statement which, at such time, is false or misleading with
respect to any material fact, or omits to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Online Shareholders Meetings which has
become false or misleading. If at any time prior to the Effective Time any event
or information should be discovered by Newco which should be set forth in an
amendment to the Registration Statement or in a supplement to the Joint Proxy
Statement/ Prospectus, Newco will promptly inform Omega and Online of such event
or information.
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Notwithstanding the foregoing, neither Newco nor Merger Subs makes any
representation, warranty or covenant with respect to any information supplied by
or on behalf of Online or any of its affiliates which is contained in any of the
foregoing documents.
4.7 TAX TREATMENT. Neither Newco nor any of its directors or officers
has taken any action that would prevent the Merger from constituting a
transaction qualifying as a reorganization within the meaning of Section 368(a)
of the Code. Neither Newco nor, to Newco's knowledge, any of its affiliates or
agents is aware of any agreement, plan or other circumstance that would prevent
the Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
4.8 BROKER'S AND FINDERS' FEES. Newco has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby other than
those incurred by Omega and Online.
4.9 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by Newco and Merger Subs herein or in any Schedule hereto, including the
Newco Disclosure Schedule, or certificate furnished by Newco pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain at the Effective Time any untrue statement of a material fact,
or omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 CONDUCT OF BUSINESSES OF OMEGA AND ONLINE. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, except as expressly contemplated by
this Agreement, each of Omega, Online and Newco shall not do, cause or permit
any of the following, or allow, cause or permit any of its subsidiaries to do,
cause or permit any of the following, without the prior written consent of the
others:
(a) CHARTER DOCUMENTS. Cause or permit any amendment,
modification, alteration or rescission of its certificate or articles of
incorporation, bylaws or other charter or organizational documents;
(b) DIVIDENDS: CHANGES IN CAPITAL STOCK. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock or split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries; or
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(c) OPTIONS. Grant any options, stock appreciation rights or other
rights to acquire securities other than stock options to its employees and
consultants in accordance with the ordinary course of its business consistent
with past practices (meaning, with respect to Omega, grants of stock options to
its employees (other than executive officers) and to new employees consistent
with past practices not exceeding in the aggregate from the date hereof until
the Effective Time stock options to purchase 200,000 shares of Omega Common
Stock and, with respect to Online, grants of stock options to its employees
(other than executive officers) and new employees consistent with past practices
not exceeding in the aggregate from the date hereof until the Effective Time
stock options to purchase 50,000 shares of Online Common Stock), or accelerate,
amend or change the period of exercisability or vesting of options or other
rights granted under its stock plans or authorize cash payments in exchange for
any options or other rights granted under any of such plans.
5.2 ONLINE CONDUCT OF BUSINESS. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Online agrees (except to the extent expressly otherwise
permitted or required by this Agreement or as consented to in writing by Omega),
to carry on its business in the ordinary course in substantially the same manner
as heretofore conducted, to pay debts and Taxes when due subject to good faith
disputes over such debts or Taxes, to pay or perform other obligations when due,
and to use all reasonable best efforts consistent with past practice and
policies to preserve intact its present business organizations, keep available
the services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, to the end that its goodwill and
ongoing businesses shall be unimpaired at the Effective Time. Online agrees to
promptly notify Omega of any event or occurrence not in the ordinary course of
its business, and of any event which could have a Material Adverse Effect on it
or its subsidiaries. Without limiting the generality of the foregoing, Online
shall not, unless consented to in writing, in advance, by Omega: enter into,
amend, violate or waive any material term of any Material Contract or
commitment; issue or propose to issue any shares of its capital stock; acquire
or dispose of, or obtain or grant licenses for, any intellectual property
rights; sell, lease, license, dispose of or acquire any material asset; incur
any indebtedness for borrowed money or assume, guarantee, cancel, release, pay,
discharge, assign or modify any material obligation or amount of indebtedness;
make any loan; enter into, modify or cancel any real property, operating or
capital lease (or waive any material right or obligation thereunder); make any
material capital expenditure, modify any insurance provided by existing
insurance policies; create, adopt, amend, cancel or implement any employee plans
or pay any special bonus or remuneration to any officer or employee, or increase
wages or benefits generally or to any officer or key employee, or agree to or
pay any severance payments to officers or key employees, or accelerate the
vesting of any stock option or any other benefits of any employee, consultant or
other person, commence any action, suit or proceeding (legal or quasi-legal);
acquire or agree to acquire directly or indirectly by merging or consolidating
with, or by purchase or otherwise, a substantial portion of the assets of, or by
any other manner (including without limitation, a purchase of securities), any
business or any corporation, partnership, association or other business
organization or division thereof; enter into or agree to enter into any
strategic alliance with any business or part thereof; make or change any
material election in respect of Taxes (including accounting methods or Tax
Return amendments) or enter into any settlement or closing agreement regarding
Taxes; revalue or restate any of its assets, liabilities, revenues, expenses or
cash flows;
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change any of its accounting methods, procedures, policies or practices; or
change or fail to renew any existing domain names.
5.3 OMEGA CONDUCT OF BUSINESS. Omega shall not, unless consented to in
writing, in advance, by Online, acquire or agree to acquire by merging or
consolidating with or by purchasing a substantial portion of the assets of or by
any other manner (including, without limitation, a strategic alliance (which
shall not include business-to-business marketing relationships such as the ones
that exist with Wall Street Access)) any business or any corporation
partnership, association or other business organization operating as a
broker-dealer.
5.4 NO SOLICITATION. For purposes of this Section, the term "Company"
shall apply to either Omega or Online and "the other such party" or words of
similar import shall refer to either Omega or Online as the context so dictates.
Company and its subsidiaries and the officers, directors, employees, agents,
representatives and advisors of Company and its subsidiaries (collectively,
Company's "Representatives") will not, directly or indirectly, (i) take any
action to solicit, initiate, encourage (including by way of furnishing
information) or take any other action designed to facilitate or agree to any
Takeover Proposal (as defined in Section 8.3(e) hereof) or (ii) subject to the
next three sentences, engage in negotiations with, or disclose any nonpublic
information relating to Company or any of it subsidiaries to, or afford access
to the properties, books or records of Company or any of its subsidiaries to,
any person that has advised Company that it may be considering making, or that
has made, a Takeover Proposal, or whose efforts to formulate a Takeover Proposal
would be assisted thereby; provided, nothing herein shall prohibit Company's
Board of Directors from taking and disclosing to Company's shareholders a
position with respect to an unsolicited tender offer pursuant to Rules 14d-9 and
14e-2 promulgated under the Exchange Act. Notwithstanding the immediately
preceding sentence, if an unsolicited Takeover Proposal shall be received by the
Board of Directors of Company, then, to the extent the Board of Directors of
Company believes in good faith (after receiving written advice from its
financial advisor) that such Takeover Proposal would, if consummated, result in
a transaction more favorable to Company's shareholders from a financial point of
view than the transaction contemplated by this Agreement (any such more
favorable Takeover Proposal being referred to in this Agreement as a "Superior
Proposal") and the Board of Directors of Company determines in good faith after
advice from outside legal counsel that it is necessary for the Board of
Directors of Company to further entertain and consider the Superior Proposal in
order to comply with its fiduciary duties to shareholders under applicable law,
Company and its Representatives may furnish information to the party, making
such Superior Proposal and engage in negotiations with such party, and such
actions shall not be considered a breach of this Section 5.4 or any other
provisions of this Agreement; provided that in each such event Company notified
the other party of such determination by the Company Board of Directors and has
delivered to the other party a true and complete copy of the Superior Proposal
(or summary of any oral proposal) received from such third party and all
documents containing or referring to non-public information of Company that are
supplied to such third party. Further, Company shall provide such non-public
information pursuant to a nondisclosure agreement at least as restrictive on
such third party as the Confidentiality Agreement (as defined in Section 6.4) is
on the other party. In addition, in the case of Online, Online shall not agree
to or endorse, and shall not permit any of its officers, directors, employees or
other representatives to agree to or endorse, any Takeover Proposal or
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withdraw its recommendation of the Merger unless the Board of Directors of
Online believes in good faith (after receiving written advice from its financial
advisors) that such action is required in order for the Board of Directors to
comply with it fiduciary duties to shareholders under applicable law, Online has
provided Omega at least five (5) business days prior notice thereof and within
such five (5) business days Online has not received a proposal from Omega
superior in value to the Superior Proposal as determined by Online's Board of
Directors acting in good faith consistent with complying with its fiduciary
duties to shareholders under applicable law, has terminated this Agreement
pursuant to Section 8.1(g) and has paid Omega all amounts payable to Omega
pursuant to and within the time period set forth in Section 8.3, and, in the
case of Omega, Omega shall not withdraw, and shall not permit any of its
officers, directors, employees or other representatives to withdraw its
recommendation of the Merger unless the Board of Directors of Omega believes in
good faith (after receiving written advice from its financial advisors) that
such action is required in order for the Board of Directors to comply with it
fiduciary duties to shareholders under applicable law, Omega has provided Online
at least five (5) business days prior notice thereof, has terminated this
Agreement pursuant to Section 8.1(f) and has paid Online all amounts payable to
Online pursuant to and within the time period set forth in Section 8.3. Company
will promptly (and in any event within 24 hours) notify the other party after
receipt of any Takeover Proposal or any notice that any person is considering
making a Takeover Proposal or any request for non-public information relating to
Company or any of its subsidiaries or for access to the properties, books or
records of Company or any of its subsidiaries by any person that has advised
Company that it may be considering making, or that has made, a Takeover
Proposal, or whose efforts to formulate a Takeover Proposal would be assisted
thereby (such notice to include the identity of such person or persons), and
will keep the other party fully informed of the status and details of any such
Takeover Proposal notice, request or any correspondence or communications
related thereto and shall provide the other party with a true and complete copy
of such Takeover Proposal notice or request or correspondence or communications
related thereto, if it is in writing, or a complete written summary thereof, if
it is not in writing. Company shall immediately cease and cause to be terminated
any discussion or negotiations with any persons conducted that may have existed
with respect to a Takeover Proposal prior to the execution of this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 REGISTRATION STATEMENT, JOINT PROXY STATEMENT/PROSPECTUS.
(a) As soon as practicable after the execution of this
Agreement, Omega and Online shall prepare and file with the SEC preliminary
proxy materials relating to the Shareholders Meetings and the vote of the
shareholders of each of Omega and Online with respect to the Merger. As soon as
practicable following receipt of SEC comments on the Joint Proxy
Statement/Prospectus, Omega and Online shall file with the SEC definitive proxy
materials relating to the Shareholders Meetings and Newco shall file with the
SEC the Registration Statement, which shall include the Joint Proxy
Statement/Prospectus as a prospectus, in connection with the registration under
the Securities Act of the shares of Newco Common Stock to be distributed to
holders of Omega
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Common Stock and Online Common Stock pursuant to the Merger. Each of Newco,
Omega and Online shall use its reasonable best efforts to have or cause the
Registration Statement to become effective (including clearing the Joint Proxy
Statement/Prospectus with the SEC) as promptly as practicable, and shall take
any and all actions required under any applicable federal or state securities
laws or blue sky laws in connection with the issuance of Newco Common Stock
pursuant to the Merger. Without limiting the generality of the foregoing, each
of Omega and Online shall (i) notify the other as promptly as practicable after
the receipt by it of any written or oral comments of the SEC on, or of any
written or oral request by the SEC or any other governmental official for
amendments or supplements to, or any other filing or supplemental or additional
information relating to the Joint Proxy Statement/Prospectus or the Registration
Statement, and shall promptly supply the other with copies of all correspondence
between it or any of its representatives, on the one hand, and the SEC or any
other governmental official, on the other hand, with respect to any of the
foregoing filings, and (ii) use all reasonable efforts, after consultation with
the other such party, to respond promptly to any comments made by the SEC with
respect to the Joint Proxy Statement/Prospectus (including each preliminary
version thereof) and the Registration Statement (including each amendment
thereof and supplement thereto). As promptly as practicable after the
Registration Statement shall have become effective, each of Omega and Online
shall mail or cause to be mailed its Joint Proxy Statement/Prospectus to its
respective shareholders.
(b) Omega and Online shall each cause the Registration Statement
and the Joint Proxy Statement Prospectus to comply in all material respects with
the Securities Act, the Exchange Act and all other applicable federal and state
securities law requirements. Each of Omega and Online shall, and shall cause its
respective representatives to, fully cooperate with the other such party and its
respective representatives in the preparation of the Joint Proxy
Statement/Prospectus and the Registration Statement, and shall provide promptly
to the other such information concerning it and its affiliates, directors,
officers and stockholders as the other may reasonably request in connection with
the preparation of the Joint Proxy Statement/Prospectus and the Registration
Statement. If at any time prior to the Effective Time Omega or Online shall
become aware of any fact, event or circumstance that is required to be set forth
in an amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, Omega or Online, as the case may be, shall promptly notify
the other of such fact, event or circumstance and the parties shall cooperate
with each other in filing with the SEC or any other governmental official, and
(in the case of a supplement to the Joint Proxy Statement/Prospectus) mailing to
shareholders of Omega or Online, as appropriate, such amendment or supplement.
(c) (i) The Joint Proxy Statement/Prospectus shall contain the
unanimous recommendation of the Board of Directors of Omega that the Omega
shareholders approve this Agreement and the Merger and the conclusion of the
Board of Directors that the terms and conditions of the Merger are advisable and
fair to, and in the best interests of, the shareholders of Omega PROVIDED that
no such recommendation need be included, and any such recommendation may be
withdrawn if previously included, if a Superior Proposal has been made and Omega
and Omega's Board of Directors withdraw or modify such recommendation in
compliance with, and otherwise have complied in all respects with, Section 5.4.
Notwithstanding anything to the contrary contained herein, Omega shall not
include in the Joint Proxy Statement/Prospectus any information with
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respect to Online or its affiliates or associates, the form and content of which
information shall not have been approved by Online prior to such inclusion.
(ii) The Joint Proxy Statement/Prospectus shall contain the
unanimous recommendation of the Board of Directors of Online that the Online
shareholders approve this Agreement and the Merger and the conclusion of the
Board of Directors that the terms and conditions of the Merger are advisable and
fair to, and in the best interests of, the shareholders of Online PROVIDED that
no such recommendation need be included, and any such recommendation may be
withdrawn if previously included, if a Superior Proposal has been made and
Online and Online's Board of Directors withdraw or modify such recommendation in
compliance with, and otherwise have complied in all respects with Section 5.4.
Notwithstanding anything to the contrary contained herein, Online shall not
include in the Joint Proxy Statement/Prospectus any information with respect to
Omega or its affiliates or associates, the form and content of which information
shall not have been approved by Omega prior to such inclusion.
6.2 MEETINGS OF SHAREHOLDERS. Omega and Online shall, consistent with
Florida Law and its respective Articles of Incorporation and Bylaws, call and
hold, in the case of Omega, the Omega Shareholders Meeting and, in the case of
Online, the Online Shareholders Meeting, as promptly as practicable for the
purpose of voting upon the adoption or approval of this Agreement and shall use
all reasonable best efforts to hold their respective meetings as soon as
practicable after the date on which the Registration Statement becomes
effective, but in no event later than 35 days after the effective date of the
Registration Statement. Omega and Online shall each use its best efforts to
solicit from its respective shareholders proxies in favor of the Merger and
shall take all other action necessary or advisable to secure the vote or consent
of shareholders required to effect the Merger provided that such solicitation
efforts need not be made (although all efforts required to hold its respective
Shareholders Meeting will continue to be required and, in that regard, its
respective Shareholders Meeting shall be held and not canceled unless this
Agreement is terminated pursuant to and as permitted under the terms of this
Agreement prior to its respective Shareholders Meeting), if a Superior Proposal
has been made and Omega or Online and its respective Board of Directors withdraw
or modify such recommendation in compliance with, and otherwise have complied in
all respects with, Section 5.4.
6.3 ACCESS TO INFORMATION.
(a) At all times prior to the Effective Time, Omega and Online
shall each afford the other such party and its accountants, counsel and other
representatives, reasonable access during normal business hours to (i) all of
its properties, books, contracts, commitments and records as well as those of
its subsidiaries, (ii) all of its Tax Returns and accountants' work papers and
all other information relating to Taxes of it and its subsidiaries, and (iii)
all other information concerning the business, properties and personnel of it
and its subsidiaries as the other party may reasonably request. Omega and Online
each agree to provide to the other party and its accountants, counsel and other
representatives copies of internal financial statements, budgets, operating
plans and projections promptly upon request.
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(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Omega and Online shall confer on a
regular and frequent basis with one or more representatives of the other party
to report material operational matters and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 6.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
6.4 CONFIDENTIALITY. The parties acknowledge that each of Omega and
Online have previously executed a mutual nondisclosure agreement dated November
15, 1999 (the "Confidentiality Agreement"), which Confidentiality Agreement
shall continue in full force and effect in accordance with its terms, except to
the extent necessary to comply with the terms of this Agreement.
6.5 PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement,
Omega and Online shall consult with each other before issuing any press release
or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement or any of the transactions contemplated
hereby, and Online shall not issue any such press release or make any such
statement or disclosure without the prior approval of Omega (which approval
shall not be unreasonably withheld or delayed), except as may be required by law
or by obligations pursuant to any listing agreement with Nasdaq, in which case
Online shall use commercially reasonable efforts to consult with the Omega
before issuing such press release or making such public statement or disclosure.
6.6 CONSENTS; COOPERATION. Each of Newco, Merger Subs, Omega and Online
will, and will cause their respective subsidiaries to, take all reasonable
actions necessary to comply promptly with all legal requirements which may be
imposed on them with respect to the consummation of the transactions
contemplated by this Agreement and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement. In the event an injunction or other order
shall have been issued which prevents, alters or delays the Merger or any other
transaction contemplated hereby, each party agrees to use its reasonable best
efforts to have such injunction or other order lifted. Without limiting the
foregoing, each of Omega and Online shall use its reasonable best efforts to
obtain all necessary consents, waivers and approvals under any of its material
contracts in connection with the Merger for the assignment thereof or otherwise.
As soon as practicable following the execution hereof, Omega, Online and Newco
shall file all necessary forms and take all necessary actions, and thereafter
shall use its reasonable best efforts, to file any required notice or
application and to obtain prior to the Closing Date approval of the change of
control or ownership of Omega and Online and its respective subsidiaries from
The
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Nasdaq Stock Market or the NASD and any applicable state and all other notices,
licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Entities and parties to contracts, agreements, licenses
or other instruments relating to the business as may be required in order to
enable each of Omega, Online and Newco, respectively, to perform its obligations
hereunder and so as to permit the Closing to occur at the earliest possible
date.
6.7 REASONABLE BEST EFFORTS AND FURTHER ASSURANCES. Each of the parties
to this Agreement shall use its reasonable best efforts to effect the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to Closing under this Agreement. Each party hereto, at the reasonable
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
6.8 BLUE SKY LAWS. Newco shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the shares of Newco Common Stock in connection
with the Merger. Omega and Online shall use its best efforts to assist Newco as
may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of the shares
of Newco Common Stock in connection with the Merger.
6.9 NASDAQ QUOTATION. Omega agrees to continue the quotation of Omega
Common Stock on the Nasdaq National Market during the term of the Agreement so
that, to the extent necessary, appraisal rights will not be available to
shareholders of Omega under Section 1302 of the Florida Law.
6.10 PUBLIC ACCOUNTING. Omega and Online shall each use its best
efforts to cause the business combination to be effected by the Merger to be
accounted for as a pooling of interests under generally accepted accounting
principles and applicable SEC rules and regulations. Each of Omega and Online
shall use its reasonable best efforts to cause its Affiliates not to take any
action that would adversely affect the ability of Newco or the Surviving
Corporations to account for the business combination to be effected by the
Merger as a pooling of interests. At all times at and following the Effective
Time, Newco may impose stop transfer instructions or elect to not permit the
transfer of shares of Newco Common Stock or the issuance of a new certificate
representing such shares unless and until such a transfer can be made without
adversely affecting the ability of Newco or the Surviving Corporations to
account for the business combination to be effected by the Merger as a pooling
of interests.
6.11 AFFILIATE AGREEMENTS.
(a) SCHEDULE 6.11(a) of the Omega Disclosure Schedule sets forth
those persons who may be deemed Affiliates of Omega. Omega shall provide Online
with such information and documents as Online shall reasonably request for
purposes of reviewing such list. Omega shall deliver or cause to be delivered to
Online, no later than five (5) business days after the execution of this
Agreement, from each of the Affiliates of Omega an executed Omega Affiliate
Agreement.
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Newco shall be entitled to place appropriate legends on the certificates
evidencing shares of Newco Common Stock to be received by such Affiliates of
Omega pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for Newco Common Stock, in each of
the foregoing cases in accordance with the terms of such Omega Affiliate
Agreement.
(b) SCHEDULE 6.11(b) of the Online Disclosure Schedule sets forth
those persons who may be deemed Affiliates of Online. Online shall provide Omega
with such information and documents as Omega shall reasonably request for
purposes of reviewing such list. Online shall deliver or cause to be delivered
to Omega, no later than five (5) business days after the execution of this
Agreement, from each of the Affiliates of Online an executed Online Affiliate
Agreement. Newco and Merger Subs shall be entitled to place appropriate legends
on the certificates evidencing shares of Newco Common Stock to be received by
such Affiliates of Online pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for Newco Common
Stock, in each of the foregoing cases in accordance with the terms of such
Online Affiliate Agreement.
6.12 TAX TREATMENT. The parties shall use their reasonable best efforts
to cause the Merger to qualify as a "reorganization" within the meaning of
Section 368(a) of the Code.
6.13 OMEGA AND ONLINE OPTIONS.
(a) At the Effective Time, the Omega Stock Option Plans and each
outstanding option to purchase shares of Omega Common Stock under the Omega
Stock Option Plans or which is part of the WOW Options, whether vested or
unvested, will be assumed by Newco. Omega represents and warrants to Online that
SCHEDULE 6.13(a) of the Disclosure Schedule hereto sets forth a true and
complete list as of the date hereof of all holders of outstanding options under
the Omega Stock Option Plans and the WOW Options, including the number of shares
of Omega capital stock subject to each such option, the exercise or vesting
schedule, the exercise price per share and the term of each such option. On the
Closing Date, Omega shall deliver to Online an updated SCHEDULE 6.13(a) current
as of such date. Each such option so assumed by Newco under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
the Omega Stock Option Plans and/or the applicable stock option agreements,
immediately prior to the Effective Time, except that (i) such option will be
exercisable for that number of whole shares of Newco Common Stock equal to the
product of the number of shares of Omega Common Stock that were issuable upon
exercise of such option immediately prior to the Effective Time multiplied by
the Omega Exchange Ratio and rounded down to the nearest whole number of shares
of Newco Common Stock, and (ii) the per share exercise price for the shares of
Newco Common Stock issuable upon exercise of such assumed option will be equal
to the quotient determined by dividing the exercise price per share of Omega
Common Stock at which such option was exercisable immediately prior to the
Effective Time by the Omega Exchange Ratio, rounded up to the nearest whole
cent, subject to any adjustments necessary to protect the status of any option
as an incentive stock option as defined in Section 422 of the Code. It is the
intention of the parties that the options so assumed by Newco qualify, to the
maximum extent permissible following the Effective Time as incentive stock
options as defined in Section 422 of the Code to the extent such options
qualified as incentive stock options
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prior to the Effective Time. Within 30 business days after the Effective Time,
Newco will issue to each person who, immediately prior to the Effective Time was
a holder of an outstanding option under the Omega Stock Option Plans or a holder
of WOW Options a document evidencing the foregoing assumption of such option by
Newco.
(b) All outstanding rights of Omega which it may hold immediately
prior to the Effective Time to repurchase unvested shares of Omega Common Stock
(the "Omega Repurchase Options") shall be assigned to Newco in the Merger and
shall thereafter be exercisable by Newco upon the same terms and conditions in
effect immediately prior to the Effective Time, except that the shares
purchasable pursuant to the Omega Repurchase Options and the purchase price per
share shall be adjusted to the extent necessary to reflect the Omega Exchange
Ratio.
(c) At the Effective Time, the Online 1999 Stock Option Plan and
each outstanding option to purchase shares of Online Common Stock under the
Online 1999 Stock Option Plan, whether vested or unvested, and the Online
Warrants will be assumed by Newco. Online represents and warrants to Omega that
SCHEDULE 6.13(c) to the Online Disclosure Schedule sets forth a true and
complete list as of the date hereof of (i) all holders of outstanding options
under the Online 1999 Stock Option Plan, including the number of shares of
Online capital stock subject to each such option, the exercise or vesting
schedule, the exercise price per share and the term of each such option, and
(ii) all holders of the Online Warrants, including the number of shares of
Online capital stock subject to each Online Warrant, the exercise or vesting
schedule, the exercise price per share and the term of the Online Warrants. On
the Closing Date, Online shall deliver to Omega an updated SCHEDULE 6.13(c)
current as of such date. Each such option so assumed by Newco under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Online 1999 Stock Option Plan and the applicable
stock option agreements immediately prior to the Effective Time, and each such
Online Warrant so assumed by Newco under this Agreement shall continue to have,
and is subject to, the same terms and conditions set forth in the applicable
warrant agreements immediately prior to the Effective Time, except that (i) such
option will be exercisable for that number of whole shares of Newco Common Stock
equal to the product of the number of shares of Online Common Stock that were
issuable upon exercise of such option immediately prior to the Effective Time
multiplied by the Online Exchange Ratio and rounded down to the nearest whole
number of shares of Newco Common Stock, and (ii) the per share exercise price
for the shares of Newco Common Stock issuable upon exercise of such assumed
option will be equal to the quotient determined by dividing the exercise price
per share of Online Common Stock at which such option was exercisable
immediately prior to the Effective Time by the Online Exchange Ratio, rounded up
to the nearest whole cent, subject to any adjustments necessary to protect the
status of any option as an incentive stock option as defined in Section 422 of
the Code. It is the intention of the parties that the options so assumed by
Newco qualify, to the maximum extent permissible following the Effective Time as
incentive stock options as defined in Section 422 of the Code to the extent such
options qualified as incentive stock options prior to the Effective Time. Within
30 business days after the Effective Time, Newco will issue to each person who,
immediately prior to the Effective Time was a holder of an outstanding option
under the Online 1999 Stock Option Plan or a holder of an Online Warrant, a
document evidencing the foregoing assumption of such option or warrant by Newco.
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(d) All outstanding rights of Online which it may hold
immediately prior to the Effective Time to repurchase unvested shares of Online
Common Stock (the "Repurchase Options") shall be assigned to Newco in the Merger
and shall thereafter be exercisable by Newco upon the same terms and conditions
in effect immediately prior to the Effective Time, except that the shares
purchasable pursuant to the Repurchase Options and the purchase price per share
shall be adjusted to the extent necessary to reflect the Online Exchange Ratio.
6.14 NASDAQ LISTING OF NEWCO COMMON STOCK. Prior to the Effective Time,
Omega shall cause Newco to (a) file with The Nasdaq National Market a listing
application and agreement in order to list the Newco Common Stock on the Nasdaq
National Market and (b) use its commercially reasonable efforts to have the
shares of Newco Common Stock issuable upon the conversion of the Omega Common
Stock and Online Common Stock in the Merger and upon exercise of the options
under the Omega Stock Option Plans and Online 1999 Stock Option Plan, the WOW
Options and the Online Warrants assumed by Newco listed for trading on The
Nasdaq National Market on or prior to the Effective Time, subject to official
notice of issuance.
6.15 FORM 8-A. Prior to the Effective Time, Omega shall cause Newco to
(a) file a Form 8-A ("Form 8-A") with the SEC in order to register the Newco
Common Stock and (b) use its commercially reasonable efforts to have such Form
8-A declared effective by the SEC on or prior to the Effective Time.
6.16 FORM S-8. Newco agrees to use its commercially reasonable efforts
to file as soon as practicable after the Effective Time (and in any event no
later than twenty (20) business days after the Effective Time), a registration
statement on Form S-8 covering the shares of Newco Common Stock issuable
pursuant to outstanding options under the Omega Stock Option Plans and Online
1999 Stock Option Plan and pursuant to the WOW Options assumed by Newco. Omega
and Online shall cooperate with and assist Newco in the preparation of such
registration statement.
6.17 EMPLOYEES.
(a) Concurrently with the execution of this Agreement, each of the
individuals set forth on SCHEDULE 6.17(a) attached hereto shall have delivered
to Newco an executed Employment Agreement in the form of EXHIBIT D-1 attached
hereto.
(b) Concurrently with the execution of this Agreement, each of the
individuals set forth on SCHEDULE 6.17(b) attached hereto shall have delivered
to Newco an executed Non- Competition and Non-Disclosure Agreement
("Non-Competition Agreement") in the form of EXHIBIT D-2 attached hereto.
6.18 DIRECTOR AND OFFICER INDEMNIFICATION.
(a) Newco agrees not to cause or allow the Omega Surviving
Corporation or the Online Surviving Corporation to modify any rights to
indemnification or exculpation from liabilities for acts or omissions occurring
at or prior to the Effective Time now existing in favor of the officers
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and directors of Omega or Online, respectively, and their respective
subsidiaries as provided in their respective articles of incorporation or bylaws
(or comparable organizational documents) and any indemnification agreements of
Omega or Online and/or their respective subsidiaries.
(b) For two years after the Effective Time, Newco directly will or
will cause the Omega Surviving Corporation and Online Surviving Corporation to
use commercially reasonable efforts to provide officers' and directors'
liability insurance in respect of acts or omissions occurring at or prior to the
Effective Time covering each such person currently covered by Omega's and
Online's respective officers' and directors' liability insurance policy on terms
reasonably comparable to those of such policy in effect on the date hereof,
provided that in satisfying its obligation under this paragraph, Newco shall not
be obligated to (i) pay or to cause the Omega Surviving Corporation to pay
premiums in excess of 150% of the amount per annum Omega paid in its last full
fiscal year, which amount has been disclosed in writing to Online and, if Newco
or the Omega Surviving Corporation (as the case may be) is unable to obtain the
insurance required by this paragraph, it shall obtain as much comparable
insurance as possible for an annual premium equal to such maximum amount, or
(ii) pay or to cause the Online Surviving Corporation to pay premiums in excess
of 150% of the amount per annum Online paid in its last full fiscal year, which
amount has been disclosed in writing to Omega, and if the Newco or the Online
Surviving Corporation (as the case may be) is unable to obtain the insurance
required by this paragraph, it shall obtain as much comparable insurance as
possible for an annual premium equal to such maximum amount.
6.19 COMFORT LETTERS.
(a) Online shall use its reasonable best efforts to cause to be
delivered to Omega a procedures letter of Online's independent auditors, dated a
date within two (2) business days before the date on which the Registration
Statement shall become effective and at the Closing Date and addressed to Newco,
Omega and Online, in form reasonably satisfactory to Omega and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
(b) Omega shall use its reasonable best efforts to cause to be
delivered to Online a procedures letter of Omega's independent auditors, dated a
date within two (2) business days before the date on which the Registration
Statement shall become effective and at the Closing Date addressed to Newco,
Omega and Online, in form reasonably satisfactory to Online and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
6.20 SHAREHOLDER LITIGATION. Unless and until Online has withdrawn its
recommendation of the Merger in compliance with Section 5.4, Online shall give
Omega the opportunity to participate in or, in the event Omega is named in any
such litigation, to lead, in each case at its own expense, in the defense of any
shareholder litigation against Omega or Online and/or its respective directors
relating to the transactions contemplated by this Agreement and the Omega Stock
Option Agreement or Online Stock Option Agreement. In the event Omega is leading
any such shareholder litigation,
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Online shall be given the opportunity to participate at its own expense in the
defense of such shareholder litigation.
6.21 OBSERVATION RIGHTS. Andrew A. Allen shall be entitled to attend as
an observer all meetings of the Board of Directors of Newco (including
telephonic meetings); provided, however, that (a) Newco's Board of Directors may
require that such individual not attend any particular Board meeting or be
excused from any portions of meetings that involve matters or business that
Newco's Board of Directors, in its reasonable discretion, determines involve
matters or business necessary to be considered by the Board of Directors without
Mr. Allen being in attendance; and (b) such rights shall exist for such
individual only for so long as such individual owns at least 5.0% of the
outstanding shares of Newco Common Stock. Except with respect to matters or
business as to which Newco's Board of Directors has determined should be
considered by the Board of Directors without Mr. Allen being in attendance and
for so long as such individual is entitled to attend Board meetings, such
individual shall be provided with the same meeting notices and materials as the
members of Newco's Board of Directors, including but not limited to copies of
all proposed and final resolutions, minutes and written consents.
6.22 ERRORS AND OMISSIONS INSURANCE. Within thirty (30) days from the
date of this Agreement, Online will obtain errors and omissions insurance in an
amount of at least $5,000,000 in form and content and from an insurer reasonably
satisfactory to Omega.
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to consummate and effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, by agreement of all the parties hereto:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the holders of a majority of the shares of Omega
Common Stock outstanding as of the record date set for the Omega Shareholders
Meeting. This Agreement and the Merger shall have been approved and adopted by
the holders of a majority of the shares of Online Common Stock outstanding as of
the record date set for the Online Shareholders Meeting.
(b) REGISTRATION STATEMENTS EFFECTIVE. The SEC shall have declared
the Registration Statement and Form 8-A effective. No stop order suspending the
effectiveness of the Registration Statement or Form 8-A or any part thereof
shall have been issued, and no proceeding for that purpose, and no similar
proceeding shall have been initiated or threatened by the SEC in respect of the
Joint Proxy Statement/Prospectus, and all requests for additional information on
the part of the SEC shall have been complied with to the reasonable satisfaction
of the parties hereto.
(c) NO INJUNCTIONS OR RESTRAINTS, ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall
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be in effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which in the opinion of counsel to either of
the respective parties prevents or prohibits the consummation of the Merger. In
the event an injunction or other order shall have been issued, each party agrees
to use its commercially reasonable efforts to have such injunction or other
order lifted.
(d) NASDAQ NATIONAL MARKET LISTING. The Newco Common Stock shall
have been listed for trading on The Nasdaq National Market, subject to official
notice of issuance.
(e) GOVERNMENTAL APPROVAL. Newco, Merger Subs, Omega and Online
and their respective subsidiaries, if applicable, shall have obtained from each
Governmental Entity and each Regulatory Entity all approvals, waivers and
consents, if any, necessary for consummation of or in connection with the Merger
and the other transactions contemplated hereby, including such approvals,
waivers and consents as may be required under the Securities Act, the Exchange
Act, or any SRO constitution or rules, any state Blue Sky laws, the failure of
which to obtain would reasonably be likely to have a Material Adverse Effect on
Newco or either of the Surviving Corporations or would prevent or materially
restrict or impede the consummation and effectiveness of the Merger.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF ONLINE. The obligations of
Online to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any of
which may be waived, in writing, by Online:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The
representations and warranties of Newco and Omega in this Agreement shall be
true and correct when made on and as of the Effective Time as though such
representations and warranties were made on and as of such time (other than
representations and warranties expressly relating to an earlier date, which
shall have been true and correct as of such earlier date) except (A) where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" or words of similar import set forth therein) does not have and
is not reasonably likely to have individually or in the aggregate a Material
Adverse Effect on Omega and Newco taken as a whole and (B) as otherwise
expressly contemplated by this Agreement, and (ii) Newco, Merger Subs and Omega
shall have performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by them at or prior to the Effective Time.
(b) CERTIFICATE OF OMEGA. Online shall have been provided with a
certificate executed on behalf of Omega by its President and its Chief Financial
Officer certifying that the condition set forth in Section 7.2(a) has been
fulfilled.
(c) TAX OPINION. Online shall have received a written opinion of
Broad & Cassel dated on or about the date the Joint Proxy Statement/Prospectus
is first mailed to shareholders of
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Online and Omega and on the Closing Date to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code,
and such opinion shall not have been withdrawn. In rendering such opinion,
counsel shall be entitled to rely upon, among other things, reasonable
assumptions as well as representations of Newco, Merger Subs, Omega and Online.
(d) THIRD PARTY CONSENTS. Online shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under any
Material Contract of Omega or any of its subsidiaries or otherwise, the failure
of which to obtain would reasonably be likely to have a Material Adverse Effect
on Newco or the Surviving Corporations or would prevent or materially restrict
or impede the consummation and effectiveness of the Merger.
(e) INJUNCTIONS OR RESTRAINTS ON CONDUCT OF BUSINESS. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision materially limiting or restricting the conduct or operation of the
business of Omega Surviving Corporation and its subsidiaries following the
Merger shall be in effect, nor shall any proceeding brought by an administrative
agency or commission, SRO or other Governmental Entity, domestic or foreign,
seeking the foregoing be pending.
(f) NO MATERIAL ADVERSE CHANGES. There shall not have occurred any
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of Omega and its subsidiaries, taken as a whole.
(g) COMPANY AFFILIATE AGREEMENTS. Newco shall have received from
each Affiliate of Omega an executed Omega Affiliate Agreement.
(h) EMPLOYMENT AGREEMENTS. Newco shall have entered into (or be
willing to enter into) an Employment Agreement substantially in the form
attached hereto as Exhibit D-1 with each of the employees on SCHEDULE 6.17(a).
7.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF NEWCO, MERGER SUBS AND
OMEGA. The obligations of Newco, Merger Subs and Omega to consummate and effect
the Merger shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in
writing, by Omega:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The
representations and warranties of Online in this Agreement shall be true and
correct when made on and as of the Effective Time as though such representations
and warranties were made on and as of such time (other than representations and
warranties expressly relating to an earlier date, which shall have been true and
correct as of such earlier date) except (A) where the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or
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"Material Adverse Effect" or words of similar import set forth therein) does not
have and is not reasonably likely to have individually or in the aggregate a
Material Adverse Effect on Online taken as a whole and (B) as otherwise
expressly contemplated by this Agreement, and (ii) Online shall have performed
and complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by it at
or prior to the Effective Time.
(b) CERTIFICATE OF ONLINE. Omega shall have been provided with a
certificate executed on behalf of Online by its President and Chief Financial
Officer certifying that the condition set forth in Section 7.3(a) has been
fulfilled.
(c) THIRD PARTY CONSENTS. Omega shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under any
Material Contract of Online or any of its subsidiaries or otherwise, the failure
of which to obtain would reasonably be likely to have a Material Adverse Effect
on Newco or the Surviving Corporations or would prevent or materially restrict
or impede the consummation and effectiveness of the Merger.
(d) INJUNCTIONS OR RESTRAINTS ON CONDUCT OF BUSINESS. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision materially limiting or restricting the conduct or operation of the
business of Online Surviving Corporation and its subsidiaries following the
Merger shall be in effect, nor shall any proceeding brought by an administrative
agency or commission, SRO or other Governmental Entity, domestic or foreign,
seeking the foregoing be pending.
(e) NO MATERIAL ADVERSE CHANGES. There shall not have occurred any
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of Online and its subsidiaries, taken as a whole.
(f) COMPANY AFFILIATE AGREEMENTS. Newco shall have received from
each Affiliate of Online an executed Online Affiliate Agreement.
(g) EMPLOYMENT AND NON-COMPETITION AGREEMENTS/WAIVERS. Each of the
employees of Online set forth on SCHEDULE 6.17(a) shall have accepted employment
with Newco and shall have entered into an Employment Agreement substantially in
the form attached hereto as Exhibit D-1. Each of the individuals set forth on
SCHEDULE 6.17(B) shall have entered into a Non-Competition Agreement
substantially in the form attached hereto as Exhibit D-2.
(h) TAX OPINION. Omega shall have received a written opinion of
Bilzin Sumberg Dunn Price & Axelrod, LLP dated on or about the date the Joint
Proxy Statement/Prospectus is first mailed to shareholders of Online and Omega
and on the Closing Date to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and such
opinion shall not have been withdrawn. In rendering such opinion, counsel shall
be entitled to rely upon,
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among other things, reasonable assumptions as well as representations of Newco,
Merger Subs, Omega and Online.
(i) POOLING LETTERS. Omega shall have received letters, each dated
the Closing Date, from Ahearn, Jasco & Company, P.A., Online's independent
auditors, and Arthur Andersen LLP, Omega's independent auditors, to the effect
that the Merger qualifies for pooling of interests accounting treatment if
consummated in accordance with this Agreement.
(j) ONLINE DISSENTING SHARES. The aggregate number of Online
Dissenting Shares shall not equal more than 5% of the outstanding shares of
Online Common Stock as of the Closing Date.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the shareholders of Omega and/or Online, this Agreement may be terminated:
(a) by mutual written, executed consent of Omega and Online;
(b) by either Omega or Online, if the Closing shall not have
occurred on or before July 31, 2000 (provided that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party whose
action or failure to act has been the cause of or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a material breach of this Agreement);
(c) by Omega, if (i) Online shall breach any of its
representations, warranties, covenants or obligations hereunder to an extent
that would cause the condition set forth in Section 7.3(a) not to be satisfied
and such breach shall not have been cured within twenty (20) business days
following receipt by Online of written notice of such breach (provided that the
right to terminate this Agreement by Omega shall not be available to Omega where
Omega is at that time in material breach of this Agreement), (ii) the Board of
Directors of Online shall have withdrawn or modified its recommendation of this
Agreement or the Merger or any transaction contemplated hereby in a manner
adverse to Omega or shall have resolved to do any of the foregoing, (iii) Online
shall have failed to comply in any material respect with the Online Option
Agreement or with Section 5.4 or Section 6.2 of this Agreement, or (iv) the
Board of Directors of Online shall have recommended, endorsed, accepted or
agreed to a Takeover Proposal or shall have resolved to do so;
(d) by Online, if (i) Omega shall breach any of its
representations, warranties, covenants or obligations hereunder to an extent
that would cause the condition set forth in Section 7.2(a) not to be satisfied
and such breach shall not have been cured within twenty (20) business days
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following receipt by Omega of written notice of such breach (provided that the
right to terminate this Agreement by Online shall not be available to Online
where Online is at that time in material breach of this Agreement), (ii) the
Board of Directors of Omega shall have withdrawn or modified its recommendation
of this Agreement or the Merger or any transaction contemplated hereby in a
manner adverse to Online or shall have resolved to do any of the foregoing, or
(iii) Omega shall have failed to comply in any material respect with the Omega
Option Agreement or with Section 5.4 or Section 6.2 of this Agreement;
(e) by Omega, if a Trigger Event (as defined in Section 8.3(d)) or
Takeover Proposal shall have occurred in connection with Online and Online's
Board of Directors, in connection therewith, does not within five (5) business
days of such occurrence (i) reconfirm its approval and recommendation of the
Merger and this Agreement and the transactions contemplated hereby and (ii)
reject such Takeover Proposal or Trigger Event;
(f) by Omega, if (i) a Takeover Proposal shall have occurred in
connection with Omega and, in connection therewith, Omega's Board of Directors
in compliance with the procedure set forth in Section 5.4 determines in good
faith that such Takeover Proposal is a Superior Proposal and that it is required
by its fiduciary duty to accept such Takeover Proposal and advises Online in
writing thereof or (ii) a Trigger Event shall have occurred in connection with
Omega and Omega's Board of Directors, in connection therewith determines, within
five (5) business days of such occurrence, acting in good faith that it is
required by its fiduciary duty to withdraw its recommendation of the Merger and
in either case Omega terminates this Agreement;
(g) by Online, if a Takeover Proposal shall have occurred in
connection with Online and, in connection therewith, Online's Board of Directors
in compliance with the procedures set forth in Section 5.4 determines in good
faith that such Takeover Proposal is a Superior Proposal and that it is required
by its fiduciary duty to accept such Takeover Proposal and advises Omega in
writing thereof; or
(h) by either Omega or Online if any permanent injunction or other
order of a court or other competent authority preventing the consummation of the
Merger shall have become final and nonappealable.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Newco, Merger Subs,
Omega or Online or their respective officers, directors, stockholders or
affiliates, except to the extent that such termination results from fraud or the
wilful or intentional breach or failure to perform by Omega or Online of any of
its representations, warranties or covenants set forth in this Agreement or the
Omega Option Agreement or Online Option Agreement (as the case may be), in which
event the breaching party shall pay to the non- breaching party as liquidated
damages an amount equal to $5,000,000 by wire transfer to an account designated
by the non-breaching party within five (5) business days from the termination of
this Agreement; provided that (a) the provisions of Section 6.4
(Confidentiality), Section 8.3 (Expenses
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and Termination Fees) and this Section 8.2 shall remain in full force and effect
and survive any termination of this Agreement.
8.3 EXPENSES AND TERMINATION FEES.
(a) Subject to Section 8.2 and subsections (b), (c), (d), (e) and
(f) of this Section 8.3, whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses of its
advisers, brokers, finders, agents, accountants and legal counsel) shall be paid
by the party incurring such expense, except that expenses incurred in connection
with printing the proxy materials and the Registration Statement, registration
and filing fees incurred in connection with the Registration Statement, the
proxy materials and the Nasdaq listing of the Newco Common Stock pursuant to
Section 6.14 shall be shared equally by Omega and Online.
(b) In the event that this Agreement is terminated pursuant to
Section 8.1(e) or Section 8.1(g), Online shall promptly (but in all events
within five (5) business days of the failure to reaffirm the recommendation of
the Merger as required under Section 8.1(e) or on or prior to Online's
termination of this Agreement pursuant to Section 8.1(g), as the case may be)
pay Omega an amount equal to $5,000,000 by wire transfer to an account
designated by Omega.
(c) In the event that this Agreement is terminated pursuant to
Section 8.1(f), Omega shall promptly (but in all events on or prior to Omega's
termination of this Agreement) pay Online an amount equal to $5,000,000 by wire
transfer to an account designated by Online.
(d) As used herein, a "Trigger Event" shall occur if any person
(as that term is defined in Section 13(d) of the Exchange Act and the
regulations promulgated thereunder) acquires securities representing ten percent
(10%) or more, or commences a tender or exchange offer, open market purchase
program or other publicly announced initiative following the successful
consummation of which the offeror and its affiliate would beneficially own
securities representing ten percent (10%) or more, of the voting power of Omega
or Online (as the case may be).
(e) For purposes of this Agreement, "Takeover Proposal" means any
offer or proposal for, or any written indication of interest in, a merger or
other business combination involving Omega or Online (as the case may be) or any
of its subsidiaries or the acquisition of ten percent (10%) or more of the
outstanding shares of capital stock, or a significant portion of the assets of,
Omega or Online (as the case may be) or any of its subsidiaries, other than the
transactions contemplated by this Agreement.
(f) In the event that this Agreement is terminated pursuant to
Section 8.1(c) or 8.1(d), the non-terminating party shall pay to and reimburse
the terminating party the actual out-of-pocket expenses incurred by the
terminating party in connection with this transaction by wire transfer to an
account designated by the terminating party within five (5) business days from
the non- terminating party's receipt of a statement from the terminating party
indicating the amount of such out-of-pocket expenses that have been incurred. In
addition, in the event this Agreement has been
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terminated pursuant to Section 8.1(c) or 8.1(d) as a result of a nonwillful
material breach of or failure to perform the provisions of this Agreement by the
non-terminating party, the terminating party shall have the right to recover any
damages arising from such nonwillful material breach or failure to perform.
8.4 AMENDMENT. The boards of directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the shareholders of
Omega or Online shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Omega Common Stock or the
Online Common Stock, or (ii) alter or change any of the terms and conditions of
the Agreement if such alteration or change would materially adversely affect the
holders of Omega Common Stock or Online Common Stock.
8.5 EXTENSION; WAIVER. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 NON-SURVIVAL AT EFFECTIVE TIME. The representations, warranties and
agreements set forth in this Agreement shall terminate at the Effective Time,
except that the agreements set forth in Article I, Sections 6.4
(Confidentiality), 6.7 (Reasonable Best Efforts and Further Assurances), 6.10
(Public Accounting), 6.16 (Form S-8), 6.18 (Director and Officer
Indemnification), 6.21 (Observation Rights), 8.2 (Effect of Termination), 8.3
(Expenses and Termination Fees), 8.4 (Amendment), and this Article IX shall
survive the Effective Time.
9.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
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(a) if to Omega, Newco or Merger Subs to:
Omega Research, Inc.
8700 West Flagler Street, Suite 250
Miami, Florida 33174
Attention: Salomon Sredni, President
Facsimile No.: (305) 485-7019
Telephone No.: (305) 485-7000
with a copy to:
Bilzin Sumberg Dunn Price & Axelrod LLP
2500 First Union Financial Center
Miami, Florida 33131-2336
Attention: Alan D. Axelrod, Esq.
Facsimile No: (305) 374-7593
Telephone No: (305) 374-7580
(b) if to Online, to:
onlinetradinginc.com corp.
2700 N. Military Trail
Suite 200
Boca Raton, Florida 33431
Attention: Steven zum Tobel, President
Facsimile No.: (561) 995-0606
Telephone No.: (561)995-1010
with a copy to:
Broad & Cassel
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Attention: Leonard H. Bloom, Esq.
Facsimile No.: (305) 995-6428
Telephone No.: (305) 373-9400
9.3 INTERPRETATION. When a reference is made in this Agreement to
Exhibits or Schedules, such reference shall be to an Exhibit or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date hereof, and
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terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the first paragraph of this Agreement. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
9.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.5 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Omega Disclosure Schedule, the Online Disclosure
Schedule and the Newco Disclosure Schedule, (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof, except for the Confidentiality
Agreement, which shall continue in full force and effect, and shall survive any
termination of this Agreement or the Closing, in accordance with its terms; (b)
are not intended to confer upon any other person any rights or remedies
hereunder, except as set forth in Sections 1.6(a)-(c)-(d)-(f)-(g)-(h) (Effect on
Capital Stock), 1.7 (Surrender of Certificates), 6.13 (Omega and Online
Options), 6.16 (Form S-8), 6.18 (Director and Officer Indemnification) and 6.21
(Observation Rights); and (c) shall not be assigned or transferred (in whole or
in part) by operation of law or otherwise except with the prior written consent
of the parties hereto.
9.6 SEVERABILITY. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void, invalid or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such illegal, void, invalid or unenforceable provision of this
Agreement with a legal, valid and enforceable provision that will achieve, to
the extent possible, the economic, business and other purposes of such illegal,
void, invalid or unenforceable provision.
9.7 REMEDIES CUMULATIVE. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located within
the State of Florida in connection with any matter based upon or arising out of
this Agreement or the matters contemplated herein, agrees that process may be
served upon them in any manner authorized by the laws of the State of Florida
for such persons and
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waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
9.10 DEFINITIONS. For purposes of this Agreement, "Material Adverse
Effect" means any event, change, condition or effect that is, or would be
reasonably expected to be, materially adverse to the condition (financial or
otherwise), properties, assets (including, without limitation, intangible
assets), liabilities, business, operations, results of operations or prospects
of such person or entity and its subsidiaries, taken as a whole; provided,
however, that in no event shall a decrease in such person's or entity's stock
price in and of itself be considered a "Material Adverse Effect," (b)
"subsidiary" means, with respect to a party, any corporation, partnership or
other organization or entity, whether incorporated or unincorporated, in which
such party has, directly or indirectly, a fifty percent (50%) or greater
interest and (c) any reference to a party's "knowledge" means such party's
actual knowledge after reasonable inquiry of officers and other employees, of
such party charged with senior administrative or operational responsibility for
such matters.
9.11 SPECIFIC PERFORMANCE. The parties acknowledge and agree that any
breach of the terms of this Agreement would give rise to irreparable harm for
which money damages would not be an adequate remedy and accordingly the parties
agree that, in addition to any other remedies, each shall be entitled to enforce
the terms of this Agreement by a decree of specific performance without the
necessity of proving the inadequacy of money damages as a remedy.
9.12 PREVAILING PARTY LEGAL FEES. The prevailing party(s) in any
litigation or other proceeding brought to enforce the terms of this Agreement
shall be entitled to receive from the nonprevailing party(s) its reasonable
attorneys' and paralegals' fees and costs before and at trial and at all
appellate and other tribunal levels, in addition to its other remedies hereunder
or at law or in equity.
[SIGNATURES ARE ON FOLLOWING PAGE]
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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
<PAGE>
SCHEDULE 6.11(b)
AFFILIATES OF ONLINE
Andrew A. Allen
Farshid Tafazzoli
E. Steven zum Tobel
Derek J. Hernquist
Lothar Mayor
Eldren P. Nalley
Robert Scarpetti
Benedict S. Gambino
Andrew A. Allen Family Limited Partnership
Tafazzoli Family Limited Partnership
zum Tobel Family Limited Partnership
<PAGE>
SCHEDULE 6.17(a)
INDIVIDUALS EXECUTING EMPLOYMENT AGREEMENT
Farshid Tafazzoli
E. Steven zum Tobel
Derek J. Hernquist
<PAGE>
SCHEDULE 6.17(b)
INDIVIDUALS EXECUTING NON-COMPETITION AGREEMENT
Andrew A. Allen
Farshid Tafazzoli
Benedict S. Gambino
E. Steven zum Tobel
Derek J. Hernquist
William R. Cruz
Ralph L. Cruz
<PAGE>
EXHIBIT B
FORM OF OMEGA AFFILIATE AGREEMENT
January 19, 2000
Online Trading Group, Inc.
8700 West Flagler Street
Miami, Florida 33174
Ladies and Gentlemen:
Pursuant to the terms of an Agreement and Plan of Merger and
Reorganization, dated as of January 19, 2000 (the "Merger Agreement"), by and
among Omega Research, Inc., a Florida corporation ("Company"),
onlinetradinginc.com corp., a Florida corporation ("Online"), Online Trading
Group, Inc., a Florida corporation ("Newco"), Omega Acquisition Corporation, a
Florida corporation and a wholly owned subsidiary of Newco ("Omega Merger Sub"),
and Onlinetrading Acquisition Corporation, a Florida corporation and wholly
owned subsidiary of Newco ("Online Merger Sub" and, together with Omega Merger
Sub, the "Merger Subs"), Newco has agreed (i) to acquire Company through the
merger of Omega Merger Sub with and into Company and (ii) to acquire Online
through the merger of Online Merger Sub with and into Online (collectively, the
"Transaction").
The undersigned has been advised that as of the date hereof the
undersigned may be deemed to be (but does not hereby admit to be) an "affiliate"
of Company, as the term "affiliate" is (i) defined for purposes of paragraphs
(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "SEC") promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), and/or (ii)
used in and for purposes of Accounting Series Releases 130, 135 and 146 and
Staff Accounting Bulletin Two, as amended, of the SEC.
The undersigned understands that the representations, warranties and
covenants set forth herein will be relied upon by Newco, other stockholders of
Newco, Merger Subs, Online, Company and their respective counsel and accounting
firms. Except to the extent written notification to the contrary is received by
Newco from the undersigned prior to the consummation of the Transaction, the
representations and warranties contained herein shall be accurate at all times
from the date hereof through the Effective Time (as defined in the Merger
Agreement).
The undersigned hereby represents and warrants to and agrees with Newco
that in the event the undersigned receives any shares of Newco Common Stock (as
defined in the Merger Agreement) as a result of the Transaction:
<PAGE>
1. The undersigned has power and authority to execute and deliver this
letter agreement and to make the representations and warranties set forth herein
and to perform the undersigned's obligations hereunder;
2. The undersigned has carefully read this letter agreement and the
Merger Agreement and, to the extent the undersigned felt necessary, discussed
the requirements of such documents and other applicable limitations upon the
undersigned's ability to sell, transfer, pledge or otherwise dispose of Newco
Common Stock with the undersigned's counsel or counsel for the Company;
3. The undersigned is the owner of the number of shares (the "Shares")
of Omega Common Stock (as defined in the Merger Agreement) set forth below, and
did not acquire any of the Shares in contemplation of the Transaction;
4. The undersigned will not make any sale, transfer, pledge or other
disposition of Omega Common Stock, Online Common Stock or Newco Common Stock (i)
in violation of the Securities Act or the Rules and Regulations or (ii) to a
transferee that has not agreed in writing to be bound hereby;
5. The undersigned has been advised that the issuance of Newco Common
Stock to the undersigned in connection with the Transaction has been or will be
registered with the SEC under the Securities Act on a Registration Statement on
Form S-4. However, the undersigned has also been advised that, since at the time
the Transaction was or will be submitted for a vote of the shareholders of the
Company the undersigned may be deemed to be or have been an affiliate of the
Company and the distribution by the undersigned of any Newco Common Stock has
not been registered under the Securities Act, the undersigned may not sell,
transfer, or otherwise dispose of Newco Common Stock issued to the undersigned
in the Transaction unless (i) such sale, transfer, or other disposition has been
registered under the Securities Act, (ii) such sale, transfer, or other
disposition is made in conformity with the volume and other limitations of Rule
145 or (iii) in the opinion of counsel reasonably acceptable to Newco, such
sale, transfer, or other disposition is otherwise exempt from registration under
the Securities Act;
6. The undersigned understands that, except as provided in the Merger
Agreement, Newco is under no obligation to register the sale, transfer, or other
disposition of Newco Common Stock by the undersigned or on the undersigned's
behalf under the Securities Act or to take any other action necessary in order
to make compliance with an exemption from such registration available;
7. The undersigned also understands that stop transfer instructions
will be given to Newco's transfer agent with respect to Newco Common Stock
issued to the undersigned and that there will be placed on the certificates for
Newco Common Stock issued to the undersigned, or any substitutions therefor, a
legend stating in substance:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER
-2-
<PAGE>
THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES. THE SECURITIES
EVIDENCED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE
WITH THE TERMS OF AN AGREEMENT DATED JANUARY 19, 2000 BETWEEN THE
REGISTERED HOLDER HEREOF AND ONLINE TRADING GROUP, INC., A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF ONLINE TRADING
GROUP, INC.;
8. The undersigned also understands that, unless the sale, transfer, or
other disposition by the undersigned of Newco Common Stock issued to the
undersigned has been registered under the Securities Act or is a sale made in
conformity with the provisions of Rule 145, Newco reserves the right to put the
following legend on the certificates issued to any transferee of the
undersigned:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ACQUIRED
FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE
145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES,
AND WERE NOT ACQUIRED BY THE HOLDER WITH A VIEW TO TRANSFER, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES EVIDENCED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF, UNLESS SUCH SALE, TRANSFER, OR OTHER DISPOSAL IS
MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES
LAWS OR IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE
SECURITIES LAWS";
9. Any other provisions of this letter agreement to the contrary
notwithstanding, except as set forth below, during the 30-day period immediately
preceding the Effective Time, the undersigned has not engaged and will not
engage, and after the Effective Time until such time as results covering at
least 30 days of combined operations of Newco and the Surviving Corporations (as
defined in the Merger Agreement) have been published by Newco, in the form of a
quarterly earnings report, an effective registration statement filed with the
SEC, a report to the SEC on Form 10-K, 10-Q, or 8-K, or any other public filing
or announcement which includes such combined results of operations (the period
commencing 30 days prior to the Effective Time and ending on the date of the
publication of the post-Transaction financial results is referred to herein as
the "Pooling Period"), the undersigned will not engage in any sale, transfer, or
other disposition of, or reduce the undersigned's risk in respect of, any of the
following:
-3-
<PAGE>
a. any shares of Newco Common Stock which the undersigned may
acquire in connection with the Transaction, or any securities which may
be paid as a dividend or otherwise distributed thereon or with respect
thereto or issued or delivered in exchange or substitution therefore
(all such shares and other securities being referred to herein,
collectively, as "Restricted Securities"), or any option, right or
other interest with respect to any Restricted Securities;
b. the shares of Newco Common Stock and options or warrants to
purchase Newco Common Stock beneficially owned by the undersigned; or
c. any shares of Newco Common Stock or any other equity
securities of Newco which the undersigned purchases or otherwise
acquires after the execution of this letter agreement and prior to the
expiration of the Pooling Period.
10. As promptly as practicable after the Effective Time, Newco will
publish results covering at least 30 days of combined operations of Newco and
Surviving Corporations in the form of a quarterly earnings report, an effective
registration statement filed with the SEC, a report to the SEC on Form 10-K,
10-Q, 8-K, or any other public filing or announcement which includes such
combined results of operations; PROVIDED, HOWEVER, that Newco will under no
circumstance be obligated to publish such results earlier than that time at
which Newco publishes results for its first full fiscal quarter during which
such 30 days of combined operations occurs.
11. This Omega Affiliate Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Florida
without giving effect to the principles of conflicts of laws thereof and may be
executed in counterparts.
(SIGNATURE PAGE FOLLOWS)
-4-
<PAGE>
Very truly yours,
-----------------------------------
-----------------------------------
(print name)
Number of Shares of Omega Common
Stock beneficially owned as of the
date hereof:
------------
Accepted as of _________ _____, 2000
ONLINE TRADING GROUP, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
SIGNATURE PAGE TO OMEGA AFFILIATE AGREEMENT
-5-
<PAGE>
EXHIBIT C
FORM OF ONLINE AFFILIATE AGREEMENT
January 19, 2000
Online Trading Group, Inc.
8700 West Flagler Street
Miami, Florida 33174
Ladies and Gentlemen:
Pursuant to the terms of an Agreement and Plan of Merger and
Reorganization, dated as of January 19, 2000 (the "Merger Agreement"), by and
among Omega Research, Inc., a Florida corporation ("Omega"),
onlinetradinginc.com corp., a Florida corporation ("Company"), Online Trading
Group, Inc., a Florida corporation ("Newco"), Omega Acquisition Corporation, a
Florida corporation and a wholly owned subsidiary of Newco ("Omega Merger Sub"),
and Onlinetrading Acquisition Corporation, a Florida corporation and wholly
owned subsidiary of Newco ("Online Merger Sub" and, together with Omega Merger
Sub, the "Merger Subs"), Newco has agreed (i) to acquire Omega through the
merger of Omega Merger Sub with and into Omega and (ii) to acquire Company
through the merger of Online Merger Sub with and into Company (collectively, the
"Transaction").
The undersigned has been advised that as of the date hereof the
undersigned may be deemed to be (but does not hereby admit to be) an "affiliate"
of Company, as the term "affiliate" is (i) defined for purposes of paragraphs
(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "SEC") promulgated
under the Securities Act of 1933, as amended (the "Securities Act"), and/or (ii)
used in and for purposes of Accounting Series Releases 130, 135 and 146 and
Staff Accounting Bulletin Two, as amended, of the SEC.
The undersigned understands that the representations, warranties and
covenants set forth herein will be relied upon by Newco, other stockholders of
Newco, Merger Subs, Omega, Company and their respective counsel and accounting
firms. Except to the extent written notification to the contrary is received by
Newco from the undersigned prior to the consummation of the Transaction, the
representations and warranties contained herein shall be accurate at all times
from the date hereof through the Effective Time (as defined in the Merger
Agreement).
The undersigned hereby represents and warrants to and agrees with Newco
that in the event the undersigned receives any shares of Newco Common Stock (as
defined in the Merger Agreement) as a result of the Transaction:
<PAGE>
1. The undersigned has power and authority to execute and deliver this
letter agreement and to make the representations and warranties set forth herein
and to perform the undersigned's obligations hereunder;
2. The undersigned has carefully read this letter agreement and the
Merger Agreement and, to the extent the undersigned felt necessary, discussed
the requirements of such documents and other applicable limitations upon the
undersigned's ability to sell, transfer, pledge or otherwise dispose of Newco
Common Stock with the undersigned's counsel or counsel for the Company;
3. The undersigned is the owner of the number of shares (the "Shares")
of Online Common Stock (as defined in the Merger Agreement) set forth below, and
did not acquire any of the Shares in contemplation of the Transaction.
4. The undersigned will not make any sale, transfer, pledge or other
disposition of Online Common Stock, Omega Common Stock or Newco Common Stock (i)
in violation of the Securities Act or the Rules and Regulations or (ii) to a
transferee that has not agreed in writing to be bound hereby;
5. The undersigned has been advised that the issuance of Newco Common
Stock to the undersigned in connection with the Transaction has been or will be
registered with the SEC under the Securities Act on a Registration Statement on
Form S-4. However, the undersigned has also been advised that, since at the time
the Transaction was or will be submitted for a vote of the shareholders of the
Company the undersigned may be deemed to be or have been an affiliate of the
Company and the distribution by the undersigned of any Newco Common Stock has
not been registered under the Securities Act, the undersigned may not sell,
transfer, or otherwise dispose of Newco Common Stock issued to the undersigned
in the Transaction unless (i) such sale, transfer, or other disposition has been
registered under the Securities Act, (ii) such sale, transfer, or other
disposition is made in conformity with the volume and other limitations of Rule
145 or (iii) in the opinion of counsel reasonably acceptable to Newco, such
sale, transfer, or other disposition is otherwise exempt from registration under
the Securities Act;
6. The undersigned understands that, except as provided in the Merger
Agreement, Newco is under no obligation to register the sale, transfer, or other
disposition of Newco Common Stock by the undersigned or on the undersigned's
behalf under the Securities Act or to take any other action necessary in order
to make compliance with an exemption from such registration available;
7. The undersigned also understands that stop transfer instructions
will be given to Newco's transfer agent with respect to Newco Common Stock
issued to the undersigned and that there will be placed on the certificates for
Newco Common Stock issued to the undersigned, or any substitutions therefor, a
legend stating in substance:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
-2-
<PAGE>
SECURITIES ACT OF 1933, AS AMENDED, APPLIES. THE SECURITIES EVIDENCED
BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE
TERMS OF AN AGREEMENT DATED JANUARY 19, 2000 BETWEEN THE REGISTERED
HOLDER HEREOF AND ONLINE TRADING GROUP, INC., A COPY OF WHICH AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICES OF ONLINE TRADING GROUP, INC.;
8. The undersigned also understands that, unless the sale, transfer, or
other disposition by the undersigned of Newco Common Stock issued to the
undersigned has been registered under the Securities Act or is a sale made in
conformity with the provisions of Rule 145, Newco reserves the right to put the
following legend on the certificates issued to any transferee of the
undersigned:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ACQUIRED
FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE
145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES,
AND WERE NOT ACQUIRED BY THE HOLDER WITH A VIEW TO TRANSFER, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES EVIDENCED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF, UNLESS SUCH SALE, TRANSFER, OR OTHER DISPOSAL IS
MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES
LAWS OR IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE
SECURITIES LAWS";
9. Any other provisions of this letter agreement to the contrary
notwithstanding, except as set forth below, during the 30-day period immediately
preceding the Effective Time, the undersigned has not engaged and will not
engage, and after the Effective Time until such time as results covering at
least 30 days of combined operations of Newco and the Surviving Corporations (as
defined in the Merger Agreement) have been published by Newco, in the form of a
quarterly earnings report, an effective registration statement filed with the
SEC, a report to the SEC on Form 10-K, 10-Q, or 8-K, or any other public filing
or announcement which includes such combined results of operations (the period
commencing 30 days prior to the Effective Time and ending on the date of the
publication of the post-Transaction financial results is referred to herein as
the "Pooling Period"), the undersigned will not engage in any sale, transfer, or
other disposition of, or reduce the undersigned's risk in respect of, any of the
following:
-3-
<PAGE>
a. any shares of Newco Common Stock which the undersigned may
acquire in connection with the Transaction, or any securities which may
be paid as a dividend or otherwise distributed thereon or with respect
thereto or issued or delivered in exchange or substitution therefore
(all such shares and other securities being referred to herein,
collectively, as "Restricted Securities"), or any option, right or
other interest with respect to any Restricted Securities;
b. the shares of Newco Common Stock and options or warrants to
purchase Newco Common Stock beneficially owned by the undersigned; or
c. any shares of Newco Common Stock or any other equity
securities of Newco which the undersigned purchases or otherwise
acquires after the execution of this letter agreement and prior to the
expiration of the Pooling Period.
10. As promptly as practicable after the Effective Time, Newco will
publish results covering at least 30 days of combined operations of Newco and
the Surviving Corporations in the form of a quarterly earnings report, an
effective registration statement filed with the SEC, a report to the SEC on Form
10-K, 10-Q, 8-K, or any other public filing or announcement which includes such
combined results of operations; PROVIDED, HOWEVER, that Newco will under no
circumstance be obligated to publish such results earlier than that time at
which Newco publishes results for its first full fiscal quarter during which
such 30 days of combined operations occurs.
11. This Online Affiliate Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Florida
without giving effect to the principles of conflicts of laws thereof and may be
executed in counterparts.
(SIGNATURE PAGE FOLLOWS)
-4-
<PAGE>
Very truly yours,
-----------------------------------
-----------------------------------
(print name)
Number of Shares of Online Common
Stock beneficially owned as of the
date hereof:
------------
Accepted as of _________ _____, 2000
ONLINE TRADING GROUP, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
SIGNATURE PAGE TO ONLINE AFFILIATE AGREEMENT
-5-
<PAGE>
EXHIBIT D-1
FORM OF
EMPLOYMENT AGREEMENT
This AGREEMENT, dated as of January 19, 2000 and to be effective as of
and after the Effective Time (as defined in that certain Agreement and Plan of
Merger and Reorganization (the "Merger Agreement") among Omega Research, Inc.,
onlinetradinginc.com corp., Online Trading Group, Inc. ("Newco"), Omega
Acquisition Corporation and Onlinetrading Acquisition Corporation, is by and
between onlinetradinginc.com corp., a Florida corporation ("Employer"),
and_____(1)_____________ ("Employee").
PRELIMINARY STATEMENT
1. This Agreement to be effective as of and after the Effective Time
covers various subjects, including (i) protection of Employer's trade secrets
and confidential information, (ii) non- solicitation of Employer's customers,
licensees, independent contractors, consultants and employees, (iii)
restrictions on Employee's ability to compete with Employer or participate in
competitive businesses both during and after Employee's employment, (iv)
ownership of work product developed in whole or in part by Employee, (v) misuse
of trade secrets or confidential information belonging to others and
interference with rights of others, (vi) the full-time, exclusive nature of
Employee's employment commitment, and (vii) unfair business practices. Each of
these subjects is equally important, and if Employee accepts employment or
continued employment with Employer, Employee is agreeing to faithfully and fully
observe all covenants and agreements set forth below relating to each subject
addressed, without exception.
2. Employee has been informed by Employer, and understands, that (a)
Employer has developed and owns, as a result of substantial effort and expense
on the part of Employer, valuable trade secrets and other valuable confidential
business information to which Employee has and/or will have substantial access,
(b) Employee has developed and/or will be developing important and substantial
relationships with other valuable employees of Employer and/or with certain of
Employer's customers, licensees, independent contractors, consultants, strategic
partners, vendors and/or other third parties having dealings or contractual
relationships with Employer, and (c) Employer has devoted and/or will be
devoting substantial efforts and expense to train Employee to perform Employee's
employment duties, which has resulted (or, if this is a new employment, assuming
it continues, will likely result) in the development by Employee of specialized
and valuable skills, knowledge and abilities.
3. In light of all of the foregoing, in order to protect Employer's
legitimate business interests, including its goodwill with its customers,
licensees, independent contractors, consultants,
- --------
(1)The following individuals are entering into new Employment
Agreements: Farshid Tafazzoli, E. Steven zum Tobel and Derek J. Hernquist.
<PAGE>
strategic partners, vendors, other third parties having dealings or contractual
relationships with Employer, and other employees and Employer's trade secrets,
and as a condition to Employee's employment with Employer (or, if Employee is
already employed by Employer, as a condition to Employer agreeing to continue to
employ Employee), Employee has agreed to make for the benefit of Employer the
reasonable covenants and agreements set forth below. As an employee of Employer,
Employee agrees to observe all of the provisions of this Agreement, as well as
all other rules and policies that Employer may announce from time to time.
NOW, THEREFORE, it is agreed as follows:
1. POSITION AND COMPENSATION
Employee will be employed in the position and at the annual base
salary and with an annual discretionary bonus as described in the attached
Schedule A, which may be changed or modified hereafter from time to time.
2. BENEFITS
Employee will be offered all group benefits, if any, made available
by Employer to its employees generally and to employees in similar positions as
Employee, and Employee will be eligible to be considered for bonuses, all of
which are subject to change by Employer at any time and from time to time.
3. CONTINUED EMPLOYMENT OF EMPLOYEE
(a) TERM OF EMPLOYMENT. The term of employment hereunder shall
commence on the Effective Time and shall end on the day preceding the second
anniversary date of the Effective Time, subject to earlier termination as
hereinafter provided (the "Employment Term"). After the expiration of the
Employment Term unless extended in writing by mutual agreement of the parties
hereto, the employment relationship thereafter will continue as employment "at
will" and, accordingly after the expiration of the Employment Term, Employee and
Employer will be each free to terminate such employment relationship at any
time, for any reason, with or without notice or cause. Employer may terminate
Employee's employment under this Agreement at any time, without prior notice,
for "due cause" upon the good faith determination by the Board of Directors of
Employer (the "Board"), which will be the parent of Employer, that "due cause"
exists for the termination of the employment relationship. The term "due cause"
shall mean any of the following events: (i) any intentional misapplication by
Employee of Employer's funds or any fraud committed by Employee upon Employer;
or (ii) Employee's conviction of a crime involving moral turpitude or a felony,
or (iii) Employee's breach, non-performance or non-observance of the terms of
this Agreement which is not cured (if curable) within ten (10) days of
Employee's receipt of written notice thereof; or (iv) any other action by
Employee involving willful and deliberate malfeasance or gross negligence in the
performance of Employee's duties, responsibilities and agreements; or (v)
Employee's death; or (vi) Employee's disability or mental or physical incapacity
resulting in his inability to substantially perform all of his duties and
responsibilities for Employer for a period of at least ninety (90) consecutive
days. During the Employment Term, Employer may also terminate
2
<PAGE>
the employment of Employee other than for "due cause" provided that in such
event Employee shall be entitled to receive the remaining base salary payments
due hereunder for the remainder of the Employment Term, but in no event less
than three months' base salary, and any accrued and unpaid bonus. In the event
of such termination for other than "due cause," all other rights and benefits
Employee may have under the employee and/or executive benefit plans and
arrangements of Employer generally shall be determined in accordance with the
terms and conditions of such plans and arrangements. The parties acknowledge and
agree that during the Employment Term, Employer shall not (i) decrease
Employee's annual base salary, (ii) materially diminish Employee's duties and
responsibilities or (iii) require Employee to relocate on a full time basis from
outside the geographic area comprised of Broward and Palm Beach Counties in the
state of Florida (the "Geographic Area").
(b) CHANGE IN CONTROL. Notwithstanding anything to the contrary
contained in this Agreement, if a "Change in Control" (as defined below) of
Employer occurs and, during the Employment Term Employee's duties and
responsibilities are materially diminished or Employee is required to relocate
on a full time basis from outside of the Geographic Area, Employee may terminate
employment upon 30 days prior written notice to Employer and shall be entitled
to receive the remaining base salary payments due hereunder for the remainder of
the Employment Term, but in no event less than three months' base salary, and
any accrued and unpaid bonus payable in a lump sum within 30 days after the date
of termination. For the purposes of this Agreement, the term "Change in Control"
of Employer shall be defined as and shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended) becomes the beneficial owner (as such term is
used in Section 13(d) of the Securities Exchange Act of 1934, as amended)
directly or indirectly of securities of Employer or Newco representing 50% or
more of the combined voting power of Employer's or Newco's then outstanding
securities (as the case may be), (ii) the Board ceases to consist of a majority
of Continuing Directors (as defined below) or (iii) a person (as defined in
clause (i) above) acquires (or, during the 12-month period ending on the date
for the most recent acquisition by such person or group of persons, has
acquired) gross assets of Employer that have an aggregate market value greater
than or equal to over 50% of the fair market value of all of the gross assets of
Employer immediately prior to such acquisition or acquisitions. For purposes of
this Agreement, a "Continuing Director" shall mean a member of the Board who
either (i) is a member of the Board immediately after the Effective Time of the
merger in connection with which this Agreement is being executed and delivered
or (ii) is nominated or appointed to serve as a director by a majority of
Continuing Directors (including those nominated or appointed pursuant to this
clause (ii)) prior to such acquisition or acquisitions.
4. EMPLOYMENT AS SOLE OCCUPATION
Employee agrees to devote Employee's full business time, attention,
skill and effort exclusively to the duties that Employer assigns to Employee
from time to time. Employee agrees that Employee may not engage in any business
activities or render any services of a business, commercial or professional
nature, whether or not for compensation, for the benefit of anyone other than
Employer, unless Employer has given its consent in writing in advance; provided,
however, that
3
<PAGE>
this Section shall not preclude Employee from (i) engaging in any activities
that are solely personal or social in nature or (ii) serving on boards of
directors of not-for-profit organizations, and, in all events, that are not a
source of secondary income and will not impede the performance of his duties and
responsibilities hereunder.
5. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
(a) CONFIDENTIAL INFORMATION. Employee acknowledges that Employee
has been informed by Employer that it is Employer's policy and the policy of its
parent company, subsidiaries and affiliates (hereinafter "the Companies") to
maintain as secret and confidential all information and materials (whether or
not stamped or marked "Confidential" or bearing some other indicia of
confidentiality) relating to (i) the financial condition, operations and
business interests, objectives, plans and strategies of the Companies, (ii) the
systems, know-how, records, products, product plans, product designs, marketing
plans, specifications, drawings, product development, services, cost
information, inventions, computer programs, technology, marketing and sales
strategies, techniques and/or programs, trading and investment strategies and
analysis, formulae, methods, methodologies, manuals, customer lists and other
trade secrets from time to time acquired, sold, developed, maintained and/or
used by the Companies, (iii) the nature and terms of the Companies'
relationships with their customers, licensees, suppliers, lenders, underwriters,
stock exchanges, clearing brokers, vendors, consultants, independent
contractors, strategic partners, other third parties having dealings or
contractual relationships with the Companies, attorneys, accountants and
employees, and (iv) any proposed public or private offering of the Companies
(all such information and materials are collectively referred to as
"Confidential Information").
(b) PROHIBITED DISCLOSURE. Employee agrees that Employee will not
directly or indirectly at any time (including after the date on which Employee's
employment terminates) divulge or disclose for any purpose (except as
specifically authorized by the Companies) to any persons, firms, corporations or
other entities (collectively, "Third Parties"), or use or cause or authorize any
Third Parties to use, any such Confidential Information, except in the capacity
of an employee of Employer pursuant to any duties in the course and scope of his
employment. "Confidential Information" does not include information that, at the
time of disclosure, is part of the public domain or is generally known in the
Companies' respective industries without the fault or carelessness of Employee,
or information which Employee can demonstrate was known to or developed by
Employee prior to the date of Employee's commencement of employment with any of
the Companies without reliance upon or use of Confidential Information. If
Employee is required by order of a court or other governmental or
self-regulating authority to disclose any Confidential Information, Employee
shall immediately notify Employer so that Employer and/or the other Companies
may attempt to obtain an appropriate protective order, and, in all events,
Employee shall only disclose the portion of the Confidential Information
required by such order to be disclosed.
(c) EMPLOYER'S MATERIALS. Employee further agrees that (i) Employee
will at no time transfer, electronically transmit or remove from the premises of
Employer any products, prototypes, drawings, designs, specifications, notebooks,
software programs or disks, tapes or similar
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containers of software, e-mail, manuals, data, books, records, materials or
documents of any kind or description containing Confidential Information for any
purpose unconnected with the strict performance of Employee's duties with
Employer, and (ii) upon the termination of Employee's employment with Employer
for any reason, Employee shall immediately deliver or cause to be delivered to
Employer any and all such drawings, designs, specifications, notebooks, software
programs or disks, tapes or similar containers of software, e-mail, manuals,
data, books, records, materials and other documents and materials (and all
copies thereof) in Employee's possession or under Employee's control relating to
any Confidential Information or any other materials which are the property of
Employer.
(d) EMPLOYEE'S ACKNOWLEDGMENT. Employee acknowledges that Employee
is aware that Employee may be subject to severe criminal penalties (including
fines and lengthy imprisonment) under both federal and state law, including
Title 18, Sections 1831, et. seq. of the United States Code (The Economic
Espionage Act of 1996) and Section 812.081, Florida Statutes, as well as
substantial civil liability, for (i) stealing, or without Employer's permission,
taking, misappropriating or concealing, or by fraud or deception procuring,
trade secrets, as defined therein, or (ii) without Employer's permission,
receiving, possessing, altering, destroying, copying, sending, downloading,
uploading or conveying trade secrets or other Confidential Information. Employee
further acknowledges that any person or entity to whom trade secrets or other
Confidential Information are given by Employee may also become subject to severe
criminal penalties and civil liability.
6. COVENANT-NOT-TO-COMPETE
(a) COVENANT-NOT-TO-COMPETE. Employee covenants and agrees that,
during Employee's employment with Employer and for a period of two (2) years
after the date Employee ceases for any reason to be employed by Employer,
Employee shall not, directly or indirectly (as defined below) in any capacity,
(i) market, sell, provide or license, or be involved in the marketing, sale,
provision or licensing of, any Financial Market Data Software Products or
Software-Related Services (as defined below) to any person or entity who is or
was a distributor, retailer, reseller, licensee, subscriber, or customer of
Employer or any of the other Companies at any time during Employee's employment
with Employer and for or to whom Employer or any of the other Companies has
performed such services or sold or licensed such products at any time during the
one- year period ending on Employee's termination of employment, or (ii) engage
or participate in any venture, enterprise, activity or business which involves
the sale, licensing, performance or provision of Financial Market Data Software
Products or Software-Related Services, in whole or in part via electronic
commerce, telemarketing, telecommunication, cable, the Web or the Internet,
anywhere within the world. "Financial Market Data Software Products or
Software-Related Services" means (A) software products and/or services
(including, without limitation, all browser based and other Internet related
applications) which (1) collect or deliver financial market data (including but
not limited to stocks, bonds, options, futures, commodities, other securities
and/or fundamental company data), and/or (2) supply financial data to support
online investing and trading, including in the form of financial Web sites and
communities, and Internet-delivered streaming or other market data
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services; and/or (3) are or can be used to make, review or devise investment
analyses or strategies, including, without limitation, charting, technical
analysis and/or trading or investment strategy design, testing and/or automation
and/or (B) securities brokerage services (including, without limitation, in
connection with revenue sharing arrangements) and trading and other investment
services and services and products ancillary to any such securities brokerage,
trading or other investment services; provided, however, that "Financial Market
Data Software Products or Software- Related Services" shall not include the
activities specifically set forth on Schedule B annexed hereto. Employee
acknowledges that the businesses of Employer and the other Companies are
international in scope, that, due to the electronic and telephonic nature of
Employer's and such other Companies' businesses and the nature of Employer's and
such other Companies' licensees and customers, one could effectively compete
with such business from nearly anywhere in the world, and that, therefore, such
geographical area of restriction is reasonable in the circumstances to protect
Employer's trade secrets and other legitimate business interests.
(b) DEFINITION OF "DIRECTLY OR INDIRECTLY." For purposes of Section
6(a), "directly or indirectly" means to engage or participate in any venture,
enterprise, activity or business which is materially involved (as hereinafter
defined) in the marketing, selling, licensing or provision of Financial Market
Data Software Products or Software-Related Services, passively (except for
passive investments in publicly-traded companies) or actively, as a sole
proprietor or owner, director, officer, shareholder, partner, member,
consultant, independent contractor, advisor, participant, employee or agent or
in any other manner. For purposes hereof, "materially involved" means that the
venture, enterprise, activity or business directly or indirectly or together
with any of its subsidiaries, affiliates or partners or through strategic
alliances or any specific division or business unit of any such venture,
enterprise, activity or business either (1) derives in any year 5% or more of
its gross revenue from Financial Market Data Software Products or
Software-Related Services or (2) incurs in any year 5% or more of its expenses
(operating and/or capital) in connection with or as a result of Financial Market
Data Software Products or Software-Related Services.
(c) PAYMENT FOR COVENANT-NOT-TO-COMPETE. Employer and Employee both
believe that, due to the specialized nature of Employer's and the other
Companies businesses, it would not be difficult for Employee, upon termination
of Employee's employment, to find gainful employment or have other business
pursuits which are not violative of the restrictions set forth above, as there
are several industries and lines of business in which Employee could work which
are dissimilar to, and not competitive with, Employer's business. However,
Employer understands that such restrictions may limit Employee's new employment
options following a termination of Employee's employment with Employer.
Accordingly, if following termination of employment with Employer, Employee is
offered a position which, if accepted, would violate the restrictive covenants
set forth above, Employer will either (i) consent to Employee accepting
employment restricted by subsection (a) above, or (ii) not consent, but pay
Employee additional consideration for Employee remaining bound by such
restrictions. In order to receive the benefit of these provisions, Employee must
be and remain in compliance with all provisions of this Agreement, and must
comply with the following procedures. Upon Employee's receipt of a written offer
of employment which Employee desires to accept and which, if accepted, would
constitute a violation of subsection
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(a) above, Employee shall promptly notify Employer of such offer and provide to
Employer a copy thereof together with a written statement explaining in
reasonable detail Employee's job responsibilities at the new employment. Within
ten (10) days following the date that Employer has been given a copy of such
offer and written statement, Employer will notify Employee that either (x)
Employer consents to Employee accepting such new employment (but such consent
shall extend only to the job responsibilities described in the written statement
and shall not under any circumstances authorize Employee to disclose or use any
Confidential Information or to fail to comply with any other provision of this
Agreement), or (y) Employee may not accept the new employment. If Employer
decides that Employee may not accept the new employment, Employer shall pay to
Employee each month an amount equal to 1/24th of Employee's annual base salary
in effect at the date of termination of Employee's employment in excess of any
other severance payments being received by Employee hereunder upon termination
of employment (including, without limitation, pursuant to Section 3(a) or 3(b)
hereof) less applicable federal and state withholding ("Additional Monthly
Payments"). Such Additional Monthly Payments will cease at the end of the 24th
month following the date of Employee's termination of employment, provided that,
if Employee commences other full-time employment during such 24-month period,
such Additional Monthly Payments shall cease upon the commencement of such new
employment. Employee shall promptly notify Employer if Employee accepts any such
new employment. If Employee fails to notify Employer of new full-time employment
and continues to accept Additional Monthly Payments from Employer after
commencing new full-time employment, Employee shall be obligated to repay to
Employer all Additional Monthly Payments received from Employer pursuant to
these provisions.
7. NON-SOLICITATION AGREEMENT
(a) NON-SOLICITATION OF OTHER PERSONNEL. Employee acknowledges that
Employer devotes substantial time, effort and expense to the recruitment,
selection, training, development and promotion of talented individuals for
positions of significant responsibility with Employer. Employee further
acknowledges that it would be unfair to use Employee's familiarity with
Employer's business and other employees and Employer's independent contractors
and consultants to participate, directly or indirectly, in any activities
designed to cause any of Employer's other employees to leave Employer's employ
or to cause any of Employer's independent contractors or consultants to cease
performing services for Employer. Accordingly, Employee covenants and agrees
that, during Employee's employment with Employer and for a period of two (2)
years after the date Employee ceases for any reason to be employed by Employer,
Employee shall not, directly or indirectly, solicit the services of or recruit,
whether on Employee's own behalf or on behalf of others, any of the following
types of employees, independent contractors or consultants of Employer: (i)
executives, managers, supervisors or department directors; (ii) technicians,
engineers, programmers, designers, developers or information, Web or Internet
services workers (whether employees, independent contractors or consultants);
(iii) product, project or task managers or supervisors (whether employees,
independent contractors or consultants); (iv) sales, marketing, public or
customer relations personnel or consultants; (v) brokers, traders, securities
associates or salespersons or other similar types of personnel; (vi) financial
or accounting services personnel or
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consultants; (vii) legal personnel; (viii) customer support personnel or
consultants; or (ix) human resources personnel; provided, however, that such
provision does not apply to Employee's attorneys, accountants, investment
bankers and other professional advisors; or otherwise persuade or cause, or
attempt to persuade or cause, any such employee, independent contractor or
consultant to leave Employer's employ or cease performing services for Employer.
(b) DAMAGES FOR BREACH. Employee acknowledges that breach or
violation of this covenant would cause substantial damages to Employer. Employee
agrees that, in the event of a breach or violation of this covenant of
non-solicitation, Employee will be liable to compensate Employer for all
damages, including, without limitation, consequential damages, not limited to
lost profits, expense incurred to replace the employee or business relationship,
finder's fees, sign-on bonuses, and compensation, remuneration and/or benefits
premiums paid to employees, independent contractors and consultants to secure
their services or to replace the lost business relationship(s). The payment of
such damages shall not limit, impair or diminish Employer's right to seek and
obtain (x) any appropriate equitable relief (including but not limited to
specific performance, temporary restraining order and temporary and permanent
injunction), (y) other monetary relief, and other relief, at law or in equity,
for other causes of action which may have resulted from Employee's breach or
violation (such as intentional interference with contractual or business
relations in the event an employee is solicited by Employee for a competitive
position and such employee is subject to a covenant-not-to-compete), or (z)
monetary and other relief, at law or in equity, from or against persons or
entities other than Employee.
8. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 5, 6 AND 7
In addition to the remedies referred to in Section 7(b) above,
Employee agrees that if Employee breaches or violates any of Employee's
covenants or agreements in Sections 5, 6 and 7 hereof, Employer shall be
entitled to an accounting and repayment of any and all profits, compensation,
commissions, payments and benefits which Employee directly or indirectly has
realized and realizes as a result of, or in connection with, any such breach or
violation. In addition, in the event of a breach or violation or threatened or
imminent breach or violation of any provisions of Sections 5, 6 and 7 hereof,
Employer shall be entitled to a temporary and permanent injunction or any other
appropriate decree of specific performance or equitable relief (without, unless
otherwise required by statute, being required to post bond or other security)
from a court of competent jurisdiction in order to prevent, prohibit or restrain
any such breach or violation or threatened or imminent breach or violation by
Employee. Employer shall be entitled to such injunctive or other equitable
relief in addition to any ascertainable damages which are suffered. It is
understood that resort by Employer to such injunctive or other equitable relief
shall not be deemed to waive or to limit in any respect any other rights or
remedies which Employer may have with respect to such breach or violation.
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9. REASONABLENESS OF RESTRICTIONS
(a) REASONABLENESS. Employee acknowledges that any breach or
violation of Sections 5, 6 and 7 hereof will likely cause irreparable injury and
damage to Employer and that it would be very difficult or impossible to measure
all of the damages resulting from any such breach or violation. Employee further
acknowledges that Employee has carefully read and considered the provisions of
Sections 5, 6 and 7 hereof and, having done so, agrees that the restrictions and
remedies set forth in such Sections (including the time period, geographical
limits and scope of activity restricted) are fair and reasonable and do not
impose a greater restraint than is necessary for the protection of the trade
secrets, goodwill and other legitimate business interests of Employer.
(b) SEVERABILITY. Employee understands and intends that each
provision and restriction agreed to by Employee in Sections 5, 6 and 7 hereof be
construed as separate and divisible from every other provision and restriction.
In the event that any one of the provisions of, or restrictions in, Sections 5,
6 and 7 hereof shall be held to be invalid or unenforceable, and is not reformed
by a court of competent jurisdiction (which a court, in lieu of striking a
provision entirely, is urged by the parties to do), the remaining provisions and
restrictions shall continue to be valid and enforceable as though the invalid or
unenforceable provision or restriction had not been included. In the event that
any such provision relating to time period, geographical limits or scope of
activity restricted (collectively "Limitations") shall be declared by a court of
competent jurisdiction to exceed the maximum or permissible Limitations such
court deems reasonable and enforceable, Limitations shall be deemed to become
and shall then be the maximum Limitations which such court deems reasonable and
enforceable.
(c) SURVIVABILITY. The restrictions, acknowledgments, covenants and
agreements of Employee set forth in Sections 5, 6, 7, 8, 9, 10, 14, 15, 16, 17
and 18 of this Agreement shall survive any termination of Employee's employment
(for any or no reason, including expiration of the Employment Term).
10. OWNERSHIP OF WORK DEVELOPED IN WHOLE OR IN PART BY EMPLOYEE
Employee covenants and agrees with Employer that any and all
formulae, devices, patterns, know-how, technology, computer programs,
documentation, processes, lists, compilations, literature, inventions,
methodologies, techniques and other work product ("Work") created or developed
in whole or in part by Employee (whether alone or in cooperation with others)
while an employee of Employer, if created or developed in whole or in part (i)
on Employer's premises, or (ii) during Employee's normal working hours, or (iii)
with the use of Employer's resources, or (iv) based upon Employee's access to or
knowledge of Confidential Information, no matter what such Work relates to or is
about, shall immediately be disclosed by Employee to Employer and is and shall
be solely Employer's property. Employee further covenants and agrees with
Employer that any Work created or developed in whole or in part by Employee
(whether alone or in cooperation with others) during the term of Employee's
employment, even if wholly developed or created off Employer's premises, on
Employee's own time, and without use of Employer's resources or Confidential
Information, if related to Employer's or any of the other Companies' businesses,
shall
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immediately be disclosed by Employee to Employer and is and shall be solely
Employer's property. In all such cases, Employee agrees that Employer is the
"person for whom the work was prepared" for the purposes of determining
authorship of any copyright in the Work, and all of the Work shall be deemed
"work made for hire" as that term is defined in Section 101 of the U.S.
Copyright Act. In addition, all inventions, discoveries, improvements, trade
secrets, trademarks, service marks, trade dress, know-how, names, ideas and
other proprietary rights and intellectual property rights, whether or not
patentable, embodied in, represented by, incorporated in, part of, or relating
to any of the Work (collectively, "Other Intellectual Property Rights") are, and
shall be, as between Employer and Employee, the property of solely Employer,
and, so there will be no doubt, Employee hereby assigns to Employer and its
successors and assigns all of Employee's right, title and interest in and to all
Other Intellectual Property Rights. If, for any reason, any of the Work is
determined not to be a "work made for hire" under U.S. law or the law of any
other jurisdiction, Employee agrees to assign, and does hereby assign, to
Employer and its successors and assigns all of Employee's right, title and
interest in and to all copyrights in all of the Work. Employee shall execute and
deliver to Employer from time to time upon Employer's request such confirmatory
assignments, instruments and other documents so as to evidence and confirm full
record and beneficial ownership of Employer in all such Work. Employee hereby
irrevocably appoints Employer as Employee's attorney-in-fact for the purpose of
signing and delivering such assignments, instruments and other documents, such
appointment being coupled with an interest. "Work" does not include works or
inventions which do not relate to Employer's business and are wholly created or
developed by Employee off Employer's premises, on Employee's own time and
without use of Employer's resources or Confidential Information.
11. NON-INTERFERENCE WITH THIRD-PARTY RIGHTS
By signing this Agreement, and accepting employment or continued
employment with Employer, Employee is representing and warranting to Employer
that (a) Employee is free to accept or continue employment with Employer,
meaning that Employee has no contractual or other commitments which restrict
Employee from performing Employee's employment duties to the fullest extent, and
(b) only Employer is entitled to the benefit of Employee's work and efforts.
Employer advises Employee that Employer has no interest in using any other
person's patents, copyrights, trademarks, trade secrets or confidential or
proprietary information ("Intellectual Property Rights") in an unlawful manner,
and Employee agrees that Employee will not, in performing Employee's employment
duties, make use of any Intellectual Property Rights belonging to another which
Employer has no right to use. If Employee has any doubt about whether Employee
is misusing Intellectual Property Rights of another, Employee shall promptly
notify the General Counsel of Newco ("General Counsel"), so that General Counsel
can ensure that Employer may investigate and make the appropriate decision.
12. VIOLATION OF POLICIES BY OTHER EMPLOYEES
Many, if not most, of Employer's employees are or will be required
to sign this Agreement (or a similar agreement) as a condition of employment or
continued employment with Employer. If Employee becomes aware that any other
employee of Employer is violating any provisions of this Agreement, Employee
shall promptly report such violation to the General Counsel.
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The information provided, and its source, will be treated confidentially to the
extent possible in the circumstances. While Employer understands that it is not
always easy or pleasant to report wrongdoings of a co-worker, it is critically
important that these provisions be observed by Employee, as violations of this
Agreement may cause substantial and irreparable harm to Employer's business
which would cause all employees of Employer to suffer.
13. UNFAIR BUSINESS PRACTICES
If, during Employee's employment with Employer, Employee learns or
suspects that any unfair or questionable business practice may be occurring,
Employee shall advise the General Counsel promptly. This obligation is
intentionally broad and general because it is difficult to anticipate all
possible circumstances, and Employee should resolve all doubts by reporting the
information in question to the General Counsel. In particular, if Employee
receives an offer of any kind (kickbacks, job offers, gifts, offers of money in
exchange for information, etc.) from any outside party or another employee of
Employer, Employee shall immediately notify Employer and provide all information
relating to such offer; provided, however, that this provision shall not require
Employee to report a bona fide job offer that is not received in exchange for
Employer's or other Companies' information or in connection with any
questionable, improper or illegal purpose. No gift, favor, offer, benefit,
promise to pay or other thing of value shall be offered, made or authorized by
Employee for any questionable, improper or illegal purpose, nor shall any bribe
or kickback be offered, made or authorized by Employee, directly or indirectly,
regardless of motive, to or for the benefit of any customer, supplier or other
person or entity doing business with Employer or any of the other Companies, or
any employee or agent thereof, or to or for the benefit of any governmental
official or employee.
14. LAW APPLICABLE
This Agreement shall be governed by and construed pursuant to the
laws of the State of Florida. In the event of a dispute, exclusive venue shall
be in the state or federal courts for Miami-Dade County, Florida.
15. SUCCESSION
This Agreement shall inure to the benefit of the parties and their
respective heirs, administrators, legal representatives, successors (by merger
or otherwise) and assigns and shall be binding upon the parties and their
respective heirs, administrators, legal representatives and successors; however,
this Agreement may not be assigned by Employee.
16. NO WAIVER
A waiver of any breach or violation of any term, provision or
covenant contained in this Agreement shall not be deemed a continuing waiver or
a waiver of any future or past breach or violation. No oral waiver shall be
effective or binding.
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17. PRIOR OR SEPARATE AGREEMENTS
This Agreement contains the entire agreement between Employer and
Employee as of and after the Effective Time in Employee's capacity as an
employee of Employer concerning its subject matter, and supersedes as of and
after the Effective Time all prior and contemporaneous agreements, written or
oral, including, without limitation, that certain Employment Agreement made as
of February 1, 1999, between Employer and Employee, except that (i) any
preexisting or prior agreements regarding confidentiality, non-solicitation,
inventions, work product, proprietary rights, trade secrets and non-competition
shall survive to the extent necessary to allow Employer maximum protection for
its trade secrets, confidential information, goodwill and employee, licensee,
independent contractor, consultant, distributor, retailer, reseller, customer
and other business relationships and (ii) this Agreement and the covenants and
agreements set forth herein are separate and independent of any Non-Competition
and Non-Disclosure Agreement that has been executed and delivered by Employee
concurrently herewith and the covenants and agreements set forth therein and,
accordingly, no pursuit or enforcement of any particular right, power, privilege
or remedy under this Agreement or such Non-Competition and Non-Disclosure
Agreement (as the case may be) at any particular time or from time to time,
singly or together with others, or any partial exercise thereof, shall operate
as a waiver of, or preclude the exercise or availability of, any right, power,
privilege or remedy of Employer under this Agreement, such Non-Competition and
Non-Disclosure Agreement or any other agreement (as the case may be)(2).
18. ATTORNEY'S FEES
In the event either party hereto prevails in any dispute arising
from or relating to this Agreement, the non-prevailing party will be liable for
the prevailing party's reasonable and necessary attorneys' and paralegals' fees
and expenses and court costs before and at trial, in any other proceedings and
at all appellate levels.
19. EFFECTIVENESS
This Agreement shall be effective as of and after the Effective
Time. In the event the Merger Agreement is terminated before the Effective Time,
this Agreement shall be null and void and of no further force and effect.
[SIGNATURES ARE ON FOLLOWING PAGE]
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(2)In the case of the Employment Agreement with E. Steven zum Tobel the
following will be added: "and (iii) that certain letter dated March 1, 1999,
from Employer to and accepted by Employee relating to the issuance to Employee
of 444,444 shares (including 44,444 shares received by Employee as a dividend
from Employer) of common stock, $.01 par value, of Employer and the vesting
thereof shall remain in full force and effect."
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IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the day and year first written above to be effective as of and
after the Effective Time.
EMPLOYEE:
Signature:___________________________
Print Name:__________________________
EMPLOYER:
ONLINETRADINGINC.COM CORP.
By:__________________________________
Name:________________________________
Title:_______________________________
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SCHEDULE A
POSITION AND COMPENSATION
Position: (3)
Annual Base Salary: (4)
Bonus: (5)
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(3) Farshid Tafazzoli - Chief Information Officer of Employer and Vice
President of Newco; E. Steven zum Tobel - President of Employer and Vice
President of Newco; and Derek J. Hernquist - Supervisor of Investment Research
and Development and of Trading Desk of Employer.
(4) $200,000 for Mr. Tafazzoli; $150,000 for Mr. zum Tobel; and
$100,000 for Mr. Hernquist.
(5) With respect to Mr. Tafazzoli: "Employee will be eligible for an
annual discretionary bonus as, when and based on similar criteria that William
R. Cruz and Ralph L. Cruz are so eligible and as otherwise determined by the
Compensation Committee of the Board of Directors of Newco"; with respect to Mr.
zum Tobel: "Employee will be eligible for an annual discretionary bonus in line
with bonuses (if any) of other executive officers of Newco having a similar
position and consistent with his responsibilities and as otherwise determined by
the Compensation Committee of the Board of Directors of Newco"; and with respect
to Mr. Hernquist: "Employee will be eligible for an annual discretionary bonus
consistent with his responsibilities and as otherwise determined by the Board of
Directors of Employer or the Compensation Committee thereof."
<PAGE>
SCHEDULE B
PERMITTED ACTIVITIES
See attached list of activities.
<PAGE>
NON-COMPETE EXCEPTIONS SCHEDULE
Securities trading for registered or unregistered hedge funds or as a firm
trader for a broker-dealer.
Auditing or other strictly accounting services for broker-dealers that provide
no Internet-based services; Teacher of securities related subjects at a college
or university; Owner of, and/or Instructor at, schools or seminars preparing
students for securities licensing tests; Financial planning/estate planning
services (including without limitation acting as a Registered Investment
Advisor); Investment banking services for any industry or market segment.
Owning or operating a software development or similar company unrelated to the
securities industry or to securities or financial market analysis.
<PAGE>
EXHIBIT D-2
FORM OF
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
THIS AGREEMENT, dated as of January 19, 2000 to be effective as of
and after the Effective Time (as defined in the Merger Agreement described
below) is by and among Online Trading Group, Inc., a Florida corporation, Omega
Research, Inc., a Florida corporation ("Omega"), and onlinetradinginc.com corp.
("Online"), a Florida corporation, on the one hand, and _____________________
("Shareholder"), on the other hand.
A. RECITALS
1. Shareholder is, and will be up to and through the consummation
of the mergers (collectively, the "Merger") contemplated under the Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), the owner of
certain outstanding shares of either the common stock, $.01 par value, of Online
("Online Common Stock") or the common stock, $.01 par value, of Omega ("Omega
Common Stock"). Pursuant to the Merger, Shareholder will receive either common
stock, $.01 par value, of Newco ("Newco Common Stock") and cash for fractional
shares in exchange for Online Common Stock owned by Shareholder or will receive
Newco Common Stock in exchange for Omega Common Stock owned by Shareholder.
2. Upon consummation of the Merger at the Effective Time, (i) Omega
Acquisition Corporation, a Florida corporation and wholly owned subsidiary of
Newco ("Omega Merger Sub"), will be merged with and into Omega, and the separate
corporate existence of Merger Sub will cease and Omega will continue as the
surviving corporation and (ii) Onlinetrading Acquisition Corporation, a Florida
corporation and wholly owned subsidiary of Newco ("Online Merger Sub" and,
together with Omega Merger Sub, the "Merger Subs") will be merged with and into
Online, and the separate corporate existence of Online Merger Sub will cease and
Online will continue as the surviving corporation.
3. As a further result of the consummation of the Merger at the
Effective Time, Newco will own one hundred percent of the common stock of the
Surviving Corporations (as defined in the Merger Agreement) and Shareholder,
together with all the other holders of Online Common Stock and Omega Common
Stock, will effectively transfer ownership of the businesses of Online and Omega
to Newco.
4. Shareholder anticipates that the consummation of the Merger will
cause Shareholder significant financial gain and advantage. Shareholder
acknowledges and understands that the execution and delivery by Shareholder of
this Agreement is a specific condition precedent to Newco, Omega, Online and
Merger Subs entering into the Merger Agreement and the obligation of Newco,
Omega, Online and Merger Subs to consummate and effect the Merger, and
Shareholder is executing
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this Agreement in consideration of Newco, Omega, Online and Merger Subs entering
into the Merger Agreement and consummation by Newco, Omega, Online and Merger
Subs of, and as material inducement to Newco, Omega, Online and Merger Subs to
consummate the Merger, resulting in Shareholder's receipt of the Newco Common
Stock (and cash for fractional shares in the case of a shareholder of Online).
5. The parties hereto acknowledge and agree that certain covenants
are necessary to protect the value of the goodwill evidenced by the Online
Common Stock or Omega Common Stock (as the case may be) relinquished by
Shareholder in exchange for the Newco Common Stock, as well as the goodwill
evidenced by the Newco Common Stock to be received by Shareholder in the Merger.
The parties further agree that, since Shareholder's execution and delivery of
this Agreement is a condition precedent to consummation of the Merger, this
Agreement is therefore beneficial to all of the parties hereto.
6. This Agreement covers various subjects, including (i) protection
of Omega's and Online's goodwill, trade secrets and confidential information,
(ii) non-solicitation of Omega and Online's customers, licensees, independent
contractors, consultants and employees, and (iii) restrictions on Shareholder's
ability to compete with Omega or Online or participate in competitive businesses
for a reasonable period of time on and after the Effective Time of this
Agreement. Each of these subjects is equally important, and Shareholder agrees
to faithfully and fully observe all covenants and agreements set forth below
relating to each subject addressed, without exception.
7. Shareholder has been informed and understands, that (a) Omega
and Online have developed and own, and after the Merger will continue to
collaboratively develop and own, at substantial effort and expense, products,
services and valuable trade secrets and other valuable confidential business
information, all of which have enhanced and are expected to continue to enhance
the value of the Newco Common Stock, Omega Common Stock and Online Common Stock;
(b) Omega and Online have developed and/or will be developing important and
substantial relationships with customers, licensees, independent contractors,
consultants, strategic partners, vendors and/or other third parties having
dealings or contractual relationships with Omega and Online many of which have
been known to or will be made known to Shareholder in connection with
Shareholder's business relationships with Omega and Online. In light of all of
the foregoing, in order to protect Omega's and Online's legitimate business
interests, including their goodwill and trade secrets, and in consideration for,
and in order to induce, consummation of the Merger, Shareholder has agreed to
make, for the separate benefit of and enforcement by each of Omega, Online and
Newco, the reasonable covenants and agreements set forth below, all of which
shall be effective as of and after the Effective Time.
NOW, THEREFORE, it is agreed as follows:
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B. COVENANTS AND AGREEMENTS
1. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
(a) CONFIDENTIAL INFORMATION. Shareholder acknowledges that
Shareholder has been informed by Omega and Online that it is Omega's and
Online's policy to maintain as secret and confidential all information and
materials (whether or not stamped or marked "Confidential" or bearing some other
indicia of confidentiality) relating to (i) the financial conditions, operations
and business interests, objectives, plans and strategies of Omega and Online,
(ii) the systems, know-how, records, products, product plans, product designs,
marketing plans, specifications, drawings, product development, services, cost
information, inventions, computer programs, technology, marketing and sales
strategies, techniques and/or programs, trading and investment strategies and
analyses, formulae, methods, methodologies, manuals, proprietary software,
customer lists and other trade secrets from time to time acquired, sold,
developed, maintained and/or used by Omega and Online, (iii) the nature and
terms of Omega's and Online's relationships with their respective customers,
licensees, subscribers, suppliers, lenders, underwriters, stock exchanges,
clearing brokers, vendors, consultants, independent contractors, strategic
partners, other third parties having dealings or contractual relationships with
Omega and Online, attorneys, accountants and employees, and (iv) any proposed
public or private offering of Omega and Online (all such information and
materials are collectively referred to as "Confidential Information").
(b) PROHIBITED DISCLOSURE. Shareholder agrees that Shareholder will
not directly or indirectly at any time (including after the date on which
Shareholder's employment, if any, with Online or Omega (as the case may be)
terminates and including after Shareholder's ownership of any Newco Common Stock
or Online Common Stock or Omega Common Stock (as the case may be) terminates)
divulge, or disclose for any purpose (except as specifically authorized by both
Omega and Online) to any persons, firms, corporations or other entities
(collectively, "Third Parties"), or use or cause or authorize any Third Parties
to use, any such Confidential Information, except in the capacity of an employee
of Omega or Online pursuant to any duties in the course and scope of his
employment. "Confidential Information" does not include information that, at the
time of disclosure, is part of the public domain or is generally known in
Omega's and/or Online's industry without the fault or carelessness of
Shareholder. If Shareholder is required by order of a court or other
governmental or self-regulatory authority to disclose any Confidential
Information, Shareholder will immediately notify Omega and Online so that Omega
and Online may attempt to obtain an appropriate protective order, and, in all
events, Shareholder will only disclose the portion of the Confidential
Information required by such order to be disclosed.
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2. COVENANT-NOT-TO-COMPETE
(a) COVENANT-NOT-TO-COMPETE. Shareholder covenants and agrees that
for a period of ____(1)____ (__) years after the Effective Time (the "Effective
Period"), Shareholder will not, directly or indirectly (as defined below), in
any capacity (i) market, sell, provide or license, or be involved in the
marketing, sale, provision or licensing of, any Financial Market Data Software
Products or Software-Related Services (as defined below) to any person or entity
who is or was a distributor, retailer, reseller, licensee, subscriber, client or
customer of Omega or Online at any time during the two (2) years preceding the
Effective Time through the conclusion of the Effective Period, or (ii) market,
sell, provide or license, or be involved in the marketing, sale, provision or
licensing of, any Financial Market Data Software Products or Software-Related
Services (as defined below), in whole or in part via electronic commerce,
telemarketing, telecommunication, cable, the Web or the Internet, anywhere
within the world. "Financial Market Data Software Products or Software- Related
Services" means (A) software products and/or services (including, without
limitation, all browser based and other Internet related applications) which (1)
collect or deliver financial market data (including but not limited to stocks,
bonds, options, futures, commodities, other securities and/or fundamental
company data), and/or (2) supply financial data to support online investing and
trading, including in the form of financial Web sites and communities, and
Internet-delivered streaming or other market data services, and/or (3) are or
can be used to make, review or devise investment analyses or strategies,
including, without limitation, charting, technical analysis and/or trading or
investment strategy design, testing and/or automation and/or (B) securities
brokerage services (including, without limitation, in connection with revenue
sharing arrangements) and trading and other investment services and services and
products ancillary to any such securities brokerage, trading or other investment
services; provided, however, that "Financial Market Data Software Products or
Software-Related Services" shall not include the activities specifically set
forth on Exhibit A annexed hereto. Shareholder acknowledges that the businesses
of Omega and Online are international in scope, that, due to the electronic and
telephonic nature of Omega's and Online's businesses and the nature of their
licensees, subscribers and customers, one could effectively compete with such
businesses from nearly anywhere in the world, and that, therefore, such
geographical area of restriction is reasonable in the circumstances to protect
Omega's and Online's respective goodwill, trade secrets and other legitimate
business interests.
(b) DEFINITION OF "DIRECTLY OR INDIRECTLY." For purposes of Section
2(a), "directly or indirectly" means to engage or participate in any venture,
enterprise, activity or business which is materially involved (as hereinafter
defined) in the marketing, selling, licensing or provision of Financial Market
Data Software Products or Software-Related Services, passively (except for
passive
- --------
(1) Four (4) years for each of Andrew A. Allen, Farshid Tafazzoli and
Benedict S. Gambino, William R. Cruz and Ralph L. Cruz and two (2) years for
each of E. Steven zum Tobel and Derek J. Hernquist.
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investments in publicly-traded companies) or actively, as a sole proprietor,
owner, director, officer, shareholder, partner, member, consultant, independent
contractor, advisor, participant, employee or agent, or in any other manner. For
purposes hereof, "materially involved" means that the venture, enterprise,
activity or business directly or indirectly or together with any of its
subsidiaries, affiliates or partners or through strategic alliances or any
specific division or business unit of any such venture, enterprise, activity or
business either (i) derives in any year 5% or more of its gross revenue from
Financial Market Data Software Products or Software-Related Services or (ii)
incurs in any year 5% or more of its expenses (operating and/or capital) in
connection with or as a result of Financial Market Data Software Products or
Software-Related Services.
3. NON-SOLICITATION OF EMPLOYEES AND OTHERS.
(a) NON-SOLICITATION OF EMPLOYEES AND OTHERS. Shareholder
acknowledges that Omega and Online each devotes substantial time, effort and
expense to the recruitment, selection, training, development and promotion of
talented individuals for positions of significant responsibility with Omega and
Online. Shareholder further acknowledges that it would be unfair to use
Shareholder's familiarity with Omega's and Online's businesses, employees,
independent contractors and consultants, to participate, directly or indirectly,
in any activities designed to cause any of Omega's and Online's businesses,
employees, independent contractors or consultants to cease performing services
for either or both of Omega and Online. Accordingly, Shareholder covenants and
agrees that for the later to occur of (i) one year following the date of
termination of the direct and/or indirect beneficial ownership by Shareholder of
all Newco Common Stock or (ii) two (2) years after the Effective Time,
Shareholder will not, directly or indirectly, solicit the services of or
recruit, whether on Shareholder's own behalf or on behalf of others, any of the
following types of employees, independent contractors or consultants of Omega
and Online: (i) executives, managers, supervisors or department directors; (ii)
technicians, engineers, programmers, designers, developers or information, Web
or Internet services workers (whether employees, independent contractors or
consultants); (iii) product, project or task managers or supervisors (whether
employees, independent contractors or consultants); (iv) sales, marketing,
public or customer relations personnel or consultants; (v) brokers, traders,
securities associates or salespersons or other similar types of personnel; (vi)
financial or accounting services personnel or consultants; (vii) legal
personnel; (viii) customer support personnel or consultants; or (ix) human
resources personnel; provided, however, that such provision does not apply to
Shareholder's attorneys, accountants, investment bankers and other professional
advisors. Shareholder agrees not to persuade or cause, or attempt to persuade or
cause, any such employee, independent contractor or consultant to leave Omega's
or Online's employ or cease performing services for Omega or Online.
(b) DAMAGES. Shareholder acknowledges that breach or violation of
this covenant would cause substantial damages to Omega and/or Online.
Shareholder agrees that, in the event of a breach or violation of this covenant
of non-solicitation, Shareholder will be liable to compensate Omega and/or
Online for all damages, including, without limitation, consequential damages,
not limited to lost profits, expenses incurred to replace the employee or
business relationship, finder's fees, sign-on bonuses and compensation,
remuneration and/or benefits premiums paid to employees,
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independent contractors and consultants to secure their services to replace the
lost relationship(s). The payment of such damages shall not limit, impair or
diminish Omega's and/or Online's right to seek and obtain (x) any appropriate
equitable relief (including but not limited to specific performance, temporary
restraining order and temporary and permanent injunction), (y) other monetary
and other relief, at law or in equity, for other causes of action which may have
resulted from Shareholder's breach or violation (such as intentional
interference with contractual or business relations in the event an employee is
solicited by Shareholder for a competitive position and such employee is subject
to a covenant-not-to-compete), or (z) monetary and other relief, at law or in
equity, from or against persons or entities other than Shareholder.
4. REMEDIES FOR BREACH OF SECTIONS 1, 2 AND 3
In addition to the remedies referred to in Section 3(b), above
Shareholder agrees that, if Shareholder breaches or violates any of
Shareholder's covenants or agreements in Section 1, 2 and 3 hereof, Omega and
Online shall be entitled to an accounting and repayment of any and all profits,
compensation, commissions, payments and benefits which Shareholder directly or
indirectly has realized and realizes as a result of, or in connection with, any
such violation or breach. In addition, in the event of a breach or violation or
threatened or imminent breach or violation of any provisions of Section 1, 2 and
3 hereof, Omega and Online shall be entitled to a temporary and permanent
injunction or any other appropriate decree of specific performance or equitable
relief (without, unless otherwise required by statute, being required to post
bond or other security) from a court of competent jurisdiction in order to
prevent, prohibit or restrain any such breach or violation or threatened breach
or violation by Shareholder. Omega and Online shall be entitled to such
injunctive or other equitable relief in addition to any ascertainable damages
which are suffered. It is understood that resort by Omega and Online (or either
of them) to such injunctive or other equitable relief shall not be deemed to
waive or to limit in any respect any other rights or remedies which Omega and
Online (or either of them) may have with respect to such breach or violation.
5. REASONABLENESS OF RESTRICTIONS
(a) REASONABLENESS. Shareholder acknowledges that any breach or
violation of Section 1, 2 or 3 hereof will likely cause irreparable injury and
damage to each of Omega and Online and that it would be very difficult or
impossible to measure all of the damages resulting from any such breach or
violation. Shareholder further acknowledges that Shareholder has carefully read
and considered the provisions of Sections 1, 2 and 3 hereof and, having done so,
agrees that the restrictions and remedies set forth in such Sections (including
the time period, geographical limits and scope of activity restricted) are fair
and reasonable and do not impose a greater restraint than is necessary for the
protection of the trade secrets, goodwill and other legitimate business
interests of each of Omega and Online.
(b) SEVERABILITY. Shareholder understands and intends that each
provision and restriction agreed to by Shareholder in Sections 1, 2 and 3 hereof
be construed as separate and divisible from every other provision and
restriction. In the event that any one of the provisions of,
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or restrictions in, Sections 1, 2 and/or 3 hereof shall be held to be invalid or
unenforceable, and is not reformed by a court of competent jurisdiction (which a
court, in lieu of striking a provision entirely, is urged by the parties to do),
the remaining provisions and restrictions shall continue to be valid and
enforceable as though the invalid or unenforceable provision or restriction had
not been included. In the event that any provision relating to time period,
geographical limits or scope of activity restricted (collectively,
"Limitations") shall be declared by a court of competent jurisdiction to exceed
the maximum or permissible Limitations such court deems reasonable and
enforceable, said Limitations shall be deemed to become and shall then be the
maximum Limitations which such court deems reasonable and enforceable.
(c) DEFINITIONS. For purposes of Sections 1, 2 and 3 of this
Agreement, the terms Omega and Online (a "Company") each includes such Company
(and its successor by merger or otherwise) and any parent corporations of such
Company (or its successors) and all direct and indirect subsidiaries of such
Company (or its successor) and its parent corporation.
6. LAW APPLICABLE
This Agreement shall be governed by and construed pursuant to the
laws of the State of Florida. In the event of a dispute, exclusive venue shall
lie in the state or federal courts for Miami-Dade County, Florida.
7. SUCCESSION
This Agreement shall inure to the benefit of the parties and their
respective heirs, administrators, legal representatives, successors (by merger
or otherwise) and assigns and shall be binding upon the parties and their
respective heirs, administrators, legal representatives and successors.
8. NO WAIVER
A waiver of any breach or violation of any term, provision or
covenant contained in this Agreement shall not be deemed a continuing waiver or
a waiver of any future or past breach or violation. No oral waiver shall be
effective or binding.
9. SEPARATE AGREEMENT; CUMULATIVE REMEDIES
This Agreement and the covenants and agreements set forth herein
are separate and independent of any Employment Agreement that has been executed
and delivered by Shareholder in connection with the Merger or any other
agreement previously executed by Shareholder with either Omega or Online and the
covenants and agreements set forth therein. Accordingly, no pursuit or
enforcement of any particular right, power, privilege or remedy under this
Agreement or under such Agreement Regarding Employment (as the case may be) at
any particular time or from time to time, singly or together with others, or any
partial exercise thereof, shall operate as a waiver of, or
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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]
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IN WITNESS WHEREOF, the undersigned have executed this
Non-Competition and Non- Disclosure Agreement as of the day and year first above
written to be effective as of and after the Effective Time.
SHAREHOLDER:
Signature:___________________________
Print Name:__________________________
ONLINE TRADING GROUP, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
OMEGA RESEARCH, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
ONLINETRADINGINC.COM CORP.
By:__________________________________
Name:________________________________
Title:_______________________________
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EXHIBIT A
PERMITTED ACTIVITIES
See attached list of activities.
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NON-COMPETE EXCEPTIONS SCHEDULE
Securities trading for registered or unregistered hedge funds or as a firm
trader for a broker-dealer.
Auditing or other strictly accounting services for broker-dealers that provide
no Internet-based services; Teacher of securities related subjects at a college
or university; Owner of, and/or Instructor at, schools or seminars preparing
students for securities licensing tests; Financial planning/estate planning
services (including without limitation acting as a Registered Investment
Advisor); Investment banking services for any industry or market segment.
Owning or operating a software development or similar company unrelated to the
securities industry or to securities or financial market analysis.
<PAGE>
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This First Amendment ("Amendment") hereby amends effective March 7,
2000 the Agreement and Plan of Merger and Reorganization (the "Plan of Merger"),
dated January 19, 2000, by and among Omega Research, Inc., a Florida corporation
("Omega"), onlinetradinginc.com corp., a Florida corporation ("Online"), Online
Trading Group, Inc., a Florida corporation("Newco"), Omega Acquisition
Corporation, a Florida corporation and wholly owned subsidiary of Newco ("Omega
Merger Sub"), and Onlinetrading Acquisition Corporation, a Florida corporation
and wholly owned subsidiary of Newco ("Online Merger Sub"). Capitalized terms
not otherwise defined herein shall have the respective meanings set forth in the
Agreement.
WHEREAS, the parties entered into the Agreement on January 19, 2000;
and
WHEREAS, the parties desire to amend the terms of the Agreement to
incorporate the terms herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree that the
Agreement shall be amended as follows:
1. Section 1.4 (a) shall be amended and restated in its entirety
to read as follows:
"(a) At the Effective Time, the Articles of
Incorporation (the "Omega Articles of Incorporation")
of Omega Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Articles of
Incorporation of the Omega Surviving Corporation;
provided, however, that Article I of the Omega
Articles of Incorporation shall be amended to read as
follows: "The name of the corporation is Omega
Research, Inc."
2. Section 1.4 (c) shall be amended and restated in its entirety
to read as follows:
"(c) At the Effective Time, the Articles of
Incorporation (the "Online Articles of
Incorporation") of Online Merger Sub, as in effect
immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Online Surviving
Corporation; provided, however, that Article I of the
Online Articles of Incorporation shall be amended to
read as follows: "The name of the corporation is
OnlineTrading.com, Inc."
<PAGE>
3. The parties hereto hereby authorize and consent to the filing
of an amendment to the Articles of Incorporation of Newco pursuant to which
Article I of the Articles of Incorporation shall be amended to change the name
of Newco to "OnlineTrading.com Group, Inc." and, upon such filing with the
Secretary of State of the State of Florida, all references to "Online Trading
Group, Inc." in the Agreement and any and all other agreements and instruments
entered into between or among the parties hereto in connection therewith shall
be modified to reflect the name change to "OnlineTrading.com Group, Inc."
4. Except as otherwise specifically set forth in this Amendment,
the Agreement shall remain in full force and effect in accordance with the terms
thereof. This Amendment shall be governed by and construed in accordance with
the laws of the State of Florida. This Amendment may be executed by one or more
of the parties hereto on any number of separate counterparts and all said
counterparts taken together, shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered effective as of the day and year first written
above.
ONLINETRADINGINC.COM CORP. OMEGA RESEARCH, INC.
By: /s/ STEVEN ZUM TOBEL By: /s/ RALPH L. CRUZ
----------------------------- ----------------------
Name: Steven zum Tobel Name: Ralph L. Cruz
Title: President Title: Co-Chief Executive Officer
ONLINE TRADING GROUP, INC. OMEGA ACQUISITION CORPORATION
By: /s/ RALPH L. CRUZ By: /s/ RALPH L. CRUZ
----------------------------- ---------------------------
Name: Ralph L. Cruz Name: Ralph L. Cruz
Title: Co-Chief Executive Officer Title: Co-Chief Executive Officer
ONLINETRADING ACQUISITION CORPORATION
By: /s/ RALPH L. CRUZ
-----------------------------
Name: Ralph L. Cruz
Title: Co-Chief Executive Officer
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APPENDIX B
OMEGA
SHAREHOLDER AGREEMENT
This SHAREHOLDER AGREEMENT (this "Agreement") is made and entered into
as of January 19, 2000 between Online Trading Group, Inc., a Florida corporation
("Newco"), onlinetradinginc.com corp., a Florida corporation ("Online"), and the
undersigned shareholder ("Shareholder") of Omega Research, Inc., a Florida
corporation ("Company"). Capitalized terms used and not otherwise defined herein
shall have the respective meanings set forth in the Merger Agreement described
below.
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Merger and Reorganization
dated as of January 19, 2000 by and among Company, Online, Newco, Omega
Acquisition Corporation, a Florida corporation and wholly owned subsidiary of
Newco ("Omega Merger Sub"), and Onlinetrading Acquisition Corporation, a Florida
corporation and wholly owned subsidiary of Newco, (such agreement as it may be
amended is hereinafter referred to as the "Merger Agreement"), Newco has agreed,
among other things, to acquire by merger (collectively, the "Merger"): (i) the
outstanding securities of Company pursuant to a statutory merger of Omega Merger
Sub with and into Company in which each outstanding share of common stock of
Company (the "Company Capital Stock") will be converted into shares of common
stock of Newco (the "Newco Common Stock") at the exchange rate set forth in the
Merger Agreement; and (ii) the outstanding securities of Online pursuant to a
statutory merger of Online Merger Sub with and into Online in which each
outstanding share of common stock of Online will be converted into shares of
Newco Common Stock at the exchange rate set forth in the Merger Agreement
(collectively, the "Transaction");
WHEREAS, in order to induce Newco and Online to enter into the Merger
Agreement and consummate the Transaction, each shareholder of Company who is an
affiliate of Company has agreed to execute and deliver to Newco and Online a
Shareholder Agreement upon the terms set forth herein; and
WHEREAS, Shareholder is the registered and beneficial owner of such
number of shares of the outstanding Company Capital Stock as is indicated on the
signature page of this Agreement (the "Shares").
NOW, THEREFORE, the parties agree as follows:
1. AGREEMENT TO RETAIN SHARES.
1.1 TRANSFER AND ENCUMBRANCE.
(a) Shareholder is the beneficial owner of the
Shares and, except as otherwise set forth on the signature page hereto, (A) has
held each such Shares at all times since the date such Shares were originally
issued by Company, and (B) did not acquire any shares of Company Capital Stock
in contemplation of the Merger. The Shares constitute Shareholder's entire
interest in the outstanding capital stock and voting securities of Company. No
other person or entity not a signatory to this Agreement has a beneficial
interest in or a right to acquire the Shares or any portion
<PAGE>
of the Shares. The Shares are, and will be at all times up until the Expiration
Date, free and clear of any liens, claims, options, charges or other
encumbrances. Shareholder's principal residence or place of business is
accurately set forth on the signature page hereto.
(b) Shareholder agrees not to transfer (except
as may be specifically required by court order or by operation of law, in which
case any such transferee shall agree to be bound hereby), sell, exchange, pledge
or otherwise dispose of or encumber any Shares or any New Shares (as defined
below), or to make any offer or agreement relating thereto, at any time prior to
the Expiration Date (as defined hereinafter). As used herein, the term
"Expiration Date" shall mean the earlier to occur of (i) the Effective Time or
(ii) termination of the Merger Agreement in accordance with the terms thereof.
1.2 NEW SHARES. Shareholder agrees that any shares of capital
stock or voting securities of Company that Shareholder purchases or with respect
to which Shareholder otherwise acquires beneficial ownership after the date of
this Agreement and prior to the Expiration Date ("New Shares") shall be subject
to the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. AGREEMENT TO VOTE SHARES. Prior to the Expiration Date, at every
meeting of the stockholders of Company at which any of the following is
considered or voted upon, and at every adjournment thereof, and on every action
or approval by written resolution of the stockholders of Company with respect to
any of the following, Shareholder shall vote the Shares and any New Shares in
favor of approval and adoption of the Merger Agreement and of the Transaction
and all matters related thereto.
3. IRREVOCABLE PROXY. Shareholder hereby agrees to timely deliver to
Online a duly executed proxy in the form attached hereto as Annex A (the
"Proxy"), such Proxy to cover the Shares and all New Shares in respect of which
Shareholder is entitled to vote at each meeting of the stockholders of Company
(including, without limitation, each written consent in lieu of a meeting)
related to the Merger Agreement and the Transaction. In the event that
Shareholder is unable to provide any such Proxy in a timely manner, Shareholder
hereby grants to certain designees of Online a power of attorney to execute and
deliver such Proxy for and on behalf of Shareholder, such power of attorney,
which being coupled with an interest, shall survive any death, disability,
bankruptcy, or any other such impediment of Shareholder. Upon the execution of
this Agreement by Shareholder, Shareholder hereby revokes any and all prior
proxies or powers of attorney given by Shareholder with respect to the Shares
related to the Merger Agreement and the Transaction and agrees not to grant any
subsequent proxies or powers of attorney with respect to the Shares related to
the Merger Agreement and the Transaction until after the Expiration Date.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SHAREHOLDER.
Shareholder hereby represents, warrants and covenants to Newco and Online as
follows:
(a) Shareholder has full power and legal
capacity to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by
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Shareholder and constitutes the valid and binding obligation of Shareholder,
enforceable against Shareholder in accordance with its terms. The execution and
delivery of this Agreement by Shareholder does not, and the performance of
Shareholder's obligations hereunder will not, result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any right to terminate, amend,
accelerate or cancel any right or obligation under, or result in the creation of
any lien of encumbrance on any Shares or New Shares pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Shareholder is a party or by which
Shareholder or the Shares or New Shares are or will be bound or affected.
(b) Until the Expiration Date, Shareholder will
not (and will use Shareholder's reasonable best efforts to cause Company, its
affiliates, officers, directors and employees and any investment banker,
attorney, accountant or other agent retained by Shareholder, Company or any of
the same, not to), except to the extent otherwise permitted under Section 5.4 of
the Merger Agreement: (i) initiate or solicit, directly or indirectly, any
proposal, plan or offer to acquire all or any material part of the business or
properties or capital stock of Company, whether by merger, purchase of assets,
tender offer or otherwise, or to liquidate Company or otherwise distribute to
the stockholders of Company all or any substantial part of the business,
properties or capital stock of Company (each, an "Acquisition Proposal"); (ii)
initiate, directly or indirectly, any contact with any person in an effort to or
with a view towards soliciting any Acquisition Proposal; (iii) furnish
information concerning Company's business, properties or assets to any
corporation, partnership, person or other entity or group (other than a party to
the Merger Agreement, or any associate, agent or representative of a party to
the Merger Agreement) under any circumstances that could reasonably be expected
to relate to an actual or potential Acquisition Proposal; or (iv) negotiate or
enter into discussions or an agreement, directly or indirectly, with any entity
or group with respect of any potential Acquisition Proposal. In the event
Shareholder shall receive or become aware of any Acquisition Proposal subsequent
to the date hereof, Shareholder shall promptly inform Online as to any such
matter and the details thereof to the extent possible without breaching any
other agreement to which such Shareholder is a party or violating Shareholder's
fiduciary duties.
(c) Shareholder understands and agrees that if
Shareholder attempts to transfer or vote or provide any other person with the
authority to vote any of the Shares with respect to any vote or other
stockholder action related to the Merger Agreement and the Transaction other
than in compliance with this Agreement, Company shall not, and Shareholder
hereby unconditionally and irrevocably instructs Company to not, permit any such
transfer on its books and records, issue a new certificate representing any of
the Shares or record such vote unless and until Shareholder shall have complied
with the terms of this Agreement. Shareholder further understands and agrees
that the Company may elect to not permit the transfer of shares of the Company
Capital Stock or the issuance of a new certificate representing such shares
unless and until such a transfer can be made without adversely affecting the
ability of Newco and/or each of the Surviving Corporations to account for the
business combination to be effected by the Merger as a pooling of interests.
5. ADDITIONAL DOCUMENTS. Shareholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Newco or Online, to carry out the purpose and intent of
this Agreement.
3
<PAGE>
6. CONSENT AND WAIVER. Shareholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger Agreement and
the Transaction under the terms of any agreement to which Shareholder is a party
or pursuant to any rights Shareholder may have.
7. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. CONFIDENTIALITY. Shareholder agrees (i) to hold any information
regarding this Agreement and the Transaction in strict confidence, and (ii) not
to divulge any such information to any third person, except to the extent any of
the same is hereafter publicly disclosed by Online and Company.
9. FIDUCIARY RESPONSIBILITIES. Notwithstanding anything to the contrary
herein, to the extent Shareholder is or becomes during the term hereof a
director or officer of the Company, Shareholder is not making (nor shall be
deemed to have made) any agreement or understanding herein in his or her
capacity as such director or officer. Without limiting the generality of the
foregoing, Shareholder is executing this Agreement solely in his, her or its
capacity as the record and/or beneficial owner, as applicable, of the Shares and
nothing herein shall limit or affect any actions taken by Shareholder (or a
designee of such Shareholder) in his or her capacity as an officer or director
of the Company in exercising his or her or the Company's or the Company's Board
of Director's rights in connection with the Merger Agreement or otherwise.
10. MISCELLANEOUS.
10.1 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
10.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor any
of the rights, interests or obligations of the parties hereto may be assigned by
either of the parties without the prior written consent of the other. This
Agreement is intended to bind Shareholder solely as a security holder of Company
only with respect to the specific matters set forth herein.
10.3 AMENDMENT AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except by the execution and delivery
of a written agreement executed by the parties hereto.
10.4 SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF. The parties
hereto acknowledge that Newco and Online will be irreparably harmed and that
there will be no adequate remedy at law for a violation of any of the covenants
or agreements of Shareholder set forth herein. Therefore, it is
4
<PAGE>
agreed that, in addition to any other remedies that may be available to Newco or
Online upon any such violation, Newco shall have the right to enforce such
covenants and agreements by specific performance, injunctive relief or by any
other means available to Newco or Online at law or in equity and Shareholder
hereby waives any and all defenses which could exist in its favor in connection
with such enforcement and waives any requirement for the security or posting of
any bond in connection with such enforcement.
10.5 NOTICES. All notices, requests, demands or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed by registered or certified mail, postage prepaid, or
sent by facsimile transmission, as follows:
(a) If to Shareholder, at the address set forth
below Shareholder's signature at the end hereof.
(b) if to Newco, to:
c/o Omega Research, Inc.
8700 West Flagler Street, Suite 250
Miami, Florida 33174
Attention: Salomon Sredni, President
Facsimile No.: (305) 485-7019
Telephone No.: (305) 485-7000
with a copy to:
Bilzin Sumberg Dunn Price & Axelrod LLP
2500 First Union Financial Center
Miami, Florida 33131-2336
Attention: Alan D. Axelrod, Esq.
Facsimile No. (305) 374-7593
Telephone No. (305)374-7580
(c) if to Online, to:
onlinetradinginc.com corp.
2700 N. Military Trail
Suite 200
Boca Raton, Florida 33431
Attention: Steven zum Tobel, President
Facsimile No.: (561) 955-0606
Telephone No.: (561) 995-1010
5
<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]
6
<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: (Print Name of Shareholder)
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-----------------------------------------
(Print Street Address)
-----------------------------------------
(Print City, State and Zip)
-----------------------------------------
(Print Telephone Number)
-----------------------------------------
(Social Security or Tax I.D. Number)
Total Number of Shares of Company Capital Stock owned on the date hereof-
Common Stock:
----------------------------------
Principal Residence or Place of Business:
--------------------------------------
SIGNATURE PAGE TO OMEGA SHAREHOLDER AGREEMENT
7
<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
8
<PAGE>
or adjourned meeting of the stockholders of Company and in every written consent
in lieu of such meeting in favor of approval and adoption of the Merger
Agreement and of any and all of the transactions and matters contemplated
thereby.
The Proxies named above may not exercise this Irrevocable Proxy on any
other matter except as provided above. The undersigned shareholder may vote the
Shares on all other matters.
All authority herein conferred shall survive the death or incapacity of
the undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: ______________, 2000
-----------------------------------------
(Signature of Shareholder)
-----------------------------------------
(Print Name of Shareholder)
Shares beneficially owned:
__________ shares of Company Common Stock
9
<PAGE>
APPENDIX C
ONLINE
SHAREHOLDER AGREEMENT
This SHAREHOLDER AGREEMENT (this "Agreement") is made and entered into
as of January 19, 2000 between Online Trading Group, Inc., a Florida corporation
("Newco"), Omega Research, Inc., a Florida Corporation ("Omega") and the
undersigned shareholder ("Shareholder") of onlinetradinginc.com corp., a
Florida corporation ("Company"). Capitalized terms used and not otherwise
defined herein shall have the respective meanings set forth in the Merger
Agreement described below.
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Merger and Reorganization
dated as of January 19, 2000 by and among Company, Omega, Newco, Omega
Acquisition Corporation, a Florida corporation and wholly owned subsidiary of
Newco and Onlinetrading Acquisition Corporation, a Florida corporation and
wholly owned subsidiary of Newco (such agreement as it may be amended is
hereinafter referred to as the "Merger Agreement"), Newco has agreed, among
other things, to acquire by merger (collectively, the "Merger"): (i) the
outstanding securities of Company pursuant to a statutory merger of Online
Merger Sub with and into Company in which each outstanding share of common stock
of Company (the "Company Capital Stock") will be converted into shares of common
stock of Newco (the "Newco Common Stock") at the exchange rate set forth in the
Merger Agreement and (ii) the outstanding securities of Omega pursuant to a
statutory merger of Omega Merger Sub with and into Omega in which each
outstanding share of common stock of Omega will be converted into shares of
Newco Common Stock at the exchange rate set forth in the Merger Agreement
(collectively, the "Transaction");
WHEREAS, in order to induce Newco and Omega to enter into the Merger
Agreement and consummate the Transaction, each shareholder of Company who is an
affiliate of Company has agreed to execute and deliver to Newco and Omega a
Shareholder Agreement upon the terms set forth herein; and
WHEREAS, Shareholder is the registered and beneficial owner of such
number of shares of the outstanding Company Capital Stock as is indicated on the
signature page of this Agreement (the "Shares").
NOW, THEREFORE, the parties agree as follows:
1. AGREEMENT TO RETAIN SHARES.
1.1 TRANSFER AND ENCUMBRANCE.
(a) Shareholder is the beneficial owner of the
Shares and, except as otherwise set forth on the signature page hereto, (A) has
held each such Shares at all times since the date such Shares were originally
issued by Company, and (B) did not acquire any shares of Company Capital Stock
in contemplation of the Merger. The Shares constitute Shareholder's entire
interest in the outstanding capital stock and voting securities of Company. No
other person or entity not a signatory to this Agreement has a beneficial
interest in or a right to acquire the Shares or any portion
<PAGE>
of the Shares. The Shares are, and will be at all times up until the Expiration
Date, free and clear of any liens, claims, options, charges or other
encumbrances. Shareholder's principal residence or place of business is
accurately set forth on the signature page hereto.
(b) Shareholder agrees not to transfer (except
as may be specifically required by court order or by operation of law, in which
case any such transferee shall agree to be bound hereby), sell, exchange, pledge
or otherwise dispose of or encumber any Shares or any New Shares (as defined
below), or to make any offer or agreement relating thereto, at any time prior to
the Expiration Date (as defined hereinafter) except as disclosed on Schedule I
attached hereto. As used herein, the term "Expiration Date" shall mean the
earlier to occur of (i) the Effective Time or (ii) termination of the Merger
Agreement in accordance with the terms thereof.
1.2 NEW SHARES. Shareholder agrees that any shares of capital
stock or voting securities of Company that Shareholder purchases or with respect
to which Shareholder otherwise acquires beneficial ownership after the date of
this Agreement and prior to the Expiration Date ("New Shares") shall be subject
to the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. AGREEMENT TO VOTE SHARES. Prior to the Expiration Date, at every
meeting of the stockholders of Company at which any of the following is
considered or voted upon, and at every adjournment thereof, and on every action
or approval by written resolution of the stockholders of Company with respect to
any of the following, Shareholder shall vote the Shares and any New Shares in
favor of approval and adoption of the Merger Agreement and of the Transaction
and all matters related thereto.
3. IRREVOCABLE PROXY. Shareholder hereby agrees to timely deliver to
Omega a duly executed proxy in the form attached hereto as Annex A (the
"Proxy"), such Proxy to cover the Shares and all New Shares in respect of which
Shareholder is entitled to vote at each meeting of the stockholders of Company
(including, without limitation, each written consent in lieu of a meeting)
related to the Merger Agreement and the Transaction. In the event that
Shareholder is unable to provide any such Proxy in a timely manner, Shareholder
hereby grants to certain designees of Omega a power of attorney to execute and
deliver such Proxy for and on behalf of Shareholder, such power of attorney,
which being coupled with an interest, shall survive any death, disability,
bankruptcy, or any other such impediment of Shareholder. Upon the execution of
this Agreement by Shareholder, Shareholder hereby revokes any and all prior
proxies or powers of attorney given by Shareholder with respect to the Shares
related to the Merger Agreement and the Transaction and agrees not to grant any
subsequent proxies or powers of attorney with respect to the Shares related to
the Merger Agreement and the Transaction until after the Expiration Date.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SHAREHOLDER.
Shareholder hereby represents, warrants and covenants to Newco and Omega as
follows:
(a) Shareholder has full power and legal
capacity to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by
2
<PAGE>
Shareholder and constitutes the valid and binding obligation of Shareholder,
enforceable against Shareholder in accordance with its terms. The execution and
delivery of this Agreement by Shareholder does not, and the performance of
Shareholder's obligations hereunder will not, result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any right to terminate, amend,
accelerate or cancel any right or obligation under, or result in the creation of
any lien of encumbrance on any Shares or New Shares pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Shareholder is a party or by which
Shareholder or the Shares or New Shares are or will be bound or affected.
(b) Until the Expiration Date, Shareholder will
not (and will use Shareholder's reasonable best efforts to cause Company, its
affiliates, officers, directors and employees and any investment banker,
attorney, accountant or other agent retained by Shareholder, Company or any of
the same, not to), except to the extent otherwise permitted under Section 5.4 of
the Merger Agreement: (i) initiate or solicit, directly or indirectly, any
proposal, plan or offer to acquire all or any material part of the business or
properties or capital stock of Company, whether by merger, purchase of assets,
tender offer or otherwise, or to liquidate Company or otherwise distribute to
the stockholders of Company all or any substantial part of the business,
properties or capital stock of Company (each, an "Acquisition Proposal"); (ii)
initiate, directly or indirectly, any contact with any person in an effort to or
with a view towards soliciting any Acquisition Proposal; (iii) furnish
information concerning Company's business, properties or assets to any
corporation, partnership, person or other entity or group (other than a party to
the Merger Agreement, or any associate, agent or representative of a party to
the Merger Agreement) under any circumstances that could reasonably be expected
to relate to an actual or potential Acquisition Proposal; or (iv) negotiate or
enter into discussions or an agreement, directly or indirectly, with any entity
or group with respect of any potential Acquisition Proposal. In the event
Shareholder shall receive or become aware of any Acquisition Proposal subsequent
to the date hereof, Shareholder shall promptly inform Omega as to any such
matter and the details thereof to the extent possible without breaching any
other agreement to which such Shareholder is a party or violating Shareholder's
fiduciary duties.
(c) Shareholder understands and agrees that if
Shareholder attempts to transfer or vote or provide any other person with the
authority to vote any of the Shares with respect to any vote or other
stockholder action related to the Merger Agreement and the Transaction other
than in compliance with this Agreement, Company shall not, and Shareholder
hereby unconditionally and irrevocably instructs Company to not, permit any such
transfer on its books and records, issue a new certificate representing any of
the Shares or record such vote unless and until Shareholder shall have complied
with the terms of this Agreement except in the event of and in connection with a
foreclosure of the lien described on Schedule I. Shareholder further understands
and agrees that the Company may elect to not permit the transfer of shares of
Company Capital Stock or the issuance of a new certificate representing such
shares unless and until such a transfer can be made without adversely affecting
the ability of Newco and/or each of the Surviving Corporations to account for
the business combination to be effected by the Merger as a pooling of interests.
3
<PAGE>
5. ADDITIONAL DOCUMENTS. Shareholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Newco or Omega, to carry out the purpose and intent of
this Agreement.
6. CONSENT AND WAIVER. Shareholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger Agreement and
the Transaction under the terms of any agreement to which Shareholder is a party
or pursuant to any rights Shareholder may have.
7. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. CONFIDENTIALITY. Shareholder agrees (i) to hold any information
regarding this Agreement and the Transaction in strict confidence, and (ii) not
to divulge any such information to any third person, except to the extent any of
the same is hereafter publicly disclosed by Omega and Company.
9. FIDUCIARY RESPONSIBILITIES. Notwithstanding anything to the contrary
herein, to the extent Shareholder is or becomes during the term hereof a
director or officer of the Company, Shareholder is not making (nor shall be
deemed to have made) any agreement or understanding herein in his or her
capacity as such director or officer. Without limiting the generality of the
foregoing, Shareholder is executing this Agreement solely in his, her or its
capacity as the record and/or beneficial owner, as applicable, of the Shares and
nothing herein shall limit or affect any actions taken by Shareholder (or a
designee of such Shareholder) in his or her capacity as an officer or director
of the Company in exercising his or her or the Company's or the Company's Board
of Director's rights in connection with the Merger Agreement or otherwise.
10. MISCELLANEOUS.
10.1 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
10.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor any
of the rights, interests or obligations of the parties hereto may be assigned by
either of the parties without the prior written consent of the other. This
Agreement is intended to bind Shareholder solely as a security holder of Company
only with respect to the specific matters set forth herein.
10.3 AMENDMENT AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except by the execution and delivery
of a written agreement executed by the parties hereto.
4
<PAGE>
10.4 SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF. The parties
hereto acknowledge that Newco and Omega will be irreparably harmed and that
there will be no adequate remedy at law for a violation of any of the covenants
or agreements of Shareholder set forth herein. Therefore, it is agreed that, in
addition to any other remedies that may be available to Newco or Omega upon any
such violation, Newco shall have the right to enforce such covenants and
agreements by specific performance, injunctive relief or by any other means
available to Newco or Omega at law or in equity and Shareholder hereby waives
any and all defenses which could exist in its favor in connection with such
enforcement and waives any requirement for the security or posting of any bond
in connection with such enforcement.
10.5 NOTICES. All notices, requests, demands or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed by registered or certified mail, postage prepaid, or
sent by facsimile transmission, as follows:
(a) If to Shareholder, at the address set forth
below Shareholder's signature at the end hereof.
(b) if to Newco or Omega, to:
c/o Omega Research, Inc.
8700 West Flagler Street, Suite 250
Miami, Florida 33174
Attention: Salomon Sredni, President
Facsimile No.: (305) 485-7019
Telephone No.: (305) 485-7000
with a copy to:
Bilzin Sumberg Dunn Price & Axelrod LLP
2500 First Union Financial Center
Miami, Florida 33131-2336
Attention: Alan D. Axelrod, Esq.
Facsimile No. (305) 374-7593
Telephone No. (305)374-7580,
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
10.6 GOVERNING LAW. This Agreement shall be governed by,
construed and enforced in accordance with the internal laws of the State of
Florida without giving effect to the principles of conflicts of law thereof.
5
<PAGE>
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]
6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Online Shareholder
Agreement to be executed as of the date first above written.
ONLINE TRADING GROUP, INC. SHAREHOLDER
By:
---------------------------- -------------------------------------------
Name: (Signature)
--------------------------
Title:
-------------------------
-------------------------------------------
(Signature of Spouse)
OMEGA RESEARCH, INC.
-------------------------------------------
By: (Print Name of Shareholder)
----------------------------
Name:
--------------------------
Title:
-------------------------
-------------------------------------------
(Print Street Address)
-------------------------------------------
(Print City, State and Zip)
-------------------------------------------
(Print Telephone Number)
-------------------------------------------
(Social Security or Tax I.D. Number)
Total Number of Shares of Company Capital Stock owned on the date hereof-
Common Stock:
--------------------
Principal Residence or Place of Business:
--------------------------------------
SIGNATURE PAGE TO ONLINE SHAREHOLDER AGREEMENT
7
<PAGE>
ANNEX A
IRREVOCABLE PROXY
TO VOTE STOCK OF
ONLINETRADINGINC.COM
The undersigned shareholder of onlinetradinginc.com corp., a Florida
corporation ("Company"), hereby irrevocably (to the full extent permitted by the
Florida Business Corporation Act) appoints William R. Cruz and Ralph L. Cruz
(collectively, "Proxies") and each of them, or any other designee of such
Proxies, as the sole and exclusive attorneys and proxies of the undersigned,
with full power of substitution and resubstitution, to vote and exercise all
voting and related rights (to the full extent that the undersigned is entitled
to do so) with respect to all of the shares of capital stock of Company that now
are or hereafter may be beneficially owned by the undersigned, and any and all
other shares or securities of Company issued or issuable in respect thereof on
or after the date hereof (collectively, the "Shares") in accordance with the
terms of this Irrevocable Proxy. The Shares beneficially owned by the
undersigned shareholder of Company as of the date of this Irrevocable Proxy are
listed on the final page of this Irrevocable Proxy. Upon the undersigned's
execution of this Irrevocable Proxy, any and all prior proxies given by the
undersigned with respect to any Shares relating to the subject matter of this
Irrevocable Proxy are hereby revoked and the undersigned agrees not to grant any
subsequent proxies with respect to the Shares relating to the subject matter of
this Irrevocable Proxy until after the Expiration Date (as defined below).
This Irrevocable Proxy is irrevocable (to the extent provided in the
Florida Business Corporation Act), is coupled with an interest, including, but
not limited to, that certain Affiliate Agreement dated as of even date herewith
by and among Online Trading Group, Inc., a Florida corporation ("Newco"), and
the undersigned, and is granted in consideration of Newco and Omega Research,
Inc., a Florida corporation ("Omega"), entering into that certain Agreement and
Plan of Merger and Reorganization (the "Merger Agreement") by and among Newco,
Omega, Omega Acquisition Corporation, a Florida corporation and wholly owned
subsidiary of Newco ("Omega Merger Sub"), Onlinetrading Acquisition Corporation,
a Florida corporation and a wholly owned subsidiary of Newco ("Online Merger
Sub"), and Company, which Merger Agreement provides for the merger of Omega
Merger Sub with and into Omega and Online Merger Sub with and into Company
(collectively, the "Merger"). As used herein, the term "Expiration Date" shall
mean the earlier to occur of (i) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Merger Agreement,
and (ii) the date of termination of the Merger Agreement.
The Proxies named above, and each of them acting singularly or
together, are hereby authorized and empowered by the undersigned, at any time
prior to the Expiration Date, to act as the undersigned's attorney and proxy to
vote the Shares, and to exercise all voting and other rights of the undersigned
with respect to the Shares (including, without limitation, the power to execute
and deliver written consents pursuant to the Florida Business Corporation Act),
at every annual, special
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or adjourned meeting of the stockholders of Company and in every written consent
in lieu of such meeting in favor of approval and adoption of the Merger
Agreement and of any and all of the transactions and matters contemplated
thereby.
The Proxies named above may not exercise this Irrevocable Proxy on any
other matter except as provided above. The undersigned shareholder may vote the
Shares on all other matters.
All authority herein conferred shall survive the death or incapacity of
the undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: _______________, 2000
-------------------------------------------
(Signature of Shareholder)
-------------------------------------------
(Print Name of Shareholder)
-------------------------------------------
Shares beneficially owned:
__________ shares of Company Common Stock
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SCHEDULE I
LIEN
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APPENDIX D
OMEGA
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of January
19, 2000, by and between, Omega Research, Inc., a Florida corporation
("Company"), and onlinetradinginc.com corp., a Florida corporation ("Online").
Capitalized terms used herein but not defined herein shall have the meanings set
forth in the Merger Agreement referred to below.
WHEREAS, concurrently with the execution and delivery of this
Agreement, Online Trading Group, Inc., a Florida corporation ("Newco"), Company,
Online, Omega Acquisition Corporation, a Florida corporation and wholly-owned
subsidiary of Newco ("Omega Merger Sub"), and Onlinetrading Acquisition
Corporation, a Florida corporation and wholly-owned subsidiary of Newco ("Online
Merger Sub"), are entering into an Agreement and Plan of Merger and
Reorganization, dated as of the date hereof (the "Merger Agreement"), pursuant
to which, among other things, upon the terms and subject to the conditions
thereof, Online Merger Sub will be merged with and into Online with Online
continuing as the surviving corporation, and Omega Merger Sub will be merged
with and into Company with Company continuing as the surviving corporation
(collectively, the "Merger"); and
WHEREAS, as a condition and inducement to Online's willingness
to enter into the Merger Agreement, Online has required that Company agree, and
Company has agreed, to grant to Online an option to purchase certain newly
issued shares of Company's Common Stock, par value $.01 per share ("Company
Common Stock"), upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements set forth herein and in the Merger Agreement,
the parties hereto agree as follows:
1. GRANT OF OPTION. Company hereby grants to Online an
irrevocable option (the "Company Option") to purchase up to 4,892,573 shares
(the "Company Shares") of Company Common Stock in the manner set forth below at
a price (the "Exercise Price") of $6.4422 per Company Share, payable in cash.
2. EXERCISE OF OPTION. The Company Option may be exercised by
Online, in whole or in part at any time or from time to time prior to its
termination when provided herein and on and after the occurrence of any of the
events which obligate Company to pay Online the amount set forth in Section 8.2
or Section 8.3 (c) of the Merger Agreement. In the event Online wishes to
exercise the Company Option, Online shall deliver to Company a written notice
(an "Exercise Notice") specifying the total number of Company Shares it wishes
to purchase; PROVIDED that, if prior notification to or approval of the
Department of Justice, the Federal Trade Commission and/or any other regulatory
or antitrust agency is required in connection with such purchase, Online shall
promptly file the required notice or application for approval, shall promptly
notify Company of such filing, and shall expeditiously process the same and the
period of time that otherwise would run
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pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Each
closing of a purchase of Company Shares (an "Option Closing") shall occur at a
place, on a date and at a time designated by Online in an Exercise Notice
delivered at least two business days prior to the date of the Option Closing.
The Company Option shall terminate upon (unless exercised pursuant to the terms
hereof prior to) the earlier of: (i) the Effective Time; (ii) the termination of
the Merger Agreement pursuant to Section 8.1 thereof (other than a termination
pursuant to Section 8.1(f) thereof or resulting from fraud or the wilful breach
or failure to perform of Company of any of its representations, warranties or
covenants set forth in the Merger Agreement or this Agreement (a "Wilful
Breach")); and (iii) one hundred eighty (180) days following any termination of
the Merger Agreement pursuant to Section 8.1(f) thereof or resulting from a
Wilful Breach by Company (or if, at the expiration of such one hundred eighty
(180) day period, the Company Option cannot be exercised by reason of any
applicable judgment, decree, order, law or regulation, 10 business days after
such impediment to exercise shall have been removed or shall have become final
and not subject to appeal).
3. CONDITIONS TO CLOSING. The obligation of Company to issue
the Company Shares to Online hereunder is subject to the conditions that (a) all
consents, approvals, orders or authorizations of, or registrations, declarations
or filings with, any Governmental Entity, if any, required in connection with
the issuance of the Company Shares hereunder shall have been obtained or made,
as the case may be; and (b) no preliminary or permanent injunction or other
order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance shall be in effect.
4. CLOSING. At each Option Closing, (a) Company will deliver
to Online a certificate or certificates in definitive form representing the
number of Company Shares designated by Online in its Exercise Notice, such
certificate or certificates to be registered in the name of Online or its
designee and to bear the legend set forth in Section 10, and (b) Online will
deliver to Company the aggregate Exercise Price for the Company Shares so
designated by wire transfer of immediately available funds or certified check or
bank check. At any Option Closing at which Online is exercising the Company
Option in part, Online shall present and surrender this Agreement to Company,
and Company shall deliver to Online an executed new agreement with the same
terms as this Agreement evidencing the right to purchase the remaining balance
of the shares of Company Common Stock purchasable hereunder.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY. Company
represents and warrants to Online that (a) Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and has the corporate power and authority to enter into this Agreement
and to carry out its obligations hereunder, (b) the execution and delivery of
this Agreement by Company and the consummation by Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Company and no other corporate proceedings on the part of Company
are necessary to authorize this Agreement or any of the transactions
contemplated hereby, (c) this Agreement has been duly executed and delivered by
Company and constitutes a valid and binding obligation of Company, enforceable
against Company
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in accordance with its terms, except as such enforceability may be limited by
bankruptcy and other laws affecting the rights and remedies of creditors
generally and general principles of equity, (d) Company has taken all action
necessary to authorize and reserve for issuance and to permit it to issue, upon
exercise of the Company Option, and at all times from the date hereof through
the expiration of the Company Option will have reserved, that number of unissued
Company Shares that are subject to the Company Option, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable, (e) upon delivery of the Company
Shares to Online upon the exercise of the Company Option, Online will acquire
the Company Shares free and clear of all liens, claims, charges, encumbrances
and security interests of any nature whatsoever except those imposed by Online,
(f) assuming that the consents approvals, authorizations, permits, filings and
notifications referred to in subsection (g) are obtained or made, as applicable,
the execution and delivery of this Agreement by Company does not, and the
performance of this Agreement by Company will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a benefit under, or the creation of a lien,
pledge, security interest or other encumbrance on assets pursuant to (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation"), (A) any provision of the
articles of incorporation or by-laws, each as amended, of Company or (B) any
provisions of any material mortgage, indenture, lease, contract or other
agreement, instrument, permit, concession, franchise, or license or (C) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Company or its properties or assets, except in the case of clauses (B) and
(C) immediately above, for violations which would not, individually or in the
aggregate, have a Material Adverse Effect on Company, and (g) except as
described in Section 2.3 of the Merger Agreement, the execution and delivery of
this Agreement by Company does not, and the performance of this Agreement by
Company will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity.
6. REPRESENTATIONS AND WARRANTIES OF ONLINE. Online represents
and warrants to Company that (a) Online is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida and has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder, (b) the execution and delivery of this Agreement by
Online and the consummation by Online of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Online and no other corporate proceedings on the part of Online are necessary to
authorize this Agreement or any of the transactions contemplated hereby, (c)
this Agreement has been duly executed and delivered by Online and constitutes a
valid and binding obligation of Online, enforceable against Online in accordance
with its terms, except as such enforceability may be limited by bankruptcy and
other laws affecting the rights and remedies of creditors generally and general
principles of equity, (d) assuming that the consents, approvals, authorizations,
permits, filings and notifications referred to in subsection (e) are obtained or
made, as applicable, the execution and delivery of this Agreement by Online does
not, and the performance of this Agreement by Online will not, result in any
Violation pursuant to, (A) any provision of the articles of incorporation or
by-laws, each as amended, of Online, (B) any provisions of any material
mortgage, indenture, lease, contract or other agreement,
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instrument, permit, concession, franchise, or license or (C) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Online
or its properties or assets, except in the case of each of clauses (B) and (C)
immediately, above, for Violations which would not, individually or in the
aggregate, have a Material Adverse Effect on Online, (e) except as described in
Section 3.3 of the Merger Agreement and Section 2 of this Agreement, and except
as may be required under the Exchange Act, the execution and delivery of this
Agreement by Online does not, and the performance of this Agreement by Online
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Entity and (f) any Company Shares
acquired upon exercise of the Company Option will not be, and the Company Option
is not being, acquired by Online with a view to the public distribution thereof
and Online will not sell or otherwise dispose of such shares in violation of
applicable law or this Agreement.
7. PUT.
(a) EXERCISE. At any time during which the Company
Option is exercisable hereunder (the "Repurchase Period"), upon demand by
Online, Online shall have the right to sell to Company (or any successor entity
thereof) and Company (or such successor entity) shall be obligated to repurchase
from Online (the "Put"), all or any portion of the Company Option, to the extent
not previously exercised, at the price set forth in subparagraph (i) below,
and/or all or any portion of the Company Shares purchased by Online pursuant
thereto, at a price set forth in subparagraph (ii) below:
(i) the difference between the
"Market/Tender Offer Price" for shares of Company Common Stock as of the date
(the "Notice Date") notice of exercise of the Put is given to the other party
(defined as the greater of (A) the price per share offered as of the Notice Date
pursuant to any tender or exchange offer or other Takeover Proposal which was
made prior to the Notice Date and not terminated or withdrawn as of the Notice
Date (the "Tender Price") or (B) the 10 day trading average of the last sale
price of a share of Company Common Stock as reported on The Nasdaq National
Market over the period ending on the trading day immediately preceding the
Notice Date (the "Market Price")), and the Exercise Price, multiplied by the
number of Company Shares purchasable pursuant to the Company Option (or portion
thereof with respect to which Online is exercising its rights under this Section
7), but only if the Market/Tender Offer Price is greater than the Exercise
Price;
(ii) the Exercise Price paid by Online for
the Company Shares acquired pursuant to the Company Option plus the difference
between the Market/Tender Offer Price and the Exercise Price, but only if the
Market/Tender Offer Price is greater than the Exercise Price, multiplied by the
number of Company Shares so purchased;
(b) PAYMENT AND REDELIVERY OF COMPANY OPTION OR
SHARES. In the event Online exercises its rights under this Section 7, Company
shall, within 10 business days of the Notice Date, pay the required amount (the
"Repurchase Price") to Online in immediately available funds and Online shall
surrender to Company the Company Option or the certificates evidencing the
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Company Shares purchased by Online pursuant thereto, and Online shall represent
and warrant that it owns such shares and that such shares are then free and
clear of all liens, claims, charges and encumbrances of any kind or nature
whatsoever, other than any of the same created by Company or its affiliates.
(c) PAYMENT RESTRICTIONS. To the extent that Company
is prohibited under applicable law or regulation, or as a consequence of
administrative policy, from repurchasing the Company Option and /or Company
Shares in full, Company shall immediately so notify Online and thereafter
deliver or cause to be delivered, from time to time, to Online the portion of
the Repurchase Price that it is no longer prohibited from delivering, within
five business days after the date on which Company is no longer so prohibited;
PROVIDED that, if Company at any time after delivery of a notice of repurchase
pursuant to Section 7(a) is prohibited under applicable law or regulation, or as
a consequence of administrative policy, from delivering to Online the Repurchase
Price in full (and Company hereby undertakes to use its reasonable best efforts
to obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish such repurchase),
Online may revoke its notice of the Put whether in whole or to the extent of the
prohibition, whereupon, in the latter case, Company shall promptly (1) deliver
to Online that portion of the Repurchase Price that Company is not prohibited
from delivering and (2) deliver to Online as appropriate, (A) a new Agreement
evidencing the right of Online to purchase that number of shares of Company
Common Stock obtained by multiplying the number of shares of Company Common
Stock for which the surrendered Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Repurchase Price less the portion thereof theretofore delivered to Online
and the denominator of which is the Repurchase Price, and/or (B) to Online, a
certificate for the Company Shares it is then so prohibited from repurchasing.
8. REGISTRATION RIGHTS.
(a) Following any exercise of the Company Option,
Online may by written notice (the "Registration Notice") to Company request
Company to register under the Securities Act all or any part of the shares of
Company Common Stock acquired pursuant to this Agreement, including any voting
securities issued by way of dividend, distribution or otherwise in respect
thereof (the "Restricted Shares"), beneficially owned by Online (the
"Registrable Securities") in order to permit the sale or other distribution of
such Registrable Securities, including pursuant to a firm commitment
underwritten public offering; PROVIDED, HOWEVER, that any such Registration
Notice must relate to a number of shares equal to at least 3% of the outstanding
shares of Company Common Stock and that any rights to require registration
hereunder shall terminate with respect to any Shares that may be sold in any
90-day period pursuant to Rule 144 under the Securities Act. The Registration
Notice shall include a certificate executed by Online and its proposed managing
underwriter, which underwriter shall be an investment banking firm of nationally
recognized standing (the "Manager"), stating that Manager in good faith believes
that, based on the then prevailing market conditions, it will be able to sell
the Registrable Securities at a per share price equal to at least 85% of the
Fair Market Value of such shares. For purposes of this Section 8, the term "Fair
Market Value" shall mean the 10 day trading average of the last sale price of a
share of
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Company's Common Stock as reported on The Nasdaq National Market over the period
ending on the trading day immediately preceding the date of the Registration
Notice.
(b) Company shall use commercially reasonable efforts
to effect, as promptly as practicable, the registration under the Securities Act
of the unpurchased Registrable Securities; PROVIDED, HOWEVER, that (i) Online
shall not be entitled to more than two effective registration statements
hereunder and (ii) Company will not be required to file any such registration
statement during any period of time (not to exceed 60 days after such request in
the case of clause (A) below or 90 days in the case of clauses (B) and (C)
below) when (A) Company is in possession of material non-public information
which it reasonably believes would be detrimental to be disclosed at such time
and, based on consultation with counsel to Company, such information would have
to be disclosed if a registration statement were filed at that time; (B) Company
is required under the Securities Act to include audited financial statements for
any period in such registration statement and such financial statements are not
yet available for inclusion in such registration statement; or (C) Company
determines, in its reasonable good faith, judgment, that such registration would
interfere with any financing, acquisition or other material transaction
involving Company or any of its affiliates. If consummation of the sale of any
Registrable Securities pursuant to a registration hereunder does not occur
within 180 days after the filing with the SEC of the initial registration
statement, then such registration shall not be taken into account as an
effective registration for purposes of clause (i) above. Company shall use
commercially reasonable efforts to cause any Registrable Securities registered
pursuant to this Section 8 to be qualified for sale under the securities or Blue
Sky laws of such jurisdictions as Online may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
PROVIDED, HOWEVER, that Company shall not be required to qualify to do business
in, or consent to general service of process in, any jurisdiction by reason of
this provision.
(c) The registration rights set forth in this Section
8 are subject to the condition that Online shall provide Company with such
information with respect to Online's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to Online as, in
the reasonable judgment of counsel for Company, is necessary to enable Company
to include in such registration statement all material facts required to be
disclosed with respect to a registration thereunder.
(d) If Company securities of the same type as the
Registrable Securities are then authorized for quotation or trading or listing
on the New York Stock Exchange, The Nasdaq National Market, Nasdaq or any other
securities exchange or automated quotations system, Company, upon the request of
Online, shall promptly file an application, if required, to authorize for
quotation, trading or listing the shares of Registrable Securities on such
exchange or system and will use its reasonable best efforts to obtain approval,
if required, of such quotation, trading or listing as soon as practicable.
(e) A registration effected under this Section 8
shall be effected at Company's expense, except for underwriting discounts and
commissions and fees and expenses of
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counsel to Online, and Company shall provide to the underwriters such
documentation (including certificates, opinions of counsel and "comfort" letters
from auditors) as are customary in connection with underwritten public offerings
as such underwriters may reasonably require. In connection with any such
registration, the parties agree (i) to indemnify each other and the underwriters
in the customary manner and (ii) to enter into an underwriting agreement in form
and substance customary for transactions of the type contemplated hereby with
the Manager and the other underwriters participating in such offering.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event of any change in Company Common
Stock by reason of stock dividends, splits, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the Company Option, and the Exercise
Price per share, shall be adjusted appropriately, and proper provision shall be
made in the agreements governing such transaction so that Online shall receive,
upon exercise of the Company Option, the number and class of shares or other
securities or property that Online would have received in respect of the Company
Common Stock if the Company Option had been exercised immediately prior to such
event or the record date therefor, as applicable.
(b) In the event that Company shall enter in an
agreement: (i) to consolidate with or merge into any person, other than in
connection with the Merger or into Online or any of its subsidiaries, and shall
not be the continuing or surviving corporation of such consolidation or merger;
(ii) to permit any person, other than in connection with the Merger or Online or
one of its subsidiaries, to merge into Company and Company shall be the
continuing or surviving corporation, but, in connection with such merger, the
then-outstanding shares of Company Common Stock shall be changed into or
exchanged for stock or other securities of Company or any other person or cash
or any other property or the outstanding shares of Company Common Stock
immediately prior to such merger shall after such merger represent less than 50%
of the outstanding shares and share equivalents of the merged company; or (iii)
to sell or otherwise transfer all or substantially all of its assets to any
person, other than Online or any of its subsidiaries, then, and in each such
case, the agreement governing such transaction shall make proper provision so
that upon the consummation of any such transaction and upon the terms and
conditions set forth herein, Online shall receive for each Company Share with
respect to which the Company Option has not been exercised an amount of
consideration in the form of and equal to the per share amount of consideration
that would be received by the holder of one share of Company Common Stock less
the Exercise Price (and, in the event of an election or similar arrangement with
respect to the type of consideration to be received by the holders of Company
Common Stock, subject to the foregoing, proper provision shall be made so that
the holder of the Company Option would have the same election or similar rights
as would the holder of the number of shares of Company Common Stock for which
the Company Option is then exercisable).
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10. RESTRICTIVE LEGENDS. Each certificate representing shares
of Company Common Stock issued to Online hereunder shall, to the extent
applicable, include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN
EXEMPTION FROM SUCH REGISTRATIONS ARE AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION
AGREEMENT, DATED AS OF JANUARY 19, 2000, A COPY OF WHICH MAY BE OBTAINED FROM
THE ISSUER.
11. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor the rights or the
obligations of either party hereto are assignable, except by operation of law,
or with the written consent of the other party. Nothing contained in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective permitted assigns any rights or remedies
of any nature whatsoever by reason of this Agreement. Any Restricted Shares sold
by Online in compliance with the provisions of Section 8 shall, upon
consummation of such sale, be free of the restrictions imposed with respect to
such shares by this Agreement, unless and until Online shall repurchase or
otherwise become the beneficial owner of such shares, and any transferee of such
shares shall not be entitled to the rights of Online. Certificates representing
shares sold in a registered public offering pursuant to Section 8 shall not be
required to bear the legend set forth in Section 10.
12. SPECIFIC PERFORMANCE. The parties recognize and agree that
if for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
this Agreement, neither party will allege, and each party hereby waives the
defense, that there is an adequate remedy at law.
13. ENTIRE AGREEMENT. This Agreement and the Merger Agreement
(including the Online Disclosure Schedule, the Omega Disclosure Schedule and the
Newco Disclosure Schedule relating thereto) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
other prior agreements and understandings, both written and oral, among the
parties or any of them with respect to the subject matter hereof.
14. FURTHER ASSURANCE. Each party will execute and deliver all
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
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15. VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the other provisions of this Agreement, which shall remain in full force and
effect. In the event any court or other competent authority holds any provision
of this Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision. Each party agrees that, should any court or other competent authority
hold any provision of this Agreement or part hereof to be null, void or
unenforceable, or order any party to take any action inconsistent herewith, or
not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
16. NOTICES. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telecopied or
sent by certified or registered mail, postage prepaid, and shall be deemed to be
given, dated and received when so delivered personally, telecopied or, if
mailed, five business days after the date of mailing to the following address or
telecopy number, or to such other address or addresses as such person may
subsequently designate by notice given hereunder.
(a) if to Online, to:
onlinetradinginc.com corp.
2700 N. Military Trail
Suite 200
Boca Raton, Florida 33431
Attention: Steven zum Tobel, President
Facsimile No.: (561) 995-0606
Telephone No.: (561) 995-1010
with a copy to:
Broad & Cassel
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Attention: Leonard Bloom, Esq.
Facsimile No.: (305) 995-6428
Telephone No.: (305) 373-9400
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(b) if to Company, to:
Omega Research, Inc.
8700 West Flagler Street, Suite 250
Miami, Florida 33174
Attention: Salomon Sredni, President
Facsimile No.: (305) 485-7019
Telephone No.: (305) 485-7000
with a copy to:
Bilzin Sumberg Dunn Price & Axelrod LLP
2500 First Union Financial Center
Miami, Florida 33131-2336
Attention: Alan D. Axelrod, Esq.
Facsimile No.: (305) 374-7593
Telephone No.: (305) 374-7580
17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
agreements made and to be performed entirely within such State without regard to
any applicable conflicts of law rules.
18. DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
19. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same instrument.
20. EXPENSES. Except as otherwise expressly provided herein or
in the Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
21. AMENDMENTS; WAIVER. This Agreement may be amended by the
parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the
case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
22. PREVAILING PARTY LEGAL FEES. The prevailing party in any
litigation or other proceeding brought to enforce the terms of this Agreement
shall be entitled to receive from the nonprevailing party its reasonable
attorneys' and paralegals' fees and costs before and at trial and at
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all appellate and other tribunal levels, in addition to its other remedies
hereunder or at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
ONLINETRADINGINC.COM CORP.
By: /s/ STEVEN ZUM TOBEL
---------------------------------
Name: STEVEN ZUM TOBEL
Title: PRESIDENT
OMEGA RESEARCH, INC.
By: /s/ RALPH L. CRUZ
------------------------------
Name: RALPH L. CRUZ
Title: CO-CEO
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APPENDIX E
ONLINE
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of January
19, 2000, by and between, Omega Research, Inc., a Florida corporation ("Omega"),
and onlinetradinginc.com corp., a Florida corporation ("Company"). Capitalized
terms used herein but not defined herein shall have the meanings set forth in
the Merger Agreement referred to below.
WHEREAS, concurrently with the execution and delivery of this
Agreement, Online Trading Group, Inc., a Florida corporation ("Newco"), Company,
Omega, Omega Acquisition Corporation, a Florida corporation and wholly-owned
subsidiary of Newco ("Omega Merger Sub"), and Onlinetrading Acquisition
Corporation, a Florida corporation and wholly-owned subsidiary of Newco ("Online
Merger Sub"), are entering into an Agreement and Plan of Merger and
Reorganization, dated as of the date hereof (the "Merger Agreement"), pursuant
to which, among other things, upon the terms and subject to the conditions
thereof, Omega Merger Sub will be merged with and into Omega with Omega
continuing as the surviving corporation, and Online Merger Sub will be merged
with and into Company with Company continuing as the surviving corporation
(collectively, the "Merger"); and
WHEREAS, as a condition and inducement to Omega's willingness
to enter into the Merger Agreement, Omega has required that Company agree, and
Company has agreed, to grant to Omega an option to purchase certain newly issued
shares of Company's Common Stock, par value $.01 per share ("Company Common
Stock"), upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements set forth herein and in the Merger Agreement,
the parties hereto agree as follows:
1. GRANT OF OPTION. Company hereby grants to Omega an
irrevocable option (the "Company Option") to purchase up to 2,294,129 shares
(the "Company Shares") of Company Common Stock in the manner set forth below at
a price (the "Exercise Price") of $11.0625 per Company Share, payable in cash.
2. EXERCISE OF OPTION. The Company Option may be exercised by
Omega, in whole or in part at any time or from time to time prior to its
termination when provided herein and on or after the occurrence of any of the
events which obligate Company to pay Omega the amounts set forth in Section 8.2
or Section 8.3(b) of the Merger Agreement. In the event Omega wishes to exercise
the Company Option, Omega shall deliver to Company a written notice (an
"Exercise Notice") specifying the total number of Company Shares it wishes to
purchase; PROVIDED that, if prior notification to or approval of the Department
of Justice, the Federal Trade Commission and/or any other regulatory or
antitrust agency is required in connection with such purchase, Omega shall
promptly file the required notice or application for approval, shall promptly
notify Company of such filing, and shall expeditiously process the same and the
period of time that otherwise would run
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pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Each
closing of a purchase of Company Shares (an "Option Closing") shall occur at a
place, on a date and at a time designated by Omega in an Exercise Notice
delivered at least two business days prior to the date of the Option Closing.
The Company Option shall terminate upon (unless exercised pursuant to the terms
hereof prior to) the earlier of: (i) the Effective Time; (ii) the termination of
the Merger Agreement pursuant to Section 8.1 thereof (other than a termination
pursuant to Section 8.1(e) or Section 8.1(g) thereof or resulting from fraud or
the wilful breach or failure to perform of Company of any of its
representations, warranties or covenants set forth in the Merger Agreement or
this Agreement (a "Wilful Breach")); (iii) one-hundred eighty (180) days
following any termination of the Merger Agreement pursuant to Section 8.1(e) or
Section 8.1(g) thereof or resulting from a Wilful Breach (or if, at the
expiration of such one-hundred eighty (180) day period, the Company Option
cannot be exercised by reason of any applicable judgment, decree, order, law or
regulation, 10 business days after such impediment to exercise shall have been
removed or shall have become final and not subject to appeal).
3. CONDITIONS TO CLOSING. The obligation of Company to issue
the Company Shares to Omega hereunder is subject to the conditions that (a) all
consents, approvals, orders or authorizations of, or registrations, declarations
or filings with, any Governmental Entity, if any, required in connection with
the issuance of the Company Shares hereunder shall have been obtained or made,
as the case may be; and (b) no preliminary or permanent injunction or other
order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance shall be in effect.
4. CLOSING. At each Option Closing, (a) Company will deliver
to Omega a certificate or certificates in definitive form representing the
number of Company Shares designated by Omega in its Exercise Notice, such
certificate or certificates to be registered in the name of Omega or its
designee and to bear the legend set forth in Section 10, and (b) Omega will
deliver to Company the aggregate Exercise Price for the Company Shares so
designated by wire transfer of immediately available funds or certified check or
bank check. At any Option Closing at which Omega is exercising the Company
Option in part, Omega shall present and surrender this Agreement to Company, and
Company shall deliver to Omega an executed new agreement with the same terms as
this Agreement evidencing the right to purchase the remaining balance of the
shares of Company Common Stock purchasable hereunder.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY. Company
represents and warrants to Omega that (a) Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida and has the corporate power and authority to enter into this Agreement
and to carry out its obligations hereunder, (b) the execution and delivery of
this Agreement by Company and the consummation by Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Company and no other corporate proceedings on the part of Company
are necessary to authorize this Agreement or any of the transactions
contemplated hereby, (c) this Agreement has been duly executed and delivered by
Company and constitutes a valid and binding obligation of Company, enforceable
against Company
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in accordance with its terms, except as such enforceability may be limited by
bankruptcy and other laws affecting the rights and remedies of creditors
generally and general principles of equity, (d) Company has taken all action
necessary to authorize and reserve for issuance and to permit it to issue, upon
exercise of the Company Option, and at all times from the date hereof through
the expiration of the Company Option will have reserved, that number of unissued
Company Shares that are subject to the Company Option, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable, (e) upon delivery of the Company
Shares to Omega upon the exercise of the Company Option, Omega will acquire the
Company Shares free and clear of all liens, claims, charges, encumbrances and
security interests of any nature whatsoever except those imposed by Omega, (f)
assuming that the consents approvals, authorizations, permits, filings and
notifications referred to in subsection (g) are obtained or made, as applicable,
the execution and delivery of this Agreement by Company does not, and the
performance of this Agreement by Company will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a benefit under, or the creation of a lien,
pledge, security interest or other encumbrance on assets pursuant to (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation"), (A) any provision of the
articles of incorporation or by-laws, each as amended, of Company or (B) any
provisions of any material mortgage, indenture, lease, contract or other
agreement, instrument, permit, concession, franchise, or license or (C) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Company or its properties or assets, except in the case of clauses (B) and
(C) immediately above, for violations which would not, individually or in the
aggregate, have a Material Adverse Effect on Company, and (g) except as
described in Section 3.3 of the Merger Agreement, the execution and delivery of
this Agreement by Company does not, and the performance of this Agreement by
Company will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity.
6. REPRESENTATIONS AND WARRANTIES OF OMEGA. Omega represents
and warrants to Company that (a) Omega is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida and has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder, (b) the execution and delivery of this Agreement by Omega
and the consummation by Omega of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Omega and no
other corporate proceedings on the part of Omega are necessary to authorize this
Agreement or any of the transactions contemplated hereby, (c) this Agreement has
been duly executed and delivered by Omega and constitutes a valid and binding
obligation of Omega, enforceable against Omega in accordance with its terms,
except as such enforceability may be limited by bankruptcy and other laws
affecting the rights and remedies of creditors generally and general principles
of equity, (d) assuming that the consents, approvals, authorizations, permits,
filings and notifications referred to in subsection (e) are obtained or made, as
applicable, the execution and delivery of this Agreement by Omega does not, and
the performance of this Agreement by Omega will not, result in any Violation
pursuant to, (A) any provision of the articles of incorporation or by-laws, each
as amended, of Omega, (B) any provisions of any material mortgage, indenture,
lease, contract or other agreement,
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instrument, permit, concession, franchise, or license or (C) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Omega
or its properties or assets, except in the case of each of clauses (B) and (C)
immediately, above, for Violations which would not, individually or in the
aggregate, have a Material Adverse Effect on Omega, (e) except as described in
Section 2.3 of the Merger Agreement and Section 2 of this Agreement, and except
as may be required under the Exchange Act, the execution and delivery of this
Agreement by Omega does not, and the performance of this Agreement by Omega will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Entity and (f) any Company Shares acquired
upon exercise of the Company Option will not be, and the Company Option is not
being, acquired by Omega with a view to the public distribution thereof and
Omega will not sell or otherwise dispose of such shares in violation of
applicable law or this Agreement.
7. PUT.
(a) EXERCISE. At any time during which the Company
Option is exercisable hereunder (the "Repurchase Period"), upon demand by Omega,
Omega shall have the right to sell to Company (or any successor entity thereof)
and Company (or such successor entity) shall be obligated to repurchase from
Omega (the "Put"), all or any portion of the Company Option, to the extent not
previously exercised, at the price set forth in subparagraph (i) below, and/or
all or any portion of the Company Shares purchased by Omega pursuant thereto, at
a price set forth in subparagraph (ii) below:
(i) the difference between the
"Market/Tender Offer Price" for shares of Company Common Stock as of the date
(the "Notice Date") notice of exercise of the Put is given to the other party
(defined as the greater of (A) the price per share offered as of the Notice Date
pursuant to any tender or exchange offer or other Takeover Proposal which was
made prior to the Notice Date and not terminated or withdrawn as of the Notice
Date (the "Tender Price") or (B) the 10 day trading average of the last sale
price of a share of Company Common Stock as reported on The Nasdaq SmallCap
Market over the period ending on the trading day immediately preceding the
Notice Date (the "Market Price")), and the Exercise Price, multiplied by the
number of Company Shares purchasable pursuant to the Company Option (or portion
thereof with respect to which Omega is exercising its rights under this Section
7), but only if the Market/Tender Offer Price is greater than the Exercise
Price;
(ii) the Exercise Price paid by Omega for
the Company Shares acquired pursuant to the Company Option plus the difference
between the Market/Tender Offer Price and the Exercise Price, but only if the
Market/Tender Offer Price is greater than the Exercise Price, multiplied by the
number of Company Shares so purchased;
(b) PAYMENT AND REDELIVERY OF COMPANY OPTION OR
SHARES. In the event Omega exercises its rights under this Section 7, Company
shall, within 10 business days of the Notice Date, pay the required amount (the
"Repurchase Price") to Omega in immediately available funds and Omega shall
surrender to Company the Company Option or the certificates evidencing the
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Company Shares purchased by Omega pursuant thereto, and Omega shall represent
and warrant that it owns such shares and that such shares are then free and
clear of all liens, claims, charges and encumbrances of any kind or nature
whatsoever, other than any of the same created by Company or its affiliates.
(c) PAYMENT RESTRICTIONS. To the extent that Company
is prohibited under applicable law or regulation, or as a consequence of
administrative policy, from repurchasing the Company Option and /or Company
Shares in full, Company shall immediately so notify Omega and thereafter deliver
or cause to be delivered, from time to time, to Omega the portion of the
Repurchase Price that it is no longer prohibited from delivering, within five
business days after the date on which Company is no longer so prohibited;
PROVIDED that, if Company at any time after delivery of a notice of repurchase
pursuant to Section 7(a) is prohibited under applicable law or regulation, or as
a consequence of administrative policy, from delivering to Omega the Repurchase
Price in full (and Company hereby undertakes to use its reasonable best efforts
to obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish such repurchase),
Omega may revoke its notice of the Put whether in whole or to the extent of the
prohibition, whereupon, in the latter case, Company shall promptly (1) deliver
to Omega that portion of the Repurchase Price that Company is not prohibited
from delivering and (2) deliver to Omega as appropriate, (A) a new Agreement
evidencing the right of Omega to purchase that number of shares of Company
Common Stock obtained by multiplying the number of shares of Company Common
Stock for which the surrendered Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Repurchase Price less the portion thereof theretofore delivered to Omega and
the denominator of which is the Repurchase Price, and/or (B) to Omega, a
certificate for the Company Shares it is then so prohibited from repurchasing.
8. REGISTRATION RIGHTS.
(a) Following any exercise of the Company Option,
Omega may by written notice (the "Registration Notice") to Company request
Company to register under the Securities Act all or any part of the shares of
Company Common Stock acquired pursuant to this Agreement, including any voting
securities issued by way of dividend, distribution or otherwise in respect
thereof (the "Restricted Shares"), beneficially owned by Omega (the "Registrable
Securities") in order to permit the sale or other distribution of such
Registrable Securities, including pursuant to a firm commitment underwritten
public offering; PROVIDED, HOWEVER, that any such Registration Notice must
relate to a number of shares equal to at least 3% of the outstanding shares of
Company Common Stock and that any rights to require registration hereunder shall
terminate with respect to any Shares that may be sold in any 90-day period
pursuant to Rule 144 under the Securities Act. The Registration Notice shall
include a certificate executed by Omega and its proposed managing underwriter,
which underwriter shall be an investment banking firm of nationally recognized
standing (the "Manager"), stating that Manager in good faith believes that,
based on the then prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price equal to at least 85% of the Fair
Market Value of such shares. For purposes of this Section 8, the
5
<PAGE>
term "Fair Market Value" shall mean the 10 day trading average of the last sale
price of a share of Company's Common Stock as reported on The Nasdaq SmallCap
Market over the period ending on the trading day immediately preceding the date
of the Registration Notice.
(b) Company shall use commercially reasonable efforts
to effect, as promptly as practicable, the registration under the Securities Act
of the unpurchased Registrable Securities; PROVIDED, HOWEVER, that (i) Omega
shall not be entitled to more than two effective registration statements
hereunder and (ii) Company will not be required to file any such registration
statement during any period of time (not to exceed 60 days after such request in
the case of clause (A) below or 90 days in the case of clauses (B) and (C)
below) when (A) Company is in possession of material non-public information
which it reasonably believes would be detrimental to be disclosed at such time
and, based on consultation with counsel to Company, such information would have
to be disclosed if a registration statement were filed at that time; (B) Company
is required under the Securities Act to include audited financial statements for
any period in such registration statement and such financial statements are not
yet available for inclusion in such registration statement; or (C) Company
determines, in its reasonable good faith judgment, that such registration would
interfere with any financing, acquisition or other material transaction
involving Company or any of its affiliates. If consummation of the sale of any
Registrable Securities pursuant to a registration hereunder does not occur
within 180 days after the filing with the SEC of the initial registration
statement, then such registration shall not be taken into account as an
effective registration for purposes of clause (i) above. Company shall use
commercially reasonable efforts to cause any Registrable Securities registered
pursuant to this Section 8 to be qualified for sale under the securities or Blue
Sky laws of such jurisdictions as Omega may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
PROVIDED, HOWEVER, that Company shall not be required to qualify to do business
in, or consent to general service of process in, any jurisdiction by reason of
this provision.
(c) The registration rights set forth in this Section
8 are subject to the condition that Omega shall provide Company with such
information with respect to Omega's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to Omega as, in
the reasonable judgment of counsel for Company, is necessary to enable Company
to include in such registration statement all material facts required to be
disclosed with respect to a registration thereunder.
(d) If Company securities of the same type as the
Registrable Securities are then authorized for quotation or trading or listing
on the New York Stock Exchange, The Nasdaq National Market, Nasdaq or any other
securities exchange or automated quotations system, Company, upon the request of
Omega, shall promptly file an application, if required, to authorize for
quotation, trading or listing the shares of Registrable Securities on such
exchange or system and will use its reasonable best efforts to obtain approval,
if required, of such quotation, trading or listing as soon as practicable.
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(e) A registration effected under this Section 8
shall be effected at Company's expense, except for underwriting discounts and
commissions and fees and expenses of counsel to Omega, and Company shall provide
to the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection with
underwritten public offerings as such underwriters may reasonably require. In
connection with any such registration, the parties agree (i) to indemnify each
other and the underwriters in the customary manner and (ii) to enter into an
underwriting agreement in form and substance customary for transactions of the
type contemplated hereby with the Manager and the other underwriters
participating in such offering.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event of any change in Company Common
Stock by reason of stock dividends, splits, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the Company Option, and the Exercise
Price per share, shall be adjusted appropriately, and proper provision shall be
made in the agreements governing such transaction so that Omega shall receive,
upon exercise of the Company Option, the number and class of shares or other
securities or property that Omega would have received in respect of the Company
Common Stock if the Company Option had been exercised immediately prior to such
event or the record date therefor, as applicable.
(b) In the event that Company shall enter in an
agreement: (i) to consolidate with or merge into any person, other than in
connection with the Merger or into Omega or any of its subsidiaries, and shall
not be the continuing or surviving corporation of such consolidation or merger;
(ii) to permit any person, other than in connection with the Merger or Omega or
one of its subsidiaries, to merge into Company and Company shall be the
continuing or surviving corporation, but, in connection with such merger, the
then-outstanding shares of Company Common Stock shall be changed into or
exchanged for stock or other securities of Company or any other person or cash
or any other property or the outstanding shares of Company Common Stock
immediately prior to such merger shall after such merger represent less than 50%
of the outstanding shares and share equivalents of the merged company; or (iii)
to sell or otherwise transfer all or substantially all of its assets to any
person, other than Omega or any of its subsidiaries, then, and in each such
case, the agreement governing such transaction shall make proper provision so
that upon the consummation of any such transaction and upon the terms and
conditions set forth herein, Omega shall receive for each Company Share with
respect to which the Company Option has not been exercised an amount of
consideration in the form of and equal to the per share amount of consideration
that would be received by the holder of one share of Company Common Stock less
the Exercise Price (and, in the event of an election or similar arrangement with
respect to the type of consideration to be received by the holders of Company
Common Stock, subject to the foregoing, proper provision shall be made so that
the holder of the Company Option would have the same election or similar rights
as would the holder of the number of shares of Company Common Stock for which
the Company Option is then exercisable).
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10. RESTRICTIVE LEGENDS. Each certificate representing shares
of Company Common Stock issued to Omega hereunder shall, to the extent
applicable, include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN
EXEMPTION FROM SUCH REGISTRATIONS ARE AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION
AGREEMENT, DATED AS OF JANUARY 19, 2000, A COPY OF WHICH MAY BE OBTAINED FROM
THE ISSUER.
11. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor the rights or the
obligations of either party hereto are assignable, except by operation of law,
or with the written consent of the other party. Nothing contained in this
Agreement, express or implied, is intended to confer upon any person other than
the parties hereto and their respective permitted assigns any rights or remedies
of any nature whatsoever by reason of this Agreement. Any Restricted Shares sold
by Omega in compliance with the provisions of Section 8 shall, upon consummation
of such sale, be free of the restrictions imposed with respect to such shares by
this Agreement, unless and until Omega shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not be
entitled to the rights of Omega. Certificates representing shares sold in a
registered public offering pursuant to Section 8 shall not be required to bear
the legend set forth in Section 10.
12. SPECIFIC PERFORMANCE. The parties recognize and agree that
if for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
this Agreement, neither party will allege, and each party hereby waives the
defense, that there is an adequate remedy at law.
13 ENTIRE AGREEMENT. This Agreement and the Merger Agreement
(including the Online Disclosure Schedule, the Omega Disclosure Schedule and the
Newco Disclosure Schedule relating thereto) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
other prior agreements and understandings, both written and oral, among the
parties or any of them with respect to the subject matter hereof.
14. FURTHER ASSURANCE. Each party will execute and deliver all
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
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15. VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the other provisions of this Agreement, which shall remain in full force and
effect. In the event any court or other competent authority holds any provision
of this Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision. Each party agrees that, should any court or other competent authority
hold any provision of this Agreement or part hereof to be null, void or
unenforceable, or order any party to take any action inconsistent herewith, or
not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
16. NOTICES. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telecopied or
sent by certified or registered mail, postage prepaid, and shall be deemed to be
given, dated and received when so delivered personally, telecopied or, if
mailed, five business days after the date of mailing to the following address or
telecopy number, or to such other address or addresses as such person may
subsequently designate by notice given hereunder.
(a) if to Omega, to:
Omega Research, Inc.
8700 West Flagler Street, Suite 250
Miami, Florida 33174
Attention: Salomon Sredni, President
Facsimile No.: (305) 485-7019
Telephone No.: (305) 485-7000
with a copy to:
Bilzin Sumberg Dunn Price & Axelrod LLP
2500 First Union Financial Center
200 South Biscayne Boulevard
Miami, Florida 33131-2336
Attention: Alan D. Axelrod, Esq.
Facsimile No.: (305) 374-7593
Telephone No. (305) 374-7580
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(b) if to Company, to:
onlinetradinginc.com corp.
2700 N. Military Trail
Suite 200
Boca Raton, Florida 33431
Attention: Steven zum Tobel, President
Facsimile No.: (561) 995-0606
Telephone No.: (561) 995-1010
with a copy to:
Broad & Cassel
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Attention: Leonard H. Bloom, Esq.
Facsimile No.: (305) 995-6428
Telephone No.: (305) 373-9400
17. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
agreements made and to be performed entirely within such State without regard to
any applicable conflicts of law rules.
18. DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
19. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same instrument.
20. EXPENSES. Except as otherwise expressly provided herein or
in the Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
21. AMENDMENTS; WAIVER. This Agreement may be amended by the
parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the
case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
22. PREVAILING PARTY LEGAL FEES. The prevailing party in any
litigation or other proceeding brought to enforce the terms of this Agreement
shall be entitled to receive from the
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nonprevailing party its reasonable attorneys' and paralegals' fees and costs
before and at trial and at all appellate and other tribunal levels, in addition
to its other remedies hereunder or at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
OMEGA RESEARCH, INC.
By: /s/ RALPH L. CRUZ
------------------------------
Name: RALPH L. CRUZ
Title: CO-CEO
ONLINETRADINGINC.COM CORP.
By: /s/ STEVEN ZUM TOBEL
------------------------------
Name: STEVEN ZUM TOBEL
Title: PRESIDENT
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APPENDIX F
VOTING TRUST AGREEMENT
VOTING TRUST AGREEMENT (this "Agreement"), dated as of January 19,
2000, to be effective as of and after the Effective Time (as defined in the
Merger Agreement described below), by and among WRCF-I 1997 Limited Partnership,
a Texas limited partnership ("WRCF-I"), WRCF- II 1997 Limited Partnership, a
Texas limited partnership ("WRCF-II"), RLCF-I 1997 Limited Partnership, a Texas
limited partnership ("RLCF-I"), and RLCF-II 1997 Limited Partnership, a Texas
limited partnership ("RLCF-II" and together with WRCF-I, WRCF-II and RLCF-I, the
"Cruz Group"), and Andrew A. Allen and Andrew A. Allen Family Limited
Partnership, a Florida limited partnership (collectively "Allen"), Tafazzoli
Family Limited Partnership, a Florida limited partnership ("Tafazzoli"), Zum
Tobel Family Limited Partnership, a Florida limited partnership ("Tobel"), Derek
J. Hernquist ("Hernquist") and Benedict S. Gambino ("Gambino" and, together with
Allen, Tafazzoli, Tobel and Hernquist, the "Online Group") (each of W. Cruz, R.
Cruz, Allen, Tafazzoli, Tobel, Hernquist and Gambino, at times, individually, a
"Newco Shareholder" and, collectively, the "Newco Shareholders") and Marc J.
Stone, as voting trustee and not as an individual (the "Voting Trustee").
PRELIMINARY STATEMENT
Reference is made to the Agreement and Plan of Merger and
Reorganization of even date herewith in connection with which this Agreement is
executed and delivered (the "Merger Agreement") among Omega Research, Inc., a
Florida corporation ("Omega"), onlinetradinginc.com corp., a Florida corporation
("Online"), Online Trading Group, Inc., a Florida corporation ("Newco"), and
Onlinetrading Acquisition Corporation, a Florida corporation ("Online Merger
Sub"), and Omega Acquisition Corporation, a Florida corporation ("Omega Merger
Sub" and at times, together with Online Merger Sub, "Merger Subs"). Capitalized
terms used herein, which are not defined herein, shall have the respective
meanings ascribed to them in the Merger Agreement.
NOW, THEREFORE, in consideration of the covenants set forth in the
Merger Agreement, and in order to induce each of Omega, Online, Newco and Merger
Subs to consummate the transactions contemplated by the Merger Agreement, the
Newco Shareholders hereby make the following covenants and agreements to and
with the Voting Trustee.
1. CREATION OF VOTING TRUST. Each of the Newco Shareholders
acknowledges and agrees that as of the Effective Time that he shall make subject
to this Agreement, and each Newco Shareholder shall deposit and deliver, as soon
as possible after the Effective Time, certificates for, and hereby irrevocably
assigns as of the Effective Time to the Voting Trustee, the number of shares of
Newco Common Stock ("Newco Shares") to be received by him or it pursuant to the
Merger based on the number of shares of Online Common Stock or Omega Common
Stock (as the case may be) set forth next to his or its respective name in
Exhibit "A" attached hereto and incorporated herein by this reference. The
Voting Trustee shall cause to be issued to and in the name of the respective
Newco Shareholder one or more Voting Trust Certificates representing the Newco
Shares so received by the Voting Trustee from each such Newco Shareholder. On or
prior to the Closing Date,
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each of the Newco Shareholders shall execute and deliver to the Voting Trustee
such instruments of transfer as the Voting Trustee may reasonably require in
order to effectuate and confirm the assignments and deposits referred to above.
2. POWERS OF VOTING TRUSTEE. During the term of this Agreement and the
continuance of the voting trust created under this Agreement, the Voting Trustee
shall possess and be entitled to exercise in respect of the Newco Shares from
time to time subject hereto all rights of voting and abstaining from voting or
otherwise to participate in stockholders' actions (including, without
limitation, executing written consents) in all matters relating to Newco and
shall vote the Newco Shares subject hereto as hereinafter described in this
Section 2.
(a) ELECTION OF DIRECTORS.
(i) From and after the Effective Time, the Cruz Group shall have
the right as provided hereinafter to direct the Voting Trustee to vote all of
the Newco Shares subject hereto in a manner such that five (5) of the total of
eight (8) directors comprising the Board of Directors of Newco ("Board") (which
is the number of directors contemplated to comprise the Board at the Effective
Time), two (2) of which five (5) directors shall be required to be Independent
Directors (as hereinafter defined), shall be designated by the Cruz Group, and
the Online Group shall have the right as provided hereinafter to direct the
Voting Trustee to vote all of the Newco Shares subject hereto in a manner such
that three (3) of such total of eight (8) directors, one (1) of which three (3)
directors shall be required to be an Independent Director, shall be designated
by the Online Group. In the event that the number of directors comprising the
Board shall be increased or decreased from time to time on or after the
Effective Time, then each of the Newco Shareholders hereby acknowledges and
agrees that each of the Cruz Group and the Online Group shall be entitled to
designate their relative share of the total number of directors then comprising
the Board based upon a ratio of 62.5% for the Cruz Group and 37.5% for the
Online Group. In the event that the foregoing ratio yields other than whole
numbers as the number of directors which each of the Cruz Group and the Online
Group shall be entitled to designate for which the Newco Shares subject hereto
shall be voted, then there shall be rounded down the number of directors which
each such group shall be entitled to designate pursuant to such ratio and the
director which neither group shall as provided above have the right to designate
shall be designated by the Cruz Group.
(ii) To effectuate the voting of the Newco Shares subject hereto
for directors of Newco as provided in subparagraph (i) above in connection with
the election from time to time by the shareholders of Newco of members of the
Board on and after the Effective Time, whether in connection with the annual
election thereof, to fill a vacancy on the Board or otherwise, the Voting
Trustee shall vote the Newco Shares subject hereto based on the following:
(A) For such individuals as may be designated from time to
time in writing by the Cruz Designee (as hereinafter defined), which written
designation list shall include, without limitation, the names of such number of
Independent Director nominees as the Cruz Group shall be required to elect as
directors pursuant to subparagraph (i) above.
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(B) For such individuals as may be designated from time to
time in writing by the Online Designee (as hereinafter defined), which written
designation list shall include, without limitation, the name of an Independent
Director nominee as the Online Group shall be required to elect as director
pursuant to subparagraph (i) above.
(C) Each of the Cruz Designee and the Online Designee shall
certify to the other group and the Voting Trustee that each individual which
said group has submitted to the Voting Trustee as an Independent Director
nominee(s) in fact so qualifies. Upon request, the group so certifying (the
"Certifying Group") shall deliver, within three (3) days of such request, to the
other group such information regarding the Certifying Group's Independent
Director nominee(s) as shall reasonably establish that said nominee in fact
meets the qualifications of an Independent Director. In the event that the
Certifying Group and the other group do not agree on the Independent Director
status of one or more nominees, then, upon written demand of the other group,
such status shall be determined by binding arbitration pursuant to Section 26
below; provided, however, that to the extent such Independent Director when
nominated by the Board has been designated by the Board as an Independent
Director, such an Independent Director shall be deemed to be an Independent
Director.
(D) For purposes of this Agreement, the following meanings
shall be ascribed to the following terms:
(1) "Cruz Designee" shall mean such individual as the
Cruz Group may appoint from time to time as their designee by written notice
executed by members of the Cruz Group owning a majority of the Newco Shares
subject hereto owned by the Cruz Group and delivered to the Voting Trustee;
(2) "Online Designee" shall mean such individual as the
Online Group may appoint from time to time as their designee by written notice
executed by members of the Online Group owning a majority of the Newco Shares
subject hereto owned by the Online Group and delivered to the Voting Trustee;
and
(3) "Independent Director" shall mean an individual who
both (a) meets the definition of a "non-employee director" set forth in Rule
16b-3 of the Securities Exchange Act of 1934, as amended and (b) meets the
requirements of an independent director pursuant to the rules of The NASDAQ
National Market for purposes of serving as a member of Newco's audit committee,
including, without limitation, being "financially literate" (as defined under
such rules) and, in the case of one of the directors designated by the Cruz
Group, having "financial expertise" (as defined under such rules).
(iii) No later than the later of (A) three (3)
business days after a written request by the Voting Trustee is received by the
Cruz Designee or the Online Designee and (B), if applicable, ten (10) business
days prior to the date on which the pertinent annual or special meeting of
shareholders of Newco ("Newco Shareholders Meeting") is to occur, each of the
Cruz Designee and the Online Designee shall deliver to the Voting Trustee such
designee's certified written designation list of individuals for whom the Voting
Trustee is to vote as and in the manner provided
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in Section 2(a)(ii) above. In the event that either the Cruz Designee or the
Online Designee fails to timely deliver such designee's certified written list
to the Voting Trustee (the "Delinquent Designee"), then, upon notice thereof
from the Voting Trustee, the other designee shall have the right to supply the
Voting Trustee with a certified written list on behalf of the Delinquent
Designee, which list the Voting Trustee shall be obligated to treat as having
been delivered by the Delinquent Designee for purposes of the Voting Trustee's
voting obligations under this Agreement.
(iv) In the event that the Voting Trustee shall
have been instructed by either the Cruz Designee or the Online Designee to vote
such respective group's shares for one or more individuals whose names do not
appear on the slate of director nominees to be voted upon at a Newco
Shareholders Meeting (or pursuant to a written consent), then the Voting Trustee
shall abstain from voting the Newco Shares subject hereto with respect to the
board seat(s) which such individual or individuals might have held if so
nominated.
(v) In the event that either the Cruz Designee or
the Online Designee (the "Non-Complying Designee") delivers to the Voting
Trustee its written designation list pursuant hereto and such written
designation list fails to include the name(s) of a sufficient number of
nominee(s) who qualify as Independent Director(s), then the other designee shall
have the right, on behalf of the Non-Complying Designee, to supply the Voting
Trustee with a certified written designation list of nominee(s) for Independent
Director(s), which list the Voting Trustee shall be obligated to treat as having
been delivered by the Non-Complying Designee for purposes of the Voting
Trustee's voting obligations under this Agreement.
(b) VOTING ON OTHER MATTERS. With respect to all other matters
as to which a vote (or written consent) of shareholders of Newco will be made
(other than the election of directors), the Voting Trustee shall vote the Newco
Shares subject hereto owned by each Newco Shareholder as specifically instructed
in writing by the respective Newco Shareholder owning the respective beneficial
interests in, and Voting Trust Certificates relating to, such Newco Shares. No
later than the later of (i) three (3) business days after a written request by
the Voting Trustee is received by a Newco Shareholder and (ii), if applicable,
ten (10) business days prior to the date on which the pertinent Newco
Shareholders Meeting is to occur, each of the Newco Shareholders shall deliver
to the Voting Trustee their respective written voting instructions with respect
to the Newco Shares owned by such Newco Shareholders. In the event that the
Voting Trustee does not timely receive such written voting instructions, in
whole or in part, from any Newco Shareholder, then the Voting Trustee shall
abstain from voting the Newco Shares subject hereto owned by such Newco
Shareholder with respect to any or all matters as to which the Voting Trustee
has not received written voting instructions.
(c) NO COMPENSATION TO VOTING TRUSTEE. The Voting Trustee
shall not be entitled to any fees or commissions for his services hereunder.
3. VOTING TRUST CERTIFICATES AND PERMITTED TRANSFERS.
(a) Each Voting Trust Certificate issued hereunder shall be
substantially in the form of Exhibit "B" attached hereto, or in such other form
as may from time to time be adopted by
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the Voting Trustee, and shall be signed by the Voting Trustee. Subject to the
terms hereof, a Voting Trust Certificate issued by the Voting Trustee and so
signed shall entitle the registered holder thereof upon the termination of this
Agreement (or upon the permitted sale of Newco Shares from time to time as
hereinafter provided in accordance with the terms of this Agreement), to receive
in accordance with the provisions hereof a share certificate or certificates for
the number of Newco Shares (or lower number, if requested pursuant to a
permitted sale) represented thereby, and in the meantime to the rights in
respect of such Newco Shares provided in this Agreement.
(b) Subject to the terms of the Merger Agreement and all other
agreements executed in connection therewith and to compliance with federal and
state securities laws, the Newco Shares owned by a Newco Shareholder shall be
released from the trust created hereby in connection with any sale of such Newco
Shares by such Newco Shareholder in an open-market (including, without
limitation, a block trade), arms-length, BONA FIDE sale transaction to an
unrelated third party or parties or pursuant to an underwritten public offering
of the Newco Shares (a "Permitted Sale"). In order to effectuate a Permitted
Sale, a Newco Shareholder who wishes to make a Permitted Sale shall give the
Voting Trustee at least five (5) days advance written notice of his desire to
enter into a Permitted Sale, specifying the exact number of shares of Newco
Shares that shall be subject to the Permitted Sale. Upon the execution of the
Permitted Sale (which must occur no earlier than after the fifth day following
the giving of the aforesaid notice), such Newco Shareholder shall deliver or
cause the applicable broker to send to the Voting Trustee, by facsimile
transmission, personal delivery or commercial courier service guaranteeing next
day delivery, with confirmation by telephone, a written confirmation of
completion of the Permitted Sale ("Permitted Sale Confirmation"). Upon receipt
of the Permitted Sale Confirmation, the Voting Trustee shall, as soon as is
practicable, but not later than three (3) business days thereafter, cause the
appropriate stock certificate(s) and Voting Trust Certificate(s) to be issued,
reissued and/or canceled in whole or in part as necessary to deliver to such
Newco Shareholder or the applicable broker a stock certificate issued in the
name of such Newco Shareholder (or his designee) for the number of Newco Shares
specified in the Permitted Sale Confirmation, and, if necessary, a Voting Trust
Certificate to replace the Voting Trust Certificate(s) canceled in connection
with the Permitted Sale covering the balance of any shares of Newco Shares
covered by the canceled Voting Trust Certificate(s) which are not part of the
Permitted Sale. Such Newco Shareholder shall, together with the aforementioned
three business day notice to the Voting Trustee, deliver to the Voting Trustee
his Voting Trust Certificate(s) covering at least the number of shares of Newco
Shares sought to be transferred in the Permitted Sale, endorsed in such manner
and/or accompanied by such other instruments of transfer as the Voting Trustee
may reasonably require so that the Voting Trustee may undertake the procedures
set forth in the preceding sentence. The Voting Trustee may require a Newco
Shareholder to execute and deliver, in connection with any purported Permitted
Sale, such affidavits and other assurances to the effect that what is proposed
by such Newco Shareholder is in fact a Permitted Sale. Voting Trust Certificates
and beneficial interests in the Newco Shares subject to the voting trust created
by this Agreement may be transferred by a Newco Shareholder for estate planning
purposes and/or other tax advantages, to the direct or indirect beneficial
owner(s) of a Newco Shareholder (collectively, "Beneficial Owners") or to one or
more immediate family members of such Newco Shareholder or any of the Beneficial
Owners or a trust for the benefit of or an entity owned by such Newco
Shareholder and/or one or more of such Beneficial Owners and/or their respective
immediate family and lineal descendants, or upon death by law will and testament
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or the laws of intestacy, provided that, in such case, (i) the affected Newco
Shares shall, in the hands of the recipient or transferee, remain in every
respect subject to the voting trust hereby created and all terms, provisions and
conditions of this Agreement, as if no transfer had occurred, and (ii) such
recipient or transferee executes and delivers to the Voting Trustee such
agreements and documents as the Voting Trustee requests in order to evidence the
foregoing. Except as set forth in the preceding sentence, Voting Trust
Certificates are not transferable in any circumstances.
4. RECAPITALIZATION. In the event of the subdivision, consolidation,
change (by stock split or dividend or otherwise), classification or
reclassification at any time of any shares of Newco Shares at such time subject
to the voting trust hereby created into a higher or lower number of shares of
Newco or into a different class of shares of Newco, or in the event of the
conversion of such shares upon the amalgamation of Newco with any other company
or companies, the Voting Trust Certificate representing the same shall
thereafter represent the numbers and classes of shares resulting from such
subdivision, consolidation, change, classification, reclassification or
conversion until such Voting Trust Certificate is exchanged for a new Voting
Trust Certificate correctly describing the securities represented thereby.
5. REGISTER. The Voting Trustee shall keep or cause to be kept at the
office of Newco proper books and records in respect of the Voting Trust
Certificates, including a register or registers in which shall be recorded the
names and addresses of the holders of the Voting Trust Certificates, the number
of Newco Shares to which such holders are respectively entitled pursuant to the
provisions of this Agreement and such other information as may be deemed
advisable by the Voting Trustee. Such register or registers shall be kept
available for inspection by the holders of Voting Trust Certificates at all
reasonable times. The Voting Trustee may, at any time and from time to time,
change the address at which such records are kept and, in such event, shall give
notice of such change to the Newco Shareholders.
6. TRANSFER PROCEDURES. Except as otherwise provided in this Agreement,
Voting Trust Certificates and the beneficial interests in the Newco Shares
represented thereby shall be transferable (to the extent the transfer thereof is
permitted by the terms of this Agreement) only on the books kept by the Voting
Trustee, and no transfer shall be valid or effective except upon transfer by the
registered holder thereof or by the attorney of the registered holder thereof
duly appointed in writing upon (i) surrender of such Voting Trust Certificate
duly endorsed and/or accompanied by an instrument of transfer duly executed by
the registered holder thereof or the attorney of the registered holder thereof
duly appointed in writing, together with proof satisfactory to the Voting
Trustee of such due execution and, where applicable, of the appointment of such
attorney; and (ii) delivery of evidence of payment to the Voting Trustee of a
sum equal to the applicable security transfer taxes (if any) payable in respect
of such transfer. Upon such transfer, the Voting Trustee shall cause to be
issued such Voting Trust Certificates and/or share certificate(s) as shall be
proper in consequence thereof.
7. SUCCESSORS. To the extent that the beneficial ownership of shares of
the Newco Shares subject hereto is transferred pursuant to a permitted transfer
hereunder or otherwise is transferred by operation of law, the person becoming
entitled to a Voting Trust Certificate in consequence thereof shall be entitled,
upon surrender of the Voting Trust Certificate and production
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of such evidence of the right of such person as the Voting Trustee shall then
reasonably require, and upon compliance with the requirements of all applicable
laws including payment of a sum equal to all applicable security transfer taxes
(if any) payable in respect thereof, to one or more Voting Trust Certificates in
the name of such person in lieu of the Voting Trust Certificate so surrendered.
8. LOSS OR DESTRUCTION OF VOTING TRUST CERTIFICATES. In the event of
the mutilation of any Voting Trust Certificate, the Voting Trustee may upon
surrender thereof cause to be issued a replacement Voting Trust Certificate. In
the event of the loss, destruction or theft of any Voting Trust Certificate, the
Voting Trustee may cause to be issued a replacement Voting Trust Certificate
upon production of such evidence of such loss, destruction or theft and such
indemnity as the Voting Trustee may in his discretion reasonably require.
9. THIRD PARTIES. The Voting Trustee shall be entitled at all times to
treat and consider for all purposes the registered holder of a Voting Trust
Certificate as the holder and legal and beneficial owner thereof and of the
beneficial interest in the Newco Shares represented thereby and shall not be
required to take notice of any interest, trust or claim of any third party.
10. DISTRIBUTIONS. Subject to the provisions of Section 11 hereof, the
registered holder of a Voting Trust Certificate, upon any cash or property
distribution (other than as described in Section 4 above) by Newco (including
without limitation any cash dividend or cash redemption payment) to its
stockholders in respect of Newco's capital stock shall be entitled to receive
from the Voting Trustee such holder's pro rata share of such distribution,
provided that the Voting Trustee may deduct therefrom any amount he may be
lawfully required to withhold and account for in respect of taxes.
Notwithstanding the foregoing provisions of this Section 10, where any such
distribution by Newco constitutes a final cash or property distribution (either
by way of redemption or otherwise, but excluding any distribution described in
Section 4 above) in respect of any shares of the capital stock of Newco
represented by a Voting Trust Certificate, the Voting Trustee shall not be
required to make any distribution under this Section 10 to the holder of such
Voting Trust Certificate until surrender thereof.
11. REGISTERED HOLDER. Any distribution or partial distribution to a
holder of a Voting Trust Certificate under the provisions of Section 10 hereof
by the Voting Trustee shall be made to the registered holder of such Voting
Trust Certificate at the time of such distribution or partial distribution
(unless otherwise directed in writing by such registered holder) whether or not
such registered holder was the registered holder thereof at the time the money
or property so distributed was received by the Voting Trustee.
12. REMOVAL OF VOTING TRUSTEE. A Voting Trustee shall cease to be a
Voting Trustee if he:
(a) is adjudged bankrupt;
(b) is removed as a Voting Trustee by a court of
competent jurisdiction;
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(c) delivers to the Cruz Designee and Online Designee his
written resignation as Voting Trustee; or
(d) dies or becomes permanently disabled.
Any vacancy that may occur with respect to the Voting Trustee
by resignation, death, incapacity or inability or refusal to continue to act
shall promptly (but in no event later than thirty (30) days after the event
causing the vacancy) be filled by a person mutually agreed to by the Cruz
Designee and Online Designee. Every person appointed to fill any such vacancy
shall have the same rights, powers and discretions as though originally
appointed a Voting Trustee hereunder.
13. CANCELLATION OF CERTIFICATES. All Voting Trust Certificates
surrendered pursuant to the provisions hereof shall be canceled.
14. LIMITATIONS ON LIABILITY OF VOTING TRUSTEE. By way of supplement
to, and not in lieu of, the provisions of any law affording protection or powers
to trustees and notwithstanding any law or principle of law to the contrary, it
is agreed that:
(a) neither the Voting Trustee nor any successor Voting Trustee
shall be under any liability or responsibility by reason of any loss or damage
arising in consequence of any mistake or error of law or fact or any matter or
thing done or omitted to be done under or in relation to this Agreement of any
nature whatsoever, except to the extent such loss or damage is in consequence of
his own wilful wrongful act or wilful default;
(b) in relation to this Agreement the Voting Trustee may take the
opinion or advice of any counsel or other expert and shall not be responsible
for any loss occasioned by acting or failing to act thereon, except as provided
in Section 14(a) above; and
(c) the Voting Trustee or any firm or corporation (including,
without limitation, Newco) in which he may be a member, shareholder, officer or
director or with which he may have any other connection may deal with Newco or
with its shares or with Voting Trust Certificates representing the same in any
manner whatever as fully as though he were not a Voting Trustee.
15. DISSOLUTION OF VOTING TRUST. The voting trust created under this
Agreement shall dissolve on the earliest of the following dates:
(a) the second anniversary of the Effective Time;
(b) the date when the Voting Trustee shall resign in writing unless
such vacancy is timely filled as provided in Section 12 or Section 27 hereof;
(c) the date when the Newco Shareholders holding 67% of the Newco
Shares then subject to this Agreement shall execute a written instrument so
declaring; or
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(d) the date when less than 75% of the aggregate number of Newco
Shares owned by the Cruz Group or the Online Group (as the case may be) as of
the Effective Time remains subject to the voting trust created hereby.
Thereafter, the Voting Trustee shall notify all registered holders of Voting
Trust Certificates of such dissolution. Such notice shall fix a place or places
and a day (which shall be within fifteen days thereafter) at which and on and
after which any registered holder of a Voting Trust Certificate may, on
surrender thereof, receive a share certificate or certificates for the shares
represented thereby. Upon such dissolution the rights of the holders of Voting
Trust Certificates shall be confined to the rights provided by this Section 15
and the right to receive their proportionate interest or interests in any other
property then subject to the trust hereof and not theretofore distributed;
provided that the register or registers of the Voting Trust Certificate holders
shall be kept open by the Voting Trustee for thirty (30) days after such
dissolution to enable surrenders of Voting Trust Certificates. At any time after
thirty (30) days following the day upon which Voting Trust Certificates may
first be surrendered pursuant to the said notice and after distribution or
payment of all other property (if any) held upon the trust hereof, the Voting
Trustee may close such registers and transfer the shares represented by
unsurrendered Voting Trust Certificates to Newco's stock transfer agent for
transfer to the respective registered holders of the Voting Trust Certificates
representing the same or their lawful permitted assigns against surrender of
such Voting Trust Certificates, whereupon this Agreement shall terminate and the
Voting Trustee shall be under no further obligation to such holders, provided
that the provisions of Section 14 shall survive.
16. GOVERNING LAW. Notwithstanding any law or principle of law to
the contrary and regardless of the domicile or residence of any Voting Trustee
or any successor Voting Trustee or any of the Newco Shareholders, this Agreement
shall be governed by and construed in accordance with the laws of the State of
Florida.
17. AMENDMENTS AND WAIVERS. The parties may, by written agreement
signed by the parties, modify any of the covenants or agreements or extend the
time for the performance of any of the obligations contained in this Agreement
or in any document delivered pursuant to this Agreement. Any party may waive, by
written instrument signed by such party, compliance by another party with any of
its obligations contained in this Agreement or in any document delivered
pursuant to this Agreement. This Agreement may be amended only by written
instrument signed by the parties hereto.
18. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.
19. NOTICES. Any designation, list, notice, request or other
document to be given hereunder to a party shall be in writing and shall be
deemed given if delivered personally or by commercial delivery service, or
mailed by registered or certified mail (return receipt requested and postage
pre-paid) or sent via facsimile (with confirmation of receipt) to the parties at
the following address (or at such other address for a party as shall be
specified by like notice):
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If to the Voting Trustee, addressed to him at:
8700 West Flagler Street
Suite 250
Miami, Florida 33174
If to R. Cruz, addressed to him at:
401 Casuarina Concourse
Miami, Florida 33143
If to W. Cruz, addressed to him at:
201 Arvida Parkway
Coral Gables, Florida 33156
If to Allen, addressed to him at:
4939 N.W. 23rd Court
Boca Raton, Florida 33431
If to Tafazzoli, addressed to him at:
5967 Michaux Street
Boca Raton, Florida 33433
If to Tobel, addressed to him at:
5906 Michaux Street
Boca Raton, Florida 33433
If to Hernquist, addressed to him at:
330 S.E. 20th Avenue, #213
Deerfield Beach, Florida 33441
If to Gambino, addressed to him at:
22356 Timberlea Lane
Kildeer, Illinois 60047
20. PARTIAL INVALIDITY. In the event that any provision of this
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, and is not reformed by such court, such holding shall not
invalidate or render unenforceable any other provision hereof.
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21. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
22. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
23. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto, and supersede all prior agreements and undertakings
between or among the parties hereto relating to the subject matter hereof.
24. GENDER. With respect to the language of this Agreement, the use
of the masculine gender shall include the feminine and neuter, and the use of
the neuter shall include the masculine and/or feminine, in each case, as the
context reasonably requires.
25. ACKNOWLEDGMENT. Each Newco Shareholder represents and warrants
to the Voting Trustee that he has read and understands this Agreement and the
Merger Agreement and has been advised by independent legal counsel with respect
to all matters relating to this Agreement (or understands that he has the right
to have been so advised, and that seeking and receiving such independent legal
advice is advisable).
26. BINDING ARBITRATION. Any dispute, claim or counterclaim
(collectively, a "Claim") arising out of or relating to this Agreement, or the
breach hereof, shall be settled by binding arbitration. The party having such
Claim shall deliver notice thereof to the other parties to such Claim. Such
notice shall supply the other parties with sufficient detail regarding the
nature and extent of the Claim. Within seven (7) days of receipt of the
aforementioned notice, the parties shall jointly select an arbitrator.
Thereafter, the binding arbitration shall be conducted promptly and
expeditiously and in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. In the event that the parties
are unable to agree upon an arbitrator within the aforementioned seven (7) day
period, then each party to the Claim shall appoint an arbitrator within five (5)
days thereafter and the resulting panel of arbitrators shall select one (1)
arbitrator, within five (5) days after their selection, which single arbitrator
shall conduct the binding arbitration (for purposes of this Section 26, the
arbitrator selected by the panel of arbitrators, or the arbitrator mutually
agreed upon by the parties, as the case may be, the "Arbitrator"). If for any
reason the Arbitrator is not chosen within any of the aforementioned applicable
periods, then the American Arbitration Association shall select the Arbitrator
who shall be a resident of Miami-Dade County, Florida. The arbitration shall be
conducted in Miami-Dade County, Florida. The judgment of the Arbitrator shall be
accompanied by a written statement of the basis for such judgment and may be
enforced by any court having proper jurisdiction. The prevailing party in such
arbitration shall be entitled to recover its reasonable expenses of arbitration
(including, without limitation, reasonable attorneys' fees) from the
non-prevailing party. Further, the expenses of the Arbitrator shall be borne by
the non-prevailing party. Any legal proceedings under or in connection with this
Agreement shall be maintained in Miami-Dade County, Florida, which shall have
sole jurisdiction and venue, and the prevailing party in connection therewith
shall be entitled to an award of court costs and reasonable attorneys' fees
before and at trial and at all other tribunal levels.
11
<PAGE>
27. SUCCESSOR TRUSTEE. The parties hereto acknowledge and agree that
the Voting Trustee may assign and transfer at any time hereafter all of his
rights, obligations and duties hereunder to a corporation wholly-owned by him
(the "Successor Trustee"), provided that, in such case, (i) the Voting Trustee
delivers to the Cruz Designee and the Online Designee prior written notice of
his resignation, together with an agreement executed by the Successor Trustee
pursuant to which the Successor Trustee agrees to be bound by all of the terms,
provisions and conditions hereof as if an original signatory hereto and to
assume all of the obligations and duties of the Voting Trustee hereunder. In
such event, the Successor Trustee shall for all purposes hereof become the
"Voting Trustee" and the prior Voting Trustee shall be relieved and released
from his obligations and duties hereunder.
28. EFFECTIVENESS. This Agreement shall be effective as of and
after the Effective Time. In the event that the Merger Agreement is terminated
before the Effective Time, this Agreement shall be null and void and of no
further force and effect.
[SIGNATURES ARE ON THE FOLLOWING PAGE]
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date first above written.
<TABLE>
<CAPTION>
NEWCO SHAREHOLDERS:
<S> <C>
WRCF-I 1997 Limited Partnership /S/ ANDREW A. ALLEN
----------------------------
Andrew A. Allen
By: WRCF-I GP, Inc., general partner
Andrew A. Allen Family Limited Partnership
By: /S/ WILLIAM R. CRUZ
---------------------------------
William R. Cruz, President By: Allen Holdings Corp., general partner
By: /S/ ANDREW A. ALLEN
--------------------------
Andrew A. Allen, President
WRCF-II 1997 Limited Partnership Tafazzoli Family Limited Partnership
By: WRCF-II GP, LLC, general partner By: PMA Corp., general partner
By: WRCF-II Manager, Inc., managing member By: /S/ FARSHID TAFAZZOLI
------------------------
Farshid Tafazzoli, President
By: /S/ RALPH L. CRUZ
-------------------------------
Ralph L. Cruz, President
RLCF-I 1997 Limited Partnership Zum Tobel Family Limited Partnership
By: RLCF-I GP, Inc., general partner By: Zum Tobel Holdings, Inc., general partner
By: /S/ RALPH L. CRUZ
-------------------------------
Ralph L. Cruz, President By: /S/ E. STEVEN ZUM TOBEL
------------------------------
E. Steven zum Tobel, President
RLCF-II 1997 Limited Partnership /S/ DEREK J. HERNQUIST
-------------------------------
Derek J. Hernquist
By: RLCF-II GP, LLC, general partner
/S/ BENEDICT S. GAMBINO
-------------------------------
By: RLCF-II Manager, Inc., managing Benedict S. Gambino
member
By: /S/ WILLIAM R. CRUZ
---------------------------------
William R. Cruz, President
VOTING TRUSTEE:
/S/ MARC J. STONE
- -----------------------------
Marc J. Stone, as Voting
Trustee and not individually
</TABLE>
13
<PAGE>
EXHIBIT "A"
NUMBER OF SHARES OF
NAME OF NEWCO SHAREHOLDER OMEGA COMMON STOCK
- ------------------------- ------------------
WRCF-I 1997 LIMITED PARTNERSHIP 7,206,554
WRCF-II 1997 LIMITED PARTNERSHIP 1,950,000
RLCF-I 1997 LIMITED PARTNERSHIP 7,206,554
RLCF-II 1997 LIMITED PARTNERSHIP 1,950,000
----------
TOTAL 18,313,108
==========
NUMBER OF SHARES OF
ONLINE COMMON STOCK
-------------------
ANDREW A. ALLEN 225,926
ANDREW A. ALLEN FAMILY LIMITED PARTNERSHIP 2,500,000
TAFAZZOLI FAMILY LIMITED PARTNERSHIP 2,725,926
ZUM TOBEL FAMILY LIMITED PARTNERSHIP 444,444
DEREK J. HERNQUIST 266,666
BENEDICT S. GAMBINO 2,725,926
----------
TOTAL 8,888,888
===========
<PAGE>
EXHIBIT "B"
CERTIFICATE NO. _____
VOTING TRUST CERTIFICATE
IN RESPECT OF SHARES OF COMMON STOCK
OF
[NEWCO]
(INCORPORATED UNDER THE LAWS OF FLORIDA)
THIS CERTIFIES THAT, following the dissolution of the voting trust under, or
otherwise in accordance with the terms of, a certain Voting Trust Agreement (the
"Agreement") dated as of the ____ day of January , 2000 and made by and between
William R. Cruz, Ralph L. Cruz, Andrew A. Allen, Farshid Tafazzoli, E. Steven
Zum Tobel, Derek J. Hernquist, Benedict S. Gambino and [Name of Voting Trustee]
as the original Voting Trustee thereunder,
- --------------------------------------------------------------------------------
(Name)
who is the registered holder of this Voting Trust Certificate, will, on
surrender hereof, be entitled to receive, except as otherwise provided in the
Agreement, a stock certificate or certificates for __________ shares of common
stock with a par value of $.01 per share in the capital of Online Trading Group,
Inc., or such number of shares of such other class of the capital stock of
Online Trading Group, Inc. as this Voting Trust Certificate may then represent
in accordance with the terms of the Agreement, be entitled to receive payment of
the amount of any distribution received in cash by the Voting Trustee in respect
of the shares or any thereof represented hereby to the extent not theretofore
distributed by the Voting Trustee in accordance with the terms of the Agreement
and to have the rights provided by the Agreement in respect of any dividend or
other distribution received other than in cash by the Voting Trustee in respect
of such shares.
This Voting Trust Certificate is issued under and pursuant to, and the rights of
the holder or holders hereof and of the Voting Trustee are subject to and
limited by, the terms of the Agreement, an executed copy of which is on file and
open to inspection at all reasonable times by holders of Voting Trust
Certificates at the offices of Online Trading Group, Inc. at 8700 West Flagler
Street, Suite 250, Miami, Florida 33174.
This Voting Trust Certificate and the beneficial interest under the Agreement in
all or any of the shares represented hereby are subject to the restrictions on
transferability which under the Agreement or applicable law exist or may from
time to time exist, transferable only by the registered holder hereof, in person
or by duly authorized attorney, on the books kept by the Voting Trustee at the
aforesaid offices, upon surrender of this Voting Trust Certificate duly endorsed
and/or accompanied
<PAGE>
by a sufficient instrument of transfer duly executed by the registered holder
hereof or the attorney of such registered holder with proof satisfactory to the
Voting Trustee of such due execution and, where applicable, of the appointment
of such attorney, and payment of a sum equal to all applicable security transfer
taxes (if any) payable in respect of such transfer.
The Voting Trustee is entitled at all times to treat and consider for all
purposes the registered holder hereof as the holder and legal and beneficial
owner hereof and of the beneficial interest under the Agreement in the shares
represented hereby and is not required to take notice of any interest, trust or
claim of any third party.
The voting trust under the Agreement will be dissolved on ___________, 2002,
unless sooner dissolved in accordance with the provisions of the Agreement.
IN WITNESS WHEREOF, the Voting Trustee has signed this certificate.
Date of Issuance:
____________________________________
[Insert Name], as Voting Trustee and
not individually
-2-
<PAGE>
APPENDIX G
ONLINETRADINGINC.COM CORP.
2700 N. MILITARY TRAIL
SUITE 200
BOCA RATON, FLORIDA 33431
January 19, 2000
Mr. Andrew A. Allen
4939 N.W. 23rd Court
Boca Raton, Florida 33471
Dear Andy:
onlinetradinginc.com corp., a Florida corporation (the "COMPANY"), is
entering into an Agreement and Plan of Merger and Reorganization (the "MERGER
AGREEMENT") with Omega Research, Inc., a Florida corporation ("OMEGA"), Online
Trading Group, Inc., a Florida corporation ("NEWCO"), Omega Acquisition
Corporation, a Florida corporation and wholly-owned subsidiary of Newco ("OMEGA
MERGER SUB"), and Onlinetrading Acquisition Corporation, a Florida corporation
and wholly-owned subsidiary of Newco ("ONLINE MERGER SUB"), pursuant to which,
among other things, upon the terms and subject to the conditions thereof, Online
Merger Sub will be merged with and into Omega with the Omega continuing as the
surviving corporation, and Omega Merger Sub will be merged with and into Omega
with Omega continuing as the surviving corporation (collectively, the "MERGER").
It is a material condition to the Merger that you enter into this letter
agreement (the "LETTER AGREEMENT") with the Company, and you have agreed to
enter into this Letter Agreement in consideration of, among other things, the
benefits to be received by you in connection with the Merger and the payments to
be made hereunder. This Letter Agreement and all of the terms hereof shall
become effective as of and after the Effective Time (as defined in the Merger
Agreement).
This Letter Agreement (i) confirms that, effective as of the Effective
Time, you will no longer serve as the Chairman of the Board, Chief Executive
Officer or a director of the Company, (ii) terminates, effective as of the
Effective Time, the Employment Agreement (other than Articles 10 and 11 thereof)
dated as of February 1, 1999, together with the Addendum dated as of February 1,
1999 (collectively, the "EMPLOYMENT AGREEMENT"), between you and the Company,
and (iii) provides for the severance you will be paid by the Company on and
after the Effective Time.
1. Effective as of the Effective Time, you will resign as the Chairman
of the Board and Chief Executive Officer of the Company and from all positions
you then occupy as an officer or director of the Company and any subsidiary or
affiliate of the Company and will terminate as an employee of the Company and
any subsidiary or affiliate of the Company.
2. In consideration of your entering into this Letter Agreement and in
lieu of any other severance or other payments or benefits that may be owed to
you in connection with your employment or your acting as or resigning as a
director, officer and employee of the Company as of the Effective Time or
otherwise by the Company (including, without limitation, under the Employment
Agreement), the Company agrees to pay you severance in the aggregate amount of
<PAGE>
$600,000 subject to the consummation of the Merger as follows: $200,000 at the
Effective Time and $200,000 on each of the first and second anniversaries of the
Effective Time.
3. (a) In view of the consideration to be received by you in
connection with the Merger and under this Letter Agreement and as a material
inducement to Omega and Newco to enter into the Merger, effective on and after
the Effective Time, you hereby waive, release and forever discharge the Company,
Omega and Newco and their respective subsidiaries and their respective
divisions, branches, predecessors, successors, assigns, directors, officers,
employees, agents, partners, members, stockholders, representatives and
attorneys, in their individual and representative capacities (collectively, the
"RELEASEES"), of and from any and all claims, rights, damages, demands, causes
of action or liabilities of any nature whatsoever, known or unknown, contingent
or fixed, whether due or to become due, that you have had, now have or may have
at any future time by reason of any cause, matter or thing whatsoever, directly
or indirectly, related to the Employment Agreement or otherwise in connection
with your employment with or acting as an officer or director of any Releasees
(collectively, "CLAIMS"), including without limitation under Title VII of the
Civil Rights Act of 1964, as amended, 42 U.S.C.ss.2000 et seq.; the Fair Labor
Standards Act, as amended, 29 U.S.C.ss.201 et seq.; the Age Discrimination in
Employment Act, 29 U.S.C.ss.621 et seq. (the "ADEA"); the Americans With
Disabilities Act, 42 U.S.C.ss.1001 et seq. and ss.12,112. et seq.; the Employee
Retirement Income Security Act of 1974, as amended, 29 U.S.C.ss.1001 et seq.;
the Reconstruction Era Civil Rights Act, as amended, 42 U.S.C.ss.1981 et seq.;
and all other federal, state and local laws, statutes, rules or regulations of
any type or description, including, without limitation, contract law, tort law,
civil rights laws, express or implied covenants of good faith or fair dealing,
and otherwise, regarding employment discrimination or the employment of labor,
which you or your heirs, executors, administrators, successors and assigns ever
had, now have or hereafter can, shall or may have against the Releasees or any
of them whatsoever from the beginning of the world to the Effective Time, except
for Claims arising under or in connection with this Letter Agreement and under
COBRA to continue to the extent provided under COBRA your medical benefits under
the Company's health plan, at your own expense, after the Effective Time.
(b) Notwithstanding anything to the contrary set forth in
paragraph 2 or this paragraph 3, you do not waive, discharge or release your
rights against the Company with respect to any claims for or rights to
indemnification or contribution under agreement, at law or in equity with
respect to any liability, obligation, loss or expense incurred by you, or claims
made against you, in your capacity as a shareholder, director, officer or
employee of the Company.
(c) For the purpose of implementing a full and complete release
and discharge of the Releasees you expressly acknowledge that the release set
out in this Letter Agreement is intended to include in its effect, without
limitation, all claims or other matters described in this paragraph 3 that you
do not know or suspect to exist in your favor at the time of execution hereof,
and that the release set out in this Letter Agreement contemplates the
extinguishment of any and all such claims or other such matters.
4. On or after the Effective Time, you hereby agree to take any and
all actions and execute any and all documents reasonably requested from time to
time by the Company to effectuate
2
<PAGE>
your no longer being or acting as a director, officer or employee of the Company
and in connection with extricating yourself from the business and operations of
the Company, including, without limitation, in connection with removing yourself
as a signatory and/or authorized party on all of the Company's bank, securities
and other accounts.
7. This Letter Agreement shall be governed by and construed
pursuant to the laws of the State of Florida. Any and all disputes between the
parties which may arise pursuant to this Letter Agreement will be heard and
determined before an appropriate federal court in Florida, or, if not
maintainable therein, then in an appropriate Florida state court.
8. (a) This Letter Agreement is personal in its nature and the
parties shall not, without the prior written consent of the other, assign or
transfer this Letter Agreement or any rights or obligations hereunder, PROVIDED,
HOWEVER, the provisions hereof shall inure to the benefit of, and be binding
upon, (i) each successor of the Company or any of its affiliates, whether by
merger, consolidation, transfer of all or substantially all of its assets or
similar transaction, and (ii) your heirs, legatees, executors, administrators
and legal representatives.
(b) This Letter Agreement contains the entire understanding of
the parties hereto relating to the subject matter herein contained and
supersedes, on and after the Effective Time, all prior agreements or
understandings between the parties hereto with respect thereto, including,
without limitation, the Employment Agreement (other than (i) as set forth in
Articles 10 and 11 of the Employment Agreement which shall survive the
termination thereof and (ii) those certain agreements being executed by you
concurrently herewith in connection with the Merger, including, without
limitation, the Online Affiliate Agreement, the Online Shareholder Agreement,
the Non- Competition and Non-Disclosure Agreement and the Voting Trust
Agreement). This Letter Agreement can be changed only by a writing signed by the
parties hereto and Omega and Newco, which are deemed to be third party
beneficiaries of and to this Letter Agreement for all purposes hereof. No waiver
shall be effective against a party unless in writing and signed by the party
against whom such waiver shall be enforced and Omega and Newco as third party
beneficiaries hereof.
7. For purposes of this Letter Agreement, notices and other
communications provided for in this Letter Agreement shall be deemed to be
properly given if delivered personally or sent by United States certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to you: Andrew A. Allen
4939 N.W. 23rd Court
Boca Raton, Florida 33471
If to the Company: 2700 N. Military Trail
Suite 200
Boca Raton, Florida 33431
Attention: President
3
<PAGE>
If to Omega or Newco: 8700 W. Flagler Street
Suite 250
Miami, Florida 33174
Attention: President,
or to such other address as either party may have furnished to the other party
in writing in accordance with this paragraph. Such notices or other
communications shall be effective only upon receipt. Notices also may be given
by facsimile and in such case shall be deemed to be properly given when sent so
long as the sender uses reasonable efforts to confirm and does confirm the
receiver's receipt of the facsimile transmission.
8. This Letter Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement.
9. You acknowledge and agree that, in deciding to execute this
Letter Agreement, you have relied entirely upon your own judgment, that you have
read this Letter Agreement and have had adequate time to consider its terms and
effects and to ask any question that you may have of anyone, including your
legal counsel, and that you have executed this Letter Agreement voluntarily and
with full understanding of its terms and effects on you, and that no fact,
evidence, event or transaction currently unknown to you but which may later
become known to you will affect in any way or manner the final and unconditional
nature of this Letter Agreement. You further acknowledge that (a) you were
advised to consult with an attorney before you executed this Letter Agreement
and (b) you were afforded sufficient opportunity to and did consult with an
attorney.
10. If the Merger Agreement is terminated before the Effective
Time, this Letter Agreement shall be null and void and of no force or effect.
BY SIGNING THIS LETTER AGREEMENT, YOU STATE THAT:
(a) YOU HAVE READ THIS LETTER AGREEMENT AND HAVE HAD SUFFICIENT
TIME TO CONSIDER ITS TERMS;
(b) YOU UNDERSTAND ALL OF THE TERMS AND CONDITIONS OF THIS
LETTER AGREEMENT AND KNOW THAT YOU ARE GIVING UP IMPORTANT RIGHTS;
(c) YOU AGREE WITH EVERYTHING IN THE LETTER AGREEMENT;
(d) YOU ARE AWARE OF YOUR RIGHT TO CONSULT WITH AN ATTORNEY
BEFORE SIGNING THIS LETTER AGREEMENT AND HAVE BEEN ADVISED OF SUCH RIGHT; AND
(e) YOU HAVE SIGNED THIS LETTER AGREEMENT KNOWINGLY AND
VOLUNTARILY.
4
<PAGE>
If the foregoing correctly sets forth our understanding, please sign
one copy of this Letter Agreement and return it to the undersigned, whereupon
this letter shall constitute a binding agreement between us and for the benefit
of Omega and Newco as third party beneficiaries.
Sincerely,
onlinetradinginc.com corp.
By: /S/ E. STEVEN ZUM TOBEL
------------------------------
E. Steven zum Tobel, President
ACCEPTED AND AGREED TO:
/S/ ANDREW A. ALLEN
- -----------------------
Andrew A. Allen
5
<PAGE>
ROBERTSON
STEPHENS APPENDIX H
January 19, 2000
Board of Directors
Omega Research, Inc.
8700 West Flagler Street
Miami, FL 33174
Members of the Board:
We understand that Onlinetradinginc.com Corp. ("Online"), Omega Research, Inc,
("Omega"), Online Trading Group, Inc. ("Newco"), Omega Acquisition Corporation
(a wholly owned subsidiary of Newco, "Omega Merger Sub") and Onlinetrading
Acquisition Corporation (a wholly owned subsidiary of Newco, "Online Merger
Sub") are proposing to enter into an Agreement and Plan of Merger and
Reorganization dated as of January 19, 2000 (the "Agreement") which will
provide, among other things, for (i) the merger of Online Merger Sub with and
into Online and (ii) the merger of Omega Merger Sub with and into Omega (which
mergers are collectively referred to herein as the "Merger"). Upon consummation
of the Merger, Online and Omega will become wholly owned subsidiaries of Newco.
Under the terms set forth in the Agreement, at the effective time of the Merger
(the "Effective Time"), (i) each share of common stock of Omega, per value $.01
per share ("Omega Common Stock"), other then certain shares to be canceled
pursuant to the Agreement, will be converted into the right to receive one (1)
share (the "Omega Exchange Ratio") of the common stock of Newco, par value $.01
per share ("Newco Common Stock"), and (ii) each share of common stock of Online,
par value $.01 per share ("Online Common Stock"), other than certain shares to
be canceled pursuant to the Agreement and shares held by persons who properly
exercise dissenters' rights ("0nline Dissenting Shares"), will be converted into
the right to receive the number of shares of Newco Common Stock equal to the
"Online Exchange Ratio". As more specifically set forth in the Agreement, the
"Online Exchange Ratio" shall be equal to the quotient of (i) the 10 trading day
average of the last sale price of a share of Online Common Stock as reported on
Nasdaq over the period ending on the trading day prior to the date of the
Agreement divided by (ii) the 10 trading day average of the last sale price of a
share of Omega Common Stock as reported on the Nasdaq National Market over the
period ending on the third trading day prior to the closing date under the
Agreement; provided, however, that in no event shall the Online Exchange Ratio
be less than 1.3817 or more than 1.7172. The terms and conditions of the Merger
are set out more fully in the Agreement.
You have asked us whether, in our opinion, the Online Exchange Ratio is fair
from a financial point of view and as of the date hereof to Omega.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and
other business and financial information of Online and Omega,
respectively;
555 CALIFORNIA STREET SUITE 2600 SAN FRANCISCO CALIFORNIA 94104 415-781-9700
INVESTMENT BANKERS MEMBER OF ALL MAJOR EXCHANGES
<PAGE>
Board of Directors
Omega Research, Inc.
January 19,2000
Page 2
(ii) reviewed certain internal financial statements and other
financial and operating data, including certain financial
forecasts and other forward looking financial information,
concerning Online and Omega prepared by the managements of
Online and Omega, respectively;
(iii) held discussions with the respective management of Online and
Omega concerning the businesses, past and current operations,
financial condition and future prospects of both Online and
Omega, independently and combined, including discussions with
the managements of Online and Omega concerning cost savings
and other synergies that are expected to result from the
Merger as well as their views regarding the strategic
rationale for the Merger;
(iv) reviewed the financial terms and conditions set forth in the
Agreement;
(v) reviewed the stock price and trading history of Online Common
Stock and Omega Common Stock;
(vi) compared the financial performance of Online an the prices and
trading activity of Online Common Stock with that of certain
other publicly traded companies comparable with Online;
(vii) compared the financial terms of the Merger with the financial
terms, to the extent publicly available, of other transactions
that we deemed relevant;
(viii) reviewed the pro forma impact of the Merger on the combined
company's revenues and earnings per share;
(ix) prepared a discounted cash flow analysis of Online;
(x) participated in discussions and negotiations among
representatives of Online and Omega and their financial and
legal advisors; and
(xi) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by the managements of Online and Omega) or publicly
available and have neither attempted to verify, nor assumed responsibility for
verifying, any of such information. We have relied upon the assurances of the
managements of Online and Omega that they are not aware of any facts that would
make such information inaccurate or misleading. Furthermore, we did not obtain
or make, or assume any responsibility for obtaining or making, any independent
evaluation or appraisal of the properties, assets or liabilities (contingent or
otherwise) of Online or Omega, nor were we furnished with any such evaluation or
appraisal. With respect to the financial forecasts and projections (and the
assumptions and
<PAGE>
Board of Directors
Omega Research, Inc.
January 19, 2000
Page 3
bases therefor) for each of Online and Omega that we have reviewed, upon the
advice of the managements of Online and Omega, we have assumed that such
forecasts and projections have been reasonably prepared in good faith on the
basis of reasonable assumptions and reflect the best currently available
estimates and judgments as to the future financial condition and performance of
Online and Omega, respectively, and we have further assumed that such
projections and forecasts will be realized in the amounts and in the time
periods currently estimated. In this regard, we note that each of Online and
Omega face exposure to the Year 2000 problem. We have not undertaken any
independent analysis to evaluate the reliability or accuracy of the assumptions
made with respect to the potential effect that the Year 2000 problem might have
an Online's and Omega's respective forecasts. We have assumed that the Merger
will be consummated upon the terms set forth in the Agreement without material
alteration thereof, including, among other things, that the Merger will be
accounted for as a "pooling-of-interests" business combination in accordance
with U.S. generally accepted accounting principles ("GAAP") and that the Merger
will be treated as a tax-free reorganization pursuant to the Internal Revenue
Code of 1986, as amended. In addition, we have assumed that the historical
financial statements of each of Online and Omega reviewed by us have been
prepared and fairly presented in accordance with U.S. GAAP consistently applied.
We have relied as to all legal matters relevant to rendering our opinion on the
advice of counsel.
This opinion is necessarily based upon market, economic and other conditions as
in effect on, and information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect the conclusion
expressed in this opinion and that we disclaim any undertaking or obligation to
advise any person of any change in any matter affecting this opinion which may
come or be brought to our attention after the date of this opinion. Our opinion
is limited to the fairness, from a financial point of view and as to the date
hereof, to Omega of the Online Exchange Ratio. We do not express any opinion as
to (i) the value of any employee agreement or other arrangement entered into in
connection with the Merger, (ii) any tax or other consequences that might result
from the Merger or (iii) what the value of Newco Common Stock will be when
issued to the shareholders of Online and Omega pursuant to the Merger or the
price at which shares of Newco Common Stock may be traded in the future. Our
opinion does not address the relative merits of the Merger and the other
business strategies that Omega's Board of Directors has considered or may be
considering, nor does it address the decision of Omega's Board of Directors to
proceed with the Merger.
We are acting as financial advisor to Omega in connection with the Merger and
will receive (i) a fee contingent upon the delivery of this opinion and (ii) an
additional fee contingent upon the consummation of the Merger. In addition,
Omega has agreed to indemnify us for certain liabilities that may arise out of
our engagement. In the past, we have provided certain investment banking
services to Omega, including acting as lead manager on Omega's initial public
offering. We maintain a market in the shares of Omega Common Stock. In the
ordinary course of business, we may trade in Omega's securities and Online's
securities for our own account and the account of our customers and,
accordingly, may at any time hold a long or short position in Omega's securities
or Online's securities.
Our opinion expressed herein is provided for the information of the Board of
Directors of Omega in connection with its evaluation of the Merger. Our opinion
is not intended to be and does not constitute a recommendation to any
stockholder of Omega or Online as to how such stockholder should vote, or take
any other action, with respect to the Merger. This opinion may not be
summarized, described or referred to or furnished to any party except with our
express prior written consent.
<PAGE>
Board of Directors
Omega Research, Inc.
January 19, 2000
Page 4
Based upon and subject to the foregoing considerations, it is our opinion that,
as of the date hereof, the Online Exchange Ratio is fair to Omega from a
financial point of view.
Very truly yours,
/s/ FleetBoston Robertson Stephens Inc.
---------------------------------------
FLEETBOSTON ROBERTSON STEPHENS INC.
<PAGE>
RAYMOND JAMES &
ASSOCIATES, INC. APPENDIX I
January 19, 2000
Board of Directors
onlinetradinginc.com corp.
2700 North Military Trail
Suite 200
Boca Raton, FL 33431
Members of the Board:
We understand that onlinetradinginc.com corp. ("Online" or the
"Company") is contemplating a transaction whereby Online and Omega Research,
Inc. ("Omega") will be merged with and into a new, as yet unnamed holding
company ("NewCo") pursuant to the terms of an Agreement and Plan of Merger and
Reorganization and the exhibits and schedules thereto dated as of January 19,
2000 (the "Merger Agreement"), such that Online becomes a wholly owned
subsidiary of NewCo (the "Transaction"). Pursuant to the Transaction, each
outstanding share of common stock of Online, $.01 par value (the "Online Common
Stock"), shall be converted into shares of NewCo common stock (the "NewCo Common
Stock"), based on an exchange ratio (the "Exchange Ratio") as set forth in the
Merger Agreement. The Exchange Ratio shall be determined by dividing (i) the
weighted average of the closing prices of Online Common Stock as reported on the
Small Capitalization Market System of the National Association of Securities
Dealers for a period consisting of 10 days ending on January 18, 2000 by (ii)
the weighted average of the closing prices of Omega Common Stock as reported on
the National Market System of the National Association of Securities Dealers for
a period consisting of 10 days ending on the third day prior to the closing date
of the Transaction, subject to a minimum Exchange Ratio of 1.3817. The terms and
conditions of the Transaction are more fully set forth in the Merger Agreement.
You have requested our opinion as to whether the Exchange Ratio is fair
to the holders of Online Common Stock (the "Holders"), from a financial point of
view.
In connection with our review of the proposed Transaction and the
preparation of our opinion herein, we have, among other things:
1. reviewed Online's annual report to stockholders on Form SB-2/A
filed June 10, 1999, Online's quarterly reports to
stockholders on Forms 10-QSB filed December
<PAGE>
onlinetradinginc.com corp.
January 19, 2000
Page 2 of 4
15, 1999 and September 10, 1999, and other publicly available
financial information of Online;
2. reviewed Omega's annual report to stockholders on Form 10-K405
filed March 30, 1999, Omega's Form 8-K/A filed January 7,
2000, Omega's quarterly reports to stockholders on Forms 10-Q
filed November 12, 1999 and August 6, 1999, and other publicly
available financial information of Omega;
3. reviewed certain non-public information prepared by the
management of Online, including financial statements,
financial projections, and other financial and operating data
concerning Online;
4. reviewed certain non-public information prepared by the
management of Omega, including financial statements, financial
projections, and other financial and operating data concerning
Omega;
5. discussed the past and current operations and financial
condition and the prospects of Online and Omega with senior
executives of Online and Omega, respectively;
6. reviewed publicly available financial and stock market data
with respect to certain other companies in lines of business
we believe to be generally comparable to those of Online and
Omega;
7. considered the pro forma effects of the Transaction on the
financial statements of NewCo and reviewed certain estimates
of synergies prepared by the managements of Online and Omega;
8. reviewed the historical market prices of the Online Common
Stock and the common stock of Omega;
9. compared the financial terms of the Transaction with the
financial terms of certain other transactions which we believe
to be generally comparable to the Transaction;
10. reviewed a draft of the Merger Agreement; and
11. conducted other financial analyses, studies, and
investigations, and considered other information as we deemed
necessary or appropriate.
In connection with our review, we have not assumed any responsibility
for independent verification for any of the information reviewed by us for the
purpose of this opinion and have relied on its being complete and accurate in
all material respects. In addition, we have not made or
<PAGE>
onlinetradinginc.com corp.
January 19, 2000
Page 3 of 4
received any independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of Online and Omega, nor have we been
furnished with any such evaluation or appraisal. With respect to the financial
forecasts, estimates, projections, pro forma effects, calculations of synergies
and other information referred to above, we have assumed, at your direction,
that they have been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of each company, and we have
relied upon each party to advise us promptly if any such information previously
provided to or discussed with us became inaccurate or was required to be updated
during the period of our review. In addition, we have assumed the Transaction
will be consummated substantially in accordance with the terms set forth in the
draft of the Merger Agreement.
In rendering our opinion, we have assumed, with your consent, that the
Transaction will receive pooling-of-interests accounting treatment and will
qualify as a tax-free reorganization. Our opinion is necessarily based on the
economic, market financial and other circumstances and conditions in effect on
January 19, 1999, and any material change in such circumstances or conditions
would require reevaluation of this opinion, which we are under no obligation to
undertake.
We express no opinion as to the underlying business decision to effect
the Transaction, the structure or tax consequences of the Merger Agreement, or
the availability or advisability of any alternatives to the Transaction. This
letter does not express any opinion as to the likely trading range for the NewCo
Common Stock following the consummation of the Transaction, which may vary
depending on numerous factors that generally impact the price of securities. Our
opinion is limited to the fairness, from a financial point of view, of the
Exchange Ratio to the Holders. We express no opinion with respect to any other
reasons, legal, business, or otherwise, that may support the decision of the
Board of Directors to approve, or in Online's decision to consummate, the
Transaction.
In conducting our investigation and analyses and in arriving at our
opinion expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including the review of (i) historical and projected revenues, operating
earnings, net income and capitalization of Online and Omega and certain other
publicly held companies in businesses we believe to be comparable to Online and
Omega; (ii) the current and projected financial position and results of
operations of Online and Omega; (iii) the historical market prices and trading
activity of the Online Common Stock and the common stock of Omega; (iv)
financial and operating information concerning selected business combinations
which we deemed comparable in whole or in part; and (v) the general condition of
the securities markets.
Raymond James & Associates ("Raymond James") is actively involved in
the investment banking business and regularly undertakes the valuation of
investment securities in connection with public offerings, private placements,
business combinations and similar transactions. In the past, Raymond James has
performed certain investment banking services for Omega and has received
<PAGE>
onlinetradinginc.com corp.
January 19, 2000
Page 4 of 4
customary fees for such services. Raymond James has acted as financial advisor
to the Board of Directors of Online in connection with the Transaction and will
receive a fee upon the consummation thereof, which fee is contingent upon the
value of the Transaction. In the ordinary course of business, Raymond James may
trade in the securities of Online and Omega for its own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that our advisory services and opinion expressed
herein were prepared for the use of the Board of Directors of Online in
evaluating the proposed Transaction and do not constitute a recommendation to
any shareholder of Online regarding how such shareholder should vote on the
proposed Transaction. This opinion is not to be quoted or referred to, in whole
or in part, without the prior written consent of Raymond James, which will not
be unreasonably withheld. We have consented to the inclusion of this letter in
its entirety in the proxy statement to be filed by Online with the Securities
and Exchange Commission in connection with the Transaction.
In arriving at this opinion, Raymond James did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Raymond James believes that its analyses must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying this
opinion.
Based upon and subject to the foregoing, it is our opinion that, as of
January 19, 1999, the Exchange Ratio pursuant to the Merger Agreement is fair,
from a financial point of view, to the Holders.
Respectfully submitted,
/s/ Raymond James & Associates, Inc.
RAYMOND JAMES & ASSOCIATES, INC.
<PAGE>
ANNEX TO ONLINE PROXY STATEMENT
ANNEX
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,
OnlineTrading.com Group, Inc. ("Holding Company"), 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 Holding
Company, will merge with and into OnlineTrading.com, with OnlineTrading.com
surviving the merger as a wholly-owned subsidiary of Holding Company, (ii) Omega
Acquisition, a wholly-owned subsidiary of Holding Company, will merge with and
into Omega Research, Inc., with Omega Research, Inc. surviving the merger as a
wholly-owned subsidiary of Holding Company, and (iii) each share of
OnlineTrading.com common stock will be converted into the right to receive a
number of shares of Holding Company 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, Holding Company, 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 Holding
Company, (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 Holding Company, and (iii) each share of OnlineTrading.com common
stock will be converted into the right to receive a number of shares of Holding
Company 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.
Date: , 2000
---------------------- -----------------------------------------
Signature of Authorized Representative(s)
Please date and sign exactly as name appears hereon. Each executor,
administrator, trustee, guardian, attorney- in-fact and other fiduciary should
sign and indicate his or her full title. When stock has been issued in the name
of two or more persons, all should sign.
