-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FhGkV7xaAOBWrVGA27nJG0HGWOYmwyNJTww8iF/rfTZIGKMBPPG+szjM/2X45ixV /xgUiqCkm/1RyxC0AgazRg== 0000950170-97-000871.txt : 19970728 0000950170-97-000871.hdr.sgml : 19970728 ACCESSION NUMBER: 0000950170-97-000871 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19970725 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMEGA RESEARCH INC CENTRAL INDEX KEY: 0001042814 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 592223464 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-32077 FILM NUMBER: 97645474 BUSINESS ADDRESS: STREET 1: 8700 WEST FLAGLER STREET SUITE 250 CITY: MIAMI STATE: FL ZIP: 33174 BUSINESS PHONE: 3055519991 MAIL ADDRESS: STREET 1: 8700 WEST FLAGER STREET SUITE 250 CITY: MIAMI STATE: FL ZIP: 33174 S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 1997 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ OMEGA RESEARCH, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 7372 59-2223464 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
8700 WEST FLAGLER STREET, MIAMI, FLORIDA 33174 (305) 551-9991 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------ WILLIAM R. CRUZ AND RALPH L. CRUZ CO-CHIEF EXECUTIVE OFFICERS OMEGA RESEARCH, INC. 8700 WEST FLAGLER STREET MIAMI, FLORIDA 33174 (305) 551-9991 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENTS FOR SERVICE) ------------------ COPIES TO: ALAN D. AXELROD, ESQ. PETER B. TARR, ESQ. RUBIN BAUM LEVIN CONSTANT FRIEDMAN & BILZIN HALE AND DORR LLP 2500 FIRST UNION FINANCIAL CENTER 60 STATE STREET MIAMI, FLORIDA 33131-2336 BOSTON, MASSACHUSETTS 02109 TELEPHONE: (305) 374-7580 TELEPHONE: (617) 526-6000 ------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] ____________. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] _____________. If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [ ] CALCULATION OF REGISTRATION FEE
==================================================================================================================================== PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING PRICE AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED (1) SHARE(2) (2) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------------------ Common Stock, $0.01 par value........ 4,255,000 $12.00 $51,060,000 $17,607 ==================================================================================================================================== (1) Includes an aggregate of 555,000 shares which the Underwriters may purchase to cover over-allotments, if any. See "Underwriting." (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. ================================================================================ Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED JULY 25, 1997 3,700,000 SHARES [OMEGA RESEARCH, INC. LOGO] COMMON STOCK Of the 3,700,000 shares of Common Stock offered hereby, 2,600,000 shares are being sold by Omega Research, Inc. ("Omega Research" or the "Company") and 1,100,000 shares are being sold by the Selling Shareholders. See "Principal and Selling Shareholders." The Company will not receive any of the proceeds from the sale of the shares being sold by the Selling Shareholders. Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $10.00 and $12.00 per share. See "Underwriting" for information relating to the method of determining the initial public offering price. Application will be made to list the Common Stock on the Nasdaq National Market under the symbol "OMGA." ------------- THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. ------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================================================ UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS AND PROCEEDS TO SELLING PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS - ---------------------------------------------------------------------------------------------------------------- Per Share.......................... $ $ $ $ - ---------------------------------------------------------------------------------------------------------------- Total(2)........................... $ $ $ $ ================================================================================================================ (1) Before deducting expenses payable by the Company, estimated at $650,000. (2) The Company and the Selling Shareholders have granted the Underwriters a 30-day option to purchase an aggregate of up to an additional 555,000 shares of Common Stock solely to cover over-allotments, if any. See "Underwriting." If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to Selling Shareholders will be $ , $ , $ and $ , respectively.
------------- The Common Stock is offered by the Underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of such shares will be made through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens & Company"), San Francisco, California, on or about , 1997. ROBERTSON, STEPHENS & COMPANY LEHMAN BROTHERS HAMBRECHT & QUIST The date of this Prospectus is , 1997 [PICTURES OF THE COMPANY'S PRODUCTS AND DEPICTIONS OF PRODUCT INTERFACES] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING SHAREHOLDER OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ------------- TABLE OF CONTENTS PAGE ----- Summary.................................................................... 4 Risk Factors............................................................... 7 Distribution of S Corporation Earnings..................................... 20 Use of Proceeds............................................................ 22 Dividend Policy............................................................ 22 Capitalization............................................................. 23 Dilution................................................................... 24 Selected Financial Data.................................................... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 26 Business................................................................... 35 Management................................................................. 46 Certain Transactions....................................................... 52 Principal and Selling Shareholders......................................... 53 Description of Capital Stock............................................... 54 Shares Eligible for Future Sale............................................ 57 Underwriting............................................................... 58 Legal Matters.............................................................. 60 Experts.................................................................... 60 Additional Information..................................................... 60 Index to Financial Statements.............................................. F-1 ------------- The Company intends to mail to all of its shareholders an annual report containing financial statements audited by its independent accountants for each fiscal year and shall make available to all of its shareholders quarterly reports containing unaudited financial information for each of the first three quarters of each fiscal year. TRADESTATION(R), OPTIONSTATION(R) and SUPERCHARTS(R) are registered trademarks, and OMEGA RESEARCH(TM), EASYLANGUAGE(TM) and POWEREDITOR(TM) are trademarks, of the Company. This Prospectus also contains trademarks and tradenames of other companies. The Company was incorporated in Florida in 1982 and its principal executive offices are located at 8700 West Flagler Street, Miami, Florida 33174. Its telephone number is (305) 551-9991. 3 SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS SUGGESTED BY THE FORWARD-LOOKING STATEMENTS AND FROM THE RESULTS HISTORICALLY EXPERIENCED. FACTORS THAT MAY CAUSE OR CONTRIBUTE TO SUCH DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. THE COMPANY Omega Research is a leading provider of real-time investment analysis software for the Microsoft Windows operating system. The Company's principal products are TRADESTATION, OPTIONSTATION and SUPERCHARTS. With the 1991 release of its flagship product, TRADESTATION, Omega Research pioneered the concept of utilizing the power of the personal computer to enable investors to historically test the profitability of their own investment and trading strategies and then computer-automate those strategies to generate real-time buy and sell signals. OPTIONSTATION enables investors who are not options experts or mathematicians to benefit from advanced stock, index and futures options trading strategies, and SUPERCHARTS provides investors with state-of-the-art technical analysis capabilities. The Company designs its products as PLATFORM APPLICATIONS: unique software applications that also serve as platforms for independent third-party solutions. Over 150 independent developers have developed software products for the Omega Research Platform. In the last 25 years there has been unprecedented growth in the financial markets as increasing amounts of capital have been actively invested in an effort to generate superior returns. As investment and trading activity have increased, investors are seeking to make use of the increased amounts of financial market data available to support their investment decisions. While the data have been available for some time, typically only large institutional investors were able to manipulate, organize and analyze such data through the use of mainframe or minicomputer-based software applications. With the advanced processing capabilities of today's personal computers, both individual and institutional investors are demanding powerful investment analysis software to improve their investment decision-making. The Omega Research solution addresses this demand through superior investment analysis products, an industry-leading open and extendible software platform, comprehensive support for a wide variety of financial instruments and markets, and, through the Company's proprietary EASYLANGUAGE technology, the ability to design and historically test investment strategies without having computer programming experience. Omega Research's objective is to be the leading worldwide provider of real-time investment analysis software to both individual and institutional investors. The Company's product strategy is to expand the Omega Research Platform by enhancing and developing its own suites of integrated, complementary products, and by facilitating the development of additional compatible third-party products and services. The Company's marketing strategy is to continue to penetrate the expanding individual investor market, increase its focus on institutional investors and expand its international distribution. The Company will also seek to strengthen and expand its relationships with data vendors and to leverage its installed base of customers by marketing to its customer base product upgrades and existing and new complementary products. 4 As of June 30, 1997 the Company had licensed its products to over 30,000 investors worldwide. The Company markets its products to individual investors primarily through its dedicated, professional, team-oriented telesales force. As a result of its strategic relationship with Dow Jones Markets, Inc., the Company's products are marketed to institutional investors. Dow Jones Markets offers the Company's TRADESTATION product as DOW JONES TRADESTATION under an agreement that extends until 2002 and includes minimum annual royalty payments to the Company which escalate each year of the agreement. In 1997, the Company entered into an additional agreement to permit Dow Jones Markets to offer the Company's SUPERCHARTS product as DOW JONES SUPERCHARTS. THE OFFERING Common Stock offered by the Company...... 2,600,000 shares Common Stock offered by the Selling Shareholders........................... 1,100,000 shares Common Stock to be outstanding after the Offering........................... 22,080,000 shares(1) Use of Proceeds.......................... To repay a short-term bank loan used to fund payment of a distribution of S corporation earnings to the Company's current shareholders; working capital and other general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol... OMGA - --------------- (1) Based on shares outstanding as of July 21, 1997. Excludes (i) 891,250 shares of Common Stock issuable upon exercise of stock options granted under the Omega Research, Inc. 1996 Incentive Stock Plan (the "Incentive Stock Plan") as of July 21, 1997, with a weighted average exercise price of $1.84 per share; (ii) 2,108,750 additional shares of Common Stock reserved for future issuance under the Incentive Stock Plan (including up to 150,000 shares which the Company intends to issue to certain employees (other than executive officers) on or prior to the date of this Prospectus, of which approximately 100,000 shares will be issued at an exercise price equal to the initial public offering price); (iii) 175,000 shares of Common Stock reserved for issuance under the Omega Research, Inc. 1997 Nonemployee Director Stock Option Plan (the "Director Stock Plan"); and (iv) 500,000 shares of Common Stock reserved for issuance under the Omega Research, Inc. 1997 Employee Stock Purchase Plan (the "Purchase Plan"). See "Management -- Other Compensation Arrangements" and Note 4 of Notes to Financial Statements. 5
SUMMARY FINANCIAL DATA (In thousands, except per share data) SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------------------------------- ----------------- 1992 1993 1994 1995 1996 1996 1997 ------- ------- ------- ------- ------- ------- ------- STATEMENT OF INCOME DATA: Licensing fees $ 3,040 $ 5,593 $ 7,853 $ 7,913 $13,943 $ 6,322 $12,092 Other revenues -- -- 707 1,502 3,877 1,787 2,527 ------- ------- ------- ------- ------- ------- ------- Total revenues 3,040 5,593 8,560 9,415 17,820 8,109 14,619 Income from operations 1,035 2,407 3,727 3,288 7,022 3,250 5,379 Net income(1) 1,060 2,438 3,745 3,312 7,082 3,259 5,397 Pro forma net income(1) 641 1,475 2,266 2,004 4,285 1,972 3,265 Pro forma net income per share(1)(2) $ 0.21 $ 0.15 Pro forma weighted average number of shares outstanding(2) 20,541 21,186
JUNE 30, 1997 --------------------------------------- PRO PRO FORMA ACTUAL FORMA(3) AS ADJUSTED (4) -------- --------- --------------- BALANCE SHEET DATA: Cash and cash equivalents............. $ 264 $ 264 $15,590 Working capital (deficit)............. 6,828 (2,794) 23,154 Total assets.......................... 9,257 12,081 27,407 Short-term obligations................ -- 10,622 -- Shareholders' equity (deficit)........ 7,807 (1,815) 24,133 - --------------- (1) The statement of income data reflects a pro forma provision for income taxes as if the Company were a C corporation subject to federal and state corporate income taxes for all periods. See "Distribution of S Corporation Earnings" and Note 1 of Notes to Financial Statements. (2) Pro forma weighted average number of shares outstanding includes 321,000 and 966,000 shares for the year ended December 31, 1996 and the six-month period ended June 30, 1997, respectively, at an assumed initial public offering price of $11.00 per share, the proceeds of which would fund undistributed S corporation earnings. See "Distribution of S Corporation Earnings" and Note 1 of Notes to Financial Statements. (3) Reflects the effect of the dividend to current shareholders and other pro forma adjustments described in "Distribution of S Corporation Earnings" and Note 7 of Notes to Financial Statements. (4) Adjusted to give effect to the sale of the Common Stock offered by the Company hereby and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization." --------------------- EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) HAS BEEN ADJUSTED TO REFLECT A 97,400-FOR-1 STOCK SPLIT OF THE COMPANY'S COMMON STOCK BY WAY OF A SHARE DIVIDEND DECLARED IN JANUARY 1997 AND (II) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS AND "UNDERWRITING." 6 RISK FACTORS IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING ANY OF THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "INTEND" AND "EXPECT" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS SUGGESTED BY THE FORWARD-LOOKING STATEMENTS AND FROM THE RESULTS HISTORICALLY EXPERIENCED. FACTORS THAT MAY CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION AND ELSEWHERE IN THIS PROSPECTUS. POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The Company's quarterly revenues and operating results have fluctuated significantly in the past and will likely fluctuate in the future. Causes of such significant fluctuations may include, but are not limited to, the following factors: the ability of the Company to develop, introduce, market and ship high-quality new and enhanced versions of the Company's products on a timely basis; the number, timing and significance of new product introductions by the Company and its competitors; the level of product and price competition; changes in the Company's sales incentive or marketing strategy; demand for the Company's products; changes in operating expenses; the volume and the timing of orders; attempts by the Company to enter new markets or expand into related businesses and the cost, timing and success thereof; the incurrence of significant costs in one quarter related to revenues anticipated to be realized in a subsequent quarter; and general economic factors. The occurrence of any one or more of these or other factors could have a material adverse effect on the Company's business, financial condition and results of operations. The potential occurrence of any one or more of these factors makes the prediction of revenues and results of operations on a quarterly basis difficult and performance forecasts derived from such predictions unreliable. As a result, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance. In general, revenues are difficult to forecast because the market for the Company's products is evolving rapidly. Licensing fees in any quarter are dependent substantially on orders received, booked and shipped in that quarter, net of return reserves, all of which fluctuate from quarter to quarter. Licensing fees from quarter to quarter are difficult to forecast, as no significant order backlog exists at the end of any quarter, since the Company's products typically are shipped shortly after receipt of orders. Additionally, revenues are difficult to forecast because telesales, which, due to their nature, are not easily forecast, have accounted to date for substantially all of the Company's licensing fees from direct sales activities. Further, a significant portion of the Company's revenues are derived from royalties and marketing fees, the amounts of which depend upon the marketing and other activities of independent third parties outside of the Company's control. The Company has a 30-day return policy for its products. However, the Company often permits returns beyond the 30-day period. Any significant increase in the level of returns, in particular, returns beyond the 30-day period, could result in an adjustment to the return reserves maintained by the Company in any given quarter. There can be no assurance that any such adjustment would not have a material adverse effect on the Company's business, financial condition and quarterly results of operations. 7 A substantial portion of the Company's operating expenses are related to personnel, facilities and marketing programs. The level of spending for such expenses cannot be adjusted quickly and is therefore fixed in the short term. The Company's expense levels for personnel, facilities and marketing programs are based, in significant part, on the Company's expectations of future revenues on a quarterly basis. If actual revenue levels on a quarterly basis are below management's expectations, results of operations are likely to be adversely affected by a substantially similar amount because a relatively small amount of the Company's expenses varies with its revenues in the short term. Software companies frequently experience strong fourth quarters followed by weak first quarters, in some cases with sequential declines in revenues or operating profit. There can be no assurance that the Company will not experience this fluctuation in future years. Due to all of the foregoing factors, as well as the occurrence of other events and conditions discussed in this Prospectus, it is possible that in some future quarter the Company's results of operations will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview" and "-- Selected Quarterly Results of Operations." DEPENDENCE ON KEY EMPLOYEES The Company's 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, including the founders of the Company and its Co-Chief Executive Officers, William R. Cruz and Ralph L. Cruz, and the Company's Vice President of Product Development, Peter A. Parandjuk. Since the Company's inception, William Cruz has been primarily responsible for the conception and management of the Company's products and product strategies, and Ralph Cruz has been primarily responsible for the Company's marketing strategies. The Company does not have, or expect to obtain, key person life insurance. The Company has entered into non-competition agreements with all of its executive officers which provide that if their employment with the Company is terminated they will not compete with the Company for a period of two years following termination of employment. There is general uncertainty as to the enforceability of non-competition agreements, and there can be no assurance that such agreements will be enforceable against the Company's employees. Additionally, the Company believes that its future success will depend in part on its ability to attract and retain highly-skilled engineering, managerial and sales and marketing personnel. Competition for such personnel in the software industry is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel. Failure to attract or retain key personnel, William Cruz or Ralph Cruz in particular, would likely have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Employees" and "Management -- Executive Officers and Directors." COMPETITION The market for investment analysis software is intensely competitive and rapidly changing. The Company believes that due to anticipated growth of the market for investment analysis software, and other factors, competition will substantially increase and intensify in the future. The Company 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 enhancements developed by the Company and its competitors, product functionality, data availability, ease of use, pricing, reliability, customer service and support, sales and marketing efforts and product distribution channels. 8 The Company faces direct competition from several publicly-traded and privately-held companies. The Company's principal competitors include AIQ, Aspen Graphics, Equis International, Inc. (Metastock), a subsidiary of Reuters, Market Arts, Inc. (Window on Wall Street) and TeleChart 2000. The Company also competes with investment analysis solutions available on the Internet, some of which are available for free. In addition, the Company faces competition from data vendors, all of which offer investment analysis software products, and which are the Company's existing and potentially future strategic partners. As a result, the Company must educate prospective customers as to the potential advantages of the Company's products, and continue to offer solutions not offered by major data vendors. There can be no assurance that the Company will be able to compete effectively with its competitors, adequately educate potential customers to the benefits that the Company's products provide, or continue to offer such software solutions. Many of the Company's existing and potential competitors, which include large, established software companies which do not currently focus on the investment analysis software market, have longer operating histories, significantly greater financial, technical and marketing resources, greater name recognition and a larger installed customer base than has the Company. One or more of these competitors may be able to respond more quickly to new or emerging technologies or changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than may the Company. There can be no assurance that the Company's existing or potential competitors will not develop products comparable or superior to those developed by the Company or adapt more quickly than the Company to new technologies, evolving industry trends or changing customer requirements. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect the Company's business, financial condition and results of operations. There can be no assurance that the Company will be able to compete successfully against current or future competitors, or that competitive pressures faced by the Company will not have a material adverse effect on its business, financial condition and results of operations. See "Business -- Competition." PRODUCT CONCENTRATION Since its introduction in 1991, sales of TRADESTATION have accounted for a majority of the Company's total revenues and are expected to continue to account for a substantial portion of such revenues for the foreseeable future. As a result, any factor resulting in price reductions of, or declines in demand for, TRADESTATION would have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company will continue to be successful in marketing TRADESTATION or any new or enhanced version thereof. Competitive pressures or other factors may result in significant price erosion that would have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview," "Business -- Products" and "-- Competition." MANAGEMENT OF CHANGE The Company's business has grown rapidly in recent years. This growth has placed, and will continue to place, a significant strain on the Company's management and operations. The Company has ambitious plans for future growth, including entry into new markets, that will place additional significant strain on the Company's management and operations. The Company's future operating results will depend, in part, on its ability to continue to broaden the Company's senior management group and administrative infrastructure, and its ability to attract, hire and retain skilled employees, 9 particularly in the product management and product development areas. The Company's success will also depend on the ability of its officers and key employees to continue to implement and improve the Company's operational and financial control systems and to expand, train and manage its employee base. The Company's future operating results will also depend on its ability to expand its sales and marketing organizations and expand its customer support operations commensurate with its growth, should such growth occur. The Company's inability to effectively manage growth, should such growth occur, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Employees." The Company is in the process of implementing a new accounting, customer tracking and management system at its corporate headquarters to address certain limitations in its information resources. The Company is in the process of learning the full capabilities of the new system, and realization of all the benefits of the new system will take an undetermined length of time. There can be no assurance that the Company will not experience difficulties in transitioning to the new system. The failure to receive adequate, accurate and timely financial information could impair management's ability to make effective and timely business decisions, which could have a material adverse effect upon the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Sales and Marketing." RISKS OF RETURNS AND COLLECTION OF ACCOUNTS RECEIVABLE Revenues are recognized by the Company at the time product is shipped, and the Company maintains a reserve to account for anticipated returns of its products based on the Company's evaluation of historical experience and other relevant information. The Company's return rate has increased over the last several quarters and there can be no assurance that this trend will not continue. In the event that returns materially increase over historical rates as a result of changes in technology, shifts in consumer demand or other reasons, the reserves maintained by the Company will not be sufficient to cover such returns and, in such event, the Company's business, financial condition and results of operations would be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." The Company has an unusually high level of accounts receivable, based primarily on its policy of permitting customers to pay for many of its products by automatic monthly charges to the customer's credit card over a 12-month period. While the Company believes that it maintains adequate reserves to account for the non-collection of its accounts receivable, there can be no assurance that the rate of non-collection of accounts receivable will not increase over historical levels. Such an increase could materially adversely affect the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." RISKS ASSOCIATED WITH ENTRY INTO INSTITUTIONAL MARKET The Company has historically sold its products to individuals and has no experience in marketing its products directly to institutions. The Company believes its future success will depend in part on its ability to move beyond its traditional customer base and market its products to institutions, including brokerage firms. The Company's ability to enter the institutional market will depend, in part, upon its ability to successfully develop network versions of its products. There can be no assurance that the Company will be successful in developing a network version and marketing, on a timely and cost-effective basis, if at all, products that respond to current and emerging 10 institutional market conditions or that will be accepted by institutional investors, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- The Omega Research Strategy." RISKS ASSOCIATED WITH FLUCTUATIONS IN THE SECURITIES AND FINANCIAL MARKETS The Company's products are 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, the Company's business, financial condition and results of operations could be materially adversely affected. See "Business -- Industry Background." RELATIONSHIPS WITH DATA VENDORS The Company's viability depends on the ability of its customers to obtain access to a breadth of quality real-time and historical financial market data from services that are technically compatible with the Company's products. The Company currently depends nearly entirely upon relationships with third-party data vendors to ensure such access. Most of the data vendors with whom the Company has developed technical compatibility have developed and are currently marketing their own versions of investment analysis software and, in some cases, have established alliances with the Company's competitors. Such data vendors may decide to increase the focus of their efforts and resources on their own development efforts, develop products highly competitive with the Company's products, strengthen their alliances with the Company's competitors, discontinue their relationships with the Company, or develop strategic initiatives which involve eliminating or limiting compatibility between the Company's products and the data vendors' services. If this occurred, the Company would be required to find alternate sources for such data in order to remain viable and there can be no assurance that such alternate sources would be available on commercially reasonable terms, if at all. There is also the risk that such data vendors will not pay the fees, commissions or royalties due to the Company under their contractual agreements or that such contractual relationships will not be renewed on terms favorable to the Company, if at all. There can be no assurance that the Company will be able to increase the number of compatible data sources available, or that its existing data sources will continue to exist or cooperate in maintaining technical compatibility with the Company's products. If the Company were unable to secure additional key data sources or were to lose access to significant amounts of data, the Company's ability to obtain and retain customers, and therefore the Company's business, financial condition and results of operations, would be materially adversely affected. The Company's business, financial condition and results of operations would also be materially adversely affected if a significant number of its data vendors failed to make their fee, commission or royalty payments to the Company when due. The loss by data vendors of subscribers who use the Company's products may also adversely affect the Company if such subscribers switch to a data vendor whose services are not technically compatible with the Company's products, or a data vendor who has an exclusive or more favorable relationship with a competitor of the Company. The use of such other data vendor may reduce marketing fees and commissions to the Company. The resultant loss of fees and commissions, if significant, would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business - -- Competition" and "-- Strategic Relationships." 11 RAPID TECHNOLOGICAL CHANGE AND DEPENDENCE ON NEW PRODUCTS The market for investment analysis software is characterized by rapidly changing technology, evolving industry standards in computer hardware, programming tools, programming languages, operating systems, database technology and information delivery systems, changes in customer requirements and frequent new product introductions and enhancements. The Company's future success will depend upon its ability to maintain and develop competitive technologies, to continue to enhance its current products and to develop and introduce new products in a timely and cost-effective manner that meets changing conditions such as evolving customer needs, new competitive product offerings, emerging industry standards and changing technology. Any failure by the Company to anticipate or to respond quickly to changing market conditions, or any significant delays in product development or introduction, could cause customers to delay or decide against purchases of the Company's products and would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- The Omega Research Strategy" and "-- Product Development." RISKS ASSOCIATED WITH FUTURE RELIANCE ON THE INTERNET The Company believes that future sales of its products and the future growth of the Company, particularly outside of the United States and Canada, will depend upon the adoption of the Internet as a widely used medium for commerce and communication, and the Internet becoming a significant means of delivery of high-quality financial market data, marketing materials and customer support. If the Internet becomes viable in such manner, the Company will have to develop extensive Internet product technical compatibility and adjust its marketing and customer support approaches accordingly. There can be no assurance that the Company will accomplish any of such tasks on a timely, cost-effective basis, if at all. Conversely, the Internet may not prove to be a viable commercial marketplace because of failure to develop the necessary infrastructure, such as reliable network backbones and adequate band-widths, or failure to develop complementary 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. In addition, the Internet could lose its viability due to delays in the development or adoption of new standards and protocols to handle increased levels of Internet activity, or due to increased governmental regulation. Because global commerce and online exchange of information on the Internet and other similar open wide area networks are new and evolving, it is difficult to predict whether the Internet will prove to be a viable commercial marketplace. There can be no assurance that the infrastructure or complementary services necessary to make the Internet a viable commercial marketplace will develop, or, if developed, that the Internet will become a viable commercial marketplace for financial market data or products such as those offered by the Company. If the necessary infrastructure or complementary services are not developed, or if the Internet does not become a viable commercial marketplace, or if the Internet becomes viable and the Company does not adequately and timely develop the necessary technical compatibility and adjust its marketing and customer support approaches accordingly, the Company's business, financial condition and results of operations could be materially adversely affected. See "Business -- Industry Background" and "-- The Omega Research Strategy." RISKS OF PRODUCT DEFECTS; PRODUCT LIABILITY As a result of their complexity, all software products, including the Company's products, contain errors. Despite testing by the Company and initial use by customers, when new products are 12 introduced or new versions of products are released there can be no assurance that errors will not be found and persist after commencement of commercial shipments, resulting in loss of revenues, delay in market acceptance or damage to the Company's reputation, any of which could have a material adverse effect upon the Company's business, financial condition and results of operations. All investment analysis software products are inherently limited by the accuracy of the data utilized by such products. Because the monitoring, collection, storage and delivery of financial market data by data vendors and by the Company's software is inherently difficult, the data frequently contain errors. The effectiveness of the Company's products is therefore limited by the accuracy of such data. Moreover, the financial market data often used by investors with the Company's products to perform historical testing are based upon discrete data points (such as open, high, low and close prices for a user-specified time period) rather than on a trade-by-trade continuum. This requires the Company's products to incorporate certain assumptions as to the movement from one data point to the next. To the extent that such assumptions are incorrect, the results of the historical testing will be inaccurate. See "Business -- Products." The Company's products are used by investors in the financial markets, and, as a result, an investor might claim that investment losses or lost profits resulted from use of a flawed version of one of the Company's products or inaccurate assumptions made by the product regarding data. Liability imposed on the Company as a result of any such losses by its customers could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's license agreements with its customers typically contain provisions designed to limit the Company's exposure for potential claims based on use, errors or malfunctions of its products. It is possible, however, that the limitation of liability provisions contained in the Company's license agreements may not be effective under the laws of certain jurisdictions. Although the Company has not experienced any product liability claims to date, the sale and support of the Company's products entail the risk of such claims. Although the Company has a limited amount of product liability insurance, there can be no assurance that such insurance would be adequate to cover the amount of such liabilities, if imposed on the Company, or that such insurance would cover the types of claims which might be asserted against the Company. A product liability claim brought against the Company could have a material adverse effect on the Company's business, financial condition and results of operations. RISK OF LITIGATION There has been substantial litigation in the software industry involving intellectual property rights. Although the Company does not believe that it is infringing the intellectual property rights of others, there can be no assurance that infringement claims, if asserted, would not have a material adverse effect on the Company's business, financial condition and results of operations. In addition, as part of its marketing strategy, the Company licenses to its solution providers the Omega Research Solution Provider logo. Several solution provider products recommend specific trading systems or strategies to investors, which, if used by investors unsuccessfully, could result in claims by them. The association of the Company's name and logo with a solution provider's products or services may therefore subject the Company to claims brought by third parties with respect to such products or services. Such claims, if asserted, could have a material adverse effect on the Company's business, financial condition and results of operations. As the Company's products are designed to enable investors to make improved investment and trading decisions, an investor who uses the Company's products and sustains losses or fails to make profits in the securities or financial markets may allege that the Company's products contributed to or resulted in such losses or lost profits and that the Company should be held liable to the investor 13 for such losses. While the Company's user manuals contain certain warnings and disclaimers, they may not be effective in certain jurisdictions or under certain circumstances. The Company currently has a limited amount of errors and omissions insurance which may cover such liability risks, but there can be no assurance that such insurance would be adequate to cover the amount of such liabilities, if imposed on the Company, or that such insurance would cover the types of claims which might be asserted against the Company. While the Company has never had such a claim asserted against it, there can be no assurance that such claims will never be asserted and that, if asserted, such claims would not have a material adverse effect on the Company's business, financial condition and results of operation. See "Business -- Products." DEPENDENCE ON RELATIONSHIP WITH DOW JONES MARKETS The Company has entered into two Software License, Maintenance and Development Agreements with Dow Jones Markets, Inc., formerly known as Dow Jones Telerate, Inc. ("Dow Jones Markets"), which the Company expects will provide a substantial royalty stream over the next five years. While the agreements are non-cancelable and, in the case of one of the agreements, provide for certain guaranteed minimum annual royalty payments to the Company, there can be no assurance that circumstances will not arise under which Dow Jones Markets will seek to avoid continued payment of the royalties. Should Dow Jones Markets not make the payments to the Company as and when due, the Company's business, financial condition and results of operations would be materially adversely affected. Further, under such agreements, Dow Jones Markets has complete discretion as to how it markets the Company's TRADESTATION and SUPERCHARTS products to Dow Jones Markets' existing and potential subscribers, most of which are institutions, worldwide. If Dow Jones Markets, in the exercise of such discretion, markets such products in a manner detrimental to the Company, whether due to Dow Jones Markets having a different marketing focus which emphasizes its other products or a competing software product, poor conception or execution, or otherwise, the Company's entry into the institutional investor market, its reputation and its business, financial condition and results of operations could be materially adversely affected. To date, minimum royalties under the Dow Jones Markets agreements have exceeded actual royalties. In the event that the Dow Jones Markets agreements are not extended or renewed beyond their expiration in the year 2002, there may be a decline in the Company's revenues for the quarter in which the agreements terminate and thereafter, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview" and "Business - -- Strategic Relationships." RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION A key component of the Company's strategy is its planned expansion into international markets. This strategy is dependent, in part, on international customers having access to the appropriate financial market data. There is no practical and affordable access to such data in many countries and there can be no assurance that the required financial market data will ever be readily available in the countries in which the Company's products could be sold or that such data, if available, will be reliable or affordable. To date, the Company has only limited experience in marketing, selling and delivering its products internationally. There can be no assurance that the Company will be able to successfully market, sell and deliver its products in international markets. In addition, there are certain risks inherent in doing business on an international level, such as unexpected changes in regulatory requirements, export restrictions, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, dependence upon and problems with foreign distributors or strategic partners needed to succeed in certain countries, difficulties in protecting intellectual 14 property rights, longer payment cycles, problems in collecting accounts receivable, political instability, unfamiliarity with local laws and customs, fluctuations in currency exchange rates, and potentially adverse tax consequences. There can be no assurance that one or more of such or other factors will not have a material adverse effect on the Company's future international operations and, consequently, on the Company's business, financial condition and results of operations. See "Business -- Sales and Marketing." DEPENDENCE UPON MICROSOFT'S WINDOWS OPERATING SYSTEM The Company's products are currently designed for use on computers using Microsoft's Windows operating system. The Company currently intends to develop future versions of its products for 32-bit Windows operating systems, and, as a result, such versions will not be compatible with the Microsoft Windows 3.1 operating system and will require Windows 95, Windows NT 4.0 or later versions of Windows. A decision by current users of the Windows 3.1 operating system not to upgrade to a newer version of the Windows operating system would adversely affect demand for the Company's products, causing a material adverse effect on the Company's business, financial condition and results of operations. Any factor adversely affecting the demand for, or use of, or the current trends of increasing and expanding use of, the Windows operating system could have an impact on demand for the Company's products causing a material adverse effect on the Company's business, financial condition and results of operations. Additionally, changes to the underlying components of the Windows operating system may require changes to the Company's products. If the Company is not able to successfully develop or implement appropriate modifications to its products in a timely fashion, the Company's business, financial condition and results of operations would be materially adversely affected. See "Business -- Industry Background" and "-- Products." EMERGING MARKET FOR INVESTMENT ANALYSIS SOFTWARE The market for software products that enable investors to design, historically test and computer-automate their own investment and trading strategies on the personal computer is relatively new and will be subject to frequent and continuing changes. Any future growth of this market depends upon continued customer acceptance of the Company's products as valuable tools in designing and implementing custom investment and trading strategies. Historically, the Company has been required to educate prospective customers as to the potential advantages of the Company's products. The Company expects that the educational component of the sales process will continue for the foreseeable future and will require significant resources. There can be no assurance that the market for such software will grow, that the Company will be successful in educating a sufficient number of customers as to the potential advantages of such software or that the Company will be able to respond effectively to changing customer preferences in this market. If the size of the market is substantially smaller than the Company believes, or if the market for investment analysis software fails to grow or grows more slowly than the Company currently anticipates, or if the Company fails to respond effectively to the evolving requirements of this market, the Company's business, financial condition and results of operations would be materially adversely affected. See "Business - -- Industry Background." PROTECTION OF INTELLECTUAL PROPERTY The Company's success is heavily dependent upon its proprietary technology. The Company relies primarily on a combination of copyright, trade secret and trademark laws, nondisclosure and other contractual provisions and technical measures to protect its proprietary rights. The Company 15 seeks to protect its software, documentation and other written materials through trade secret and copyright laws, which provide only limited protection. As part of its confidentiality procedures, the Company generally enters into nondisclosure agreements with its employees, consultants, distributors and corporate partners. The Company uses a shrink-wrap license (typically on its packaging and on-screen) directed to users of its products 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 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 the Company's efforts to protect its proprietary rights, unauthorized parties copy or otherwise obtain, use or exploit the Company's products or technology independently. Policing unauthorized use of the Company's products is difficult, and the Company is unable to determine the extent to which unauthorized use of its software products 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. In addition, effective protection of intellectual property rights may be unavailable or limited in certain countries, including some in which the Company may attempt to expand its sales efforts. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies or products, either of which could result in a material adverse effect on the Company's business, financial condition and results of operations. There has been substantial litigation in the software industry involving intellectual property rights. The Company does not believe that it is infringing the intellectual property rights of others, although there exists a competing trademark application for the name WALL STREET ANALYST which claims prior use. There can be no assurance that infringement claims would not have a material adverse effect on the Company's business, financial condition and results of operations. In addition, to the extent that the Company acquires or licenses a portion of the software or data included in its products from third parties, its exposure to infringement actions may increase because the Company must rely upon such third parties for information as to the origin and ownership of such acquired or licensed software or data. In the future, litigation may be necessary to establish, enforce and protect trade secrets, copyrights, trademarks and other intellectual property rights of the Company. The 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 the Company's business, financial condition and results of operations. Adverse determinations in such litigation could result in the loss of proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties, which could be expensive, or prevent the Company from selling its products or using its trademarks, any one of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Intellectual Property." FUTURE CAPITAL NEEDS The Company believes that funds generated from operations and the net proceeds of this offering will be sufficient to meet normal working capital needs at least through 1998. The Company's ability to expand and grow its business in accordance with its current plans, to make acquisitions and to meet its long-term capital requirements beyond 1998 will depend on many factors, including, but not limited to, the rate, if any, at which the Company's cash flow increases, the ability and willingness of the Company to accomplish acquisitions with its capital stock, and the availability 16 to the Company of public and private debt and equity financing. No assurance can be given that additional financing will be available or that, if available, it will be available on terms favorable to the Company. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES The Company is not currently subject to direct regulation by any government agency, other than regulations applicable to businesses generally. While not currently regulated as such, there is the possibility that, because of the use of the Company's products as a tool for formulating and implementing investment strategies, the Company may become subject to existing or future regulations applicable to investment advisors or other securities professionals. Such regulations are complex and compliance therewith would require the Company to make significant expenditures in the resources necessary to ensure compliance with those regulations. Such expenditures would render the Company's business or operations more costly or burdensome, less efficient or even impossible, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Products." RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS The Company may acquire businesses, assets, products and technologies that the Company believes could complement or expand the Company's business. The Company currently has no specific plans, commitments or agreements with respect to any acquisitions and there can be no assurance that the Company will be able to identify any appropriate acquisition candidates. If the Company identifies an acquisition candidate, there can be no assurance that the Company will be able to successfully negotiate the terms of any such acquisition, finance such acquisition or integrate such acquired business, assets, products or technologies into the Company's existing business. Furthermore, the negotiation of potential acquisitions as well as the integration of an acquired business could cause diversion of management's time and resources, and require the Company to use proceeds from this offering to consummate a potential acquisition. Further, acquisitions by the Company could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and the amortization of goodwill and other acquired assets. There can be no assurance that any acquisition would not have a material adverse effect on the Company's business, financial condition and results of operations. See "Use of Proceeds." BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS Other than with respect to the payment of S corporation undistributed and retained earnings to the Company's current shareholders, the Company currently has no specific plan for using the proceeds of this offering. As a consequence, the Company will have broad discretion to allocate a large percentage of such proceeds to uses which the public shareholders may not deem desirable, and there can be no assurance that the proceeds can or will yield a significant return. See "Use of Proceeds." NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF SHARE PRICE Prior to this offering, there has been no public market for the Common Stock of the Company, and there can be no assurance that an active trading market will develop upon completion of this offering or, if it does develop, that such market will be sustained. The initial public offering price of the Common Stock will be determined by negotiation among the Company, the Selling 17 Shareholders and the representatives of the Underwriters, and may not be representative of the price that will prevail in the public market. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The market price of the Common Stock after this offering may be significantly affected by factors such as quarterly variations in the Company's results of operations, the announcement of new products or product enhancements by the Company or its competitors, technological innovation by the Company or its competitors and general market conditions specific to particular industries. In particular, the stock prices for many companies in the technology and emerging growth sectors have experienced wide fluctuations which have often been unrelated to the operating performance of such companies. Such fluctuations may materially adversely affect the market price of the Common Stock. See "Underwriting." SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of Common Stock in the public market after this offering could materially adversely affect the market price of the Common Stock. Upon closing of this offering, the Company will have a total of 22,080,000 shares of Common Stock outstanding, of which 3,700,000 shares will be freely tradeable without restriction under the Securities Act of 1933, as amended (the "Securities Act"). All of the remaining 18,380,000 shares are "restricted securities" as defined by Rule 144 promulgated under the Securities Act. Beginning 180 days after the date of this Prospectus, upon the expiration of lock-up agreements with the Underwriters, all of such restricted securities will be available for sale in the public market subject to compliance with Rule 144 volume and other requirements. The Company intends to register for issuance or resale the 3,000,000 shares of Common Stock reserved for issuance under the Incentive Stock Plan, the 175,000 shares of Common Stock reserved for issuance under the Director Stock Plan and the 500,000 shares of Common Stock reserved for issuance under the Purchase Plan. As of July 21, 1997, options to purchase 891,250 shares were outstanding under the Incentive Stock Plan, all of which become exercisable at varying times after November 30, 1997, and no shares had been issued under the Director Stock Plan or the Purchase Plan. Further, should either or both of the Company's principal shareholders die, a substantial portion of their shares of the Company's Common Stock may need to be sold in order to pay estate taxes. Such sales could materially adversely affect the market price of the Common Stock. See "Management -- Other Compensation Arrangements," "Shares Eligible for Future Sale" and "Underwriting." CONTROL BY PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS Upon completion of this offering, the Company's Co-Chief Executive Officers, William Cruz and Ralph Cruz, and their affiliates will, in the aggregate, beneficially own approximately 83.2% of the Company's outstanding Common Stock, assuming no exercise of options outstanding (81.1% if the Underwriters' over-allotment option is exercised in full). As a result, such persons, acting together, will have the ability to control the vote on all matters submitted to shareholders of the Company for approval (including election of directors and any merger, consolidation or sale of all or substantially all of the Company's assets) and to control the management and affairs of the Company. Such concentration of ownership may have the effect of delaying, deferring or preventing a change in control of the Company or a merger, consolidation, takeover or other business combination involving the Company or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company. See "Management" and "Principal and Selling Shareholders." 18 CERTAIN FLORIDA STATUTORY PROVISIONS Florida has enacted legislation that may deter or frustrate takeovers of Florida corporations. The Florida Control Share Act generally provides that shares acquired in excess of certain specified thresholds will not possess any voting rights unless such voting rights are approved by a majority vote of a corporation's disinterested shareholders. The Florida Affiliated Transactions Act generally requires supermajority approval by disinterested shareholders of certain specified transactions between a public corporation and holders of more than 10% of the outstanding voting shares of the corporation (or their affiliates). Florida law also authorizes the Company to indemnify the Company's directors, officers, employees and agents. The Company has adopted the Second Amended and Restated Articles of Incorporation (the "Articles") and the Second Amended and Restated Bylaws (the "Bylaws") with such an indemnity provision and intends to enter into indemnification agreements with all of its executive officers and directors. See "Description of Capital Stock -- Certain Provisions of Florida Law" and "-- Limitation of Liability and Indemnification Matters." EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS The Articles and Bylaws contain certain provisions that could discourage potential takeover attempts and make attempts by the Company's shareholders to change management more difficult. Such provisions include the requirement that the Company's shareholders follow an advance notification procedure for certain shareholder nominations of candidates for the Board of Directors and for new business to be conducted at any meeting of the shareholders. The Articles also provide that special meetings of the shareholders may only be called by the Board of Directors or the holders of shares representing not less than 50% of all votes entitled to be cast on any issue to be considered at the special meeting. The Articles require that, upon completion of this offering, any actions by the shareholders of the Company may be taken only upon the vote of the shareholders at a meeting and may not be taken by written consent. In addition, the Articles allow the Board of Directors to issue up to 25,000,000 shares of preferred stock and to fix the rights, privileges and preferences of those shares without any further vote or action by the shareholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued by the Company in the future. While the Company has no present intention to issue preferred stock, any such issuance could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. See "Description of Capital Stock -- Certain Charter and Bylaw Provisions." DILUTION Investors purchasing Common Stock in this offering will experience immediate and substantial dilution of $9.91 in the net tangible book value per share of Common Stock (based on an assumed initial public offering price of $11.00 per share). See "Dilution." 19 DISTRIBUTION OF S CORPORATION EARNINGS The Company is currently treated for federal and state income tax purposes as an S Corporation under the Internal Revenue Code of 1986, as amended (the "Code"), and comparable state tax laws. As a result, the earnings of the Company are taxed for federal income tax purposes directly to the shareholders of the Company, rather than to the Company (the state of Florida currently does not impose an income tax on an individual's income, including his or her share of an S corporation's earnings). Immediately prior to the completion of this offering the Company will terminate its S Corporation status (the "Termination Date") and the Company will become a C corporation making it subject to federal and state income taxes on its earnings. The Company's Board of Directors intends to declare a cash dividend (the "Dividend") payable to the Company's existing shareholders equal to the Company's accumulated earnings during the period it is an S corporation, to the extent such income has not been previously distributed (the "S Corporation Earnings"). The estimated amount of the Dividend will be paid on or about the Termination Date. The Company intends to finance the payment of the estimated Dividend with a short-term bank loan and use a portion of the proceeds of this offering to repay the bank loan. The estimated S Corporation Earnings through June 30, 1997 is approximately $10.6 million. The actual S Corporation Earnings through the Termination Date and, accordingly, the Dividend, is expected to be materially higher than $10.6 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview" and Notes 1 and 7 of the Notes to Financial Statements. Prior to the consummation of this offering, the Company and its current shareholders will enter into a S Corporation Tax Allocation and Indemnification Agreement (the "Tax Agreement") relating to the Dividend and their respective income tax liabilities. The Tax Agreement will provide that to the extent the S Corporation Earnings, as subsequently established by the filing of the Company's tax return for the Company's short S corporation tax year, are less than the estimated Dividend paid prior to the consummation of this offering, the existing shareholders will make a payment equal to such difference to the Company, and if the S Corporation Earnings are greater than the estimated Dividend, the Company will make an additional distribution equal to such difference to the current shareholders, in either case, with interest thereon. Subject to certain limitations, the Tax Agreement also provides for the cross-indemnification of the current shareholders and the Company 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 the Company for an S corporation taxable year (resulting in a change in the income taxes due by the current shareholders for such year) and causes a corresponding increase or decrease in the taxable income of the Company for a C corporation taxable year. Each party's obligation under the Tax Agreement is limited to the amount of any reduction in their tax liability as a result of any such determination. In July 1997, the Company voluntarily filed a request on Form 3115 with the Internal Revenue Service (the "IRS") to change its method of accounting from the cash method to the accrual method effective on January 1, 1997 (the "Form 3115"). As the result of the filing of the Form 3115, the Company is required to include in its income over three taxable years an amount equal to the excess of the income it should have reported as taxable income under the accrual method for years prior to 1997 and the amount it did report as taxable income under the cash method for such years. Pursuant to the Tax Agreement, the Company's liability for federal and state income taxes on such additional income is limited to $1.8 million. If the IRS determines that some or all of this additional income should be included in an S corporation taxable year of the Company, pursuant to the Tax Agreement, 20 the Company will make a payment to the existing shareholders equal to any increase in their income taxes on such additional income, up to $1.8 million. To the extent a payment is made pursuant to the Tax Agreement by the Company to the current shareholders after the one year anniversary of the Termination Date, except to the extent it relates to the Form 3115, the Company will be required to make an additional payment to the current shareholders equal to any income taxes payable by such shareholders on such payments. The Company will not receive a tax deduction for any payments made to the current shareholders pursuant to the Tax Agreement. The current shareholders have not provided security for their obligations under the Tax Agreement; accordingly, the Company's ability to collect any such payments will be dependent upon the current shareholders financial condition at the time such payments are to be made. The Company is not aware of any tax adjustments which might require payments under the Tax Agreement, other than related to the Form 3115. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview" and Notes 1 and 7 of the Notes to Financial Statements. 21 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,600,000 shares of Common Stock offered by the Company pursuant to this offering are estimated to be $25,948,000 ($29,937,700 if the Underwriters' over-allotment option is exercised in full), based on an assumed initial public offering price of $11.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company will not receive any proceeds from the sale of Common Stock by the Selling Shareholders. See "Principal and Selling Shareholders." The principal purposes of this offering are to establish a public market for the Company's stock, to provide enhanced equity incentives to attract and retain key employees, to increase the Company's visibility in its markets, to facilitate future access to public capital markets and to obtain additional working capital. The Company will use a portion of the net proceeds of this offering to repay a short-term bank loan which the Company intends to obtain in order to pay the Dividend prior to completion of this offering. A portion of the net proceeds may also be used for the acquisition of businesses, assets, services and technologies that the Company believes would be complementary to those of the Company. The Company presently has no commitments or understandings for any acquisitions and is not presently engaged in any discussions or negotiations for any acquisitions. Pending such uses, the Company intends to invest the balance of the net proceeds of this offering in short-term, interest-bearing instruments. See "Risk Factors -- Broad Management Discretion in Use of Proceeds." DIVIDEND POLICY The Company currently intends to retain 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 the Company and other factors which the Board of Directors considers appropriate. During 1994, 1995, 1996 and the first six months of 1997, the Company declared cash dividends in the aggregate amounts of $3,468,000, $2,153,000, $5,222,000 and $1,960,000, respectively, to the then current shareholders of the Company. Additionally, during the second quarter of 1997, the Company declared a dividend to the then current shareholders of the Company, William Cruz and Ralph Cruz, of the Company's former office facilities located at 9200 Sunset Drive, Miami, Florida 33173. The carrying value of the facility on the Company's books was approximately $507,000, which the Company believes is not substantially less than the fair market value of the facility. For certain information regarding the Dividend to be paid by the Company in 1997 prior to consummation of this offering, see "Distribution of S Corporation Earnings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - -- Overview." 22 CAPITALIZATION The following table sets forth as of June 30, 1997 (i) the actual capitalization of the Company, (ii) the capitalization of the Company on a pro forma basis to give effect to the items referred to in footnote (2) below and (iii) such pro forma capitalization as adjusted to give effect to the sale by the Company of the 2,600,000 shares of Common Stock offered hereby at an assumed initial public offering price of $11.00 per share and the application of the net proceeds therefrom. See "Use of Proceeds." This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
JUNE 30, 1997 ------------------------------------- PRO PRO FORMA ACTUAL FORMA(2) AS ADJUSTED ----------- -------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Short-term obligations................................................. $ -- $10,622 $ -- ====== ======= ======= Shareholders' equity: Preferred Stock, $0.01 par value per share, 25,000,000 shares authorized, none issued and outstanding, actual, pro forma and pro forma as adjusted......................................... -- -- -- Common Stock, $0.01 par value per share, 100,000,000 shares authorized; 19,480,000 shares issued and outstanding actual and pro forma; and 22,080,000 shares issued and outstanding pro forma as adjusted(1).......................................... 195 195 221 Additional paid-in capital (deficit)................................. 44 (2,010) 23,912 Retained earnings.................................................... 7,568 -- -- ------ ------- ------- Total shareholders' equity (deficit)......................... 7,807 (1,815) 24,133 ------ ------- ------- Total capitalization....................................... $7,807 $ 8,807 $24,133 ====== ======= ======= - ------------------ (1) Excludes (i) 891,250 shares of Common Stock issuable upon exercise of stock options granted under the Incentive Stock Plan as of July 21, 1997, with a weighted average exercise price of $1.84 per share; (ii) 2,108,750 additional shares of Common Stock reserved for future issuance under the Incentive Stock Plan (including up to 150,000 shares which the Company intends to issue to certain employees (other than executive officers) on or prior to the date of this Prospectus, of which approximately 100,000 shares will be issued at an exercise price equal to the initial public offering price); (iii) 175,000 shares of Common Stock reserved for issuance under the Director Stock Plan; and (iv) 500,000 shares of Common Stock reserved for issuance under the Purchase Plan. See "Management -- Other Compensation Arrangements" and Note 4 of Notes to Financial Statements. (2) Reflects the pro forma effects of (i) the distribution of the Dividend estimated at $10.6 million based on the Company's previously undistributed S corporation earnings through June 30, 1997 (although the actual amount of the Dividend will also include the taxable income of the Company for the period from July 1, 1997 through the termination of the S corporation election) funded by a short-term bank loan the Company intends to obtain prior to the consummation of this offering, (ii) the recording of deferred tax assets, net of tax liabilities, in the amount of $1.0 million arising from termination of S corporation status and (iii) the reclassification of remaining undistributed S corporation earnings to additional paid-in capital. See "Distribution of S Corporation Earnings," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview" and Note 7 of Notes to Financial Statements.
23 DILUTION The pro forma net tangible book value of the Company as of June 30, 1997 was $(1,815,000), or $(0.09) per share of Common Stock. Pro forma net tangible book value per share represents the amount of total pro forma tangible assets less total pro forma liabilities, divided by the number of shares of Common Stock outstanding. Pro forma net tangible book value dilution per share represents the difference between the amount paid by purchasers of Common Stock in this offering and the pro forma net tangible book value per share of Common Stock immediately after completion of this offering. After giving effect to the sale of the 2,600,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $11.00 per share, and the application of the estimated net proceeds therefrom, the adjusted pro forma net tangible book value of the Company as of June 30, 1997 would have been $24,133,000, or $1.09 per share. This represents an immediate increase in pro forma net tangible book value of $1.18 per share to existing shareholders and an immediate dilution of $9.91 per share to new investors purchasing shares of Common Stock in this offering. The following table illustrates the per share dilution:
Assumed initial public offering price per share......................... $11.00 Pro forma net tangible book value per share at June 30, 1997(1) $(0.09) Increase per share attributable to new investors.................... 1.18 ------ Adjusted pro forma net tangible book value per share after this offering(2).............................................. 1.09 ------ Dilution per share to new investors..................................... $ 9.91 ====== - --------------- (1) Reflects the effect of the Dividend and other pro forma adjustments described in "Distribution of S Corporation Earnings" and Note 7 of Notes to Financial Statements. (2) Excludes 891,250 shares of Common Stock issuable upon exercise of stock options granted under the Incentive Stock Plan as of July 21, 1997, with a weighted average exercise price of $1.84 per share. See "Management -- Other Compensation Arrangements."
The following table summarizes, on a pro forma basis, as of June 30, 1997, the differences between number of shares of Common Stock purchased from the Company, the total consideration paid and the average price paid per share by existing shareholders and by new investors in this offering:
AVERAGE SHARES PURCHASED(1) TOTAL CONSIDERATION PRICE ------------------------------ ----------------------------- PER NUMBER PERCENT AMOUNT PERCENT SHARE ----------- ------- ----------- ------- ------- Existing shareholders........ 19,480,000 88.2% $ 56,000 0.2% $0.003 New investors................ 2,600,000 11.8 28,600,000 99.8 11.00 ----------- ----- ----------- ----- Total 22,080,000 100.0% $28,656,000 100.0% ========== ====== =========== ====== - --------------- (1) Sales by the Selling Shareholders in this offering will cause the number of shares held by existing shareholders to be reduced to 18,380,000 shares, or 83.2% (18,215,000 shares, or 81.1%, if the underwriters' over-allotment option is exercised in full) of the total number of shares of Common Stock to be outstanding after this offering, and will increase the number of shares held by the new investors to 3,700,000 shares, or 16.8% (4,255,000 shares, or 18.9%, if the Underwriters' over-allotment option is exercised in full) of the total number of shares of Common Stock to be outstanding after this offering. See "Principal and Selling Shareholders."
24 SELECTED FINANCIAL DATA The following selected financial data are qualified by reference to and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Financial Statements and Notes thereto included elsewhere in this Prospectus. The Statement of Income Data presented below for each of the years in the three-year period ended December 31, 1996 and the Balance Sheet Data as of December 31, 1995 and 1996 have been derived from the Company's Financial Statements included elsewhere in this Prospectus, which have been audited by Arthur Andersen LLP. The Statement of Income Data presented below for the year ended December 31, 1993 and the Balance Sheet Data as of December 31, 1994 have been derived from audited financial statements not included herein. The Balance Sheet Data as of December 31, 1992 and 1993 and as of June 30, 1997, and the Statement of Income Data for the year ended December 31, 1992, and for each of the six-month periods ended June 30, 1996 and 1997 have been derived from the unaudited financial statements of the Company. In the opinion of management, the unaudited financial statements include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of its financial position and the results of operations for such periods. The selected financial data for the six months ended June 30, 1997 are not necessarily indicative of the results to be expected for the year ending December 31, 1997 or any other future period.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------------------------------------- ----------------------- 1992 1993 1994 1995 1996 1996 1997 ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF INCOME DATA: Revenues: Licensing fees....................... $ 3,040 $ 5,593 $ 7,853 $ 7,913 $13,943 $ 6,322 $12,092 Other revenues....................... - - 707 1,502 3,877 1,787 2,527 ------- ------- ------- ------- ------- ------- ------- Total revenues........................... 3,040 5,593 8,560 9,415 17,820 8,109 14,619 ------- ------- ------- ------- ------- ------- ------- Operating expenses: Cost of licensing fees............... 243 377 831 876 1,717 881 856 Product development.................. 184 320 492 652 1,041 377 843 Sales and marketing.................. 1,174 1,832 2,712 3,561 5,618 2,603 4,946 General and administrative........... 404 657 798 1,038 2,422 998 2,595 ------- ------- ------- ------- ------- ------- ------- Total operating expenses......... 2,005 3,186 4,833 6,127 10,798 4,859 9,240 ------- ------- ------- ------- ------- ------- ------- Income from operations................... 1,035 2,407 3,727 3,288 7,022 3,250 5,379 Other income, net........................ 25 31 18 24 60 9 18 ------- ------- ------- ------- ------- ------- ------- Income before pro forma income taxes..... 1,060 2,438 3,745 3,312 7,082 3,259 5,397 Pro forma income taxes(1)................ 419 963 1,479 1,308 2,797 1,287 2,132 ------- ------- ------- ------- ------- ------- ------- Pro forma net income(1).................. $ 641 $ 1,475 $ 2,266 $ 2,004 $ 4,285 $ 1,972 $ 3,265 ======= ======= ======= ======= ======= ======= ======== Pro forma net income per share(1)(2)..... $ 0.21 $ 0.15 ======= ======== Pro forma weighted average number of shares outstanding(2)................ 20,541 21,186 ======= ========
DECEMBER 31, JUNE 30, 1997 --------------------------------------------------- -------------------------------------- PRO PRO FORMA AS 1992 1993 1994 1995 1996 ACTUAL FORMA(3) ADJUSTED(4) ------ ------- ------- ------- ------- ------- -------- ------------ (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents............$1,129 $ 368 $ 129 $ 311 $ 142 $ 264 $ 264 $15,590 Working capital (deficit)............ 1,172 705 936 1,997 3,629 6,828 (2,794) 23,154 Total assets......................... 1,992 1,810 2,197 3,288 5,803 9,257 12,081 27,407 Short-term obligations............... -- -- -- -- -- -- 10,622 -- Shareholders' equity (deficit)....... 1,814 1,534 1,811 2,970 4,835 7,807 (1,815) 24,133 - --------------- (1) The statement of income data reflects a pro forma provision for income taxes as if the Company were a C corporation subject to federal and state corporate income taxes for all periods. See "Distribution of S Corporation Earnings" and Note 1 of Notes to Financial Statements. (2) Pro forma weighted average number of shares outstanding includes 321,000 and 966,000 shares for the year ended December 31, 1996 and the six-month period ended June 30, 1997, respectively, at an assumed initial public offering price of $11.00 per share, the proceeds of which would fund undistributed S corporation earnings. See "Distribution of S Corporation Earnings" and Note 1 of Notes to Financial Statements. (3) Reflects the effect of the dividend to current shareholders and other pro forma adjustments described in "Distribution of S Corporation Earnings" and Note 7 of Notes to Financial Statements. (4) Adjusted to give effect to the sale of the Common Stock offered by the Company hereby and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization."
25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS SUGGESTED BY THE FORWARD-LOOKING STATEMENTS AND FROM THE RESULTS HISTORICALLY EXPERIENCED. FACTORS THAT MAY CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. OVERVIEW Omega Research, founded in 1982, is a leading provider of real-time investment analysis software to individual investors. In addition, the Company's principal product has recently been introduced to institutional investors by Dow Jones Markets. The Company's revenues are derived principally from two sources: (i) license fees for use of the Company's software products, and (ii) other revenues consisting primarily of royalties, fees and commissions paid to the Company in accordance with its agreements with third-party data vendors. Licensing fees are recognized upon product shipment in accordance with Statement of Position 91-1, SOFTWARE REVENUE RECOGNITION. While the Company has no obligation to perform future services subsequent to shipment, the Company voluntarily provides telephone, fax and electronic mail customer support to purchasers of its products. The Company 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. Substantially all of the Company's licensing fees have been derived from the sale of products to individual investors. TRADESTATION, OPTIONSTATION and SUPERCHARTS are sold primarily by the Company's telesales force. To date, a majority of the licensing fees have been generated through sales of TRADESTATION. For sales of most of the Company's products, customers typically provide the Company with a credit card number and are billed for the product automatically and on a monthly basis over the course of twelve months. The Company's WALL STREET ANALYST product, which does not represent a material portion of the Company's revenues, is sold through the retail channel by distributors and to a lesser extent through third-party mail order catalogs. The majority of the Company's other revenues for the year ended December 31, 1996 was derived from royalties associated with a licensing agreement with Dow Jones Markets. Under existing agreements with Dow Jones Markets, Dow Jones Markets has the right to sell TRADESTATION and SUPERCHARTS to its customers. Dow Jones Markets pays a per unit royalty to the Company, subject to a minimum annual royalty commitment with respect to TRADESTATION sales. The majority of the remaining other revenues is comprised of fees and commissions paid to the Company pursuant to cross-marketing agreements with data service vendors. Other revenues are recognized as earned in accordance with the terms of the applicable contract. The Company provides 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, the Company often allows customers to return products after the 30-day period. The reserve for returns and the provision for bad debts, 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 debts will not exceed established estimates. The Company's rate of returns has increased over the last several quarters and there can be no assurance that this trend will not continue. See "Risk Factors -- Risks of Returns and Collection of Accounts Receivable." 26 Approximately 9.5% of the Company's revenues for the year ended December 31, 1996 were derived from customers outside of the United States and Canada. The Company markets its products outside the United States and Canada primarily through resellers and, to a lesser extent, through its U.S.-based telesales force in response to inbound inquiries from international customers. The Company intends to focus increased resources on international sales efforts and therefore believes that international revenues will increase as a percentage of total revenues in the future. In accordance with Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE COST OF CAPITALIZED SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, the Company examines its software development costs after technological feasibility has been established to determine the amount of capitalization that is required. Based on the Company'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. Capitalized software development costs, net of amortization, were $61,000, $71,000 and $0 at December 31, 1995 and 1996 and June 30, 1997, respectively. In the future, the Company believes that the time between the technological feasibility of the Company's products and the general release of such software will be insignificant, and, as a result, software development costs qualifying for capitalization are expected to be immaterial. In 1988, the Company elected to be taxed under Subchapter S of the Code, and, as a result, the Company's earnings have been taxed at the federal level directly to the Company's shareholders (the state of Florida does not have a personal income tax). Immediately prior to completion of this offering, the Company will terminate its S corporation election and will be subject to corporate-level federal and state income taxes. As a result of terminating this election, the Company, during the quarter in which the offering is completed, will be required to record a non-recurring credit (the "FAS 109 credit") in the tax provision line of the statement of income. The credit to be recorded 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 FAS 109 credit, net of the provision for taxes payable described below, would have been approximately $1.0 million as of June 30, 1997 if the S corporation election had been terminated as of that date. Since its inception, the Company has used for determining taxable income the cash method of accounting rather than the accrual method of accounting. In July 1997, the Company voluntarily filed with the IRS a Form 3115 to change to the accrual method and to report income that should have been reported had the accrual method been used. The effect of the change in method of accounting for tax purposes permitted by the filing of Form 3115 is that the Company will, as of the date the S corporation election is terminated, assuming no adjustments are required, have additional taxable income in 1997 and 1998 aggregating approximately $4.6 million, resulting in additional federal and state income tax of approximately $1.8 million, payable one-half in each of 1997 and 1998. Shortly after, though not as a result of, the filing of the Form 3115, the Company received a notice that the IRS intends to perform an examination of the Company's 1995 tax year (the "Examination"). Final acceptance of the Form 3115 is subject to review by the IRS. Should the review of the Form 3115 or the Examination (or any other examinations) result in the current shareholders being allocated taxable earnings for 1997 or prior years in excess of the amounts contemplated by the Form 3115, the Dividend (see "Distribution of S Corporation Earnings") shall be increased by an amount equal to the current shareholders' tax liability attributable to such excess, up to a maximum adjustment of $1.8 million. In that event, the expected approximate $1.8 million tax liability of the Company would be reduced to the extent of such increase. 27 The pro forma income tax adjustment in the Company's historical financial statements reflects the federal and state income taxes which would have been recorded if the Company had been treated as a C corporation during the periods presented. The Company has calculated these amounts based upon an estimated combined effective tax rate of 39.5% for the respective periods. RESULTS OF OPERATIONS The following table presents, for the periods indicated, certain items in the Company's statement of income reflected as a percentage of total revenues and as a percentage of licensing fees:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------- ------------------ 1994 1995 1996 1996 1997 ----- ----- ----- ----- ----- AS A PERCENTAGE OF TOTAL REVENUES: Revenues: Licensing fees 91.7% 84.0% 78.2% 78.0% 82.7% Other revenues 8.3 16.0 21.8 22.0 17.3 ----- ----- ----- ----- ----- Total revenues 100.0 100.0 100.0 100.0 100.0 ----- ----- ----- ----- ----- Operating expenses: Cost of licensing fees 9.7 9.3 9.6 10.9 5.9 Product development 5.7 6.9 5.9 4.6 5.8 Sales and marketing 31.7 37.8 31.5 32.1 33.8 General and administrative 9.3 11.0 13.6 12.3 17.7 ----- ----- ----- ----- ----- Total operating expenses 56.4 65.0 60.6 59.9 63.2 ----- ----- ----- ----- ----- Income from operations 43.6 35.0 39.4 40.1 36.8 Other income, net 0.2 0.2 0.3 0.1 0.1 ----- ----- ----- ----- ----- Income before pro forma income taxes 43.8 35.2 39.7 40.2 36.9 Pro forma income taxes 17.3 13.9 15.7 15.9 14.6 ----- ----- ----- ----- ----- Pro forma net income 26.5% 21.3% 24.0% 24.3% 22.3% ===== ===== ===== ===== ===== AS A PERCENTAGE OF LICENSING FEES: Operating expenses: Cost of licensing fees 10.6% 11.1% 12.3% 13.9% 7.1% Product development 6.3 8.2 7.5 6.0 7.0 Sales and marketing 34.5 45.0 40.2 41.2 40.9 General and administrative 10.1 13.1 17.4 15.8 21.4 ----- ----- ----- ----- ----- Total operating expenses 61.5% 77.4% 77.4% 76.9% 76.4% ===== ===== ===== ===== =====
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 REVENUES TOTAL REVENUES. The Company's total revenues increased 80% from $8.1 million in the first six months of 1996 to $14.6 million in the comparable period of 1997. LICENSING FEES. Licensing fees increased 91% from $6.3 million in the first six months of 1996 to $12.1 million in the comparable period of 1997, primarily due to an increase in TRADESTATION sales (an approximate 56% increase in net unit shipments and a 5% increase in list price in January 1997) and, to a lesser extent, the introduction of OPTIONSTATION in September 1996. The Company believes that the increased net unit shipments of TRADESTATION were due to new marketing efforts, an emphasis on providing customers with the ability to pay for products monthly over a 12-month period and growth in 28 the Company's sales and marketing organization. The Company has increased its returns reserves during the first six months of 1997 to provide for the impact that its new marketing efforts may have on returns. OTHER REVENUES. Other revenues increased 41% from $1.8 million in the first six months of 1996 to $2.5 million in the comparable period of 1997, primarily due to an increase in minimum royalties under the license agreement with Dow Jones Markets and increased cross-marketing commissions from data vendors which resulted from an increase in licensing fees. OPERATING EXPENSES COST OF LICENSING FEES. Cost of licensing fees consists primarily of product media, packaging and storage and inventory costs. Cost of licensing fees decreased 3% from $881,000 in the first six months of 1996 to $856,000 in the comparable period of 1997, primarily due to increased sales of higher-priced products as a percentage of total unit sales and the shipment of significant product upgrades in the first six months of 1996 which did not recur in 1997. The Company has no contractual obligation to provide upgrades, which are priced separately from initially-licensed products. Cost of licensing fees as a percentage of licensing fees declined from 14% in the first six months of 1996 to 7% in the comparable period of 1997, primarily due to increased unit sales of higher-priced products as a percentage of total unit sales. PRODUCT DEVELOPMENT. Product development expenses include expenses associated with the development of new products, enhancements to existing products, testing of products and the creation of training manuals, and consist primarily of salaries, other personnel costs and depreciation of computer and related equipment. Product development expenses increased 124% from $377,000 in the first six months of 1996 to $843,000 in the comparable period of 1997, primarily due to an increase in the number of individuals employed in product development. Product development expenses as a percentage of licensing fees increased from 6% in the first six months of 1996 to 7% in the comparable period of 1997, primarily due to the increase in product development personnel. The Company believes that a significant level of product development expenditures will be required to remain competitive, particularly as it enters the institutional investor market. Accordingly, the Company anticipates that the dollar amount of product development expense will increase for the foreseeable future. SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries for the customer support center and marketing personnel, commissions and other personnel costs, shipping costs, and marketing programs, including advertising, brochures, direct mail programs and seminars to promote the Company's products to investors. Sales and marketing expenses increased 90% from $2.6 million in the first six months of 1996 to $4.9 million in the comparable period of 1997, primarily due to increased print advertising, shipping costs, telephone expenses, personnel costs for the customer support center, commissions and the use of sales seminars and television advertising. Sales and marketing expenses as a percentage of licensing fees did not change significantly in the first six months of 1996 as compared to the comparable period of 1997. The Company expects to continue hiring additional personnel and anticipates that sales and marketing expenses will increase in absolute dollar amount at least through the remainder of 1997. GENERAL AND ADMINISTRATIVE. General and administrative expenses consist primarily of employee related costs for support functions such as executive, human resources, finance, information systems and administrative personnel as well as external professional fees, rent and other facilities expense and provision for bad debts. General and administrative expenses increased 160% from $998,000 in the first six months of 1996 to $2.6 million in the comparable period of 1997, primarily due to increases in the provision for bad debts associated with increased revenues, in personnel to manage the growth of the Company and rent related to the Company's new corporate headquarters. The Company believes that 29 the dollar amount of its general and administrative expenses will increase as the Company incurs additional costs (including directors' and officers' liability insurance, investor relations costs and increased professional fees) related to being a public company. OTHER INCOME, NET Other income, net consists primarily of interest income from cash and cash equivalents. Other income, net increased from $9,000 in the first six months of 1996 to $18,000 in the comparable period of 1997. The Company generally invests in interest-bearing accounts and overnight investments. The amount of interest income fluctuates based on the amount of funds available for investment and the prevailing interest rates. YEARS ENDED DECEMBER 31, 1995 AND 1996 REVENUES TOTAL REVENUES. The Company's total revenues increased 89% from $9.4 million in 1995 to $17.8 million in 1996. LICENSING FEES. Licensing fees increased 76% from $7.9 million in 1995 to $13.9 million in 1996, primarily due to an increase in TRADESTATION sales (an approximate 51% increase in net unit shipments and a 20% increase in list price in March 1996) and, to a lesser extent, increased sales of SUPERCHARTS and add-on products and the introduction of OPTIONSTATION in September 1996. The Company believes that the increased net unit shipments of TRADESTATION were due to the release of version 4.0 and increased marketing efforts. OTHER REVENUES. Other revenues increased 158% from $1.5 million in 1995 to $3.9 million in 1996, primarily due to the commencement of royalties under the Company's license agreement with Dow Jones Markets and, to a lesser extent, increased cross-marketing commissions from data vendors which resulted from an increase in licensing fees. OPERATING EXPENSES COST OF LICENSING FEES. Cost of licensing fees increased 96% from $876,000 in 1995 to $1.7 million in 1996, primarily due to increased product unit shipments. Cost of licensing fees as a percentage of licensing fees increased slightly from 11% in 1995 to 12% in 1996 due to a shift in product mix. PRODUCT DEVELOPMENT. Product development expenses increased 60% from $652,000 in 1995 to $1.0 million in 1996, primarily due to an increase in the number of individuals employed in product development. Product development expenses represented 8% and 7% of licensing fees in each of 1995 and 1996, respectively. SALES AND MARKETING. Sales and marketing expenses increased 58% from $3.6 million in 1995 to $5.6 million in 1996 primarily due to increased personnel costs and commissions, shipping costs, telephone expenses and increased travel. Sales and marketing expenses represented 45% and 40% of licensing fees in 1995 and 1996, respectively. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 133% from $1.0 million in 1995 to $2.4 million in 1996, primarily due to increases in the provision for bad debts associated with increased revenues, in personnel and related expenses to manage the growth of the Company, in insurance expense and incremental expenses related to the move by the Company to a new corporate 30 headquarters. General and administrative expenses represented 13% and 17% of licensing fees in 1995 and 1996, respectively. OTHER INCOME, NET Other income, net increased 151% from $24,000 in 1995 to $60,000 in 1996, primarily due to increased interest income earned on cash balances. YEARS ENDED DECEMBER 31, 1994 AND 1995 REVENUES TOTAL REVENUES. The Company's total revenues increased 10% from $8.6 million in 1994 to $9.4 million in 1995. LICENSING FEES. Licensing fees remained relatively flat in 1995 as compared to 1994. Licensing fees did not change appreciatively in 1995 as the Company's senior management and its then limited sales and marketing resources were focused on developing its relationship with Dow Jones Markets and exploring the establishment of a retail sales channel for WALL STREET ANALYST. This focus on the Dow Jones Markets relationship and retail channel development temporarily diverted resources away from sales and marketing efforts in support of the Company's TRADESTATION and SUPERCHARTS products. OTHER REVENUES. Other revenues increased 113% from $707,000 in 1994 to $1.5 million in 1995, primarily due to increased cross-marketing commissions from data vendors. OPERATING EXPENSES COST OF LICENSING FEES. Cost of licensing fees increased 5% from $831,000 in 1994 to $876,000 in 1995, primarily due to slight increases in the cost of product material. Cost of licensing fees as a percentage of licensing fees represented 11% in each of 1994 and 1995. PRODUCT DEVELOPMENT. Product development expenses increased 32% from $492,000 in 1994 to $652,000 in 1995, primarily due to an increase in the number of individuals employed in product development. Product development expenses represented 6% and 8% of licensing fees in 1994 and 1995, respectively. SALES AND MARKETING. Sales and marketing expenses increased 31% from $2.7 million in 1994 to $3.6 million in 1995 primarily due to increased advertising, telephone expenses and commissions. Sales and marketing expenses represented 35% and 45% of licensing fees in 1994 and 1995, respectively. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased 30% from $798,000 in 1994 to $1.0 million in 1995, primarily due to increases in personnel to manage the growth of the Company, professional fees and property taxes. General and administrative expenses represented 10% and 13% of licensing fees in 1994 and 1995, respectively. OTHER INCOME, NET Other income, net increased 30% from $18,000 in 1994 to $24,000 in 1995, primarily due to increased interest income earned on cash balances. 31 SELECTED QUARTERLY RESULTS OF OPERATIONS The following tables present certain unaudited quarterly financial data for each of the six quarters ended June 30, 1997. This information has been prepared on the same basis as the audited Financial Statements and Notes thereto appearing elsewhere in this Prospectus and includes, in the opinion of the Company, all adjustments (consisting only of normal and recurring adjustments) necessary to present fairly the quarterly results when read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
QUARTER ENDED ------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 1996 1996 1996 1996 1997 1997 -------- -------- --------- ------- -------- -------- (IN THOUSANDS) STATEMENT OF INCOME DATA: Revenues: Licensing fees $2,926 $3,396 $3,870 $3,751 $5,550 $6,542 Other revenues 872 915 1,098 992 1,123 1,404 ------ ------ ------ ------ ------ ------ Total revenues 3,798 4,311 4,968 4,743 6,673 7,946 ------ ------ ------ ------ ------ ------ Operating expenses: Cost of licensing fees 332 549 462 374 388 468 Product development 144 233 322 342 364 479 Sales and marketing 1,161 1,442 1,543 1,472 1,996 2,950 General and administrative 496 502 568 856 1,263 1,332 ------ ------ ------ ------ ------ ------ Total operating expenses 2,133 2,726 2,895 3,044 4,011 5,229 ------ ------ ------ ------ ------ ------ Income from operations 1,665 1,585 2,073 1,699 2,662 2,717 Other income, net 4 5 39 12 7 11 ------ ------ ------ ------ ------ ------ Income before pro forma income taxes 1,669 1,590 2,112 1,711 2,669 2,728 Pro forma income taxes 659 628 834 676 1,054 1,078 ------ ------ ------ ------ ------ ------ Pro forma net income $1,010 $ 962 $1,278 $1,035 $1,615 $1,650 ====== ======= ======= ======= ======= ======= AS A PERCENTAGE OF TOTAL REVENUES: Revenues: Licensing fees 77.1% 78.8% 77.9% 79.1% 83.2% 82.3% Other revenues 22.9 21.2 22.1 20.9 16.8 17.7 ------ ------ ------ ------ ------ ------ Total revenues 100.0 100.0 100.0 100.0 100.0 100.0 ------ ------ ------ ------ ------ ------ Operating expenses: Cost of licensing fees 8.7 12.7 9.3 7.9 5.8 5.9 Product development 3.8 5.4 6.5 7.2 5.5 6.0 Sales and marketing 30.6 33.5 31.1 31.1 29.9 37.1 General and administrative 13.0 11.6 11.4 18.0 18.9 16.8 ------ ------ ------ ------ ------ ------ Total operating expenses 56.1 63.2 58.3 64.2 60.1 65.8 ------ ------ ------ ------ ------ ------ Income from operations 43.9 36.8 41.7 35.8 39.9 34.2 Other income, net 0.1 0.1 0.8 0.3 0.1 0.1 ------ ------ ------ ------ ------ ------ Income before pro forma income taxes 44.0 36.9 42.5 36.1 40.0 34.3 Pro forma income taxes 17.4 14.6 16.8 14.3 15.8 13.5 ------ ------ ------ ------ ------ ------ Pro forma net income 26.6% 22.3% 25.7% 21.8% 24.2% 20.8% ====== ====== ====== ====== ====== ====== AS A PERCENTAGE OF LICENSING FEES: Operating expenses: Cost of licensing fees 11.3% 16.2% 11.9% 10.0% 7.0% 7.1% Product development 4.9 6.8 8.3 9.1 6.5 7.3 Sales and marketing 39.7 42.5 39.9 39.3 36.0 45.1 General and administrative 17.0 14.8 14.7 22.8 22.8 20.4 ------ ------ ------ ------ ------ ------ Total operating expenses 72.9% 80.3% 74.8% 81.2% 72.3% 79.9% ====== ====== ====== ====== ====== ======
32 The Company's revenues and operating expenses by quarter increased sequentially during 1996 and 1997, except for revenues in the fourth quarter of 1996. The Company believes that the sequential decrease in revenues during the fourth quarter of 1996 was primarily due to the impact of the release of certain product upgrades and the receipt of certain one-time payments from certain third parties in the third quarter of 1996. Other revenues in the second quarter of 1997 also reflect an approximate $200,000 one-time payment from Dow Jones Markets for the delivery of certain upgrades for DOW JONES TRADESTATION. It is expected that, in the future, product upgrades and releases, or lump-sum payments related to other revenues, will impact the Company's revenues and results of operations on a quarterly basis. The operating results for any quarter are not necessarily indicative of results for any future period or for the full year. The Company's quarterly revenues and operating results have varied in the past and are likely to vary from quarter to quarter in the future. Such fluctuations may result in volatility in the price of the Common Stock. As budgeted expenses are based upon expected revenues, if actual revenues on a quarterly basis are below management's expectations, then results of operations are likely to be adversely affected because a relatively small amount of the Company's expenses varies with its revenues in the short term. In addition, operating results may fluctuate based upon the timing of product releases, increased competition, variations in the mix of sales, and announcements of new products by the Company or its competitors. Such fluctuations may result in volatility in the price of the Common Stock. See "Risk Factors -- Potential Fluctuations in Quarterly Operating Results." LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has funded operations and financed growth and capital expenditures through cash provided by operations. The Company may obtain a short-term loan prior to completion of this offering in order to pay the Dividend. Such loan, if obtained, will be on commercially reasonable terms and will be repaid with a portion of the net proceeds of this offering. Cash provided by operating activities totaled $3.6 million, $2.4 million, $5.6 million and $2.7 million in 1994, 1995, 1996 and the first six months of 1997, respectively. The decrease in cash provided by operations in 1995 was primarily attributable to the decrease in net income for the year ended December 31, 1995 when compared to the same period of 1994. The increase in net cash provided by operations in 1996 and 1997 was primarily attributable to increased net income of the Company. The Company's investing activities used cash of $300,000, $101,000, $541,000 and $630,000 in 1994, 1995, 1996 and the first six months of 1997, respectively. The principal use of cash in investing activities was for capital expenditures related to the acquisition of computer and related equipment and software required to support expansion of the Company's operations. Capital expenditures in 1997 also include purchases of furniture and fixtures and leasehold improvements related to the Company's move to a new corporate headquarters in February 1997. The Company's financing activities used cash of $3.5 million, $2.2 million, $5.2 million and $2.0 million in 1994, 1995, 1996 and the first six months of 1997, respectively, principally as a result of distributions to the Company's shareholders. As of June 30, 1997, the Company had cash and cash equivalents of approximately $264,000 and working capital of approximately $6.8 million. The Company believes that the net proceeds from the sale of the Common Stock in this offering, together with existing cash balances and cash flow from operations, will be sufficient to meet its normal working capital and capital expenditure requirements through 1998. Thereafter, if cash generated by operations is insufficient to satisfy the Company's 33 operating requirements, the Company will require additional debt or equity financing. There can be no assurance that such financing will be available on terms acceptable to the Company, or at all. The sale of additional equity or debt securities could result in dilution to the Company's shareholders. See "Risk Factors -- Future Capital Needs" and "Use of Proceeds." RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Number 128, EARNINGS PER SHARE ("SFAS 128") which changes the method of calculating earnings per share. SFAS 128 requires the presentation of "basic" earnings per share and "diluted" earnings per share on the face of the income statement. Basic earnings per share is computed by dividing the net income 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. The statement is effective for financial statements for periods ending after December 15, 1997. The Company will adopt SFAS 128 in the fourth quarter of 1997, as early adoption is not permitted. The following table presents pro forma earnings per share amounts calculated in accordance with SFAS 128. YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1996 JUNE 30, 1997 ----------------- ---------------- Pro forma earnings per share: Basic earnings per share $0.22 $0.17 Diluted earnings per share 0.21 0.15 34 BUSINESS OVERVIEW Omega Research is a leading provider of real-time investment analysis software for the Microsoft Windows operating system. The Company's principal products are TRADESTATION, OPTIONSTATION and SUPERCHARTS. With the 1991 release of its flagship product, TRADESTATION, Omega Research pioneered the concept of utilizing the power of the personal computer to enable investors to historically test the profitability of their own investment and trading strategies and then computer-automate those strategies to generate real-time buy and sell signals. OPTIONSTATION enables investors who are not options experts or mathematicians to benefit from advanced stock, index and futures options trading strategies, and SUPERCHARTS provides investors with state-of-the-art technical analysis capabilities. The Company designs its products as PLATFORM APPLICATIONS: unique software applications that also serve as platforms for independent third-party solutions. Over 150 independent developers have developed software products for the Omega Research Platform. INDUSTRY BACKGROUND In the last 25 years there has been unprecedented growth in the financial markets as increasing amounts of capital have been actively invested in an effort to generate superior returns. According to the Investment Company Institute, total financial assets of U.S. households were $14.0 trillion at the end of 1995, and are expected to grow to over $22.5 trillion by the year 2000. 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. Average daily trading volume on the New York Stock Exchange has grown from 18.6 million shares in 1975 to 503.5 million shares in 1997. Nasdaq daily trading volume has grown even faster, from an average of 5.5 million shares in 1975 to 607.9 million shares in 1997. Increased investment and trading activity is being driven by both individual and institutional investors. Forrester Research, a market research firm, estimates that by the year 2000 over $46 billion in financial assets will be managed over the Internet by individuals. Through the advent of self-directed 401(k) plans and improved awareness and knowledge of the financial markets, individual investors are increasingly seeking to self-manage their financial assets. The broad availability of financial information online has enabled individual investors to become more sophisticated and knowledgeable about investing, having experienced greater access to stock quotes, financial market data, investment advice and other investment information through the Internet or through other online services. In addition to increased information flows, the increased popularity and proliferation of discount brokerage and online trading systems such as E-Schwab and E-Trade have resulted in reduced transaction costs to the individual investor, thereby facilitating the increase in investment activity. Investment and trading activity has also increased significantly among institutional investors, including mutual funds, pension funds, hedge funds, savings institutions and brokerage firms. According to a report by Putnam, Lovell & Thorton, a firm that conducts market research on the investment management industry, total financial assets managed by the U.S. money management industry grew from $1.4 trillion in 1980 to $10.3 trillion at the end of 1995. In addition, the number of mutual funds in the United States has doubled from 3,105 in 1990 to 6,293 in 1996. This proliferation of funds, together with increasing competitiveness among institutions seeking to deliver superior investment returns to their customers, has contributed to increased investment and trading activity by institutional investors. Investors, both individual and institutional, require financial market data to make their investment or trading decisions. Investors today have access to large quantities of financial market data increasingly 35 being offered on a real-time basis at substantially lower cost than ever before. Data are readily available from a variety of data vendors, including companies such as Dow Jones Markets, ADP, Bloomberg, Bridge Information Systems, Commodity Quote Graphics, FutureSource, ILX, Reuters and S&P ComStock, all of which generally serve the institutional market, and BMI, DTN, Dial/Data, Signal, Telescan and TeleChart 2000, which generally serve the individual investor market. In addition, the Internet is becoming an increasingly valuable conduit of information for individual and institutional investors seeking to support their investment decision-making. While financial market data have been available for some time, typically only large institutional investors with access to mainframe or minicomputer-based systems have had the capability to manipulate, organize and analyze such data to support their investment decisions. Historically, such activities have been expensive and time consuming, and usually performed in the "back office" of institutional investors through custom programming by information technology professionals. The emergence of easy-to-use powerful personal computers with standard operating systems has brought analytical capability to "front office" decision makers of institutional investors, as well as to individual investors who historically have not had access to such technology or information. With the advanced processing capabilities of today's personal computers, both individual and institutional investors are demanding powerful investment analysis software to improve their investment decision-making. Historically, investment analysis software for the personal computer has generally been limited to passive charting and analysis. However, as vast new quantities and types of financial market data have become available, a need has arisen for decision support software which enables investors to analyze market data in new and powerful ways, including the design, testing and validation of custom investment strategies and the implementation of those strategies in real time. Investors are seeking to leverage quantitative data to make improved investment decisions through the use of software solutions which provide powerful investment analysis capabilities, open and extendible software platforms, support for a wide variety of financial instruments and markets, and ease of use. THE OMEGA RESEARCH SOLUTION The Omega Research product family addresses the growing need for powerful software solutions which enable investors to thoroughly test the profitability of their own investment and trading strategies. Key elements of the Omega Research solution include: SUPERIOR INVESTMENT ANALYSIS SOLUTIONS. The Company's products offer state-of-the-art market analysis capabilities that empower the investor to make improved investment decisions. The Company's flagship product, TRADESTATION, enables investors to design and historically test their own investment strategies against large quantities of historical data to assess the risk and return of any given investment strategy. Using TRADESTATION, the investor can then computer-automate a custom investment strategy to generate buy and sell signals on a real-time basis. The Company's OPTIONSTATION product enables investors who are not options analysis experts or mathematicians to explore complex options trading strategies. The Company's SUPERCHARTS products provide both end-of-day and real-time investors with powerful technical analysis capabilities to enable improved investment decision-making. INDUSTRY LEADING SOFTWARE PLATFORM. The Company develops its principal 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 is 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 systems or other investment applications for the Omega Research Platform, which the Company believes makes it the 36 industry leading software platform for quantitative investment analysis. In addition to supporting such third party applications, the Omega Research Platform has been architected to seamlessly integrate with the financial market data services offered by various well-known data vendors. SOLUTIONS FOR MULTIPLE FINANCIAL MARKETS. The Company designs its products to benefit investors in a variety of financial markets, including investors in equities, futures, foreign currencies and options. Within each of these segments, investors can use the products to fit their special needs and levels of experience. The Company believes that many of its customers are active in multiple financial markets and, as a result, has designed different products to address different markets which can be used independently or in combination. The Company currently markets the TRADESTATION PRO SUITE, comprised of TRADESTATION and OPTIONSTATION, and intends to develop and market additional product suites in the future which the Company believes will enable investors to broaden their investment activities to markets on which they have not previously focused. PROPRIETARY EASYLANGUAGE. Historically, designing, testing and computer-automating custom investment and trading strategies required complex and time-consuming programming. To solve this problem, the Company developed EASYLANGUAGE, the Company's proprietary computer language comprised of English-like statements, which, once learned, empowers investors with no prior programming skills to describe their own investment or trading strategies and then test their profitability against large quantities of historical data. EASYLANGUAGE is currently included in TRADESTATION and, to a more limited degree, in SUPERCHARTS. THE OMEGA RESEARCH STRATEGY Omega Research's objective is to establish itself as the leading worldwide provider of real-time investment analysis software to both individual and institutional investors. The Omega Research strategy includes the following key elements: ENHANCE AND EXPAND THE OMEGA RESEARCH PLATFORM. The Company intends to continue to develop new products which are not only high-quality, unique software solutions, but which are themselves platforms for independent third-party software solutions. Such products will be designed to be technically compatible with, and to functionally complement, one another, to encourage investors to own not just one, but a suite, of Omega Research products. The Company believes that the rapid deployment of Internet capabilities will in the near future result in the Internet being an important financial market data delivery system for both domestic and international markets and therefore intends to enhance the Omega Research Platform to support Internet data delivery. CONTINUE TO PENETRATE EXPANDING INDIVIDUAL INVESTOR MARKET. The Company intends to devote considerable efforts to continue to penetrate the serious individual investor market and to reach newcomers to this market as it expands. The rapidity of technological advances in personal computing and information delivery systems has made and is expected to continue to make the investment industry more accessible to individuals using personal computers. More individuals are interested in self-directing their investment decisions and, with available technological advances, will be able to engage in financial market transactions without the need of support systems and resources historically provided only in an institutional setting. FOCUS ON THE INSTITUTIONAL INVESTOR MARKET. In addition to its continued focus on the individual investor market, the Company intends to devote incremental resources to the institutional investor market. TRADESTATION was introduced by Dow Jones Markets to institutional investors in 1996 as DOW JONES TRADESTATION. Dow Jones Markets has also recently acquired from the Company the right to market SUPERCHARTS as DOW JONES SUPERCHARTS to its data subscribers on a worldwide basis. In addition, 37 certain individual investors who use the Company's products are employees of institutions, which the Company believes increases awareness of the Company's products in the institutional market. The Company intends to develop the necessary enhancements to its products, which includes development of a network version of its products, to enable it to penetrate the institutional investor market. STRENGTHEN DATA VENDOR ALLIANCES. The Company intends to foster and grow relationships with data vendors in order to enter new markets, expand the Company's customer base, promote its products, and increase the number of quality data services with which Omega Research products are technically compatible. The Company believes that certain of these relationships, such as the Dow Jones Markets relationship, will facilitate the Company's efforts to penetrate the institutional investor market and the Company's expansion of its international presence. EXPAND INTERNATIONAL DISTRIBUTION. In addition to focusing on foreign individual and institutional investors who are interested in North American markets, the Company intends to focus on worldwide individual and institutional interest in financial markets outside of North America where there are increasing trading activity and numbers of investors, and growing availability of financial market data. The Company intends to continue to enhance its products to support additional foreign financial market data. The Company expects to exploit the rapid deployment of the Internet, as both a data delivery system and a sales and marketing and customer support channel, as part of its expansion of its international presence and sales. The Company also intends to continue to develop its network of international independent distributors of Omega Research products. LEVERAGE INSTALLED BASE OF CUSTOMERS. The Company believes one of its most important assets and a key competitive advantage is its installed base of TRADESTATION, OPTIONSTATION and SUPERCHARTS customers. The Company believes that significant opportunity exists to leverage this customer base by (i) selling product upgrades to customers who own the earlier version of the product, (ii) selling additional existing products to customers who do not own those products, and (iii) marketing future products to its entire installed customer base. PRODUCTS The Company's investment analysis software products, each of which operates in a Microsoft Windows environment, are currently marketed to individual investors and, through Dow Jones Markets, to institutional investors. Products marketed directly by the Company are technically compatible with data feeds and services offered by BMI, Dial/Data, FutureSource, Signal, S&P ComStock and Telescan, and are currently offered with a historical financial market database on CD-ROM containing up to 25 years of history on each security and index included in the database. Each of the Company's principal products operates on real-time, delayed and end-of-day data, except for the end-of-day version of SUPERCHARTS. 38 Omega Research's principal products are:
INITIAL LATEST OPERATING RELEASE RELEASE CURRENT PRODUCT SYSTEM LIST PRICE DATE DATE VERSION - ------- --------- ---------- ------- ------- ------- [TRADESTATION Microsoft $2,399 1991 1996 4.0 Logo] Windows [OPTIONSTATION Microsoft $1,799 1996 1996 1.2 Logo] Windows [SUPERCHARTS Real- Microsoft $ 839 1996 1996 4.0 Time Logo] Windows [SUPERCHARTS Microsoft $ 200 1992 1996 4.0 Logo] Windows
TRADESTATION. TRADESTATION is the flagship product of the Company, serving as a platform for numerous third-party software solutions. TRADESTATION is marketed to serious equities, futures and foreign currency investors. TRADESTATION empowers the investor to design and develop custom trading systems based upon the investor's own investment ideas and strategies, test the profitability of such trading systems against historical data, and then computer-automate a chosen trading system to monitor the applicable market and alert the investor in real-time when the criteria of the trading system have been met and an order should, therefore, be placed. If the investor is not at the computer terminal when a buy or sell signal is generated, TRADESTATION can automatically notify the investor via an alpha-numeric pager if the necessary equipment and software have been installed. The principal features of TRADESTATION which enable the investor to design and develop custom trading strategies and systems are EASYLANGUAGE and the POWEREDITOR. EASYLANGUAGE is a proprietary computer language developed by Omega Research consisting of English-like statements which can be input by the investor to describe particular trading ideas and strategies. The POWEREDITOR is a compiler of EASYLANGUAGE statements and provides the investor with considerable flexibility to modify and combine different trading rules and strategies which ultimately result in the design of the investor's custom trading systems. OPTIONSTATION. OPTIONSTATION is an options trading analysis product for stock, index and futures options which enables investors who are not options analysis experts or mathematicians to explore complex trading strategies. Specifically, OPTIONSTATION is designed to sort through thousands of possible options positions and identify the most favorable risk-reward profile based upon user-defined assumptions. OPTIONSTATION is designed to perform two critical tasks of options trading -- position search and position analysis. OPTIONSTATION'S Position Search helps the investor find the best risk-reward profile based upon the investor's market assumptions. The Power Spreadsheet and Position Chart features enable investors to design and customize options positions and then graphically view and analyze each position's profitability and risk. If the investor is using OPTIONSTATION with a real-time data feed, the program will alert the investor when the investor's specified criteria have been met. Also, the investor can be notified of the alert via an alpha-numeric pager if the necessary equipment and software have been installed. SUPERCHARTS. SUPERCHARTS is Omega Research's technical analysis charting product and is 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 investor with sophisticated charting and technical analysis capabilities, including the ability 39 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 system design and testing capabilities, in order to introduce the less-experienced investor to such functions and potentially generate interest in the Company's TRADESTATION product. ADDITIONAL PRODUCTS AND SERVICES. The Company offers additional products and services, such as WALL STREET ANALYST, the Company's introductory charting and analysis product for the individual investor, historical data subscription CD-ROM clubs (monthly deliveries of historical financial data updates on CD-ROM), and seminars, conferences, tutorials and instructional videotapes designed to enhance investors' abilities to use fully and effectively the Company's products. These additional products and services are intended to complement the Company's principal investment analysis products and are expected to remain an ancillary portion of revenues. SALES AND MARKETING The Company markets its products using a combination of methods, including inbound telesales and the use of domestic and international distributors and other resellers, including value added resellers. Marketing efforts in support of sales include print media and television advertising, direct mail, seminars and establishment of strategic marketing and other strategic partner relationships with data vendors and software and service solution providers. The majority of the Company's direct product sales is generated by telesales. The Company has devoted considerable efforts and resources to assemble and train a dedicated, professional, team-oriented sales force. The telesales process consists of the generation of leads through media and direct mail advertising, fulfillment of information packets to prospective purchasers, and follow-up calls to the recipients of the information packets to attempt to complete the sale. The Company is in the process of implementing a new system of customer tracking and management at its corporate headquarters to improve its lead management capability, enhance its customer satisfaction through increased responsiveness and to improve its ability to market additional products to existing customers. See "Risk Factors -- Management of Change." The Company advertises its products in publications popular with investors such as BARRON'S, FUTURES, INDIVIDUAL INVESTOR, INVESTORS BUSINESS DAILY and STOCKS & COMMODITIES. The Company also advertises TRADESTATION and OPTIONSTATION on a regular basis on the CNBC and CNN-FN television networks, and certain local television stations. The Company undertakes periodic promotional mailings to its customer base, as well as to mailing lists obtained by the Company by license from, or agreement with, third parties. Such promotional mailings include flyers, brochures, Omega Research Solution Provider catalogues or a combination of the foregoing items. The Company believes that significant opportunity exists to market its products to international customers. The Company seeks to distribute its products internationally through independent distributors. As of June 30, 1997, Omega Research had arrangements with approximately 60 independent parties to distribute one or more of the Company's products in Europe, Asia, Australia, South Africa and Canada. The Company also sells directly to international investors in response to direct inquiries received from abroad. The Company believes its strategic relationships with data vendors, such as Dow Jones Markets, will also provide significant benefit in its expansion into international markets. The Company is in the early stages of its international sales effort and intends to focus more resources on the establishment of a comprehensive and effective international marketing and distribution network. See "Risk Factors -- Risks Associated with International Expansion." 40 STRATEGIC RELATIONSHIPS Omega Research endeavors to establish and foster strategic marketing and other strategic partner relationships with data vendors and with software and service solution providers. DOW JONES MARKETS AGREEMENTS. In August 1994, the Company entered into a Software License, Maintenance and Development Agreement with Dow Jones Markets (then known as Dow Jones Telerate, Inc.) under which Omega Research licensed to Dow Jones Markets the right to market and distribute TRADESTATION to its data subscribers worldwide, who are primarily institutional investors. The Company, in March 1997, entered into a similar agreement with Dow Jones Markets regarding SUPERCHARTS Real-Time. Following the execution of the TRADESTATION agreement, Omega Research developed modifications to tightly integrate TRADESTATION with Dow Jones Markets' data server. In January 1996, TELETRAC TRADESTATION (now being marketed as DOW JONES TRADESTATION) was launched by Dow Jones Markets. The Company believes the Dow Jones Markets relationship has begun to create an institutional market awareness of the Company's products which should support the Company's marketing efforts with respect to both the institutional and international markets. The Dow Jones Markets agreements expire in the year 2002. The TRADESTATION agreement requires Dow Jones Markets to use commercially reasonable efforts to market TRADESTATION, to market the product under the name "DOW JONES TRADESTATION," and to pay to Omega Research a per-subscription royalty, subject to minimum annual royalties which escalate each year of the agreement. The Company has no technical support obligation under the agreement to the customers of Dow Jones Markets, but is obligated to provide limited technical support to Dow Jones Markets' managers. The SUPERCHARTS agreement is similar but does not contain a minimum royalty payment provision. During the term of the Dow Jones Markets agreements, Omega Research is not permitted to enter into a similar licensing arrangement regarding TRADESTATION or SUPERCHARTS with five enumerated competitors of Dow Jones Markets. Dow Jones Markets is permitted under the agreements to offer to its data service subscribers its own or another company's investment analysis software in addition to offering TRADESTATION and SUPERCHARTS. However, should Dow Jones Markets offer to its subscribers a technical analysis charting program competitive with SUPERCHARTS, the prohibition on the Company entering into similar arrangements regarding SUPERCHARTS with Dow Jones Markets' enumerated competitors lapses. See "Risk Factors -- Dependence on Relationship with Dow Jones Markets." CROSS-MARKETING AGREEMENTS. The Company currently has written agreements with other data vendors which generally provide for the data vendor to pay the Company monthly fees or commissions as consideration for data subscribers who use Omega Research products to access such data vendors' data services. Each of these agreements contains provisions designed to make the data vendors' subscribers more aware of Omega Research's products and to make Omega Research's customers more aware of the data vendors' services. OMEGA RESEARCH SOLUTION PROVIDER NETWORK. More than 150 independent software and service providers have become Omega Research Solution Providers. Omega Research Solution Providers add value to the Omega Research Platform by either offering complementary software applications compatible with an Omega Research product or by providing an educational or support service which enhances a customer's use of a Company product. A number of the Omega Research Solution Providers have developed products that operate only in conjunction with an Omega Research product. The Company permits each Omega Research Solution Provider to use an Omega Research Solution Provider logo on a royalty-free basis so that the solution provider can advertise to potential customers that its product or service is compatible with the applicable Omega Research product(s) or useful to Omega Research customers. 41 PRODUCT DEVELOPMENT The Company believes that its future success depends in part on its ability to maintain and improve its core software technologies, and enhance its existing products and develop new products that meet an expanding range of customer requirements. To date, the Company has relied primarily on internal development of its products, all of which are currently 16-bit Windows applications. The Company performs all quality assurance and develops documentation and other training materials internally. In 1996 and the six-month period ended June 30, 1997, product development expenses were approximately $1.0 million and approximately $843,000, respectively. The Company views its product development cycle 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 investor group requires from the product, 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 have been determined, the second step is to technically design the product. The third step is the detailed implementation, or software engineering, of this technical design. The fourth step is rigorous quality assurance testing to ensure that the final product generally meets the functional requirements determined in the first step. Several product refinements are typically added in the quality assurance phase of development. Once this process is completed, technological feasibility has been achieved and the working model is available for final testing. The Company is currently developing the next version of TRADESTATION. This version will be a 32-bit version which is intended ultimately to support a network environment, which would technically enable the marketing of TRADESTATION by the Company directly to the institutional investor market. The Company is also working to develop 32-bit versions of its other principal products. The Company is currently considering additional enhancements to its product line, including increased interactivity between TRADESTATION and OPTIONSTATION, historical data enhancement products and services, and a software solution which offers additional trading system design, testing and automation capabilities for the equities investor. The market for investment analysis software is characterized by rapidly changing technology, evolving industry standards in computer hardware, programming tools, programming languages, operating systems, database technology and information delivery systems, changes in customer requirements and frequent new product introductions and enhancements. The Company's future success will depend upon its ability to maintain and develop competitive technologies, to continue to enhance its current products and to develop and introduce new products in a timely and cost-effective manner that meet changing conditions such as evolving customer needs, new competitive product offerings, emerging industry standards and changing technology. There can be no assurance that the Company will be able to develop and market, on a timely basis, if at all, product enhancements or new products that respond to changing market conditions or that will be accepted by investors. Any failure by the Company to anticipate or to respond quickly to changing market conditions, or any significant delays in product development or introduction, could cause customers to delay or decide against purchases of the Company's products and would have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors -- Rapid Technological Change and Dependence on New Products" and "-- Dependence Upon Microsoft's Windows Operating System." 42 CUSTOMER SUPPORT AND TRAINING The Company believes that customer support and product-use training is critical to creating, maintaining and increasing customer satisfaction with the Company's products. The Company provides customer support and product-use training in the following ways: CUSTOMER SUPPORT. The Company provides technical support to its customers by telephone, fax and electronic mail. Although the majority of these services are provided during the first sixty days of ownership of a Company product, Omega Research voluntarily provides technical support for each product, free-of-charge, generally until the product's next version is released. The Company has substantially increased its technical support staff, which has grown approximately 70% since December 31, 1995 and approximately 50% since December 31, 1996. The Company has also recently increased available hours of telephone and electronic mail customer support. PRODUCT-USE TRAINING. The Company considers product-use training important in trying to ensure that its customers develop the ability to use Omega Research's products as fully and effectively as is possible. The Company has devoted considerable efforts to improve the user-education manuals and videos generally included with its products. In addition, the Company has recently embarked on a training seminar program to better educate its customers, which consists of fee-based seminars to be conducted in various U.S. cities. COMPETITION The market for investment analysis software is intensely competitive and rapidly changing. The Company believes that due to anticipated growth of the market for investment analysis software, and other factors, competition will substantially increase and intensify in the future. The Company 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 enhancements developed by the Company and its competitors, product functionality, data availability, ease of use, pricing, reliability, customer service and support, sales and marketing efforts and product distribution channels. The Company believes that it currently competes favorably overall with respect to these factors. The Company faces direct competition from several publicly-traded and privately-held companies. The Company's principal competitors include AIQ, Aspen Graphics, Equis International, Inc. (Metastock), a subsidiary of Reuters, Market Arts, Inc. (Window on Wall Street) and TeleChart 2000. The Company also competes with investment analysis solutions available on the Internet, some of which are available for free. In addition, the Company faces competition from data vendors, all of which offer investment analysis software products, and which are the Company's existing and potentially future strategic partners. As a result, the Company must educate prospective customers as to the potential advantages of the Company's products, and continue to offer solutions not offered by major data vendors. There can be no assurance that the Company will be able to compete effectively with its competitors, adequately educate potential customers to the benefits that the Company's products provide, or continue to offer such software solutions. Many of the Company's existing and potential competitors, which include large, established software companies which do not currently focus on the investment analysis software market, have longer operating histories, significantly greater financial, technical and marketing resources, greater name recognition and a larger installed customer base than has the Company. One or more of these competitors may be able to respond more quickly to new or emerging technologies or changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than may the Company. There can be no assurance that the Company's existing or potential competitors will not develop products comparable or superior to those developed by the Company or 43 adapt more quickly than the Company to new technologies, evolving industry trends or changing customer requirements. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect the Company's business, results of operations and financial condition. There can be no assurance that the Company will be able to compete successfully against current or future competitors, or that competitive pressures faced by the Company will not have a material adverse effect on its business, results of operations and financial condition. See "Risk Factors -- Competition." INTELLECTUAL PROPERTY The Company's success is heavily dependent on its proprietary technology. The Company views its software as proprietary, and relies 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. The Company has no patents or patents pending, and has not to date registered any of its copyrights. The Company has obtained registrations in the United States and Canada for the trademark TRADESTATION, and registrations in the United States for the trademarks OPTIONSTATION and SUPERCHARTS, and is seeking registrations in the United States for the trademarks Omega Research and certain Omega Research designs and logos. The Company uses a shrink-wrap license (typically on its packaging and on-screen) directed to users of its products 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 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 the Company's efforts to protect its proprietary rights, unauthorized parties copy or otherwise obtain, use or exploit the Company's products or technology independently. Policing unauthorized use of the Company's products is difficult, and the Company is unable to determine the extent to which piracy of its software products 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. In addition, effective protection of intellectual property rights may be unavailable or limited in certain countries, including some in which the Company may attempt to expand its sales efforts. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies or products. There has been substantial litigation in the software industry involving intellectual property rights. The Company does not believe that it is infringing the intellectual property rights of others, although there exists a competing trademark application for the name WALL STREET ANALYST which claims prior use. There can be no assurance that infringement claims would not have a material adverse effect on the Company's business, financial condition and results of operations. In addition, to the extent that the Company acquires or licenses a portion of the software or data included in its products from third parties, its exposure to infringement actions may increase because the Company must rely upon such third parties for information as to the origin and ownership of such acquired or licensed software or data. In the future, litigation may be necessary to establish, enforce and protect trade secrets, copyrights, trademarks and other intellectual property rights of the Company. The 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 the Company's business, financial condition and results of operations. Adverse determinations in such litigation could result in the loss of proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties, which could be expensive, or prevent the Company from 44 selling its products or using its trademarks, any one of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors -- Protection of Intellectual Property." EMPLOYEES As of June 30, 1997, the Company had 122 full-time employees consisting of 25 in product development (including product development, management, documentation and quality assurance), 77 in sales and marketing (including sales, marketing, customer support and order fulfillment), and 20 in general administration (including executive management, finance and administration). The Company's employees are not represented by any collective bargaining organization, and the Company has never experienced a work stoppage and considers its relations with its employees to be good. The Company'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 Cruz or Ralph Cruz, the Company's Co-Chief Executive Officers, or Peter A. Parandjuk, the Company's Vice President of Product Development, would have a material adverse effect on the Company. There can be no assurance that the Company will be able to retain its key personnel. Departures and additions of personnel, to the extent disruptive, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors -- Dependence on Key Employees." FACILITIES The Company's corporate headquarters are located in Miami, Florida, in a leased facility consisting of approximately 17,300 square feet of office space occupied under a lease which commenced in February 1997 and which expires in August 2002. The Company also leases warehouse space consisting of approximately 4,800 square feet, which is used for fulfillment of orders. The warehouse lease expires in May 1998. The Company has also recently leased approximately 1,100 square feet of space in Boca Raton, Florida from which the Company intends to conduct certain quality assurance operations relating to the historical database included within its products. Such lease expires in June 1998, and the Company has a one-year renewal option. The Company's corporate headquarters contain all of the Company's facilities except for fulfillment and such quality assurance operations. The Company 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 The Company is not a party to any material legal proceedings. 45 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company are as follows:
NAME AGE POSITION WITH THE COMPANY - ---- --- ------------------------- William R. Cruz 36 Co-Chairman of the Board, Co-Chief Executive Officer and President Ralph L. Cruz 33 Co-Chairman of the Board and Co-Chief Executive Officer Peter A. Parandjuk 35 Vice President of Product Development and Director Salomon Sredni 30 Vice President of Operations, Chief Financial Officer, Treasurer and Director Marc J. Stone 36 Vice President of Corporate Planning and Development, General Counsel, Secretary and Director
WILLIAM R. CRUZ co-founded the Company in 1982 and has been its President and a director since that time. Mr. Cruz was appointed Co-Chief Executive Officer of the Company in 1996. Mr. Cruz studied classical violin at the University of Miami, which he attended on a full scholarship, and Julliard School of Music. Mr. Cruz left Julliard School of Music prior to graduation to co-found the Company. Mr. Cruz has won numerous classical violin competitions. Mr. Cruz has been primarily responsible for the conception and management of the Company's products and product strategies. RALPH L. CRUZ co-founded the Company in 1982 and has been a director since that time. Mr. Cruz was Vice President of the Company 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. Mr. Cruz left Indiana University prior to graduation to devote full time to the Company. Mr. Cruz has won numerous classical violin competitions. Mr. Cruz has been primarily responsible for the Company's marketing strategies. PETER A. PARANDJUK joined the Company in 1988 as a software engineer, became the Company's senior software engineer in 1991, was appointed Vice President of Product Development in January 1995 and was named a director of the Company in July 1997. Mr. Parandjuk received a bachelor's degree in Applied Mathematics from the State University of New York at Buffalo. SALOMON SREDNI joined the Company in December 1996 as its Vice President of Operations and Chief Financial Officer and was named Treasurer and a director of the Company in July 1997. 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. MARC J. STONE joined the Company in May 1997 as its Vice President of Corporate Planning and Development, General Counsel and Secretary and was named a director of the Company in July 1997. From January 1993 to May 1997, Mr. Stone was a partner at the law firm of Rubin Baum Levin Constant Friedman & Bilzin ("Rubin Baum"), which serves as the Company's regular outside counsel. Prior to that time, from 1985 to 1992, Mr. Stone was an associate with that law firm. Mr. Stone remains of counsel to Rubin Baum. Mr. Stone has a bachelor's degree in English and American Literature from 46 Brown University, and received his law degree from University of California (Boalt Hall) School of Law at Berkeley. INDEPENDENT DIRECTORS; COMMITTEES OF THE BOARD OF DIRECTORS The Company intends to add two nonemployee, independent members to its Board of Directors ("independent directors") within 90 days following the date of this Prospectus. At the time of the appointment of the independent directors, the Company's Board of Directors will establish an Audit Committee, the majority of the members of which will be independent directors, and a Compensation Committee, all the members of which will be independent directors. The Audit Committee will recommend the annual engagement of the Company's auditors, with whom the Audit Committee will review the scope of audit and non-audit assignments, related fees, the accounting principles used by the Company in financial reporting, internal financial auditing procedures and the adequacy of the Company's internal control procedures. The Compensation Committee will determine executive officers' salaries and bonuses and administer the Incentive Stock Plan and the Purchase Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company did not have a Compensation Committee during its last completed year. The compensation of the Company's executive officers was determined by William Cruz and Ralph Cruz, as the Company's sole members of its Board of Directors, for this period. For information concerning cash dividends paid by the Company to its current shareholders in 1994, 1995, 1996 and the first six months of 1997, the dividend of the Company's former office facilities declared in the second quarter of 1997, and the Dividend to be paid by the Company in 1997 to its current shareholders and the Tax Agreement to be entered into between the Company and such shareholders, see "Dividend Policy," "Distribution of S Corporation Earnings," and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." DIRECTOR COMPENSATION The Company currently expects that directors who are not employees or officers of the Company will receive $750 for attendance at each meeting of the Board of Directors. Each such director will also receive an option to purchase 12,000 shares of Common Stock upon initial election as a director of the Company, and an option to purchase 3,000 shares of Common Stock upon each re-election as a director at the Company's annual meeting of shareholders. 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 the Company will not receive additional compensation for service as a director. See "Management -- Other Compensation Arrangements." 47 EXECUTIVE COMPENSATION The following table sets forth information with respect to all compensation paid or earned for services rendered to the Company in the year ended December 31, 1996 by the co-chief executive officers of the Company and the Company's two other most highly compensated executive officers whose aggregate annual compensation exceeded $100,000 (together, the "Named Executive Officers"). The Company does not have a pension plan or a long-term incentive plan, has not issued any restricted stock awards and has not granted any stock appreciation rights prior to this offering. 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 salary.
SUMMARY COMPENSATION TABLE LONG-TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION SECURITIES --------------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(1) - --------------------------- ----------- ----------- ------------ --------------- William R. Cruz ........ $ 90,000(2) $ -- -- $ 4,320 Co-Chief Executive Officer and President Ralph L. Cruz .......... 90,000(2) -- -- 4,320 Co-Chief Executive Officer Peter A. Parandjuk ..... 116,990 78,948(3) 250,000 5,700 Vice President of Product Development Salomon Sredni ......... 10,833(4) -- 140,000 -- Vice President of Operations, Chief Financial Officer and Treasurer - ---------------------- (1) Represents 401(k) Plan Company contributions on behalf of the Named Executive Officer. (2) In December 1996, his annual base salary was increased to $150,000. (3) $26,491 of this amount was earned in 1996 but paid in 1997. (4) Mr. Sredni joined the Company in December 1996. His annual base salary for 1996 was $130,000.
48 OPTION GRANTS. The following table summarizes the options which were granted during the fiscal year ended December 31, 1996 to the Named Executive Officers.
OPTION GRANTS IN 1996 INDIVIDUAL GRANTS ---------------------------------------------------------- % OF TOTAL POTENTIAL REALIZABLE VALUE AT NUMBER OF OPTIONS MARKET VALUE AT ASSUMED ANNUAL RATES OF SECURITIES GRANTED TO EXERCISE PRICE ON GRANT-DATE STOCK PRICE APPRECIATION UNDERLYING EMPLOYEES OR BASE GRANT MARKET PRICE FOR OPTION TERM(1) OPTIONS IN FISCAL PRICE DATE EXPIRATION ------------ ----------------------------- NAME GRANTED(2) YEAR ($)/(SH) ($)/(SH)(3) DATE 0%($) 5%($) 10%($) - ---- ----------- ---------- -------- ----------- ---------- ------------ ---------- ----------- William R. Cruz...... --- --- --- --- --- --- --- --- Ralph L. Cruz........ --- --- --- --- --- --- --- --- Peter A. Parandjuk... 250,000 43.0% $1.25 $1.75 11/30/06 $ 125,000 $400,141 $822,262 Salomon Sredni....... 140,000 24.1 1.25 1.75 11/30/06 70,000 224,079 460,467 - ------------------- (1) Potential realizable value is based on the assumption that the Common Stock price appreciates at the annual rate shown (compounded annually) from the date of grant until the end of the option term. The amounts have been calculated based on the requirements promulgated by the Securities and Exchange Commission. The actual value, if any, a Named Executive Officer may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised (if the executive were to sell the shares on the date of exercise), so there is no assurance that the value realized will be at or near the potential realizable value as calculated in this table. (2) These options vest over five years and have a term of ten years from the date of grant, subject to acceleration under certain circumstances. (3) Prior to this offering, there has been no public market for the Common Stock of the Company. The Market Price on Grant Date is based on the Board of Director's determination of the fair market value of the Common Stock on the date of grant of the option.
OPTION EXERCISES AND UNEXERCISED OPTION HOLDINGS. The following table provides information regarding the value of all unexercised options held at December 31, 1996 by the Named Executive Officers. No Named Executive Officer exercised any stock options during the fiscal year ended December 31, 1996. AGGREGATE OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 1996(#) DECEMBER 31, 1996 ($)(1) -------------------------------- -------------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ----------- ------------- William R. Cruz............. --- --- --- --- Ralph L. Cruz............... --- --- --- --- Peter A. Parandjuk.......... --- 250,000 --- $187,500 Salomon Sredni.............. --- 140,000 --- 105,000 - ------------------- (1) There was no public trading market for the Common Stock as of December 31, 1996. Accordingly, these values have been calculated based on a price of $2.00 per share, the Board of Director's determination of the fair market value of the Common Stock as of December 31, 1996, minus the applicable per share exercise price.
49 OTHER COMPENSATION ARRANGEMENTS 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. The Company has reserved 3,000,000 shares of Common Stock for issuance under the Incentive Stock Plan, subject to antidilution adjustments. The Incentive Stock Plan has been administered by the Board of Directors of the Company, but upon completion of this offering and establishment of the Compensation Committee of the Board of Directors (the "Committee"), the Incentive Stock Plan will be administered by the Committee, whose members must qualify as "nonemployee directors" (as such term is defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended). The Board of Directors or the 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 Committee will also determine 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. 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. 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. As of July 21, 1997, options to purchase 891,250 shares were outstanding under the Incentive Stock Plan, of which options to purchase 530,000 shares had been granted to executive officers of the Company. The Company intends to issue options to purchase up to an additional 150,000 shares on or prior to the date of this Prospectus to certain employees (excluding executive officers), of which approximately 100,000 shares will be granted at an exercise price equal to the initial public offering price. Of the options granted to executive officers, options to purchase 250,000 shares were granted to Peter A. Parandjuk, the Company's Vice President of Product Development, at an exercise price of $1.25 per share; options to purchase 140,000 shares were granted to Salomon Sredni, the Company's Vice President of Operations, Chief Financial Officer and Treasurer, at an exercise price of $1.25 per share; and options to purchase 140,000 shares were granted to Marc J. Stone, the Company's Vice President of Corporate Planning and Development, General Counsel and Secretary, at an exercise price of $3.00 per share. All 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 granted to Messrs. Parandjuk, Sredni and Stone 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 the Company, and, in the case of Mr. Parandjuk, upon termination of employment by the Company without cause. The options to purchase the shares granted under the Incentive Stock Plan outstanding as of July 21, 1997 have a weighted average exercise price of $1.84 per share. See Note 4 of Notes to Financial Statements. 1997 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN. The Director Stock Plan, pursuant to which annual grants of a nonqualified stock option will be made to each nonemployee director of the Company, was adopted by the Board of Directors and approved by the shareholders in July 1997. Upon initial election to the Board of Directors, each nonemployee director will be granted an option to purchase 12,000 shares of Common Stock. 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 50 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. These options will have a term of ten years and will vest in equal installments over three years. The Company has reserved 175,000 shares of Common Stock for issuance under the Director Stock Plan, subject to antidilution adjustments. No options have yet been granted under the Director Stock Plan. The Board of Directors has the power to amend the 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 Director Stock Plan's status as a protected plan under applicable securities laws. 1997 EMPLOYEE STOCK PURCHASE PLAN. The Purchase Plan was adopted by the Board of Directors and approved by the Company'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 will be administered by the Compensation Committee of the Board of Directors. All employees of the Company whose customary employment is more than 20 hours per week and for 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 the Company's stock and all nonemployee directors of the Company may not participate in the Purchase Plan. To participate in the Purchase Plan, an employee must authorize the Company 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 plan at any time or upon termination of employment. No options have been granted to date under the Purchase Plan. 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. The Company has a defined contribution retirement plan which complies with Section 401(k) of the Code. All employees with at least one year of continuous service (the Company intends to change this requirement from one year to three months) are eligible to participate and may contribute up to 15% of their compensation. Company contributions vest over a five-year period. Company contributions charged against income were $23,000, $16,000 and $62,000 in 1994, 1995 and 1996, respectively. EMPLOYEE BONUS PROGRAMS. The Company had an informal profit-sharing incentive program (the "Profit-Sharing Program"), which was discontinued by the Company effective July 1, 1997. Under the Profit-Sharing Program, the Company made discretionary quarterly distributions to its employees based on the Company's attainment of specified percentage increases in net sales. Company payments to employees under the Profit-Sharing Program for the years ended December 51 31, 1994, 1995, 1996, and the six months ended June 30, 1997, amounted to $81,000, $20,000, $423,000 and $277,000, respectively. Prior to the end of the fiscal quarter ending September 30, 1997, the Company intends to institute an informal quarterly performance bonus incentive program, pursuant to which cash bonuses may be paid to employees (including executive officers) based on the attainment of certain pre-set objectives tied to individual and departmental performance. Such bonuses will ultimately be payable solely at the discretion of the Company. NON-COMPETITION AGREEMENTS All executive officers have entered into agreements with the Company which generally contain certain non-competition, non-disclosure and non-solicitation restrictions and covenants, including a provision prohibiting such officers from competing with the Company during their employment with the Company and for a period of two years thereafter. CERTAIN TRANSACTIONS For information concerning cash dividends paid by the Company to its shareholders in 1994, 1995, 1996 and the first six months of 1997, the dividend of the Company's former office facilities to William Cruz and Ralph Cruz declared in the second quarter of 1997, and the Dividend to be paid by the Company in 1997 to its current shareholders and the Tax Agreement to be entered into between the Company and such shareholders, see "Dividend Policy" and "Distribution of S Corporation Earnings." Marc J. Stone, the Company's Vice President of Corporate Planning and Development, General Counsel and Secretary and a director, was a partner in the law firm of Rubin Baum Levin Constant Friedman & Bilzin until immediately prior to joining the Company in May 1997 and remains of counsel to that firm. Rubin Baum has acted as the Company's regular outside legal counsel since 1994. The total fees and costs paid by the Company to Rubin Baum in 1994, 1995, 1996 and the first six months of 1997 were approximately $35,000, $63,000, $34,000 and $50,000, respectively. The Company believes that the fees paid to Rubin Baum are no less favorable to the Company than could be obtained from other comparable law firms in the Miami area. 52 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of Common Stock as of July 21, 1997, and as adjusted for the sale of the shares offered hereby, by (i) each shareholder of the Company who beneficially owns more than 5% of the Common Stock, (ii) each director of the Company, (iii) each Named Executive Officer, and (iv) all directors and executive officers of the Company as a group. Except as otherwise described in the footnotes below, the Company 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 the Company's principal executive office.
SHARES SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED EXECUTIVE OFFICERS, PRIOR TO OFFERING(1) AFTER OFFERING (1) (2) DIRECTORS AND ---------------------- NUMBER OF ---------------------------- 5% SHAREHOLDERS NUMBER PERCENT SHARES OFFERED(2) NUMBER PERCENT - ---------------------------- ------------ ------- ----------------- ---------- ------- William R. Cruz 9,740,000(3) 50.0% 550,000 9,190,000 41.6% Ralph L. Cruz 9,740,000(4) 50.0 550,000 9,190,000 41.6 Peter A. Parandjuk -- -- -- -- -- Salomon Sredni -- -- -- -- -- Marc J. Stone -- -- -- -- -- All executive officers and directors as a group (5 persons)(5) 19,480,000 100% 1,100,000 18,380,000 83.2% - -------------------- (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission that deem shares to be beneficially owned by any person who has or shares voting or investment power with respect to such shares. (2) Assumes no exercise of the Underwriters' over-allotment option to purchase on a pro rata basis up to an aggregate of 555,000 additional shares of Common Stock, 390,000 additional shares from the Company and 165,000 additional shares from the Selling Shareholders. If the over-allotment option is exercised in full, each of William R. Cruz and Ralph L. Cruz could sell an additional 82,500 shares beneficially owned by him, reducing the percentage of shares beneficially owned by each of William R. Cruz and Ralph L. Cruz to 40.5%. Any shares sold by the Selling Shareholders pursuant to the over-allotment option will be sold equally by William R. Cruz and Ralph L. Cruz. (3) Includes 1,950,000 shares held by the Ralph L. Cruz 1997 Grantor Retained Annuity Trust #1 as to which William R. Cruz possesses voting and dispositive powers as trustee under the trust. Such trust provides for annual distributions of principal and income to Ralph L. Cruz for five years, and thereafter any remainder interest is payable to the Ralph L. Cruz 1997 Family Trust for the benefit of certain family members and/or charitable organizations. (4) Includes 1,950,000 shares held by the William R. Cruz Grantor Retained Annuity Trust #1 as to which Ralph L. Cruz possesses voting and dispositive powers as trustee under the trust. Such trust provides for annual distributions of principal and income to William R. Cruz for five years, 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 389,600 shares owned beneficially and of record by Michelle Cruz, the spouse of Ralph L. Cruz, with respect to which Ralph L. Cruz has no investment or voting power and disclaims beneficial ownership. (5) See other footnotes above. Does not include options held by officers and directors which are not exercisable within 60 days of the date of this Prospectus.
53 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 125 million shares, of which 100 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 July 21, 1997, there were 19,480,000 shares of Common Stock outstanding held of record by five shareholders, and no shares of preferred stock outstanding. See "Principal and Selling Shareholders." After completion of this offering, 22,080,000 shares of Common Stock will be issued and outstanding. The following description of the capital stock of the Company and certain provisions of the 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 the Company's Registration Statement, of which this Prospectus is a part. COMMON STOCK The issued and outstanding shares of Common Stock are, and the Common Stock to be sold by the Company and the Selling Shareholders in this offering 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 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 may from time to time determine. See "Dividend Policy." 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 the Company. Upon liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive, pro rata, the assets of the 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 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 The 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. The 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 the 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 the Company. The Company has no present intention to issue any preferred stock. CERTAIN PROVISIONS OF FLORIDA LAW The 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 54 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 the company, shares acquired in a transaction which effects a certain threshold change in the ownership of a 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 the Company. CERTAIN CHARTER AND BYLAW PROVISIONS The 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 only be called by the Board of Directors or by holders of not less than 50% of the outstanding voting shares of the Company. The Articles require that, upon completion of this offering, any actions to be taken by the shareholders of the 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 the Company's Articles and Bylaws may have the effect of discouraging a change in control of the 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 The 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 the 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. The Company's Articles and Bylaws provide that the Company will indemnify its directors and officers, and may indemnify its employees and other agents, to the fullest extent permitted by law. The 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. The Company intends to obtain liability insurance for its directors and officers. In addition to the indemnification provided for in the Company's Articles and Bylaws, the Company will enter into agreements to indemnify its directors and its executive officers. These agreements will, among other things, indemnify the 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 the Company or any third person) and liabilities of any type whatsoever (including, but not limited to, judgments, fines and amounts paid 55 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 the Company, arising out of such persons' services as a director, officer, employee or other agent of the Company, any subsidiary of the Company or any other company or enterprise to which such persons provide services at the request of the Company. The 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 the Company where indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceeding that might result in a claim for such indemnification. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock will be American Stock Transfer & Trust Company, New York, New York. 56 SHARES ELIGIBLE FOR FUTURE SALE Upon the closing of this offering, the Company will have 22,080,000 shares of Common Stock outstanding, of which 3,700,000 (4,255,000 if the Underwriters' over-allotment option is exercised in full) will be freely tradable without restriction or registration under the Securities Act, except for any shares purchased by an affiliate of the Company (in general, a person who has a control relationship with the Company), which will be subject to the limitations of Rule 144 promulgated under the Securities Act ("Rule 144"). All of the remaining 18,380,000 outstanding shares of Common Stock are deemed to be "restricted securities," as that term is defined in Rule 144. Beginning 180 days after the date of this Prospectus, upon the expiration of lock-up agreements with the Underwriters (described below), all of such restricted securities will be available for sale subject to compliance with Rule 144 volume and other requirements. The current shareholders, officers and directors of the Company have agreed for a period of 180 days after the date of this Prospectus that they will not, subject to certain exceptions, directly or indirectly offer, sell, contract to sell, grant any option to purchase, pledge, or otherwise dispose of or transfer, any shares of Common Stock, or any securities convertible into or exchangeable for, or any rights to purchase or acquire, shares of Common Stock, now owned or hereafter acquired directly by such holders or with respect to which they now have or hereafter acquire the power of disposition, without the prior written consent of Robertson, Stephens & Company LLC, which may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. See "Underwriting." In general, under Rule 144, as currently in effect, any person (or persons whose shares are aggregated) who owns shares that were last acquired from the issuer or an affiliate of the issuer at least one year prior to a proposed sale is entitled to sell, within any three-month period, a number of shares which does not exceed the greater of 1% of the then-outstanding shares of the Company's Common Stock (220,800 shares immediately after this offering) or the average weekly trading volume of the Company's Common Stock in the over-the-counter market during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission (the "Commission"). Sales under Rule 144 may also be subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. Any person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the three months preceding a proposed sale, and who owns restricted securities that were last acquired from the issuer or an affiliate of the issuer at least two years prior to a proposed sale, is entitled to sell such shares under Rule 144(k) without regard to the volume limitation, manner of sale provisions, public information requirements or notice requirements. The Company is authorized to issue up to 3,000,000 shares of Common Stock under the Incentive Stock Plan, up to 175,000 shares under the Director Stock Plan and up to 500,000 shares under the Purchase Plan. As of July 21, 1997, options to purchase 891,250 shares were outstanding under the Incentive Stock Plan, none of which is currently exercisable, and no shares had been issued under the Director Stock Plan or the Purchase Plan. The Company intends to issue options to purchase up to an additional 150,000 shares under the Incentive Stock Plan on or prior to the date of this Prospectus. See "Management -- Other Compensation Arrangements." The Company intends to file one or more registration statements under the Securities Act covering the issuance or resale of these shares of Common Stock promptly following the closing of this offering. Shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market, subject to vesting restrictions and the lock-up arrangements described above. No predictions can be made of the effect, if any, that the availability of shares for sale or the actual sale of shares will have on market prices prevailing from time to time. See "Risk Factors -- Shares Eligible for Future Sale." 57 UNDERWRITING The Underwriters named below, acting through their representatives, Robertson, Stephens & Company LLC, Lehman Brothers Inc. and Hambrecht & Quist LLC (the "Representatives"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company and the Selling Shareholders the number of shares of Common Stock set forth opposite their respective names below. The Underwriters are committed to purchase and pay for all such shares if any are purchased. NUMBER UNDERWRITER OF SHARES ----------- --------- Robertson, Stephens & Company LLC................................ Lehman Brothers Inc.............................................. Hambrecht & Quist LLC............................................ --------- Total............................................................ 3,700,000 ========= The Company has been advised by the Representatives that the Underwriters propose to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price, less a concession of not more than $ per share, of which $ per share may be reallowed to other dealers. After the initial public offering, the public offering price, concession and reallowance to dealers may be reduced by the Representatives. The Company and the Selling Shareholders have granted to the Underwriters an option, exercisable during the 30-day period after the date of this Prospectus, to purchase up to an additional 555,000 shares of Common Stock at the same price per share as the Company and the Selling Shareholders receive for the 3,700,000 shares that the Underwriters have agreed to purchase. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage of such additional shares that the number of shares of Common Stock to be purchased by it shown in the above table represents as a percentage of the 3,700,000 shares offered hereby. If purchased, such additional shares will be sold by the Underwriters on the same terms as those on which the 3,700,000 shares are being sold. The Company and the shareholders subject to such over-allotment option will be obligated, pursuant to the option, to sell shares to the Underwriters to the extent the option is exercised. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of shares of Common Stock offered hereby. 58 The Underwriting Agreement contains covenants of indemnity among the Underwriters, the Company and the Selling Shareholders against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended, and liability arising from breaches of representations and warranties contained in the Underwriting Agreement. All current shareholders, officers and directors of the Company have agreed with the Representatives that, until 180 days from the date of this Prospectus, subject to certain limited exceptions, they will not, directly or indirectly, offer, sell, contract to sell, grant any option to purchase, pledge, or otherwise dispose of or transfer, any shares of Common Stock, or any securities convertible into or exchangeable for, or any rights to purchase or acquire, shares of Common Stock, now owned or hereafter acquired directly by such holders or with respect to which they have or hereafter acquire the power of disposition, without the prior written consent of Robertson, Stephens & Company LLC. Robertson, Stephens & Company LLC may, in its sole discretion, without notice, release all or any portion of the securities subject to lock-up agreements. See "Shares Eligible for Future Sale." All of such shares will be eligible for immediate public sale following expiration of the lock-up period, subject to Rule 144. In addition, the Company has agreed, until 180 days from the date of this Prospectus, the Company will not, without the prior written consent of Robertson, Stephens & Company LLC, subject to certain exceptions, sell or otherwise dispose of any shares of Common Stock, any options or warrants to purchase any shares of Common Stock or any securities convertible into, exercisable for or exchangeable for shares of Common Stock other than the Company's sale of shares in this offering, the issuance of Common Stock upon the exercise of outstanding options, or the Company's grant of options and issuance of stock under existing stock option or stock purchase plans. See "Shares Eligible for Future Sale." The Representatives have advised the Company and the Selling Shareholders that the Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. Certain persons participating in this offering may overallot or affect transactions which stabilize, maintain or otherwise affect the market price of the Common Stock at levels above those which might otherwise prevail in the open market, including by entering stabilizing bids, affecting syndicate covering transactions or imposing penalty bids. A stabilizing bid means the placing of any bid or effecting of any purchase, for the purpose of pegging, fixing or maintaining the price of the Common Stock. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with the offering. A penalty bid means an arrangement that permits the Underwriters to reclaim a selling concession from a syndicate member in connection with the offering when shares of Common Stock sold by the syndicate member are purchased in syndicate covering transactions. Such transactions may be effected, where permitted, on the Nasdaq National Market, in the over-the-counter market, or otherwise. Such stabilizing, if commenced, may be discontinued at any time. The Underwriters have reserved for sale, at the initial public offering price, up to 4.9% of the shares of Common Stock offered hereby for employees of the Company and certain individuals who have expressed an interest in purchasing shares of Common Stock in this offering. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the Underwriters to the general public on the same basis as other shares offered hereby. Prior to this offering, there has been no public market for the Common Stock of the Company. Consequently, the initial public offering price for the Common Stock will be determined through negotiations among the Company, the Selling Shareholders and the Representatives. The material factors to be considered in such negotiations are prevailing market conditions, certain financial information of the Company for recent periods, market valuations of other companies that the 59 Company, the Selling Shareholders and the Representatives believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development, the Company's management and other factors deemed relevant. The estimated initial public offering price range set forth on the cover of this preliminary prospectus is subject to change as a result of market conditions and other factors. There can be no assurance that an active or orderly trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to this offering at or above the initial trading price. See "Risk Factors -- No Prior Market for the Common Stock; Possible Volatility of Share Price" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." LEGAL MATTERS Certain legal matters with respect to the validity of the shares of Common Stock offered hereby are being passed upon for the Company by Rubin Baum Levin Constant Friedman & Bilzin, Miami, Florida. Marc J. Stone, the Company's Vice President of Corporate Planning and Development, General Counsel and Secretary and a director, is currently of counsel to Rubin Baum and was previously a partner at that firm. See "Certain Transactions." Certain legal matters in connection with this offering will be passed upon for the Underwriters by Hale and Dorr LLP, Boston, Massachusetts. EXPERTS The financial statements included in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 (together with all amendments, schedules and exhibits thereto, the "Registration Statement") under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document are not necessarily complete; with respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement and the exhibits thereto may be inspected, without charge, at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at 500 West Madison Street, Chicago, IL 60661, and 7 World Trade Center, New York, New York 10048. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Registration Statement and the exhibits thereto may also be accessed through the EDGAR terminals in the Commission's public reference facilities in Washington, D.C. or through the World Wide Web at http://www.sec.gov. 60 OMEGA RESEARCH, INC. -------------------- INDEX TO FINANCIAL STATEMENTS ----------------------------- PAGE ---- Report of Independent Certified Public Accountants F-2 Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (unaudited) F-3 Statements of Income for the years ended December 31, 1994, 1995 and 1996 and the six months ended June 30, 1996 and 1997 (unaudited) F-4 Statements of Shareholders' Equity for the years ended December 31, 1994, 1995 and 1996 and the six months ended June 30, 1997 (unaudited) F-5 Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and the six months ended June 30, 1996 and 1997 (unaudited) F-6 Notes to Financial Statements F-8 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -------------------------------------------------- To the Shareholders of Omega Research, Inc.: We have audited the accompanying balance sheets of Omega Research, Inc. (a Florida corporation) as of December 31, 1995 and 1996, and the related statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Omega Research, Inc. as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN - -------------------------------- Arthur Andersen Miami, Florida, March 28, 1997 (except with respect to the matters discussed in Note 7, as to which the date is July 17, 1997). F-2
OMEGA RESEARCH, INC. -------------------- BALANCE SHEETS -------------- DECEMBER 31, JUNE 30, 1997 ---------------------------- --------------------------- ASSETS 1995 1996 HISTORICAL PRO FORMA ------ ------------- ----------- ------------ ------------ (Unaudited) (Unaudited) (Note 8) CURRENT ASSETS: Cash and cash equivalents $ 311,468 $ 141,633 $ 263,595 $ 263,595 Accounts receivable, net 1,964,020 4,357,048 7,899,027 7,899,027 Inventories 34,723 92,188 96,432 96,432 Other current assets 5,132 5,690 18,836 18,836 Deferred income taxes -- -- -- 2,824,000 ------------ ------------ ------------ ------------ Total current assets 2,315,343 4,596,559 8,277,890 11,101,890 PROPERTY AND EQUIPMENT, net 908,231 1,085,112 928,528 928,528 OTHER ASSETS 64,511 121,657 50,311 50,311 ------------ ------------ ------------ ------------ Total assets $ 3,288,085 $ 5,803,328 $ 9,256,729 $ 12,080,729 ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 203,923 $ 482,662 $ 868,289 $ 868,289 Accrued expenses 113,905 485,189 581,248 581,248 Income taxes payable -- -- -- 1,824,000 Note payable to bank -- -- -- 10,622,000 ------------ ------------ ------------ ------------ Total current liabilities 317,828 967,851 1,449,537 13,895,537 ------------ ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 6) 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, 19,480,000 shares issued and outstanding 194,800 194,800 194,800 194,800 Additional paid-in capital -- 2,517 44,336 (2,009,608) Retained earnings 2,777,707 4,638,160 7,568,056 -- Less- Treasury stock, at cost, 194,800 shares in 1995 (2,250) -- -- -- ------------ ------------ ------------ ------------ Total shareholders' equity 2,970,257 4,835,477 7,807,192 (1,814,808) ------------ ------------ ------------ ------------ Total liabilities and shareholders' equity $ 3,288,085 $ 5,803,328 $ 9,256,729 $ 12,080,729 ============ ============ ============ ============
The accompanying notes to financial statements are an integral part of these balance sheets. F-3
OMEGA RESEARCH, INC. -------------------- STATEMENTS OF INCOME -------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------- ------------------------- 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- ----------- (Unaudited) REVENUES: Licensing fees $ 7,853,349 $ 7,912,502 $13,943,234 $ 6,322,124 $12,092,426 Other revenues 706,720 1,501,911 3,876,928 1,786,478 2,526,560 ----------- ----------- ----------- ----------- ----------- Total revenues 8,560,069 9,414,413 17,820,162 8,108,602 14,618,986 ----------- ----------- ----------- ----------- ----------- OPERATING EXPENSES: Cost of licensing fees 831,098 875,700 1,716,884 880,829 855,583 Product development 492,076 651,432 1,041,131 376,522 842,917 Sales and marketing 2,711,699 3,560,970 5,617,931 2,603,097 4,945,968 General and administrative 798,037 1,038,088 2,421,638 997,848 2,595,505 ----------- ----------- ----------- ----------- ----------- Total operating expenses 4,832,910 6,126,190 10,797,584 4,858,296 9,239,973 ----------- ----------- ----------- ----------- ----------- Income from operations 3,727,159 3,288,223 7,022,578 3,250,306 5,379,013 OTHER INCOME, net 18,232 23,724 59,436 8,513 17,664 ----------- ----------- ----------- ----------- ----------- Net income 3,745,391 3,311,947 7,082,014 3,258,819 5,396,677 PRO FORMA ADJUSTMENT TO REFLECT INCOME TAXES (Note 1) 1,479,429 1,308,219 2,797,396 1,287,234 2,131,687 ----------- ----------- ----------- ----------- ----------- Pro forma net income $ 2,265,962 $ 2,003,728 $ 4,284,618 $ 1,971,585 $ 3,264,990 =========== =========== =========== =========== =========== PRO FORMA NET INCOME PER SHARE $ 0.21 $ 0.15 =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 20,541,000 21,186,000 =========== ===========
The accompanying notes to financial statements are an integral part of these statements. F-4
OMEGA RESEARCH, INC. -------------------- STATEMENTS OF SHAREHOLDERS' EQUITY ---------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 ---------------------------------------------------- COMMON STOCK ADDITIONAL ------------------------- PAID-IN RETAINED TREASURY SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, December 31, 1993 19,480,000 $ 194,800 $ -- $ 1,341,337 $ (2,250) $ 1,533,887 Cash distributions to shareholders -- -- -- (3,467,968) -- (3,467,968) Net income -- -- -- 3,745,391 -- 3,745,391 ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, December 31, 1994 19,480,000 194,800 -- 1,618,760 (2,250) 1,811,310 Cash distributions to shareholders -- -- -- (2,153,000) -- (2,153,000) Net income -- -- -- 3,311,947 -- 3,311,947 ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, December 31, 1995 19,480,000 194,800 -- 2,777,707 (2,250) 2,970,257 Retirement of treasury stock -- -- (2,250) -- 2,250 -- Compensation expense on stock option grants -- -- 4,767 -- -- 4,767 Cash distributions to shareholders -- -- -- (5,221,561) -- (5,221,561) Net income -- -- -- 7,082,014 -- 7,082,014 ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, December 31, 1996 19,480,000 194,800 2,517 4,638,160 -- 4,835,477 Compensation expense on stock option grants (unaudited) -- -- 41,819 -- -- 41,819 Cash distributions to shareholders (unaudited) -- -- -- (1,960,000) -- (1,960,000) Noncash distributions to shareholders (unaudited) -- -- -- (506,781) -- (506,781) Net income (unaudited) -- -- -- 5,396,677 -- 5,396,677 ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, June 30, 1997 (unaudited) 19,480,000 $ 194,800 $ 44,336 $ 7,568,056 $ -- $ 7,807,192 =========== =========== =========== =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. F-5
OMEGA RESEARCH, INC. -------------------- STATEMENTS OF CASH FLOWS ------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------- -------------------------- 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- ----------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,745,391 $ 3,311,947 $ 7,082,014 $ 3,258,819 $ 5,396,677 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 153,676 205,753 353,852 114,787 351,081 Provision for doubtful accounts 117,000 134,000 830,430 485,726 1,231,684 Compensation expense on stock option grants -- -- 4,767 -- 41,819 (Increase) decrease in: Accounts receivable (588,602) (1,158,223) (3,223,458) (1,825,229) (4,773,663) Inventories (10,652) 8,082 (57,465) (42,670) (4,244) Other current assets 1,954 4,919 (558) (2,360) (13,146) Other assets -- (2,211) (46,800) -- -- Increase (decrease) in: Accounts payable 69,083 (86,175) 278,739 462,250 385,627 Accrued expenses 79,604 18,472 371,284 80,740 96,059 ----------- ----------- ----------- ----------- ----------- Net cash provided by operating activities 3,567,454 2,436,564 5,592,805 2,532,063 2,711,894 ----------- ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (167,404) (240,310) (530,733) (141,978) (600,574) Purchases of investments (100,325) -- -- -- -- Proceeds from maturities of investments -- 200,489 -- -- -- Capitalized software development costs (32,400) (61,000) (10,346) (150,151) (29,358) ----------- ----------- ----------- ----------- ----------- Net cash used in investing activities (300,129) (100,821) (541,079) (292,129) (629,932) ----------- ----------- ----------- ----------- ----------- (Continued) F-6 OMEGA RESEARCH, INC. -------------------- STATEMENTS OF CASH FLOWS ------------------------ (Continued) SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------- -------------------------- 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- ----------- (Unaudited) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on note payable $ (39,093) $ -- $ -- $ -- $ -- Distributions to shareholders (3,467,968) (2,153,000) (5,221,561) (1,856,561) (1,960,000) ----------- ----------- ----------- ----------- ----------- Net cash used in financing activities (3,507,061) (2,153,000) (5,221,561) (1,856,561) (1,960,000) ----------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (239,736) 182,743 (169,835) 383,373 121,962 CASH AND CASH EQUIVALENTS, beginning of period 368,461 128,725 311,468 311,468 141,633 ----------- ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 128,725 $ 311,468 $ 141,633 $ 694,841 $ 263,595 =========== =========== =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 1,641 $ 1,657 $ -- $ -- $ -- =========== =========== =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS - See Note 7
The accompanying notes to financial statements are an integral part of these statements. F-7 OMEGA RESEARCH, INC. -------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- (1) DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: --------------------------------------- (A) DESCRIPTION OF BUSINESS- ------------------------ Omega Research, Inc. (the "Company"), a Florida corporation, was incorporated in 1982 to develop, market and sell investment analysis software to investors. The Company's principal products allow investors to historically test and computer automate trading strategies. (B) SIGNIFICANT ACCOUNTING POLICIES- -------------------------------- The following is a summary of significant accounting policies followed in the preparation of these financial statements. CASH AND CASH EQUIVALENTS ------------------------- The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. As of December 31, 1995 and 1996, cash and cash equivalents consisted primarily of interest-bearing deposits. ACCOUNTS RECEIVABLE ------------------- Accounts receivable are principally from individuals, distributors and retailers of the Company's products. The Company performs periodic credit evaluations of its customers and maintains allowances for potential credit losses of $134,000, $830,430 and $2,010,114 (unaudited) at December 31, 1995 and 1996 and June 30, 1997, respectively, and allowances for potential returns of approximately $252,000 and $1,796,859 and $4,875,000 (unaudited) at December 31, 1995 and 1996 and June 30, 1997, respectively. The Company provides all customers with a 30-day right of return, and as a result, records a provision for returns at the time of sale. The Company, depending on the circumstances, permits customers to return 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 debts, 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 debts will not exceed established estimates. In addition, the Company 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 the Company's reserves provided. INVENTORIES ----------- Inventories, which consist 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. F-8 PROPERTY AND EQUIPMENT ---------------------- Property and equipment are stated at cost less accumulated depreciation. Property and equipment are depreciated using the accelerated and straight-line methods 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. REVENUE RECOGNITION ------------------- LICENSING FEES Sales are recognized at the time the product is shipped, in accordance with the provisions of the AICPA Statement of Position 91-1, "Software Revenue Recognition." While the Company has no obligation to perform future services subsequent to shipment, the Company provides telephone customer support as an accommodation to purchasers of its products as a means of fostering customer satisfaction. The majority of such services are provided during the first 60 days of ownership of the Company's products. Costs associated with this effort are generally insignificant in relation to product sales value. OTHER REVENUES -------------- The Company has entered into various agreements with entities that market and sell financial market data feed subscriptions. Except for the agreements described in Note 6, the Company receives, in general, monthly payments based on the use by the Company's customers of financial market data feed subscriptions which are accessed through one of the Company's products. The Company records these revenues as they are earned in accordance with the terms of the applicable contracts. SOFTWARE DEVELOPMENT COSTS -------------------------- In accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Cost of Capitalized Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"), the Company examines its software development costs after technological feasibility has been established to determine the amount of capitalization that is required. Based on the Company'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 the Company's products and the general release of such software substantially coincide, and, as a result, software development costs qualifying for capitalization are immaterial. Software development costs, net of amortization, were $61,000, $71,348 and $0 (unaudited) at December 31, 1995 and 1996 and June 30, 1997, respectively. In March 1995, Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of"("SFAS 121") was issued. SFAS 121 establishes accounting standards for recording the impairment of long-lived assets, certain identifiable intangibles and goodwill. The Company, as required, adopted the provisions of SFAS 121 for the year ended December 31, 1996 which did not have an impact on its results of operations and financial position. F-9 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. STOCK-BASED COMPENSATION ------------------------ Beginning in 1996, the Company implemented the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") in accounting for stock-based transactions with nonemployees and, accordingly, records compensation expense in the statements of income when these type of options are issued. The Company continues to apply the provisions of APB 25 for transactions with employees, as permitted by SFAS 123. INTERIM FINANCIAL DATA ---------------------- In the opinion of the management of the Company, the accompanying unaudited financial statements contain all adjustments (consisting of only normal and recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 1997, and the results of operations for the six months ended June 30, 1996 and 1997. The results of operations and cash flows for the six months ended June 30, 1997 are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 1997, or for any subsequent period. FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value as of December 31, 1995 and 1996. INCOME TAX STATUS ----------------- For income tax reporting purposes, the Company is an S Corporation. Accordingly, net income and related timing differences which arise in the recording of income and expense items for financial reporting and tax reporting purposes are included in the individual tax returns of the shareholders. The pro forma adjustment to reflect income taxes included in the accompanying statements of income is for informational purposes only. Income taxes have been provided at the estimated effective rate of 39.5%. PRO FORMA NET INCOME PER SHARE ------------------------------ Pro forma net income per common share and common share equivalents have been computed by dividing net income by the weighted average number of common shares and common share equivalents outstanding as well as the impact of the following: F-10 Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common share and common share equivalents issued at prices below the assumed public offering price during the 12-month period prior to the proposed public offering having been included in the calculation as if they were outstanding for all periods presented (using the treasury stock method and an assumed initial public offering price of $11.00 per share). Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 55, common shares outstanding also include the estimated portion of the shares in the proposed initial public offering (321,000 and 966,000 shares for the year ended December 31, 1996 and for the six months ended June 30, 1997, respectively, at an assumed initial offering price of $11 per share) whose proceeds would fund undistributed S Corporation earnings at December 31, 1996 and June 30, 1997 of $3,526,000 and $10,622,000, respectively. See Note 7. YEAR ENDED SIX MONTHS DECEMBER 31, ENDED JUNE 30, 1996 1997 ------------ -------------- Weighted average shares outstanding 19,480,000 19,480,000 Impact of stock options with exercise prices below the initial offering price 740,000 740,000 Impact of shares required to settle undistributed S Corporation earnings 321,000 966,000 ---------- ---------- 20,541,000 21,186,000 ========== ========== NEW ACCOUNTING PRONOUNCEMENT ---------------------------- In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") which changes the method of calculating earnings per share. SFAS 128 requires the presentation of "basic" earnings per share and "diluted" earnings per share on the face of the income statement. Basic earnings per share is computed by dividing the net income 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. The statement is effective for financial statements for periods ending after December 15, 1997. The Company will adopt SFAS 128 in the fourth quarter of 1997, as early adoption is not permitted. The following table presents pro forma earnings per share amounts calculated in accordance with SFAS 128: YEAR ENDED SIX MONTHS DECEMBER 31, ENDED JUNE 30, 1996 1997 ------------ -------------- Pro forma earnings per share: Basic earnings per share $ 0.22 $ 0.17 Diluted earnings per share $ 0.21 $ 0.15 F-11
(2) PROPERTY AND EQUIPMENT: ----------------------- Property and equipment consists of the following: DECEMBER 31, USEFUL LIFE ----------------------------- JUNE 30, IN YEARS 1995 1996 1997 ----------- ----------- ------------ ----------- (Unaudited) Land -- $ 47,034 $ 47,034 $ -- Building and improvements 35 556,778 559,119 -- Computers and software 3 432,594 913,052 1,270,921 Furniture and equipment 3-5 262,135 284,625 430,665 Leasehold improvements 5 -- -- 96,666 Autos 5 110,205 110,205 110,205 ----------- ----------- ----------- 1,408,746 1,914,035 1,908,457 Less - Accumulated depreciation and amortization (500,515) (828,923) (979,929) ----------- ----------- ----------- $ 908,231 $ 1,085,112 $ 928,528 =========== =========== ===========
(3) ACCRUED EXPENSES: ----------------- Accrued expenses consist of the following: DECEMBER 31, ------------------------------- JUNE 30, 1995 1996 1997 ------------ ------------ ------------ (Unaudited) Payroll and related accruals $ 68,761 $ 262,268 $ 377,395 Accrued technical support costs - 120,000 150,000 Other 45,144 102,921 53,853 ------------ ------------ ------------ $ 113,905 $ 485,189 $ 581,248 ============ ============ ============
(4) STOCK OPTIONS: -------------- The Company has reserved 3,000,000 shares of its common stock for issuance under its 1996 Incentive Stock Plan (the "Plan"). Under the Plan, incentive and nonqualified stock options, stock appreciation rights, stock awards, performance shares and performance units are available to employees or consultants of the Company. Currently, only options have been granted. The terms of each option agreement are determined by the Board of Directors until a Compensation Committee is established. The exercise price F-12 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. All options issued under the Plan in 1996 had a five-year vesting period. A summary of stock option activity is as follows: NO. OF EXERCISE SHARES PRICE ----------- -------------- Options outstanding at December 31, 1995 - Granted 582,000 $ 1.25 ---------- Outstanding, December 31, 1996 582,000 1.25 Granted (unaudited) 304,750 1.25 - 7.00 Cancelled (unaudited) (500) 2.00 ---------- Outstanding, June 30, 1997 (unaudited) 886,250 $ 1.25 - 7.00 ========== All options issued during 1996 were issued to key employees at an exercise price that was subsequently determined to be approximately $286,000 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, $629,000 (unaudited) below fair value as determined by an independent appraisal. These differences will be amortized over the five-year vesting period of the related stock options. For the year ended December 31, 1996 and the six months ended June 30, 1997, the Company recorded compensation expense of $4,767 and $41,819 (unaudited), respectively. At December 31, 1996 and June 30, 1997, there were no exercisable options. The Company, as permitted by SFAS 123, applies APB opinion 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 the Company's stock options been based on fair value at the grant dates consistent with the methodologies of SFAS 123, the Company's net income for the year ended December 31, 1996 and the six months ended June 30, 1997 would have been reduced by $8,324 and $143,088 (unaudited), respectively. These amounts had no impact on pro forma net income 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: expected volatility of 70%, risk-free interest rate of 7.0%, expected dividends of $0 and expected terms of 7 years. (5) EMPLOYEE BENEFIT PLANS: ----------------------- The Company provides retirement benefits through a defined contribution 401(k) plan (the "Plan") which was established during 1994. Company distributions under the Plan amounted to $22,842, $16,350, $62,483 and $0 (unaudited) in 1994, 1995, 1996 and the six months ended June 30, 1997, respectively. The Company also provides benefits through a Profit Sharing Bonus Program for eligible employees, as defined, which was terminated effective June 30, 1997. Distributions under the Profit Sharing Bonus Program are based on increases in net sales levels and are made at the sole discretion of the Company. Company distributions under this Profit Sharing Bonus Program amounted to $81,279, $19,903, $422,878 and $277,000 (unaudited) in 1994, 1995, 1996 and the six months ended June 30, 1997, respectively. F-13 (6) COMMITMENTS AND CONTINGENCIES: ------------------------------ OPERATING LEASES ---------------- During 1996, the Company entered into a noncancellable operating lease for new office facilities. The term of the lease is five and one-half years and commenced in February 1997. Future minimum lease payments as of December 31, 1996 under all operating leases are as follows: 1997 $ 262,140 1998 280,957 1999 265,638 2000 271,942 2001 280,586 Thereafter 178,293 ------------ $ 1,539,556 ============ Total rent expense for 1996 and the six months ended June 30, 1997 was $47,264 and $118,999 (unaudited), respectively. ROYALTY AGREEMENT ----------------- On August 26, 1994, and as amended on March 7, 1997, the Company entered into a Software License, Maintenance and Development Agreement (the "Agreement") with Dow Jones Markets, Inc. ("Dow Jones Markets"). Under the Agreement, the Company modified one of its software products to create a Dow Jones Markets version. Also, the Company granted Dow Jones Markets a license to promote, market, sublicense and distribute the Dow Jones Markets version for six years. The Company received no royalties under the Agreement in 1994 and 1995. During 1996 and the six months ended June 30, 1997, the Company earned approximately $1,452,000 and $1,240,000 (unaudited), respectively, in royalties (based upon minimum royalty requirements) under the terms of this Agreement. In March 1997, the Company entered into a similar agreement (but without minimum royalty requirements) with Dow Jones Markets concerning one of its other software products. Marketing of such other products under that agreement has not yet begun. LITIGATION ---------- From time to time, the Company may become engaged in ordinary routine litigation incidental to its business. The Company does not believe that such ordinary routine litigation would have a material adverse effect on its financial position or results of operations. (7) SUBSEQUENT EVENTS: ------------------ SHARE SPLIT ----------- Effective January 29, 1997, the Company authorized an increase in the amount of its authorized common stock to 100,000,000 and changed the par value of each share to $.01. In addition, on January 30, 1997, the Company 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. F-14 INITIAL PUBLIC OFFERING ----------------------- The Company is in the process of preparing an initial public offering (the "Offering") of up to 4,255,000 shares of common stock of the Company. It is currently contemplated that of the shares of common stock to be offered to the public, 2,990,000 shares of common stock will be offered by the Company and up to 1,265,000 shares of common stock will be offered by the Selling Shareholders. On July 16, 1997, the Company authorized 25,000,000 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. Additionally, just prior to consummation of the Offering the Company intends to revoke its S Corporation status. As a result, deferred income taxes and related tax liabilities will be recorded and will result in a benefit of approximately $1.0 million to the provision for income taxes. DISTRIBUTION ------------ Effective June 30, 1997, the Company declared a dividend distributing land and a building to its shareholders. The carrying values of such assets was $506,781. UNAUDITED PRO FORMA BALANCE SHEET --------------------------------- The accompanying unaudited pro forma balance sheet at June 30, 1997, assumes the effects, on a pro forma basis, of the following transactions: (a) the distribution of undistributed S Corporation earnings through June 30, 1997 to the current shareholders totaling $10,622,000 and financed through the issuance of a note payable to a bank; (b) the recording of estimated deferred taxes and related tax liabilities recognized in accordance with Financial Accounting Standards Board Statement No. 109, which the Company will adopt upon termination of S Corporation status, and (c) the reclassification of remaining undistributed amounts to additional paid-in capital. F-15 [Graphic depiction of the Omega Research Platform and strategic alliances with third-party vendors and solution providers.] [OMEGA RESEARCH LOGO] PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following are the estimated expenses of the issuance and distribution of the securities being registered, all of which will be paid by the Company. SEC registration fee................................................. $17,607 NASD filing fee...................................................... 5,606 Nasdaq National Market listing fee................................... 50,000 Fees and expenses of counsel......................................... 225,000 Fees and expenses of accountants..................................... 125,000 Printing expenses.................................................... 125,000 Transfer agent and registrar fees.................................... 3,500 Blue sky fees and expenses........................................... 10,000 Miscellaneous........................................................ 88,287 -------- Total...................................................... $650,000 ======== The Company intends to pay all expenses of registration, issuance and distribution, excluding underwriters' discounts and commissions, with respect to the shares being sold by the Selling Shareholders. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 607.0850 of the Florida Business Corporation Act (the "Statute") sets forth conditions and limitations governing the indemnification of officers, directors, and other persons. Article TWELFTH of the Articles and Article IX of the Bylaws of the Company, copies of which are filed as Exhibits 3.1 and 3.2, contain certain indemnification provisions adopted pursuant to authority contained in the Statute. The 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 Statute. Under the Bylaws, the Company will indemnify any person who is or was a director or officer of the Company, and may indemnify a person who is or was an employee or agent of the Company or who is or was serving at the request of the Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against: (a) liability incurred in connection with any proceeding (other than an action by or in the right of the Company) to which such person was or is a party by reason of acting in any such capacity; and (b) expenses and amounts paid in settlement (not exceeding, in the judgment of the Company's Board of Directors, the estimated expense of litigating the proceeding to conclusion) actually and reasonably incurred in connection with the defense or settlement of any proceeding by or in the right of the Company to procure a judgment in its favor to which such person was or is a party by reason of acting in any such capacity, provided that: (i) such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; and (ii) no indemnification shall be made in respect of any claim, issue, or matter in any proceeding by or in the right of the Company as to which such person shall have been adjudged to be liable unless, and only to the extent that, the court in which such proceeding was brought, or any other court of competent jurisdiction, shall determine upon application that, despite II-1 the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. For purposes of Article IX of the Bylaws: (A) the term "expenses" includes counsel fees, including those for appeal; (B) the term "liability" includes obligations to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to any employee benefit plan), and expenses actually and reasonably incurred with respect to a proceeding; and (C) the term "proceeding" includes any threatened, pending, or completed action, suit, or other type of proceeding, whether civil, criminal, administrative, or investigative, and whether formal or informal. Under the Bylaws, to the extent a director or officer of the Company, or an employee or agent of the Company which the Company has elected to indemnify, has been successful on the merits or otherwise in defense of any proceeding described above, or in the defense of any claim, issue, or matter therein, such person shall be indemnified against expenses actually and reasonably incurred by him in connection therewith. For all other indemnification which may be provided under the Bylaws in connection with any proceeding, unless made pursuant to a determination by a court, indemnification shall be made only as authorized in the specific case upon a determination that indemnification is proper in the circumstances because the director, officer, employee or agent has met the applicable standard of conduct set forth in the Bylaws, which determination shall be made: (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such proceeding; (b) if such quorum is not obtainable, or even if obtainable, by majority vote of a committee duly designated by the Board of Directors consisting solely of two or more directors not at the time parties to the proceeding; (c) by independent legal counsel selected by the Board of Directors or a committee thereof as prescribed by the Statute; or (d) by the shareholders by majority vote of a quorum consisting of shareholders who were not parties to such proceeding or if such a quorum is not obtainable, by a majority vote of shareholders who were not parties to such proceeding. Evaluation as to reasonableness of expenses and authorization of indemnification must be made in the same manner as the determination that indemnification is permissible, except that if the determination of permissibility is made by independent legal counsel, then the Board of Directors or the committee thereof which appointed such legal counsel must evaluate the reasonableness of expenses. The Bylaws also permit the Company to pay expenses incurred by its officers, directors, employees, and agents in advance of the final disposition of a proceeding, provided that the Company may advance expenses to an officer or director only after receiving an undertaking by or on behalf of such officer or director to repay such amount if he is ultimately found not to be entitled to indemnification pursuant to the Bylaws. The Company will enter into agreements to indemnify its directors and executive officers, in addition to the indemnification provided for in the Company's Articles and Bylaws. These agreements, among other things, will indemnify the Company's directors and 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 the 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 person in connection with 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 the corporation, arising out of such person's services as a director, officer, employee or other agent of the Company, any subsidiary of the Company or any other company or enterprise to which the person provides services at the request of the Company. The Company believes that these provisions and agreements are necessary to attract and retain talented and experienced directors and officers. The Company intends to obtain liability insurance for the benefit of its directors and officers. II-2 Under the terms of the Underwriting Agreement, the Underwriters have agreed to indemnify, under certain conditions, the Company, its directors, certain of its officers and persons who control the Company within the meaning of the Securities Act against certain liabilities. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The Company has not issued or sold any unregistered securities within the past three years except for the granting of stock options pursuant to the Incentive Stock Plan as described in "Management -- Other Compensation Arrangements." All of the stock options were granted by the Company in reliance upon the exemption from registration available under Section 4(2) of the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) EXHIBITS: EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1 -- Form of Underwriting Agreement.* 3.1 -- Second Amended and Restated Articles of Incorporation of Omega Research, Inc.+ 3.2 -- Second Amended and Restated Bylaws of Omega Research, Inc.+ 5.1 -- Opinion of Rubin Baum Levin Constant Friedman & Bilzin regarding legality of Common Stock.+ 10.1 -- Omega Research, Inc. 1996 Incentive Stock Plan.+ 10.2 -- Omega Research, Inc. 1997 Nonemployee Director Stock Option Plan.+ 10.3 -- Software License, Maintenance and Development Agreement between Dow Jones Markets, Inc. and the Company, as amended (TRADESTATION Agreement).+** 10.4 -- Software License, Maintenance and Development Agreement between Dow Jones Markets, Inc. and the Company (SUPERCHARTS Agreement).+** 10.5 -- Standard Office Building Lease between 8700 Flagler, Ltd. and the Company, as amended by Memorandum of Commencement Date.+ 10.6 -- S Corporation Tax Allocation and Indemnification Agreement.* 10.7 -- Form of Indemnification Agreement.+ 10.8 -- Omega Research, Inc. 1997 Employee Stock Purchase Plan.* 10.9 -- Form of non-competition agreement.+ 23.1 -- Consent of Arthur Andersen LLP.+ 23.2 -- Consent of Rubin Baum Levin Constant Friedman & Bilzin (included in Exhibit 5.1). 24.1 -- Power of Attorney (included with the signature page to the Registration Statement). 27.1 -- Financial Data Schedule.+ - ------------------- + Filed herewith. * To be filed by amendment. ** Confidential treatment requested for portions of this exhibit. II-3 (b) FINANCIAL STATEMENT SCHEDULES: Report of Independent Accountants -- Arthur Andersen LLP............S-1 Schedule II -- Valuation and Qualifying Accounts....................S-2 All other financial statement schedules have been omitted because they are not applicable or because the information that would be included in such schedules is included elsewhere in the Registration Statement. ITEM 17. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes to provide to the representatives of the Underwriters at the closings specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by such representatives to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The undersigned Registrant hereby undertakes that for purposes of determining any liability under the Securities Act, (i) the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective and (ii) each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Miami, Florida on the 25th day of July, 1997. OMEGA RESEARCH, INC. By: /s/ WILLIAM R. CRUZ ------------------- William R. Cruz Co-Chairman of the Board of Directors and Co-Chief Executive Officer By: /s/ RALPH L. CRUZ ----------------- Ralph L. Cruz Co-Chairman of the Board of Directors and Co-Chief Executive Officer POWER OF ATTORNEY We, the undersigned officers and directors of Omega Research, Inc., do hereby constitute and appoint William R. Cruz and Ralph L. Cruz, and each of them, our true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for each of us and in our name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as each of us might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ WILLIAM R. CRUZ Co-Chairman of the Board and Co-Chief July 25, 1997 - --------------------------------- Executive Officer (Co-Principal Executive William R. Cruz Officer) /s/ RALPH L. CRUZ Co-Chairman of the Board and Co-Chief July 25, 1997 - --------------------------------- Executive Officer (Co-Principal Executive Ralph L. Cruz Officer) /s/ SALOMON SREDNI Vice President of Operations, Chief Financial July 25, 1997 - --------------------------------- Officer and Director (Principal Financial and Salomon Sredni Accounting Officer) /s/ PETER A. PARANDJUK Director July 25, 1997 - --------------------------------- Peter A. Parandjuk /s/ MARC J. STONE Director July 25, 1997 - --------------------------------- Marc J. Stone
II-5 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE -------------------------------------------------------------- To Shareholders of Omega Research, Inc. We have audited in accordance with generally accepted auditing standards, the financial statements as of December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995, and 1996 included in this registration statement, and have issued our report thereon dated March 28, 1997 (except with respect to the matters discussed in Note 7, as to which the date is July 17, 1997). Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying Schedule II is the responsibility of the Company's management and is presented for the purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statments and, in our opinion, fairly states, in all material respects, applied in the audits of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP - ----------------------- ARTHUR ANDERSEN LLP Miami, Florida March 28, 1997 (except with respect to the matters discussed in Note 7, as to which the date is July 17, 1997). S-1
OMEGA RESEARCH, INC. -------------------- SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ----------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1996, 1995 AND 1994 --------------------------------------------------- (IN THOUSANDS) BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF PERIOD EXPENSES DEDUCTIONS OF PERIOD ---------- ---------- ---------- ---------- Allowance for doubtful accounts and returns: Fiscal year ended December 31, 1996 $ 386 $ 6,170 $ 3,929 $ 2,627 ========== ========== ========== ========== Fiscal year ended December 31, 1995 $ 271 $ 1,549 $ 1,434 $ 386 ========== ========== ========== ========== Fiscal year ended December 31, 1994 $ 360 $ 1,192 $ 1,281 $ 271 ========== ========== ========== ==========
S-2 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION PAGE - -------- ----------- ---- 1.1 --Form of Underwriting Agreement.* 3.1 --Second Amended and Restated Articles of Incorporation of Omega Research.+ 3.2 --Second Amended and Restated Bylaws of Omega Research, Inc.+ 5.1 --Opinion of Rubin Baum Levin Constant Friedman & Bilzin regarding legality of Common Stock.+ 10.1 --Omega Research, Inc. 1996 Incentive Stock Plan.+ 10.2 --Omega Research, Inc. 1997 Nonemployee Director Stock Option Plan.+ 10.3 --Software License, Maintenance and Development Agreement between Dow Jones Markets, Inc. and the Company, as amended (TRADESTATION Agreement).+** 10.4 --Software License, Maintenance and Development Agreement between Dow Jones Markets, Inc. and the Company (SUPERCHARTS Agreement).+** 10.5 --Standard Office Building Lease between 8700 Flagler, Ltd. and the Company, as amended by Memorandum of Commencement Date.+ 10.6 --S Corporation Tax Allocation and Indemnification Agreement.* 10.7 --Form of Indemnification Agreement.+ 10.8 --Omega Research, Inc. 1997 Employee Stock Purchase Plan.* 10.9 --Form of non-competition agreement.+ 23.1 --Consent of Arthur Andersen LLP.+ 23.2 --Consent of Rubin Baum Levin Constant Friedman & Bilzin (included in Exhibit 5.1). 24.1 --Power of Attorney (included with the signature page to the Registration Statement). 27.1 --Financial Data Schedule.+ - ----------- + Filed herewith. * To be filed by amendment. ** Confidential treatment reguested for portions of this exhibit. EX-3.1 2 EXHIBIT 3.1 Fax Audit No. H97-_______ SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF OMEGA RESEARCH, INC. The undersigned, WILLIAM CRUZ, being the President of Omega Research, Inc., a Florida corporation (the "Corporation"), hereby states as follows on behalf of the Corporation: 1. The Articles of Incorporation of the Corporation were filed with the Florida Secretary of State on September 24, 1982, under Document Number F99932. Amended and Restated Articles of Incorporation were filed with the Florida Secretary of State on January 29, 1997. 2. Pursuant to the requirements of Sections 607.1006 and 607.1007 of the Florida Business Corporation Act, the undersigned hereby certifies, attests and serves notice that the Articles of Incorporation of the Corporation are hereby amended and restated to read in their entirety as follows: FIRST: The name of the Corporation is Omega Research, Inc. SECOND: The address of the principal office and the mailing office of the Corporation is 8700 West Flagler Street, Miami, Florida 33174. THIRD: The purpose for which the Corporation is organized is to carry on and transact and to engage in any and all lawful acts, activities and/or businesses for which corporations may be organized under the Florida Business Corporation Act, including any amendments thereto. FOURTH: The street address of the registered office of the Corporation is: 8700 West Flagler Street Miami, Florida 33174; and the name and address of the registered agent of the Corporation is: NAME ADDRESS Marc J. Stone 8700 West Flagler Street Miami, Florida 33174. This instrument prepared by: Sheida R. Sahandy, Esquire Florida Bar No. 0059927 RUBIN BAUM LEVIN CONSTANT FRIEDMAN & BILZIN 2500 First Union Financial Center P.O. Box 019109 Miami, Florida 33101-9109 Telephone: 305-374-7580 Fax Audit No. H97-_______ Fax Audit No. H97-_______ FIFTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 125,000,000, consisting of (i) 100,000,000 shares of common stock, par value $0.01 per share (the "Common Shares"), and (ii) 25,000,000 shares of preferred stock, par value $0.01 per share (the "Preferred Shares"). SECTION A COMMON SHARES 1. VOTING RIGHTS. Except as otherwise provided by law, each Common Share shall entitle the holder thereof to one (1) vote in any matter submitted to a vote of shareholders of the Corporation. 2. DIVIDENDS AND DISTRIBUTIONS. Subject to the express terms of the Preferred Shares outstanding from time to time, the holders of Common Shares shall be entitled to receive such dividends and distributions as may from time to time be declared by the Board of Directors, including, upon liquidation, dissolution or winding up of the affairs of the Corporation, the net assets of the Corporation after payment or provision for payment of the debts and other liabilities of the Corporation. SECTION B PREFERRED SHARES Subject to the terms contained in any designation of a series of Preferred Shares, the Board of Directors is expressly authorized, at any time and from time to time, to issue Preferred Shares in one or more classes and/or series, and for such consideration as the Board of Directors may determine and to fix, by resolution or resolutions, the following provisions for shares of any class or classes of Preferred Shares of the Corporation or any series of any class of Preferred Shares: 1. the designation of such class or series, the number of shares to constitute such class or series which may be increased or decreased (but not below the number of shares of that class or series then outstanding) by resolution of the Board of Directors, and the stated value thereof if different from the par value thereof; 2. whether the shares of such class or series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights; 3. the dividends, if any, payable on such class or series, whether any such dividends shall be cumulative and if interest thereon shall be payable, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation such dividends shall bear to the dividends payable on any shares of stock of any class or other series of the same class; Fax Audit No. H97-_______ 2 Fax Audit No. H97-_______ 4. whether the shares of such class or series shall be subject to redemption by the Corporation, and, if so, prices and other conditions of such redemption; 5. the amount or amounts payable upon shares of such series upon, and the rights of the holders of such class or series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Corporation; 6. whether the shares of such class or series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such class or series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; 7. whether the shares of such class or series shall be convertible into, or exchangeable for, shares of stock of any class or any other series of the same class or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; 8. the limitations and restrictions, if any, to be effective while any shares of such class or series are outstanding upon the payment of dividends or the making of other distributions on, and upon purchase, redemption or other acquisition by the Corporation of, the Common Shares or shares or stock of any class or any other series of the same class; 9. the conditions or restrictions, if any, upon the creation of indebtedness of the Corporation or upon the issue of any additional stock, including additional shares of such class or series or of any other series of the same class or of any other class; 10. the ranking (be it PARI PASSU, junior or senior) of each class or series vis-a-vis any other class or series of any class of Preferred Shares as to the payment of dividends, the distribution of assets and all other matters; and 11. any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof, insofar as they are not inconsistent with the provisions of this Second Amended and Restated Articles of Incorporation, to the full extent permitted in accordance with the laws of the State of Florida. The powers, preferences and relative, participating, optional and other special rights of each class or series of Preferred Shares, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. Fax Audit No. H97-_______ 3 Fax Audit No. H97-_______ SIXTH: Advance notice of shareholder nominations for the election of directors and of new business to be brought by shareholders before any meeting of the shareholders of the Corporation shall be given in a manner provided by the Bylaws of the Corporation. SEVENTH: Special meetings of the shareholders, for any purpose or purposes (except to the extent otherwise required by law or these Second Amended and Restated Articles of Incorporation), may only be called by the Board of Directors of the Corporation 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 in the manner provided in the Bylaws of the Corporation. EIGHTH: No action required to be taken by the shareholders may be taken without a meeting and without a vote if, and on or after the date that, a registration statement on Form S-1 of the Corporation filed with the Securities and Exchange Commission ("SEC") in connection with the Corporation's initial public offering of Common Shares is declared effective by the SEC. NINTH: Notwithstanding any provisions of these Second Amended and Restated Articles of Incorporation to the contrary and any provisions of the Bylaws of the Corporation, no amendment to these Second Amended and Restated Articles of Incorporation shall amend, modify or repeal any or all of the provisions of this Article NINTH, Article SIXTH, Article SEVENTH or Article EIGHTH of these Second Amended and Restated Articles of Incorporation, unless so adopted by the affirmative vote or consent of the holders of not less than two-thirds (66 2/3%) of the total voting power of all then outstanding shares entitled to vote in the election of directors of the Corporation, voting as a single class, provided, however, that, in the event that the Board of Directors of the Corporation shall, by resolution adopted by a majority of the directors then in office, recommend to the shareholders the adoption of any such amendment, the shareholders of record holding a majority of the total voting power of all then outstanding shares entitled to vote in the election of directors of the Corporation, voting as a single class, may amend, modify or repeal any or all of such provisions. TENTH: In furtherance and not in limitation of the powers conferred by the laws of Florida, each of the Board of Directors and shareholders is expressly authorized and empowered to make, alter, amend and repeal the Bylaws of the Corporation in any respect not inconsistent with the laws of the State of Florida or with these Second Amended and Restated Articles of Incorporation. The shareholders of the Corporation may amend or adopt a bylaw that fixes a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than is required by law. ELEVENTH: The books of the Corporation may be kept at such place within or without the State of Florida as the Bylaws of the Corporation may provide or as may be designated from time to time by the Board of Directors of the Corporation. TWELFTH: A director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability Fax Audit No. H97-_______ 4 Fax Audit No. H97-_______ (i) for any breach of the director's duty of loyalty to the Corporation or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 607.0834 of the Florida Business Corporation Act, as the same exists or hereafter may be amended, (iv) for violation of a criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, or (v) for any transaction from which the director derived an improper personal benefit. If the Florida Business Corporation Act hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of the Corporation's directors shall be eliminated or limited to the full extent authorized by the Florida Business Corporation Act, as so amended. The Corporation shall indemnify any officer or director, or any former officer or director, of the Corporation to the fullest extent permitted by law. Any repeal or modification of this Article shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. THIRTEENTH: The Corporation reserves the right to amend or repeal any provision contained in these Second and Restated Articles of Incorporation, or any amendment thereto, and any right conferred upon the shareholders is subject to this reservation. This Second Amended and Restated Articles of Incorporation have been duly and unanimously authorized and directed by a Joint Written Consent of the Shareholders and the Board of Directors of the Corporation dated as of July 16, 1997. Such Second Amended and Restated Articles of Incorporation supersede the original Articles of Incorporation of the Corporation and all amendments and/or restatements thereof. IN WITNESS WHEREOF, these Second Amended and Restated Articles of Incorporation have been executed by the undersigned in his capacity as aforestated as of the 16th day of July, 1997 on behalf of the Corporation. /S/ WILLIAM CRUZ ------------------------- William Cruz, President Fax Audit No. H97-_______ 5 EX-3.2 3 EXHIBIT 3.2 SECOND AMENDED AND RESTATED BYLAWS OF OMEGA RESEARCH, INC. TABLE OF CONTENTS ----------------- PAGE NUMBER ------ ARTICLE I MEETINGS OF SHAREHOLDERS........................... 1 Section 1. Annual Meeting..................................... 1 Section 2. Special Meetings................................... 1 Section 3. Place.............................................. 1 Section 4. Notice............................................. 1 Section 5. Manner of Notice................................... 2 Section 6. Notice of Adjourned Meetings....................... 2 Section 7. Fixing of Record Date.............................. 2 Section 8. Shareholders' List For Meeting..................... 3 Section 9. Shareholder Quorum and Voting...................... 3 Section 10. Voting Entitlement of Shares....................... 3 Section 11. Proxies............................................ 4 Section 12. Voting Trusts...................................... 5 Section 13. Notice of Shareholder Business and Nominations..... 5 (a) Annual Meetings of Shareholders.................... 5 (b) Special Meetings of Shareholders................... 6 (c) General............................................ 7 Section 14. Shareholders' Agreements........................... 7 Section 15. Action by Shareholders Without a Meeting........... 7 ARTICLE II DIRECTORS.......................................... 8 Section 1. Function........................................... 8 Section 2. Qualification...................................... 8 Section 3. Compensation....................................... 8 Section 4. Duties of Directors................................ 8 Section 5. Presumption of Assent.............................. 9 Section 6. Number............................................. 9 Section 7. Election........................................... 9 Section 8. Term............................................... 9 Section 9. Resignation........................................ 10 Section 10. Vacancies.......................................... 10 Section 11. Removal of Directors............................... 10 Section 12. Quorum and Voting.................................. 10 Section 13. Conflicts of Interest.............................. 10 Section 14. Executive and Other Committees..................... 11 Section 15. Meetings........................................... 12 Section 16. Notice of Meetings................................. 12 Section 17. Waiver of Notice................................... 12 Section 18. Action Without a Meeting........................... 12 Section 19. Amendment by Board of Directors.................... 13 (i) ARTICLE III OFFICERS......................................... 13 Section 1. Officers......................................... 13 Section 2. Powers and Duties................................ 14 Section 3. Delegation....................................... 14 Section 4. Resignation and Removal of Officers.............. 14 Section 5. Contract Rights.................................. 15 ARTICLE IV STOCK CERTIFICATES............................... 15 Section 1. Form and Content of Certificates................. 15 Section 2. Transfer of Stock................................ 15 Section 3. Lost, Stolen or Destroyed Certificates........... 16 ARTICLE V BOOKS AND RECORDS................................ 16 Section 1. Corporate Records................................ 16 Section 2. Inspection of Records by Shareholders............ 17 Section 3. Scope of Inspection Right........................ 17 Section 4. Financial Statements for Shareholders............ 18 ARTICLE VI DIVIDENDS........................................ 18 Section 1. Distributions to Shareholders.................... 18 Section 2. Share Dividends.................................. 19 ARTICLE VII CORPORATE SEAL................................... 20 ARTICLE VIII EXECUTION OF DOCUMENTS........................... 20 ARTICLE IX INDEMNIFICATION.................................. 20 ARTICLE X AMENDMENT........................................ 23 (ii) SECOND AMENDED AND RESTATED BYLAWS OF OMEGA RESEARCH, INC. ARTICLE I MEETINGS OF SHAREHOLDERS SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders of this corporation shall be held at the time and place designated by the Board of Directors of the corporation. The annual meeting of shareholders for any calendar year shall be held no later than thirteen months after the last preceding annual meeting of shareholders. Business transacted at the annual meeting shall include the election of directors of the corporation and any proper business as may come before the meeting. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders shall be held when directed by the Board of Directors, or when a signed and dated written demand is delivered to the secretary of the corporation by the holders of not less than fifty (50%) percent of all votes entitled to be cast on any issue to be considered at the proposed special meeting, describing the purposes of the proposed special meeting. At any special meeting only such business may be transacted which is related to the purpose or purposes set forth in the notice of such special meeting. SECTION 3. PLACE. Meetings of shareholders may be held within or without the State of Florida. SECTION 4. NOTICE. The corporation shall notify shareholders of the date, time and place of each annual and special shareholders' meeting no fewer than ten (10) or more than sixty (60) days before the meeting date. Unless the Florida Business Corporation Act, as amended (the "Act"), or the Articles of Incorporation, as amended from time to time hereafter (the "Articles of Incorporation") require otherwise, the corporation is required to give notice only to shareholders entitled to vote at the meeting. Notice shall be given in the manner provided in section 5 below, by or at the direction of the president, the secretary, or the officer or persons calling the meeting. If the notice is mailed at least thirty (30) days before the date of the meeting, it may be done by a class of United States mail other than first class. Notwithstanding section 5 below, if mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. Unless the Act or the Articles of Incorporation require otherwise, notice of an annual meeting need not include a description of the purpose or purposes for which the meeting is called. Notice of a special meeting must include a description of the purpose or purposes for which the meeting is called. Notwithstanding the foregoing, no notice of a shareholders' meeting need be given to a shareholder if (a) an annual report and proxy statement for two consecutive annual meetings of shareholders or (b) all, and at least two, checks in payment of dividends or interest on securities during a twelve (12) month period have been sent by first-class United States mail, addressed to the shareholder at his address as it appears on the share transfer books of the corporation, and returned undeliverable. The obligation of the corporation to give notice of a shareholders' meeting to any such shareholder shall be reinstated once the corporation has received a new address for such shareholder for entry on its share transfer books. SECTION 5. MANNER OF NOTICE. Any notice given under these Bylaws must be written and may be communicated in person; telegraph, teletype or other form of electronic communication; or by mail. Written notice by the corporation to a shareholder shall be effective when mailed, if mailed postpaid and correctly addressed to the shareholder's address shown in the corporation's current record of shareholders. Written notice to a domestic or foreign corporation authorized to transact business in this state may be addressed to its registered agent at its registered office or to the corporation or its secretary at its principal office shown in its most recent annual report or, in the case of corporation that has not yet delivered an annual report, in a domestic corporation's articles of incorporation or in a foreign corporation's application for certificate of authority. Except as otherwise provided herein or in the Act, written notice shall be effective at the earliest date of the following: (a) when received; (b) five days after its deposit in the United States mail, as evidenced by the postmark, if mailed postpaid and correctly addressed; or (c) on the date shown on the return receipt, if sent by registered or certified mail return receipt requested, and the receipt is signed by or on behalf of the addressee. SECTION 6. NOTICE OF ADJOURNED MEETINGS. If an annual or special shareholders' meeting is adjourned to a different date, time or place, notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before an adjournment is taken, and any business may be transacted at the adjourned meeting that might have been transacted on the original date of the meeting. If a new record date for the adjourned meeting is or must be fixed, however, notice of the adjourned meeting must be given as provided in section 5 above to persons who are shareholders as of the new record date who are entitled to notice of the meeting. SECTION 7. FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other action, the Board of Directors may fix the record date. In no event may a record date fixed by the Board of Directors be a date preceding the date upon which the resolution fixing the record date is adopted. The record date for determining shareholders entitled to demand a special meeting is the date the first shareholder delivers his demand to the corporation. If not otherwise provided by or pursuant to these Bylaws, the record date for determining shareholders entitled to notice of and to vote at an annual or special shareholders' meeting is the close of business on the day before the first notice is delivered to shareholders. A record date for purposes of this 2 section may not be more than seventy (70) days before the meeting or action requiring a determination of shareholders. A determination of shareholders entitled to notice of or to vote at a shareholders' meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than the one hundred twenty (120) days after the date fixed for the original meeting. SECTION 8. SHAREHOLDERS' LIST FOR MEETING. After fixing a record date for a meeting, the corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of a shareholders' meeting, arranged by voting group with the address of, and the number and class and series, if any, of shares held by, each. The shareholders' list must be available for inspection by any shareholder for a period of ten (10) days prior to the meeting or such shorter time as exists between the record date and the meeting and continuing through the meeting at the corporation's principal office, at a place identified in the meeting notice in the city where the meeting will be held, or at the office of the corporation's transfer agent or registrar. A shareholder or his agent or attorney is entitled on written demand to inspect the list during regular business hours and at his expense during the period it is available for inspection. The corporation shall make the shareholders' list available at the meeting, and any shareholder or his agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment. If the requirements of this section have not been substantially complied with or if the corporation refuses to allow a shareholder or his agent or attorney to inspect the shareholders' list before or at the meeting, the meeting shall be adjourned until such requirements are complied with on the demand of any shareholder in person or by proxy who failed to get such access. Refusal or failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting. SECTION 9. SHAREHOLDER QUORUM AND VOTING. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. When a specified item of business is required to be voted on by a class or series of stock, a majority of the shares of such class or series shall constitute a quorum for the transaction of such item of business by that class or series. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders unless otherwise provided by law or the Articles of Incorporation. After a quorum has been established at a shareholders' meeting, the subsequent withdrawal of shareholders, so as to reduce the number of shares entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or any adjournment thereof. SECTION 10. VOTING ENTITLEMENT OF SHARES. Except as otherwise provided below, each outstanding share, regardless of class, is entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Only shares are entitled to vote. 3 The shares of the corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation, domestic or foreign, and the corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation. This paragraph does not limit the power of the corporation to vote any shares, including its own shares, held by it in a fiduciary capacity. Redeemable shares are not entitled to vote on any matter, and shall not be deemed to be outstanding, after notice of redemption is mailed to the holders thereof and a sum sufficient to redeem such shares has been deposited with a bank, trust company, or other financial institution upon an irrevocable obligation to pay the holders the redemption price upon surrender of the shares. Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the Bylaws of the corporate shareholder or, in the absence of any applicable provision, by such person as the Board of Directors of the corporate shareholder may designate. In the absence of any such designation, or in case of a conflicting designation by the corporate shareholder, the chairman of the board, the president, any vice president, the secretary and the treasurer of the corporate shareholder, in that order, shall be presumed to be fully authorized to vote such shares. Shares held by an administrator, executor, guardian, personal representative or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name or the name of his nominee. Shares held by or under the control of a receiver, a trustee in bankruptcy proceedings or an assignee for the benefit of creditors may be voted by him without the transfer thereof into his name. If a share or shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the secretary of the corporation is given notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, the acts with respect to voting have the following effect: (a) if only one votes, in person or by proxy, his act binds all; (b) if more than one votes, in person or by proxy, the act of the majority so voting binds all; (c) if more than one votes, in person or by proxy, but the vote is evenly split on any particular matter, each faction is entitled to vote the share or shares in question proportionally; (d) if the instrument or order so filed shows that any such tenancy is held in unequal interest, a majority or a vote evenly split for purposes of this section shall be a majority or a vote evenly split in interest; (e) the principles of this section shall apply, insofar as possible, to execution of proxies, waivers, consents, or objections and for the purpose of ascertaining the presence of a quorum. Nothing herein contained shall prevent trustees or other fiduciaries holding shares registered in the name of a nominee from causing such shares to be voted by such nominee as the trustee or other fiduciary may direct. Such nominee may vote shares as directed by a trustee or other fiduciary without the necessity of transferring the shares to the name of the trustee or other fiduciary. SECTION 11. PROXIES. A shareholder, other person entitled to vote on behalf of a shareholder pursuant to section 10 above, or attorney-in-fact may vote the shareholders' shares in person or by proxy. 4 A shareholder may appoint a proxy to vote or otherwise act for him by signing an appointment form, either personally or by his attorney-in-fact. An executed telegram or cablegram appearing to have been transmitted by such person, or a photographic, photostatic or equivalent reproduction of an appointment form, is a sufficient appointment form. An appointment of a proxy is effective when received by the secretary or other officer or agent authorized to tabulate votes. An appointment is valid for up to eleven (11) months unless a longer period is expressly provided in the appointment form. The death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment. If an appointment form expressly provides, any proxy holder may appoint, in writing, a substitute to act in his place. SECTION 12. VOTING TRUSTS. One or more shareholders may create a voting trust, conferring on a trustee the right to vote or otherwise act for them, by signing an agreement setting out the provisions of the trust as provided by law and transferring their shares to a trustee. The trustee shall thereafter prepare a list of names and addresses of all owners of beneficial interests in the trust, together with the number and class of shares of each transferred to the trust, and deliver copies of the list and agreement to the corporation's principal office. After filing a copy of the list and agreement in the corporation's principal office, such copies shall be open to inspection by any shareholder of the corporation (subject to the requirements of Article V herein) or any beneficiary of the trust under the agreement during business hours. SECTION 13. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS. (a) ANNUAL MEETINGS OF SHAREHOLDERS. (1) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (a) by or at the direction of the Board of Directors or (b) by any shareholder of the corporation who was a shareholder of record at the time of giving of notice provided for in this Bylaw, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. (2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (b) of paragraph (a)(1) of this Bylaw, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation and such other business must otherwise be a proper matter for shareholder action. To be timely, a shareholder's notice shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the sixtieth (60th) day, nor earlier than the close of business on the ninetieth (90th) day, prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 5 ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the corporation's books, and of such beneficial owner and (ii) the class and number of shares of the corporation which are owned beneficially and of record by such shareholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation is increased and there is no public announcement by the corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least seventy (70) days prior to the first anniversary of the preceding year's annual meeting, a shareholder's notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10th) day following the date on which such public announcement is first made by the corporation. (b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. 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 the corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareholder of the corporation who is a shareholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. In the event the corporation calls a special meeting of shareholders for the purposes of electing one or more directors to the Board of Directors, any such shareholder may nominate a person or persons (as the case may be), for election of such position(s) as specified in the corporation's notice of meeting, if the shareholder's notice required by paragraph (a)(2) of this Bylaw shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the ninetieth (90th) day prior to such special meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a shareholder's notice as described above. 6 (c) GENERAL. (1) Only such persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this Bylaw, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Bylaw, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights (i) of shareholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of preferred stock to elect directors under specified circumstances. SECTION 14. SHAREHOLDERS' AGREEMENTS. Two or more shareholders of this corporation may provide for the manner in which they vote their shares by signing an agreement for that purpose as provided by law. SECTION 15. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Until and only until such date that a registration statement on Form S-1 of this corporation is filed with the Securities and Exchange Commission ("SEC") in connection with this corporation's initial public offering of Common Shares and is declared effective by the SEC (the "Effective Date"), any action required by law, these Bylaws or the Articles of Incorporation of this corporation to be taken at any annual or special meeting of the shareholders of the corporation, or any action which may be taken at any annual or special meeting of the shareholders of this corporation, may be taken without a meeting, without prior notice and without a vote, if the action is taken by the holders of outstanding stock of each voting group entitled to vote thereon having not less than the minimum number of votes with respect to each voting group that would be necessary to authorize or take such action at a meeting at which all voting groups and shares entitled to vote thereon were present and voted. In order to be effective, the action must be evidenced by one or more written consents describing the action taken, dated and signed by approving shareholders having the requisite number of votes of each voting group entitled to vote thereon, and delivered to this corporation by delivery to its principal office in this state, its principal place of business, the corporate secretary, or another officer or agent of this corporation having custody of the book in which proceedings of meetings of shareholders are recorded. No written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the date of the earliest dated consent delivered in the manner required herein, written 7 consents signed by the number of holders required to take action are delivered to the corporation by delivery as set forth herein. Any written consent may be revoked prior to the date that the corporation receives the required number of consents to authorize the proposed action. No revocation is effective unless in writing and until received by the corporation at its principal office in this state or its principal place of business, or received by the corporate secretary or other officer or agent of the corporation having custody of the book in which proceedings of meetings of shareholders are recorded. Within ten (10) days after obtaining such authorization by written consent, notice must be given to those shareholders who have not consented in writing or who are not entitled to vote on the action. The notice shall fairly summarize the material features of the authorized action and, if the action be such for which dissenters' rights are provided under the Act, the notice shall contain a clear statement of the right of shareholders dissenting therefrom to be paid the fair value of their shares upon compliance with further provisions of the Act regarding the rights of dissenting shareholders. A consent signed under this section has the effect of a meeting vote and may be described as such in any document. Whenever action is taken pursuant to this section, the written consent of the shareholders consenting thereto or the written reports of inspectors appointed to tabulate such consents shall be filed with the minutes of proceedings of shareholders. On and after the Effective Date in this Section 15 of Article I of these Bylaws, the shareholders may no longer permit or authorize an action required to be taken by the shareholders of the corporation on or after the Effective Date to be taken without a meeting and vote. ARTICLE II DIRECTORS SECTION 1. FUNCTION. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its Board of Directors. SECTION 2. QUALIFICATION. Directors must be natural persons who are eighteen (18) years of age or older but need not be residents of the State of Florida or shareholders of this corporation. SECTION 3. COMPENSATION. The Board of Directors may fix the compensation of directors. SECTION 4. DUTIES OF DIRECTORS. A director shall discharge his duties as a director, including his duties as a member of a committee: in good faith; with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and in a manner he reasonably believes to be in the best interests of the corporation. 8 In discharging his duties, a director is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by: (a) One or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented; (b) Legal counsel, public accountants or other persons as to matters the director reasonably believes are within the persons' professional or expert competence; or (c) A committee of the Board of Directors of which he is not a member, if the director reasonably believes the committee merits confidence. In discharging his duties, a director may consider such factors as the director deems relevant, including the long-term prospects and interests of the corporation and its shareholders, and the social, economic, legal, or other effects of any action on the employees, suppliers, customers of the corporation or its subsidiaries, the communities and society in which the corporation or its subsidiaries operate, and the economy of the state and the nation. A director is not acting in good faith if he has knowledge concerning the matter in question that makes reliance otherwise permitted by this section unwarranted. A director shall not be liable for any action taken as a director, or any failure to take any action, if he performed the duties of his office in compliance with this section. SECTION 5. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of its Board of Directors or a committee of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless: (a) he objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting specified business at the meeting; or (b) he votes against or abstains from the action taken. SECTION 6. NUMBER. The number of directors of this corporation shall be not less than two (2). The number of directors of this corporation shall currently be set at five (5), but may be increased or decreased from time to time as determined by a majority of the entire Board of Directors of this corporation or by amendment to these Bylaws. SECTION 7. ELECTION. Directors are elected at the first annual shareholders' meeting and at each annual meeting thereafter. SECTION 8. TERM. The terms of the initial directors of the corporation expire at the first shareholders' meeting at which directors are elected. The terms of all other directors expire at the next annual shareholders' meeting following their election. A decrease in the number of directors does not shorten an incumbent director's 9 term. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected. Despite the expiration of a director's term, he or she continues to serve until his or her successor is elected and qualifies or until there is a decrease in the number of directors. SECTION 9. RESIGNATION. A director may resign at any time by delivering written notice to the Board of Directors or its chairman or to the corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date, the Board of Directors may fill the pending vacancy before the effective date if the Board of Directors provides that the successor does not take office until the effective date. SECTION 10. VACANCIES. Whenever a vacancy occurs on the Board of Directors, including a vacancy resulting from an increase in the number of directors, it may be filled by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors or by the shareholders. A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date or otherwise) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs. SECTION 11. REMOVAL OF DIRECTORS. The shareholders may remove one or more directors with or without cause at a meeting of shareholders, provided the notice of the meeting states that the purpose, or one of the purposes, of the meeting is removal of the director. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him or her. SECTION 12. QUORUM AND VOTING. A quorum of the Board of Directors consists of a majority of the number of directors. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board of Directors. SECTION 13. CONFLICTS OF INTEREST. No contract or other transaction between this corporation and one or more of its directors or any other corporation, firm, association or entity in which one or more of the directors are directors or officers or are financially interested shall be either void or voidable because of such relationship or interest or because such director or directors are present at the meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction or because his or their votes are counted for such purpose, if: (a) the fact of such relationship or interest is disclosed or known to the Board of Directors or committee which authorizes, approves or ratifies the contract or transaction by a vote or 10 consent sufficient for the purpose without counting the votes or consents of such interested directors; or (b) the fact of such relationship or interest is disclosed or known to the shareholders entitled to vote and they authorize, approve or ratify such contract or transaction by vote or written consent; or (c) the contract or transaction is fair and reasonable as to the corporation at the time it is authorized by the Board, committee or the shareholders. For purposes of subparagraph (a) above only, a conflict of interest transaction is authorized, approved, or ratified if it receives the affirmative vote of a majority of the directors on the Board of Directors, or on the committee, who have no relationship or interest in the transaction described in this section, but a transaction may not be authorized, approved, or ratified under this section by a single director. If a majority of the directors who have no such relationship or interest in the transaction vote to authorize, approve or ratify the transaction, a quorum is present for the purposes for taking action under subparagraph (a) above. The presence of, or a vote cast by, a director with such relationship or interest in the transaction does not affect the validity of any action taken under subparagraph (a) above if the transaction is otherwise authorized, approved, or ratified as provided in that subparagraph, but such presence or vote of those directors may be counted for purposes of determining whether the transaction is approved under other sections of the Act. For purposes of subparagraph (b) above, a conflict of interest transaction is authorized, approved or ratified if it receives the vote of a majority of the shares entitled to be counted under this section. Shares owned by or voted under the control of a director who has a relationship or interest in the transaction described in this section may not be counted in a vote of shareholders to determine whether to authorize, approve or ratify a conflict of interest transaction under subparagraph (b) above. The vote of those shares, however, is counted in determining whether the transaction is approved under other sections of the Act. A majority of the shares, whether or not present, that are entitled to be counted in a vote on the transaction under this section constitutes a quorum for the purpose of taking action under this section. SECTION 14. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one or more other committees, consisting of a minimum of two (2) directors who serve at the pleasure of the Board of Directors, each of which, to the extent provided in such resolution, shall have and may exercise all the authority of the Board of Directors, except that no committee shall have the authority to: (a) Approve or recommend to shareholders actions or proposals required by law to be approved by shareholders; (b) Fill vacancies on the Board of Directors or any committee thereof; (c) Adopt, amend or repeal the Bylaws; 11 (d) Authorize or approve the reacquisition of shares unless pursuant to a general formula or method specified by the Board of Directors; or (e) Authorize or approve the issuance or sale or contract for the sale of shares, or determine the designation and relative rights, preferences and limitations of a voting group, except that the Board of Directors may authorize a committee (or a senior executive officer of the corporation) to do so within limits specifically prescribed by the Board of Directors. The provisions of section 12 above and sections 15, 16 and 17 below, which govern meetings, notice and waiver of notice, and quorum and voting requirements of the Board of Directors, shall apply to committees and their members as well. SECTION 15. MEETINGS. The Board of Directors may hold regular or special meetings in or out of the State of Florida. A majority of the directors present, whether or not a quorum exists, may adjourn any meeting of the Board of Directors to another time and place. Notice of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless the time and place of the adjourned meeting are announced at the time of the adjournment, to the other directors. Meetings of the Board of Directors may be called by the chairman of the Board or by the president of the corporation. The Board of Directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. SECTION 16. NOTICE OF MEETINGS. Regular meetings of the Board of Directors may be held without notice of the date, time, place or purpose of the meeting. Special meetings of the Board of Directors must be preceded by at least two (2) days' notice of the date, time and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the articles of incorporation or these Bylaws. SECTION 17. WAIVER OF NOTICE. Notice of a meeting of the Board of Directors need not be given to any director who signs a waiver of notice either before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and a waiver of any and all objections to the place of the meeting, the time of the meeting, or the manner in which it has been called or convened, except when a director states, at the beginning of the meeting or promptly upon arrival at the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened. SECTION 18. ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a Board of Directors' meeting or committee meeting may be taken without a meeting if the action is taken by all members of the Board of Directors or the committee. The actions must be evidenced by one or more written consents describing the action taken and signed by each director or committee member. 12 Action taken under this section is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed under this section has the effect of a meeting vote and may be described as such in any document. SECTION 19. AMENDMENT BY BOARD OF DIRECTORS. The corporation's Board of Directors may adopt one or more amendments to the corporation's Articles of Incorporation without shareholder action: (1) To delete the names and addresses of the initial directors; (2) To delete the name and address of the initial registered agent or registered office, if a statement of change is on file with the Department of State; (3) To delete any other information contained in the Articles of Incorporation that is solely of historical interest; (4) To change each issued and unissued authorized share of an outstanding class into a greater number of whole shares if the corporation has only shares of that class outstanding; (5) To delete the authorization for a class or series of shares authorized as provided by law, if no shares of such class or series have been issued; (6) To change the corporate name by substituting the word "corporation," "Incorporated," or "company," or the abbreviation "corp.," "Inc.," or "Co.," for a similar word or abbreviation in the name, or by adding, deleting, or changing a geographical attribution for the name; or (7) To make any other change expressly permitted by the Act to be made without shareholder action. ARTICLE III OFFICERS SECTION 1. OFFICERS. The Board of Directors may elect from its own number a chairman or co-chairmen of the Board and may elect a president, chief executive officer or co-chief executive officers, chief operating officer, chief financial officer, such vice presidents and a treasurer as in the opinion of the Board of Directors the business of the corporation requires. The Board of Directors shall elect a secretary and shall delegate to the secretary responsibility for preparing minutes of the directors' and shareholders' meetings and for authenticating records of the corporation. The Board of Directors or the president may appoint one or more other officers or assistant officers. The same individual may simultaneously hold more than one office in the corporation and the same office may simultaneously be held by more than one individual. 13 SECTION 2. POWERS AND DUTIES. The officers of the corporation shall have the following duties: (a) The chairman or co-chairmen of the Board, if elected, or failing his, her or their election, the president, shall preside at all meetings of the shareholders and Board of Directors and shall have such other powers and perform such other duties as may be prescribed from time to time by the Board of Directors. (b) The president shall have general charge and supervision of its business, affairs, administration and operations subject to the direction of the Board of Directors, and shall, in the absence or failing the election of a chairman of the Board, preside at all meetings of the shareholders and the Board of Directors. The president shall have such other powers and perform such other duties as may from time to time be assigned to him by the Board of Directors. (c) Each of the chief executive officer(s), chief operating officer(s) and vice president(s), if elected, shall have such powers and shall perform such duties as may from time to time be assigned to him, her or them by the Board of Directors. (d) The secretary shall be the custodian of, and shall maintain, all of the corporate records except the financial records, shall authenticate all corporate records, shall prepare and record the minutes of all meetings of the shareholders and Board of Directors, send out all notices of meetings, and shall have such other powers and shall perform such other duties as may be prescribed by the Board of Directors or the president. (e) The chief financial officer or treasurer shall be the custodian of all corporate funds, securities and financial records, shall keep full and accurate accounts of receipts and disbursements and render accounts thereof at the annual meetings of shareholders and whenever else required by the Board of Directors or the president, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the president. SECTION 3. DELEGATION. In the event of the absence of any officer of this corporation or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may at any time and from time to time delegate all or any part of the powers or duties of any officer to any other officer or officers or to any director or directors. SECTION 4. RESIGNATION AND REMOVAL OF OFFICERS. An officer may resign at any time by delivering notice to the corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date and the corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the effective date if the Board of Directors provides that the successor does not take office until the effective date. 14 The Board of Directors may remove any officer at any time with or without cause. Any officer or assistant officer, if appointed by the president, may likewise be removed by the president. SECTION 5. CONTRACT RIGHTS. The appointment of an officer does not itself create contract rights. An officer's removal does not affect the officer's contract rights, if any, with the corporation. An officer's resignation does not affect the corporation's contract rights, if any, with the officer. ARTICLE IV STOCK CERTIFICATES SECTION 1. FORM AND CONTENT OF CERTIFICATES. Shares may, but are not required to, be represented by certificates. At a minimum each share certificate, if this corporation has share certificates, must state on its face: the name of the corporation and that the corporation is organized under the laws of the State of Florida; the name of the person to whom issued; and the number and class of shares and the designation of the series, if any, the certificate represents. If the corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the Board of Directors to determine variations for future series) must be summarized on the front or back of each certificate if this corporation has share certificates. Alternatively, each certificate, if this corporation has share certificates, may state conspicuously on its front or back that the corporation will furnish the shareholder a full statement of this information on request and without charge. Each share certificate must be signed (either manually or in facsimile) by the president or a vice president and the secretary or an assistant secretary of the corporation and shall bear the corporate seal or its facsimile. If the person who signed (either manually or in facsimile) a share certificate no longer holds office when the certificate is issued, the certificate is nevertheless valid. The Board of Directors may authorize the issuance of some or all of the shares of any or all of its classes or series without certificates pursuant to and to the extent permitted by applicable law. SECTION 2. TRANSFER OF STOCK. Subject to any restrictions on the transfer or registration of transfer of the shares represented by a stock certificate which have been imposed or adopted as authorized by the Act, the corporation shall register a stock certificate presented to it for transfer if the certificate is properly endorsed by the holder of record or by his duly authorized attorney and is accompanied with any additional documents, instruments, certificates, signature guaranties or other items required from time to time by the Board of Directors in its sole discretion. 15 SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation shall issue a new stock certificate in the place of any certificate previously issued if the holder of record of the certificate (a) makes proof in affidavit form that it has been lost, destroyed or wrongfully taken; (b) requests the issue of a new certificate before the corporation has notice that the certificate has been acquired by a purchaser for value in good faith and without notice of any adverse claim; (c) gives bond or other security or indemnity in such form as the corporation may direct to indemnify the corporation, the transfer agent, and registrar against any claim that may be made on account of the alleged loss, destruction, or theft of a certificate; and (d) satisfies any other reasonable requirements imposed by the corporation. ARTICLE V BOOKS AND RECORDS SECTION 1. CORPORATE RECORDS. The corporation shall keep as permanent records minutes of all meetings of its shareholders and its Board of Directors, a record of all actions taken by the shareholders or Board of Directors without a meeting, and a record of all actions taken by a committee of the Board of Directors in place of the Board of Directors on behalf of the corporation. The corporation shall maintain accurate accounting records. The corporation or its agent shall maintain a record of its shareholders in a form that permits preparation of a list of the names and addresses of all shareholders in alphabetical order by class of shares showing the number and series of shares held by each. The corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time. The corporation shall keep a copy of the following records: (a) Its Articles or Restated Articles of Incorporation and all amendments to them currently in effect; (b) Its Bylaws or Restated Bylaws and all amendments to them currently in effect; (c) Resolutions adopted by its Board of Directors creating one or more classes or series of shares and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; (d) The minutes of all shareholders' meetings and records of all action taken by shareholders without a meeting for the past three (3) years. (e) Written communications to all shareholders generally or all shareholders of a class or series within the past three (3) years, including the financial statements required to be furnished for the past three (3) years under section 4 of this Article V; (f) A list of the names and business street addresses of its current directors and officers; and (g) Its most recent annual report delivered to the Department of State. 16 SECTION 2. INSPECTION OF RECORDS BY SHAREHOLDERS. A shareholder of the corporation is entitled to inspect and copy, during regular business hours at the corporation's principal office, any of the records of the corporation described in subparagraphs (a) through (g) in section 1 above if he gives the corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy. A shareholder of the corporation is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any of the following records of the corporation if the shareholder meets the requirements of this section and gives the corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy: (a) Excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or Board of Directors without a meeting, to the extent not otherwise subject to inspection under these Bylaws; (b) Accounting records of the corporation; (c) The record of shareholders; and (d) Any other books and records. A shareholder may inspect and copy the records described in subparagraphs (a) through (d) in the preceding paragraph only if: (a) His demand is made in good faith and for a proper purpose; (b) He describes with reasonable particularity his purpose and the records he desires to inspect; and (c) The records are directly connected with his purpose. This section does not affect the right of a shareholder to inspect and copy records under Article I, section 8 of these Bylaws, or, if the shareholder is in litigation with the corporation, to the same extent as any other litigant; or the power of a court, independently of the Act, to compel the production of corporate records for examination. For purposes of this section, the term "shareholder" includes a beneficial owner whose shares are held in a voting trust or by a nominee on his behalf; and a "proper purpose" means a purpose reasonably related to such person's interest as a shareholder. SECTION 3. SCOPE OF INSPECTION RIGHT. A shareholder's agent or attorney has the same inspection and copying rights as the shareholder he represents. The right to copy and/or to have converted unwritten records into written form and/or to 17 otherwise inspect the corporate records, including expenses and charges therefore, shall be the same as provided or permitted by law. SECTION 4. FINANCIAL STATEMENTS FOR SHAREHOLDERS. Unless modified by resolution of the shareholders within one hundred twenty (120) days of the close of each fiscal year, the corporation shall furnish its shareholders annual financial statements which may be consolidated or combined statements of the corporation and one or more of its subsidiaries, as appropriate, that include a balance sheet as of the end of the fiscal year, an income statement for that year, and a statement of cash flows for that year. If financial statements are prepared for the corporation on the basis of generally accepted accounting principles, the annual financial statements must also be prepared on that basis. If the annual financial statements are reported upon by a public accountant, his report must accompany them. If not, the statements must be accompanied by a statement of the president or the person responsible for the corporation's accounting records: (a) Stating his reasonable belief whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and (b) Describing any respects in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year. The corporation shall mail the annual financial statements to each shareholder within one hundred twenty (120) days after the close of each fiscal year or within such additional time thereafter as is reasonably necessary to enable the corporation to prepare its financial statements if, for reasons beyond the corporation's control, it is unable to prepare its financial statements within the prescribed period. Thereafter, on written request from a shareholder who was not mailed the statements, the corporation shall mail him the latest annual financial statements. ARTICLE VI DIVIDENDS SECTION 1. DISTRIBUTIONS TO SHAREHOLDERS. The Board of Directors may authorize and the corporation may make distributions to its shareholders subject to restriction by its Articles of Incorporation and/or the Act. If the Board of Directors does not fix the record date for determining shareholders entitled to a distribution (other than one involving a purchase, redemption or other acquisition of the corporation's shares), it is the date the Board of Directors authorizes the distribution. No distribution may be made if, after giving it effect: the corporation would not be able to pay its debts as they become due in the usual course of business; or the corporation's total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The Board of Directors may base a determination that a distribution is not prohibited either on financial statements prepared on the basis of accounting practices and principles that are reasonable in 18 the circumstances or on a fair valuation or other method that is reasonable in the circumstances. In the case of any distribution based upon such a valuation, each such distribution shall be identified as a distribution based upon a current valuation of assets, and the amount per share paid on the basis of such valuation shall be disclosed to the shareholders concurrent with their receipt of the distribution. Except as otherwise provided herein, the effect of a distribution under this section is measured: (a) In the case of distribution by purchase, redemption or other acquisition of the corporation's shares, as of the earlier of: (1) The date money or other property is transferred or debt incurred by the corporation; or (2) The date the shareholder ceases to be a shareholder with respect to the acquired shares; (b) In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; (c) In all other cases, as of: (1) The date the distribution is authorized if the payment occurs within one hundred twenty (120) days after the date of authorization; or (2) The date the payment is made if it occurs more than one hundred twenty (120) days after the date of authorization. The corporation's indebtedness to a shareholder incurred by reason of a distribution made in accordance with this section is at parity with the corporation's indebtedness to its general unsecured creditors, except to the extent subordinated by agreement. Indebtedness of the corporation, including indebtedness issued as a distribution, is not considered a liability for purposes of determinations under this section if its terms provide that payment of principal and interest are made only if and to the extent that payment of a distribution to shareholders could then be made under this section. If the indebtedness is issued as a distribution, each payment of principal or interest is treated as a distribution, the effect of which is measured on the date the payment is actually made. SECTION 2. SHARE DIVIDENDS. Shares may be issued pro rata and without consideration to the corporation's shareholders or to the shareholders of one or more classes or series. An issuance of shares under this subsection is a share dividend. Shares of one class or series may not be issued as a share dividend in respect of shares of another class or series unless a majority of the votes entitled to be cast by the class or series to be issued approves the issue, or there are no outstanding shares of the class or series to be issued. If the Board of Directors does not fix the record date for determining shareholders entitled to a share dividend, it is the date the Board of Directors authorizes the share dividend. 19 ARTICLE VII CORPORATE SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation, the year of incorporation, the word "Florida" and the word "seal"; it may be a facsimile, engraved, printed or an impression seal. ARTICLE VIII EXECUTION OF DOCUMENTS All contracts, instruments, agreements, bills payable, notes, checks, drafts, warrants or other obligations of this corporation shall be made in the name of the corporation and shall be signed by such officer or officers as the Board of Directors may from time to time designate. ARTICLE IX INDEMNIFICATION (a) The corporation shall indemnify any person who was or is a party to any proceeding (other than an action by, or in the right of, the corporation), by reason of the fact that he is or was a director or officer of the corporation and may so indemnify any employee or agent of the corporation or any person who was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against liability incurred in connection with such proceeding, including any appeal thereof, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any proceeding by judgment, order, settlement, or conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the corporation or, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The corporation shall indemnify any person who was or is a party to any proceeding by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation and may so indemnify any employee or agent of the corporation or any person who was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expense of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof, if such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made under this subsection in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable unless, and only to the extent that, the court in which such proceeding was brought, or any other court of competent jurisdiction, shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. 20 (c) To the extent that a director or officer of the corporation, or an employee or agent of the corporation which the corporation has agreed to indemnify, has been successful on the merits or otherwise in defense of any proceeding referred to in subsection (a) or subsection (b), or in defense of any claim, issue, or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith. (d) Any indemnification under subsection (a) or subsection (b), unless pursuant to a determination by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsection (a) or subsection (b). Such determination shall be made: (1) By the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such proceeding; (2) If such a quorum is not obtainable or, even if obtainable, by majority vote of a committee duly designated by the Board of Directors (in which directors who are parties may participate) consisting solely of two or more directors not at the time parties to the proceeding; (3) By independent legal counsel: 1. Selected by the Board of Directors prescribed in paragraph (1) or the committee prescribed in paragraph (2); or 2. If a quorum of the directors cannot be obtained for paragraph (1) and the committee cannot be designated under paragraph (2), selected by majority vote of the full Board of Directors (in which directors who are parties may participate); or (4) By the shareholders by a majority vote of a quorum consisting of shareholders who were not parties to such proceeding or, if no such quorum is obtainable, by a majority vote of shareholders who were not parties to such proceeding. (e) Evaluation of the reasonableness of expenses and authorization of indemnification shall be made in the same manner as the determination that indemnification is permissible. However, if the determination of permissibility is made by independent legal counsel, persons specified by paragraph (d)(3) shall evaluate the reasonableness of expenses and may authorize indemnification. (f) Expenses incurred by an officer or director in defending a civil or criminal proceeding shall be paid by the corporation in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if he is ultimately found not to be entitled to indemnification by the corporation pursuant to this section. Expenses incurred by other indemnified employees and agents shall be paid in advance upon such terms or conditions that the Board of Directors deems appropriate. (g) The indemnification and advancement of expenses provided pursuant to these Bylaws are not exclusive, and the corporation may make any other or further indemnification or advancement of expenses of any of its directors, officers, employees, or agents, under any bylaw, agreement, vote of share- 21 holders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. However, indemnification or advancement of expenses shall not be made to or on behalf of any director, officer, employee, or agent if a judgment or other final adjudication establishes that his actions, or omissions to act, were material to the cause of action so adjudicated and constitute: (1) A violation of the criminal law, unless the director, officer, employee, or agent had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful; (2) A transaction from which the director, officer, employee, or agent derived an improper personal benefit; (3) In the case of a director, a circumstance under which the liability provisions of Section 607.0834 of the Florida Business Corporation Act are applicable; or (4) Willful misconduct or a conscious disregard for the best interests of the corporation in a proceeding by or in the right of the corporation to procure a judgment in its favor or in a proceeding by or in the right of a shareholder. (h) Indemnification and advancement of expenses as provided in these Bylaws shall continue as, unless otherwise provided when authorized or ratified, to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person, unless otherwise provided when authorized or ratified. (i) For purposes of this Bylaw, the term "corporation" includes, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger, so that any person who is or was a director, officer, employee, or agent of a constituent corporation, or is or was serving at the request of a constituent corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, is in the same position under this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (j) For purposes of this section: (1) The term "other enterprises" includes employee benefit plans; (2) The term "expenses" includes counsel and paralegal fees, including those for appeal; (3) The term "liability" includes obligations to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to any employee benefit plan), and expenses actually and reasonably incurred with respect to a proceeding; (4) The term "proceeding" includes any threatened, pending, or completed action, suit, or other type of proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal; 22 (5) The term "agent" includes a volunteer; (6) The term "serving at the request of the corporation" includes any service as a director, officer, employee, or agent of the corporation that imposes duties on such persons, including duties relating to an employee benefit plan and its participants or beneficiaries; and (7) The term "not opposed to the best interest of the corporation" also describes the actions of a person who acts in good faith and in a manner he reasonably believes to be in the best interests of the participants and beneficiaries of an employee benefit plan. (k) The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section. ARTICLE X AMENDMENT These Bylaws may be altered, amended or repealed by either the Board of Directors or the shareholders, but the Board of Directors may not alter, amend or repeal the Bylaws generally or a particular Bylaw provision adopted by the shareholders if the shareholders expressly provide that the Bylaws generally or a particular Bylaw provision is not subject to amendment, alteration or repeal by the Board of Directors. 23 EX-5.1 4 EXHIBIT 5.1 RUBIN BAUM LEVIN CONSTANT FRIEDMAN & BILZIN A PARTNERSHIP INCLUDING PROFESSIONAL ASSOCIATIONS 2500 FIRST UNION FINANCIAL CENTER MIAMI, FLORIDA 33131-2336 TELEPHONE: (305) 374-7580 TELECOPIER: (305) 374-7593 July 25, 1997 Omega Research, Inc. 8700 West Flagler Street Miami, Florida 33174 Re: REGISTRATION STATEMENT ON FORM S-1 Ladies and Gentlemen: In connection with the Registration Statement on Form S-1, as the same may be amended (the "Registration Statement"), initially filed on the date hereof, by Omega Research, Inc., a Florida corporation (the "Company"), with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Act"), and the rules and regulations promulgated thereunder (the "Rules"), you have requested us to furnish you our opinion as to the legality of the 4,255,000 shares (including 555,000 shares subject to the over-allotment option) of common stock, par value $.01 per share, of the Company (the "Shares") being registered thereunder. For the purpose of rendering our opinion, we have reviewed (a) the Registration Statement and the exhibits thereto; (b) the Second Amended and Restated Articles of Incorporation and the Second Amended and Restated Bylaws of the Company; and (c) certain records of the Company's corporate proceedings as reflected in its minute books. In our examination, we have assumed the genuineness of signatures, the authenticity of all documents submitted to us as originals and the conformity with the originals of all documents submitted to us as copies thereof. In addition, we have made such other examinations of law and fact as we considered necessary in order to form a basis for the opinion hereinafter expressed. Based on the foregoing, we are of the opinion that the Shares have been duly and validly authorized and are (or, in the case of the 2,990,000 Shares being registered for sale by the Company, when such Shares are issued and delivered by the Company and paid for as contemplated in the Registration Statement, will be) validly issued, fully paid and non-assessable. Omega Research, Inc. Page 2 We hereby consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including any Prospectus constituting a part thereof, and any amendments thereto. In giving this consent we do not thereby admit that we come within the category of persons whose consent is required by the Act or the Rules. Very truly yours, /s/ Rubin Baum Levin Constant Friedman & Bilzin ------------------------------------------- RUBIN BAUM LEVIN CONSTANT FRIEDMAN & BILZIN EX-10.1 5 EXHIBIT 10.1 OMEGA RESEARCH, INC. 1996 INCENTIVE STOCK PLAN 1. PURPOSE. The OMEGA RESEARCH, INC. 1996 Incentive Stock Plan (the "Plan") is intended to provide incentives which will attract and retain highly competent persons as officers and key employees of OMEGA RESEARCH, INC. and its subsidiaries (the "Company"), as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company's common stock ("Common Shares") or to receive monetary payments based on the value of such shares pursuant to the Awards described in Paragraph 4 below. 2. ADMINISTRATION. Prior to the date, if any, upon which the Company becomes subject to the Securities Exchange Act of 1934 (the "Act"), the Plan shall be administered by the Board of Directors of the Company (the "Board") or a committee appointed by the Board. After the date, if any, upon which the Company becomes subject to the Act, the Plan will be administered by the Compensation Committee (the administrator of the Plan, initially the Board or committee thereof and thereafter the Compensation Committee, if and when the Company becomes subject to the Act, shall be referred to hereinafter as the "Committee") appointed by the Board from among its members PROVIDED, however, that as long as Common Shares are registered under the Act, members of the Committee must qualify as "non-employee directors" within the meaning of Securities and Exchange Commission Regulation /section/240.16b-3; provided further, however, that, notwithstanding the foregoing, the Board can continue to administer the Plan after the Company becomes subject to the Act until the Board has a sufficient number of members who qualify as "non-employee directors" to constitute the Committee. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause), and appoint new members in substitution therefor, and fill vacancies however caused; provided, however, that at no time shall a Committee of less than two members of the Board administer the Plan, and provided further, that, once the Company becomes subject to the Act, all members of the Committee if it consists of only two members must be "non-employee directors." The Committee is authorized, subject to the provisions of the Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Plan and to make such determinations and interpretations and to take such action in connection with the Plan and any Awards (as hereinafter defined) granted hereunder as it deems necessary or advisable. All determinations and interpretations made by the Board and Committee shall be binding and conclusive on all participants and their legal representatives. No member of the Board, no member of the Committee and no employee of the Company shall be liable for any act or failure to act hereunder, by any other member or employee or by any agent to whom duties in connection with the administration of this Plan have been delegated or, except in circumstances involving such person's bad faith, gross negligence or fraud, for any act or failure to act by the member or employee. 3. PARTICIPANTS. Participants will consist of such officers and key employees or prospective key employees (conditioned upon, and effective not earlier than his becoming an employee) of the Company, and independent contractors providing consulting or advisory services to the Company, as the Committee in its sole discretion determines to be significantly responsible for the success and future growth and profitability of the Company and whom the Committee may designate from time to time to receive Awards under the Plan. Designation of a participant in any year shall not require the Committee to designate such person to receive an Award in any other year or, once designated, to receive the same type or amount of Awards as granted to the participant in any year. The Committee shall consider such factors as it deems pertinent in selecting participants and in determining the type and amount of their respective Awards. 4. TYPES OF AWARDS. Awards under the Plan may be granted in any one or a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock Awards, (d) Performance Shares, and (e) Performance Units, all as described below (collectively "Awards"). 5. SHARES RESERVED UNDER THE PLAN. Subject to the following provisions of this Section 5, there is hereby reserved for issuance under the Plan an aggregate of 3,000,000 Common Shares, which may be authorized but unissued shares. Any shares subject to Stock Options or Stock Appreciation Rights or issued under such options or rights or as Stock Awards may thereafter be subject to new options, rights or awards under this Plan if there is a lapse, expiration or termination of any such options or rights prior to issuance of the shares or the payment of the equivalent or if shares are issued under such options or rights or as such awards and thereafter are reacquired by the Company pursuant to rights reserved by the Company upon issuance thereof. The reservation of 3,000,000 Common Shares gives effect to, and is based upon, (a) the implementation by the Company of an amendment to its Articles of Incorporation to increase the authorized Common Shares to 100,000,000, and (b) the declaration and implementation of a stock dividend of an aggregate of 19,479,800 Common Shares effectuating a 97,400 for 1 stock split, so that 19,480,000 Common Shares are then issued and outstanding. The Company will effectuate all of the foregoing prior to June 30, 1997. The occurrence of such two events shall be conditions subsequent to any Awards granted under the Plan prior to the occurrence of such events, provided that once such conditions subsequent are satisfied any such Awards shall, subject to the terms thereof and the Plan, be valid and binding obligations of the Company created on the date of grant thereof. 6. STOCK OPTIONS. Stock Options will consist of awards from the Company, in the form of agreements, which will enable the holder to purchase a specific number of Common Shares, at set terms and at a fixed purchase price. Stock Options may be "incentive stock options" ("Incentive Stock Options") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or Stock Options which do not constitute Incentive Stock Options ("Nonqualified Stock Options"). The Committee will have the authority to grant to any participant one or more Incentive Stock Options, Nonqualified Stock Options, or both types of Stock Options (in each case with or without Stock Appreciation Rights). Each Stock Option shall be subject to such terms and conditions consistent with the Plan as the Committee may impose from time to time, subject to the following limitations: 2 (a) EXERCISE PRICE. Each Stock Option granted hereunder shall have such per-share exercise price as the Committee may determine at the date of grant provided, however, that the per-share exercise price for Incentive Stock Options shall not be less than 100% of the Fair Market Value (as hereinafter defined) of the Common Shares on the date the option is granted. (b) PAYMENT OF EXERCISE PRICE. The option exercise price may be paid by check or, in the discretion of the Committee, by the delivery of Common Shares of the Company then owned by the participant or a combination of methods of payment; provided, however, that option agreements may provide that payment of the exercise price by delivery of Common Shares of the Company then owned by the participant may be made only if such payment does not result in a charge to earnings for financial accounting purposes as determined by the Committee. In the discretion of the Committee, if Common Shares are readily tradeable on a national securities exchange or other market system at the time of option exercise, payment may also be made by delivering a properly executed exercise notice to the Company together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the exercise price. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. (c) EXERCISE PERIOD. Stock Options granted under the Plan will be exercisable at such times and subject to such terms and conditions as shall be determined by the Committee. In addition, Nonqualified Stock Options shall not be exercisable later than fifteen years after the date they are granted and Incentive Stock Options shall not be exercisable later than ten years after the date they are granted. All Stock Options shall terminate at such earlier times and upon such conditions or circumstances as the Committee shall in its discretion set forth in such option at the date of grant. (d) LIMITATIONS ON INCENTIVE STOCK OPTIONS. Incentive Stock Options may be granted only to participants who are employees of the Company or one of its subsidiaries (within the meaning of Section 424(f) of the Code) at the date of grant. The aggregate Fair Market Value (determined as of the time the option is granted) of the Common Shares with respect to which Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under all option plans of the Company) shall not exceed $100,000. Incentive Stock Options may not be granted to any participant who, at the time of grant, owns stock possessing (after the application of the attribution rules of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company, unless the option price is fixed at not less than 110% of the Fair Market Value of the Common Shares on the date of grant and the exercise of such option is prohibited by its terms after the expiration of five years from the date of grant of such option. (e) REDESIGNATION AS NONQUALIFIED STOCK OPTIONS. Options designated as Incentive Stock Options that fail to continue to meet the requirements of Section 422 of the Code shall be redesignated as Nonqualified Stock Options for Federal income tax purposes automaticallywithout further action by the Committee on the date of such failure to continue to meet the requirements of Section 422 of the Code. 3 (f) LIMITATION OF RIGHTS IN SHARES. The recipient of a Stock Option shall not be deemed for any purpose to be a shareholder of the Company with respect to any of the shares subject thereto except to the extent that the Stock Option shall have been exercised and, in addition, a certificate shall have been issued and delivered to the participant. 7. STOCK APPRECIATION RIGHTS. The Committee may, in its discretion, grant Stock Appreciation Rights to the holders of any Stock Options granted hereunder. In addition, Stock Appreciation Rights may be granted independently of and without relation to Stock Options. Each Stock Appreciation Right shall be subject to such terms and conditions consistent with the Plan as the Committee shall impose from time to time, including the following: (a) A Stock Appreciation Right relating to a Nonqualified Stock Option may be made part of such option at the time of its grant or at any time thereafter up to six months prior to its expiration, and a Stock Appreciation Right relating to an Incentive Stock Option may be made part of such option only at the time of its grant. (b) Each Stock Appreciation Right 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 thereto up to the date the right is exercised. In the case of a right issued in relation to a Stock Option, such appreciation shall be measured from not less than the option price and in the case of a right issued independently of any Stock Option, such appreciation shall be measured from not less than 85% of the Fair Market Value of the Common Shares on the date the right is granted. Payment of such appreciation shall be made in cash or in Common Shares, or a combination thereof, as set forth in the Award, but no Stock Appreciation Right shall entitle the holder to receive, upon exercise thereof, more than the number of Common Shares (or cash of equal value) with respect to which the right is granted. (c) Each Stock Appreciation Right will be exercisable at the times and to the extent set forth therein, but no Stock Appreciation Right may 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, and (ii) fifteen years after it was granted. Exercise of a Stock Appreciation Right shall reduce the number of shares issuable under the Plan (and the related Stock Option, if any) by the number of shares with respect to which the right is exercised. 8. STOCK AWARDS. Stock Awards will consist of Common Shares transferred to participants without other payment therefor or payment at less than Fair Market Value as additional compensation for services to the Company. Stock Awards shall be subject to such terms and conditions as the Committee determines appropriate, including, without limitation, restrictions on the sale or other disposition of such shares and rights of the Company to reacquire such shares for no consideration upon termination of the participant's employment within specified periods. The Committee may require the participant to deliver a duly signed stock power, endorsed in blank, relating to the Common Shares covered by such an Award. The Committee may also require that the stock certificates evidencing such shares be held in custody until the restrictions thereon shall have lapsed. The participant shall have, with respect to the Common Shares subject to a Stock 4 Award, all of the rights of a holder of Common Shares of the Company, including the right to receive dividends and to vote the shares. 9. PERFORMANCE SHARES. (a) Performance Shares may be awarded either alone or in addition to other Awards granted under this Plan and shall consist of the right to receive Common Shares or cash of an equivalent value at the end of a specified Performance Period (defined below). The Committee shall determine the participants to whom and the time or times at which Performance Shares shall be awarded, the number of Performance Shares to be awarded to any person, the duration of the period (the "Performance Period") during which, and the conditions under which, receipt of the Common Shares will be deferred, and the other terms and conditions of the Award in addition to those set forth in this Section 9. The Committee may condition the grant of Performance Shares upon the attainment of specified performance goals or such other factors or criteria as the Committee shall determine. (b) Performance Shares awarded pursuant to this Section 9 shall be subject to the following terms and conditions: (i) Unless otherwise determined by the Committee at the time of the grant of the Award, amounts equal to any dividends declared during the Performance Period with respect to the number of Common Shares covered by a Performance Share Award will not be paid to the participant. (ii) Subject to the provisions of the Performance Share Award and this Plan, at the expiration of the Performance Period, share certificates and/or cash of an equivalent value (as the Committee may determine) shall be delivered to the participant, or his or her legal representative, in a number equal to the vested shares covered by the Performance Share Award. (iii) Subject to the applicable provisions of the Performance Share Award and this Plan, upon termination of a participant's employment with the Company for any reason during the Performance Period for a given Performance Share Award, the Performance Shares in question will vest or be forfeited in accordance with the terms and conditions established by the Committee. 10. PERFORMANCE UNITS. (a) Performance Units may be awarded either alone or in addition to other Awards granted under this Plan and shall consist of the right to receive a fixed dollar amount, payable in cash or Common Shares or a combination of both. The Committee shall determine the participants to whom and the time or times at which Performance Units shall be awarded, the duration of Performance Units to be awarded to any person, the duration of the period (the "Performance Cycle") during which, and the conditions under which, a participant's right to Performance Units will be 5 vested, the ability of participants to defer the receipt of payment of such Performance Units, and the other terms and conditions of the Award in addition to those set forth in this Section 10. The Committee may condition the vesting of Performance Units upon the attainment of specified performance goals or such other factors or criteria as the Committee shall determine. (b) The Performance Units awarded pursuant to this Section 10 shall be subject to the following terms and conditions: (i) At the expiration of the Performance Cycle, the Committee shall determine the extent to which the performance goals have been achieved, and the percentage of the Performance Units of each participant that have vested. (ii) Subject to the applicable provisions of the Performance Unit Award and this Plan, at the expiration of the Performance Cycle, cash and/or share certificates of an equivalent value (as the Committee may determine) shall be delivered to the participant, or his or her legal representative, in payment of the vested Performance Units covered by the Performance Unit Award. (iii) Subject to the applicable provisions of the Performance Unit Award and this Plan, upon termination of a participant's employment with the Company for any reason 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 Committee. 11. ADJUSTMENT PROVISIONS. (a) If the Company shall at any time change the number of issued Common Shares without new consideration to the Company (such as by stock dividend, stock split, recapitalization, reorganization, exchange of shares, liquidation, combination or other change in corporate structure affecting the Common Shares other than as contemplated under Section 5 hereof) or make a distribution of cash or property which has a substantial impact on the value of issued Common Shares, the total number of shares available for Awards under this 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. (b) In the case of any sale of assets, merger, consolidation, combination or other corporate reorganization or restructuring of the Company with or into another corporation which results in the outstanding Common Shares being converted into or exchanged for different securities, cash or other property, or any combination thereof (an "Acquisition"), subject to the provisions of this Plan and any limitation applicable to the Award: (i) any participant to whom a Stock Option has been granted shall have the right thereafter and during the term of the Stock Option to receive upon exercise 6 thereof the Acquisition Consideration (as defined below) receivable upon the Acquisition by a holder of the number of Common Shares which might have been obtained upon exercise of the Stock Option or portion thereof, as the case may be, immediately prior to the Acquisition; (ii) any participant to whom a Stock Appreciation Right has been granted shall have the right thereafter and during the term of such right to receive upon exercise thereof the difference on the exercise date between the aggregate Fair Market Value of the Acquisition Consideration receivable upon such acquisition by a holder of the number of Common Shares which are covered by such right and the aggregate reference price of such right; and (iii) any participant to whom Performance Shares or Performance Units have been awarded shall have the right thereafter and during the term of the Award, upon fulfillment of the terms of the Award, to receive on the date or dates set forth in the Award, the Acquisition Consideration receivable upon the Acquisition by a holder of the number of Common Shares which are covered by the Award. The term "Acquisition Consideration" shall mean the kind and amount of securities, cash or other property or any combination thereof receivable in respect of one Common Share upon consummation of an Acquisition. (c) Notwithstanding any other provision of this Plan, the Committee may authorize the issuance, continuation or assumption of Awards or provide for other equitable adjustments after changes in the Common Shares resulting from any other merger, consolidation, sale of assets, acquisition of property or stock, recapitalization, reorganization or similar occurrence upon such terms and conditions as it may deem equitable and appropriate. (d) In the event that another corporation or business entity is being acquired by the Company, and the Company assumes outstanding employee stock options and/or stock appreciation rights and/or the obligation to make future grants of options or rights to employees ofthe acquired entity, the aggregate number of Common Shares available for Awards under this Plan shall be increased accordingly. 12. NONTRANSFERABILITY. (a) Each Award granted under the Plan to a participant shall not be transferable by him otherwise than as required by law or by will or the laws of descent and distribution, and shall be exercisable, during his lifetime, only by him. In the event of the death of a participant while the participant is rendering services to the Company, each Stock Option or Stock Appreciation Right theretofore granted to him shall be exercisable during such period after his death as the Committee shall in its discretion set forth in such option or right at the date of grant (but not beyond the stated duration of the option or right) and then only: 7 (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 Stock Option or Stock Appreciation Right shall pass 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 death. (b) Notwithstanding Section 12(a), in the discretion of the Committee, Awards granted hereunder may be transferred to members of the participant's immediate family (which for purposes of this Plan shall be 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, but only if the Award expressly so provides. 13. OTHER PROVISIONS. Awards under the Plan may also be subject to such other provisions (whether or not applicable to any other Awards under the Plan) as the Committee determines appropriate, including without limitation, provisions for the installment purchase of Common Shares under Stock Options, provisions for the installment exercise of Stock Appreciation Rights, provisions to assist the participant in financing the acquisition of Common Shares, provisions for the forfeiture of, or restrictions on resale or other disposition of, Shares acquired under any form of Award, provisions for the acceleration of exercisability or vesting of Awards in the event of a change of control of the Company or other reasons, provisions for the payment of the value of Awards to participants in the event of a change of control of the Company or other reasons, or provisions to comply with Federal and state securities laws, or setting forth understandings or conditions as to the participant's employment in addition to those specifically provided for under the Plan. 14. FAIR MARKET VALUE. For purposes of this Plan and any Awards hereunder, Fair Market Value of Common Shares shall be the mean between the highest and lowest sale prices for the Company's Common Shares as reported on the NASDAQ National Market (or such other consolidated transaction reporting system on which such Common Shares are primarily traded) on the date immediately preceding the date of grant (or on the next preceding trading date if Common Shares were not traded on the date immediately preceding the date of grant), provided, however, that until the Company's Common Shares are readily tradeable on a national securities exchange or market system, or if the Company's Common Shares are not at the applicable time readily tradeable on a national securities exchange or other market system, Fair Market Value shall mean the amount determined in good faith by the Committee as the fair market value of the Common Shares of the Company. 15. WITHHOLDING. All payments or distributions made pursuant to the Plan shall be net of any amounts required to be withheld pursuant to applicable federal, state and local tax withholding requirements. If the Company proposes or is required to distribute Common Shares pursuant to the Plan, it may require the recipient to remit to it an amount sufficient to satisfy such tax withholding 8 requirements prior to the delivery of any certificates for such Common Shares. The Committee may, in its discretion and subject to such rules as it may adopt, permit an optionee or Award or right holder to pay all or a portion of the federal, state and local withholding taxes arising in connection with (a) the exercise of a Nonqualified Stock Option or a Stock Appreciation Right, (b) the receipt or vesting of Stock Awards, or (c) the receipt of Common Shares 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 the Company withhold Common Shares having a Fair Market Value equal to the amount to be withheld. 16. TENURE. A participant's right, if any, to continue to serve the Company as an officer, employee, independent contractor, or otherwise, shall not be enlarged or otherwise affected by such individual's designation as a participant under the Plan, nor shall this Plan in any way interfere with the right of the Company, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the participant from the rate in existence at the time of the grant of an Award. 17. DURATION, AMENDMENT AND TERMINATION. No Award shall be granted after June 29, 2006 (the "Expiration Date"); 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 the Company and the participant or such other persons as may then have an interest therein. Also, by mutual agreement between the Company and a participant hereunder, under this Plan or under any other present or future plan of the Company, Awards may be granted to such participant in substitution and exchange for, and in cancellation of, any Awards previously granted such participant under this Plan, or any other present or future plan of the Company. The Board may amend the Plan from time to time or terminate the Plan at any time. However, no action authorized by this Section 17 shall reduce the amount of any existing Award or change the terms and conditions thereof without the participant's consent. The approval of the Company's shareholders will be required for any amendment to the Plan which (i) would change the class of persons eligible for the grant of Stock Options as specified in Section 3 or otherwise materially modify the requirements as to eligibility for participation in the Plan, or (ii) would increase the maximum number of shares subject to Stock Options, as specified in Section 5 (unless made pursuant to the provisions of Section 11) or (iii) is required to be approved by the shareholders pursuant to the Code, Section 16 of the Act or by any stock market or exchange on which the Common Shares are listed. With respect to persons subject to Section 16 of the Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. Moreover, in the event the Plan does not include a provision required by Rule 16b-3 to be stated therein, such provision (other than one relating to eligibility requirements, or the price and amount of Awards) shall be deemed automatically to be incorporated by reference into the Plan insofar as participants subject to Section 16 of the Act are concerned. 9 18. GOVERNING LAW. This Plan and actions taken in connection herewith shall be governed 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). 19. SHAREHOLDER APPROVAL. The Plan was adopted by the Board of the Company and approved by the Company's shareholders effective June 30, 1996. 10 EX-10.2 6 EXHIBIT 10.2 OMEGA RESEARCH, INC. 1997 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN 1. PURPOSE. OMEGA RESEARCH, INC., a Florida corporation (the "Company"), hereby adopts the 1997 Nonemployee Director Stock Option Plan (the "Plan"). The purpose of the Plan is to attract and retain outstanding individuals to serve as members of the Board of Directors of the Company by providing such persons opportunities to acquire common stock, $.01 par value, of the Company ("Common Shares"), thereby strengthening the mutuality of interest between such persons and the Company's shareholders. 2. SHARES RESERVED UNDER THE PLAN. There is hereby reserved for issuance under the Plan an aggregate of One Hundred Seventy-Five Thousand (175,000) Common Shares, which shall be authorized but unissued shares. If there is a lapse, expiration, termination or cancellation of any option granted under the Plan, all unissued shares subject to or reserved for such option may again be used for new options granted under the Plan. 3. PARTICIPATION. Participation in the Plan is limited to members of the Board of Directors who are not salaried officers or employees of the Company or any of its direct or indirect subsidiaries (a "Nonemployee Director" or "Participant"). 4. OPTIONS TO BE GRANTED UNDER THE PLAN. Effective on the date of a Nonemployee Director's initial election to the Board of Directors, each Nonemployee Director shall automatically be awarded a nonqualified stock option to purchase Twelve Thousand (12,000) Common Shares (the "Initial Option"). Upon each re-election of such Nonemployee Director to the Board of Directors at the Company's annual meeting of shareholders ("Annual Meeting"), each Nonemployee Director shall automatically be awarded an additional nonqualified stock option (the "Additional Option") to purchase Three Thousand (3,000) Common Shares, provided, however, that a Nonemployee Director shall not be granted such Additional Option upon such re-election if such Nonemployee Director was granted an Initial Option in the immediately preceding twelve (12)-month period upon his or her initial election to the Board of Directors in accordance with this Section 4. The Company is authorized to provide the Participant with a stock option agreement consistent with the terms of the Plan. 5. OPTION EXERCISE PRICE. Each option granted under the Plan shall be exercisable at an option price equal to 100% of the Fair Market Value (as defined in Section 10 hereof) of the Common Shares on the date of grant hereunder. 1 6. LIMITATIONS ON EXERCISE. Any option granted under the Plan may be exercised (in accordance with Section 7 hereof) in whole or in part, from time to time after the date granted, subject to the following limitations: (a) No option granted hereunder may be exercised during the first year following the date such option was granted. Thereafter, each option may be exercised: (i) to a maximum cumulative extent of one-third (1/3) of the total shares covered by the option on or after the first anniversary of the date the option was granted; (ii) to a maximum cumulative extent of two-thirds (2/3) of the total shares covered by the option on or after the second anniversary of the date the option was granted; and (iii) to a maximum cumulative extent of 100% of the total shares covered by the option on or after the third anniversary of the date the option was granted. (b) Notwithstanding the limitations of Section 6(a) above, any option granted under the Plan shall become fully exercisable upon the death of the Nonemployee Director while serving on the Board of Directors or upon the Retirement (as hereinafter defined in this Section 6(b)) of the Nonemployee Director if such death or Retirement occurs on or after the first anniversary of the date such option was issued. For these purposes, "Retirement" means a Nonemployee Director's termination of service as a member of the Board of Directors after age 70 or at any time with the consent of the Board of Directors. (c) Any option granted under the Plan shall not be exercised after the earliest to occur of any of the following events: (i) more than ninety (90) days after termination of any Nonemployee Director's service as a member of the Board of Directors for any reason other than death or Retirement (and then only to the extent that such Nonemployee Director could have exercised such option on the date of termination); (ii) more than one hundred eighty (180) days after a Nonemployee Director's Retirement from the Board of Directors (and then only to the extent that such Nonemployee Director could have exercised such option on the date of Retirement, after giving effect to Section 6(b) above); 2 (iii) more than twelve (12) months after death of a Nonemployee Director (and then only to the extent that such Nonemployee Director could have exercised such option on the date of death, after giving effect to Section 6(b) above); or (iv) more than ten (10) years from the date the option is granted. 7. METHOD AND TIME OF EXERCISE: DELIVERY OF CERTIFICATES. Any option granted under the Plan shall be deemed exercised on the date written notice of exercise is received by the Secretary of the Company at the Company's corporate headquarters. Such notice shall be accompanied by: (a) a check payable to the Company for the purchase price of the shares to be purchased; or (b) delivery of Common Shares owned by the Participant for at least six (6) months whose Fair Market Value on the date of exercise equals the purchase price of the shares to be purchased; or (c) any combination of the foregoing. 8. NONTRANSFERABILITY. Any option granted under this Plan shall not be transferable other than as required by law or by will or the laws of descent and distribution, and shall be exercisable, during the Participant's lifetime, only by the Participant or the Participant's guardian or legal representative. If a Nonemployee Director dies during the option period, any option granted to such Participant may be exercised by his estate or the person to whom the option passes by will or the laws of descent and distribution, but only in accordance with Section 6 above. Notwithstanding the foregoing, an option shall automatically become transferable to the Participant's "immediate family members" or trusts or family partnerships for the benefit of such persons. For purposes of this Section 8, "immediate family members" shall mean the Participant's spouse and lineal descendants. 9. OTHER PROVISIONS; SECURITIES REGISTRATION. The grant of any option under the Plan may also be subject to other provisions as counsel to the Company deems appropriate, including, without limitation, such provisions as may be appropriate to comply with federal or state securities laws and stock listing requirements. 10. DEFINITION OF FAIR MARKET VALUE. The term "Fair Market Value" shall mean, as of any date, the mean between the highest and lowest sale prices of the Common Shares as reported on the NASDAQ National Market (or such other consolidated transaction reporting system on which such Common Shares are primarily traded) on the date immediately preceding the date of grant (or exercise where applicable), or if such Common Shares were not traded on such day, then the next preceding day on which the shares were traded, all as reported by such source as the Board of Directors may determine. 3 11. ADJUSTMENT PROVISIONS. If the Company shall at any time change the number of issued Common Shares without new consideration to the Company (such as by stock dividend or stock split), the total number of shares reserved for issuance under the Plan and the number of shares covered by each outstanding option and the exercise price thereunder shall be automatically adjusted so that the aggregate consideration payable to the Company and the value of each option shall not be changed. If, during the term of any option granted under the Plan, the Common Shares shall be changed into another kind of stock, securities, cash or other property, whether as a result of reorganization, sale, merger, consolidation, or other similar transaction, the Board of Directors shall cause adequate provision to be made whereby all Participants shall thereafter be entitled to receive, upon the due exercise of any outstanding options, the stock, securities, cash or other property such Participants would have been entitled to receive immediately prior to the effective date of any such transaction for Common Shares which could have been acquired through the exercise of such options. 12. AMENDMENT OR DISCONTINUATION OF PLAN. The Board of Directors may amend the Plan at any time or suspend or discontinue the Plan at any time, but no such action shall adversely affect any outstanding option. 13. GOVERNING LAW. The Plan and any options granted hereunder shall be governed 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 conflicts of laws). 14. SHAREHOLDER APPROVAL. The Plan was adopted by the Board of Directors and approved by the shareholders of the Company on July 24, 1997. 4 EX-10.3 7 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS EXHIBIT 10.3 SOFTWARE LICENSE, MAINTENANCE AND DEVELOPMENT AGREEMENT THIS SOFTWARE LICENSE, MAINTENANCE AND DEVELOPMENT AGREEMENT dated as of August 26, 1994, between DOW JONES TELERATE, INC., a New York corporation, with an office at One World Financial Center, 200 Liberty Street, New York, New York 10281 ("Telerate"), and OMEGA RESEARCH, INC., a Florida corporation with offices at 9200 Sunset Drive, Miami, Florida 33173 ("Omega"). W I T N E S S E T H: WHEREAS, Omega has previously developed the TradeStation software; WHEREAS, Telerate has requested that Omega modify the TradeStation software to create the Telerate Version of TradeStation; WHEREAS, Telerate desires to obtain from Omega, and Omega is willing to grant to Telerate, an exclusive license to promote, market, sell, sublicense and distribute the Telerate Version of TradeStation; WHEREAS, Telerate desires that Omega not, during the term of this Agreement, modify TradeStation or any Real-Time product to be compatible with the data feeds of the Telerate Competitors so as to enable the Telerate Competitors to offer a TradeStation or other Real-Time product similar to, and competitive with, the Telerate Version of TradeStation; WHEREAS, Telerate desires that Omega develop, and Omega is willing to develop, provided that Omega and Telerate mutually agree as herein provided, Enhancements to the Telerate Version of TradeStation at Telerate's request from time to time pursuant hereto; and WHEREAS, Telerate desires that Omega provide, and Omega is willing to provide to Telerate, certain maintenance and support services for (including required Modifications to) the Telerate Version of TradeStation. NOW, THEREFORE, in consideration of the promises and consideration herein contained, the parties hereby agree as follows: A. DEFINITIONS. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in Exhibit A. B. DEVELOPMENT OF THE TELERATE VERSION OF TRADESTATION. 1. DEVELOPMENT. Omega shall, at Omega's sole cost and expense (except as specifically otherwise provided in this Section B), use commercially reasonable efforts to modify TradeStation to create the Telerate Version of TradeStation, in accordance with the Specification, as promptly as is practicable. Omega will be dedicating substantial amounts of time and effort to the development of the Telerate Version of TradeStation, and will be incurring substantial costs in connection with the development of the Telerate Version of TradeStation, and Omega may be forgoing other business opportunities as a result of the time, effort and expense that will be dedicated by Omega to the development of the Telerate Version of TradeStation. Accordingly, although Omega will 2 use commercially reasonable efforts to develop the Telerate Version of TradeStation as quickly as is practicable, Omega shall, subject to the provisions of Subsection 9 below, have as much time as is reasonably required by Omega to complete the development of the Telerate Version of TradeStation and to correct any Errors or non-conformities revealed by the Quality Assurance Testing. 2. NOTICE OF COMPLETION. Upon completion of development of the Telerate Version of TradeStation, Omega shall promptly notify Telerate thereof. 3. TESTING. Within sixty (60) days following the service of the notice of completion, the initial Quality Assurance Testing shall be completed and the Material Error List (defined in Subsection 4 below), if any, shall be prepared. Telerate and Omega shall jointly conduct all Quality Assurance Testing. 4. ACCEPTANCE. If the initial Quality Assurance Testing objectively demonstrates that the Telerate Version of TradeStation performs in accordance with the Specification in all material respects, the Telerate Version of TradeStation shall be deemed Accepted (the date of such demonstration being the Acceptance Date), and either party shall at the request of the other execute and deliver a confirmatory letter to the effect that the Telerate Version of TradeStation has been Accepted. If the initial Quality Assurance Testing reveals Errors which are not Material Errors, the Telerate Version of TradeStation shall nevertheless be deemed Accepted and Omega shall commence making appropriate Modifications to correct such Errors as required by this Agreement. If the 3 initial Quality Assurance Testing reveals any Material Error(s), or objectively demonstrates that the Telerate Version of TradeStation does not perform in accordance with the Specification in all material respects, Telerate and Omega shall, within the sixty (60) day period referred to in Subsection 3 above, jointly prepare a written list describing all such Material Errors and failures to conform in all material respects (the "Material Error List"). Omega shall then commence to correct each of the items contained on the Material Error List. Promptly following completion of such correction(s) by Omega, Omega shall send a notice of correction to Telerate, within fifteen (15) days of which the Quality Assurance Testing shall again be performed to the extent necessary to demonstrate that the items on the Material Error List have been corrected in all material respects. In connection with such second Quality Assurance Testing, Telerate shall not be permitted to assert, for the purposes of preventing the occurrence of Acceptance, any Material Errors or failures so to conform not specified in the Material Error List, unless such additional Material Errors or failures have resulted from the corrections effected by Omega. If, in connection with such second Quality Assurance Testing, it is demonstrated that all of the items on the Material Error List have been corrected in all material respects, the Telerate Version of TradeStation shall be deemed Accepted (the date of such demonstration being the Acceptance Date). If, in connection with such second Quality Assurance Testing, it is demonstrated that all of the items on the Material Error List have 4 not been corrected in all material respects or new Material Errors or failures so to conform have arisen as a result of the correction(s) effected by Omega, the parties shall jointly prepare a second Material Error List within the fifteen (15) day period specified above, and the procedures for correction and re-testing and determining Acceptance set forth above shall continue to be followed until Acceptance occurs. Omega shall, in each instance, subject to the provisions of Subsection 9 below, have as much time as is reasonably necessary to make each set of corrections required. Telerate shall have no right to make any use whatever of the Telerate Version of TradeStation prior to Acceptance and unless Acceptance occurs, except as provided in Section C.1(b) below. 5. TELERATE-PROVIDED MATERIALS. To assist Omega in its development efforts, Telerate shall, at Telerate's sole cost and expense, provide to Omega the Telerate-Provided Materials. The Telerate-Provided Materials shall be used solely to develop, maintain and support the Telerate Version of TradeStation as provided in this Agreement. Omega acknowledges that any and all of the Telerate-Provided Materials are, as between Telerate and Omega, the sole property of Telerate and that all right, title and interest to such Telerate-Provided Materials is and shall remain with Telerate. Omega further acknowledges that the Telerate-Provided Materials may contain Confidential Information (as defined in Section M) of Telerate as well as copyrights of Telerate. Omega agrees that any Confidential Information included within the Telerate-Provided Materials is subject to the provisions of Section 5 M, and Omega shall not create any lien or other encumbrance on the Telerate-Provided Materials. 6. ASSISTANCE. Telerate shall, at Telerate's sole cost and expense, provide all technical assistance reasonably requested by Omega in connection with its use of the Telerate-Provided Materials. Omega shall not be deemed in default hereunder as a result of the failure of Telerate to provide, or any inadequacies in or of, the Telerate-Provided Materials or assistance of Telerate in the use thereof. Telerate shall provide to Omega all Telerate-Provided Materials necessary for Omega to commence development of the Telerate Version of TradeStation as soon as is reasonably possible following the date of this Agreement. Should the Telerate-Provided Materials prove to be inadequate, Telerate shall promptly provide to Omega, at its reasonable request, and at Telerate's expense, such other equipment, materials and information of or concerning Telerate as Omega reasonably requires in order to develop the Telerate Version of TradeStation. 7. EFFECT OF NON-ACCEPTANCE. In the event that the Telerate Version of TradeStation is not Accepted because of resort by Telerate to the provisions of Subsection 9 below (or Omega notifies Telerate in writing that, after expending the efforts described in Subsection 1 above, Omega is unable to develop the Telerate Version of TradeStation to be in conformance with the Specification in all material respects and will therefore cease its efforts in respect thereof): (i) neither party shall have any further obligation whatever to the other party; (ii) no license of any kind shall be 6 granted to Telerate (and Omega shall retain all rights to the Telerate Version of TradeStation) and the Pre-Sales License (defined in Section C.1(b) below) shall at such time be automatically terminated; (iii) each party shall bear its own costs and expenses in connection with this Agreement; and (iv) Omega shall return to Telerate, at Telerate's expense, all of the Telerate-Provided Materials. 8. PREPARATION FOR OPERATIONS; DOCUMENTATION. Telerate shall have a period of up to sixty (60) days following the Acceptance Date to prepare for the commencement of selling subscriptions for the Telerate Version of TradeStation. Accordingly, it is anticipated that the Royalty Commencement Date shall be approximately sixty (60) days following the Acceptance Date. During such period, Telerate shall prepare all necessary Documentation. Omega shall provide to Telerate, promptly following Acceptance, on disk in Microsoft Word format, all documentation currently available for TradeStation, which Telerate shall then modify as appropriate to create the Documentation. Omega will provide assistance as reasonably requested by Telerate in connection with Telerate's preparation of the Documentation. 9. FAILURE OF ACCEPTANCE TO OCCUR BY DATE CERTAIN. Notwithstanding anything to the contrary contained in Subsection 4 above, in the event that Omega fails to deliver the notice of completion referred to in Subsection 2 above by December 31, 1995, and such failure is not due, to any material extent, to acts, omission or delays on the part of Telerate, Telerate shall have the 7 right to terminate this Agreement at any time after December 31, 1995 and prior to January 15, 1996, by giving Omega written notice to that effect within such period. Further, notwithstanding anything to the contrary contained in Subsection 4 above, in the event that Acceptance does not occur by March 31, 1996, and the failure of Acceptance to occur by such date is not due, to any material extent, to acts, omissions or delays on the part of Telerate, Telerate shall have the right to terminate this Agreement at any time after March 31, 1996 and prior to April 15, 1996, by giving Omega written notice to that effect within such period. C. LICENSE OF THE TELERATE VERSION OF TRADESTATION. 1. EXCLUSIVE LICENSE. (a) Effective as of (but not before) the Royalty Commencement Date, Omega hereby grants to Telerate and its Affiliates an exclusive worldwide license to promote, market, sell, sublicense and distribute, either directly and/or through the use of Independent Distributors, the Telerate Version of TradeStation and all related Documentation (but not any other version of TradeStation), on a subscription or similar basis requiring periodic payment by the subscriber, customer or end user, for installation solely in Workstations and Stand-Alone Units for use by customers such as those Telerate currently serves. The Telerate Version of TradeStation may be promoted and sold by Telerate, its Affiliates and Independent Distributors as part of packages containing other products and services of Telerate. Omega shall provide a master set of disks of the Telerate Version of 8 TradeStation to Telerate and Telerate, its Affiliates and Independent Distributors may, subject to the requirements of Section M, copy such disks. Telerate, its Affiliates and Independent Distributors are not licensed, authorized or permitted in any manner to use, promote, market, sell, sublicense or distribute any version of TradeStation or any part thereof or any other product of Omega or any part thereof other than the Telerate Version of TradeStation ("Other Products"), and will not reproduce, prepare derivative works from, modify or display publicly any Other Products. Telerate, its Affiliates and Independent Distributors are prohibited from using the Telerate Version of TradeStation with any data feeds other than the current data feeds generated by Telerate or its Affiliates as specified in Exhibit A-2 to this Agreement or, provided the necessary Enhancement is made as provided for herein, any similar data feeds of Telerate or its Affiliates generated in the future, or any similar data feeds of Telerate or its Affiliates generated in the future with respect to which an Enhancement is not necessary. (b) Effective as of the date hereof and ending on the Royalty Commencement Date (at which time the license granted in Subsection (a) above shall become operative), Omega hereby grants to Telerate a license in the Telerate Version of TradeStation for the sole purpose of testing and reviewing, and following the Acceptance Date, advertising and promoting, the Telerate Version of TradeStation to the extent necessary and appropriate, in Telerate's reasonable judgment, to prepare for the sale, sublicensing and 9 distribution of the Telerate Version of TradeStation as permitted herein (the "Pre-Sales License"). 2. RIGHTS RESERVED. It is understood that TradeStation is essentially the same product as the Telerate Version of TradeStation, and that the development of the Telerate Version of TradeStation involves no more than modifying the current version of TradeStation to be compatible with the current data feeds of Telerate and its Affiliates specified in Exhibit A-2 to this Agreement. Accordingly, Omega retains, exclusively, and shall enjoy, exclusively, all rights to promote, market, sell, modify, distribute, license and use, and to reproduce, prepare derivative works from, modify or perform publicly or display, TradeStation and any other product of Omega (whether now existing or hereafter created or developed), or any part thereof, in any manner, in any version, and for any purpose, and to enter into agreements and arrangements relating thereto with any Person, which do not violate the restrictions contained in Subsection 3 below. 3. NON-COMPETITION. (a) BY OMEGA. Omega shall not enter into any agreement or arrangement with any of the Telerate Competitors to develop and then sell during the term of this Agreement any Real-Time product which is compatible with data feeds of the Telerate Competitors of substantially similar quality and content, as to the types of data, as those currently generated by Telerate. Omega further agrees that, in the event that Omega learns the specifications of data feeds of any of the Telerate Competitors of substantially similar 10 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. quality and content, as to the types of data, as those currently generated by Telerate, Omega shall not develop a new version of, or modify, TradeStation for the purpose of making TradeStation compatible with such specifications and then sell such new or modified version during the term of this Agreement. (b) PERSONAL NON-COMPETE. Concurrently herewith, Omega shall cause each of William and Rafael Cruz to execute the noncompetition agreement attached as Exhibit B in order to evidence their respective agreements to be bound personally by the covenants contained in Subsection 3(a). The failure of either of William or Ralph Cruz to comply with such noncompetition agreement shall also constitute a failure by Omega to comply with the applicable provisions of Subsection 3(a). D. ROYALTIES. 1. ROYALTY PAYMENTS. In consideration of Omega's grant of the exclusive license to Telerate hereunder, effective as of the Royalty Commencement Date, Telerate shall pay to Omega the following amounts: (a) EXISTING TELETRAC SUBSCRIBER STAND-ALONE FEE. For as long as an Existing TeleTrac Subscriber using a Stand-Alone Unit subscribes to, or otherwise uses, the Telerate Version of TradeStation on such Stand-Alone Unit (or a Workstation installed in place of that particular Stand-Alone Unit), Telerate shall pay to Omega ****** per month per Stand-Alone Unit (including after such time, if any, as such Stand-Alone Unit is converted to a 11 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS Workstation) for each such Existing TeleTrac Subscriber (the "Existing TeleTrac Subscriber Stand-Alone Fee"). (b) NEW STAND-ALONE FEE. For as long as a New Stand-Alone Subscriber subscribes to, or otherwise uses, the Telerate Version of TradeStation, Telerate shall pay to Omega ****** per month per Stand-Alone Unit for each such New Stand Alone Subscriber (the "New Stand-Alone Fee"). (c) WORKSTATION FEE. If the Telerate Version of TradeStation is installed or later used in any Workstation, and the monthly Incremental Fee to a Workstation Subscriber (viewed separately as to each Workstation) is the amount specified below, Telerate shall pay to Omega the amount specified below per month per Workstation for each Workstation Subscriber, for as long as such Workstation Subscriber subscribes to, or otherwise uses, the Telerate Version of TradeStation on such Workstation(s) (the "Workstation Fee"): *************** *************** --------------- --------------- *************** ******************************** *************** ******************************** *************** ******************************** *************** ******************************** *************** ******************************** In no event shall the Workstation Fee be less than $70.00 per month per Workstation. 2. EXCEPTIONS. Omega hereby acknowledges and agrees that no Existing TeleTrac Subscriber Stand-Alone Fee, New Stand-Alone Fee or Workstation Fee (collectively, the "Royalty Fee") payment is due with respect to (i) any copy of the Telerate Version of 12 TradeStation used by any subscriber subject to approval and returned to Telerate within 90 days following initial delivery to such subscriber (except with respect to amounts billed to such subscriber which such subscriber is obligated to pay), (ii) any copy of the Telerate Version of TradeStation provided to a subscriber on a free, trial basis, up to 90 days, but only with respect to the free trial time given to such subscriber up to 90 days, (iii) any copy remaining in the physical possession of, and used directly by, Telerate, its Affiliates or Independent Distributors solely for review, advertising or promotion of the Telerate Version of TradeStation, (iv) any copy given to a trade magazine or similar medium solely for the purposes of review in connection with media coverage, critique or review by such trade magazine or other medium of the Telerate Version of TradeStation, or (v) any copies used by Telerate or its Affiliates or Independent Distributors solely to test, maintain or support the Telerate Version of TradeStation. Except as provided in this Subsection 2, and in Subsection 1 above, there shall be no other uses by Telerate, its Affiliates or Independent Distributors of the Telerate Version of TradeStation, so that, except as provided in this Subsection 2, there may exist no use whatever of the Telerate Version of TradeStation for which a Royalty Fee is not payable. Telerate has informed Omega that it is Telerate's normal business practice to impose stringent pricing guidelines on the sale and distribution of Telerate products. Telerate agrees to impose equally stringent pricing guidelines with respect to the sale, 13 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. sublicensing and distribution of the Telerate Version of TradeStation by Telerate, its Affiliates and Independent Distributors so that each user of the Telerate Version of TradeStation constitutes a Workstation or a Stand-Alone Unit (as applicable) with respect to which a separate Royalty Fee is payable. 3. FIRST YEAR GUARANTY. Telerate hereby agrees that Omega shall be entitled to receive guaranteed minimum aggregate Royalty Fees (regardless of the aggregate Royalty Fees computed under Subsection 1 above) for the period commencing on the Royalty Commencement Date and ending on the first anniversary of the Royalty Commencement Date (the "First Anniversary") of **************** ************************************* (the "First Year Minimum"), payable in accordance with Subsection 6 below. 4. SECOND YEAR GUARANTY. Telerate hereby agrees that Omega shall be entitled to receive guaranteed minimum aggregate Royalty Fees (regardless of the aggregate Royalty Fees computed under Subsection 1 above) for the period commencing on the First Anniversary and ending on the second anniversary of the Royalty Commencement Date (the "Second Anniversary") of ******************* *********** (the "Second Year Minimum"), payable in accordance with Subsection 6 below. 5. THIRD YEAR GUARANTY. Telerate hereby agrees that Omega shall be entitled to receive guaranteed minimum aggregate Royalty Fees (regardless of the aggregate Royalty Fees computed under Subsection 1 above) for the period commencing on the Second 14 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSSIONS. Anniversary and ending on the third anniversary of the Royalty Commencement Date (the "Third Anniversary") of ********************************** (the "Third Year Minimum"), payable in accordance with Subsection 6 below. 6. PAYMENTS; STATEMENTS. (a) Subject to the following provisions of this Subsection 6, Royalty Fees are due quarterly and are payable no later than the 60th day following the end of the quarter to which they relate. (b) On or before the 30th day following the end of the calendar month containing the Royalty Commencement Date, Telerate shall pay to Omega an amount equal to one-twelfth of the First Year Minimum (or, if such month is a partial month, the pro-rated portion thereof). On or before the 30th day following the end of the next eleven (11) consecutive calendar months thereafter, Telerate shall pay to Omega an amount equal to one-twelfth of the First Year Minimum, and on or before the 30th day following the end of the month containing the First Anniversary (if by then the entire First Year Minimum has not been paid), Telerate shall pay to Omega for the portion of such month ending on the First Anniversary an amount equal to one-twelfth of the First Year Minimum (or, if such month is a partial month, the pro-rated portion thereof), so that, after all of such payments are made, Telerate has paid to Omega the entire First Year Minimum. (c) On or before the 30th day following the end of the calendar month containing the First Anniversary, Telerate shall pay 15 to Omega an amount equal to one-twelfth of the Second Year Minimum (or, if such month is a partial month, the pro-rated portion thereof). On or before the 30th day following the end of the next eleven (11) consecutive calendar months thereafter, Telerate shall pay to Omega an amount equal to one-twelfth of the Second Year Minimum, and on or before the 30th day following the end of the month containing the Second Anniversary (if by then the entire Second Year Minimum has not been paid), Telerate shall pay to Omega for the portion of such month ending on the Second Anniversary an amount equal to one-twelfth of the Second Year Minimum (or, if such month is a partial month, the pro-rated portion thereof) so that, after all of such payments are made, Telerate has paid to Omega the entire Second Year Minimum. (d) On or before the 30th day following the end of the calendar month containing the Second Anniversary, Telerate shall pay to Omega an amount equal to one-twelfth of the Third Year Minimum (or, if such month is a partial month, the pro-rated portion thereof). On or before the 30th day following the end of the next eleven (11) consecutive calendar months thereafter, Telerate shall pay to Omega an amount equal to one-twelfth of the Third Year Minimum, and on or before the 30th day following the end of the month containing the Third Anniversary (if by then the entire Third Year Minimum has not been paid), Telerate shall pay to Omega for the portion of such month ending on the Third Anniversary an amount equal to one-twelfth of the Third Year Minimum (or, if such month is a partial month, the pro-rated portion thereof) so 16 that, after all of such payments are made, Telerate has paid to Omega the entire Third Year Minimum. (e) Within sixty days following the end of each quarterly period, the aforesaid monthly payments of the applicable year's minimum guaranteed Royalty Fees shall be reconciled with the quarterly calculation of Royalty Fees for such quarterly period, as follows. If the calculation of Royalty Fees for such quarterly period results in a quarterly Royalty Fee amount which is greater than an amount equal to one-fourth of the First Year Minimum, Second Year Minimum, or Third Year Minimum (as applicable), then an amount equal to one-fourth of the First Year Minimum, Second Year Minimum or Third Year Minimum (as applicable) shall (assuming the required monthly payments of the applicable guaranteed minimum Royalty Fees have been made) be deducted from the Royalty Fees calculated to be payable for such quarterly period, and Telerate shall pay to Omega, within said sixty (60) day period, the balance. (f) Telerate shall provide to Omega the following statements with respect to the calculation of Royalty Fees and the basis therefor: (i) Within thirty (30) days following the end of each calendar month (or part thereof, as the case may be) following the Royalty Commencement Date, Telerate shall provide to Omega a separate statement covering the subscriptions in effect for the Telerate Version of TradeStation during such month which have been sold by Telerate or its Affiliates in each of Telerate's three (3) market regions (the Americas, Europe/Gulf, and Asia/Pacific). 17 Telerate represents and warrants that such three regions encompass all of the regions in which subscriptions for the Telerate Version of TradeStation shall be sold. (ii) Within sixty (60) days following the end of each calendar month (or part thereof, as the case may be) following the Royalty Commencement Date, Telerate shall provide to Omega one statement covering the subscriptions in effect for the Telerate Version of TradeStation during such month which have been sold by all Independent Distributors of Telerate and its Affiliates. (iii) Within sixty (60) days following the end of each quarterly period following, and each anniversary of, the Royalty Commencement Date, Telerate shall provide to Omega statements similar to those described in (i) and (ii) above for the quarterly or annual (as applicable) period covered. (iv) Each such monthly, quarterly and annual statement described above shall set forth, with respect to each subscription for the Telerate Version of TradeStation, (1) the subscriber's name, (2) the subscriber's account number, (3) the product code (i.e., Existing TeleTrac Subscriber Stand-Alone Unit, new subscriber Stand-Alone Unit or Workstation), (4) the quantity of units per subscriber (i.e., the quantity of Stand-Alone Units or Workstations, as applicable), (5) if a Workstation Subscriber, the amount of the Incremental Fee billed, (6) the Royalty Fee owed (the Incremental Fee and Royalty Fee columns shall be appropriately subtotaled and totaled in the statements), and (7) any other 18 information that is reasonably necessary to provide a reasonably detailed understanding of the basis of the calculation of the Royalty Fees or the amount due under Subsection 3, 4 or 5, as applicable. (v) All such statements shall be formatted in a manner that render such statements reasonably easy to read and understand by a reasonably sophisticated third party. In the event that Omega is unclear about any items set forth in a statement or how such items were determined, Telerate shall assist Omega to understand such items or how they were determined, as the case may be. 7. RECORDS. Telerate shall maintain complete and accurate records and files of all documents, matters and transactions which are pertinent or relate to the Telerate Version of TradeStation and the sale and use thereof by Telerate, its Affiliates and Independent Distributors (with respect to Affiliates and Independent Distributors, as more particularly described in Subsection 8 below), including, without limitation, the number, at all times, of Workstations and Stand-Alone Units in or from which the Telerate Version of TradeStation has been installed or is being used, and all information, records and files necessary to verify the correctness of the calculation and payment of the Royalty Fees and other payments due Omega hereunder (the "Records"). Telerate shall monitor and keep track of all users of the Telerate Version of TradeStation, including, without limitation, the number of Workstations and Stand-Alone Units at all times in or from which 19 the Telerate Version of TradeStation has been installed or is being used, so as to be capable at all times of computing and paying the appropriate Royalty Fees and other amounts due hereunder. Each Record shall be maintained and kept by Telerate for a period of three (3) years following the creation thereof. Omega shall have the right, upon reasonable prior written notice, at its expense, to inspect and conduct or cause to be conducted audits of the Records during Telerate's normal business hours once per year. Telerate shall fully cooperate in all such inspections and audits. Omega has informed Telerate that it intends to conduct a full audit of the Records annually. If any inspection or audit of the Records discloses an underpayment to Omega of five percent (5%) or more of the amount due, Telerate shall, promptly upon the demand of Omega, reimburse to Omega the reasonable cost of the inspection or audit. Once a particular period has been audited by Omega, Omega shall not again have the right to conduct an audit with respect to such period. All information obtained by Omega and its accountants from any such inspection or audit will be treated as Confidential Information as specified in this Agreement and will be used solely for the purpose of verifying the accuracy of the computation of the amounts due Omega hereunder and in connection with resolving any dispute arising in connection therewith. 8. AFFILIATES AND INDEPENDENT DISTRIBUTORS. For all purposes of this Agreement, including, without limitation, this Section D, it is understood that Telerate's Affiliates' and Independent Distributors' sale of subscriptions for, or other 20 sublicensing of, the Telerate Version of TradeStation to subscribers, customers and other end users as permitted hereunder constitute the basis upon which the Royalty Fees are computed and paid, as if Telerate were directly entering into such subscription or sublicensing arrangements with customers, subscribers or other end users of the Telerate Version of TradeStation, and that such Royalty Fees shall not be based on the consideration, if any, received by Telerate from its Affiliates and Independent Distributors for obtaining from Telerate the right to enter into such subscription or sublicensing arrangements with customers, subscribers or end users. Telerate shall take such steps as are necessary to ensure that all transactions made by its Affiliates and Independent Distributors pertaining to this Agreement are included in the Records, and within all statements required to be rendered by Telerate under this Agreement, and that all of such Records are capable of being audited at Telerate's New Jersey offices upon the exercise by Omega of its inspection and audit rights hereunder. E. MARKETING EFFORTS. 1. EFFORTS. (a) Commencing with the Acceptance Date, Telerate shall use commercially reasonable efforts to promote, market, sell and/or sublicense the Telerate Version of TradeStation throughout the world and, without limitation of the foregoing, shall use commercially reasonable efforts to offer and promote the Telerate Version of TradeStation to Existing TeleTrac Subscribers; provided, 21 however, that Telerate shall have complete control over, and discretion in determining, the manner of promoting, marketing, selling and/or sublicensing the Telerate Version of TradeStation. (b) In the event that any Person contacts Omega to subscribe for the Telerate Version of TradeStation or to obtain information about the Telerate Version of TradeStation, Omega shall refer such caller to Telerate. Omega shall have no authority to bind Telerate with respect to any such Person or any other third party. 2. COMPETITION. Subject to the provisions of Section I and Section M, nothing contained herein shall impair or restrict the right of Telerate, now or in the future, to develop, procure or market products or services which may be competitive with the Telerate Version of TradeStation or with any other product or service offered by Omega, nor obligate Telerate to obtain any other products or services which may currently or subsequently be offered by Omega, nor prevent Telerate from entering into similar agreements with other companies, including those in the same industry as Omega. 3. TRADEMARKS. Telerate shall have the right to market the Telerate Version of TradeStation under whatever trademarks or service marks it feels are appropriate and Omega shall have no proprietary rights in the marks used by Telerate in connection with the Telerate Version of TradeStation or in the packaging, advertising and promotional materials created by Telerate (except to the extent the "TradeStation" trademark or another trademark of 22 Omega is used by Telerate in connection therewith). Omega acknowledges that the names "TeleTrac" and "TeleTrac II" are proprietary to Telerate and Telerate acknowledges that the names "Omega" and "TradeStation" are proprietary to Omega. In the event that Telerate desires to use the "TradeStation" name or any variation thereof in connection with its promotion, marketing or sale of the Telerate Version of TradeStation, Omega shall, for a ten dollar, one-time royalty, license the use of such name for such purpose to Telerate for the term of this Agreement. F. MAINTENANCE AND SUPPORT SERVICES FOR THE TELERATE VERSION OF TRADESTATION. 1. NOTIFICATION. During the term of this Agreement, each of Telerate and Omega agrees to promptly notify the other in writing upon the discovery after Acceptance of any Error (including a Material Error) which is capable of being consistently duplicated. 2. ERRORS. During the term of this Agreement, upon the discovery of a Material Error, Omega shall, at no additional charge to Telerate, use commercially reasonable efforts to correct such Material Error as promptly as practicable but Omega shall in any event commence to address the problem within two business days after receiving written notice from Telerate of the discovery of a Material Error. During the term of this Agreement, upon the occurrence of any Error other than a Material Error, Omega shall (a) commence to address the problem within five (5) business days after receiving notice from Telerate of such Error, and 23 (b) use commercially reasonable efforts to correct such Error as promptly as practicable in accordance with industry standards. The parties acknowledge that there are certain Errors which are so insignificant that they are not addressed until the next version of the subject program is released ("Insignificant Errors"). With respect to such Insignificant Errors, Omega will, during the term of this Agreement, use commercially reasonable efforts to make the required Modification at such time as Omega works on the Enhancement that will result in the next version, if any, of the Telerate Version of TradeStation being released. The provisions of (a) and (b) above (together with access to the Source Code to the extent permitted under the escrow agreement referred to in Section J) shall constitute Telerate's sole remedy in the event of an Error which is not a Material Error. In the event that Omega notifies Telerate that it is unable to correct a Material Error, Telerate's sole remedy shall be to correct such Material Error and to recover from Omega Telerate's reasonable costs to correct such Material Error, or, if Telerate cannot correct the Material Error, Telerate's sole remedy shall be to terminate this Agreement. Omega shall not be responsible for any Errors or other problems to the extent caused by Telerate's maintenance and support of the Telerate Version of TradeStation. 3. TEMPORARY FIX. Upon the occurrence of an Error (including a Material Error), Omega shall, if full correction of the Error will take an extended period of time, and if requested by Telerate, and if technologically feasible, provide a "temporary 24 fix" to alleviate the adverse consequences of the Error to the extent practicable pending development of the Modification required fully to correct the Error. 4. TRAINING. Following the Acceptance Date, Omega shall provide to Telerate up to 480 man-hours (over twelve weeks) of on-site training with respect to the Telerate Version of TradeStation at Telerate's facilities worldwide. Omega will provide such training and support at Telerate's reasonable request at no expense to Telerate except for reasonable actual out-of-pocket expenses incurred, including, without limitation, airfare, hotel, meal and other incidental costs and expenses, which will be reimbursed by Telerate within 30 days following submission of appropriate supporting documentation. Omega shall provide Telerate with additional training at such times as may be mutually agreed upon for mutually agreed upon fees. 5. PRIMARY SUPPORT. In light of the substantial number of hours of free-of-charge training Omega will be providing to Telerate as described above in Subsection 4, Telerate, and not Omega, shall be responsible for providing primary support with respect to the Telerate Version of TradeStation to Telerate's customers. Telerate shall use commercially reasonable efforts to support and maintain the Telerate Version of TradeStation in a good and professional manner in accordance with industry standards. However, in order to assist Telerate from time to time in providing such support during the term of this Agreement, Omega shall (a) make available personnel expertly trained with respect to the 25 Telerate Version of TradeStation to provide Telerate with remote diagnostic support and maintenance services from Omega's offices during normal business hours and (b) outside of normal business hours, by means of remote diagnostic support and maintenance services provided from Omega's offices, assist Telerate in providing emergency customer support services on an as-needed basis by making a telephone number available to Telerate, which Telerate may call after-hours, following which a representative of Omega will return the call within a reasonable time. Omega shall, in accordance with industry standards, use commercially reasonable efforts to maintain appropriate personnel and other resources sufficient to perform its maintenance and support obligations under this Agreement. The parties understand that Omega's support obligations are intended to be secondary to Telerate's, and that Telerate's requests for support shall be made only after Telerate has exhausted all reasonably available internal means of solving the problem in question, including consultation with Telerate's head technicians with respect thereto. It is further agreed that only head technicians or regional managers of Telerate may contact Omega for assistance. G. TELERATE-REQUESTED ENHANCEMENTS. 1. CREATION. Telerate and Omega anticipate that Telerate may desire that Omega perform Enhancements from time to time during the term of this Agreement (including, but not necessarily limited to, an Enhancement to make the Telerate Version of TradeStation compatible 26 with the data feed currently being used to transmit Telerate financial market data on which the existing TeleTrac software is used in Stand-Alone Units). In the event that Telerate desires that an Enhancement be made, Telerate shall provide Omega with written notice to that effect, which shall include, in as much detail as is reasonably possible, the functional specification of the Enhancement requested. Promptly after receipt of such notice, Omega and Telerate shall endeavor, in good faith, (a) to determine whether the requested Enhancement will add value to the Telerate Version of TradeStation, and, if so, whether development of the Enhancement is justifiable and feasible in light of all applicable circumstances, including the cost of developing the Enhancement, and (b) assuming that the Enhancement will be valuable, justifiable and feasible as aforesaid, (i) to mutually agree upon complete specifications for the Enhancement, (ii) to mutually agree upon time-frames or parameters for the development and completion of the Enhancement, (iii) to mutually agree upon the testing procedures that will be used to test the Enhancement for acceptance purposes, and (iv) to mutually agree upon the costs, fees and other charges which will be paid by Telerate to Omega for the development of the Enhancement, including the timing and amount of any applicable progress payments. Provided that all of the foregoing is agreed upon in a writing signed by the parties, Omega shall use commercially reasonable efforts to develop and complete the Enhancement in accordance with the agreement of the parties. In the event that the Enhancement developed by Omega does not pass the 27 acceptance tests thereof mutually agreed upon, and cannot be corrected by Omega within a reasonable time thereafter so as to be capable of passing such tests, Telerate's sole remedy shall be to recover from Omega all amounts paid to Omega for developing the Enhancement, and Telerate shall have no right to make any use of, or to sell, sublicense or otherwise distribute or incorporate, such Enhancement. 2. INCORPORATION. In the event that Omega performs Enhancements, such Enhancements shall be the property solely of Omega and shall be subject to all of the provisions contained herein relating to the Telerate Version of TradeStation generally. H. OMEGA GENERATED ENHANCEMENTS. During the term of this Agreement, Omega shall, at its sole cost and expense (subject to the next sentence), and as promptly as is practicable, modify the Telerate Version of TradeStation to make the Telerate Version of TradeStation consistent with any enhancements, improvements or upgrades made to the TradeStation software generally. To the extent that it is necessary for Telerate to provide to Omega equipment, materials or information of or concerning Telerate in order to enable Omega so to modify the Telerate Version of TradeStation, Telerate shall provide same at its expense and shall, at its expense, provide to Omega such technical assistance in connection therewith as Omega may reasonably require. 28 I. TITLE TO TELERATE VERSION OF TRADESTATION. Telerate acknowledges and agrees that, as between Telerate and Omega, Omega is and shall remain the sole and exclusive owner of all rights, including copyright, in TradeStation and the Telerate Version of TradeStation, and all Enhancements thereof, including, but not limited to, all rights in and to the "Easy Language" portion of TradeStation and the Telerate Version of TradeStation, and that the same is or will be protected by applicable copyright laws. Telerate shall display appropriate copyright notices on all packaging, documentation, advertising, and promotional materials containing or describing the Telerate Version of TradeStation to the effect that the Telerate Version of TradeStation, and any Enhancements thereto, have been created and developed by Omega. In addition, the sign-on screen message and the "About" box of the Telerate Version of TradeStation program, as well as all Documentation, shall conspicuously display the appropriate copyright notice and a legend to the effect that the Telerate Version of TradeStation and any Enhancements have been created and developed by Omega. J. ESCROW ARRANGEMENT. Within sixty (60) days of execution of this Agreement, the parties will enter into an escrow agreement, at Telerate's expense, satisfactory in form and substance to both parties, with an independent third-party escrow agent (whose fees and expenses will be paid by Telerate) mutually acceptable to the parties, pursuant to which Omega shall deposit, and the escrow agent shall accept 29 deposit of, the Source Code for the Telerate Version of TradeStation. The escrow agreement shall provide Telerate with the right to inspect and verify the items deposited by Omega with the escrow agent, as more fully explained below. Telerate shall not copy any of the items deposited by Omega with the escrow agent while the items are deposited with the escrow agent, as more fully explained below. The escrow agreement shall also require that Omega update the escrow deposit within ten (10) days of the completion and acceptance of any Enhancement to the Telerate Version of TradeStation. The escrow agreement shall also contain the following provisions: (1) that the Source Code, and any modifications thereto, be provided to the escrow agent on disk; (2) that upon the initial deposit of, and after each modification to, the Source Code, one representative of Telerate will be permitted, under the supervision of Omega and at Omega's premises, to compile the Source Code in order to enable such representative to generate an executable program for the Telerate Version of TradeStation (and such representative can take back such executable program to Telerate for the sole purpose of verifying that the Source Code is complete); (3) that in no event will such representative be permitted to take any notes, or to view any screen longer than is absolutely necessary to compile an executable program, or to remove or take with him or her any materials other than the compiled executable program; (4) that Telerate shall have access to the escrow and the Source Code only in the event that (i) an Error (other than an Insignificant Error) has occurred which Omega has 30 notified Telerate Omega is unable to correct, or an Event of Default has occurred with respect to Omega based upon its failure to correct an Error (other than an Insignificant Error), or (ii) Omega is in default under this Agreement pursuant to Section N.2.(a)(iv) or (v), and Telerate has not terminated this Agreement as a result thereof and Omega's trustee in bankruptcy has rejected this Agreement or has refused to assume it; (5) that in order to obtain access to the escrow and the Source Code, Telerate must deliver to the escrow agent and to Omega an affidavit, made by a duly authorized officer on behalf of Telerate, to the effect that one of the conditions in subparagraph (4) above has occurred, following which Omega shall have the right, exercisable by similar affidavit delivered to the escrow agent and Telerate, to contest Telerate's right to have access to the Source Code, in which event the issue shall be resolved in accordance with a mutually agreed-upon, expeditious dispute-resolution mechanism set forth in the escrow agreement; (7) that, in the event Telerate gains access to the Source Code, it may use the Source Code for the sole purpose of correcting Errors (which, at Omega's election, shall be performed at Omega's premises under Omega's supervision) or, in the event of an Event of Default with respect to Omega pursuant to Section N.2.(a)(iv) or (v) (provided that Telerate does not terminate this Agreement as a result thereof and Omega's trustee in bankruptcy has rejected this Agreement or 31 has refused to assume it), to correct Errors and to otherwise maintain and support the Telerate Version of TradeStation for the term of this Agreement (and, in the event that Omega is in liquidation or has ceased operations, to make Enhancements during the term of this Agreement, any such Enhancements to be the property solely of Omega); and (8) that, except as specifically provided in Section Q.4, the escrow agreement shall automatically terminate, and Telerate shall have no further right to gain access to or use the Source Code, upon the expiration or any other termination of this Agreement. As long as Omega executes the escrow agreement, the failure of the escrow agreement to become effective (by reason of Telerate's or the escrow agent's refusal to sign it or other cause beyond Omega's control) shall not affect, diminish or impair any right or obligation of either party under this Agreement. The provisions of this Section J contain the only circumstances under which Omega shall ever be obligated to disclose the Source Code to Telerate. The form of escrow agreement agreed upon by the parties is attached as Exhibit C. The parties agree that Sun Bank/Miami, N.A., 777 Brickell Avenue, Miami, Florida, is an acceptable escrow agent. K. REPRESENTATIONS AND WARRANTIES. 1. GENERAL. Each party hereby represents, warrants and covenants that (a) it has the unrestricted right to enter into and perform this Agreement, (b) it is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has the power to own its assets 32 and properties and to carry on its business as now being conducted and (c) this Agreement (w) has been duly authorized, executed and delivered, (x) constitutes the valid and binding obligation of such party enforceable in accordance with its terms, (y) will not violate, to such party's actual knowledge, any law, statute, rule or regulation, or court or administrative agency judgment or decree, and (z) will not conflict with or result in any breach or default of any of the terms and conditions of any document or any agreement to which such party is a party. 2. INTELLECTUAL PROPERTY. (a) Omega hereby represents and warrants that there are no pending or threatened actions or litigation against Omega regarding intellectual property infringement or breach of license or maintenance agreements which would materially and adversely affect Telerate's use of the Telerate Version of TradeStation, and that Omega has received no written notice, and is not otherwise aware, of any claim or potential claim against it by any person with respect to the ownership or use of any intellectual property relating to TradeStation. (b) In the event that any of the representations and warranties of Omega contained in Subsection 1 or 2(a) above are false, and a third party brings suit against Telerate during the term of this Agreement asserting therein rights in the Telerate Version of TradeStation or damages or other relief as a result of an alleged infringing use by Telerate of the Telerate Version of TradeStation ("Indemnifiable Claims"), Omega will, subject to the 33 provisions and limitations set forth below, assume at its expense the defense of such suit using counsel reasonably acceptable to Telerate, and indemnify Telerate against any money damages or costs awarded in such suit which are based upon the Indemnifiable Claims. Omega's obligations under this Subsection (b) shall be excused if Telerate fails to provide to Omega prompt notice of any Indemnifiable Claim asserted or threatened against Telerate, but only to the extent that the delay in giving notice is prejudicial to Omega or otherwise prejudices Omega's ability to answer, defend against or settle such Indemnifiable Claim. Omega shall have exclusive control of the defense of such lawsuit and all negotiations relating to its settlement, and Telerate shall assist Omega at Omega's request in all necessary respects in connection with the defense and/or settlement of the lawsuit. However, Omega's total liability to incur out-of-pocket costs in the defense of any such suit or suits and to pay damages or costs awarded in or resulting from any such suit or suits (whether by judgment, settlement, or otherwise) shall be limited to the amount theretofore paid to Omega by Telerate under this Agreement, and Telerate shall advance to Omega any amounts required to be expended by Omega in excess of such limit. Amounts so advanced shall be credited to future payments due from Telerate to Omega under this Agreement. The foregoing provisions of this Subsection (b) state the entire liability of Omega to Telerate in connection with any third-party lawsuit brought against Telerate for which indemnity pursuant to this Subsection (b) is available. 34 3. DISCLAIMER. EXCEPT FOR THE EXPRESS WARRANTIES CONTAINED IN THIS SECTION K, OMEGA EXPRESSLY DISCLAIMS ANY WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE OR USE, AND MAKES NO REPRESENTATIONS OR WARRANTIES REGARDING TRADESTATION OR THE TELERATE VERSION OF TRADESTATION, OR THE COPYRIGHTS OF OMEGA THEREIN, INCLUDING, WITHOUT LIMITATION, THEIR SCOPE OR VALIDITY, OR ANY SYSTEMS, PRODUCTS OR SERVICES BASED THEREON OR MAKING USE THEREOF, INCLUDING, WITHOUT LIMITATION, NON-INFRINGEMENT OF RIGHTS OF THIRD PARTIES. 4. PERFORMANCE. Omega warrants and covenants that (a) the Telerate Version of TradeStation (i) shall be free from any material defects in material and workmanship, and (ii) shall perform in accordance with the Specification in all material respects and (b) the services to be provided to Telerate as specified herein shall be performed in a good and professional manner in accordance with industry standards. L. LIMITATION OF LIABILITY. 1. CERTAIN DAMAGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, IN NO EVENT SHALL OMEGA BE LIABLE TO TELERATE, REGARDLESS OF THE TYPE OR NATURE OF THE BREACH OR OTHER ACTION OR OMISSION ASSERTED OR PROVED, FOR SPECIAL, CONSEQUENTIAL, INDIRECT OR INCIDENTAL DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, LOSS OF INCOME, PROFITS, REVENUE, MARKET SHARE OR THE LIKE. FURTHER, IN NO EVENT SHALL TELERATE BE 35 ENTITLED TO ASSERT AGAINST OR RECOVER FROM OMEGA ANY DAMAGES OTHER THAN ITS DIRECT, ACTUAL, OUT-OF-POCKET DAMAGES WHICH, IN ALL EVENTS, SHALL BE CAPPED AT THE AMOUNT OF THE TOTAL PAYMENTS ACTUALLY RECEIVED BY OMEGA AS OF SUCH DATE PURSUANT TO THIS AGREEMENT. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, BUT EXCEPT AS SET FORTH IN THE LAST SENTENCE OF THIS SECTION L.1, IN NO EVENT SHALL TELERATE BE LIABLE TO OMEGA, REGARDLESS OF THE TYPE OR NATURE OF THE BREACH OR OTHER ACTION OR OMISSION ASSERTED OR PROVED, FOR SPECIAL, CONSEQUENTIAL, INDIRECT OR INCIDENTAL DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, LOSS OF INCOME, PROFITS, REVENUE, MARKET SHARE OR THE LIKE. FURTHER, IN NO EVENT SHALL OMEGA BE ENTITLED TO ASSERT AGAINST OR RECOVER FROM TELERATE ANY DAMAGES OTHER THAN ITS DIRECT, ACTUAL, OUT-OF-POCKET DAMAGES (WHICH, IT IS AGREED, WOULD INCLUDE THE RIGHT TO RECOVER FROM TELERATE ANY AMOUNTS DUE TO BE PAID OMEGA BY TELERATE PURSUANT TO SECTION D OF THIS AGREEMENT WHICH ARE NOT PAID BY TELERATE, INCLUDING APPLICABLE STATUTORY, PRE-JUDGMENT AND POST-JUDGMENT INTEREST THEREON). THE FOREGOING LIMITATIONS ON THE LIABILITY OF TELERATE SHALL NOT APPLY IN ANY RESPECT TO ANY CLAIM OF OMEGA BASED UPON (a) TELERATE, ITS AFFILIATES OR INDEPENDENT DISTRIBUTORS ENGAGING IN ACTIVITIES WHICH EXCEED THE SCOPE OF THE LICENSE GRANTED TO TELERATE IN SECTION C, (b) A BREACH OR VIOLATION BY TELERATE, ITS AFFILIATES OR INDEPENDENT DISTRIBUTORS OF ANY OF THE PROVISIONS OF SECTION I OR SECTION M, OR (c) ANY MISUSE, IMPROPER OR UNLAWFUL USE OR MISAPPROPRIATION OR INFRINGEMENT BY TELERATE, ITS AFFILIATES OR INDEPENDENT DISTRIBUTORS OF ANY 36 TRADEMARK, SERVICE MARK, COPYRIGHT, TRADE SECRET, OTHER INTELLECTUAL PROPERTY OR CONFIDENTIAL OR PROPRIETARY INFORMATION OF OMEGA. 2. USE. If a temporary restraining order, preliminary injunction or final injunction is obtained against Telerate's (or Telerate's customers') use of the Telerate Version of TradeStation due to an infringement of a patent or copyright, or an appropriation of a trade secret, Omega will promptly, at its option and sole expense, either (a) procure for Telerate (and Telerate's customers) the right to continue using the Telerate Version of TradeStation in its then current phase of development, or (b) replace or modify the Telerate Version of TradeStation in its then current phase so that it no longer infringes such patent or copyright or constitutes an appropriation of a trade secret; or if Omega is unable to promptly effect (a) or (b) above, then, (c), as Telerate's sole and exclusive remedy, accept Telerate's return of the Telerate Version of TradeStation (in which event this Agreement shall be deemed terminated) and refund to Telerate, subject to the provisions of Subsection 1 above, the full amount of Telerate's actual damages sustained as a result of the infringement or appropriation up to the total amount paid by Telerate to Omega to date under this Agreement. M. CONFIDENTIALITY; TRADE SECRETS. The parties recognize and acknowledge that, in connection with this Agreement, they may disclose to each other confidential or proprietary information (the "Confidential Information"). 37 "Confidential Information" shall mean the terms of this Agreement (as to both parties), the Telerate-Provided Materials, the Records and the statements to be rendered by Telerate to Omega pursuant to this Agreement (as to Telerate), the Source Code, the Object Code, and the Executable Code for TradeStation and the Telerate Version of TradeStation (as to Omega), as well as any other information or data received by either party from the other which has been marked "Proprietary and Confidential" by the disclosing party, or in respect of which the receiving party has received from the disclosing party specific written notice of its proprietary and confidential nature. Each party agrees to use the Confidential Information solely as contemplated under this Agreement and to hold in confidence and to protect all Confidential Information against disclosure to unauthorized third parties by using the same standard of care as it applies to its own confidential or proprietary information. All materials and documents supplied hereunder shall be and remain the property of the disclosing party, and the receiving party agrees to limit dissemination of, and access to, such materials and documents to its personnel having a need to know and agrees to return or destroy all such materials and documents (including purging any electronically stored records) upon request of the disclosing party. The above restrictions shall not apply to information in the public domain or generally known or which the receiving party can demonstrate has been independently developed by it prior to disclosure or was otherwise known to the receiving party prior to disclosure or was rightfully acquired by the 38 receiving party from third parties, or which is approved for release by the written authorization of the disclosing party, or which is required to be disclosed by law or regulation (including in connection with any securities filings, reports or prospectuses made or distributed or required to be made or distributed by either party). In addition to and without limitation of the foregoing, (a) Telerate acknowledges and agrees that the Source Code, Object Code and Executable Code for TradeStation and the Telerate Version of TradeStation (as same may be enhanced by Omega) contain and will contain trade secrets of Omega, and Telerate further agrees that it shall not (i) in any way attempt to discern Omega's trade secrets or proprietary information relating to TradeStation or the Telerate Version of TradeStation (as same may be enhanced), including without limitation the Source Codes, Object Codes and Executable Codes therefor (unless such discernment is not a violation of this Agreement or the escrow agreement referred to in Section J or a result of disclosures made by Omega to Telerate), or (ii) disassemble or decompile the subject software, or perform any like operation commonly known as "reverse engineering" with respect thereto, and (b) Omega acknowledges and agrees that the current Telerate twin environment API included in the Telerate-Provided Materials, as same may be modified, shall not be used by Omega for any purpose other than in connection with the license granted hereunder; provided, however, that the foregoing prohibition shall not apply to the current Telerate twin environment API, as same may be modified, if, but only if, Telerate publishes such current or 39 modified Telerate twin environment API to the information industry in a general announcement for the purpose of making such API, as same may have been modified, freely available without charge by Telerate and creating an "open system" by which computer software publishers may deal directly with Telerate subscribers whose devices employ such API, as same may have been modified. Omega acknowledges that Telerate may, during and following the term of this Agreement, engage in active efforts to develop a Real-Time product which is compatible with its data feeds that performs many of the same, or similar, functions as those performed by the Telerate Version of TradeStation (as same may be enhanced pursuant to this Agreement). Omega recognizes and agrees that the general functionality (i.e., system testing, system automation, indicators, alerts on indicators, system optimization, generation of commentary on the interpretation of an indicator, and color coding of bar charts based upon user-defined criteria, use or display of bar charts, candlestick charts, point and figure charts, market profiles, multiple bar charts on a screen, bar charts and studies on a screen, sizable chart windows, printing functions such as chart printing (WYSIWYG), data printing (tabular printing), automated printing and full historical printing (all data in history), and functions and displays such as password-based security, password-based permissioning, display of quotations and news with charts, automatic display of system alerts and alarms, storage of multiple pages (trade plans) in memory (RAM or on disk), retrieval of historical data from offsite data source (manual and automatic), saving charts and data to disk, sharing charts and data over 40 network, user editing of historical data and user-defined data items) performed and to be performed by TradeStation and the Telerate Version of TradeStation, respectively, as between Omega and Telerate, do not constitute trade secrets of Omega. However, the parties acknowledge that the particular ways in which TradeStation and the Telerate Version of TradeStation implement, present and offer (or will implement, present and offer, as the case may be) such functionality may contain protectable copyrights and trade secrets of Omega. N. TERM; EVENTS OF DEFAULT; AND TERMINATION. 1. TERM; OPTION TO EXTEND TERM. The term of this Agreement shall commence on the date hereof and, provided that Acceptance occurs, shall, subject to each of the early termination events specified in this Agreement, terminate on the Third Anniversary. Subject to the early termination events specified in this Agreement, Telerate shall have an option to extend the term of this Agreement for one additional year, so that its expiration date is the fourth anniversary of the Royalty Commencement Date (the "Extension Option"). In order to exercise the Extension Option, Telerate must give Omega written notice to that effect no later than the 180th day following the Second Anniversary. If the Extension Option is exercised by Telerate, it shall be irrevocable, and, (a) this Agreement shall continue in full force and effect, subject to the early termination events specified herein, until the fourth anniversary of the Royalty Commencement Date (the "Fourth Anniversary"), (b) Telerate agrees that Omega shall be entitled to receive guaranteed minimum aggregate Royalty Fees (regardless of 41 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMSSION. ASTERSIKS DENOTE SUCH OMISSIONS. the aggregate Royalty Fees computed under Section D.1) for the period commencing on the Third Anniversary and ending on the Fourth Anniversary of the greater of (i) ********************************* and (ii) the actual aggregate Royalty Fees payable for the period commencing on the Second Anniversary and ending on the Third Anniversary (the "Fourth Year Minimum"), (c) the Fourth Year Minimum shall be paid to Omega in monthly installments in the same manner as the first three year's guaranteed minimums are payable, subject to quarterly reconciliation against the calculation of actual Royalty Fees in the same manner as set forth in Section D.6, and (d) Telerate shall continue to supply statements to Omega and maintain Records with respect to such fourth year in the same manner and to the same extent as it is required to do so with respect to the first three years, as set forth in Section D. 2. EVENTS OF DEFAULT. (a) Any one or more of the following shall constitute an Event of Default hereunder: (i) Telerate fails to pay, when due, any amount required to be paid by it under Section D of this Agreement, if such payment is not made within thirty (30) days after Omega gives Telerate notice of such failure to pay; (ii) (A) Omega fails materially (it being understood that if the agreement or obligation in question is already subject to a materiality standard, the use of the word material here shall not further alter such standard) to comply with or perform any agreement or obligation hereunder (or either William Cruz or Rafael 42 Cruz, in cases where he is not acting on behalf of Omega, takes any action or enters into any transaction which would, if done by or on behalf of Omega, constitute a material failure to comply with or perform an agreement or obligation of Omega hereunder) if such failure is not remedied on or before the thirtieth day after notice of such failure; provided, however, that, in the event such failure cannot, through the use of commercially reasonable efforts, reasonably be remedied within such 30-day period, if Omega commences to remedy the failure within said 30-day period and diligently proceeds with such remedy until it is completed, no Event of Default shall be deemed to have occurred, or (B) Telerate fails materially (it being understood that if the obligation or agreement in question is already subject to a materiality standard, the use of the word material here shall not further alter such standard) to comply with or perform any agreement or obligation hereunder (other than failure to make a payment, which is covered by Subsection (i) above) if such failure is not remedied on or before the thirtieth day after notice of such failure; provided, however, that, in the event such failure cannot, through the use of commercially reasonable efforts, reasonably be remedied within such 30-day period, if Telerate commences to remedy the failure within said 30-day period and diligently proceeds with such remedy until it is completed, no Event of Default shall be deemed to have occurred; (iii) a representation or warranty made or deemed to have been made hereunder by Omega or Telerate (as the case may 43 be) proves to have been false or misleading in any material respect when made and the effects of the materially false or misleading representations and warranties are material and adverse to the other party and such effects cannot be cured or eliminated within a reasonable period of time after notice thereof; (iv) Omega or Telerate (as the case may be) (A) commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency, corporation or other similar law now or hereafter in effect that authorizes the reorganization or liquidation of such party or its debts or the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or (B) shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or (C) makes a general assignment for the benefit of creditors, or (D) admits in writing its inability to pay its debts as they become due, or (E) takes any corporate action to authorize any of the foregoing; or (v) An involuntary case or other proceeding shall be commenced by persons that are not bound by this Agreement against Omega or Telerate (as the case may be) seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any 44 substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) calendar days; or an order is entered by a court of competent jurisdiction affecting substantially all of the property or affairs of Omega or Telerate (as the case may be) under bankruptcy, insolvency or other similar laws as now or hereafter in effect and such order shall remain undismissed and unstayed for a period of sixty (60) calendar days. (b) Upon the occurrence of an Event of Default described in Section N.2(a)(i), in addition to any other rights and remedies available to Omega (including, without limitation, the right to recover all amounts not paid, together with statutory, pre-judgment and post-judgment interest thereon), Omega shall be entitled, in its sole discretion, to elect to terminate this Agreement and the license granted to Telerate hereunder immediately upon written notice to Telerate. (c) Subject to the provisions of Section F.2 and Section L, upon the occurrence of any other Event of Default by either party, in addition to any other rights and remedies available to the non-defaulting party, the non-defaulting party shall be entitled, in its sole discretion, to terminate this Agreement upon thirty (30) days' prior written notice to the defaulting party. (d) REMEDIES UPON ORDER FOR RELIEF BEING ENTERED UNDER BANKRUPTCY CODE. If an Event of Default described in Section N.2(a) (iv) or (v) shall have occurred with respect to Omega, and an order for relief pursuant to 11 U.S.C. /section/101, ET SEQ., as amended 45 or supplemented from time to time (the "Bankruptcy Code") shall have been entered, Telerate may without any further action or notice and at its sole discretion, either (i) deem this Agreement to be terminated effective as if such termination had occurred immediately before the date of entry of any such order for relief; (ii) seek to obtain upon an expedited basis such approval from a court of competent jurisdiction as may actually be necessary and required to effect immediate termination of this Agreement; or (iii) seek to obtain upon an expedited basis such approval from a court of competent jurisdiction as may actually be necessary and required to compel Omega or its trustee-in-bankruptcy to assume or reject this Agreement. Each of the parties hereto specifically agrees that (a) each of the termination provisions contained in this Section has been specifically bargained for, (b) each party has consented to termination of this Agreement at the time and in the manner authorized by this Section and (c) neither party shall in any way attempt or assist any other party that may attempt to delay, oppose or avoid any such termination of this Agreement. (e) RIGHTS AND OBLIGATIONS OF PARTIES PENDING ASSUMPTION OR REJECTION OF THIS AGREEMENT IN THE EVENT OF BANKRUPTCY OF OMEGA. In the event of the commencement of a case under the Bankruptcy Code by or against Omega, and during the period prior to the entry of an order directing or authorizing Omega or its trustee-in-bankruptcy to assume, reject or otherwise terminate this Agreement, Telerate may exercise its rights under Section 365(n) of the Bankruptcy Code, as such section may be amended or supplemented 46 from time to time, and the exercise of such rights or resort to any remedies provided thereunder shall not be deemed the exclusive rights and/or remedies available to Telerate, but Telerate is entitled to obtain any relief to the fullest extent provided by applicable bankruptcy or nonbankruptcy law (except as limited by this Agreement). (f) RIGHTS AND OBLIGATION OF PARTIES AFTER REJECTION OF THIS AGREEMENT IN THE EVENT OF BANKRUPTCY OF OMEGA. Omega specifically acknowledges and agrees that, in addition to the rights and remedies of Telerate under Section 365(n) of the Bankruptcy Code, as such section may be amended or supplemented from time to time, the rights and remedies of Telerate set forth in this Section have been specifically bargained for and Omega will not attempt to delay or oppose Telerate's exercise of such rights: (i) Omega or its trustee-in-bankruptcy shall allow Telerate without any interference by Omega or its trustee-in-bankruptcy to exercise all of its rights, including rights to prosecute or complete pending applications for trademarks and service marks for the Telerate Version of TradeStation or to seek other necessary governmental action and to take such actions as may be necessary to prevent infringement on, or violation of, any exclusive rights granted to Telerate by this Agreement; (ii) In the event that Omega's trustee-in-bankruptcy rejects this Agreement or refuses to assume it (and Telerate does not elect to terminate this Agreement), Telerate shall be entitled to have access to and use, and Omega shall not 47 interfere with Telerate's right to use, the Source Code, Object Code, Executable Code and Documentation relating to the Telerate Version of TradeStation and any Enhancements thereof in accordance with this Agreement, and, as to the Source Code, in accordance with, and as limited by, the provisions of SECTION J hereof and the escrow agreement to be executed pursuant thereto; and (g) The parties further acknowledge and agree that all provisions relating to the escrow arrangement constitute a supplementary agreement as such term is used in Section 365(n) of the Bankruptcy Code. (h) The provisions set forth in Sections N.2(c) through (g) shall be deemed to be material nonseverable parts of the Agreement. 3. EFFECT ON SUBSCRIBERS. Upon termination of this Agreement for any reason, including, without limitation, the expiration hereof, Telerate may not enter into any new subscriptions or other agreements or arrangements for the use of the Telerate Version of TradeStation, or agree to increase, or increase, the number of Stand-Alone Units, Workstations or users with respect to any subscriptions. Any existing subscriptions, as of the date of termination, may be continued until the expiration of such subscriptions and renewed (provided that no additional users, Stand-Alone Units or Workstations are added) pursuant to the terms of such subscriptions, and Telerate shall be obligated to continue to pay, and Omega will continue to receive, Royalty Fees for, and other amounts due hereunder in respect of or based upon, 48 such existing subscriptions for as long as the Telerate Version of TradeStation is in use. No minimum royalty guarantees shall be in effect following the Third Anniversary unless the Extension Option is exercised. At termination, Telerate shall provide to Omega a complete and accurate list of all then current subscribers and customers for the Telerate Version of TradeStation, which shall, for each subscriber and customer, set forth the expiration date of the subscription (or indicate that it is renewable on a periodic basis, identifying the period, if appropriate) and which shall include all other information required to be included in the statements required to be delivered by Telerate under Section D.6 hereof. Such statements shall continue to be rendered on a monthly, quarterly and annual basis (in the manner set forth in Section D.6) until all subscriptions for, and uses of, the Telerate Version of TradeStation have ceased. The expiration or other termination of this Agreement shall not affect or impair Omega's audit and inspection rights granted hereunder, or Telerate's duties to maintain the Records, which shall continue at least until all subscriptions for and uses of the Telerate Version of TradeStation have terminated and a full and final audit has been conducted by Omega, and until all disputes, if any, concerning payment of Royalty Fees and other amounts due hereunder have been fully and finally resolved. O. NOTIFICATION OF OFFER. If, at any time during the term of this Agreement, Omega receives a bona fide offer that it is willing to accept from a non- 49 Affiliated, unrelated third party who is not an employee of Omega to (i) acquire Omega or substantially all of Omega's assets or (ii) acquire a substantial portion of the stock or assets of Omega, or Omega enters into serious and substantial negotiations with respect thereto, Omega shall notify Telerate in writing of the fact that it has received such an offer or has commenced such serious negotiations. It is understood that no such notification is required to be given by Omega in connection with any public offering of its capital stock. Omega is under no obligation, however, to afford to Telerate the right to match or to make any offer, to enter into any negotiations of any kind with Telerate, or to disclose to Telerate the nature or terms of the offer or negotiations, the identity of the offeror or party with whom Omega is negotiating, or any other fact or circumstance of or relating to the offer or the negotiations. Any such notice given by Omega under this Section O shall be held in strict confidence by Telerate. P. NON-SOLICITATION. To the fullest extent permitted by law, Omega agrees not to solicit the employment of or employ any employee of Telerate or any of its Affiliates, and Telerate agrees not to solicit the employment of or employ any employee of Omega or any of its Affiliates, in each case, during the period commencing the date hereof and ending on the date that is twenty-four (24) months following the expiration or termination of this Agreement; 50 provided, however, in no event shall such period of restriction terminate prior to June 30, 1998. Q. MISCELLANEOUS. 1. NOTICES. All notices, requests and other communications hereunder shall be in writing and shall be delivered in person or sent by commercial overnight courier (such as Fedex) or certified mail, return receipt requested: (a) If to Telerate, to: Dow Jones Telerate, Inc. One World Financial Center 200 Liberty Street New York, NY 10281 Attention: President with a copy to: Dow Jones Telerate, Inc. One World Financial Center 200 Liberty Street New York, NY 10281 Attention: Legal Department (b) If to Omega, to: Omega Research, Inc. 9200 Sunset Drive Miami, Florida 33173 Attention: William and Rafael Cruz with a copy to: Rubin Baum Levin Constant Friedman & Bilzin 2500 First Union Financial Center 200 S. Biscayne Boulevard Miami, Florida 33131 Attention: Marc J. Stone, Esq., or to such other addresses as may be stipulated in writing by the parties pursuant hereto. Unless otherwise provided, notice shall 51 be effective on the date it is officially recorded as delivered by return receipt, the courier service, or equivalent. 2. FORCE MAJEURE. No party hereto shall be deemed to be in default of any provision of this Agreement, or in default for failures in performance, resulting from acts or events beyond the reasonable control of such party (such acts shall include but not be limited to, acts of God, or civil or military authority, civil disturbance, war, strikes, fire, lightning, hurricanes, tornado, power outages, or other similar catastrophes or events). 3. AMENDMENT. This Agreement may not be amended except by written instrument executed by each of the parties hereto. 4. BINDING AGREEMENT; ASSIGNMENT. (a) This Agreement shall be binding upon and shall inure to the benefit of the parties and the parties' respective successors at law and permitted assigns. Neither this Agreement nor any obligations or duties hereunder may be assigned or delegated by any party hereto without the prior written consent of the other party; provided that each party shall be entitled without such consent to assign its rights and obligations hereunder to any Affiliate or in connection with a sale (direct or indirect, by merger, sale of capital stock or otherwise) of all or substantially all of its assets; provided, however, if Omega directly or indirectly (by merger, sale of capital stock or otherwise) sells all or substantially all of its assets to one of the Telerate Competitors, Telerate may, within the thirty (30) day period following written notice from Omega that Omega has signed a 52 contract to sell, or has sold, substantially all of its assets (directly or indirectly, by merger, sale of capital stock or otherwise) to a Telerate Competitor, terminate this Agreement by giving written notice to Omega to that effect within such thirty (30) day period. Termination of this Agreement in this circumstance shall occur and be effective on the earlier of (i) the date such notice of termination is given and (ii) the Third Anniversary. (b) In the event, but only in the event, that Telerate so terminates this Agreement following said notice of sale of Omega to a Telerate Competitor, (i) Telerate shall have a non-exclusive one-year license to continue to sell new subscriptions for the Telerate Version of TradeStation as permitted hereunder (but the non-competition obligations of Omega, William Cruz and Rafael Cruz shall, as of the date of termination, automatically cease and be of no further force or effect), (ii) such non-exclusive license shall terminate on the first anniversary of the date of termination of this Agreement, (iii) it is understood that Omega shall, in this circumstance of termination only, continue to be bound by its maintenance and support obligations under Section F, but shall not continue to be bound by any obligation to develop any Enhancements for the Telerate Version of TradeStation or to perform any other action or obligation under this Agreement, (iv) Telerate's obligation to pay Royalty Fees (except for a guaranteed minimum, which shall not apply to this one-year non-exclusive license), render statements and maintain Records shall continue to be in 53 force; and (v) the escrow agreement described in Subsection J shall, as contemplated in the form of escrow agreement attached, be extended for such additional year. (c) No parties other than Telerate and Omega, and their respective successors at law and permitted assigns (provided that such successors or permitted assigns have expressly assumed this Agreement in writing), shall have any right or standing to assert or enforce any right or obligation under this Agreement. 5. HEADINGS. The headings of sections and paragraphs herein, and the "WHEREAS" clauses contained on pages 1 and 2 of this Agreement, are included for convenience of reference or context and shall not control the meaning or interpretation of any of the provisions of this Agreement. 6. SURVIVAL. The provisions of this Section and of SECTIONS A, B.7, D, I, K, L.1, M, N AND P ONLY shall survive any termination or expiration of this Agreement. 7. GOVERNING LAW. This Agreement shall be controlled, construed and enforced in accordance with the laws of the State of New York, other than laws relating to conflicts of law. 8. SEPARABILITY. If any provision of this Agreement or the application thereof to any person or circumstance shall to any extent be held to be invalid or unenforceable, the remainder of the Agreement, or the application of such provision to persons or circumstances as to which it is not held to be invalid or unenforceable, shall not be affected thereby, and each provision 54 shall be valid and be enforced to the fullest extent permitted by law. 9. ENTIRE AGREEMENT. This Agreement, together with all Exhibits, contains the entire understanding of the parties and supersedes all previous and contemporaneous verbal and written agreements. 10. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument. 11. CONSTRUCTION. The parties acknowledge and confirm that this Agreement and each of the Exhibits hereto have been heavily and thoughtfully negotiated by the parties over an extended period of time and that any ambiguities contained herein or therein shall therefore not in any manner be construed against the draftsman or alleged draftsman hereof or thereof. IN WITNESS WHEREOF, the undersigned parties have duly executed and delivered this Agreement as of the day first above written. DOW JONES TELERATE, INC. OMEGA RESEARCH, INC. By: /s/ CARL M. VALENTI By: /s/ WILLIAM CRUZ ----------------------- ------------------------ Name: Carl M. Valenti Name: William Cruz Title: President Title: President 55 EXHIBIT INDEX EXHIBIT DESCRIPTION ------- ----------- A Definitions A-1 Description of Telerate- Provided Materials A-2 Description of Data Feeds for Telerate Version of TradeStation B Noncompetition Agreement of William Cruz and Rafael Cruz C Form of Escrow Agreement D QA Test Script 56 EXHIBIT A DEFINITIONS ACCEPTANCE; ACCEPTED: When the Telerate Version of TradeStation has successfully completed Quality Assurance Testing as described in Section B of the Agreement. ACCEPTANCE DATE: The date Telerate has Accepted or is deemed to have Accepted the Telerate Version of TradeStation as described in Section B of the Agreement. AFFILIATE: With respect to any individual or entity, any other individual or entity, directly or indirectly, through one or more intermediaries, Controlling, Controlled by, or under common Control with the original individual or entity. CONTROL: The possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of an entity, whether through the ownership of any securities, by contract or otherwise. DOCUMENTATION: All existing written descriptive and instructional information published by Omega for use by TradeStation customers relating to the use and operation of TradeStation Version 3.5, as same shall be appropriately modified by Telerate pursuant to this Agreement to become the documentation for the Telerate Version of TradeStation. ENHANCEMENT: Any improvement or upgrade to the Telerate Version of TradeStation, whether minor or substantial. ERROR: Any failure of the Telerate Version of TradeStation to perform the applicable functions or conform to the Specification. EXECUTABLE CODE: With respect to TradeStation or the Telerate Version of TradeStation, a set of machine readable instructions that has been assembled or compiled from the Source Code and Object Code and linked and that can operate on the appropriate computer without further compiling, assembling or linking. EXISTING TELETRAC SUBSCRIBER: All subscribers of Telerate, its Affiliates or Independent Distributors which are using the existing TeleTrac software in a Dow Jones Telerate Stand-Alone Unit at the Royalty Commencement Date; provided, however, that such a subscriber is considered an Existing TeleTrac Subscriber (for purposes of determining whether an Existing TeleTrac Subscriber Stand-Alone Fee, as opposed to one of the other Royalty Fees, is payable) only with respect to the number of Stand-Alone Units of such subscriber which use the existing TeleTrac software at the Royalty Commencement Date (whether or not said existing Stand-Alone Units are converted or later converted to Workstations -- i.e., the Existing TeleTrac Subscriber Stand-Alone Fee shall continue to be payable in respect of such existing units, even after their conversion, if any, to Workstations); provided further, however, that, any additional Stand-Alone Units or Workstations of such subscriber which receive the Telerate Version of TradeStation shall constitute New Stand-Alone Units or Workstations (as applicable), with respect to which such subscriber shall be considered a New Stand-Alone Subscriber and/or Workstation Subscriber (as applicable) and in respect of which New Stand-Alone Fees and/or Workstation Fees (as applicable) are payable. INCREMENTAL FEE: With respect to each individual use of the Telerate Version of TradeStation for which a Royalty Fee is payable, the gross amount charged by Telerate in United States Dollars to a Telerate subscriber pursuant to the subscription for such use of the Telerate Version of TradeStation (i.e., per Workstation), not including sales and similar taxes, if any, added to the price thereof which are remittable by Telerate. The Incremental Fee shall not be reduced by royalties or other amounts or consideration paid to Independent Distributors or others or any other amounts except for said taxes. If, with respect to any subscription, the Telerate Version of TradeStation is bundled with, sold together with, or incorporated into, one or more other computer programs or products of Telerate (a "bundle") for one combined price (a "bundled selling price"), for the purposes of calculating the 2 Incremental Fee hereunder: the separate list price of each product included in the bundle (including the list price for the Telerate Version of TradeStation) will be added together (the "non-bundled combined price"); if the non-bundled combined price equals the bundled selling price, the Incremental Fee will be the list price for the Telerate Version of TradeStation; if the non-bundled combined price exceeds the bundled selling price, each list price included in the non-bundled combined price shall be reduced PRO RATA until the non-bundled combined price equals the bundled selling price, and the Incremental Fee shall equal the list price for the Telerate Version of TradeStation as so reduced on such PRO RATA basis. INDEPENDENT DISTRIBUTORS: Unaffiliated entities who distribute Telerate products and services on behalf of Telerate on a commission or royalty basis. MATERIAL ERROR: Any Error which materially impairs the subscriber's ability to use as a whole the Telerate Version of TradeStation or any Error which substantially impairs the value of such program for the typical end user. MODIFICATION: A change or addition to the Telerate Version of TradeStation that establishes conformity of the Telerate Version of TradeStation to the Specification, or a procedure or routine that eliminates the practical adverse effect on Telerate's subscribers of such a nonconformity which was observed in the regular operation of the Telerate Version of TradeStation (and is capable of being consistently duplicated). NEW STAND ALONE SUBSCRIBER: New Stand Alone Subscriber shall mean any subscriber who is not an Existing TeleTrac Subscriber who subscribes to the Telerate Version of TradeStation from Telerate or its Affiliates or Independent Distributors, as, when and so long as used or to be used pursuant to such subscription on Stand Alone Unit(s). OBJECT CODE: With respect to TradeStation or the Telerate Version of TradeStation, a set of machine readable instructions generated by the compilation of the Source Code. 3 PERSON: Any entity or individual. QA TEST SCRIPT: The test script to be used to conduct the Quality Assurance Testing, a copy of which is attached as Exhibit D, which, if capable of being followed in all material respects, will establish the conformance of the Telerate Version of TradeStation to the Specification. Within thirty (30) days following the date of the Agreement, the parties shall jointly develop a more detailed QA Test Script, which, once completed and agreed upon by the parties, shall serve as the QA Test Script for all purposes of the Agreement. The parties agree to cooperate in good faith to develop jointly and agree upon such more detailed QA Test Script within said 30-day period. If such more detailed QA Test Script is not jointly developed and agreed upon within said 30-day period, the QA Test Script attached as Exhibit D shall serve as the QA Test Script for all purposes of the Agreement. The purpose of developing a more detailed QA Test Script is not to expand the functionality that is to be developed or demonstrated by the Telerate Version of TradeStation (as described in Exhibit D), but rather to specify in more detail the testing procedures that will be used to determine whether the more general guidelines set forth in Exhibit D have been met. QUALITY ASSURANCE TESTING: The testing of the Telerate Version of TradeStation in accordance with the QA Test Script to determine whether the Telerate Version of TradeStation conforms to the Specification, and each such subsequent testing performed prior to Acceptance to determine whether or not Acceptance has occurred, as described in Section B. REAL-TIME: With respect to the TradeStation program or any similar program, software that receives and displays data on a "real-time" or instantaneous basis, and which is not delayed in any fashion, or which displays data on no longer than a 10-minute delay basis. ROYALTY COMMENCEMENT DATE: The earlier of (i) sixty (60) calendar days after the Acceptance Date, and (ii) the date the first subscription for or use of the Telerate Version of TradeStation is received or 4 occurs for which a Royalty Fee is payable pursuant to the Agreement. SELL; SALE; SELLING: The terms "sell", "sale" and "selling", as they relate to the exploitation by Telerate of its rights under this Agreement, mean the sublicensing by Telerate, its Affiliates and Independent Distributors (on behalf of Telerate or Telerate's Affiliates) pursuant to this Agreement of the Telerate Version of TradeStation product to subscribers, customers and other end-users under subscriptions or similar arrangements providing for periodic payment therefor by such subscribers, customers and other end users, and do not refer to the sale or disposition, as such words are commonly understood, of the Telerate Version of TradeStation or rights therein. SOURCE CODE: With respect to TradeStation or the Telerate Version of TradeStation, the form of code which is human readable and which can be translated by a compiler or assembler for execution on a computer. The Source Code will be in a language that is customarily understood by competent computer programmers (e.g., C, C++, Assembly Language). SPECIFICATION: Specification, as it relates to the Telerate Version of TradeStation, means that the Telerate Version of TradeStation will have the same functionality in all material respects as TradeStation Version 3.5, as reflected in the documentation for TradeStation Version 3.1 which has been annotated by Omega to describe the two new features Version 3.5 will contain (i.e., commentary on the interpretation of analysis techniques (marketed by Omega as "fuzzy logic") and "trading system optimization"), copies of which have been delivered to Telerate. STAND-ALONE UNIT: A Stand-Alone Unit is one computer that will run the Telerate Version of TradeStation but will not be linked by network to any other computers. However, (i) if such computer is providing access to the Telerate Version of TradeStation on more than one screen, each such screen shall constitute a separate Stand-Alone Unit, and (ii) if any such screen may be accessed by more than one keyboard, each additional keyboard shall constitute a separate Stand-Alone Unit. 5 TELERATE COMPETITORS: Bloomberg, Reuters, Knight-Ridder, Commodity Quote Graphics and such parties' Affiliates and successors, whether currently existing or existing in the future. TELERATE-PROVIDED MATERIALS: The equipment and materials provided to Omega to develop the Telerate Version of TradeStation as specified in Exhibit A-1 hereto. TELERATE VERSION OF TRADESTATION: A version of TradeStation that is generally compatible with the data feeds generated by Telerate and its Affiliates (such data feeds are specified in Exhibit A-2 hereof) and, assuming no Enhancement is required, similar data feeds of Telerate and its Affiliates which may be generated during the term of the Agreement. TELETRAC: The DOS software developed by Telerate to analyze price data and marketed as TeleTrac Version 2.4 for use solely on Stand-Alone Units. TRADESTATION: The technical analysis program that operates in Real-Time as more fully described in the definition of "Specification" above. WORKSTATION: A Workstation is one computer receiving or able to access Telerate data (regardless of what software programs are being used in connection with such data), in or from which the Telerate Version of TradeStation would reside or could be accessed either alone or with other applications and utilities, and which would remain linked by a network with one or more other computers which will also have Telerate data. However, (i) if such computer is providing access to the Telerate Version of TradeStation on more than one screen, each such screen shall constitute a separate Workstation, and (ii) if any such screen may be accessed by more than one keyboard, each additional keyboard shall constitute a separate Workstation. A single network may have many Workstations. 6 WORKSTATION SUBSCRIBER: Any subscriber which subscribes to the Telerate Version of TradeStation from Telerate or its Affiliates or Independent Distributor, as, when and so long as used or to be used pursuant to such subscription on one or more Workstations. 7 EXHIBIT A-1 DESCRIPTION OF TELERATE-PROVIDED MATERIALS To be delivered and fully installed at Omega's premises: 1. 2 fully functional TeleTrac units (hardware, software and fully enabled data feed), fully enabled as to capability with Telerate data available through the data feed. 2. 1 Twin Server (hardware, software and all applicable data feeds). 3. Software and enablement for ten workstation sites running off the Twin Server. 4. 15 copies of complete and detailed specifications for the current Telerate twin environment API (with sufficient detail to enable Omega to modify TradeStation to be compatible with such environment). To be delivered and fully installed at Cruz residence in Gables Estates, Florida: One copy of software (and full enablement including all data available on the data feed) of the upcoming Telerate Twin environment which allows for the server and the workstation software to be running on the same computer. Plus: all other materials, equipment, information and assistance required by Omega from time to time in connection with the development of the Telerate Version of TradeStation. EXHIBIT A-2 DESCRIPTION OF DATA FEEDS FOR TELERATE VERSION OF TRADESTATION The Telerate Workstation server commonly known as "Twin Server", as it operates to transmit Telerate financial market data, which will run concurrently on the same computer that will be running the Telerate Version of TradeStation. 2 EXHIBIT B NONCOMPETITION AGREEMENT NONCOMPETITION AGREEMENT, dated as of August __, 1994, by and among WILLIAM CRUZ and RAFAEL CRUZ (collectively, the "Cruzes"), and DOW JONES TELERATE, INC., a York corporation ("Telerate"). PRELIMINARY STATEMENT Telerate and Omega Research, Inc., a Florida corporation currently owned by the Cruzes ("Omega"), have, on the date hereof, entered into a certain Software License, Maintenance and Development Agreement (the "License Agreement). Pursuant to Section C.3 of the License Agreement, Omega has made certain negative covenants to Telerate. In order to comfort Telerate that the Cruzes will not do outside of Omega what Omega cannot do directly pursuant to Section C.3 of the License Agreement, the Cruzes have, subject to the important bargained-for limitations described below, agreed to be personally bound to the provisions of Section C.3 of the Agreement. NOW, THEREFORE, it is agreed as follows: 1. PRELIMINARY STATEMENT. The Preliminary Statement is true and correct and constitutes a part hereof. 2. COVENANT. Each of the Cruzes covenants that he shall be bound personally to the covenants of Omega set forth in Section C.3 of the License Agreement, and that he will not take, and will refrain from taking, any action which Omega is prohibited from taking under said Section C.3 of the License Agreement. The Cruzes are not executing this document for any other purpose, and are in no way or manner guarantors or co-makers of any covenant or obligation of any kind or nature of Omega set forth in the License Agreement or any other agreement or instrument executed or delivered in connection therewith. 3. LIMITATION OF LIABILITY. In the event that either of the Cruzes breaches this Agreement, Telerate's sole and exclusive remedy shall be to obtain from a court of competent jurisdiction a temporary restraining order, preliminary injunction and permanent injunction (for the period of restriction) enjoining the Cruzes from taking the actions prohibited in Section 2 above. Telerate shall have no right, in any circumstance, to seek or recover damages of any kind from either of the Cruzes for any reason or upon any theory (legal or otherwise) whatever, it being understood that the equitable relief described above is Telerate's sole and exclusive remedy (whether or not as a practical matter it is an effective remedy in the circumstances) for any breach by either or both of the Cruzes of this Agreement. The parties acknowledge, confirm and agree that the provisions of this Section 3 were specifically bargained for, and that the Cruzes would not have entered into this Agreement for the benefit of Telerate absent Telerate's absolute assurance that the Cruzes would never be personally responsible for or answerable in damages of any kind in the event of a breach hereof. In furtherance of the foregoing, Telerate hereby covenants that it will never sue either of the Cruzes personally (except to the extent necessary to obtain the equitable relief contemplated herein) with respect to any provision, obligation or covenant contained in the License Agreement, or any breach or violation thereof, or with respect to any transaction or matter arising out of or related to the License Agreement. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. ------------------------ WILLIAM CRUZ ------------------------ RAFAEL CRUZ DOW JONES TELERATE, INC. By: ------------------------ Name: CARL M. VALENTI Title: PRESIDENT 2 EXHIBIT C ESCROW AGREEMENT SOFTWARE ESCROW AGREEMENT SOFTWARE ESCROW AGREEMENT, dated August ____, 1994 (the "Agreement"), by and among OMEGA RESEARCH, INC., a Florida corporation ("Omega"), DOW JONES TELERATE, INC., a New York corporation ("Telerate"), and SUN BANK/MIAMI, NATIONAL ASSOCIATION ("Escrow Agent"). PRELIMINARY STATEMENT Omega and Telerate are parties to that certain Software License, Maintenance and Development Agreement dated August ____, 1994 (the "License Agreement"). Pursuant to Section J of the License Agreement, Omega has agreed to deposit in escrow with Escrow Agent, on computer disk, the Source Code (and certain related materials) for the Telerate Version of TradeStation. This Agreement shall govern the terms and conditions of such escrow arrangement. Capitalized terms used herein, which are not defined herein, shall have the respective meanings ascribed to them in the License Agreement. NOW, THEREFORE, it is agreed as follows: 1. SUPPLEMENTARY AGREEMENT. This Agreement is supplementary to the License Agreement. This Agreement is intended to provide certain guidance for the limited circumstances under which Telerate shall be entitled to access to the Source Code (and certain related materials) for the Telerate Version of TradeStation in order to protect certain of its interests under the License Agreement. 2. NO INFERENCE OF TERMINATION. The description herein of the possible occurrences that would constitute a Release Event (as defined below), and the consequences thereof, shall create no presumption that Omega or its trustee in bankruptcy should be permitted to reject or terminate this Agreement under applicable law. The parties agree that such a rejection or termination would be prejudicial to Telerate's interests. This Agreement is not intended to diminish, enlarge, modify or impair, and this Agreement shall not diminish, enlarge, modify or impair, any right or obligation of any party under the License Agreement. 3. ESCROW DEPOSIT. Within ten (10) days following the Acceptance Date, Omega shall deposit with Escrow Agent, and Escrow Agent shall accept the deposit of, in a sealed envelope, the Source Code, on computer disk, for the Telerate Version of TradeStation, together with such programmers notes and instructions as have been prepared by Omega in the normal course of its operations in connection with the creation of such Source Code (collectively the "Escrowed Code"). Omega shall, promptly after such deposit is made, notify Telerate of that fact. Escrow Agent shall hold and maintain the Escrowed Code at its premises at 777 Brickell Avenue, Miami, Florida, in a vault or safety deposit box, and shall not permit access thereto, or the release thereof, by or to any person or entity whatever, except as specifically permitted by this Agreement. 4. SUPPLEMENTARY ESCROW DEPOSITS. Within ten (10) days following the completion and acceptance of any Enhancement to the Telerate Version of TradeStation developed by Omega, Omega shall deposit with Escrow Agent, and Escrow Agent shall accept deposit of, in a sealed envelope, the updated Source Code, on computer disk, for the Telerate Version of TradeStation as so enhanced, together with such programmers notes and instructions as have been prepared by Omega in the normal course of its operations in connection with the creation of such updated Source Code (collectively, an "Updated Escrowed Code"). Omega shall, promptly after each such deposit is made, notify Telerate of that fact. Upon any such supplementary deposit by Omega, Escrow Agent shall return to Omega the Escrowed Code then held by Escrow Agent, and the Updated Escrowed Code shall then become the Escrowed Code for all purposes hereunder. Omega covenants to Telerate that each Source Code deposited into escrow pursuant to this Agreement, including the initial deposit, will be in a language that is customarily understood by competent computer programmers (e.g., C, C++, Assembly Language). 5. RELEASE EVENTS. The following events constitute the only events upon which Escrow Agent is authorized to release the Escrowed Code to any person or entity (other than deposit of the Escrowed Code with a court as more fully explained later in this Agreement), or to allow access to the Escrowed Code by any person or entity (individually, a "Release Event," and, collectively, the "Release Events"): a. VERIFICATION OF ESCROWED CODE. Within thirty (30) days following notice from Omega of the initial escrow deposit described in Section 3 above, and within thirty (30) days following notice from Omega of each supplementary escrow deposit described in Section 4 above, Telerate shall be afforded access to the Escrowed Code solely for the purpose of verifying that the Escrowed Code contains the then-current Source Code for the Telerate Version of TradeStation. In order to exercise such right, Telerate shall provide Omega and Escrow Agent with written notice to that effect within the applicable 30-day period ("Verification Notice"). Within five (5) business days following the delivery of the Verification Notice, Omega, Telerate and Escrow Agent shall schedule a mutually convenient date, not later than thirty (30) days following the delivery of the Verification Notice, on which a representative of Omega and a representative of Telerate shall meet 2 at the offices of Escrow Agent to receive from Escrow Agent the sealed envelope containing the Escrowed Code. Escrow Agent shall deliver the Escrowed Code to Omega's representative. Each of Telerate and Omega shall confirm in writing in advance to Escrow Agent the name of its representative. Escrow Agent shall request appropriate photo identification from each representative prior to releasing the Escrowed Code to Omega's representative. Following said release of the Escrowed Code to Omega's representative, Omega's representative and Telerate's representative shall proceed to Omega's Miami office, where Telerate's representative will be permitted to verify, under Omega's supervision, that the Escrowed Code contains the Source Code for the then-current version of the Telerate Version of TradeStation. The verification procedure shall be exclusively as follows: the Telerate representative shall be permitted to compile the Source Code in order to enable such representative to generate an executable program for the Telerate Version of TradeStation. Such representative may then take back with him to Telerate such executable program for the sole purpose of verifying that the Source Code is complete. In no event will such Telerate representative be permitted to take any notes, or to view any screen longer than is absolutely necessary to compile an executable program, or to remove or take with him or her any materials other than the compiled executable program. Following completion of the compilation of the executable program, the Escrowed Code, in the presence of the Telerate representative, shall be sealed in an envelope, and the Telerate representative and the Omega representative shall then proceed to the offices of Escrow Agent, whereupon the Escrowed Code will be redeposited with Escrow Agent, subject to future release only upon the occurrence of another Release Event. b. FAILURE OF OMEGA TO CORRECT AN ERROR. In the event that Omega notifies Telerate that it is unable to correct an Error (other than an Insignificant Error), or an Event of Default under the License Agreement has occurred with respect to Omega based upon Omega's failure to correct an Error (other than an Insignificant Error), and Telerate has not terminated, or given notice of termination of, the License Agreement pursuant to any provision thereof other than Section Q.4 thereof, and Telerate desires access to the Escrowed Code, Telerate shall deliver to Escrow Agent and to Omega an affidavit of Telerate, made by a duly authorized officer of Telerate (the "Correction Failure Affidavit"), stating, as applicable, that: (i) "Telerate is entitled to access to the Escrowed Code because Omega has notified Telerate that it is unable to correct an Error (other than an Insignificant Error), a copy of such notification from Omega being attached hereto [with such notification attached], and Telerate has not terminated, or given 3 notice of termination of, the License Agreement pursuant to any provision thereof other than Section Q.4 thereof", or (ii) "Telerate is entitled to access to the Escrowed Code because an Event of Default under the License Agreement has occurred with respect to Omega based upon Omega's failure to correct an Error (other than an Insignificant Error), and Telerate has not terminated, or given notice of termination of, the License Agreement pursuant to any provision thereof other than Section Q.4 thereof," and (iii) "Omega has been delivered a true and complete copy of this affidavit on the date shown on the attached certified or registered mail receipt or commercial carrier receipt evidencing delivery to Omega on such date" [and attaching such receipt]. Subject to Omega's right to serve a Counter Affidavit (defined and described below), at any time during the thirty (30) day period following the end of the fifth (5th) business day following delivery of the Correction Failure Affidavit, Escrow Agent shall, at Telerate's request, release the Escrowed Code to Telerate. Upon receipt of the Escrowed Code in this circumstance, Telerate shall use the Escrowed Code solely for the purpose of correcting the Error(s) the failure of which to correct served as the basis for Telerate's right to have access to the Escrowed Code. If requested by Omega in writing or in Omega's Counter Affidavit, correction of said Error(s) will take place at Omega's offices under Omega's supervision, in which event the procedures for release and return of the Escrowed Code set forth in subsection (a) above shall be followed. In no event shall any copy be made of the Escrowed Code. Upon completion of correction of said Error(s), the Escrowed Code shall be sealed in an envelope and redeposited with Escrow Agent. Even if Omega does not elect to have the Error(s) corrected at its offices under its supervision, Omega shall have the right to have a representative be present for such resealing and redeposit procedure. (c.) BANKRUPTCY OF OMEGA. In the event that an Event of Default occurs with respect to Omega under Section N.2(a)(iv) or (v) of the License Agreement, and Telerate does not terminate or give notice of termination of the License Agreement pursuant to any provision thereof other than Section Q.4 thereof, and Omega's trustee in bankruptcy has expressly rejected the License Agreement or expressly refused to assume the License Agreement, and Telerate desires access to the Escrowed Code, Telerate shall deliver to Escrow Agent and to Omega an affidavit of Telerate, made by a duly authorized officer of Telerate (the "Bankruptcy Affidavit"), stating: 4 (i) "An Event of Default has occurred with respect to Omega under Section N.2(a)(iv) or (v) under the License Agreement"; (ii) "Telerate has not terminated and has not given notice of termination of the License Agreement pursuant to any provision thereof other than Section Q.4 thereof"; (iii) "Omega's trustee in bankruptcy has expressly rejected the License Agreement or has expressly refused to assume it, and a copy of the action of the bankruptcy court so rejecting or refusing to assume the License Agreement is attached" [and attaching a true, correct and complete copy of such action]; and (iv) "Omega has been delivered a true and complete copy of this affidavit on the date shown on the attached certified or registered mail receipt or commercial courier receipt evidencing delivery to Omega on such date" [and attaching such receipt]. Subject to Omega's right to serve a Counter Affidavit, at any time during the thirty (30) day period following the end of the fifth (5th) business day following delivery of the Bankruptcy Affidavit, Escrow Agent shall, at Telerate's request, release the Escrowed Code to Telerate. Upon receipt of the Escrowed Code in this circumstance, Telerate may use the Escrowed Code, until the expiration or termination of the License Agreement, solely for the purpose of correcting Errors and providing maintenance and support to subscribers for the Telerate Version of TradeStation, and if, but only if, Omega is in liquidation or has completely ceased operations, and Telerate has not terminated or given notice of termination of the License Agreement pursuant to Section Q.4 thereof, to make Enhancements, any such Enhancements to be the property solely of Omega. In no event shall any copy be made of the Escrowed Code. 6. TERM. This Agreement shall be effective as of the date hereof and shall continue to be effective until the earliest of (a) the date which is four years and 60 days following the date of the initial deposit of the Escrowed Code pursuant to Section 3 above (the "Outside Termination Date"), (b) the date on which the License Agreement naturally expires by its terms, and (c) subject to the right of Telerate to deliver a Counter Affidavit, the date on which the Escrow Agent receives an affidavit from either Telerate or Omega (the "Termination Affidavit") (a copy of which shall be served on the non-serving party) stating that the License Agreement is or has been terminated pursuant to any provision thereof other than Section Q.4 thereof, and that the non-serving party has been delivered a true and complete copy of the Termination Affidavit on the date shown on the certified registered mail receipt or commercial courier receipt attached (a copy of which shall be 5 attached to the Termination Affidavit). Upon any such termination of this Agreement, Escrow Agent shall release the Escrowed Code to Omega, at Omega's request. If, however, Omega has delivered a Termination Affidavit, subject to Telerate's right to deliver a Counter Affidavit, Escrow Agent shall return the Escrowed Code to Omega promptly following the fifth (5th) business day following the delivery of the Termination Affidavit. If, at the time of such termination of this Agreement, Telerate is in possession of the Escrowed Code pursuant to this Agreement, Telerate shall, immediately upon termination, cease using the Escrowed Code for any purpose and promptly return it to Omega accompanied by a letter from Telerate affirming that Telerate has ceased using the Escrowed Code for any purpose, has used the Escrowed Code only as permitted hereunder, and has made no copies of any kind or nature of, or made or retained any notes or materials concerning, the Escrowed Code. (Omega shall have the right to request and receive from Telerate such a confirmatory letter following any release to Telerate hereunder of the Escrowed Code.) Notwithstanding anything to the contrary contained in this Agreement, if the Escrowed Code has not been returned to Omega by the Outside Termination Date, Escrow Agent shall release the Escrowed Code to Omega on or promptly following the Outside Termination Date, regardless of any conflicting or contrary instructions or objections which may be given by Telerate (including any Counter Affidavit), the parties agreeing that Telerate has no right whatever to make such an objection, and that Escrow Agent has no discretion upon the occurrence of the Outside Termination Date to do anything other than deliver the Escrowed Code to Omega. 7. COUNTER AFFIDAVIT. In any case where Telerate has asserted the right of access to the Escrowed Code (whether pursuant to a Verification Notice, a Correction Failure Affidavit or a Bankruptcy Affidavit), or where Omega has asserted the right to be returned the Escrowed Code pursuant to a Termination Affidavit (as the case may be, a "Release Affidavit"), the party who has not delivered the Release Affidavit (the "Objecting Party") may, within five (5) business days of its receipt of the Release Affidavit, object to the release of the Escrowed Code requested in or in connection with the Release Affidavit by delivering to the party who has delivered the Release Affidavit (the "Asserting Party") and to Escrow Agent an affidavit (a "Counter Affidavit") stating that the Asserting Party is not entitled to receive access to or release or return of (as the case may be) the Escrowed Code, and the reasons therefor. No party shall deliver a Counter Affidavit unless it believes, in good faith, that the Asserting Party is not entitled to the access or release of the Escrowed Code asserted by the Asserting Party. In no event shall Telerate have the right to serve, or serve, a Counter Affidavit to contest the return of the Escrowed Code to Omega on the Outside Termination Date, or upon the natural expiration of the term of the License Agreement. In the 6 event that a Counter Affidavit is delivered, Escrow Agent shall continue to hold the Escrowed Code, and shall not release it to, or allow access to it by, any party, pending the joint instructions of Telerate and Omega, or as otherwise described in Section 10(a) below. 8. DISPUTE RESOLUTION. In the event a Counter Affidavit is delivered, Omega and Telerate shall, in good faith, attempt to resolve the dispute within five (5) business days following the delivery of the Counter Affidavit. If a resolution is reached, Omega and Telerate shall promptly execute joint written instructions to Escrow Agent concerning what is to be done with the Escrowed Code. In the event no such resolution is reached within said five-business-day period, either party may file a suit or action in any court of competent jurisdiction situated in Dade County, Florida to obtain such relief at law or in equity in respect of the Escrowed Code as such party deems warranted or appropriate. 9. LIMITATION OF REMEDIES BETWEEN TELERATE AND OMEGA. As between Telerate and Omega, all limitations on remedies that one party may have against the other under the License Agreement shall apply to this Agreement. 10. RIGHTS, DUTIES AND RESPONSIBILITIES OF ESCROW. It is understood that the duties of the Escrow Agent are purely ministerial in nature. It is further agreed that: (a) In the event that Escrow Agent shall be uncertain as to the duties or rights hereunder or shall receive instructions with respect to the Escrowed Code which, in its sole opinion, are in conflict with either other instructions received by it or any provision of this Agreement, it shall be entitled to continue to hold the Escrowed Code, or a portion thereof, in escrow pending the resolution of such uncertainty to Escrow Agent's sole satisfaction, by final judgement of a court or courts of competent jurisdiction or otherwise; or Escrow Agent, at its option, may deposit the Escrowed Code in the registry of a court of competent jurisdiction in a proceeding to which all parties in interest are joined. Upon so depositing the Escrowed Code and filing its complaint and interpleader, Escrow Agent shall be completely discharged and released from further liability. (b) Escrow Agent shall not be liable for any action taken or omitted hereunder except in the case of its bad faith, gross negligence or willful misconduct. Escrow Agent shall be entitled to consult with counsel of its own choosing and shall not be liable for any action taken, suffered or omitted by it in reasonable reliance upon the advice of such counsel. Any 7 reasonable expenses incurred by Escrow Agent in connection with such consultation shall be reimbursed by Telerate. (c) Telerate shall indemnify and hold Escrow Agent, its agents, representatives, and employees harmless from any claim, demand or loss suffered by Escrow Agent and the cost thereof (including court costs and attorneys' fees for negotiation, trial and appeal). (d) This agreement sets forth exclusively the duties of Escrow Agent with respect to any and all matters pertinent hereto and no implied duties or obligations shall be read into this Agreement against Escrow Agent. (e) Escrow Agent may resign as Escrow Agent at any time upon thirty (30) days prior written notice to Telerate and Omega. In the case of Escrow Agent's resignation, its only duty shall be to hold and release, if required, the Escrowed Code in accordance with the original provisions of this Agreement until a successor escrow agent shall be appointed and written notice of the name and address of such successor escrow agent shall be given to the escrow agent by Telerate and Omega, whereupon Escrow Agent's only duty shall be to deposit with the successor escrow agent the Escrowed Code if then in its possession. 11. FEES AND EXPENSES. Escrow Agent shall be entitled to: (a) an annual administration fee of $1,500.00 payable by Telerate and (b) be reimbursed by Telerate for any reasonable out-of-pocket expenses for performing its obligations in connection with this Agreement. 12. NOTICES. All notices, affidavits, instructions, requests and other communications required or permitted hereunder shall be in writing and shall be delivered in person or sent by commercial overnight courier (such as Fedex) or certified or registered mail, return receipt requested: (a) If to Telerate, to: Dow Jones Telerate, Inc. One World Financial Center 200 Liberty Street New York, NY 10281 Attention: President 8 with a copy to: Dow Jones Telerate, Inc. One World Financial Center 200 Liberty Street New York, NY 10281 Attention: Legal Department (b) If to Omega, to: Omega Research, Inc. 9200 Sunset Drive Miami, Florida 33173 Attention: William and Rafael Cruz with a copy to: Rubin Baum Levin Constant Friedman & Bilzin 2500 First Union Financial Center 200 S. Biscayne Boulevard Miami, Florida 33131 Attention: Marc J. Stone, Esq. (c) If to Escrow Agent, to: Sun Bank/Miami, N.A. 777 Brickell Avenue Miami, Florida 33131 ATTN: ____________________, or to such other addresses as may be stipulated in writing by the parties pursuant hereto. Notice shall be effective on the date it is officially recorded as delivered by return receipt or the courier service. 13. FORCE MAJEURE. No party hereto shall be deemed to be in default of any provision of this Agreement, or for failures in performance, resulting from acts or events beyond the reasonable control of such party. 14. AMENDMENT. This Agreement may not be amended except by written instrument executed by each of the parties hereto. 9 15. BINDING AGREEMENT; ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the parties and the parties' respective successors at law and permitted assigns. 16. HEADINGS. The headings of sections and paragraphs herein are included for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 17. GOVERNING LAW; VENUE. This Agreement shall be controlled, construed and enforced in accordance with the laws of the State of Florida, other than laws relating to conflicts of law. The venue and jurisdiction for any claim under this Agreement shall be in the appropriate court in Dade County, Florida. 18. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties and supersedes all previous verbal and written agreements. 19. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument. IN WITNESS WHEREOF, the undersigned parties have duly executed this Agreement as of the day first above written. DOW JONES TELERATE, INC. OMEGA RESEARCH, INC. By:_______________________ By:_________________________ Name: Name: Title: Title: ESCROW AGENT: SUN BANK/MIAMI, NATIONAL ASSOCIATION By:___________________________________ Name:_________________________________ Title:________________________________ 10 EXHIBIT D QA TEST SCRIPT CHART Data Amount The program shall allow the user to load up to 13,000 bars of data per data stream in any chart window. Resolution The user can display data in tick, intraday (any interval up to 1440 minutes), daily, weekly, monthly and point and figure resolutions, for either 1 or 2 session markets. Type All symbols that can be displayed in TeleTrac 2.4 as supported by TWIN will be plotted and continuously updated by the program. Display Market status The user can display a continuously updated status line at the top of any chart window that will include the current price, net change from prior day's close, day's high, day's low and current indicator values. Chart types The program shall allow the user to display prices as Open-High-Low-Close, High-Low-Close, Japanese Candlestick, Dot on Close and Line on Close bars. Configuration The program shall allow the user to change the color and size of any element on a chart. This includes the font and font color, window background and bar thickness and color. Tools The user can place any of the following tools on any price or any indicator on a chart. Arc, Up/Down arrows, Standard/Fibonacci Cycles*, Ellipse, Gann Fan*, Horizontal Line*, Percent Retracement, Rectangle, Speed Resistance Arc/Fan*, Support Resistance Lines*, Trend Lines*, Text, Zoom. The user can modify display attributes and position of any tool placed on a chart. Furthermore, the user shall be allowed to enable alarms on those tools marked with an asterisk that will alert the user when the market penetrates that tool. Analysis Techniques The user shall be allowed to place any of the following analysis techniques on a chart. Indicators, PaintBars(tm), ShowMe's(tm) Custom 1 Line, Custom 2 Lines, Custom 3 Lines, Custom 4 Lines, Mov Avg - Displaced, Mov Avg Weighted, DMI, Bollinger Bands, Mov Avg 1 Line, Mov Avg 2 Lines, Mov Avg 3 Lines, Mov Avg Envelopes, Mov Avg Exponential, Commodity Channel Index, On Balance Volume, Gapless Bar Chart, True Low, Open Interest, McClellan Oscillator, MFI, Parabolic, Accumulation Distribution, Percent R, Price Channel, Rate of Change, RSI, RSI w/o Zones, Accumulation Swing Index, MACD, Spread, DownTicks, Stochastic - Fast, Stochastic - Slow, Swing Index, Volume (Tick Vol) Volume (UpTick Vol), Volume (DownTick Vol), Volume, Up/Down Tick Difference, Ultimate Oscillator, Volatility, Momentum, Consecutive x bars down, Consecutive x bars up, Gap Down Bar, ShowMe(tm) Anything, Key Reversal Up, Key Reversal Down, Outside Bar, Gap Up bar, Inside Bar, Island Reversal Up, Island Reversal Down, Breakout of x Bar High, Breakout of x Bar Low, %R /less than/ x, %R /greater than/ x, Price /greater than/ x Bar Avg. Price /less than/ x Bar Avg. Close Avg /less than/ Open Avg, Close Avg /greater than/ Open Avg, Momentum Increasing, Momentum Decreasing, Stochastic Fast Custom, Stochastic Slow Custom, PaintBar(tm) Custom, Percent Change, Down Ticks, Equal Ticks, Up Ticks. Systems CCI Avg Crossover, Channel Breakout IntraBar, Channel Breakout on Close, Channel Breakout Weighted, Consecutive Closes, X Average Crossover, Divergence, Key Reversal major, MACD, Weighted Average Crossover, Parabolic, PercentR Oscillator, RSI Oscillator, Stochastic Crossover, Mov Avg Crossover, Mov Avg(3) Crossover. Experts Fundamental Expert, Technical Expert, Fundamental and Technical Expert. Furthermore, the user can modify the inputs and alert criteria of any of the aforementioned analysis techniques. QUOTE Data Amount 256 quotes per window. Resolution Tick by tick. Type All symbols that can be displayed in TeleTrac 2.4 as supported by TWIN shall be continuously updated in the quote window. Display Quote fields All fields that can be displayed in TeleTrac 2.4 as supported by TWIN will be available to the user. Furthermore, user definable alarm fields can be added that alert the user to breakout conditions on the high, low, time and volume. Configuration The program shall allow the user to change the color and size of any element on a quote window. This includes the font and font color, window background color and the colors of alert fields. System Tracking Control Center Data Active Orders Date/time order was placed, symbol name, type of order, system name, signal name. Cancelled Orders Date/time order was cancelled, symbol name, type of order, system name, signal name. Filled Orders Date/time order was filled, symbol name, type of order, system name, signal name. Open Positions Symbol, position, entry price, current price, profit, system name, signal name. Display Configuration The program shall allow the user to change the color and size of any element on a STCC window. This includes the font and font color and window background color. Alert Tracking Control Center Data Date/time alert was hit, symbol, name, last price. Display Configuration The program shall allow the user to change the color and size of any element on a STCC window. This includes the font and font color and window background color. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS FIRST AMENDMENT TO SOFTWARE LICENSE, MAINTENANCE AND DEVELOPMENT AGREEMENT FIRST AMENDMENT, dated as of March 7, 1997 ("First Amendment"), between DOW JONES MARKETS, INC., f/k/a DOW JONES TELERATE, INC., a New York corporation, with an office at One World Financial Center, 200 Liberty Street, New York, New York 10281 ("Telerate"), and OMEGA RESEARCH, INC., a Florida corporation with offices at 8700 West Flagler Street, Suite 250, Miami, Florida 33174 ("Omega"). PRELIMINARY STATEMENT Telerate and Omega are parties to that certain Software License, Maintenance and Development Agreement dated as of August 26, 1994 (the "Original Agreement"), pursuant to which (a) Omega agreed to license to Telerate the Telerate Version of TradeStation, and (b) Omega agreed not to enter into any agreement or arrangement with any of the Telerate Competitors to develop and then sell a version of TradeStation or any Real-Time product which performs substantially all of the same functions of TradeStation which is compatible with the data feeds of the Telerate Competitors (the "Noncompetition Covenant"). The parties now desire to amend the Original Agreement in order to extend the term of the license to Telerate to market and sell subscriptions for the Telerate Version of TradeStation by an additional three (3) years, and to extend the Noncompetition Covenant for such additional three years. Capitalized terms used herein which are not defined herein shall have the respective meanings ascribed to them in the Original Agreement. NOW, THEREFORE, in consideration of the promises and consideration herein contained, the parties hereby agree as follows: 1. EXTENSION OF THE TERM AND NONCOMPETITION COVENANT. a. The terms and conditions of the Original Agreement, including, but not limited to, the term thereof and the term of the Noncompetition Covenant, shall continue in full force and effect, subject to the early termination events specified therein, until the sixth anniversary of the Royalty Commencement Date (the parties hereby confirm that the Royalty Commencement Date was January 12, 1996). While it is understood that the Noncompetition Covenant applies to TradeStation and any other Real-Time product of Omega which performs substantially all of the same functions, and is used for substantially all of the same purposes, as, and is competitive with, TradeStation, it does not apply to any other product of Omega *********************************************.The term "Telerate Competitors" is hereby expanded to include Bridge. The parties acknowledge and agree that, notwithstanding anything in the definition "Telerate Competitors" to the contrary, neither any data vendor which, nor the business of any such data vendor which, is acquired by any of the Telerate Competitors listed in the Original Agreement or Bridge, nor any successor company created by any such Telerate Competitor or Bridge to succeed to such business (if any), shall be deemed a Telerate CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS Competitor for purposes of the Agreement unless such data vendor was, or the business acquired was owned by, one of the Telerate Competitors listed in the Original Agreement or Bridge. However, if the acquired company or business is used as a conduit for the data feeds of Telerate Competitors which are substantially similar to the data feeds of Telerate (as described in Section C.3 of the Original Agreement as amended hereby), such acquired company or business shall be deemed a Telerate Competitor. b. "Fourth Anniversary" means the one-year period ending January 12, 2000; "Fifth Anniversary" means the one-year period ending January 12, 2001; and "Sixth Anniversary" means the one-year period ending January 12, 2002. 2. MINIMUM GUARANTEED ROYALTY FEES FOR EXTENDED TERM. Omega shall be entitled to receive guaranteed minimum aggregate Royalty Fees (regardless of the aggregate Royalty Fees computed under Section D.1 of the Original Agreement) for the extended term of the Agreement as follows: a. for the period commencing on the Third Anniversary and ending on the Fourth Anniversary, the sum of ********************************* (the "Fourth Year Minimum"); b. for the period commencing on the Fourth Anniversary and ending on the Fifth Anniversary, the sum of ******************************** (the "Fifth Year Minimum"); and c. for the period commencing on the Fifth Anniversary and ending on the Sixth Anniversary, the sum of ********************************** (the "Sixth Year Minimum"). Each of the Fourth Year Minimum, the Fifth Year Minimum and the Sixth Year Minimum shall be paid to Omega in monthly installments in the same manner as the first three years' guaranteed minimums are payable, subject to quarterly reconciliation against the calculation of the Royalty Fees in the same manner as set forth in Section D.6 of the Original Agreement. Telerate shall continue to supply statements to Omega and maintain Records with respect to such fourth, fifth and sixth years in the same manner and to the same extent as it is required to do so with respect to the first three years, as set forth in Section D of the Original Agreement. 3. EXTENSION OPTION. The Extension Option set forth in Section N.1 of the Original Agreement is hereby superseded by the foregoing provisions of this First Amendment. Consistent with the foregoing, the third sentence of Section N.3 of the Original Agreement is hereby deleted. 4. NAME UNDER WHICH THE TELERATE VERSION OF TRADESTATION WILL BE MARKETED. Telerate agrees that the Telerate Version of TradeStation shall, throughout the remainder of the term of the Agreement, continue to be marketed under the name "TradeStation(TM)." Telerate may, if it chooses, 2 market the Telerate Version of TradeStation under the combined trademark "Dow Jones TradeStation(TM)". The use of the TradeStation(TM) trademark by Telerate shall be subject to the terms of the existing trademark license in effect between Telerate and Omega, the term of which is hereby extended to be coincident with the term of the Agreement, and which is hereby amended to provide for the use of the combined trademark "Dow Jones TradeStation" in lieu of "TeleTrac TradeStation." Telerate shall display appropriate registered trademark notices on all uses of the trademark "TradeStation", together with a statement that TradeStation is a registered trademark of Omega Research, Inc. In addition, the sign-on screen message and the "About" box of the Telerate Version of TradeStation program shall, in addition to the display of the notice and legend required to be included by Section I of the Original Agreement, conspicuously display the appropriate registered trademark notice together with a statement that TradeStation is a registered trademark of Omega Research, Inc. 5. FREE ENHANCEMENTS. Section G.1 of the Original Agreement is hereby amended as follows: 1. There shall be a period placed at the end of clause (b)(iii) following the words "acceptance purposes" and the balance of the words and punctuation of such sentence, which are "and (iv) to mutually agree upon the costs, fees and other charges which will be paid by Telerate to Omega for the development of the Enhancement, including the timing and amount of any applicable payments," is hereby deleted. b. The following sentences are hereby added after the sentence containing clause (b), as amended above: "An Enhancement requested by Telerate which meets all of the foregoing requirements shall be developed by Omega free of charge to Telerate. Notwithstanding any of the foregoing to the contrary, Omega shall not be required to develop any Enhancement which, in Omega's good faith judgment, would have an adverse effect or impact on Omega or its business interests." 6. DEVELOPMENT OF NEW DATA FEEDS AND PLATFORMS BY TELERATE. In the event that Telerate develops (a) an additional Data Feed (as defined below) to be made available as part of the Dow Jones Workstation Platform (or as part of an additional Platform (as defined below) with which the Telerate Version of TradeStation becomes compatible pursuant to these provisions), or (b) an additional Platform (such as an Internet Platform) to be made available to subscribers either in addition to, or in substitution for, the Dow Jones Workstation Platform as part of which the Data Feeds specified in Exhibit A-2 (as same may be amended pursuant to these provisions) are to be offered (as the case may be, a "New Dow Jones Data Product"), Omega shall use commercially reasonable efforts to modify the Telerate Version of TradeStation so that it is compatible with the New Dow Jones Data Product. Exhibit A-2 of the Original Agreement is hereby amended in its entirety to read as follows: "The Telerate data feeds currently known and referred to as: The Items Producer; The QDS Producer; and the TWParser Producer, which constitute part of the Telerate Platform known as Dow Jones Workstation, and any additional data feeds which are made available 3 in the future as part of Dow Jones Workstation to the extent compatibility of such data feeds with the Telerate Version of TradeStation is established pursuant to the Agreement." The parties shall adhere to the provisions and procedures of Section G.1 of the Original Agreement (as modified by this First Amendment) with respect to the request for, and development, testing and acceptance of, such modified version of the Telerate Version of TradeStation, except that subsection (a) of Section G.1 shall not apply and Omega shall not be permitted to assert that achieving such compatibility would be adverse to Omega or its business interests. Upon acceptance by Telerate of such modified version, the New Dow Jones Data Product shall be deemed added to Exhibit A-2. In all other respects, the scope of the license granted to Telerate and all restrictions and prohibitions on Telerate's use of the Telerate Version of TradeStation set forth in Section C or elsewhere in the Agreement shall remain unmodified and continue to be of full force and effect. With respect to the "exclusive" nature of such expanded license (i.e., the restrictions relating to Telerate Competitors set forth in Section C.3 of the Original Agreement, as amended hereby), such "exclusivity" (i.e., such restrictions) shall apply with respect to a New Dow Jones Data Product only to the extent that the Data Feeds which constitute or are used in connection with such New Dow Jones Data Product are substantially similar to the Data Feeds generated by Telerate. Telerate shall, at its expense, provide to Omega such assistance, technical and other information, equipment and materials as may be required or as may be reasonably requested by Omega to complete the necessary modifications. Any such information, equipment or materials so provided shall constitute Telerate-Provided Materials for all purposes of the Agreement relating to the ownership and use thereof. If, despite using commercially reasonable efforts, Omega is unable to develop the necessary modifications to make the Telerate Version of TradeStation compatible with the New Dow Jones Data Product, the Agreement shall remain of full force and effect, neither party shall have any liability to the other in respect of such failure to achieve compatibility, and each party shall remain bound to perform all of its obligations under the Agreement. For purposes of the Agreement, "Platform" means the software through which particular financial market data delivered on a Real-Time basis is made available to a subscriber for such financial market data, and which constitutes a product of the data vendor in the sense that such software may include various features and functions relating to the manner in which the financial market data is accessed, received, displayed and/or may be used. All references in the Agreement to the Dow Jones Workstation Platform mean the product known as "Dow Jones Workstation" and NOT the product known as "Dow Jones Platform" or the TTRS system. For purposes of the Agreement, "Data Feed" or "data feed" means a type or category of financial market data (e.g., equity prices) of a certain quality, detail and content, formatted in a particular way or ways, for delivery to subscribers. Consistent with such definition, and in order to eliminate any ambiguity set forth in Section C.3 of the Original Agreement, Section C.3(a) is hereby amended in its entirety as follows: "Omega agrees that it shall not enter into any agreement or arrangement with any of the Telerate Competitors to develop and then sell during the term of this Agreement any Real-Time product which is compatible with data feeds of the Telerate Competitors which are substantially similar to the data feeds currently generated by Telerate. Omega further agrees that, in the event that Omega learns the specifications 4 of data feeds of any of the Telerate Competitors which are substantially similar to the data feeds currently generated by Telerate, Omega shall not develop a new version of, or modify, TradeStation for the purpose of making TradeStation compatible with such specifications and then sell such new or modified version during the term of this Agreement." 7. COMPATIBILITY WITH OTHER PRODUCTS. Omega shall, at Telerate's request at any time or from time to time, use commercially reasonable efforts to make each other then existing product of Omega, for the term of the Agreement, compatible with all Data Feeds and Platforms of Telerate with which the Telerate Version of TradeStation is then compatible ("Other Compatible Products"). In attempting to achieve such compatibility, the procedures and provisions described in Section 6 above shall apply. If Telerate so requests, Omega shall grant to Telerate a non-exclusive license to distribute one or more of such Other Compatible Products, provided that Omega and Telerate are able to agree upon a comprehensive, written license agreement setting forth all of the terms and conditions of such license, including, without limitation, the royalties and/or other consideration to be paid to Omega. If Omega offers to license any of the Other Compatible Products to a Telerate Competitor (an "Offered Product"), it shall offer to license such Offered Product to Telerate no later than the time such offer is made to the Telerate Competitor, and, if a binding agreement is reached between Omega and the Telerate Competitor, the royalties and/or other consideration to be paid to Omega by Telerate for such license (assuming that Telerate desires to license such Offered Product and Telerate and Omega enter into the comprehensive, written license agreement referred to above) shall not be at a rate which is higher than that which is to be paid by the Telerate Competitor under its agreement with Omega. If, despite using commercially reasonable efforts, Omega is unable to develop the compatibility contemplated above with respect to any product of Omega, neither party shall have any liability to the other in respect of such failure to achieve compatibility, and each party shall remain bound to perform all of its obligations under the Agreement. 8. MODIFICATION TO LICENSE. Section C.1(a) of the Original Agreement is hereby amended by adding the words and symbols "(or access solely from)" between the words "installation solely in" and the words "Workstations and Stand-Alone Units" on the ninth line of said Section C.1(a). 9. REMOTE SUPPORT. Section F.5 of the Original Agreement is hereby amended by adding the words and punctuation ", by telephone and electronic mail," between the words "make available" and the words "personnel expertly trained" on the 11th line of said Section F.5. 10. NO FURTHER AMENDMENTS. Except as set forth above, all of the terms and conditions of the Original Agreement remain unmodified and of full force and effect. In the event of any inconsistency between the provisions of the Original Agreement and the provisions of this First Amendment, the provisions of this First Amendment shall govern. The term "Agreement," as used herein, means the Original Agreement as modified by this First Amendment. 5 IN WITNESS WHEREOF, the undersigned parties have duly executed and delivered this Agreement as of the date first above written. DOW JONES MARKETS, INC. OMEGA RESEARCH, INC. By: /s/ JULIAN B. CHILDS By: /s/ WILLIAM CRUZ ------------------------ --------------------------- Julian B. Childs William Cruz, President Title: EVP REAFFIRMATION OF NONCOMPETITION AGREEMENT Reference is made to that certain Noncompetition Agreement, dated as of August 26, 1994, by and among William Cruz and Rafael (Ralph) Cruz and Telerate, which was executed and delivered pursuant to the Original Agreement (the "Noncompetition Agreement"). The parties hereby reaffirm all of the provisions, terms, conditions and obligations set forth in the Noncompetition Agreement. DOW JONES MARKETS, INC. By: /s/ JULIAN B. CHILDS /s/ WILLIAM CRUZ ------------------------ -------------------------- Julian B. Childs WILLIAM CRUZ Title: EVP /s/ RALPH CRUZ -------------------------- RALPH CRUZ 6 EX-10.4 8 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. EXHIBIT 10.4 SOFTWARE LICENSE, MAINTENANCE AND DEVELOPMENT AGREEMENT THIS SOFTWARE LICENSE, MAINTENANCE AND DEVELOPMENT AGREEMENT dated as of March 12, 1997, between DOW JONES MARKETS, INC. f/k/a DOW JONES TELERATE, INC., a New York corporation, with an office at One World Financial Center, 200 Liberty Street, New York, New York 10281 ("Telerate"), and OMEGA RESEARCH, INC., a Florida corporation, with offices at 8700 West Flagler Street, Suite 250, Miami, Florida 33174 ("Omega"). W I T N E S S E T H: WHEREAS, Omega has previously developed the SuperCharts software; WHEREAS, Telerate has requested that Omega modify the SuperCharts software to create the Telerate Version of SuperCharts and the Telerate Version of SuperCharts Special Edition; WHEREAS, Telerate desires to obtain from Omega, and Omega is willing to grant to Telerate, an exclusive license to promote, market, sell, sublicense and distribute the Telerate Version of SuperCharts and to distribute, royalty-free (as to both Telerate and to Telerate's subscribers), the Telerate Version of SuperCharts Special Edition; WHEREAS, Telerate desires that Omega not, during the term of this Agreement, modify SuperCharts or SuperCharts Special Edition or any Real-Time product to be compatible with the data feeds of the Telerate Competitors so as to enable the Telerate Competitors 1 to offer a SuperCharts or other Real-Time product similar to, and competitive with, the Telerate Version of SuperCharts; WHEREAS, Telerate desires that Omega develop, and Omega is willing to develop, provided that Omega and Telerate mutually agree as herein provided, Enhancements to the Telerate Version of SuperCharts at Telerate's request from time to time pursuant hereto; and WHEREAS, Telerate desires that Omega provide, and Omega is willing to provide, to Telerate, certain maintenance and support services for (including required Modifications to) the Telerate Version of SuperCharts Products. NOW, THEREFORE, in consideration of the promises and consideration herein contained, the parties hereby agree as follows: A. DEFINITIONS. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in Exhibit A. B. DEVELOPMENT OF THE TELERATE VERSION OF SUPERCHARTS PRODUCTS. 1. DEVELOPMENT. Omega shall, at Omega's sole cost and expense (except as specifically otherwise provided in this Section B), use commercially reasonable efforts to modify SuperCharts to create the Telerate Version of SuperCharts Products, in accordance with the Specification, as promptly as is practicable. Omega will be dedicating substantial amounts of time and effort to the 2 development of the Telerate Version of SuperCharts Products, and will be incurring substantial costs in connection with the development of the Telerate Version of SuperCharts Products, and Omega may be forgoing other business opportunities as a result of the time, effort and expense that will be dedicated by Omega to the development of the Telerate Version of SuperCharts Products. Accordingly, although Omega will use commercially reasonable efforts to develop the Telerate Version of SuperCharts Products as quickly as is practicable, Omega shall, subject to the provisions of Subsection 9 below, have as much time as is reasonably required by Omega to complete the development of the Telerate Version of SuperCharts Products and to correct any Errors or non-conformities revealed by the Quality Assurance Testing. 2. NOTICE OF COMPLETION. Upon completion of development of the Telerate Version of SuperCharts Products, Omega shall promptly notify Telerate thereof. 3. TESTING. Within sixty (60) days following the service of the notice of completion, the initial Quality Assurance Testing shall be completed and the Material Error List (defined in Subsection 4 below), if any, shall be prepared. Telerate and Omega shall jointly conduct all Quality Assurance Testing. 4. ACCEPTANCE. If the initial Quality Assurance Testing objectively demonstrates that the Telerate Version of SuperCharts Products performs in accordance with the Specification in all 3 material respects, the Telerate Version of SuperCharts Products shall be deemed Accepted (the date of such demonstration being the Acceptance Date), and either party shall at the request of the other execute and deliver a confirmatory letter to the effect that the Telerate Version of SuperCharts Products has been Accepted. If the initial Quality Assurance Testing reveals Errors which are not Material Errors, the Telerate Version of SuperCharts Products shall nevertheless be deemed Accepted and Omega shall commence making appropriate Modifications to correct such Errors as required by this Agreement. If the initial Quality Assurance Testing reveals any Material Error(s), or objectively demonstrates that the Telerate Version of SuperCharts Products does not perform in accordance with the Specification in all material respects, Telerate and Omega shall, within the sixty (60) day period referred to in Subsection 3 above, jointly prepare a written list describing all such Material Errors and failures to conform in all material respects (the "Material Error List"). Omega shall then commence to correct each of the items contained on the Material Error List. Promptly following completion of such correction(s) by Omega, Omega shall send a notice of correction to Telerate, within fifteen (15) days of which the Quality Assurance Testing shall again be performed to the extent necessary to demonstrate that the items on the Material Error List have been corrected in all material respects. In connection with such second Quality Assurance 4 Testing, Telerate shall not be permitted to assert, for the purposes of preventing the occurrence of Acceptance, any Material Errors or failures so to conform not specified in the Material Error List, unless such additional Material Errors or failures have resulted from the corrections effected by Omega. If, in connection with such second Quality Assurance Testing, it is demonstrated that all of the items on the Material Error List have been corrected in all material respects, the Telerate Version of SuperCharts Products shall be deemed Accepted (the date of such demonstration being the Acceptance Date). If, in connection with such second Quality Assurance Testing, it is demonstrated that all of the items on the Material Error List have not been corrected in all material respects or new Material Errors or failures so to conform have arisen as a result of the correction(s) effected by Omega, the parties shall jointly prepare a second Material Error List within the fifteen (15) day period specified above, and the procedures for correction and re-testing and determining Acceptance set forth above shall continue to be followed until Acceptance occurs. Omega shall, in each instance, subject to the provisions of Subsection 9 below, have as much time as is reasonably necessary to make each set of corrections required. Telerate shall have no right to make any use whatever of the Telerate Version of SuperCharts Products prior to Acceptance and unless Acceptance occurs, except as provided in Section C.1(b) below. 5 5. TELERATE-PROVIDED MATERIALS. To assist Omega in its development efforts, Telerate shall, at Telerate's sole cost and expense, provide to Omega the Telerate-Provided Materials. The Telerate-Provided Materials shall be used solely to develop, maintain and support the Telerate Version of SuperCharts Products as provided in this Agreement. Omega acknowledges that any and all of the Telerate-Provided Materials are, as between Telerate and Omega, the sole property of Telerate and that all right, title and interest to such Telerate-Provided Materials is and shall remain with Telerate. Omega further acknowledges that the Telerate-Provided Materials may contain Confidential Information (as defined in Section M) of Telerate as well as copyrights of Telerate. Omega agrees that any Confidential Information included within the Telerate-Provided Materials is subject to the provisions of Section M, and Omega shall not create any lien or other encumbrance on the Telerate-Provided Materials. 6. ASSISTANCE. Telerate shall, at Telerate's sole cost and expense, provide all technical assistance reasonably requested by Omega in connection with its use of the Telerate-Provided Materials. Omega shall not be deemed in default hereunder as a result of the failure of Telerate to provide, or any inadequacies in or of, the Telerate-Provided Materials or assistance of Telerate in the use thereof. Telerate shall provide to Omega all Telerate-Provided Materials necessary for Omega to commence development of 6 the Telerate Version of SuperCharts Products as soon as is reasonably possible following the date of this Agreement. Should the Telerate-Provided Materials prove to be inadequate, Telerate shall promptly provide to Omega, at its reasonable request, and at Telerate's expense, such other equipment, materials and information of or concerning Telerate as Omega reasonably requires in order to develop the Telerate Version of SuperCharts Products. 7. EFFECT OF NON-ACCEPTANCE. In the event that the Telerate Version of SuperCharts Products is not Accepted because of resort by Telerate to the provisions of Subsection 9 below (or Omega notifies Telerate in writing that, after expending the efforts described in Subsection 1 above, Omega is unable to develop the Telerate Version of SuperCharts Products to be in conformance with the Specification in all material respects and will therefore cease its efforts in respect thereof): (i) neither party shall have any further obligation whatever to the other party under this Agreement; (ii) no license of any kind shall be granted to Telerate under this Agreement (and Omega shall retain all rights to the Telerate Version of SuperCharts Products) and the Pre-Sales License (defined in Section C.1(b) below) shall at such time be automatically terminated; (iii) each party shall bear its own costs and expenses in connection with this Agreement; and (iv) Omega shall return to Telerate, at Telerate's expense, all of the Telerate-Provided Materials (except to the extent that such 7 Telerate-Provided Materials are being used by Omega in connection with the TradeStation Agreement). 8. PREPARATION FOR OPERATIONS; DOCUMENTATION. As soon as is practicable following the Acceptance Date, Telerate shall commence marketing efforts to sell subscriptions for the Telerate Version of SuperCharts in accordance with this Agreement. Prior to commencing such efforts, Telerate shall prepare all necessary Documentation. Omega shall provide to Telerate, promptly following Acceptance, on disk in Microsoft Word format, all documentation currently available for SuperCharts, which Telerate shall then modify as appropriate to create the Documentation. Omega will provide assistance as reasonably requested by Telerate in connection with Telerate's preparation of the Documentation. 9. FAILURE OF ACCEPTANCE TO OCCUR BY DATE CERTAIN. Notwithstanding anything to the contrary contained in Subsection 4 above, in the event that Omega fails to deliver the notice of completion referred to in Subsection 2 above by June 30, 1997, and such failure is not due, to any material extent, to acts, omission or delays on the part of Telerate, Telerate shall have the right to terminate this Agreement at any time after June 30, 1997 and prior to July 15, 1997, by giving Omega written notice to that effect within such period. Further, notwithstanding anything to the contrary contained in Subsection 4 above, in the event that Acceptance does not occur by September 30, 1997, and the failure of 8 Acceptance to occur by such date is not due, to any material extent, to acts, omissions or delays on the part of Telerate, Telerate shall have the right to terminate this Agreement at any time after September 30, 1997 and prior to October 15, 1997, by giving Omega written notice to that effect within such period. C. LICENSE OF THE TELERATE VERSION OF SUPERCHARTS PRODUCTS. 1. EXCLUSIVE LICENSE. (a) GRANT AND SCOPE. (i) TELERATE VERSION OF SUPERCHARTS. Effective as of (but not before) the Royalty Commencement Date, Omega hereby grants to Telerate and its Affiliates an exclusive worldwide license to promote, market, sell, sublicense and distribute, either directly and/or through the use of Independent Distributors, the Telerate Version of SuperCharts and all related Documentation (but not any other version of SuperCharts, other than the Telerate Version of SuperCharts Special Edition in the manner provided in Subsection (a)(ii) below), on a subscription or similar basis requiring periodic payment by the subscriber, customer or end user, for installation solely in (or access solely from) Workstations and Stand-Alone Units for use by customers such as those Telerate currently serves. The Telerate Version of SuperCharts may be promoted and sold by Telerate, its Affiliates and Independent Distributors as part of packages containing other products and services of Telerate. Omega shall provide a master set of disks of 9 the Telerate Version of SuperCharts to Telerate, and Telerate, its Affiliates and Independent Distributors may, subject to the requirements of Section M, copy such disks. (ii) TELERATE VERSION OF SUPERCHARTS SPECIAL EDITION. Effective as of (but not before) the Acceptance Date, Omega hereby grants to Telerate and its Affiliates an exclusive worldwide license to include in (as part of) the electronic information services or products licensed, sold and/or distributed by Telerate, its Affiliates or its Independent Distributors to customers such as those Telerate currently serves, the Telerate Version of SuperCharts Special Edition (and to deliver in connection therewith all related Documentation), on a completely royalty-free basis to the subscriber, customer and end user, for installation solely in (or access solely from) Workstations and Stand-Alone Units. Omega shall provide a master set of disks of the Telerate Version of SuperCharts Special Edition to Telerate, and Telerate, its Affiliates and Independent Distributors may, subject to the requirements of Section M, copy such disks. Telerate has no obligation under this Agreement to include in any Platform or Data Feed which it licenses, sells or distributes to existing Telerate customers or to future customers the Telerate Version of SuperCharts Special Edition; provided, however, that, effective as of the nearest practicable date, but in all events no later than December 31, 1997, Telerate has the affirmative 10 obligation to include in the Dow Jones Workstation Platform (and any upgrades or new releases thereof), and to distribute (and cause its Affiliates and Independent Distributors to distribute) to all existing Telerate customers and to future customers such as those Telerate currently serves to which the Dow Jones Workstation Platform (or any upgrade or new release) is licensed, sold or distributed, as part thereof, the Telerate Version of SuperCharts Special Edition. Such obligation to distribute the Telerate Version of SuperCharts Special Edition to existing Dow Jones Workstation subscribers relates only to upgrades and new releases thereof. The Telerate Version of SuperCharts Special Edition shall be marketed by Telerate, its Affiliates and Independent Distributors as a free product automatically included in each subscription sold or distributed by Telerate, its Affiliates or Independent Distributors for the Dow Jones Workstation Platform (and shall be automatically included in any upgrades or new releases thereof distributed by Telerate or its Affiliates or Independent Distributors, and any future Platforms with which the Telerate Version of SuperCharts Special Edition may become compatible, if Telerate agrees to such compatibility, as described below), and Telerate, its Affiliates and Independent Distributors shall not charge to subscribers, customers or end users, directly or indirectly, any amount therefor. 11 (iii) In the event that at any time or from time to time during the term of this Agreement Telerate intends to offer a Platform, other than the Dow Jones Workstation Platform, with which the Telerate Version of SuperCharts Special Edition is not com patible, or intends to modify or enhance the Dow Jones Workstation Platform in a manner that defeats its compatibility with the Telerate Version of SuperCharts Special Edition, or intends to modify the Data Feeds specified in Exhibit A-2 in a manner that defeats their compatibility with the Telerate Version of SuperCharts Special Edition with respect to the provision of such Data Feeds on the Dow Jones Workstation Platform, Telerate shall provide Omega with prompt written notice thereof. If Omega then notifies Telerate in writing within ten (10) days of Omega's receipt of such notice that Omega is interested in modifying or enhancing the Telerate Version of SuperCharts Special Edition in order to create compatibility with such new or modified or enhanced Platform or Data Feed(s), and Telerate agrees that such compatibility should be achieved (provided that Telerate's agreement shall not be required with respect to a modification of the Dow Jones Workstation Platform or Data Feeds which creates incompatibility), the parties shall cooperate to achieve such compatibility as quickly as is practicable. Telerate shall then be obligated to include the Telerate Version of SuperCharts Special Edition in the Platform and with the Data Feeds with which it has been made compatible. 12 (iv) LIMITATIONS. Telerate, its Affiliates and Independent Distributors are not licensed, authorized or permitted in any manner by this Agreement to use, promote, market, sell, sublicense or distribute any version of SuperCharts or SuperCharts Special Edition or any part thereof or any other product of Omega or any part thereof other than the Telerate Version of SuperCharts Products ("Other Products"), and will not reproduce, prepare derivative works from, modify or display publicly any Other Products. Telerate, its Affiliates and Independent Distributors are prohibited from using the Telerate Version of SuperCharts Products with any data feed or Platform other than the current data feeds and Platform specified in Exhibit A-2 to this Agreement (as same be deemed supplemented pursuant to the later provisions of this subsection) or, provided the necessary Enhancement is made as provided for herein, any similar data feed or Platform of Telerate or its Affiliates generated in the future, or any similar data feed or Platform of Telerate or its Affiliates generated in the future with respect to which an Enhancement is not necessary. In the event that Telerate develops (a) an additional Data Feed to be made available as part of the Dow Jones Workstation Platform (or as part of an additional Platform with which the Telerate Version of SuperCharts becomes compatible pursuant to these provisions) or (b) an additional Platform (such as an Internet Platform) to be made available to subscribers either in addition to, or in substitution 13 for, the Dow Jones Workstation Platform as part of which the Data Feeds specified in Exhibit A-2 (as same may be amended pursuant to these provisions) are to be offered (as the case may be, a "New Dow Jones Data Product"), Omega shall use commercially reasonable efforts to modify the Telerate Version of SuperCharts so that it is compatible with the New Dow Jones Data Product. The parties shall adhere to the provisions and procedures of Section G.1 with respect to the request for, and development, testing and acceptance of, such modified version of the Telerate Version of SuperCharts, except that subsection (a) of Section G.1 shall not apply and Omega shall not be permitted to assert that achieving such compatibility would be adverse to Omega or its business interests. Upon acceptance by Telerate of such modified version, the New Dow Jones Data Product shall be deemed added to Exhibit A-2. In all other respects, the scope of the license granted to Telerate and all restrictions and prohibitions on Telerate's use of the Telerate Version of SuperCharts set forth in this Section C or elsewhere in this Agreement shall remain unmodified and continue to be of full force and effect. With respect to the "exclusive" nature of such expanded license (i.e., the restrictions relating to the Telerate Competitors set forth in Section C.3), such "exclusivity" (i.e., such restrictions) shall apply with respect to a New Dow Jones Data Product only to the extent that the Data Feeds which constitute or are used in connection with such New Dow Jones Data Product are 14 substantially similar to the Data Feeds currently generated by Telerate as specified in Exhibit A-2. In the event that Telerate decides to modify the Dow Jones Workstation Platform (or a Data Feed which is offered on or through such Platform) in a manner which will render it incompatible with the Telerate Version of SuperCharts (a "Modified Workstation") Telerate shall give Omega prompt written notice thereof, and shall fully cooperate with Omega, at Telerate's expense, to enable Omega to modify the Telerate Version of SuperCharts as quickly as practicable to be compatible with the Modified Workstation prior to its release. Telerate shall, at its expense, provide to Omega such assistance, technical and other information, equipment and materials as may be required or as may be reasonably requested by Omega to complete the necessary modifications to achieve compatibility with the New Dow Jones Data Product or Modified Workstation, as the case may be. Any such information, equipment or materials so provided shall constitute Telerate-Provided Materials for all purposes of this Agreement relating to the ownership and use thereof. If, despite using commercially reasonable efforts, Omega is unable to develop the necessary modifications to make the Telerate Version of SuperCharts compatible with the New Dow Jones Data Product or the Modified Workstation, this Agreement shall remain of full force and effect, neither party shall have any liability to the other in respect of such failure to achieve compatibility, and each party 15 shall remain bound to perform all of its obligations under this Agreement, except to the extent otherwise expressly provided herein. (b) PRE-SALES LICENSE. Effective as of the date hereof, Omega hereby grants to Telerate a license in the Telerate Version of SuperCharts Products for the sole purpose of testing and reviewing, and following the Acceptance Date, advertising and promoting, the Telerate Version of SuperCharts Products to the extent necessary and appropriate, in Telerate's reasonable judgment, to prepare for the sale, sublicensing and distribution of the Telerate Version of SuperCharts Products as permitted herein (the "Pre-Sales License"). 2. RIGHTS RESERVED. It is understood that SuperCharts is essentially the same product as the Telerate Version of SuperCharts Products, and that the development of the Telerate Version of SuperCharts Products involves no more than modifying the current version of SuperCharts to be compatible with the current data feeds of Telerate and its Affiliates specified in Exhibit A-2 to this Agreement. Accordingly, Omega retains, exclusively, and shall enjoy, exclusively, all rights to promote, market, sell, modify, distribute, license and use, and to reproduce, prepare derivative works from, modify or perform publicly or display, SuperCharts, SuperCharts Special Edition and any other product of Omega (whether now existing or hereafter created or developed), or any part 16 thereof, in any manner, in any version, and for any purpose, and to enter into agreements and arrangements relating thereto with any Person, which do not violate the restrictions contained in Subsection 3 below. 3. NON-COMPETITION. (a) BY OMEGA. In addition to the restrictions concerning TradeStation contained in Section C.3(a) of the TradeStation Agreement (which are unaffected by this Agreement), Omega agrees that it shall not enter into any agreement or arrangement with any of the Telerate Competitors to develop and then sell during the term of this Agreement any Real-Time product which is compatible with data feeds of the Telerate Competitors which are substantially similar to the data feeds currently generated by Telerate. In addition to the restrictions concerning TradeStation contained in Section C.3(a) of the TradeStation Agreement (which are unaffected by this Agreement), Omega further agrees that, in the event that Omega learns the specifications of data feeds of any of the Telerate Competitors which are substantially similar to the data feeds currently generated by Telerate, Omega shall not develop a new version of, or modify, SuperCharts or SuperCharts Special Edition for the purpose of making SuperCharts or SuperCharts Special Edition compatible with such specifications and then sell such new or modified version during the term of this 17 Agreement. While it is acknowledged that Telerate has no affirmative obligation to market, sell and/or distribute the Telerate Version of SuperCharts Products as Telerate's exclusive financial market charting and technical analysis product, at such time, if any, as Telerate offers, markets, sells and/or distributes any other financial market charting and technical analysis product (including its own product) as an alternative charting and technical analysis solution to its customers, or at such time, if any, as Telerate for any reason substantially ceases to market or promote either of the Telerate Version of SuperCharts Products (whether by reason of either of the Telerate Version of SuperCharts Products ceasing to have compatibility with any Platform or otherwise), the restrictions set forth above and in Subsection (b) below shall automatically become completely null and void and of no further force or effect and Telerate shall be deemed to have released Omega from all obligations which restrict Omega from entering into agreements or arrangements with any third party regarding SuperCharts or SuperCharts Special Edition. (b) PERSONAL NON-COMPETE. Concurrently herewith, Omega shall cause each of William and Ralph Cruz to execute the noncompetition agreement attached as Exhibit B in order to evidence their respective agreements to be bound personally by the covenants contained in Subsection 3(a). The failure of either of William or Ralph Cruz to comply with such noncompetition agreement shall also 18 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. constitute a failure by Omega to comply with the applicable provisions of Subsection 3(a). D. ROYALTIES. 1. ROYALTY PAYMENTS. In consideration of Omega's grant of the exclusive license to Telerate under Section C.1(a)(i), effective as of the Royalty Commencement Date, Telerate shall pay to Omega the following amounts: (a) STAND-ALONE FEE. For as long as a Stand-Alone Subscriber subscribes to, or otherwise uses, the Telerate Version of SuperCharts, Telerate shall pay to Omega ****** per month per Stand-Alone Unit for each such Stand Alone Subscriber (the "Stand-Alone Fee"). (b) WORKSTATION FEE. If the Telerate Version of SuperCharts is installed or later used in any Workstation, for as long as the Workstation Subscriber subscribes to, or otherwise uses, the Telerate Version of SuperCharts on such Workstation(s), Telerate shall pay to Omega an amount equal to *** of the Incremental Fee payable by such Workstation Subscriber for each Workstation, but in no event less than ****** per month per Workstation (the "Workstation Fee"). (c) TELERATE VERSION OF SUPERCHARTS SPECIAL EDITION. **************** ****************************************************************************** ****************************************************************************** **************. 19 2. EXCEPTIONS. Omega hereby acknowledges and agrees that no Stand-Alone Fee or Workstation Fee (collectively, the "Royalty Fee") payment is due with respect to (i) any copy of the Telerate Version of SuperCharts used by any subscriber subject to approval and returned to Telerate within 90 days following initial delivery to such subscriber (except with respect to amounts billed to such subscriber which such subscriber is obligated to pay), (ii) any copy of the Telerate Version of SuperCharts provided to a subscriber on a free, trial basis, up to 90 days, but only with respect to the free trial time given to such subscriber up to 90 days, (iii) any copy remaining in the physical possession of, and used directly by, Telerate, its Affiliates or Independent Distributors solely for review, advertising or promotion of the Telerate Version of SuperCharts, (iv) any copy given to a trade magazine or similar medium solely for the purposes of review in connection with media coverage, critique or review by such trade magazine or other medium of the Telerate Version of SuperCharts, or (v) any copies used by Telerate or its Affiliates or Independent Distributors solely to test, maintain or support the Telerate Version of SuperCharts. Except as provided in this Subsection 2, and in Subsection 1 above, there shall be no other uses by Telerate, its Affiliates or Independent Distributors of the Telerate Version of SuperCharts, so that, except as provided in this Subsection 2, there may exist no use whatever of the Telerate 20 Version of SuperCharts for which a Royalty Fee is not payable. Telerate has informed Omega that it is Telerate's normal business practice to impose stringent pricing guidelines on the sale and distribution of Telerate products. Telerate agrees to impose equally stringent pricing guidelines with respect to the sale, sublicensing and distribution of the Telerate Version of SuperCharts by Telerate, its Affiliates and Independent Distributors so that each user of the Telerate Version of SuperCharts constitutes a Workstation or a Stand-Alone Unit (as applicable) with respect to which a separate Royalty Fee is payable. 3. MINIMUM GUARANTEED ROYALTY FEES. No minimum guaranteed Royalty Fees are due for any period. The Royalty Fees shall be calculated solely upon sales of the Telerate Version of SuperCharts as set forth in Subsection D.1 above. 4. PAYMENTS; STATEMENTS. (a) PAYMENTS. Royalty Fees are due monthly and are payable no later than the 60th day following the end of the month to which they relate. (b) STATEMENTS. Telerate shall provide to Omega the following statements with respect to the calculation of Royalty Fees and the basis therefor: (i) MONTHLY STATEMENTS FOR TELERATE SALES. Within thirty (30) days following the end of each calendar month (or part 21 thereof, as the case may be) following the Royalty Commencement Date, Telerate shall provide to Omega a separate statement covering the subscriptions in effect for the Telerate Version of SuperCharts during such month which have been sold by Telerate or its Affiliates in each of Telerate's three (3) market regions (the Americas, Europe/Gulf, and Asia/Pacific). Telerate represents and warrants that such three regions encompass all of the regions in which subscriptions for the Telerate Version of SuperCharts shall be sold. (ii) MONTHLY STATEMENTS FOR INDEPENDENT DISTRIBUTOR SALES. Within sixty (60) days following the end of each calendar month (or part thereof, as the case may be) following the Royalty Commencement Date, Telerate shall provide to Omega one statement covering the subscriptions in effect for the Telerate Version of SuperCharts during such month which have been sold by all Independent Distributors of Telerate and its Affiliates. (iii) QUARTERLY AND ANNUAL STATEMENTS. Within sixty (60) days following the end of each quarterly period following, and each anniversary of, the Royalty Commencement Date, Telerate shall provide to Omega statements similar to those described in (i) and (ii) above for the quarterly or annual (as applicable) period covered. (iv) INCLUDED INFORMATION. Each such monthly, quarterly and annual statement described above shall set forth, 22 with respect to each subscription for the Telerate Version of SuperCharts, (1) the subscriber's name, (2) the subscriber's account number, (3) the product code (i.e., Stand-Alone Unit or Workstation), (4) the quantity of units per subscriber (i.e., the quantity of Stand-Alone Units or Workstations, as applicable), (5) if a Workstation Subscriber, the amount of the Incremental Fee billed, (6) the Royalty Fee owed (the Incremental Fee and Royalty Fee columns shall be appropriately sub-totaled and totaled in the statements), and (7) any other information that is reasonably necessary to provide a reasonably detailed understanding of the basis of the calculation of the Royalty Fees. (v) FORMAT. All such statements shall be formatted in a manner that render such statements reasonably easy to read and understand by a reasonably sophisticated third party. In the event that Omega is unclear about any items set forth in a statement or how such items were determined, Telerate shall assist Omega to understand such items or how they were determined, as the case may be. 5. RECORDS. Telerate shall maintain complete and accurate records and files of all documents, matters and transactions which are pertinent or relate to the Telerate Version of SuperCharts and the sale and use thereof by Telerate, its Affiliates and Independent Distributors (with respect to Affiliates and Independent Distributors, as more particularly described in 23 Subsection 6 below), including, without limitation, the number, at all times, of Workstations and Stand-Alone Units in or from which the Telerate Version of SuperCharts has been installed or is being used, and all information, records and files necessary to verify the correctness of the calculation and payment of the Royalty Fees and other payments due Omega hereunder (the "Records"). Telerate shall monitor and keep track of all users of the Telerate Version of SuperCharts, including, without limitation, the number of Workstations and Stand-Alone Units at all times in or from which the Telerate Version of SuperCharts has been installed or is being used, so as to be capable at all times of computing and paying the appropriate Royalty Fees and other amounts due hereunder. Each Record shall be maintained and kept by Telerate for a period of three (3) years following the creation thereof. Omega shall have the right, upon reasonable prior written notice, at its expense, to inspect and conduct or cause to be conducted audits of the Records during Telerate's normal business hours once per year. Telerate shall fully cooperate in all such inspections and audits. Omega has informed Telerate that it intends to conduct a full audit of the Records annually. If any inspection or audit of the Records discloses an underpayment to Omega of five percent (5%) or more of the amount due, Telerate shall, promptly upon the demand of Omega, reimburse to Omega the reasonable cost of the inspection or audit. Once a particular period has been audited by Omega, Omega shall not 24 again have the right to conduct an audit with respect to such period. All information obtained by Omega and its accountants from any such inspection or audit will be treated as Confidential Information as specified in this Agreement and will be used solely for the purpose of verifying the accuracy of the computation of the amounts due Omega hereunder and in connection with resolving any dispute arising in connection therewith. 6. AFFILIATES AND INDEPENDENT DISTRIBUTORS. For all purposes of this Agreement, including, without limitation, this Section D, it is understood that Telerate's Affiliates' and Independent Distributors' sale of subscriptions for, or other sublicensing of, the Telerate Version of SuperCharts to subscribers, customers and other end users as permitted hereunder constitute the basis upon which the Royalty Fees are computed and paid, as if Telerate were directly entering into such subscription or sublicensing arrangements with customers, subscribers or other end users of the Telerate Version of SuperCharts, and that such Royalty Fees shall not be based on the consideration, if any, received by Telerate from its Affiliates and Independent Distributors for obtaining from Telerate the right to enter into such subscription or sublicensing arrangements with customers, subscribers or end users. Telerate shall take such steps as are necessary to ensure that all transactions made by its Affiliates and Independent Distributors pertaining to this Agreement are 25 included in the Records, and within all statements required to be rendered by Telerate under this Agreement, and that all of such Records are capable of being audited at Telerate's New Jersey offices upon the exercise by Omega of its inspection and audit rights hereunder. E. MARKETING EFFORTS. 1. EFFORTS. (a) TELERATE OBLIGATION. Commencing with the Acceptance Date, Telerate shall use commercially reasonable efforts to promote, market, sell and/or sublicense the Telerate Version of SuperCharts Products throughout the world; provided, however, that, except for Telerate's obligations under Subsection 3 below and its obligations with respect to the distribution of the Telerate Version of SuperCharts Special Edition pursuant to Section C, Telerate shall have complete control over, and discretion in determining, the manner of promoting, marketing, selling and/or sublicensing the Telerate Version of SuperCharts Products. (b) REFERRAL OF INQUIRIES. In the event that any Person contacts Omega to subscribe for the Telerate Version of SuperCharts or to obtain information about the Telerate Version of SuperCharts, Omega shall refer such caller to Telerate. Omega shall have no authority to bind Telerate with respect to any such Person or any other third party. 26 2. COMPETITION. Subject to the provisions of Section I and Section M, nothing contained herein shall impair or restrict the right of Telerate, now or in the future, to develop, procure or market products or services which may be competitive with the Telerate Version of SuperCharts Products or with any other product or service offered by Omega, nor obligate Telerate to obtain any other products or services which may currently or subsequently be offered by Omega, nor prevent Telerate from entering into similar agreements with other companies, including those in the same industry as Omega, subject, however, to the consequences described in Section C.3(a) if Telerate does so. 3. TRADEMARKS. Telerate shall market the Telerate Version of SuperCharts Products solely under the trademarks Dow Jones SuperChartsTM and Dow Jones SuperCharts SETM,respectively. Omega shall, for a ten dollar, one-time royalty, license the use of such trademarks for such purpose to Telerate for the term of this Agreement pursuant to the Trademark License attached as Exhibit E. F. MAINTENANCE AND SUPPORT SERVICES FOR THE TELERATE VERSION OF SUPERCHARTS PRODUCTS. 1. NOTIFICATION. During the term of this Agreement, each of Telerate and Omega agrees to promptly notify the other in writing upon the discovery after Acceptance of any Error (including a Material Error) which is capable of being consistently duplicated. 27 2. ERRORS. During the term of this Agreement, upon the discovery of a Material Error, Omega shall, at no additional charge to Telerate, use commercially reasonable efforts to correct such Material Error as promptly as practicable but Omega shall in any event commence to address the problem within two business days after receiving written notice from Telerate of the discovery of a Material Error. During the term of this Agreement, upon the occurrence of any Error other than a Material Error, Omega shall (a) commence to address the problem within five (5) business days after receiving notice from Telerate of such Error, and (b) use commercially reasonable efforts to correct such Error as promptly as practicable in accordance with industry standards. The parties acknowledge that there are certain Errors which are so insignificant that they are not addressed until the next version of the subject program is released ("Insignificant Errors"). With respect to such Insignificant Errors, Omega will, during the term of this Agreement, use commercially reasonable efforts to make the required Modification at such time as Omega works on the Enhancement that will result in the next version, if any, of the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition (as the case may be) being released. The provisions of (a) and (b) above (together with access to the Source Code to the extent permitted under the escrow 28 agreement referred to in Section J) shall constitute Telerate's sole remedy in the event of an Error which is not a Material Error. In the event that Omega notifies Telerate that it is unable to correct a Material Error, Telerate's sole remedy shall be to correct such Material Error and to recover from Omega Telerate's reasonable costs to correct such Material Error, or, if Telerate cannot correct the Material Error, Telerate's sole remedy shall be to terminate this Agreement. Omega shall not be responsible for any Errors or other problems to the extent caused by Telerate's maintenance and support of the Telerate Version of SuperCharts Products. 3. TEMPORARY FIX. Upon the occurrence of an Error (including a Material Error), Omega shall, if full correction of the Error will take an extended period of time, and if requested by Telerate, and if technologically feasible, provide a "temporary fix" to alleviate the adverse consequences of the Error to the extent practicable pending development of the Modification required fully to correct the Error. 4. PRIMARY SUPPORT. Telerate, and not Omega, shall be responsible for providing primary support with respect to the Telerate Version of SuperCharts Products to Telerate's customers. Telerate shall use commercially reasonable efforts to support and maintain the Telerate Version of SuperCharts Products in a good and professional manner in accordance with industry standards. 29 However, in order to assist Telerate from time to time in providing such support during the term of this Agreement, Omega shall (a) make available, by telephone and electronic mail, personnel expertly trained with respect to the Telerate Version of SuperCharts Products to provide Telerate with remote diagnostic support and maintenance services from Omega's offices during normal business hours and (b) outside of normal business hours, by means of remote diagnostic support and maintenance services provided from Omega's offices, assist Telerate in providing emergency customer support services on an as-needed basis by making a telephone number available to Telerate, which Telerate may call after-hours, following which a representative of Omega will return the call within a reasonable time. Omega shall, in accordance with industry standards, use commercially reasonable efforts to maintain appropriate personnel and other resources sufficient to perform its maintenance and support obligations under this Agreement. The parties understand that Omega's support obligations are intended to be secondary to Telerate's, and that Telerate's requests for support shall be made only after Telerate has exhausted all reasonably available internal means of solving the problem in question, including consultation with Telerate's head technicians with respect thereto. It is further agreed that only head technicians or regional managers of Telerate may contact Omega for assistance. 30 G. TELERATE-REQUESTED ENHANCEMENTS. 1. CREATION. Telerate and Omega anticipate that Telerate may desire that Omega perform Enhancements from time to time during the term of this Agreement (including, but not necessarily limited to, an Enhancement to make the Telerate Version of SuperCharts Products compatible with the data feed currently being used to transmit Telerate financial market data on which the existing Telerate software is used in Stand-Alone Units). In the event that Telerate desires that an Enhancement be made, Telerate shall provide Omega with written notice to that effect, which shall include, in as much detail as is reasonably possible, the functional specification of the Enhancement requested. Promptly after receipt of such notice, Omega and Telerate shall endeavor, in good faith, (a) to determine whether the requested Enhancement will add value to the Telerate Version of SuperCharts, and, if so, whether (i) such Enhancement would have an adverse effect on Telerate's sales of the Telerate Version of TradeStation pursuant to the TradeStation Agreement, or (ii) development of the Enhancement is justifiable and feasible in light of all applicable circumstances, including the cost to Omega of developing the Enhancement in relation to the benefit Omega would obtain under this Agreement as a result thereof, and (b) assuming that the Enhancement will be valuable, justifiable, non-adverse and feasible as aforesaid, (i) to mutually agree upon 31 complete specifications for the Enhancement, (ii) to mutually agree upon time-frames or parameters for the development and completion of the Enhancement, and (iii) to mutually agree upon the testing procedures that will be used to test the Enhancement for acceptance purposes. An Enhancement requested by Telerate which meets all of the foregoing requirements shall be developed by Omega free of charge to Telerate. Notwithstanding any of the foregoing to the contrary, (x) Omega shall not be required to develop any Enhancement which, in Omega's good faith judgment, would have an adverse effect or impact on Omega or its business interests, and (y) Omega shall have sole and absolute discretion to determine whether an Enhancement should be made to the Telerate Version of SuperCharts Special Edition. Provided that all of the foregoing is agreed upon in a writing signed by the parties, Omega shall use commercially reasonable efforts to develop and complete the Enhancement in accordance with the agreement of the parties. In the event that any Enhancement developed by Omega does not pass the acceptance tests thereof mutually agreed upon, and cannot be corrected by Omega within a reasonable time thereafter so as to be capable of passing such tests, neither party shall have any liability of any kind to the other in respect of such failure (unless a party has acted in bad faith in connection therewith), and Telerate shall have no right to make any use of, or to sell, 32 sublicense or otherwise distribute or incorporate, such Enhancement. 2. INCORPORATION. In the event that Omega performs Enhancements, such Enhancements shall be the property solely of Omega and shall be subject to all of the provisions contained herein relating to the Telerate Version of SuperCharts and/or the Telerate Version of SuperCharts Special Edition (as the case may be) generally. H. OMEGA GENERATED ENHANCEMENTS. During the term of this Agreement, Omega shall, at its sole cost and expense (subject to the next sentence), and as promptly as is practicable, modify the Telerate Version of SuperCharts (but not the Telerate Version of SuperCharts Special Edition) to make the Telerate Version of SuperCharts consistent with any enhancements, improvements or upgrades made to the SuperCharts software generally (other than system testing, automation and tracking features, which are excluded from the Telerate Version of SuperCharts). To the extent that it is necessary for Telerate to provide to Omega equipment, materials or information of or concerning Telerate in order to enable Omega so to modify the Telerate Version of SuperCharts, Telerate shall provide same at its expense and shall, at its expense, provide to Omega such technical assistance in connection therewith as Omega may reasonably require. 33 I. TITLE TO TELERATE VERSION OF SUPERCHARTS PRODUCTS. Telerate acknowledges and agrees that, as between Telerate and Omega, Omega is and shall remain the sole and exclusive owner of all rights, including copyright, in SuperCharts, SuperCharts Special Edition and the Telerate Version of SuperCharts Products, and all Enhancements thereof, including, but not limited to, all rights in and to the "Easy Language" portion of SuperCharts, SuperCharts Special Edition and the Telerate Version of SuperCharts Products, and that the same is or will be protected by applicable copyright laws. Telerate shall display appropriate copyright notices on all packaging, documentation, advertising, and promotional materials containing or describing the Telerate Version of SuperCharts and/or the Telerate Version of SuperCharts Special Edition to the effect that the Telerate Version of SuperCharts and the Telerate Version of SuperCharts Special Edition, and any Enhancements thereto, have been created and developed by Omega. Telerate shall display appropriate registered trademark notices on all uses of the trademark "SuperCharts," together with a statement that SuperCharts is a registered trademark of Omega Research, Inc. In addition, the sign-on screen message and the "About" box of each of the Telerate Version of SuperCharts Products programs, as well as all Documentation, shall conspicuously display the appropriate copyright and registered trademark notices and a legend to the effect that such Telerate Version of SuperCharts Products and any 34 Enhancements have been created and developed by Omega and that SuperCharts is a registered trademark of Omega Research, Inc. J. ESCROW ARRANGEMENT. Within sixty (60) days of execution of this Agreement, the parties will enter into an escrow agreement, at Telerate's expense, satisfactory in form and substance to both parties, with an independent third-party escrow agent (whose fees and expenses will be paid by Telerate) mutually acceptable to the parties, pursuant to which Omega shall deposit, and the escrow agent shall accept deposit of, the Source Code for the Telerate Version of SuperCharts and the Telerate Version of SuperCharts Special Edition. The escrow agreement shall provide Telerate with the right to inspect and verify the items deposited by Omega with the escrow agent, as more fully explained below. Telerate shall not copy any of the items deposited by Omega with the escrow agent while the items are deposited with the escrow agent, as more fully explained below. The escrow agreement shall also require that Omega update the escrow deposit within ten (10) days of the completion and acceptance of any Enhancement to the Telerate Version of SuperCharts Products. The escrow agreement shall also contain the following provisions: (1) that the Source Code, and any modifications thereto, be provided to the escrow agent on disk; (2) that upon the initial deposit of, and after each modification to, the Source Code, one representative of Telerate will be permitted, 35 under the supervision of Omega and at Omega's premises, to compile the Source Code in order to enable such representative to generate an executable program for each of the Telerate Version of SuperCharts and the Telerate Version of SuperCharts Special Edition (and such representative can take back each such executable program to Telerate for the sole purpose of verifying that each Source Code is complete); (3) that in no event will such representative be permitted to take any notes, or to view any screen longer than is absolutely necessary to compile an executable program, or to remove or take with him or her any materials other than the compiled executable program; (4) that Telerate shall have access to the escrow and the Source Code only in the event that (i) an Error (other than an Insignificant Error) has occurred which Omega has notified Telerate Omega is unable to correct, or an Event of Default has occurred with respect to Omega based upon its failure to correct an Error (other than an Insignificant Error), or (ii) Omega is in default under this Agreement pursuant to Section N.2.(a)(iv) or (v), and Telerate has not terminated this Agreement as a result thereof and Omega's trustee in bankruptcy has rejected this Agreement or has refused to assume it; (5) that in order to obtain access to the escrow and the Source Code, Telerate must deliver to the escrow agent and to Omega an affidavit, made by a duly authorized officer on behalf of Telerate, to the effect that one of the conditions in subparagraph (4) above has occurred, 36 following which Omega shall have the right, exercisable by similar affidavit delivered to the escrow agent and Telerate, to contest Telerate's right to have access to the Source Code, in which event the issue shall be resolved in accordance with a mutually agreed-upon, expeditious dispute-resolution mechanism set forth in the escrow agreement;(6) that, in the event Telerate gains access to the Source Code, it may use the Source Code for the sole purpose of correcting Errors (which, at Omega's election, shall be performed at Omega's premises under Omega's supervision) or, in the event of an Event of Default with respect to Omega pursuant to Section N.2.(a)(iv) or (v) (provided that Telerate does not terminate this Agreement as a result thereof and Omega's trustee in bankruptcy has rejected this Agreement or has refused to assume it), to correct Errors and to otherwise maintain and support the Telerate Version of SuperCharts Products for the term of this Agreement (and, in the event that Omega is in liquidation or has ceased operations, to make Enhancements during the term of this Agreement, any such Enhancements to be the property solely of Omega); and (7) that, except as specifically provided in Section P.4, the escrow agreement shall automatically terminate, and Telerate shall have no further right to gain access to or use the Source Code, upon the expiration or any other termination of this Agreement. As long as Omega executes the escrow agreement, the failure of the escrow agreement to become effective (by reason of Telerate's or the 37 escrow agent's refusal to sign it or other cause beyond Omega's control) shall not affect, diminish or impair any right or obligation of either party under this Agreement. The provisions of this Section J contain the only circumstances under which Omega shall ever be obligated to disclose the Source Code to Telerate. The form of escrow agreement agreed upon by the parties is attached as Exhibit C. The parties agree that SunTrust Bank/Miami, N.A., 777 Brickell Avenue, Miami, Florida, is an acceptable escrow agent. K. REPRESENTATIONS AND WARRANTIES. 1. GENERAL. Each party hereby represents, warrants and covenants that (a) it has the unrestricted right to enter into and perform this Agreement, (b) it is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has the power to own its assets and properties and to carry on its business as now being conducted and (c) this Agreement (w) has been duly authorized, executed and delivered, (x) constitutes the valid and binding obligation of such party enforceable in accordance with its terms, (y) will not violate, to such party's actual knowledge, any law, statute, rule or regulation, or court or administrative agency judgment or decree, and (z) will not conflict with or result in any breach or default of any of the terms and conditions of any document or any agreement to which such party is a party. 38 2. INTELLECTUAL PROPERTY. (a) REPRESENTATION AND WARRANTY. Omega hereby represents and warrants that there are no pending or threatened actions or litigation against Omega regarding intellectual property infringement or breach of license or maintenance agreements which would materially and adversely affect Telerate's use of the Telerate Version of SuperCharts Products, and that Omega has received no written notice, and is not otherwise aware, of any claim or potential claim against it by any person with respect to the ownership or use of any intellectual property relating to SuperCharts. (b) EXCLUSIVE REMEDY FOR BREACH. In the event that any of the representations and warranties of Omega contained in Subsection 1 or 2(a) above are false, and a third party brings suit against Telerate during the term of this Agreement asserting therein rights in the Telerate Version of SuperCharts Products or damages or other relief as a result of an alleged infringing use by Telerate of the Telerate Version of SuperCharts Products ("Indemnifiable Claims"), Omega will, subject to the provisions and limitations set forth below, assume at its expense the defense of such suit using counsel reasonably acceptable to Telerate, and indemnify Telerate against any money damages or costs awarded in such suit which are based upon the Indemnifiable Claims. Omega's obligations under this Subsection (b) shall be excused if Telerate 39 fails to provide to Omega prompt notice of any Indemnifiable Claim asserted or threatened against Telerate, but only to the extent that the delay in giving notice is prejudicial to Omega or otherwise prejudices Omega's ability to answer, defend against or settle such Indemnifiable Claim. Omega shall have exclusive control of the defense of such lawsuit and all negotiations relating to its settlement, and Telerate shall assist Omega at Omega's request in all necessary respects in connection with the defense and/or settlement of the lawsuit. However, Omega's total liability to incur out-of-pocket costs in the defense of any such suit or suits and to pay damages or costs awarded in or resulting from any such suit or suits (whether by judgment, settlement, or otherwise) shall be limited to the amount theretofore paid to Omega by Telerate under this Agreement, and Telerate shall advance to Omega any amounts required to be expended by Omega in excess of such limit. Amounts so advanced shall be credited to future payments due from Telerate to Omega under this Agreement. The foregoing provisions of this Subsection (b) state the entire liability of Omega to Telerate in connection with any third-party lawsuit brought against Telerate for which indemnity pursuant to this Subsection (b) is available. 3. DISCLAIMER. EXCEPT FOR THE EXPRESS WARRANTIES CONTAINED IN THIS SECTION K, OMEGA EXPRESSLY DISCLAIMS ANY WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, 40 STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE OR USE, AND MAKES NO REPRESENTATIONS OR WARRANTIES REGARDING SUPERCHARTS, SUPERCHARTS SPECIAL EDITION OR THE TELERATE VERSION OF SUPERCHARTS PRODUCTS, OR THE COPYRIGHTS OF OMEGA THEREIN, INCLUDING, WITHOUT LIMITATION, THEIR SCOPE OR VALIDITY, OR ANY SYSTEMS, PRODUCTS OR SERVICES BASED THEREON OR MAKING USE THEREOF, INCLUDING, WITHOUT LIMITATION, NON-INFRINGEMENT OF RIGHTS OF THIRD PARTIES. 4. PERFORMANCE. Omega warrants and covenants that (a) the Telerate Version of SuperCharts Products (i) shall be free from any material defects in material and workmanship, and (ii) shall perform in accordance with the Specification in all material respects and (b) the services to be provided to Telerate as specified herein shall be performed in a good and professional manner in accordance with industry standards. L. LIMITATION OF LIABILITY. 1. CERTAIN DAMAGES. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, IN NO EVENT SHALL OMEGA BE LIABLE TO TELERATE, REGARDLESS OF THE TYPE OR NATURE OF THE BREACH OR OTHER ACTION OR OMISSION ASSERTED OR PROVED, FOR SPECIAL, CONSEQUENTIAL, INDIRECT OR INCIDENTAL DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, LOSS OF INCOME, PROFITS, REVENUE, MARKET SHARE OR THE LIKE. FURTHER, IN NO EVENT SHALL TELERATE BE ENTITLED TO ASSERT AGAINST OR RECOVER FROM OMEGA ANY DAMAGES OTHER 41 THAN ITS DIRECT, ACTUAL, OUT-OF-POCKET DAMAGES WHICH, IN ALL EVENTS, SHALL BE CAPPED AT THE AMOUNT OF THE TOTAL PAYMENTS ACTUALLY RECEIVED BY OMEGA AS OF SUCH DATE PURSUANT TO THIS AGREEMENT. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, BUT EXCEPT AS SET FORTH IN THE LAST SENTENCE OF THIS SECTION L.1, IN NO EVENT SHALL TELERATE BE LIABLE TO OMEGA, REGARDLESS OF THE TYPE OR NATURE OF THE BREACH OR OTHER ACTION OR OMISSION ASSERTED OR PROVED, FOR SPECIAL, CONSEQUENTIAL, INDIRECT OR INCIDENTAL DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, LOSS OF INCOME, PROFITS, REVENUE, MARKET SHARE OR THE LIKE. FURTHER, IN NO EVENT SHALL OMEGA BE ENTITLED TO ASSERT AGAINST OR RECOVER FROM TELERATE ANY DAMAGES OTHER THAN ITS DIRECT, ACTUAL, OUT-OF-POCKET DAMAGES (WHICH, IT IS AGREED, WOULD INCLUDE THE RIGHT TO RECOVER FROM TELERATE ANY AMOUNTS DUE TO BE PAID OMEGA BY TELERATE PURSUANT TO SECTION D OF THIS AGREEMENT WHICH ARE NOT PAID BY TELERATE, INCLUDING APPLICABLE STATUTORY, PRE-JUDGMENT AND POST-JUDGMENT INTEREST THEREON). THE FOREGOING LIMITATIONS ON THE LIABILITY OF TELERATE SHALL NOT APPLY IN ANY RESPECT TO ANY CLAIM OF OMEGA BASED UPON (a) TELERATE, ITS AFFILIATES OR INDEPENDENT DISTRIBUTORS ENGAGING IN ACTIVITIES WHICH EXCEED THE SCOPE OF THE LICENSES GRANTED TO TELERATE IN SECTION C, (b) A BREACH OR VIOLATION BY TELERATE, ITS AFFILIATES OR INDEPENDENT DISTRIBUTORS OF ANY OF THE PROVISIONS OF SECTION I OR SECTION M, OR (c) ANY MISUSE, IMPROPER OR UNLAWFUL USE OR MISAPPROPRIATION OR 42 INFRINGEMENT BY TELERATE, ITS AFFILIATES OR INDEPENDENT DISTRIBUTORS OF ANY TRADEMARK, SERVICE MARK, COPYRIGHT, TRADE SECRET, OTHER INTELLECTUAL PROPERTY OR CONFIDENTIAL OR PROPRIETARYINFORMATION OF OMEGA. 2. USE. If a temporary restraining order, preliminary injunction or final injunction is obtained against Telerate's (or Telerate's customers') use of the Telerate Version of SuperCharts Products due to an infringement of a patent or copyright, or an appropriation of a trade secret, Omega will promptly, at its option and sole expense, either (a) procure for Telerate (and Telerate's customers) the right to continue using the Telerate Version of SuperCharts Products in its then current phase of development, or (b) replace or modify the Telerate Version of SuperCharts Products in its then current phase so that it no longer infringes such patent or copyright or constitutes an appropriation of a trade secret; or if Omega is unable to promptly effect (a) or (b) above, then, (c), as Telerate's sole and exclusive remedy, accept Telerate's return of the Telerate Version of SuperCharts Products (in which event this Agreement shall be deemed terminated) and refund to Telerate, subject to the provisions of Subsection 1 above, the full amount of Telerate's actual damages sustained as a result of the infringement or appropriation up to the total amount paid by Telerate to Omega to date under this Agreement. 43 M. CONFIDENTIALITY; TRADE SECRETS. The parties recognize and acknowledge that, in connection with this Agreement, they may disclose to each other confidential or proprietary information (the "Confidential Information"). "Confidential Information" shall mean the terms of this Agreement (as to both parties), the Telerate-Provided Materials, the Records and the statements to be rendered by Telerate to Omega pursuant to this Agreement (as to Telerate), the Source Code, the Object Code, and the Executable Code for SuperCharts, SuperCharts Special Edition and the Telerate Version of SuperCharts Products (as to Omega), as well as any other information or data received by either party from the other which has been marked "Proprietary and Confidential" by the disclosing party, or in respect of which the receiving party has received from the disclosing party specific written notice of its proprietary and confidential nature. Each party agrees to use the Confidential Information solely as contemplated under this Agreement and to hold in confidence and to protect all Confidential Information against disclosure to unauthorized third parties by using the same standard of care as it applies to its own confidential or proprietary information. All materials and documents supplied hereunder shall be and remain the property of the disclosing party, and the receiving party agrees to limit dissemination of, and access to, such materials and documents to its personnel having a need to know and agrees to return or 44 destroy all such materials and documents (including purging any electronically stored records) upon request of the disclosing party. The above restrictions shall not apply to information in the public domain or generally known or which the receiving party can demonstrate has been independently developed by it prior to disclosure or was otherwise known to the receiving party prior to disclosure or was rightfully acquired by the receiving party from third parties, or which is approved for release by the written authorization of the disclosing party, or which is required to be disclosed by law or regulation (including in connection with any securities filings, reports or prospectuses made or distributed or required to be made or distributed by either party). In addition to and without limitation of the foregoing, (a) Telerate acknowledges and agrees that the Source Code, Object Code and Executable Code for SuperCharts, SuperCharts Special Edition and the Telerate Version of SuperCharts Products (as same may be enhanced by Omega) contain and will contain trade secrets of Omega, and Telerate further agrees that it shall not (i) in any way attempt to discern Omega's trade secrets or proprietary information relating to SuperCharts, SuperCharts Special Edition or the Telerate Version of SuperCharts Products (as same may be enhanced), including without limitation the Source Codes, Object Codes and Executable Codes therefor (unless such discernment is not a violation of this Agreement or the escrow agreement referred to in 45 Section J or a result of disclosures made by Omega to Telerate), or (ii) disassemble or decompile the subject software, or perform any like operation commonly known as "reverse engineering" with respect thereto, and (b) Omega acknowledges and agrees that the current Telerate twin environment API included in the Telerate-Provided Materials, as same may be modified, shall not be used by Omega for any purpose other than in connection with the license granted hereunder; provided, however, that the foregoing prohibition shall not apply to the current Telerate twin environment API, as same may be modified, if, but only if, Telerate publishes such current or modified Telerate twin environment API to the information industry in a general announcement for the purpose of making such API, as same may have been modified, freely available without charge by Telerate and creating an "open system" by which computer software publishers may deal directly with Telerate subscribers whose devices employ such API, as same may have been modified. Omega acknowledges that Telerate may, during and following the term of this Agreement, subject, however, to the consequences set forth in Section C.3(a) to the extent applicable, engage in active efforts to develop a Real-Time product which is compatible with its data feeds that performs many of the same, or similar, functions as those performed by the Telerate Version of SuperCharts Products (as same may be enhanced pursuant to this Agreement). Omega recognizes and agrees that the general functionality (i.e., system testing, 46 system automation, indicators, alerts on indicators, system optimization, generation of commentary on the interpretation of an indicator, and color coding of bar charts based upon user-defined criteria, use or display of bar charts, candlestick charts, point and figure charts, market profiles, multiple bar charts on a screen, bar charts and studies on a screen, sizeable chart windows, printing functions such as chart printing (WYSIWYG), data printing (tabular printing), automated printing and full historical printing (all data in history), and functions and displays such as password-based security, password-based permissioning, display of quotations and news with charts, automatic display of system alerts and alarms, storage of multiple pages (trade plans) in memory (RAM or on disk), retrieval of historical data from offsite data source (manual and automatic), saving charts and data to disk, sharing charts and data over network, user editing of historical data and user-defined data items) performed and to be performed by SuperCharts, SuperCharts Special Edition and/or the Telerate Version of SuperCharts Products, respectively, as between Omega and Telerate, do not constitute trade secrets of Omega. However, the parties acknowledge that the particular ways in which SuperCharts, SuperCharts Special Edition and the Telerate Version of SuperCharts Products implement, present and offer (or will implement, present and offer, as the case may be) such functionality may contain protectable copyrights and trade secrets of Omega. 47 N. TERM; EVENTS OF DEFAULT; AND TERMINATION. 1. TERM. The term of this Agreement shall commence on the date hereof and, provided that Acceptance occurs, shall, subject to each of the early termination events specified in this Agreement, terminate on January 12, 2003. 2. EVENTS OF DEFAULT. (a) EVENTS. Any one or more of the following shall constitute an Event of Default hereunder: (i) TELERATE MONETARY BREACH. Telerate fails to pay, when due, any amount required to be paid by it under Section D of this Agreement, if such payment is not made within thirty (30) days after Omega gives Telerate notice of such failure to pay. (ii) OTHER BREACHES. (A) Omega fails materially (it being understood that if the agreement or obligation in question is already subject to a materiality standard, the use of the word material here shall not further alter such standard) to comply with or perform any agreement or obligation hereunder (or either William Cruz or Ralph Cruz, in cases where he is not acting on behalf of Omega, takes any action or enters into any transaction which would, if done by or on behalf of Omega, constitute a material failure to comply with or perform an agreement or obligation of Omega hereunder) if such failure is not remedied on or before the thirtieth day after notice of such failure; provided, however, that, in the event such failure cannot, through the use of 48 commercially reasonable efforts, reasonably be remedied within such 30-day period, if Omega commences to remedy the failure within said 30-day period and diligently proceeds with such remedy until it is completed, no Event of Default shall be deemed to have occurred, or (B) Telerate fails materially (it being understood that if the obligation or agreement in question is already subject to a materiality standard, the use of the word material here shall not further alter such standard) to comply with or perform any agreement or obligation hereunder (other than failure to make a payment, which is covered by Subsection (i) above) if such failure is not remedied on or before the thirtieth day after notice of such failure; provided, however, that, in the event such failure cannot, through the use of commercially reasonable efforts, reasonably be remedied within such 30-day period, if Telerate commences to remedy the failure within said 30-day period and diligently proceeds with such remedy until it is completed, no Event of Default shall be deemed to have occurred. (iii) BREACHES OF REPRESENTATIONS. A representation or warranty made or deemed to have been made hereunder by Omega or Telerate (as the case may be) proves to have been false or misleading in any material respect when made and the effects of the materially false or misleading representations and warranties are material and adverse to the other party and such effects cannot be 49 cured or eliminated within a reasonable period of time after notice thereof. (iv) VOLUNTARY BANKRUPTCY. Omega or Telerate (as the case may be) (A) commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency, corporation or other similar law now or hereafter in effect that authorizes the reorganization or liquidation of such party or its debts or the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or (B) shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or (C) makes a general assignment for the benefit of creditors, or (D) admits in writing its inability to pay its debts as they become due, or (E) takes any corporate action to authorize any of the foregoing. (v) INVOLUNTARY BANKRUPTCY. An involuntary case or other proceeding shall be commenced by persons that are not bound by this Agreement against Omega or Telerate (as the case may be) seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and 50 such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) calendar days; or an order is entered by a court of competent jurisdiction affecting substantially all of the property or affairs of Omega or Telerate (as the case may be) under bankruptcy, insolvency or other similar laws as now or hereafter in effect and such order shall remain undismissed and unstayed for a period of sixty (60) calendar days. (b) EFFECT OF TELERATE MONETARY DEFAULT. Upon the occurrence of an Event of Default described in Section N.2(a)(i), in addition to any other rights and remedies available to Omega (including, without limitation, the right to recover all amounts not paid, together with statutory, pre-judgment and post-judgment interest thereon), Omega shall be entitled, in its sole discretion, to elect to terminate this Agreement and the licenses granted to Telerate hereunder immediately upon written notice to Telerate. (c) EFFECT OF OTHER DEFAULTS. Subject to the provisions of Section F.2 and Section L, upon the occurrence of any other Event of Default by either party, in addition to any other rights and remedies available to the non-defaulting party, the non-defaulting party shall be entitled, in its sole discretion, to terminate this Agreement upon thirty (30) days' prior written notice to the defaulting party. In addition, upon the termination of the TradeStation Agreement for any reason, either party to this Agreement may, within the 60-day period following the termination 51 of the TradeStation Agreement, terminate this Agreement upon thirty (30) days' prior written notice to the other party. (d) REMEDIES UPON ORDER FOR RELIEF BEING ENTERED UNDER BANKRUPTCY CODE. If an Event of Default described in Section N.2(a) (iv) or (v) shall have occurred with respect to Omega, and an order for relief pursuant to 11 U.S.C. /section/101, ET SEQ., as amended or supplemented from time to time (the "Bankruptcy Code") shall have been entered, Telerate may without any further action or notice and at its sole discretion, either (i) deem this Agreement to be terminated effective as if such termination had occurred immediately before the date of entry of any such order for relief; (ii) seek to obtain upon an expedited basis such approval from a court of competent jurisdiction as may actually be necessary and required to effect immediate termination of this Agreement; or (iii) seek to obtain upon an expedited basis such approval from a court of competent jurisdiction as may actually be necessary and required to compel Omega or its trustee-in-bankruptcy to assume or reject this Agreement. Each of the parties hereto specifically agrees that (a) each of the termination provisions contained in this Section has been specifically bargained for, (b) each party has consented to termination of this Agreement at the time and in the manner authorized by this Section and (c) neither party shall in any way attempt or assist any other party that may attempt to delay, oppose or avoid any such termination of this Agreement. 52 (e) RIGHTS AND OBLIGATIONS OF PARTIES PENDING ASSUMPTION OR REJECTION OF THIS AGREEMENT IN THE EVENT OF BANKRUPTCY OF OMEGA. In the event of the commencement of a case under the Bankruptcy Code by or against Omega, and during the period prior to the entry of an order directing or authorizing Omega or its trustee-in-bankruptcy to assume, reject or otherwise terminate this Agreement, Telerate may exercise its rights under Section 365(n) of the Bankruptcy Code, as such section may be amended or supplemented from time to time, and the exercise of such rights or resort to any remedies provided thereunder shall not be deemed the exclusive rights and/or remedies available to Telerate, but Telerate is entitled to obtain any relief to the fullest extent provided by applicable bankruptcy or nonbankruptcy law (except as limited by this Agreement). (f) RIGHTS AND OBLIGATION OF PARTIES AFTER REJECTION OF THIS AGREEMENT IN THE EVENT OF BANKRUPTCY OF OMEGA. Omega specifically acknowledges and agrees that, in addition to the rights and remedies of Telerate under Section 365(n) of the Bankruptcy Code, as such section may be amended or supplemented from time to time, the rights and remedies of Telerate set forth in this Section have been specifically bargained for and Omega will not attempt to delay or oppose Telerate's exercise of such rights: (i) Omega or its trustee-in-bankruptcy shall allow Telerate without any interference by Omega or its trustee-in- 53 bankruptcy to exercise all of its rights, including rights to prosecute or complete pending applications for trademarks and service marks for the Telerate Version of SuperCharts Products or to seek other necessary governmental action and to take such actions as may be necessary to prevent infringement on, or violation of, any exclusive rights granted to Telerate by this Agreement; and (ii) In the event that Omega's trustee-in-bankruptcy rejects this Agreement or refuses to assume it (and Telerate does not elect to terminate this Agreement), Telerate shall be entitled to have access to and use, and Omega shall not interfere with Telerate's right to use, the Source Code, Object Code, Executable Code and Documentation relating to the Telerate Version of SuperCharts Products and any Enhancements thereof in accordance with this Agreement, and, as to the Source Code, in accordance with, and as limited by, the provisions of SECTION J hereof and the escrow agreement to be executed pursuant thereto. (g) SUPPLEMENTARY AGREEMENT. The parties further acknowledge and agree that all provisions relating to the escrow arrangement constitute a supplementary agreement as such term is used in Section 365(n) of the Bankruptcy Code. (h) SEVERABILITY. The provisions set forth in Sections N.2(c) through (g) shall be deemed to be material nonseverable parts of the Agreement. 54 3. EFFECT ON SUBSCRIBERS. Upon termination of this Agreement for any reason, including, without limitation, the expiration hereof, Telerate may not enter into any new subscriptions or other agreements or arrangements for the use of the Telerate Version of SuperCharts, or agree to increase, or increase, the number of Stand-Alone Units, Workstations or users with respect to any subscriptions, or make any further distribution whatever, direct or indirect, of the Telerate Version of SuperCharts Special Edition. Any existing subscriptions, as of the date of termination, for the Telerate Version of SuperCharts may be continued until the expiration of such subscriptions and renewed (provided that no additional users, Stand-Alone Units or Workstations are added) pursuant to the terms of such subscriptions, and Telerate shall be obligated to continue to pay, and Omega will continue to receive, Royalty Fees for, and other amounts due hereunder in respect of or based upon, such existing subscriptions for as long as the Telerate Version of SuperCharts is in use. At termination, Telerate shall provide to Omega a complete and accurate list of all then current subscribers and customers for the Telerate Version of SuperCharts (as well as a list of all customers, subscribers and end users to whom the Telerate Version of SuperCharts Special Edition has been delivered), which shall, for each subscriber and customer using the Telerate Version of SuperCharts, set forth the expiration date of the subscription (or 55 indicate that it is renewable on a periodic basis, identifying the period, if appropriate) and which shall include all other information required to be included in the statements required to be delivered by Telerate under Section D.4 hereof. Such statements shall continue to be rendered on a monthly, quarterly and annual basis (in the manner set forth in Section D.4) until all subscriptions for, and uses of, the Telerate Version of SuperCharts have ceased. The expiration or other termination of this Agreement shall not affect or impair Omega's audit and inspection rights granted hereunder, or Telerate's duties to maintain the Records, which shall continue at least until all subscriptions for and uses of the Telerate Version of SuperCharts have terminated and a full and final audit has been conducted by Omega, and until all disputes, if any, concerning payment of Royalty Fees and other amounts due hereunder have been fully and finally resolved. O. NON-SOLICITATION. To the fullest extent permitted by law, Omega agrees not to solicit the employment of or employ any employee of Telerate or any of its Affiliates, and Telerate agrees not to solicit the employment of or employ any employee of Omega or any of its Affiliates, in each case, during the period commencing the date hereof and ending on the date that is twenty-four (24) months following the expiration or termination of this Agreement; 56 provided, however, in no event shall such period of restriction terminate prior to June 30, 1998. P. MISCELLANEOUS. 1. NOTICES. All notices, requests and other communications hereunder shall be in writing and shall be delivered in person or sent by commercial overnight courier (such as FedEx) or certified mail, return receipt requested: (a) If to Telerate, to: Dow Jones Markets, Inc. One World Financial Center 200 Liberty Street New York, NY 10281 Attention: President with a copy to: Dow Jones Markets, Inc. One World Financial Center 200 Liberty Street New York, NY 10281 Attention: Legal Department (b) If to Omega, to: Omega Research, Inc. 8700 West Flagler Street Suite 250 Miami, Florida 33174 Attention: William and Ralph Cruz 57 with a copy to: Rubin Baum Levin Constant Friedman & Bilzin 2500 First Union Financial Center 200 S. Biscayne Boulevard Miami, Florida 33131 Attention: Marc J. Stone, Esq., or to such other addresses as may be stipulated in writing by the parties pursuant hereto. Unless otherwise provided, notice shall be effective on the date it is officially recorded as delivered by return receipt, the courier service, or equivalent. 2. FORCE MAJEURE. No party hereto shall be deemed to be in default of any provision of this Agreement, or in default for failures in performance, resulting from acts or events beyond the reasonable control of such party (such acts shall include but not be limited to, acts of God, or civil or military authority, civil disturbance, war, strikes, fire, lightning, hurricanes, tornado, power outages, or other similar catastrophes or events). 3. AMENDMENT. This Agreement may not be amended except by written instrument executed by each of the parties hereto. 4. BINDING AGREEMENT; ASSIGNMENT. (a) GENERAL. This Agreement shall be binding upon and shall inure to the benefit of the parties and the parties' respective successors at law and permitted assigns. Neither this Agreement nor any obligations or duties hereunder may be assigned or delegated by any party hereto without the prior written consent 58 of the other party; provided that each party shall be entitled without such consent to assign its rights and obligations hereunder to any Affiliate or in connection with a sale (direct or indirect, by merger, sale of capital stock or otherwise) of all or substantially all of its assets; provided, however, if Omega directly or indirectly (by merger, sale of capital stock or otherwise) sells all or substantially all of its assets to one of the Telerate Competitors, Telerate may, within the thirty (30) day period following written notice from Omega that Omega has signed a contract to sell, or has sold, substantially all of its assets (directly or indirectly, by merger, sale of capital stock or otherwise) to a Telerate Competitor, terminate this Agreement by giving written notice to Omega to that effect within such thirty (30) day period. Termination of this Agreement in this circumstance shall occur and be effective on the date such notice of termination is given (unless the term of this Agreement has expired prior thereto). (b) SALE OF OMEGA TO TELERATE COMPETITOR. In the event, but only in the event, that Telerate so terminates this Agreement following said notice of sale of Omega to a Telerate Competitor, (i) Telerate shall have a non-exclusive one-year license to continue to sell new subscriptions for the Telerate Version of SuperCharts as permitted hereunder (but the non-competition obligations of Omega, William Cruz and Ralph Cruz shall, as of the 59 date of termination, automatically cease and be of no further force or effect), (ii) such non-exclusive license shall terminate on the first anniversary of the date of termination of this Agreement, (iii) it is understood that Omega shall, in this circumstance of termination only, continue to be bound by its maintenance and support obligations under Section F, but shall not continue to be bound by any obligation to develop any Enhancements for the Telerate Version of SuperCharts Products or to perform any other action or obligation under this Agreement, (iv) Telerate's obligation to pay Royalty Fees, render statements and maintain Records shall continue to be in force; and (v) the escrow agreement described in Subsection J shall, as contemplated in the form of escrow agreement attached, be extended for such additional year. (c) THIRD PARTIES. No parties other than Telerate and Omega, and their respective successors at law and permitted assigns (provided that such successors or permitted assigns have expressly assumed this Agreement in writing), shall have any right or standing to assert or enforce any right or obligation under this Agreement. 5. HEADINGS. The headings of sections and paragraphs herein, and the "WHEREAS" clauses contained on pages 1 and 2 of this Agreement, are included for convenience of reference or context and shall not control the meaning or interpretation of any of the provisions of this Agreement. 60 6. SURVIVAL. The provisions of this Section and of SECTIONS A, B.7, D, I, K, L.1, M, N AND O ONLY shall survive any termination or expiration of this Agreement. 7. GOVERNING LAW. This Agreement shall be controlled, construed and enforced in accordance with the laws of the State of New York, other than laws relating to conflicts of law. 8. SEPARABILITY. If any provision of this Agreement or the application thereof to any person or circumstance shall to any extent be held to be invalid or unenforceable, the remainder of the Agreement, or the application of such provision to persons or circumstances as to which it is not held to be invalid or unenforceable, shall not be affected thereby, and each provision shall be valid and be enforced to the fullest extent permitted by law. 9. ENTIRE AGREEMENT. This Agreement, together with all Exhibits, contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all previous and contemporaneous verbal and written agreements relating to such subject matter. 10. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument. 11. CONSTRUCTION. The parties acknowledge and confirm that this Agreement and each of the Exhibits hereto have been heavily 61 and thoughtfully negotiated by the parties over an extended period of time and that any ambiguities contained herein or therein shall therefore not in any manner be construed against the draftsman or alleged draftsman hereof or thereof. IN WITNESS WHEREOF, the undersigned parties have duly executed and delivered this Agreement as of the day first above written. DOW JONES MARKETS, INC. OMEGA RESEARCH, INC. By: /S/JULIAN B. CHILDS By: /S/WILLIAM CRUZ -------------------- ------------------ Julian B. Childs William Cruz Title: EVP President 62 EXHIBIT INDEX EXHIBIT DESCRIPTION A Definitions A-1 Description of Telerate- Provided Materials A-2 Description of Data Feeds for Telerate Version of SuperCharts Products B Noncompetition Agreement of William Cruz and Ralph Cruz C Form of Escrow Agreement D QA Test Script (Telerate Version of SuperCharts) E Trademark License F QA Test Script (Telerate Version of SuperCharts Special Edition) 63 EXHIBIT A DEFINITIONS ACCEPTANCE; ACCEPTED: When the Telerate Version of SuperCharts Products has successfully completed Quality Assurance Testing as described in Section B of the Agreement. ACCEPTANCE DATE: The date Telerate has Accepted or is deemed to have Accepted the Telerate Version of SuperCharts Products as described in Section B of the Agreement. AFFILIATE: With respect to any individual or entity, any other individual or entity, directly or indirectly, through one or more intermediaries, Controlling, Controlled by, or under common Control with the original individual or entity. CONTROL: The possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of an entity, whether through the ownership of any securities, by contract or otherwise. DATA FEED OR DATA FEED: "Data Feed" or "data feed" means a type or category of financial market data (e.g. equity prices) of a certain quality, detail and content, formatted in a particular way or ways, for delivery to subscribers. DOCUMENTATION: All existing written descriptive and instructional information published by Omega for use by SuperCharts customers relating to the use and operation of SuperCharts Version 4 for application to Real-Time data, as same shall be appropriately modified by Telerate pursuant to this Agreement to become the documentation for the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition (as the case may be). ENHANCEMENT: Any improvement or upgrade to the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition, whether minor or substantial. ERROR: Any failure of the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition to perform the applicable functions or conform to the Specification. EXECUTABLE CODE: With respect to SuperCharts, SuperCharts Special Edition, the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition, a set of machine readable instructions that has been assembled or compiled from the Source Code and Object Code and linked and that can operate on the appropriate computer without further compiling, assembling or linking. INCREMENTAL FEE: With respect to each individual use of the Telerate Version of SuperCharts for which a Royalty Fee is payable, the gross amount charged by Telerate in United States Dollars to a Telerate subscriber pursuant to the subscription for such use of the Telerate Version of SuperCharts (i.e., per Workstation), not including sales and similar taxes, if any, added to the price thereof which are remittable by Telerate. The Incremental Fee shall not be reduced by royalties or other amounts or consideration paid to Independent Distributors or others or any other amounts except for said taxes. If, with respect to any subscription, the Telerate Version of SuperCharts is bundled with, sold together with, or 2 incorporated into, one or more other computer programs or products of Telerate (a "bundle") for one combined price (a "bundled selling price"), for the purposes of calculating the Incremental Fee hereunder: the separate list price of each product included in the bundle (including the list price for the Telerate Version of SuperCharts) will be added together (the "non-bundled combined price"); if the non-bundled combined price equals the bundled selling price, the Incremental Fee will be the list price for the Telerate Version of SuperCharts; if the non-bundled combined price exceeds the bundled selling price, each list price included in the non-bundled combined price shall be reduced PRO RATA until the non-bundled combined price equals the bundled selling price, and the Incremental Fee shall equal the list price for the Telerate Version of SuperCharts as so reduced on such PRO RATA basis. INDEPENDENT DISTRIBUTORS: Unaffiliated entities who distribute Telerate products and services on behalf of Telerate on a commission or royalty basis. MATERIAL ERROR: Any Error which materially impairs the subscriber's ability to use as a whole the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition or any Error which substantially impairs the value of such program for the typical end user. MODIFICATION: A change or addition to the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition that establishes conformity of the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition to the Specification, or a procedure or routine that eliminates the practical adverse effect on Telerate's subscribers of such a nonconformity which was observed in the regular operation of the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition (and is capable of being consistently duplicated). 3 OBJECT CODE: With respect to SuperCharts, SuperCharts Special Edition, the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition, a set of machine readable instructions generated by the compilation of the Source Code. PERSON: Any entity or individual. PLATFORM: "Platform" means the software through which particular financial market data delivered on a Real-Time basis is made available to a subscriber for such financial market data, and which constitutes a product of the data vendor in the sense that such software may include various features and functions relating to the manner in which the financial market data delivered is accessed, received, displayed and may be used. All references in the Agreement to the Dow Jones Workstation Platform mean the product known as "Dow Jones Workstation" and NOT the product known as "Dow Jones Platform" or the TTRS system. QA TEST SCRIPT: The test script to be used to conduct the Quality Assurance Testing, a copy of which is attached as Exhibit D with respect to the Telerate Version of SuperCharts and Exhibit F with respect to the Telerate Version of SuperCharts Special Edition, which, if capable of being followed in all material respects, will establish the conformance of the Telerate Version of SuperCharts Products to the Specification. Within thirty (30) days following the date of the Agreement, the parties shall jointly develop a more detailed QA Test Script, which, once completed and agreed upon by the parties, shall serve as the QA Test Script for all purposes of the Agreement. The parties agree to cooperate in good faith to develop jointly and agree upon such more detailed QA Test Script within said 30-day period. If such more detailed QA Test Script is not jointly developed and agreed upon within said 4 30-day period, the QA Test Script attached as Exhibit D with respect to the Telerate Version of SuperCharts and Exhibit F with respect to the Telerate Version of SuperCharts Special Edition shall serve as the QA Test Script for all purposes of the Agreement. The purpose of developing a more detailed QA Test Script is not to expand the functionality that is to be developed or demonstrated by the Telerate Version of SuperCharts Products (as described in Exhibit D with respect to the Telerate Version of SuperCharts and Exhibit F with respect to the Telerate Version of SuperCharts Special Edition), but rather to specify in more detail the testing procedures that will be used to determine whether the more general guidelines set forth in Exhibit D with respect to the Telerate Version of SuperCharts and Exhibit F with respect to the Telerate Version of SuperCharts Special Edition have been met. QUALITY ASSURANCE TESTING: The testing of the Telerate Version of SuperCharts Products in accordance with the QA Test Script to determine whether the Telerate Version of SuperCharts Products conforms to the Specification, and each such subsequent testing performed prior to Acceptance to determine whether or not Acceptance has occurred, as described in Section B. REAL-TIME: With respect to the SuperCharts program or any similar program, software that receives and displays data on a "real-time" or instantaneous basis, and which is not delayed in any fashion, or which displays data on no longer than a 10-minute delay basis. "Real-Time," as used in the Agreement in relation to any existing or future software product of Omega, means only SuperCharts and SuperCharts Special Edition and any future financial market charting and technical analysis product which has substantially all of the same functions and features, and is used for substantially all of the same purposes, as SuperCharts and SuperCharts Special Edition and is competitive with the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition. 5 ROYALTY COMMENCEMENT DATE: The date the first subscription for or use of the Telerate Version of SuperCharts is received or occurs for which a Royalty Fee is payable pursuant to the Agreement. SELL; SALE; SELLING: The terms "sell", "sale" and "selling", as they relate to the exploitation by Telerate of its rights under the Agreement, mean the sublicensing by Telerate, its Affiliates and Independent Distributors (on behalf of Telerate or Telerate's Affiliates) pursuant to the Agreement of the Telerate Version of SuperCharts to subscribers, customers and other end-users under subscriptions or similar arrangements providing for periodic payment therefor by such subscribers, customers and other end users, and do not refer to the sale or disposition, as such words are commonly understood, of the Telerate Version of SuperCharts or rights therein. SOURCE CODE: With respect to SuperCharts, SuperCharts Special Edition, the Telerate Version of SuperCharts and the Telerate Version of SuperCharts Special Edition, the form of code which is human readable and which can be translated by a compiler or assembler for execution on a computer. The Source Code will be in a language that is customarily understood by competent computer programmers (e.g., C, C++, Assembly Language). SPECIFICATION: Specification, as it relates to the Telerate Version of SuperCharts, means that the Telerate Version of SuperCharts will have the same functionality in all material respects as SuperCharts, as reflected in the documentation for SuperCharts, except that the Telerate Version of SuperCharts will not have system testing, automation or tracking functions or features and except that the Telerate Version of SuperCharts will be designed to run on a 32-bit, rather than 16-bit, CPU. Specification, as it relates to the Telerate Version of SuperCharts Special Edition, means that the Telerate Version of SuperCharts Special Edition will have the 6 same functionality in all material respects as those functions of SuperCharts which have been included by Omega (in its sole discretion) in the Telerate Version of SuperCharts Special Edition. STAND ALONE SUBSCRIBER: Stand Alone Subscriber shall mean any subscriber who subscribes to the Telerate Version of SuperCharts from Telerate or its Affiliates or Independent Distributors, as, when and so long as used or to be used pursuant to such subscription on Stand Alone Unit(s). STAND-ALONE UNIT: A Stand-Alone Unit is one computer that will run the Telerate Version of SuperCharts but will not be linked by network to any other computers. However, (i) if such computer is providing access to the Telerate Version of SuperCharts on more than one screen, each such screen shall constitute a separate Stand-Alone Unit, and (ii) if any such screen may be accessed by more than one keyboard, each additional keyboard shall constitute a separate Stand-Alone Unit. SUPERCHARTS: That version of Omega's financial market data charting and technical analysis program known as SuperCharts 4 that operates in Real-Time. SUPERCHARTS SPECIAL EDITION: A "scaled-down" version of SuperCharts developed or to be developed by Omega, containing (and omitting) such features and functions as Omega shall, initially and from time to time, in its sole and absolute discretion, determine, but which shall contain, at a minimum, the features and functions set forth in Exhibit F. 7 TELERATE COMPETITORS: Bloomberg, Reuters, Knight-Ridder, Commodity Quote Graphics, Bridge and such parties' Affiliates and successors, whether currently existing or existing in the future. The parties acknowledge and agree that, notwithstanding anything in the foregoing definition of "Telerate Competitors" to the contrary, neither any data vendor which, nor the business of any such data vendor which, is acquired by any of the Telerate Competitors listed above, nor any successor company created by any such Telerate Competitor to succeed to such business (if any), shall be deemed a Telerate Competitor for purposes of the Agreement unless such data vendor was, or the business acquired was owned by, one of the Telerate Competitors listed above. However, if the acquired company or business is used as a conduit for data feeds of the Telerate Competitors which are substantially similar to the data feeds of Telerate (as described in prohibited by Section C.3 of the Agreement), such acquired company or business shall be deemed a Telerate Competitor. TELERATE-PROVIDED MATERIALS: The equipment and materials to be provided to Omega at its request to develop the Telerate Version of SuperCharts Products as specified in Exhibit A-1 hereto. TELERATE VERSION OF SUPERCHARTS: A version of SuperCharts that is generally compatible with the data feeds generated by Telerate and its Affiliates (such data feeds are specified in Exhibit A-2 hereof) and, assuming no Enhancement is required, similar data feeds of Telerate and its Affiliates which may be generated during the term of the Agreement. TELERATE VERSION OF SUPERCHARTS PRODUCTS: Collectively, the Telerate Version of SuperCharts and the Telerate Version of SuperCharts Special Edition. 8 TELERATE VERSION OF SUPERCHARTS SPECIAL EDITION: A version of SuperCharts Special Edition that is generally compatible with the data feeds generated by Telerate and its Affiliates (such data feeds are specified in Exhibit A-2 hereof) and, assuming no Enhancement is required, similar data feeds of Telerate and its Affiliates which may be generated during the term of the Agreement. TRADESTATION AGREEMENT: That certain Software License, Maintenance and Development Agreement, dated August 26, 1994, as amended, between Telerate and Omega. WORKSTATION: A Workstation is one computer receiving or able to access Telerate data (regardless of what software programs are being used in connection with such data), in or from which the Telerate Version of SuperCharts would reside or could be accessed either alone or with other applications and utilities, and which would remain linked by a network with one or more other computers which will also have Telerate data. However, (i) if such computer is providing access to the Telerate Version of SuperCharts on more than one screen, each such screen shall constitute a separate Workstation, and (ii) if any such screen may be accessed by more than one keyboard, each additional keyboard shall constitute a separate Workstation. A single network may have many Workstations. WORKSTATION SUBSCRIBER: Any subscriber which subscribes to the Telerate Version of SuperCharts from Telerate or its Affiliates or Independent Distributors, as, when and so long as used or to be used pursuant to such subscription on one or more Workstations. 9 EXHIBIT A-1 DESCRIPTION OF TELERATE-PROVIDED MATERIALS To be delivered and fully installed at Omega's premises: 1. 2 fully functional TeleTrac units (hardware, software and fully enabled data feed), fully enabled as to capability with Telerate data available through the data feed. 2. 1 Twin Server (hardware, software and all applicable data feeds). 3. Software and enablement for ten workstation sites running off the Twin Server. 4. 15 copies of complete and detailed specifications for the current Telerate twin environment API (with sufficient detail to enable Omega to modify SuperCharts to be compatible with such environment). To be delivered and fully installed at Cruz residence in Gables Estates, Florida: One copy of software (and full enablement including all data available on the data feed) of the upcoming Telerate Twin environment which allows for the server and the workstation software to be running on the same computer. Plus: all other materials, equipment, information and assistance required by0 Omega from time to time in connection with the development of the Telerate Version of SuperCharts Products. EXHIBIT A-2 DESCRIPTION OF DATA FEEDS FOR TELERATE VERSION OF SUPERCHARTS PRODUCTS The Telerate data feeds currently known and referred to as: The Items Producer The QDS Producer The TWParser Producer which constitute part of the Telerate Platform known as Dow Jones Workstation, and any additional data feeds which are made available in the future as part of Dow Jones Workstation to the extent that compatibility of such data feeds with the Telerate Version of SuperCharts is established pursuant to the Agreement. 2 EXHIBIT B NONCOMPETITION AGREEMENT NONCOMPETITION AGREEMENT, dated as of March 12, 1997, by and among WILLIAM CRUZ and RALPH CRUZ (collectively, the "Cruzes"), and DOW JONES MARKETS, INC. f/k/a DOW JONES TELERATE, INC., a York corporation ("Telerate"). PRELIMINARY STATEMENT Telerate and Omega Research, Inc., a Florida corporation currently owned by the Cruzes ("Omega"), have, on the date hereof, entered into a certain Software License, Maintenance and Development Agreement (the "License Agreement). Pursuant to Section C.3 of the License Agreement, Omega has made certain negative covenants to Telerate. In order to comfort Telerate that the Cruzes will not do outside of Omega what Omega cannot do directly pursuant to Section C.3 of the License Agreement, the Cruzes have, subject to the important bargained-for limitations described below, agreed to be personally bound to the provisions of Section C.3 of the Agreement. NOW, THEREFORE, it is agreed as follows: A. PRELIMINARY STATEMENT. The Preliminary Statement is true and correct and constitutes a part hereof. 1. COVENANT. Each of the Cruzes covenants that he shall be bound personally to the covenants of Omega set forth in Section C.3 of the License Agreement, and that he will not take, and will refrain from taking, any action which Omega is prohibited from taking under said Section C.3 of the License Agreement. The Cruzes are not executing this document for any other purpose, and are in no way or manner guarantors or co-makers of any covenant or obligation of any kind or nature of Omega set forth in the License Agreement or any other agreement or instrument executed or delivered in connection therewith. 2. LIMITATION OF LIABILITY. In the event that either of the Cruzes breaches this Agreement, Telerate's sole and exclusive remedy shall be to obtain from a court of competent jurisdiction a temporary restraining order, preliminary injunction and permanent injunction (for the period of restriction) enjoining the Cruzes from taking the actions prohibited in Section 2 above. Telerate shall have no right, in any circumstance, to seek or recover damages of any kind from either of the Cruzes for any reason or upon any theory (legal or otherwise) whatever, it being understood that the equitable relief described above is Telerate's sole and exclusive remedy (whether or not as a practical matter it is an effective remedy in the circumstances) for any breach by either or both of the Cruzes of this Agreement. The parties acknowledge, confirm and agree that the provisions of this Section 3 were specifically bargained for, and that the Cruzes would not have entered into this Agreement for the benefit of Telerate absent Telerate's absolute assurance that the Cruzes would never be personally responsible for or answerable in damages of any kind in the event of a breach hereof. In furtherance of the foregoing, Telerate hereby covenants that it will never sue either of the Cruzes personally (except to the extent necessary to obtain the equitable relief contemplated herein) with respect to any provision, obligation or covenant contained in the License Agreement, or any breach or violation thereof, or with respect to any transaction or matter arising out of or related to the License Agreement. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. /s/ WILLIAM CRUZ ---------------- WILLIAM CRUZ /s/ RALPH CRUZ -------------- RALPH CRUZ DOW JONES MARKETS, INC. By: /s/JULIAN B. CHILDS ------------------- Julian B. Childs Title: EVP 2 EXHIBIT C ESCROW AGREEMENT SOFTWARE ESCROW AGREEMENT SOFTWARE ESCROW AGREEMENT, dated ______________, 1997 (the "Agreement"), tby and among OMEGA RESEARCH, INC., a Florida corporation ("Omega"), DOW JONES MARKETS, INC. f/k/a DOW JONES TELERATE, INC., a New York corporation ("Telerate"), and SUNTRUST BANK/MIAMI, NATIONAL ASSOCIATION ("Escrow Agent"). PRELIMINARY STATEMENT Omega and Telerate are parties to that certain Software License, Maintenance and Development Agreement dated March 12, 1997 (the "License Agreement"). Pursuant to Section J of the License Agreement, Omega has agreed to deposit in escrow with Escrow Agent, on computer disk, the Source Code (and certain related materials) for the Telerate Version of SuperCharts and for the Telerate Version of SuperCharts Special Edition. This Agreement shall govern the terms and conditions of such escrow arrangement. Capitalized terms used herein, which are not defined herein, shall have the respective meanings ascribed to them in the License Agreement. NOW, THEREFORE, it is agreed as follows: 1. SUPPLEMENTARY AGREEMENT. This Agreement is supplementary to the License Agreement. This Agreement is intended to provide certain guidance for the limited circumstances under which Telerate shall be entitled to access to the Source Code (and certain related materials) for the Telerate Version of SuperCharts and for the Telerate Version of SuperCharts Special Edition in order to protect certain of its interests under the License Agreement. 2. NO INFERENCE OF TERMINATION. The description herein of the possible occurrences that would constitute a Release Event (as defined below), and the consequences thereof, shall create no presumption that Omega or its trustee in bankruptcy should be permitted to reject or terminate this Agreement under applicable law. The parties agree that such a rejection or termination would be prejudicial to Telerate's interests. This Agreement is not intended to diminish, enlarge, modify or impair, and this Agreement shall not diminish, enlarge, modify or impair, any right or obligation of any party under the License Agreement. 3. ESCROW DEPOSIT. Within ten (10) days following the Acceptance Date, Omega shall deposit with Escrow Agent, and Escrow Agent shall accept the deposit of, in a sealed envelope, the Source Code, on computer disk, for each of the Telerate Version of SuperCharts and the Telerate Version of SuperCharts Special Edition, together with such programmers notes and instructions as have been prepared by Omega in the normal course of its operations in connection with the creation of such Source Code (collectively the "Escrowed Code"). Omega shall, promptly after such deposit is made, notify Telerate of that fact. Escrow Agent shall hold and maintain the Escrowed Code at its premises at 777 Brickell Avenue, Miami, Florida, in a vault or safety deposit box, and shall not permit access thereto, or the release thereof, by or to any person or entity whatever, except as specifically permitted by this Agreement. 4. SUPPLEMENTARY ESCROW DEPOSITS. Within ten (10) days following the completion and acceptance of any Enhancement to the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition developed by Omega, Omega shall deposit with Escrow Agent, and Escrow Agent shall accept deposit of, in a sealed envelope, such updated Source Code, on computer disk, for the Telerate Version of SuperCharts or the Telerate Version of SuperCharts Special Edition as so enhanced, together with such programmers notes and instructions as have been prepared by Omega in the normal course of its operations in connection with the creation of such updated Source Code (collectively, an "Updated Escrowed Code"). Omega shall, promptly after each such deposit is made, notify Telerate of that fact. Upon any such supplementary deposit by Omega, Escrow Agent shall return to Omega the Escrowed Code then held by Escrow Agent, and the Updated Escrowed Code shall then become the Escrowed Code for all purposes hereunder. Omega covenants to Telerate that each Source Code deposited into escrow pursuant to this Agreement, including the initial deposit, will be in a language that is customarily understood by competent computer programmers (e.g., C, C++, Assembly Language). 5. RELEASE EVENTS. The following events constitute the only events upon which Escrow Agent is authorized to release the Escrowed Code to any person or entity (other than deposit of the Escrowed Code with a court as more fully explained later in this Agreement), or to allow access to the Escrowed Code by any person or entity (individually, a "Release Event," and, collectively, the "Release Events"): 2 (a) VERIFICATION OF ESCROWED CODE. Within thirty (30) days following notice from Omega of the initial escrow deposit described in Section 3 above, and within thirty (30) days following notice from Omega of each supplementary escrow deposit described in Section 4 above, Telerate shall be afforded access to the Escrowed Code solely for the purpose of verifying that the Escrowed Code contains the then-current Source Code for the Telerate Version of SuperCharts and for the Telerate Version of SuperCharts Special Edition. In order to exercise such right, Telerate shall provide Omega and Escrow Agent with written notice to that effect within the applicable 30-day period ("Verification Notice"). Within five (5) business days following the delivery of the Verification Notice, Omega, Telerate and Escrow Agent shall schedule a mutually convenient date, not later than thirty (30) days following the delivery of the Verification Notice, on which a representative of Omega and a representative of Telerate shall meet at the offices of Escrow Agent to receive from Escrow Agent the sealed envelope containing the Escrowed Code. Escrow Agent shall deliver the Escrowed Code to Omega's representative. Each of Telerate and Omega shall confirm in writing in advance to Escrow Agent the name of its representative. Escrow Agent shall request appropriate photo identification from each representative prior to releasing the Escrowed Code to Omega's representative. Following said release of the Escrowed Code to Omega's representative, Omega's representative and Telerate's representative shall proceed to Omega's Miami office, where Telerate's representative will be permitted to verify, under Omega's supervision, that the Escrowed Code contains the Source Code for the then-current version of the Telerate Version of SuperCharts and for the Telerate Version of SuperCharts Special Edition. The verification procedure shall be exclusively as follows: the Telerate representative shall be permitted to compile the Source Code in order to enable such representative to generate an executable program for the Telerate Version of SuperCharts and for the Telerate Version of SuperCharts. Such representative may then take back with him to Telerate such executable program for the sole purpose of verifying that the Source Code is complete. In no event will such Telerate representative be permitted to take any notes, or to view any screen longer than is absolutely necessary to compile an executable program, or to remove or take with him or her any materials other than the compiled executable program. Following completion of the compilation of the executable program, the Escrowed Code, in the presence of the Telerate representative, shall be sealed in an envelope, and the Telerate representative and the Omega 3 representative shall then proceed to the offices of Escrow Agent, whereupon the Escrowed Code will be redeposited with Escrow Agent, subject to future release only upon the occurrence of another Release Event. (b) FAILURE OF OMEGA TO CORRECT AN ERROR. In the event that Omega notifies Telerate that it is unable to correct an Error (other than an Insignificant Error), or an Event of Default under the License Agreement has occurred with respect to Omega based upon Omega's failure to correct an Error (other than an Insignificant Error), and Telerate has not terminated, or given notice of termination of, the License Agreement pursuant to any provision thereof other than Section P.4 thereof, and Telerate desires access to the Escrowed Code, Telerate shall deliver to Escrow Agent and to Omega an affidavit of Telerate, made by a duly authorized officer of Telerate (the "Correction Failure Affidavit"), stating, as applicable, that: (i) "Telerate is entitled to access to the Escrowed Code because Omega has notified Telerate that it is unable to correct an Error (other than an Insignificant Error), a copy of such notification from Omega being attached hereto [with such notification attached], and Telerate has not terminated, or given notice of termination of, the License Agreement pursuant to any provision thereof other than Section P.4 thereof", or (ii) "Telerate is entitled to access to the Escrowed Code because an Event of Default under the License Agreement has occurred with respect to Omega based upon Omega's failure to correct an Error (other than an Insignificant Error), and Telerate has not terminated, or given notice of termination of, the License Agreement pursuant to any provision thereof other than Section P.4 thereof," and (iii) "Omega has been delivered a true and complete copy of this affidavit on the date shown on the attached certified or registered mail receipt or commercial carrier receipt evidencing delivery to Omega on such date" [and attaching such receipt]. Subject to Omega's right to serve a Counter Affidavit (defined and described below), at any time during the thirty (30) day period following the end of the fifth (5th) business day following delivery of the Correction Failure Affidavit, Escrow Agent shall, at Telerate's request, release the Escrowed Code to 4 Telerate. Upon receipt of the Escrowed Code in this circumstance, Telerate shall use the Escrowed Code solely for the purpose of correcting the Error(s) the failure of which to correct served as the basis for Telerate's right to have access to the Escrowed Code. If requested by Omega in writing or in Omega's Counter Affidavit, correction of said Error(s) will take place at Omega's offices under Omega's supervision, in which event the procedures for release and return of the Escrowed Code set forth in subsection (a) above shall be followed. In no event shall any copy be made of the Escrowed Code. Upon completion of correction of said Error(s), the Escrowed Code shall be sealed in an envelope and redeposited with Escrow Agent. Even if Omega does not elect to have the Error(s) corrected at its offices under its supervision, Omega shall have the right to have a representative be present for such resealing and redeposit procedure. (c) BANKRUPTCY OF OMEGA. In the event that an Event of Default occurs with respect to Omega under Section N.2(a)(iv) or (v) of the License Agreement, and Telerate does not terminate or give notice of termination of the License Agreement pursuant to any provision thereof other than Section P.4 thereof, and Omega's trustee in bankruptcy has expressly rejected the License Agreement or expressly refused to assume the License Agreement, and Telerate desires access to the Escrowed Code, Telerate shall deliver to Escrow Agent and to Omega an affidavit of Telerate, made by a duly authorized officer of Telerate (the "Bankruptcy Affidavit"), stating: (i) "An Event of Default has occurred with respect to Omega under Section N.2(a)(iv) or (v) under the License Agreement"; (ii) "Telerate has not terminated and has not given notice of termination of the License Agreement pursuant to any provision thereof other than Section P.4 thereof"; (iii) "Omega's trustee in bankruptcy has expressly rejected the License Agreement or has expressly refused to assume it, and a copy of the action of the bankruptcy court so rejecting or refusing to assume the License Agreement is attached" [and attaching a true, correct and complete copy of such action]; and (iv) "Omega has been delivered a true and complete copy of this affidavit on the date shown on the attached certified 5 or registered mail receipt or commercial courier receipt evidencing delivery to Omega on such date" [and attaching such receipt]. Subject to Omega's right to serve a Counter Affidavit, at any time during the thirty (30) day period following the end of the fifth (5th) business day following delivery of the Bankruptcy Affidavit, Escrow Agent shall, at Telerate's request, release the Escrowed Code to Telerate. Upon receipt of the Escrowed Code in this circumstance, Telerate may use the Escrowed Code, until the expiration or termination of the License Agreement, solely for the purpose of correcting Errors and providing maintenance and support to subscribers for the Telerate Version of SuperCharts and the Telerate Version of SuperCharts Special Edition, and if, but only if, Omega is in liquidation or has completely ceased operations, and Telerate has not terminated or given notice of termination of the License Agreement pursuant to Section P.4 thereof, to make Enhancements, any such Enhancements to be the property solely of Omega. In no event shall any copy be made of the Escrowed Code. 6. TERM. This Agreement shall be effective as of the date hereof and shall continue to be effective until the earliest of (a) January 12, 2003 and (b) subject to the right of Telerate to deliver a Counter Affidavit, the date on which the Escrow Agent receives an affidavit from either Telerate or Omega (the "Termination Affidavit") (a copy of which shall be served on the non-serving party) stating that the License Agreement is or has been terminated pursuant to any provision thereof other than Section P.4 thereof, and that the non-serving party has been delivered a true and complete copy of the Termination Affidavit on the date shown on the certified registered mail receipt or commercial courier receipt attached (a copy of which shall be attached to the Termination Affidavit). Upon any such termination of this Agreement, Escrow Agent shall release the Escrowed Code to Omega, at Omega's request. If, however, Omega has delivered a Termination Affidavit, subject to Telerate's right to deliver a Counter Affidavit, Escrow Agent shall return the Escrowed Code to Omega promptly following the fifth (5th) business day following the delivery of the Termination Affidavit. If, at the time of such termination of this Agreement, Telerate is in possession of the Escrowed Code pursuant to this Agreement, Telerate shall, immediately upon termination, cease using the Escrowed Code for any purpose and promptly return it to Omega accompanied by a letter from Telerate affirming that Telerate has ceased using the Escrowed Code for any purpose, has used the Escrowed Code only as permitted 6 hereunder, and has made no copies of any kind or nature of, or made or retained any notes or materials concerning, the Escrowed Code. (Omega shall have the right to request and receive from Telerate such a confirmatory letter following any release to Telerate hereunder of the Escrowed Code.) Notwithstanding anything to the contrary contained in this Agreement, if the Escrowed Code has not been returned to Omega by the Outside Termination Date, Escrow Agent shall release the Escrowed Code to Omega on or promptly following the Outside Termination Date, regardless of any conflicting or contrary instructions or objections which may be given by Telerate (including any Counter Affidavit), the parties agreeing that Telerate has no right whatever to make such an objection, and that Escrow Agent has no discretion upon the occurrence of the Outside Termination Date to do anything other than deliver the Escrowed Code to Omega. 7. COUNTER AFFIDAVIT. In any case where Telerate has asserted the right of access to the Escrowed Code (whether pursuant to a Verification Notice, a Correction Failure Affidavit or a Bankruptcy Affidavit), or where Omega has asserted the right to be returned the Escrowed Code pursuant to a Termination Affidavit (as the case may be, a "Release Affidavit"), the party who has not delivered the Release Affidavit (the "Objecting Party") may, within five (5) business days of its receipt of the Release Affidavit, object to the release of the Escrowed Code requested in or in connection with the Release Affidavit by delivering to the party who has delivered the Release Affidavit (the "Asserting Party") and to Escrow Agent an affidavit (a "Counter Affidavit") stating that the Asserting Party is not entitled to receive access to or release or return of (as the case may be) the Escrowed Code, and the reasons therefor. No party shall deliver a Counter Affidavit unless it believes, in good faith, that the Asserting Party is not entitled to the access or release of the Escrowed Code asserted by the Asserting Party. In no event shall Telerate have the right to serve, or serve, a Counter Affidavit to contest the return of the Escrowed Code to Omega on the Outside Termination Date. In the event that a Counter Affidavit is delivered, Escrow Agent shall continue to hold the Escrowed Code, and shall not release it to, or allow access to it by, any party, pending the joint instructions of Telerate and Omega, or as otherwise described in Section 10(a) below. 8. DISPUTE RESOLUTION. In the event a Counter Affidavit is delivered, Omega and Telerate shall, in good faith, attempt to 7 resolve the dispute within five (5) business days following the delivery of the Counter Affidavit. If a resolution is reached, Omega and Telerate shall promptly execute joint written instructions to Escrow Agent concerning what is to be done with the Escrowed Code. In the event no such resolution is reached within said five-business-day period, either party may file a suit or action in any court of competent jurisdiction situated in Dade County, Florida to obtain such relief at law or in equity in respect of the Escrowed Code as such party deems warranted or appropriate. 9. LIMITATION OF REMEDIES BETWEEN TELERATE AND OMEGA. As between Telerate and Omega, all limitations on remedies that one party may have against the other under the License Agreement shall apply to this Agreement. 10. RIGHTS, DUTIES AND RESPONSIBILITIES OF ESCROW. It is understood that the duties of the Escrow Agent are purely ministerial in nature. It is further agreed that: (a) In the event that Escrow Agent shall be uncertain as to the duties or rights hereunder or shall receive instructions with respect to the Escrowed Code which, in its sole opinion, are in conflict with either other instructions received by it or any provision of this Agreement, it shall be entitled to continue to hold the Escrowed Code, or a portion thereof, in escrow pending the resolution of such uncertainty to Escrow Agent's sole satisfaction, by final judgement of a court or courts of competent jurisdiction or otherwise; or Escrow Agent, at its option, may deposit the Escrowed Code in the registry of a court of competent jurisdiction in a proceeding to which all parties in interest are joined. Upon so depositing the Escrowed Code and filing its complaint and interpleader, Escrow Agent shall be completely discharged and released from further liability. (b) Escrow Agent shall not be liable for any action taken or omitted hereunder except in the case of its bad faith, gross negligence or willful misconduct. Escrow Agent shall be entitled to consult with counsel of its own choosing and shall not be liable for any action taken, suffered or omitted by it in reasonable reliance upon the advice of such counsel. Any reasonable expenses incurred by Escrow Agent in connection with such consultation shall be reimbursed by Telerate. 8 (c) Telerate shall indemnify and hold Escrow Agent, its agents, representatives, and employees harmless from any claim, demand or loss suffered by Escrow Agent and the cost thereof (including court costs and attorneys' fees for negotiation, trial and appeal). (d) This agreement sets forth exclusively the duties of Escrow Agent with respect to any and all matters pertinent hereto and no implied duties or obligations shall be read into this Agreement against Escrow Agent. (e) Escrow Agent may resign as Escrow Agent at any time upon thirty (30) days prior written notice to Telerate and Omega. In the case of Escrow Agent's resignation, its only duty shall be to hold and release, if required, the Escrowed Code in accordance with the original provisions of this Agreement until a successor escrow agent shall be appointed and written notice of the name and address of such successor escrow agent shall be given to the escrow agent by Telerate and Omega, whereupon Escrow Agent's only duty shall be to deposit with the successor escrow agent the Escrowed Code if then in its possession. 11. FEES AND EXPENSES. Escrow Agent shall be entitled to: (a) an annual administration fee of $1,500.00 payable by Telerate and (b) be reimbursed by Telerate for any reasonable out-of-pocket expenses for performing its obligations in connection with this Agreement. 12. NOTICES. All notices, affidavits, instructions, requests and other communications required or permitted hereunder shall be in writing and shall be delivered in person or sent by commercial overnight courier (such as FedEx) or certified or registered mail, return receipt requested: (a) If to Telerate, to: Dow Jones Markets, Inc. One World Financial Center 200 Liberty Street New York, NY 10281 Attention: President 9 with a copy to: Dow Jones Markets, Inc. One World Financial Center 200 Liberty Street New York, NY 10281 Attention: Legal Department (b) If to Omega, to: Omega Research, Inc. 8700 West Flagler Street Suite 250 Miami, Florida 33174 Attention: William and Rafael Cruz with a copy to: Rubin Baum Levin Constant Friedman & Bilzin 2500 First Union Financial Center 200 S. Biscayne Boulevard Miami, Florida 33131 Attention: Marc J. Stone, Esq. (c) If to Escrow Agent, to: SunTrust Bank/Miami, N.A. 777 Brickell Avenue Miami, Florida 33131 ATTN: ____________________, or to such other addresses as may be stipulated in writing by the parties pursuant hereto. Notice shall be effective on the date it is officially recorded as delivered by return receipt or the courier service. 13. FORCE MAJEURE. No party hereto shall be deemed to be in default of any provision of this Agreement, or for failures in 10 performance, resulting from acts or events beyond the reasonable control of such party. 14. AMENDMENT. This Agreement may not be amended except by written instrument executed by each of the parties hereto. 15. BINDING AGREEMENT; ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the parties and the parties' respective successors at law and permitted assigns. 16. HEADINGS. The headings of sections and paragraphs herein are included for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 17. GOVERNING LAW; VENUE. This Agreement shall be controlled, construed and enforced in accordance with the laws of the State of Florida, other than laws relating to conflicts of law. The venue and jurisdiction for any claim under this Agreement shall be in the appropriate court in Dade County, Florida. 18. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties and supersedes all previous verbal and written agreements. 19. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument. 11 IN WITNESS WHEREOF, the undersigned parties have duly executed this Agreement as of the day first above written. DOW JONES MARKETS, INC. OMEGA RESEARCH, INC. By:_________________________ By: /S/ WILLIAM CRUZ ---------------- Print Name: ________________ William Cruz Title: _____________________ President ESCROW AGENT: SUNTRUST BANK/MIAMI, NATIONAL ASSOCIATION By:___________________________________ Name:_________________________________ Title:________________________________ 12 EXHIBIT D QA TEST SCRIPT (TELERATE VERSION OF SUPERCHARTS) CHART Data Amount Limited by memory (as will be only 32-bit application). Resolution The user can display data in tick, intraday (any interval up to 1440 minutes), daily, weekly, monthly and point and figure resolutions, for multiple session markets. Type All symbols that can be displayed in the Telerate Version of TradeStation as supported by TWIN will be plotted and continuously updated by the program. Display Market status The user can display a continuously updated status line at the top of any chart window that will include the current price, net change from prior day's close, day's high, day's low and current indicator values. Chart types The program shall allow the user to display prices as Open-High-Low-Close, High-Low-Close, Japanese Candlestick, Dot on Close and Line on Close bars, point and figure. Configuration The program shall allow the user to change the color and size of any element on a chart. This includes the font and font color, window background and bar thickness and color. Tools The user can place any of the following tools on any price or any indicator on a chart. Arc, Up/Down arrows, Standard/Fibonacci Cycles*, Ellipse, Gann Fan*, Horizontal Line*, Percent Retracement, Rectangle, Speed Resistance Arc/Fan*, Support Resistance Lines*, Trend Lines*, Text, Zoom. The user can modify display attributes and position of any tool placed on a chart. Furthermore, the user shall be allowed to enable alarms on those tools marked with an asterisk that will alert the user when the market penetrates that tool, on an intra-bar or end of bar basis, as selected by the customer for that specific marketing tool. Analysis Techniques The user shall be allowed to place any of the following analysis techniques on a chart. Indicators, PaintBars(tm), ShowMe's(tm) Custom 1 Line, Custom 2 Lines, Custom 3 Lines, Custom 4 Lines, Mov Avg - Displaced, Mov Avg Weighted, DMI, Bollinger Bands, Mov Avg 1 Line, Mov Avg 2 Lines, Mov Avg 3 Lines, Mov Avg Envelopes, Mov Avg Exponential, Commodity Channel Index, On Balance Volume, Gapless Bar Chart, True Low, Open Interest, McClellan Oscillator, MFI, parabolic, Accumulation Distribution, Percent R, Price Channel, Rate of Change, RSI, RSI w/o Zones, Accumulation Swing Index, MACD, Spread, DownTicks, Stochastic - Fast, Stochastic - Slow, Swing Index, Volume (Tick Vol) Volume (UpTick Vol), Volume (DownTick vol), Volume, Up/Down Tick Difference, Ultimate Oscillator, Volatility, Momentum, Consecutive x bars down, Consecutive x bars up, Gap Down Bar, ShowMe(tm) Anything, Key Reversal Up, Key Reversal Down, Outside Bar, Gap Up bar, Inside Bar, Island Reversal Up, Island Reversal Down, Breakout of x Bar High, Breakout of x Bar Low, %R/less than/x, %R/greater than/x, Price/less than/x Bar Avg, Price/less than/xBar Avg., Close Avg/greater than/Open Avg, Close Avg/less than/Open Avg, Momentum Increasing, Momentum Decreasing, Stochastic Fast Custom, Stochastic Slow Custom, PaintBar(tm) Custom, Percent Change, Down Ticks, Equal Ticks, Up Ticks. Experts Fundamental Expert, Technical Expert, Fundamental and Technical Expert. 2 Furthermore, the user can modify the inputs and alert criteria of any of the aforementioned analysis techniques. QUOTE Data Amount 256 quotes per window. Resolution Tick by tick. Type All symbols that can be displayed in Telerate Version of TradeStation as supported by TWIN shall be continuously updated in the quote window. Display Quote fields All fields that can be displayed in Telerate Version of TradeStation as supported by TWIN will be available to the user. Furthermore, user definable alarm fields can be added that alert the user to breakout conditions on the high, low, time and volume. Configuration The program shall allow the user to change the color and size of any element on a quote window. This includes the font and font color, window background color and the colors of alert fields. Alert Tracking Control Center Data Date/time alert was hit, symbol, name, last price. Display Configuration The program shall allow the user to change the color and size of any element on an ATCC window. This includes the font and font color and window background color. 3 EXHIBIT E TRADEMARK LICENSE Dow Jones Markets, Inc. (f/k/a Dow Jones Telerate, Inc.) One World Financial Center 200 Liberty Street New York, NY 10281 March 12, 1997 Omega Research Inc. 8700 West Flagler Street Suite 250 Miami, FL 33174 ATTENTION: WILLIAM AND RALPH CRUZ Re: TRADEMARK LICENSE Dear Messrs. Cruz: As contemplated in the Software License, Maintenance and Development Agreement between Omega Research, Inc. ("Omega") and Dow Jones Markets, Inc., f/k/a Dow Jones Telerate, Inc. ("Telerate") dated as of the date hereof (the "Software License Agreement"), Omega shall grant Telerate a license to use the "SuperCharts" name and mark pursuant to the terms and conditions set forth in the Software License Agreement and those specified below. Omega hereby grants to Telerate the right and license to use the name and mark SuperCharts (hereinafter called the "Licensed Mark") as part of the collective name and mark "Dow Jones SuperChartsTM" and "Dow Jones SuperCharts SETM" solely on, and solely in connection with the promotion and marketing of, (i) the Telerate Version of SuperCharts Products (as defined in the Software License Agreement), (ii) electronic information services marketed with the Telerate Version of SuperCharts Products, and (iii) any hardware and software necessary to support the Telerate Version of SuperCharts Products and such electronic information services (hereinafter called the "Licensed Product") throughout the world, except that Telerate shall not use the Licensed Mark in any territory where, or in any manner in which, Telerate, pursuant to the Software License Agreement, is prohibited from marketing or distributing the Telerate Version of SuperCharts Products. All other rights to, and to use, the Licensed Mark are reserved solely and exclusively to Omega including, without limitation, the right to license such name and mark for any goods or services to any person or entity, except to the Telerate Competitors (as defined in the Software License Agreement) for, or in connection with, purposes or activities to the extent prohibited by Section C.3 of the Software License Agreement. Telerate may use the Licensed Mark in connection with the promotion of the Licensed Products prior to the Acceptance Date and/or the Royalty Commencement Date (as such terms are defined in the Software License Agreement), with the prior written consent of Omega, which shall not be unreasonably withheld. The license granted hereunder shall continue until the termination of the Software License Agreement; provided, however, that Telerate may continue to use the Licensed Mark in accordance with the terms of this Agreement with respect to subscriptions to the Licensed Product that are in effect as of the termination of the Software License Agreement for so long as Telerate is permitted to use the Telerate Version of SuperCharts for such subscriptions pursuant to the Software License Agreement. Telerate is obligated to use the Licensed Mark as set forth in the Software License Agreement. In consideration of the license granted hereunder, and upon receipt of an invoice from Omega, Telerate shall pay Omega a one-time fee of ten dollars ($10). Omega reserves and shall have the exclusive right to commence litigation to protect or enforce rights to the Licensed Mark; provided, however, that if Omega does not wish to institute an action, Telerate may, with the advance written consent of Omega, which consent shall not be unreasonably withheld, institute said action, in which event then Omega will, at Telerate's expense, cooperate with Telerate in the institution of the proceeding, such proceeding to be pursued at the expense of Telerate. Damages recovered or settlement received in any claim, action or proceeding commenced by Omega or Telerate hereunder with reference to the Licensed Mark that relates principally to infringement of the Licensed Mark by Telerate Competitors, first, shall be apportioned 2 and paid to the recovering parties' reasonable costs of pursuing such claim or litigation in such proceeding, and, then, shall be apportioned and paid equally to each of Omega and Telerate. Damages recovered or settlement received in any claim, action or proceeding commenced by Telerate that is not principally related to infringement by a Telerate Competitor, first, shall be apportioned and paid to the recovering parties' reasonable costs of pursuing such claim or litigation in such proceeding, and, then, shall be apportioned and paid equally to each of them. Damages recovered or settlement received in any claim, action or proceeding commenced by Omega that is not principally related to infringement by a Telerate Competitor shall be paid solely to Omega. Omega acknowledges and agrees that the name and mark "Dow Jones" is proprietary to Telerate or its Affiliate and shall not challenge Telerate's or its Affiliate's ownership of "Dow Jones." Telerate acknowledges and agrees that the name and mark "SuperCharts" is proprietary to Omega and shall not challenge Omega's ownership of SuperCharts. Upon reasonable written notice, Omega may from time to time inspect the Licensed Product on Telerate's premises and Telerate's advertising and promotional materials concerning the Licensed Product. Telerate shall maintain the quality of that portion of the Licensed Product that is the Telerate Version of SuperCharts Products so that it has the same high quality as the software furnished to Telerate under the Software License Agreement and Telerate shall maintain the overall quality of the Licensed Product in a manner consistent with the high standards of quality displayed by the products and services marketed by Telerate as of the date of this Agreement. If the required standard of quality is not being observed, upon written notice from Omega reasonably detailing the deviation from the required standard of quality, Telerate shall make appropriate corrections as promptly as is reasonably practicable. Telerate may sublicense the rights granted in this Letter Agreement to its Affiliates and independent Distributors (as such terms are defined in the Software License Agreement) of the Licensed Product. Telerate shall defend, indemnify and hold harmless Omega from, against and in respect of any claims, losses, liabilities, 3 judgments, awards, costs and expenses (including reasonable attorneys' fees and costs) asserted against or incurred by Omega (collectively, "Claims") that arise out of or relate to Telerate's use of the Licensed Mark for, or in connection with, any portion of the Licensed Product other than the Telerate Version of SuperCharts Products. All notices permitted or required in connection with the license granted hereunder shall be in writing and shall be delivered in person or sent by commercial overnight courier (such as Fedex) or certified mail, return receipt requested and shall be sent to the parties at the addresses specified in the notice provision of the Software License Agreement. All terms and conditions of the Software License Agreement, to the extent not directly inconsistent with a provision of this Letter Agreement, shall apply to the licensing of the Licensed Mark including, without limitation, the representations and warranties in Sections K.1 and K.2(a) and the remedies for a breach of such representations or warranties in Section K.2(b), and the Software License Agreement shall be read in conjunction with this Letter Agreement, as if this Letter Agreement were an addendum thereto, in defining, interpreting and determining the respective rights and obligations of the parties. Notwithstanding anything to the contrary herein, the record keeping obligations of Section D.4 of the Software License Agreement shall not be applicable to the license of the Licensed Mark. This Letter Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to the choice of law principles thereof. Any waiver by either party hereto of its rights under this Letter Agreement, or failure to enforce any of same, shall not be construed as a continuing waiver of the same right or obligation, or a waiver of any other right or obligation. This Letter Agreement (and the Software License Agreement to the extent applicable pursuant to the immediately preceding paragraph) constitutes the entire Agreement between the parties and cannot be modified or amended except by a writing executed by both parties. This Letter Agreement may only be assigned to the extent, and in the circumstances, that the Software License Agreement is permitted to be assigned. 4 IN WITNESS WHEREOF, the parties hereto have executed this Letter Agreement on the date first written above. DOW JONES MARKETS, INC. By: /s/ JULIAN B. CHILDS -------------------- Julian B. Childs Title: EVP OMEGA RESEARCH, INC. By: /s/ WILLIAM CRUZ ---------------- William Cruz, President 5 EXHIBIT F QA TEST SCRIPT (TELERATE VERSION OF SUPERCHARTS SPECIAL EDITION) CHART Data Amount Limited by memory (as will be only 32-bit application). Resolution The user can display data in tick, intraday (any interval up to 1440 minutes), daily, weekly, monthly resolutions, for multiple session markets. Type All symbols that can be displayed in the Telerate Version of TradeStation as supported by TWIN will be plotted and continuously updated by the program. Display Market status The user can display a continuously updated status line at the top of any chart window that will include the current price, net change from prior day's close, day's high, day's low and current indicator values. Chart types The program shall allow the user to display prices as Open-High-Low-Close, High-Low-Close, Dot on Close and Line on Close bars. Configuration The program shall allow the user to change the color and size of any element on a chart. This includes the font and font color, window background and bar thickness and color. Tools The user can place any of the following tools on any price or any indicator on a chart. Horizontal Line*, Trend Lines*, Text, Zoom. The user can modify display attributes and position of any tool placed on a chart. Analysis Techniques The user shall be allowed to place any of the following analysis techniques on a chart. Indicators Mov Avg - Displaced, Mov Avg - Weighted, Bollinger Bands, Mov Avg 1 Line, Mov Avg 2 Lines, Mov Avg 3 Lines, Mov Avg Envelopes, Mov Avg Exponential, Open Interest, Stochastic - Fast, Stochastic - Slow, Volume, Momentum, Relative Strength Index and Rate of Change. QUOTE Data Amount 256 quotes per window. Resolution Tick by tick. Type All symbols that can be displayed in the Telerate Version of TradeStation as supported by TWIN shall be continuously updated in the quote window. Display Quote fields All fields that can be displayed in the Telerate Version of TradeStation as supported by TWIN will be available to the user. Configuration The program shall allow the user to change the color and size of any element on a quote window. This includes the font and font color, window background color. OMEGA RESEARCH, INC. 8700 WEST FLAGLER STREET SUITE 250 MIAMI, FLORIDA 33174 July 24, 1997 Dow Jones Markets, Inc. 200 Liberty Street, 17th Floor New York, New York 10281 RE: SOFTWARE LICENSE, MAINTENANCE AND DEVELOPMENT AGREEMENT DATED AS OF MARCH 12, 1997 (THE "AGREEMENT") BETWEEN DOW JONES MARKETS, INC. AND OMEGA RESEARCH, INC. Ladies and Gentlemen: This shall confirm our mutual understanding and agreement that, due to a scrivener's error, the date of termination set forth in Section N.1 of the Agreement (i.e., January 12, 2003) is incorrect. The parties acknowledge and agree that the actual date of termination of the Agreement is January 12, 2002, NOT January 12, 2003. Please confirm your agreement to the foregoing by countersigning this letter below. Very truly yours, OMEGA RESEARCH, INC. By: /S/ MARC J. STONE ---------------------- Marc J. Stone Vice President AGREED TO AND ACCEPTED: DOW JONES MARKETS, INC. BY:/S/ J. B. CHILDS ------------------ NAME: J.B. CHILDS ------------------- TITLE: EVP ------------------- 2 EX-10.5 9 EXHIBIT 10.5 Exhibit "B" MEMORANDUM OF COMMENCEMENT DATE This MEMORANDUM OF COMMENCEMENT DATE (this "Memorandum") is executed as of this 4th day of February, 1997, by and between 8700 Flagler, Ltd., a Florida Limited Partnership, ("Landlord") and Omega Research, Inc., a Florida Corporation ("Tenant"). WHEREAS, both parties hereby agree to enter into this Memorandum in order memorialize the actual Commencement Date and the Actual Expiration Date of the Lease for the rentable area on the Second Floor. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained in the Lease, the parties hereby agree as follows: 1. The Commencement Date of the Second Floor rentable area is February 17, 1997. 2. The Expiration Date of the Lease is August 16, 2002. 3. Unless otherwise specified, capitalized terms used in this Memorandum shall have the same meanings as in the Lease. 4. This Memorandum embodies the entire agreement between Landlord and Tenant with respect to the subject matter hereof, and all other terms and conditions of the Lease shall remain unchanged and shall continue in full force and effect. In the event of any conflict between the provisions of the Lease and the provisions of this Memorandum, the provisions of this Memorandum shall control and govern. IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date first set forth above. LANDLORD: TENANT: 8700 Flagler, Ltd., a Florida Omega Research, Inc. Limited Partnership Banking Corporation /s/ PAUL L. WHITE /S/ GUILLERMO CRUZ - --------------------------------------- --------------------------- By: The Allen Morris Commercial Real Guillermo Cruz, President Estate Services Company, as Manager Pursuant to authorization granted by Landlord Paul L. White, CPM, RPA, President /S/ LOREN COSTENTINO --------------------------- Attest: THE ALLEN MORRIS COMPANY [LOGO] 8700 FLAGLER BUILDING, 8700 West Flagler Street, Miami, Florida 33174 (305) 551-8700 FAX: (305) 551-8551 March 20, 1997 Mr. William R. Cruz President Omega Research, Inc. 8700 W. Flagler Street Suite 250 Miami, FL 33174 RE: Omega Research Inc. Lease dated August 8, 1996 and Memorandum of Commencement dated February 4, 1997 Dear Mr. Cruz: As per your lease dated August 8, 1996 by and between 8700 Flagler Ltd., a Florida Limited Partnership, as Landlord and Omega Research Inc., a Florida Corporation, as Tenant, the former commencement date of your lease was December 1, 1996 and reflecting a termination date of 66 months thereafter as May 31, 2002. As per your "Exhibit B" Memorandum of Commencement Date, dated February 4, 1997, the new commencement date is February 17, 1997 and the termination date is August 16, 2002. Therefore, paragraph 49 of Addendum dated August 8, 1996, Rental Rate Schedule is deleted in its entirety and the following shall be substituted in lieu thereof. TERM RENTAL MONTHLY TOTAL RATE RENTAL RENTAL 02/17/97 - 07/16/99 $15.25 $21,971.44 $637,171.76 07/17/99 - 07/16/00 $15.50 $22,331.63 $267,979.56 07/17/00 - 07/16/01 $16.00 $23,052.00 $276,624.00 07/17/01 - 08/16/02 $16.50 $23,772.38 $309,040.94 TOTAL $1,490,816.26 Mr. William R. Cruz March 20, 1997 Page Two - ------------------- Please signify your confirmation of the above by placing your signature below. Sincerely, 8700 Flagler, Ltd. By: /s/ ESTHER RIZO ----------------------------------- The Allen Morris Commerical Real Estate Services Company, as Manager by: Esther Rizo, Property Manager APPROVED AND ACCEPTED: BY: /S/ WILLIAM R. CRUZ ------------------------------------ William R. Cruz, President Omega Research, Inc. Date: 3/20/97 ER/fl STANDARD OFFICE BUILDING LEASE THIS LEASE AGREEMENT (sometimes hereinafter referred to as the "Lease") made and entered into this 8th day of August, 1996, by and between 8700 Flagler, Ltd., a Florida Limited Partnership (hereinafter called "LANDLORD"), whose address for purposes hereof is 1000 Brickell Avenue, Miami, Florida 33131 and Omega Research, Inc., a Florida Corporation (hereinafter called "TENANT" ), whose address for purpose hereof is 9200 Sunset Drive, Miami, Florida 33173-3266. W I T N E S S E T H: LANDLORD and TENANT agree to the following definitions for the defined terms contained herein: DEFINITIONS a) "PREMISES" or "LEASED PREMISES" is hereby defined as: suite number 250 located in the Building and such Leased Premises being more particularly described as approximately 17,289 square feet of Net Rentable Area (hereinafter defined) located on the Second (2nd) floor of the Building. b) BUILDING is hereby defined as The 8700 Flagler Building located at 8700 West Flagler, Miami, FL 33174. c) BASE RENTAL is hereby defined as One Million Four Hundred Ninety Thousand Eight Hundred Sixteen and 26/100 ($1,490,816.26) (being an annual Base Rental of $_____ *_____ ) payable in equal monthly installments of ____ *_____ (plus applicable sales tax) which is computed at a Base Rental Rate of $______*______ per rentable square foot per annum. LANDLORD upon execution of this Lease by LANDLORD and TENANT, hereby acknowledges payment by TENANT of the sum of Twenty-One Thousand Nine Hundred Seventy-One and 44/100 Dollars ($21,971.44**) representing payment of rental for the first full calendar month of this Lease. The balance of the total Base Rental is payable in equal monthly installments as specified above on the first day of each month; hereafter ensuing, the first of which shall be due and payable on the first of January, 1997. * See Addendum Paragraph #49 ** Plus Applicable State Sales Tax d) LEASE TERM is hereby defined as being for a period of Sixty-Six Months, commencing on December 1, 1996 * and terminating on May 31, 2002. * To be adjusted in the event occupancy is not attained by 12/01/96. In such case, the Lease Term shall be adjusted to reflect a 66 month lease term. e) BASE YEAR is herein defined, as being calendar year 1997. f) TENANT'S PROPORTIONATE SHARE to be paid by the TENANT for Operating Expenses and Impositions (as hereinafter defined) is hereby defined to be the percentage which the Net Rentable Area then leased by the TENANT in the Building bears to the Total Net Rentable Area contained in the Building which is approximately 129,655 rentable square feet. This percentage at the commencement of this Lease is .1334%. g) OPERATING EXPENSES, including Impositions for the Base Year, are hereby defined as to be furnished when compiled. h) Deleted i) SECURITY DEPOSIT is hereby defined to be Forty-Six Thousand Seven Hundred Ninety-Nine and 17/100 Dollars ($46,799.17) which TENANT has deposited concurrently with LANDLORD upon the execution of the Lease by TENANT. j) USE OR PURPOSE for which the TENANT will use and occupy the Lease Premises shall be for the sole purpose of General Office use for software company performing all functions necessary to the development,marketing, sale, support and distribution of computer software programs. k) HEAT AND AIR CONDITIONING during hours other than those specified in the Lease shall be billed to the TENANT for such service at the rate of Twenty-Five and 00/100 Dollars ($25.00) per hour per Floor or portion thereof. l) PARKING SPACES in the Building parking areas leased to the TENANT at no charge throughout the Term of the Lease on a non-assigned basis shall be 80 parking spaces. See Addendum Paragraph #51. m) COOPERATING BROKER is hereby defined as Century 21 - Kenall Gables Realty/7756 N. Kendall Drive, Miami, FL 33156. n) Upon execution and delivery of this lease to LANDLORD, LANDLORD hereby acknowledges payment by TENANT as follows: First month's rent $21,971.44 Sales Tax 1,428.14 Security Deposit 46,799.17 Other -- ---------- ---------- Total $70,198.75 ========== With the submission of this Lease for LANDLORD's consideration, TENANT also includes a certificate of insurance as described in Paragraph 23. TERMS THE TERMS AND CONDITIONS OF THE STANDARD OFFICE BUILDING LEASE ATTACHED HERETO ARE INCORPORATED BY REFERENCE AND MADE A PART HEREOF. See Addendum Attached Hereto and Made a Part Hereof IN WITNESS WHEREOF, the parties hereto have signed, sealed and delivered this Lease in quadruplicate at Dade County, Florida on the date and year first written above. LANDLORD: 8700 Flagler, Ltd., a Florida Limited Partnership By: The Allen Morris Commercial Real Estate Services Company, As Manager, pursuant to authorization granted by LANDLORD WITNESSES: /s/ ILLEGIBLE By: /s/ PAUL L. WHITE ------------------- --------------------------------------- Paul L. White, President (SEAL) /s/ ILLEGIBLE Attest: /s/ ILLEGIBLE ------------------- ----------------------------- Assistant Secretary TENANT: Omega Research, Inc., a Florida Corporation WITNESSES: /s/ ILLEGIBLE By: /S/ GUILLERMO CRUZ ------------------- --------------------------------------- Guillermo Cruz, President (SEAL) /S/ ILLEGIBLE GUILLERMO R. CRUZ ------------------- --------------------------------------- Print Name --------------------------------------- Attest Attachments: Guarantee of Lease Exhibit A - Floor Plan Standard Office Building Lease Rules and Regulations STANDARD OFFICE BUILDING LEASE LEASED 1. Subject to and upon the terms, provisions, covenants PREMISES and conditions hereinafter stated, and each in consideration of the duties, covenant, and obligations of the other hereunder, LANDLORD does hereby lease, demise and let to TENANT; and TENANT does hereby lease, demise and let from LANDLORD those Leased Premises as reflected on the floor plan attached hereto as Exhibit "A" and made a part hereof. The term "Net Rentable Area", as used herein, shall refer to (i) a single tenancy floor, all space measured from the inside surface of the outer glass of the Building to the inside surface of the opposite outer glass of the Building, excluding only the areas ("Service Areas") within the outside walls used for building stairs, fire towers, elevator shafts, flues, vents, pipe shafts and vertical ducts, but including any such areas which are for the specific use of the particular TENANT such as special stairs or elevators, and (ii) a multi-tenancy floor, all space with the inside surface of the outer glass enclosing TENANT occupied portion of the floor and measured to the midpoint of the walls separating areas leased by or held for lease to other TENANTS or from areas devoted to corridors, elevator foyers, restrooms and other similar facilities for the use of all TENANTS on the particular floor (hereinafter sometimes called "Common Areas") but including a proportionate part of the Common Areas. No deductions from Net Rentable Areas are made for columns necessary to the Building. The Net Rentable Areas in the Leased Premises and in the Building have been calculated on the basis of the foregoing definition and are hereby stipulated above as to the Leased Premises whether the same should be more or less as a result of minor variations resulting from actual construction and completion of the Leased Premises for occupancy so long as such work is done substantially in accordance with the approved plans. TERM 2. This Lease shall be for the Term herein previously defined unless sooner terminated or extended as provided herein. If LANDLORD is unable to give possession of the Leased Premises on the date of the commencement of the aforesaid Lease Term by reason of the holding over of any prior tenant or tenants or for any other reason, an abatement or diminution of the rent to be paid hereunder shall be allowed TENANT under such circumstances until possession is given to TENANT; and said abatement in rent shall be the full extent of LANDLORD's liability to TENANT for any loss or damage to TENANT because of said delay in obtaining possession of the Premises. There shall be no delay in the commencement of the Term of this Lease and/or payment of rent where TENANT fails to occupy premises when same are ready for occupancy, or when LANDLORD shall be delayed in substantially completing such Leased Premises as a result of: a. TENANT's failure to promptly furnish working drawings and plans as required; or b. TENANT's failure to approve cost estimates within one (1) week of receipt from LANDLORD; or c. TENANT's failure to promptly select materials, finishes, or installation; or d. TENANT's changes in plans (notwithstanding LANDLORD's approval of any such changes); or e. Any other act of omission by TENANT or its agents, or failure to promptly make other decisions necessary to the preparation of the Leased Premises for occupancy. The commencement of the Term and the payment of rent shall not be affected, delayed or deferred on account of any of the foregoing. For the purposes of this paragraph, the Leased Premises shall be deemed substantially completed and ready for occupancy by TENANT when LANDLORD's supervising architect certifies that the work required of LANDLORD, if any, has been substantially completed in accordance with the approved plans and specifications, and the leased premises are in such conditions that Tenant can conduct business normally. Taking possession of the Leased Premises by TENANT shall be conclusive evidence as against TENANT that the Leased Premises were in good and satisfactory condition, completed in accordance with the approved plans, when possession was so taken. *If TENANT, with LANDLORD's consent, shall occupy the Leased Premises prior to the beginning of the Lease Term as specified hereinabove, all provisions of this Lease shall be in full force and effect commencing upon such occupancy; and rent for such period shall be paid by TENANT at the same rate herein specified. *Tenant shall notify Landlord within ten (10) business days of occupancy of all items which are not completed or repairs which need to be made and Landlord shall have thirty (30) days within which to complete work or make repairs. BASE RENT 3. TENANT agrees to pay LANDLORD the Base Rental without demand in advance, in monthly installments on the first day of each and every month during the Term. If the Term of the Lease commences on any day of a month except for the first day, TENANT shall pay LANDLORD Base Rental as provided for herein for such commencement month on a prorated basis (such proration to be based on the actual number days in the commencement month); and the first month's rent paid by TENANT, if any, upon execution of this Lease shall apply and be credited to the next full month's rent due hereunder. Base Rental for any partial month of occupancy at the end of the Term of this Lease shall be prorated, such proration to be based on the actual number of days in the partial month. In addition to Base Rental, TENANT shall and hereby agrees to pay to LANDLORD each month a sum equal to any sales tax, tax on rentals, and any other charges, taxes and/or impositions now in existence or hereafter imposed based upon the privilege of renting the space leased hereunder or upon the amount of rentals collected therefor. However, nothing herein shall be taken to require TENANT to pay any part of any federal and state taxes on income imposed upon LANDLORD. TENANT shall be required to pay LANDLORD interest on any installment of Base Rental and additional rent, as hereinafter provided, that remains unpaid for five (5) days after its due date. Said interest shall be computed at the maximum legal rate from the due date. ADDITIONAL 4.A. In the event that the cost to LANDLORD for the RENT Operating Expenses of the Building, as hereinafter defined, during any calendar year of the Lease Term subsequent to the Base Year shall exceed the cost to LANDLORD for the Operating Expenses of the Building during the Base Year, TENANT shall pay to LANDLORD as additional rent TENANT's Proportionate Share (as such term is hereinabove defined) of the increase in such costs for each calendar year, if any. The amount of such additional rent, if any, shall be determined in accordance with the following formula: Proportionate Share multiplied by any increase in Operating Expenses over the Operating Expenses of the Base Year equals additional rent due from TENANT except that such additional rent shall be prorated for any partial calendar year following the commencement of the Lease Term. The term "Operating Expenses" as used herein shall mean all expenses, costs and disbursements of every kind and nature which LANDLORD shall pay or become obligated to pay because of or in connection with the ownership, maintenance and/or operation of the Building, computed on the accrual basis, but shall not include new capital improvements. By way of explanation and clarification, these Operating Expenses shall include, without limitation, the following: 1. Wages and salaries of all employees engaged in operation and maintenance of the Building, employer's social security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages and salaries, the cost of disability and hospitalization insurance, pension or retirement benefits, or any other fringe benefits for such employees. 2. All supplies and materials used in operation and maintenance of the Building. 3. Cost of all utilities including water, sewer, electricity, gas and fuel used by the Building and not charged directly to another tenant. 4. Cost of customary building management, janitorial services, trash and garbage removal, guard service, painting, window cleaning, landscaping and gardening, servicing and maintenance of all systems and equipment, including but limited to, elevators, plumbing, heating, air conditioning, ventilating, lighting, electrical, security and fire alarms, fire pumps, fire extinguishers and hose repair, cabinets, mail chutes, and staging; and damage caused by fire or other casualty not otherwise recovered including the deductibles applicable to any insurance policies. 5. Cost of insurance for property, loss of rents, casualty and other liability applicable to the Building and LANDLORD's personal property used in connection therewith. 6. The amortized cost of any capital improvement which reduces the Operating Expenses. In the event the Operating Expenses in any year after the Base Year are reduced because of a capital improvement, then the Operating Expenses for the Base Year shall be reduced accordingly for the purpose of determining additional rent as though such improvement or automation was in effect during the Base Year. LANDLORD shall notify TENANT after the end of the Base Year and each calendar year thereafter during the Term hereof, of the amount which LANDLORD estimates (as evidenced by budgets prepared by or on behalf of LANDLORD) shall be the amount of TENANT's Proportionate Share of increases in Operating Expenses for the then current calendar year and TENANT shall pay such sum in advance to LANDLORD in equal monthly installments, during the balance of said calendar year, commencing on the first day of the first month following TENANT's receipt of such notification. Following the end of each calendar year after the Base Year, LANDLORD shall submit to TENANT a statement showing the actual amount which should have been paid by TENANT with respect to increases in Operating Expenses for the past calendar year, the amount thereof actually paid during that year by TENANT and the amount of the resulting balance due thereon, or overpayment thereof, as the case may be. Within thirty (30) days after receipt by TENANT of said statement, TENANT shall have the right in person to inspect LANDLORD's books and records showing the Operating Expenses for the Building for the calendar year covered by said statement. Said statement shall become final and conclusive between the parties, their successors and assigns as to the matters set forth therein unless LANDLORD receives written objections with respect thereto within said thirty (30) days of TENANT'S receipt of said statement. Any balance shown to be due pursuant to said statement shall be paid by TENANT to LANDLORD within thirty (30) days following TENANT's receipt thereof and any overpayment shall be immediately credited against TENANT's obligation to pay expected additional rent in connection with anticipated increases in Operating Expenses or, if by reason of any termination of the Lease no such future obligation exists, refunded to TENANT. Anything herein to the contrary notwithstanding, TENANT shall not delay or withhold payment of any balance shown to be due pursuant to a statement rendered by LANDLORD to TENANT, pursuant to the terms hereof, because of any objection which TENANT may raise with respect thereto. LANDLORD shall immediately credit any overpayment found to be owing to TENANT against TENANT's Proportionate Share of increases in Operating Expenses for the then current calendar year (and future calendar years, if necessary) upon the resolution of said objection or, if at the time of the resolution of said objection, the Lease Term has expired, immediately refund to TENANT any overpayment found to be owing to TENANT. LANDLORD agrees to maintain accounting books and records reflecting Operating Expenses of the Building in accordance with generally accepted accounting principles. Additional rent, due by reason of the provisions of this Subparagraph 4A for the final month of this Lease, is due and payable even though it may not be calculated until subsequent to the termination date of the Lease; the Operating Expenses for the calendar year during which the Lease terminates shall be prorated according to that portion of said calendar year that this Lease was actually in effect. TENANT expressly agrees that LANDLORD, at LANDLORD's sole discretion, may apply the Security Deposit specified in Paragraph 7 hereof, if any, in full or partial satisfaction of any additional rent due for the final months of this Lease by reason of the provisions of this Subparagraph 4A. If said Security Deposit is greater than the amount of any such additional rent, and there are no other sums or amount owed LANDLORD by TENANT by reason of any other terms, provisions, covenants or conditions of this Lease, then LANDLORD shall refund the balance of said Security Deposit to TENANT as provided in Paragraph 7 hereof. Nothing herein contained shall be construed to relieve TENANT, or imply that TENANT is relieved of the liability for or the obligation to pay any additional rent due for the final months of this Lease by reason of the provisions of this Paragraph 4A if said Security Deposit is less than such additional rent; nor shall LANDLORD be required to first apply said Security Deposit to such additional rent if there are any other sums or amounts owed LANDLORD by TENANT by reason of any other terms, provisions, covenants or conditions of this Lease. If in any calendar year, the increase in Operating Expenses is negative, no additional rental is to be charged, but additional rent shall nevertheless be collected at the Base Year's rate. 4B. In the event that "Impositions" (as such term is hereinafter defined) against the Building and/or the land on which it is located are increased during any calendar year of the Lease Term subsequent to the Base Year over the amount of said Impositions during the Base Year, then TENANT shall pay to LANDLORD, as additional rent, TENANT's Proportionate Share of the Impositions for each calendar year, if any. The term "Impositions" as used herein shall mean all Impositions, tax assessments (special or otherwise), water and sewer assessments and other governmental liens or charges of any and every kind, nature and sort whatsoever, ordinary and extraordinary, foreseen and unforeseen, and substitutes therefore, including all taxes whatsoever (except only those taxes of the following categories: any inheritance, estate, succession, transfer of gift taxes imposed upon LANDLORD or any income taxes specifically payable by LANDLORD as a separate taxpaying entity without regard to LANDLORD's income sources arising from or out of the Building and/or the land on which it is located) attributable in any manner to the Building, the land on which the Building is located or the rents (however the term may be defined) receivable therefrom, or any part thereof, or any use thereon, or any facility located therein or used in conjunction therewith or any charge of other payment required to be paid to any governmental authority, whether or not any of the foregoing shall be designated "real estate tax", "sales tax", "rental tax", "excise tax", "business tax", or designated in any other manner. LANDLORD shall notify TENANT, after the end of the Base Year and each calendar year thereafter, of the amount which LANDLORD estimates (as evidenced by budgets prepared by or on behalf of LANDLORD) shall be the amount of TENANT's Proportionate Share of increases in Impositions for the then current calendar year; and TENANT shall pay such sum to LANDLORD in equal monthly installments during the balance of said calendar year, in advance on the first day of each month commencing on the first day of the first month following TENANT's receipt of such notification. Following the date on which LANDLORD receives a tax bill or statement showing what the actual Impositions are with respect to each calendar year, LANDLORD shall submit to TENANT a statement, together with a copy of said bill or statement, showing the actual amount to be paid by TENANT in the year in question with respect to increases in Impositions for such year, the amount thereof theretofore paid by TENANT and the amount of the resulting balance due thereon, or overpayment thereof, as the case may be. Any balance shown to be due pursuant to said statement shall be spread over the remaining months of the year and be paid by TENANT to LANDLORD or if after the close of the calendar year within ten (10) days following TENANT's receipt thereof and any overpayment shall be immediately credited against TENANT's obligation to pay such additional rent in connection with increased Impositions in later years, or, if no such future obligation exists, be immediately refunded to TENANT. Additional rent, due by reason of the provisions of this Subparagraph 4B for the final months of this Lease, shall be payable even though the amount thereof is not determinable until subsequent to the termination of the Lease; the Impositions for the calendar year during which the Lease terminates shall be prorated according to that portion of said calendar year that this Lease was actually in effect. TENANT expressly agrees that LANDLORD at LANDLORD's sole discretion, may apply the Security Deposit specified in Paragraph 7 hereof, if any, in full or partial satisfaction of any additional rent due for the final months of this Lease by reason of the provisions of this Paragraph 4B. If said Security Deposit is greater than the amount of such additional rent and there are no other sums or amounts owed LANDLORD by TENANT by reason of any other terms, provisions, covenants or conditions of this Lease, then LANDLORD shall refund the balance of said Security Deposit to TENANT as provided in Paragraph 7 hereof. Nothing herein contained shall be construed to relieve TENANT, or imply that TENANT is relieved of the liability for or the obligation to pay any additional rent due for the final months of this Lease by reason of the provisions of this Paragraph 4B if said Security Deposit is less than such additional rent; nor shall LANDLORD be required to first apply said Security Deposit to such additional rent if there are any other sums or amounts owed LANDLORD by TENANT by reason of any of the terms, provisions, covenants, or conditions of this Lease. If in any calendar year the increase in Impositions is negative, no additional rent is to be charged; but rent shall be collected at the Base Year's rate and adjusted thereafter. 4C. It is the intention of the parties hereto to provide that TENANT shall pay in advance of their due date TENANT's Proportionate Share of increases in Operating Expenses and Impositions and to share in reduction only by category to the end that an increase in Operating Expenses shall not be offset by a decrease in Impositions and vice versa. In no event shall the Base Rental be reduced by reason of decreases in Operating Expenses and/or Impositions. This Paragraph shall survive the termination of the Lease. TIME OF 6. TENANT agrees that TENANT shall promptly pay said PAYMENT/ rents (Base Rental and additional rent), at the time and ACCELERATION place stated above; TENANT shall also pay charges for work UPON DEFAULT performed on order of TENANT, and any other charges that accrue under this Lease; that, if any part of the rent or above mentioned charges shall remain due and unpaid for the Fourteen (14) days after written notice from LANDLORD to TENANT, LANDLORD shall have the option, without further notice to TENANT, (in addition to all other rights and remedies available to it by law and in equity) of evicting TENANT and simultaneously accelerating and declaring the balance of the entire rent for the entire Term of the Lease to be immediately due and payable. In the event of such acceleration upon default in payment, TENANT shall remain liable for all expenses incurred by LANDLORD and the full balance due on the Lease - subject only to credit for rent received on reletting of premises and LANDLORD may lease by distress or otherwise. SECURITY 7. The Security Deposit shall be retained by LANDLORD as DEPOSIT security for the payment by TENANT of the rents and all other payments herein agreed to be paid by TENANT and for the faithful performance by TENANT of the terms, provisions, covenant and conditions of this Lease. It is agreed that LANDLORD, at LANDLORD's option may, at the time of any default by TENANT under any of the terms, provisions, covenants or conditions of the Lease, apply said sum or any part thereof toward the payment of the rents and all other sums payable by TENANT under this Lease and after any applicable cure period, and towards the performance of and every one of TENANT's covenants under this Lease, but such covenants and TENANT's liability under this Lease shall thereby be discharged only pro tanto that TENANT shall remain liable for any amounts that such sum shall be insufficient to pay; that LANDLORD may exhaust any and all rights and remedies against TENANT before resorting to said sum, but nothing herein contained shall require or be deemed to require LANDLORD so to do; that, in the event this deposit shall not be utilized for any such purposes, then such deposit shall be returned by LANDLORD to TENANT within ten (10) days next after the expiration of the Term of this Lease or the determination and payment of the amount due under Paragraph 4 of this Lease, if any, whichever later occurs however, in no event shall the security deposit or any portion thereof due to Tenant be returned later than thirty (30) days after the expiration of the Term of this Lease. LANDLORD shall not be required to pay TENANT any interest on said Security Deposit. USE 8. TENANT shall use and occupy the Leased Premises for the use or purpose as hereinbefore stated and for no other use or purpose. QUIET 9. Upon payment by TENANT of the rents herein provided, ENJOYMENT and upon the observance and performance of all terms, provisions, covenants and conditions on TENANT's part to be observed and performed, TENANT shall, subject to all of the terms, provisions, covenants and conditions of this Lease, peaceably and quietly hold and enjoy the Leased Premises for the Term hereby demised. INSURANCE 10. If the LANDLORD's insurance premiums exceed the PREMIUMS standard premium rates because the nature of TENANT's operations results in extra hazardous exposure, then TENANT shall, upon receipt of appropriate invoices from LANDLORD, reimburse LANDLORD for such increase in premiums. It is understood and agreed between the parties hereto that any such increase in premiums shall be considered as rent due and shall be included in any lien for rent. RULES AND 11. TENANT agrees to comply with all rules and REGULATIONS regulations LANDLORD may adopt from time to time for operation of the Building and parking facilities and for the protection and welfare of Building and parking facilities, and the tenants, visitors and occupants of the Building. The present rules and regulations, which TENANT hereby agrees to comply with, entitled "Rules and Regulations" are attached hereto and are by this reference incorporated herein. Any future rules and regulations adopted from time to time by LANDLORD shall become a part of the Lease, and TENANT hereby agrees to comply with the same upon delivery of a copy thereof to TENANT providing the same do not materially deprive TENANT of its rights established under this Lease. GOVERNMENTAL 12. TENANT, at TENANT's sole expense, shall comply with REQUIREMENTS all laws, rules, orders, ordinances, directions, regulations and requirements of federal, state, county and municipal authorities pertaining to TENANT's use of the Premises and with the recorded covenants, conditions and restrictions, regardless of when they become effective, including, without limitation, all applicable federal, state and local laws, regulations or ordinances pertaining to air and water quality, Hazardous Materials (as hereinafter defined), waste disposal, air emissions and other environmental matters, all zoning and other land use matters, utility availability, and with any duty imposed upon LANDLORD or TENANT with respect to the use or occupation of the Premises. SERVICES 13. LANDLORD shall furnish the following services to TENANT: (A) Cleaning services, deemed by LANDLORD to be normal and usual in a comparable building, on Monday through Friday, except that shampooing of carpet as required by TENANT shall be at TENANT's expense. (B) Automatically operated elevator service, public stairs, electrical current for lighting, incidentals, and normal office use, and water at those points of supply provided for general use of its tenants at all times and on all days throughout the year. (C) Heat and air conditioning on Monday through Friday from 8:30 A.M. to 9:00 P.M. Saturday 8:00AM - 3:00PM except Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, Christmas Day and New Year's Day. LANDLORD shall also furnish heat and air conditioning at such other times as are not provided for herein, provided TENANT gives written request to LANDLORD before 2:00 P.M. on the business day preceding the extra usage and if TENANT requires heat and air conditioning during such hours, TENANT shall be billed for such service at the rate hereinbefore stated and said rate may be changed each year with thirty (30) days prior written notice and not to exceed 10% from the preceding year. No electric current shall be used except that furnished or approved by LANDLORD, nor shall electric cable or wire be brought into the Leased Premises, except upon the written consent and approval of LANDLORD. TENANT shall use only office machines and equipment that operate on the Building's standard electric circuits, but which in no event shall overload the Building's standard electric circuits from which TENANT obtains electric current. Any consumption of electric current in excess of that normal and customary for this tenant, or which require special circuits or equipment (the installation of which shall be at TENANT's expense after approval in writing by LANDLORD), shall be paid for by TENANT as additional rent paid to LANDLORD in an amount to be determined by LANDLORD based upon LANDLORD's estimated cost of such excess electric current consumption or based upon the actual cost thereof if such excess electric current consumption is separately metered. Such services shall be provided as long as TENANT is not in default under any of the terms, provision, covenants, and conditions of this Lease, subject to interruption caused by power, accidents, breakdowns, catastrophes, national or local emergencies, acts of God and conditions and causes beyond the control of LANDLORD, and upon such happening, no claim for damages or abatement of rent for failure to furnish any such services shall be made by TENANT or allowed by LANDLORD. TENANT 14. It is understood and agreed between the parties CHARGES hereto that any charges against TENANT by LANDLORD for services or for work done on the Leased Premises by order of TENANT, or otherwise accruing under this Lease, shall be considered as rent due and shall be included in any lien for rent. REPAIR OF 15. LANDLORD shall maintain in good order and repair the BUILDING Building (excluding repairs to be made by TENANT), including AND without limitation public areas, the parking areas, landscape PREMISES areas, elevators, stairs, corridors, restrooms, the base building heat, ventilating, air conditioning, mechanical, plumbing, and electrical systems, and the structure itself, including the roof, foundations, exterior walls, and glass exterior surfaces of the Premises and the Building, all structural members of the Building and all underground utility lines serving the Building. Provided, however, the cost of any repairs or maintenance to the foregoing necessitated by the gross negligence of TENANT or its agents, contractors or employees shall be reimbursed by TENANT to LANDLORD upon demand as additional rent. At its sole cost, TENANT shall maintain in good repair and tenable condition, subject to normal wear and tear, casualty and condemnation, that portion of the Premises within the demising walls thereof, including any wall coverings and paint on the interior side of the demising walls, below the ceiling slab and above the floor slab, any tile, carpet or other floor covering installed thereon, and including any systems or other equipment below the floor or above the ceiling tile that was installed for TENANT. TENANT's maintenance obligation shall extend to all tenant improvements and contents within the Premises. TENANT shall not be obligated to repair damage resulting from the gross negligence of LANDLORD or its agents, contractors, or employees. TENANT shall make no structural alterations or structural additions of any kind to the interior of the Premises without first obtaining LANDLORD's written consent. TENANT, at its sole cost, may make non-structural alterations or non-structural additions within the Premises subject to the following conditions: a. TENANT shall give LANDLORD prior written notice of its intention to make alterations, additions, or repairs. b. LANDLORD reserves the right to approve the plans and specifications for such alterations and additions, such approval shall not be unreasonably withheld or delayed. c. TENANT shall only use contractors who are approved by LANDLORD, and such contractors shall be required to furnish evidence of insurance coverage, including Public Liability, Workers Compensation, and Automobile Liability coverage, as well as any other coverage required by LANDLORD. The limits of such coverage shall be no less than those required of TENANT. TENANT shall cause such work to be performed in accordance with all applicable building codes and other governmental regulations to be completed and paid and shall discharge any and all liens or claims of lien arising therefrom, or if TENANT disputes any such lien or claim of lien, TENANT may post a bond to remove the lien from the Premises in accordance with local statute. All such work, including additions, fixtures, and improvements (but excluding movable office furniture and equipment and other personal property of TENANT) made or placed in or upon the Premises by either TENANT or LANDLORD shall be and become LANDLORD's property upon installation all without compensation to TENANT. MECHANIC 16. TENANT further agrees that TENANT shall pay all LIENS liens of contractors, subcontractors, mechanics, laborers, materialmen, and other items of like character, and shall indemnify LANDLORD against all expenses, costs, and charges, including bond premiums for release of liens and attorney's fees and costs reasonably incurred in and about the defense of any suit in discharging the said Premises or any part thereof from any liens, judgements, or encumbrances caused or suffered by TENANT. In the event any such lien shall be made or filed, TENANT shall bond against or discharge the same within ten (10) days after the same has been made or filed. It is understood and agreed between the parties hereto that the expenses, costs and charges above referred to shall be considered as rent due and shall be included in any lien for rent. TENANT shall not have any authority to create any liens for labor or materials on LANDLORD's interest in the Leased Premises, and TENANT shall place all persons contracting with TENANT for the destruction or removal of any facilities or other improvements or for the erection, installation, alteration, or repair of any facilities or other improvements on or about the Leased Premises, and all materialmen, contractors, subcontractors, mechanics, and laborers on notice that they must look only to TENANT and to TENANT's interest in the Leased Premises to secure the payment of any bill for work done or material furnished at the request or instruction of TENANT. 17. Pursuant to all of the terms, provisions, covenants and conditions contained herein, for the Term of this Lease, TENANT hereby leases from LANDLORD that number of parking spaces specified herein in the Building parking areas. TENANT agrees to hold LANDLORD harmless for damage to the vehicles or personal property in vehicles that may occur while the vehicles are parked in the parking areas of the Building. ESTOPPEL 18. TENANT agrees that from time to time, upon not less AGREEMENT than ten (10) days prior request by LANDLORD, TENANT shall deliver to LANDLORD a statement in writing certifying (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the Lease as modified is in full force and effect and stating the modifications); (b) the dates to which the rent and other charges have been paid; and (c) that LANDLORD is not in default under any provisions of this Lease, or, if in default, the nature thereof in detail. SUBORDINATION 19. If the Building and/or Leased Premises are any time subject to a mortgage and/or deed of trust, and TENANT has received written notice from mortgagee of same, then in any instance in which TENANT gives notice to LANDLORD alleging default by LANDLORD hereunder, TENANT shall also simultaneously give a copy of such notice to each LANDLORD's mortgagee; and each LANDLORD's mortgagee shall have the right (but not the obligation) to cure or remedy such default during the period See Addendum that is permitted to LANDLORD hereunder, plus an additional Paragraph #52 period of thirty(30) days, and TENANT shall accept such curative or remedial action (if any) taken by LANDLORD's mortgagee with the same effect as if such action had been taken by LANDLORD. This Lease shall at LANDLORD's option, which option may be exercised at any time during the Lease Term, be subject and subordinate to any mortgage now or hereafter encumbering the Building. This provision shall be self-operative without the execution of any further instruments. Notwithstanding the foregoing, however, TENANT hereby agrees to execute any instruments which LANDLORD may deem desirable to evidence the subordination of this Lease to any and all such mortgages. Failure to execute a subordination agreement within 10 days after request from LANDLORD shall be deemed a default hereunder. ATTORNMENT 20. If the interest of LANDLORD under this Lease shall be transferred voluntarily or by reason of foreclosure or other proceedings for enforcement of any mortgage on the Leased Premises; TENANT shall be bound to such transferee (herein sometimes called the "Purchaser") for the balance of the Term hereof remaining, and any extensions or renewals thereof which may be effective in accordance with the terms and provisions hereof with the same force and effect as if the Purchaser were LANDLORD under this Lease, and TENANT does hereby agree to attorn to the Purchaser, including the mortgagee under any such mortgage if it be the Purchaser, as its said attornment to be effective and self-operative without the execution of any further instruments upon the Purchaser succeeding to the interest of the this Lease. The respective rights and obligations of TENANT and the Purchaser upon such attornment, to the extent of the then remaining balance of the Term of this Lease and any such extensions and renewals, shall be and are the same as those set forth herein. In the event of such transfer of LANDLORD's interests, LANDLORD shall be released and relieved from all liability and responsibility thereafter accruing to TENANT under Lease or otherwise and LANDLORD's successor by acceptance of rent from TENANT hereunder shall become liable and responsible to TENANT in respect to all obligations of LANDLORD under this Lease thereafter accruing. ASSIGNMENT 21. Without the written consent of LANDLORD first obtained in each case, which consent may not be unreasonably withheld or delayed. TENANT shall not, voluntarily or involuntarily, whether by operation of law or otherwise, assign, transfer, mortgage, pledge or otherwise encumber or dispose of this Lease or underlet the Leased Premises or any part thereof or permit the Leased Premises or any part thereof to be occupied by other persons. In lieu of consenting or not consenting, LANDLORD may, at its option, (i) in the case of a proposed assignment of this Lease or a proposed subletting of all of the Leased Premises, terminate this Lease in its entirety, or (ii) in the case of a proposed subletting of a portion of the Leased Premises, terminate this Lease as to that portion of the Premises which TENANT has proposed to sublet. In the event LANDLORD elects to terminate this Lease pursuant to clause (ii) of this paragraph, TENANT's obligation as to Base Rental and additional rent shall be reduced in the same proportion that the Net Rentable Area of the portion of the Premises which TENANT proposed to sublet bears to the total Net Rentable Area of the Premises. If this Lease is assigned or if the Leased Premises or any part thereof is underlet or occupied by anybody other than TENANT, voluntarily or involuntarily, whether by operation of law or otherwise, LANDLORD may, after default by TENANT under this Lease in the case of a sublease and at any time (whether or not TENANT is in default under this Lease) in the case of an assignment, collect or accept rent from the assignee, undertenant or occupant and apply the net amount collected or accepted to the rent herein reserved; but such collection or acceptance shall not be deemed a waiver of the foregoing covenant or the acceptance of the assignee, undertenant or occupant as TENANT hereunder; nor shall it be construed as or implied to be a release of TENANT from the further observance and performance by TENANT of the terms, provisions, covenants and conditions herein contained. In the event TENANT is a partnership, corporation or See Addendum other firm or entity, any transfer of more than fifty percent Paragraph #53 (50%) of the right, title or interest herein, existing as of the date hereof, shall, for the purposes hereof, be deemed to be an assignment. Fifty percent (50%) of any sums or other economic considerations received by TENANT as a result of a subletting, whether denominated rentals under the sublease or otherwise, which exceed, in the aggregate, the total sums which TENANT is obligated to pay LANDLORD under this Lease (prorated to reflect obligations applicable to that portion of the Leased Premises subject to such sublease) shall be payable to LANDLORD, immediately following TENANT's receipt of the same, under this Lease without affecting or reducing any other obligations of TENANT hereunder and shall constitute additional rent. Fifty percent (50%) of any sums or other economic considerations received by TENANT as a result of an assignment of this Lease, whether denominated rentals under the assignment or otherwise, shall be payable to LANDLORD, immediately following TENANT's receipt of the same under this Lease without affecting or reducing any other obligations of TENANT hereunder and shall constitute additional rent. SUCCESSORS 22. All terms, provisions, covenants and conditions to AND ASSIGNS be observed and performed by TENANT shall be applicable to and binding upon TENANT's respective heirs, administrators, executors, successors and assigns, subject, however, to the restrictions as to assignment or subletting by TENANT as provided therein. All expressed covenants of this Lease shall be deemed to be covenants running with the land. HOLD HARMLESS 23. TENANT agrees to indemnify and hold harmless AND TENANT'S LANDLORD against all claims or damages to persons or property by INSURANCE reason of the use or occupancy of the Leased Premises by TENANT, its agents, contractors or employees or invitees and to pay all expenses incurred by LANDLORD in connection therewith including attorney's fees and court costs, except in the case of gross negligence on part of Landlord in common area maintenance. LANDLORD shall not be liable to TENANT or to any person, firm, corporation, or other business association claiming by, through or under TENANT, for failure to furnish or for delay in furnishing any services provided for in this Lease nor shall any such failure or delay operate or relieve TENANT from the prompt and punctual performance of each and all of the covenants to be performed herein by TENANT; nor from any defects in the Premises or Building; or from defects in the cooling, heating, electric, water, elevator or other applicable apparatus or systems or water discharge from sprinkler systems in the Building; nor for theft, mysterious disappearance or loss of any property of TENANT, water from the premises or any part of the Building, not due to Landlord's gross negligence and provided that such failure to provide in furnishing services is the result of circumstances beyond Landlord's control. Tenant shall at all times maintain the following insurance coverage and amounts: (i) Commercial General Liability Insurance, including Contractual Liability coverage, relating to the Leased Premises and its appurtenances on an occurrence basis with a minimum limit of at least $1,000,000 per occurrence, $1,000,000 aggregate, including Personal Injury and Products/Completed Operations. In addition before undertaking any alterations, additions, improvements, construction or occupancy, TENANT shall obtain public liability insurance and name LANDLORD and LANDLORD's property manager as additional insured insuring TENANT and LANDLORD (and its designees) against any liability which may arise on account of such proposed alterations, additions, improvements or construction on an occurrence basis with a minimum single limit of at least $1,000,000. (ii) Property insurance on an "all risk" basis including but not limited to fire and lightning, extended coverage (all risk of physical loss), vandalism and malicious mischief and flood (if required by LANDLORD, any mortgagee or governmental authority and if obtainable) in an amount adequate to cover the full replacement cost of TENANT's personal property, the property of others in the care, custody or control of TENANT, and any improvements and betterments installed by TENANT and loss of use (business interruption). TENANT and LANDLORD waive any and all rights of recovery against each other for damage to the aforementioned property and agree to obtain waivers of subrogation in their respective property insurance policies. (iii) Workers compensation insurance for statutory limits including a minimum of $1,000,000 employer's liability covering all persons employed, directly or indirectly, in connection with any finish work performed by TENANT or any repair or alteration authorized by this Lease or consented to by LANDLORD, and all employees or agents of TENANT. (iv) Automobile liability insurance to cover owned, non-owned, and hired vehicles with a combined single limit of not less than $1,000,000. (v) Such other insurance as may be carried on the Leased Premises and TENANT's operation thereof as may be required by LANDLORD from time to time. The coverage afforded by such insurance shall not limit TENANT's liability hereunder. If TENANT fails to obtain and provide any or all of the aforesaid insurance, then LANDLORD may, (but shall not be required to) purchase such insurance on behalf of TENANT and TENANT shall, on demand, reimburse LANDLORD for the cost of such insurance together with interest thereof (from the date on which LANDLORD paid such cost to the date on which TENANT reimburses LANDLORD therefore) the maximum rate permitted by law and same shall constitute additional rent. In case LANDLORD shall be made a party to any litigation commenced against TENANT, then TENANT shall protect and hold harmless and shall pay all costs and reasonable attorney's fees incurred or paid by LANDLORD in connection with such litigation and any thereof, regardless of the initiation of court proceedings. TENANT shall furnish LANDLORD certificates of insurance certifying the above coverage. The certificates shall include acknowledgment that the policies have been amended to provide thirty (30) days notice of termination to LANDLORD and confirmed that LANDLORD and LANDLORD's Property Manager are named as Additional Insured. Notwithstanding any contrary provision of this Lease, TENANT shall look solely (to the extent insurance coverage is not applicable or available) to the interest of LANDLORD in the Building for the satisfaction of any judgement or the judicial process requiring the payment of money as a result of any gross negligence or breach of this Lease by LANDLORD or LANDLORD's management agent and LANDLORD shall have no personal liability hereunder of any kind. ATTORNEYS' 24. If either party defaults in the performance of any FEES of the terms, provisions, covenants and conditions and by reason thereof, the other party employs the services of an attorney to enforce performance of the covenants, or to perform any service based upon defaults, regardless of the initiation of court proceedings, then in any of said events, the prevailing party shall be entitled to reasonable attorney's fees and all expenses and costs incurred by the prevailing party pertaining thereto (including costs and fees relating to any appeal) and in enforcement of any remedy. DESTRUCTION 25. In the event the Leased Premises or portion thereof OR DAMAGE shall be destroyed or so damaged or injured by fire or other casualty, during the Term of the Lease, whereby the same shall be rendered untenantable, then LANDLORD shall have the right, but not the obligation, to render such Leased Premises tenantable by repairs within one hundred eighty (180) days therefrom. LANDLORD agrees that, within sixty (60) days following damage or destruction, it shall notify TENANT with respect to whether or not LANDLORD intends to restore the Premises. If said Premises are not rendered tenantable within the aforesaid one hundred eighty (180) days, it shall be optional with either party hereto to cancel this Lease, and in the event of such cancellation, the rent shall be paid only to the date of such fire or casualty. The cancellation herein mentioned shall be evidenced in writing. Notwithstanding the foregoing, should damage or destruction occur during the last twelve (12) months of the Lease Term, either LANDLORD or TENANT shall have the option to terminate this Lease, effective on the date of damage or destruction, provided notice to terminate is given within thirty (30) days of the date of such damage or destruction. During any time that the Leased Premises are untenantable due to causes set forth in this paragraph, the rent or a just and fair proportion thereof shall be abated. EMINENT 26. If there shall be taken during the Term of this DOMAIN Lease, any portion of the Leased Premises, parking facilities or Building, other than a part not interfering with maintenance, operation or use of the Leased Premises, LANDLORD may elect to terminate this Lease or to continue same in effect. If LANDLORD elects to continue the Lease, the rental shall be reduced in proportion to the area of the Leased Premises so taken and LANDLORD shall repair any damage to the Leased Premises, parking facilities, or Building resulting from such taking. If any part of the Leased Premises is taken by condemnation or eminent domain which renders the Premises unsuitable for its intended use, TENANT may elect to terminate this Lease; or if any part of the Leased Premises is so taken which does not render the Premises unsuitable for its intended use, this Lease shall continue in effect; and the rental shall be reduced in proportion to the area of the Leased Premises so taken and LANDLORD shall repair any damage to the Leased Premises resulting from such taking. If all of the Leased Premises is taken by condemnation or eminent domain, this Lease shall terminate on the date possession is taken by the authority. All sums awarded or agreed upon between LANDLORD and the condemning authority for the taking of the interest of LANDLORD whether as damages or as compensation, and whether for partial or total condemnation, shall be the sole property of LANDLORD. If this Lease should be terminated under any provisions of this paragraph, rental shall be payable up to the date that possession is taken by the authority, and LANDLORD shall refund to TENANT any prepaid unaccrued rent less any sum or amount then owing by TENANT to LANDLORD. ABANDONMENT 27. If during the Term of this Lease, TENANT shall abandon, vacate or remove from the Leased Premises the major portion of the goods, wares, equipment or furnishings usually kept on said Leased Premises, or shall cease doing business in said Leased Premises, or shall suffer the rent to be in arrears, LANDLORD may, at its option, cancel this Lease in the manner stated in Paragraph 28 hereof, or LANDLORD may enter said Leased Premises as the agent of TENANT by force or otherwise, without being liable in any way therefore and relet the Leased Premises with or without any furniture that may be therein, as the agent of TENANT, at such price and upon such terms and for such duration of time as LANDLORD may determine, and receive the rent therefore, applying the same to the payment of the rent due by these presents, and if the full rental herein provided shall not be realized by LANDLORD over and above the expenses to LANDLORD of such reletting, TENANT shall pay any deficiency. LANDLORD shall have all rights of acceleration contained in Paragraph 6, upon abandonment by TENANT. Moreover, any personalty remaining in the Premises may be disposed of, without further notice to TENANT, in any manner LANDLORD deems fit in its sole discretion, without any liability or rent credit to TENANT. DEFAULT 28. It is agreed between the parties hereto that if TENANT shall be adjudicated a bankrupt or an insolvent or take the benefit of any federal or state reorganization or composition proceeding or make a general assignment or take the benefit of any insolvency law; or if TENANT's leasehold interest under this Lease shall be sold under any execution or process of law; or if a trustee in bankruptcy or a receiver be appointed or elected or had for TENANT (whether under federal or state laws); or if said Premises shall be abandoned or deserted; or if TENANT shall fail to perform any of the terms, provisions, covenants or conditions of this Lease on TENANT's part to be performed; or if this Lease or the Term thereof be transferred or pass to or devolve upon any persons, firms, officers or corporations other than TENANT by death of TENANT, operation of the law or otherwise; then and in any such events, at the option of LANDLORD, the total remaining unpaid Base Rental for the Term of this Lease shall become due and payable and the Term of this Lease shall expire and end ten (10) days after LANDLORD has given TENANT written notice (in the manner hereinafter provided) of such act, condition or default and TENANT hereby agrees immediately then to pay said Base Rental or quit and surrender said Leased Premises to LANDLORD; but this shall not impair or affect LANDLORD's right to maintain summary proceedings for the recovery of the possession of the Leased Premises in all cases provided for by law. If the Term of this Lease shall be so terminated, LANDLORD may immediately, or at any time thereafter, re-enter or repossess the Leased Premises and remove all persons and property therefrom without being liable for trespass or damages. In addition, LANDLORD shall be entitled to all rights and remedies available at law or in equity in the event TENANT shall fail to perform any of the terms, provisions, covenants or conditions of this Lease on TENANT's part to be performed. All rights and remedies specifically granted to LANDLORD herein by law, or in equity shall be cumulative and not mutually exclusive. WAIVER OF 30. Failure of LANDLORD to declare any default DEFAULT immediately upon occurrence thereof, or delay in taking any action in connection therewith, shall not waive such default; but LANDLORD shall have the right to declare any such default at any time and take such action as might be lawful or authorized hereunder, in law and/or in equity. No waiver by LANDLORD of a default by TENANT shall be implied, and no express waiver by LANDLORD shall affect any default other than the default specified in such waiver and that only for the time and extension therein stated. No waiver of any term, provision, condition or covenant of this Lease by LANDLORD shall be deemed to imply or constitute, a further waiver by LANDLORD of any other term, provision, condition or covenant of this Lease. RIGHT OF 31. Upon notice and consent by Tenant, which consent LEASE shall not be unreasonably withheld except in the case of an emergency, LANDLORD, or any of its agents, shall have the right to enter the Leased Premises during all reasonable hours to examine the same or to make such repairs, additions or alterations as may be deemed necessary for the safety, comfort, or preservation thereof, or to said Building, or to exhibit said Leased Premises at any time within one hundred eighty (180) days before the expiration of this Lease. Said right of entry shall likewise exist for the purpose of removing placards, signs, fixtures, alterations, or additions which do not conform to this Lease. NOTICE 32. Any notice given LANDLORD as provided for in this Lease shall be sent to LANDLORD by registered mail addressed to LANDLORD at LANDLORD's Management Office. Any notice to be given TENANT under the terms of this Lease, unless otherwise stated herein, shall be in writing and shall be sent and G. Patricia Lamas by registered mail or Federal Express to the office of TENANT in the Building or hand delivered to TENANT. Either party, from time to time, by such notice, may specify another See Addendum address to which subsequent notice shall be sent. Paragraph #54 LANDLORD 33. All automobile parking areas, driveways, entrances CONTROLLED and exits thereto, Common Areas, and other facilities furnished AREAS by LANDLORD, including all parking areas, truck ways, loading areas, pedestrian walkways and ramps, landscaped areas, stairways, corridors, and other areas and improvements provided by LANDLORD for the general use, in common, of tenants, their officers, agents, employees, servants, invitees, licensees, visitors, patrons and customers shall be at all times subject to the exclusive control and management of LANDLORD; and LANDLORD shall have the right from time to time to establish, modify and enforce rules and regulations with respect to all facilities and areas and improvements; to police same; from time to time to change the area, level and location and arrangement of parking areas and other facilities hereinabove referred to; to restrict parking by and enforce parking charges (by operation of meters or otherwise) to tenants, their officers, agents, invitees, employees, servants, licensees, visitors, patrons and customers, to close all or any portion of said areas or facilities to such extent as may in the opinion of LANDLORD's counsel be legally sufficient to prevent a dedication thereof or the accrual of any rights to any person or the public therein, to close temporarily all or any portion of the public areas, Common Areas or facilities, to discourage non-tenant parking, to charge a fee for visitor and/or customer parking and to do and perform such other acts in and to said areas and improvements as, in the sole judgement of LANDLORD, LANDLORD shall determine to be advisable with a view to the improvement of the convenience and use thereof by tenants, their officers, agents, employees, servants, invitees, visitors, patrons, licensees and customers. LANDLORD shall operate and maintain the Common Areas and other facilities referred to in such reasonable manner as LANDLORD shall determine from time to time. Without limiting the scope of such discretion, LANDLORD shall have the full right and authority to designate a manager of the parking facilities and/or Common Areas and other facilities who shall have full authority to make and enforce rules and regulations regarding the use of the same or to employ all personnel and to make and enforce all rules and regulations pertaining to and necessary for the proper operation and maintenance of the parking area and/or Common Areas and other facilities. Reference in this paragraph to parking area and/or facilities shall in no way be construed as giving TENANT hereunder any rights and/or privileges in connection with such parking areas and/or facilities unless such rights and/or privileges are expressly set forth in Paragraph 17 hereof. Notwithstanding anything to the contrary in this paragraph or Lease, no action by Landlord shall operate to reduce the number of parking spaces leased to Tenant under Paragraph 1 hereof. CONDITION OF 34. TENANT agrees to surrender to LANDLORD, at the end PREMISES ON of the Term of this Lease and/or upon any cancellation of this TERMINATION Lease, said Leased Premises in as good condition as said Leased OF LEASE AND Premises were at the beginning of the Term of this Lease, HOLDING OVER ordinary wear and tear, and damage by fire or other casualty not caused by TENANT's negligence excepted. TENANT agrees that if TENANT does not surrender said Leased Premises to LANDLORD at the end of the Term of this Lease, then TENANT shall pay to LANDLORD (150%) the amount of the current rental for each month or portion thereof that TENANT holds over plus all damages that LANDLORD may suffer on account of TENANT's failure to so surrender to LANDLORD possession of said Leased Premises and shall indemnify and save LANDLORD harmless from and against all claims made by any succeeding tenant of said Leased Premises against LANDLORD on account of delay of LANDLORD in delivering possession of said Leased Premises to said succeeding tenant so far as such delay is occasioned by failure to so surrender said Leased Premises in accordance herewith or otherwise. No receipt of money by LANDLORD from TENANT after termination of this Lease or the service of any notice of commencement of any suit or final judgement for possession shall reinstate, continue or extend the Term of this Lease or affect any such notice, demand, suit or judgement. No act or thing done by LANDLORD or its agents during the Term hereby granted shall be deemed an acceptance of a surrender of the Leased Premises, and no agreement to accept a surrender of the Leased Premises shall be valid unless it be made in writing and subscribed by a duly authorized officer or agent of LANDLORD. OCCUPANCY 35. TENANT shall be responsible for and shall pay before TAX delinquency all municipal, county or state taxes assessed during the Term of this Lease against any occupancy interest or personal property of any kind, owned by or placed in, upon or about the Leased Premises by TENANT. SIGNS 36. LANDLORD shall have the sole right to install signs on the interior or exterior of the Building and Leased Premises and/or change the Building's name or street address. TRIAL BY 37. It is mutually agreed by and between LANDLORD and JURY TENANT that the respective parties hereto shall, and they hereby do WAIVE TRIAL BY JURY in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters arising out of or in any way connected with this Lease, the relationship of LANDLORD and TENANT, and TENANT's use or occupancy of the Premises. CROSS 39. If the term of any lease, other than this Lease, DEFAULT made by TENANT for any other space in the Building shall be terminated or terminable after the making of this Lease because of any default by TENANT under such other lease, such default shall, ipso facto constitute a default hereunder and empower LANDLORD at LANDLORD's sole option, to terminate this Lease as herein provided in the event of default. INVALIDITY 40. If any term, provision, covenant or condition of OF this Lease or the application thereof to any person or PROVISION circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Lease or the application of such term, provision, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby and each term, provision, covenant or condition of this Lease shall be valid and be enforceable to the fullest extent permitted by law. This Lease shall be construed in accordance with the laws of the State of Florida. TIME OF 41. It is understood and agreed between the parties ESSENCE hereto that time is of the essence of all the terms provisions, covenants and conditions of this Lease. MISCELLANEOUS 42. The terms "LANDLORD" and "TENANT" as herein contained shall include singular and/or plural, masculine, feminine and/or neuter, heirs, successors, executors, administrators, personal representatives and/or assigns wherever the context so requires or admits. The terms, provisions, covenants and conditions of this Lease are expressed in the total language of this Lease Agreement and the paragraph headings are solely for the convenience of the reader and are not intended to be all inclusive. Any formally executed addendum to or modification of this Lease shall be expressly deemed incorporated by reference herein unless a contrary intention is clearly stated therein. EFFECTIVE 43. Submission of this instrument for examination does DATE not constitute an offer, right of first refusal, reservation of or option for the Leased Premises or any other space or premises in, on or about the Building. This instrument becomes effective as a Lease only upon execution and delivery by both LANDLORD and TENANT. ENTIRE 44. This Lease contains the entire agreement between the AGREEMENT parties hereto and all previous negotiations leading thereto, and it may be modified only by an agreement in writing signed by LANDLORD and TENANT. No surrender of the Leased Premises, or of the remainder of the terms of this Lease, shall be valid unless accepted by LANDLORD in writing. TENANT acknowledges and agrees that TENANT has not relied upon any statement, representation, prior written or contemporaneous oral promises, agreements or warranties except such as are expressed herein. DUAL 45. Either Party represents and warrants that it has AGENCY dealt with no broker, agent or other person in connection with DISCLOSURE this transaction and that no broker, agent or other person brought about this transaction, other than The Allen Morris Commercial Real Estate Services Company and the Cooperating Broker, if any. The Allen Morris Commercial Real Estate Services Company, as agent for LANDLORD, shall be compensated by LANDLORD and the Cooperating Broker, if any, who is subagent of The Allen Morris Commercial Real Estate Services Company, shall be compensated by LANDLORD. TENANT agrees to indemnify and hold LANDLORD harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with TENANT with regard to this leasing transaction. The provisions of this paragraph shall survive the termination of this Lease. FORCE 46. Neither LANDLORD nor TENANT shall be required to MAJEURE perform any term, condition, or covenant in this Lease so long as such performance is delayed or prevented by force majeure, which shall mean acts of God, labor disputes (whether lawful or not), material or labor shortages, restrictions by any governmental authority, civil riots, floods, and any other cause not reasonably within the control of LANDLORD or TENANT and which by the exercise of due diligence LANDLORD or TENANT is unable, wholly or in part, to prevent or overcome. Lack of money shall not be deemed force majeure. RADON GAS 47. Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. USE OF 48. TENANT shall not cause or permit any Hazardous HAZARDOUS Material to be brought upon, kept or used in or about the MATERIALS Premises or the Building by TENANT, its agents, employees, contractors or invitees. If TENANT breaches this obligation, TENANT shall indemnify, defend and hold LANDLORD harmless from any and all claims, judgements, damages, penalties, fines, costs, liabilities or losses (including, without limitation, SEE ADDENDUM diminution in value of the Premises or the Building, damages for PARAGRAPH #55 the loss or restriction on use of rentable space or of any amenity of the Premises or the Building, damages arising from any adverse impact on marketing of space, and sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees) which arise during or after the Lease Term as a result of such contamination. This indemnification of LANDLORD by TENANT includes, without limitation, costs incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of Hazardous Material present in the soil or ground water, in the Premises or in the Building. Without limiting the foregoing, if the presence of any Hazardous Material on the Premises or in the Building caused by TENANT its agents, employees, contractors or invitees results in any contamination of the Premises and/or the Building, TENANT shall promptly take all actions at its sole expense as are necessary to return the Premises and/or the Building to the conditions existing prior to the introduction of any such Hazardous Material to the Premises; provided that LANDLORD's approval of such actions shall first be obtained, which approval shall not be unreasonably withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises and/or the Building. The foregoing indemnity shall survive the expiration or earlier termination of this Lease. As used herein, the term "Hazardous Material" means such hazardous or toxic substance, material or waste, including, but not limited to, those substances, materials, and wastes listed in the United States Department of Transportation Hazardous Materials Table (49 CFR 172.101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302) and amendments thereto, or such substances, materials and wastes that are or become regulated under any applicable local, state or federal law. LANDLORD and its Agents shall have the right, but not the duty, to inspect the Premises at any time to determine whether TENANT is complying with the terms of this Lease. If TENANT is not in compliance with this Lease, LANDLORD shall have the right to immediately enter Premises to remedy any contamination caused by TENANT's failure to comply notwithstanding any other provision of this Lease. LANDLORD shall use its best efforts to minimize interference with TENANT's business but shall not be liable for any interference caused thereby. Any default under this paragraph shall be a material default enabling LANDLORD to exercise any of the remedies set forth in this Lease. ADDENDUM ATTACHED TO and made a part of this Lease Agreement dated August 8, 1996, by and between 8700 FLAGLER, LTD., a Florida Limited Partnership, as LANDLORD, and OMEGA RESEARCH, INC., a Florida Corporation, as TENANT, covering approximately 17,289 square feet of Net Rentable Area on the Second (2nd) Floor, better known as Suite 250 of the Building known as The 8700 Flagler Building located at 8700 West Flagler Street, Miami, Dade County, Florida 33174. 49. RENTAL RATE SCHEDULE: TENANT agrees to pay LANDLORD, the total Base Rental of One Million Four Hundred Ninety Thousand Eight Hundred Sixteen and 26/100 Dollars ($1,490,816.26) at the rates and amounts outlined below, in accordance with the terms and conditions of the Lease Agreement herewith. TERM RENTAL MONTHLY TOTAL RATE RENTAL RENTAL 12/01/96 - 04/30/99 $15.25 $21,971.44 $637,171.76 05/01/99 - 04/30/00 $15.50 $22,331.63 $267,979.56 05/01/00 - 04/30/01 $16.00 $23,052.00 $276,624.00 05/01/01 - 05/31/02 $16.50 $23,772.38 $309,040.94 TOTAL TERM: $1,490,816.26 50. WAIVER OF RENT, COMMENCEMENT OF RENT: Anything notwithstanding to the contrary as stated in Paragraph 49 (RENTAL RATE SCHEDULE) of the within Lease, LANDLORD shall grant TENANT a waiver of rental during the 17th, 18th, 29th, 41st, 53rd and 66th months of the Lease Term provided that LANDLORD is in receipt of the initial month's rent in advance which represents rental payment for the month of December 1996 according to the terms of the within Lease at the time of execution of this Lease. Therefore, Paragraph 49 of the within Lease is hereby amended by the following: TENANT agrees to pay LANDLORD a total Base Rental of One Million Three Hundred Fifty-Five Thousand Seven Hundred Forty-Five and 93/100 Dollars ($1,355,745.93) all other terms and conditions of the within Lease shall remain in full force and effect throughout the Term of this Lease. 51. PARKING SPACES: LANDLORD guarantees 80 parking spaces to TENANT on a non-reserved basis. In addition to the 80 parking spaces, TENANT shall be permitted to park in any non-reserved space with the exception of those around the existing fountain area reserved for visitors. However, in the event that there is a net increase in the amount of reserved spaces (exclusive of visitor spaces) of more than 20 for the existing building and not including any new building that may be constructed, LANDLORD will then guarantee 100 spaces to TENANT on a non-reserved basis. In the event the demand for parking spaces in the parking lot exceeds the number of spaces existing, LANDLORD reserves the right to enforce the parking ratios in the Lease on a non-preferential basis to fairly allocate the parking spaces and in this event TENANT shall be guaranteed 100 spaces on a non-reserved basis. 52. NON-DISTURBANCE AGREEMENT: Within ninety (90) days following execution of this Lease, LANDLORD shall submit the Lease to the first mortgage holder and shall use its best efforts to obtain for TENANT a Non-Disturbance Agreement from LANDLORD'S existing first mortgage holder. 53. RIGHT TO ASSIGN OR SUBLET: TENANT shall have the right to assign this Lease in its entirety or to sublease all or any portion of the Premises without the consent of the LANDLORD to any party resulting from a merger or consolidation or public stock offering or capital investment with TENANT. Any other assignment or sublease would be made with prior written consent of the LANDLORD which shall not be unreasonably withheld or delayed. 54. NOTICE: In addition to LANDLORD providing notice to TENANT to the designated person outlined in Paragraph #32 of the Lease, LANDLORD shall also provide a copy of any notice served pursuant to Paragraph #6 time of payment/acceleration upon default to TENANT'S outside counsel, Marc J. Stone c/o Rubin, Baum, Levin, 2500 First Union Financial Center, Miami, Florida 33131 (phone 305-374-7580)] 55. HAZARDOUS MATERIALS: LANDLORD hereby represents and warrants that neither the Building nor the real property on which the Building is situated (the "Property") has ever been used by LANDLORD to generate, manufacture, refine, transport, treat, store, handle or dispose of Hazardous Materials (as hereinafter defined), and that LANDLORD will not knowingly permit any such Hazardous Materials to be brought into the Property. LANDLORD further represents and warrants to TENANT that, as of the date of LANDLORD'S execution of this Lease, LANDLORD has not received any summons, citation, letter or other written communication, from any agency or department of any government concerning the presence on the Property of any Hazardous Materials or the violation of any law relating thereto. LANDLORD acknowledges that TENANT is relying on the representations and covenants contained in this Section in leasing the Premises. 56. ALLOWANCE-LANDLORD PERFORMS WORK: LANDLORD shall complete the Leased Premises substantially in accordance with plans, cost and specifications to be approved by both LANDLORD and TENANT. LANDLORD shall provide an allowance of up to eleven dollars per square foot ($190,179.00) for improvements for finishing said Premises. In the event the cost of improvements for finishing said Premises exceeds LANDLORD'S allowance for same, the cost in excess of said allowance shall be paid in advance by TENANT, the amount of such advance payment being determined on the basis of LANDLORD'S estimate of the total cost of finishing the Leased Premises, such estimate being based on the aforementioned plans and specifications. Costs shall include direct and indirect construction costs, permit fees, architectural fees, applicable insurance premiums, and any other costs directly attributable to finishing the Leased Premises. Any advance payment received by LANDLORD from TENANT in excess of TENANT's portion of the cost of finishing the Leased Premises shall be refunded to TENANT by LANDLORD after a final accounting of the total cost of said Leased Premises is completed by LANDLORD. In no event no later than thirty (30) days after completion. 57. RIGHT OF FIRST REFUSAL: Provided that this Lease is then in full force and effect and TENANT is not in default hereunder, LANDLORD agrees that, prior to leasing any space in the second (2nd) floor to any party other than TENANT (each, a "Third Party"), during the initial Term of the Lease following Lease commencement, LANDLORD shall notify TENANT, in writing, each time TENANT receives a bona fide offer to lease the 2nd floor space to a Third Party. On or before the fifth (5th) business day after the date TENANT receives each such notice from LANDLORD, TENANT shall have the right (each, a "First Refusal Right" and, collectively, the "First Refusal Rights") to send LANDLORD a notice stating that TENANT elects to rent the 2nd floor space in question upon same terms and conditions as such bona fide offer. If TENANT duly and timely exercises any First Refusal Right, LANDLORD and TENANT shall, within five (5) business days after TENANT delivers to LANDLORD notice of its election to lease the 2nd floor space in question, enter into a mutually acceptable Lease Modification for the 2nd floor space. Without limitation of LANDLORD'S obligation to notify TENANT, in writing, each time LANDLORD receives a bona fide offer to lease on the second (2nd) floor to a Third Party, TENANT shall not be eligible to exercise any particular First Refusal Right unless TENANT's financial condition is, at the time of receipt of such notice from LANDLORD, substantially the same or better than TENANT'S financial condition as of the date hereof. In the event TENANT does not (a) notify landlord of its election to exercise its First Refusal Rights within five (5) business day period described above or (b) does not execute a mutually acceptable Lease Modification for the 2nd floor space within (5) business days of making such written election, TENANT'S First Refusal Rights shall be deemed null and void for that particular First Refusal Right. TENANT's failure (and/or ineligibility, on account of its financial condition, as hereinabove described) to exercise its First Refusal Right with respect to a Third Party shall not be deemed a waiver with respect to subsequent First Refusal Rights relating to other Third Parties. EXHIBIT "A" ATTACHED TO and made a part of this Lease Agreement dated August 8, 1996, by and between 8700 FLAGLER, LTD., a Florida Limited Partnership, as LANDLORD, and OMEGA RESEARCH, INC., a Florida Corporation, as TENANT, covering approximately 17,289 square feet of net rentable area on the Second (2nd) Floor, better known as Suite 250 of the Building known as The 8700 Flagler Building located at 8700 W. Flagler, Miami, Dade County, Florida 33174. [GRAPHIC OMITTED] RULES AND REGULATIONS The following Rules and Regulations, hereby accepted by TENANT, are prescribed by LANDLORD to enable LANDLORD to provide, maintain, and operate, to the best of LANDLORD's ability, orderly, clean and desirable premises, for tenants therein at as economical a cost as reasonably possible and in as efficient a manner as reasonably possible, to assure security for the protection of tenants so far as reasonably possible, and to regulate conduct in and use of said Premises, in such manner as to minimize interference by others in the proper use of same by TENANT. 1. TENANT, its officers, agents, servants and employees shall not block or obstruct any of the entries, passages, doors, elevators, elevator doors, hallways or stairways of building or parking facilities, or place, empty or throw any rubbish, litter, trash or material of any nature into such areas, or permit such areas to be used at any time except for ingress or egress of TENANT, its officers, agents, servants, employees, patron, licensees, customers, visitors or invitees. 2. The movement of furniture, equipment, merchandise or materials into or out of the Leased Premises, building or parking facilities shall be restricted to time, method and routing of movement as determined by LANDLORD upon request from TENANT and TENANT shall assume all liability and risk to property, Premises in such movement. Tenant shall not move furniture, machines, equipment merchandise or materials into or out of the Leased Premises without having first provided a notification to LANDLORD twenty-four (24) hours in advance. Safes, large files, large electronic data processing equipment and other heavy equipment or machines shall be moved into Leased Premises only with LANDLORD's written consent and placed where directed by LANDLORD. 3. No sign, door plaque, advertisement or notice shall be displayed, painted or affixed by TENANT, its officers, agents, servants, employees, patrons, licensees, customers, visitors, or invitees in or on any part of the outside or inside the Leased Premises without prior written consent of LANDLORD and then only of such color, size, character, style and materials and in such places as shall be approved and designated by LANDLORD. Signs on doors and entrances to Leased Premises shall be placed thereon by a contractor designated by LANDLORD and paid for by TENANT. 4. LANDLORD shall not be responsible for lost or stolen property, equipment, money or any article taken from Leased Premises regardless of how or when loss occurs, except if loss occurs due to gross negligence. 5. No additional locks shall be placed on any door or changes made to existing locks in the Premises without the prior written consent of LANDLORD. LANDLORD shall furnish two keys to each lock on doors in the Leased Premises and LANDLORD, upon request of TENANT, shall provide additional duplicate keys at TENANT's expense. LANDLORD may, at all times, keep a pass key to the Leased Premises with the exception of restricted areas as defined by Tenant. Existing locks shall be changed prior to Tenant taking occupancy in accordance with the working drawings. All keys shall be returned to LANDLORD promptly upon termination of this Lease. 6. TENANT, its officers, agents, servants or employees shall not drive nails or screw into or in any way deface any part of Leased Premises without the prior written consent of LANDLORD. If TENANT desires signal, communication, alarm or other utility or service connection installed or changed, such work shall be done at expense of TENANT, with the approval and under the direction of LANDLORD. 7. LANDLORD reserves the right to: (i) Close the Premises at 6:00 P.M., subject, however, to TENANT's right to admittance under regulations prescribed by LANDLORD, and to require the persons entering the Premises to identify themselves and establish their right to enter or to leave the Premises; (ii) close all parking areas between the hours of 10:00 P.M. and 6:00 A.M. during week days; and (iii) close a portion of parking areas on weekends and holidays for the purpose of repairs and/or construction. 8. TENANT, its officers, agents, servants and employees shall not permit the operation of any musical or sound producing instruments or device which may be heard outside Leased Premises, or which may emanate electrical waves which shall impair radio or televisions broadcasting or reception from or in building. 9. TENANT, its officers, agents, servants and employees shall, before leaving Leased Premises unattended, close and lock all doors and shut off all utilities; damage resulting from failure to do so shall be paid by TENANT. Before closing of the day and leaving the said Premises each TENANT shall use best efforts that all blinds and/or draperies are pulled and drawn. 10. All plate and other glass now in Leased Premises which is broken through cause attributable to TENANT, its officers, agents, servants and employees, patrons, licensees, customers, visitors or invitees shall be replaced by and at expense of TENANT under the direction of LANDLORD. 11. TENANT shall give LANDLORD prompt notice of all accidents to or defects in air conditioning equipment, plumbing, electric facilities or any part or appurtenance of Leased Premises. 12. The plumbing facilities shall not be used for any other purpose than that for which they are constructed, and no foreign substance of any kind shall be thrown therein, and the expense of any breakage, stoppage, or damage resulting from a violation of this provision shall be borne by TENANT, who shall, or whose officers, employees, agents, servants, patrons, customers, licensees, visitors or invitees shall have caused it. 13. All contractors performing work for TENANT within the Leased Premises shall be referred to LANDLORD for approval before performing such work. Installations materially affecting floors, walls, windows, doors, ceiling, equipment or any other physical feature of the, Leased Premises. None of this work shall be done by TENANT without Tenant warrants that all work shall be in accordance with all applicable county codes and building standards. LANDLORD's prior written approval. 14. No showcases or other articles shall be put in front of or affixed to any part of the exterior of the Premises, nor placed in the halls, corridors or vestibules without the prior written consent of LANDLORD. 15. Glass panel doors, that reflect or admit light into the passageways or into any place in the Premises shall not be covered or obstructed by TENANT, and TENANT shall not permit, erect, and/or place drapes, furniture, fixtures, shelving, display cases or tables, lights or signs and advertising devices in front of or in proximity of interior and exterior windows, glass panels, or glass doors providing a view into the interior of the Leased Premises unless same shall have first been approved in writing by LANDLORD. 16. Canvassing, soliciting and peddling in the Premises is prohibited and each TENANT shall cooperate to prevent the same. In this respect, TENANT shall when possible promptly report such activities to the Property Management office. 17. There shall not be used in any space, or in the public halls of the Premises, either by any TENANT or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards. 18. The work of LANDLORD's janitorial personnel shall not be hindered by TENANT after 5:30 P.M., and such work may be done at any time when the offices are vacant. The windows, doors and fixtures may be cleaned at any time. TENANT shall provide adequate waste and rubbish receptacles, cabinets, bookcases, map cases, etc., necessary to prevent unreasonable hardship to LANDLORD in discharging its obligation regarding cleaning service. In this regard, TENANT shall also empty all glasses, cups and other containers holding any type of liquid whatsoever. 19. In the event TENANT must dispose of crates, boxes, etc., which shall not fit into office wastepaper baskets, it shall be the responsibility of TENANT with LANDLORD's assistance to dispose of same. In no event, shall TENANT set such items in the public hallways or other areas of Leased Premises, for disposal. 20. Tenants are cautioned in purchasing furniture and equipment that can easily fit on the elevator and can pass through the doors of the Leased Premises. Large pieces should be made in parts and setup in the Leased Premises. LANDLORD reserves the right to refuse to allow any furniture or equipment of any description to be placed in the building which does not comply with the above conditions. 21. TENANTS shall be responsible for any damage to the Leased Premises, including carpeting and flooring, as a result of rust or corrosion of file cabinets, roller chairs, metal objects or spills of any type of liquid. 22. If the Premises demised to TENANT become infested with vermin, TENANT, at its sole cost and expense, shall cause its premises to be exterminated from time to time, to the satisfaction of LANDLORD, and shall employ such extermination therefore as shall be approved by Landlord. 23. TENANT shall not install any antenna or aerial wires, or radio or television equipment, or any other type of equipment, inside or outside the building, without LANDLORD's prior approval in writing, and upon such terms and conditions as may be specified by LANDLORD in each and every instance. 24. TENANT shall not advertise the business, profession or activities of TENANT in any manner which violates the letter of spirit of any code of ethics adopted by any recognized association or organization pertaining thereto. 25. TENANT, its officers, agents, employees, servants, patrons, customers, licensees, invitees and visitors shall not solicit business in the Premise's parking facilities or Common Areas, nor shall TENANT distribute any handbills or other advertising matter in automobiles parked in the Premise's parking facilities. 26. TENANT shall not conduct its business in such manner as to create any nuisance, or interfere with, annoy or disturb any other TENANT in the Premise, or LANDLORD in its operation of the Premises or commit waste or suffer or permit waste to be committed in the Leased Premises. In addition, TENANT shall not allow its officers, employees, agents, servants, patrons, customers, licensees, and visitors to conduct themselves in such a manner as to create any nuisance or interfere with, annoy or disturb any other TENANT in the Premises or LANDLORD in its operation of the building or commit waste or suffer or permit waste to be committed in the Leased Premises. 27. TENANT, its officers, agents, servants and employees shall not install or operate any refrigerating, heating or air conditioning apparatus or carry on any mechanical operation or bring into Leased Premises any flammable fluids or explosives without written permission of LANDLORD. This restriction does not apply to refrigerators, microwaves or other small appliances for use in an employee cafeteria/lunchroom. 28. TENANT, its officers, employees, agents and servants shall not use Leased Premises for housing, lodging or sleeping purposes or for the cooking or preparation of food without prior written consent of LANDLORD. 29. TENANT, its officers, employees, agents, servants, patrons, customers, licensees, visitors or invitees shall not bring into Leased Premises or keep on Leased Premises any fish, fowl, reptile, insect, or animal or any bicycle or other vehicle without the written consent of LANDLORD. 30. Neither TENANT nor any officers, employees, agents, servants, patrons, customers, licensees, visitors or invitees of any TENANT shall go upon the roof of the Premises without the consent of LANDLORD. 31. TENANTS employing laborers or others outside of the Premises shall not have their employees paid in the Premises, but shall arrange to pay their payrolls elsewhere. EX-10.7 10 EXHIBIT 10.7 OMEGA RESEARCH, INC. INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is entered into and effective as of July __, 1997 by and between Omega Research, Inc., a Florida corporation (the "Company"), and ____________________ ("Indemnitee"). WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities; WHEREAS, to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent permitted by law; WHEREAS, the Company and Indemnitee recognize the difficulty in obtaining and maintaining liability insurance for the Company's directors, officers, employees, agent and fiduciaries, the cost of such insurance and the limited coverage of such insurance; WHEREAS, the Company and the Indemnitee further recognize the substantial level of corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance is limited; WHEREAS, the Company and Indemnitee desire to have in place the additional protection provided by an indemnification agreement providing for the indemnification and advancement of expenses to the Indemnitee to the maximum extent permitted by Florida law; and WHEREAS, in view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified and advanced expenses by the Company as set forth herein. NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below. 1. CERTAIN DEFINITIONS. a. "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing -1- more than 50% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) individuals who currently constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's shareholders was approved by a vote of at least two thirds (2/3) of the directors who are currently directors or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation that would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets. b. "Claim" shall mean with respect to a Covered Event: any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other. c. References to the "Company" shall include, in addition to Omega Research, Inc., any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Omega Research, Inc. (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. d. "Covered Event" shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the -2- Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity. e. "Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. f. "Expense Advance" shall mean a payment to Indemnitee pursuant to Section 3 in advance of the settlement of or final judgement in any action, suit, proceeding or alternative dispute resolution mechanism, hearing, inquiry or investigation which constitutes a Claim. g. "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other Indemnitees under similar indemnity agreements). h. References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. i. "Reviewing Party" shall mean, subject to the provisions of Section 2(d), any person or body appointed by the Board of Directors in accordance with -3- applicable law to review the Company's obligations hereunder and under applicable law, which may include a member, members or all of the Company's Board of Directors, Independent Legal Counsel or any other person or body not a party to the particular Claim for which Indemnitee is seeking indemnification. j. "Section" refers to a section of this Agreement unless otherwise indicated. k. "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors. 2. INDEMNIFICATION. a. INDEMNIFICATION OF EXPENSES. Subject to the provisions of Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim (whether by reason of or arising in part out of a Covered Event), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. b. REVIEW OF INDEMNIFICATION OBLIGATIONS. Notwithstanding the foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which Independent Legal Counsel is the Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder under applicable law, (i) the Company shall have no further obligation under Section 2(a) to make any payments to Indemnitee not made prior to such determination by such Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all Expenses theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder under applicable law; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee is entitled to be indemnified hereunder under applicable law, any determination made by any Reviewing Party that Indemnitee is not entitled to be indemnified hereunder under applicable law shall not be binding and (A) the Company's obligations under Section 2(a) shall continue, and (B) Indemnitee shall not be required to reimburse the Company for any Expenses theretofore paid in indemnifying Indemnitee, in either case until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any Expenses shall be unsecured and no interest shall be charged thereon. -4- c. INDEMNITEE RIGHTS ON UNFAVORABLE DETERMINATION; BINDING EFFECT. If any Reviewing Party determines that Indemnitee is not entitled to be indemnified hereunder in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and, subject to the provisions of Section 16, the Company hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on the Company and Indemnitee. d. SELECTION OF REVIEWING PARTY; CHANGE IN CONTROL. If there has not been a Change in Control, any Reviewing Party shall be selected by the Board of Directors and, if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), any Reviewing Party with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnification of Expenses under this Agreement or any other agreement or under the Company's Articles of Incorporation or Bylaws as now or hereafter in effect, or under any other applicable law, if desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be entitled to be indemnified hereunder under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the employment of separate counsel by one or more Indemnitees has been previously authorized by the Company in writing, or (ii) an Indemnitee shall have provided to the Company a written statement that such Indemnitee has reasonably concluded that there may be a conflict of interest between such Indemnitee and the other Indemnitees with respect to the matters arising under this Agreement. e. MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other provision of this Agreement other than Section 10 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, -5- the dismissal of an action without prejudice, in defense of any Claim, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith. 3. EXPENSE ADVANCES. a. OBLIGATION TO MAKE EXPENSE ADVANCES. Upon receipt of a written undertaking by or on behalf of the Indemnitee to repay such amounts if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Company under applicable law, the Company shall make Expense Advances to Indemnitee. b. FORM OF UNDERTAKING. Any obligation to repay any Expense Advances hereunder pursuant to a written undertaking by the Indemnitee shall be unsecured and no interest shall be charged thereon. c. DETERMINATION OF REASONABLE EXPENSE ADVANCES. The parties agree that for the purposes of any Expense Advance for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such Expense Advance that are certified by affidavit of Indemnitee's counsel as being reasonable shall be presumed conclusively to be reasonable. 4. PROCEDURES FOR INDEMNIFICATION AND EXPENSE ADVANCES. a. TIMING OF PAYMENTS. All payments of Expenses (including without limitation Expense Advances) by the Company to the Indemnitee pursuant to this Agreement shall be made to the fullest extent permitted by law as soon as practicable after written demand by Indemnitee therefor is presented to the Company, but in no event later than thirty (30) business days after such written demand by Indemnitee is presented to the Company, except in the case of Expense Advances, which shall be made no later than ten (10) business days after such written demand by Indemnitee is presented to the Company. b. NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified or Indemnitee's right to receive Expense Advances under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement; provided, however, that no delay on the part of Indemnitee in notifying the Company shall relieve the Company from any obligation under this Agreement unless (and then only to the extent) the Company thereby is prejudiced. Notice to the Company shall be directed to the Chief Executive -6- Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. c. NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by this Agreement or applicable law. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under this Agreement under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by any Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder under applicable law, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. d. NOTICE TO INSURERS. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies. e. SELECTION OF COUNSEL. In the event the Company shall be obligated hereunder to provide indemnification for or make any Expense Advances with respect to the Expenses of any Claim, the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (which approval shall not be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company's election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel -7- subsequently retained by or on behalf of Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee or any other party being represented by counsel selected by the Company in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's separate counsel shall be Expenses for which Indemnitee may receive indemnification or Expense Advances hereunder. 5. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. a. SCOPE. The Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Florida corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Florida corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 10(a) hereof. b. NONEXCLUSIVITY. The indemnification and the payment of Expense Advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any other agreement, any vote of shareholders or disinterested directors, the Florida Business Corporation Act or otherwise. The indemnification and the payment of Expense Advances provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity. 6. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under -8- any insurance policy, provision of the Company's Articles of Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder. 7. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled. 8. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 9. LIABILITY INSURANCE. To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. 10. EXCEPTIONS. Notwithstanding any other provision of this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement: a. EXCLUDED ACTION OR OMISSIONS. To indemnify or make Expense Advances to Indemnitee with respect to Claims arising out of acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under applicable law. b. CLAIMS INITIATED BY INDEMNITEE. To indemnify or make Expense Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Articles of Incorporation or Bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 607.0850 of the -9- Florida Business Corporation Act, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, Expense Advances, or insurance recovery, as the case may be. c. LACK OF GOOD FAITH. To indemnify Indemnitee for any Expenses incurred by the Indemnitee with respect to any action instituted (i) by Indemnitee to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material assertions made by the Indemnitee as a basis for such action was not made in good faith or was frivolous, or (ii) by or in the name of the Company to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous. d. CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for Expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 11. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouse, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company's request. 13. EXPENSES INCURRED IN ACTION RELATING TO ENFORCEMENT OR INTERPRETATION. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action (including without limitation attorneys' fees), regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such -10- action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including without limitation costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. 14. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of one year from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such one year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. 15. NOTICE. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 16. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Florida for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement. 17. SEVERABILITY. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent -11- possible, the provisions of this Agreement (including without limitation each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 18. CHOICE OF LAW. This Agreement, and all rights, remedies, liabilities, powers and duties of the parties to this Agreement, shall be governed by and construed in accordance with the laws of the State of Florida as applied to contracts between Florida residents entered into and to be performed entirely in the State of Florida without regard to principles of conflicts of laws. 19. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 20. AMENDMENT AND TERMINATION. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 21. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. 22. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities. IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written. OMEGA RESEARCH, INC. By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- -12- Address: 8700 West Flagler Street Miami, Florida 33174 AGREED TO AND ACCEPTED INDEMNITEE: ------------------------------------- (signature) Name: Address: Omega Research, Inc. 8700 West Flagler Street Miami, Florida 33174 -13- EX-10.9 11 EXHIBIT 10.9 AGREEMENT REGARDING EMPLOYMENT AGREEMENT, effective as of the date set forth at the foot of this Agreement, by and between OMEGA RESEARCH, INC., a Florida corporation ("Employer"), and ____________________ ("Employee"). PRELIMINARY STATEMENT This Agreement covers various subjects, including (i) protection of Employer's trade secrets and confidential information, (ii) non-solicitation of Employer's customers, licensees and other employees, (iii) restrictions on Employee's ability to compete with Employer or participate in competitive businesses both during and after Employee's employment, (iv) misuse of trade secrets or confidential information belonging to others and interference with rights of others, (v) the full-time, exclusive nature of Employee's employment commitment, and (vi) 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 observe all covenants and agreements set forth below relating to each subject addressed, without exception. 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 clients, licensees, vendors and/or other third parties having dealings 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. In light of all of the foregoing, in order to protect Employer's legitimate business interests, including its goodwill with its clients, licensees 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. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION (a) CONFIDENTIAL INFORMATION. Employee acknowledges that Employee has been informed by Employer that it is Employer'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 condition, operations and business interests, 1 objectives, plans and strategies of Employer, (ii) the systems, know-how, records, products, product plans, product designs, product development, services, cost information, inventions, computer programs, marketing and sales strategies techniques and/or programs, methods, methodologies, manuals, lists and other trade secrets from time to time acquired, sold, developed, maintained and/or used by Employer, (iii) the nature and terms of Employer's relationships with its clients, licensees, suppliers, lenders, underwriters, vendors, consultants, independent contractors, attorneys, accountants and employees, and (iv) any proposed public or private offering of Employer (all such information and materials are collectively referred to as "Confidential Information"). Accordingly, 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 Employer) 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. "Confidential Information" does not include information that, at the time of disclosure, is generally known in Employer's industry or information which Employee can demonstrate was known to or developed by Employee prior to the date of Employee's commencement of employment with Employer without reliance upon or use of Confidential Information. If Employee is required by order of a court or other governmental authority to disclose any Confidential Information, Employee shall immediately notify Employer so that Employer 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. (b) EMPLOYER'S MATERIALS. Employee further agrees that (i) Employee will at no time retain or remove from the premises of Employer any products, prototypes, drawings, notebooks, software programs or discs, tapes or similar containers of software, 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, notebooks, software programs or discs, tapes or similar containers of software, 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. (c) 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 personal civil liability, for (i) stealing, or without Employer's permission, taking, misappropriating or concealing, or by fraud or deception procuring, Confidential Information, or (ii) without Employer's permission, receiving, possessing, altering, destroying, copying, sending, downloading, uploading or conveying Confidential Information. Employee further acknowledges that any person or entity to whom Confidential Information is given by Employee may also become subject to severe criminal penalties and civil liability. 2 2. COVENANT-NOT-TO-COMPETE (a) 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, (i) sell or provide or license, or be involved in the sale or provision or licensing of, any Financial Market Data Software Products or Services (as defined below) to any person or entity who is or was a client, licensee or customer of Employer at any time during Employee's employment with Employer and for or to whom Employer is performing such services or selling or licensing such products or for or to whom Employer 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) in any capacity 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 Services, passively (except for passive investments in publicly-traded companies) or actively, as an owner, director, officer, partner, member, consultant, independent contractor, advisor, participant, employee or agent, anywhere within the world. "Financial Market Data Software Products or Services" means software products and/or services which (A) 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 (B) are or can be used to make, review or devise investment analyses or strategies, including, without limitation, charting, technical analysis and/or strategy testing and automation. Employee acknowledges that the business of Employer is international in scope, that, due to the electronic and telephonic nature of Employer's business and the nature of Employer's clients, 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) PAYMENT FOR COVENANT-NOT-TO-COMPETE. Employer and Employee both believe that, due to the specialized nature of Employer's business, 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, if accepted, would constitute a violation of subsection (a) above, Employee shall promptly notify Employer of such offer and provide to Employer a copy thereof together with a written statement explaining in reasonable detail Employee's job responsibilities at the new 3 employment. Within thirty (30) 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 salary in effect at the date of termination of Employee's employment ("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. (c) 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 or information services workers (whether employees, independent contractors or consultants); (iii) product, project or task managers or supervisors (whether employees, independent contractors or consultants); (iv) sales or marketing personnel or consultants; financial or accounting services personnel or consultants; (v) legal personnel; or (vi) customer support personnel or consultants; 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. Employee acknowledges that it would be difficult to ascertain with a degree of certainty the substantial damages that would be incurred by Employer if Employee violates or breaches the foregoing covenant. In order to avoid such difficulty and in an attempt to approximate the damage that Employer would incur in the event of such violation or breach, if Employee takes or participates in any of the actions prohibited above with respect to any of the employees, independent contractors or consultants described above, and such employee, independent contractor or consultant then leaves Employer's employ or ceases to 4 perform services for Employer, Employee shall pay to Employer, as liquidated damages, the sum of $50,000 per employee, independent contractor or consultant who so leaves Employer's employ or ceases to perform services for Employer. The payment of such liquidated 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) monetary 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. 3. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 1 AND 2 Employee agrees that if Employee shall violate or breach any of Employee's covenants or agreements in Section 1 or 2(a) 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 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 or 2 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 (or liquidated damages which may be payable, as the case may be). 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. 4. REASONABLENESS OF RESTRICTIONS (a) REASONABLENESS. Employee acknowledges that any breach or violation of Section 1 or 2 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 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 and types of restrictions imposed) are fair and reasonable and are reasonably required for the protection of the trade secrets, good will and other legitimate business interests of Employer. (b) SEVERABILITY. Employee understands and intends that each provision and restriction agreed to by Employee in Sections 1, 2 and 3 hereof be construed as separate and divisible from every other provision and restriction. In the event that any one of the provisions of, or 5 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 such provision relating to time period, geographical or type of restriction shall be declared by a court of competent jurisdiction to exceed the maximum or permissible time period, geographical or type of restriction such court deems reasonable and enforceable, said time period, geographical or type of restriction shall be deemed to become and shall then be the maximum time period or geographical area or type of restriction which such court deems reasonable and enforceable. 5. 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) during the term of Employee's employment, 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 business, 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, 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, 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. 6 "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. 6. CONTINUED EMPLOYMENT OF EMPLOYEE Nothing in this Agreement shall be deemed or construed in any manner to create or continue any employment relationship other than an employment "at will." Employee and Employer are each free to terminate such employment relationship at any time, for any reason. 7. 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. 8. 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 one of Employer's Co-CEO's, or Employer's Vice President-Operations or General Counsel so that Employer may investigate and make the appropriate decision. 9. VIOLATION OF POLICIES BY OTHER EMPLOYEES Many, if not most, of Employer's employees are required to sign this 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 one of Employer's Co-CEO's, or Employer's Vice President- Operations or General Counsel. The information provided, and its source, will be treated confidentially to the extent possible in the circumstances. While Employer understands that it is not always easy or pleasant to report wrongdoings of a co-worker, it is critically important that these 7 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. 10. 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 one of Employer's Co-CEO's or Employer's Vice President-Operations or 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 one of such persons. 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. 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 employee or agent thereof, or to or for the benefit of any governmental official or employee. 11. LAW APPLICABLE This Agreement shall be governed by and construed pursuant to the laws of the State of Florida. 12. SUCCESSION This Agreement shall inure to the benefit of the parties and their respective heirs, administrators, legal representatives, successors and assigns and shall be binding upon the parties and their respective heirs, administrators, legal representatives and successors. 13. 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. 8 IN WITNESS WHEREOF, the undersigned have executed this Agreement on the day and year set forth below. Dated: ____________ EMPLOYEE: ____________________________ EMPLOYER: OMEGA RESEARCH, INC. By:_________________________ William Cruz, President 9 EX-23.1 12 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the use of our reports, and to all references to our firm, included in or made a part of this registration statement. /s/ ARTHUR ANDERSEN LLP - ----------------------- ARTHUR ANDERSEN LLP Miami, Florida, July 25, 1997. EX-27 13
5 OMEGA RESEARCH, INC. FINANCIAL DATA SCHEDULE THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX-MONTH PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001042814 OMEGA RESEARCH, INC. 1 YEAR 6-MOS DEC-31-1996 DEC-31-1997 JAN-01-1996 JAN-01-1997 DEC-31-1996 JAN-30-1997 141,633 263,595 0 0 6,984,337 14,784,141 2,627,289 6,885,114 92,188 96,432 4,596,559 8,277,890 1,914,035 1,908,457 828,923 979,929 5,803,328 9,256,729 967,851 1,449,537 0 0 0 0 0 0 194,800 194,800 4,640,677 7,612,392 5,803,328 9,256,729 13,943,234 12,092,426 17,820,162 14,618,986 1,716,884 855,583 10,797,584 9,239,973 (59,436) (17,664) 830,430 1,231,684 0 0 7,082,014 5,396,677 2,797,396 2,131,687 4,284,618 3,264,990 0 0 0 0 0 0 4,284,618 3,264,990 0.21 0.15 0.21 0.15 REFLECTS PRO FORMA PROVISION FOR INCOME TAXES AS IF THE COMPANY WERE A C CORPORATION SUBJECT TO FEDERAL AND STATE CORPORATE INCOME TAXES. SEE NOTE 1 OF NOTES TO FINANCIAL STATEMENTS. PRO FORMA WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN THE CALCULATION OF EARNINGS PER SHARE INCLUDES 321,000 AND 966,000 SHARES FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX-MONTH PERIOD ENDED JUNE 30, 1997, RESPECTIVELY, AT AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $11.00 PER SHARE, THE PROCEEDS OF WHICH WOULD FUND UNDISTRIBUTED S CORPORATION EARNINGS. SEE NOTE 1 OF NOTES TO FINANCIAL STATEMENTS.
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