As filed with the Securities and Exchange Commission on August 27, 1997
REGISTRATION NO. 333-32077
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
OMEGA RESEARCH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 7372 59-2223464
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
<TABLE>
<S> <C>
WILLIAM R. CRUZ AND RALPH L. CRUZ
CO-CHIEF EXECUTIVE OFFICERS
OMEGA RESEARCH, INC.
8700 WEST FLAGLER STREET 8700 WEST FLAGLER STREET
MIAMI, FLORIDA 33174 MIAMI, FLORIDA 33174
(305) 551-9991 (305) 551-9991
(ADDRESS, INCLUDING ZIP CODE, (NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) OF AGENTS FOR SERVICE)
</TABLE>
--------------
COPIES TO:
ALAN D. AXELROD, ESQ. PETER B. TARR, ESQ.
RUBIN BAUM LEVIN CONSTRANT 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. [ ]
--------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 AUGUST 27, 1997
3,700,000 SHARES
[OMEGA RESEARCH 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. The
Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "OMGA," subject to official notice of issuance.
-------------
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
<PAGE>
[LOGO] OMEGA
RESEARCH
[LANDSCAPE] - REDEFINING THE WAY INVESTORS MAKE THEIR DECISIONS
Allows investors
[Picture of to develop, test
Packaged and computer-
TradeStation automate their
Product] [Screen Captures own trading
from TradeStation] systems in real-
time - without
TradeStation being a computer
programmer.
-------------------------------------------------------------------
Gives investors
access to
professional level
option strategies
for stock, index
and futures [Screen Captures [Picture of
options - without from OptionStation] Packaged
having to be an OptionStation
options analysis Product]
expert or
mathematician. OptionStation
[Landscaped]
-------------------------------------------------------------------
Allows investors
to display and
technically analyze
[Picture of charts for virtually
Packaged SuperCharts [Screen Captures all stock, index,
Product] from SuperCharts] mutual fund and
futures symbols
SuperCharts traded to help
improve
investment
decision-making.
-------------------------------------------------------------------
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."
<PAGE>
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 .................. 18
Use of Proceeds .......................................... 19
Dividend Policy .......................................... 19
Capitalization .......................................... 20
Dilution ................................................ 21
Selected Financial Data ................................. 22
Management's Discussion and Analysis
of Financial Condition and Results of Operations ...... 23
Business ................................................ 32
Management ............................................. 41
Certain Transactions .................................... 46
Principal and Selling Shareholders ..................... 47
Description of Capital Stock ........................... 48
Shares Eligible for Future Sale ........................ 50
Underwriting ............................................. 51
Legal Matters .......................................... 53
Experts ................................................ 53
Additional Information ................................. 53
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/registered trademark/, OPTIONSTATION/registered trademark/
and SUPERCHARTS/registered trademark/ are registered trademarks, and OMEGA
RESEARCH/trademark/, EASYLANGUAGE/trademark/ and POWEREDITOR/trademark/ 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
<PAGE>
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 DIFFERENCES 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.
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.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
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 to be used
to fund payment of a distribution of
accumulated S corporation earnings to the
Company's current shareholders; working
capital and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol ........................... OMGA
</TABLE>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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(2) .............................. 1,060 2,438 3,745 3,312 7,082 3,259 5,397
Pro forma net income(2) .................. 641 1,475 2,266 2,004 4,285 1,972 3,265
Pro forma net income per share(2)(3) ...... $ 0.21 $ 0.15
Pro forma weighted average number of shares
outstanding(3) ........................... 20,541 21,186
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------
PRO PRO FORMA
ACTUAL FORMA(4) AS ADJUSTED(5)
-------- ---------- ---------------
<S> <C> <C> <C>
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
<FN>
- -------------
(1) Based on shares outstanding as of August 25, 1997. Excludes (i) 910,750
shares of Common Stock issuable upon exercise of stock options granted
under the Omega Research, Inc. Amended and Restated 1996 Incentive Stock
Plan (the "Incentive Stock Plan") as of August 25, 1997, with a weighted
average exercise price of $2.04 per share; (ii) 2,089,250 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 persons (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
<PAGE>
(2) The statement of income data reflects a pro forma provision for income
taxes as if the Company had been 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.
(3) 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.
(4) 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.
(5) 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."
</FN>
</TABLE>
-------------
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
<PAGE>
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.
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
7
<PAGE>
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.
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 software 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
8
<PAGE>
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, 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 or marketing strategy, 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."
9
<PAGE>
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
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, and it currently has cross-marketing
agreements with four of such data vendors including Data Broadcasting
Corporation (Signal, BMI), FutureSource (a division of Oster Communications),
Track Data Corporation (Dial/Data) and Telescan Incorporated. Most of the data
vendors with whom the Company has developed technical compatibility (including
those with which it has cross-marketing agreements) 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 were to occur, the
Company would be required to find alternative sources for such data in order to
remain viable and there can be no assurance that such alternative 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.
10
<PAGE>
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."
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 a failure to develop the necessary
infrastructure, such as reliable network backbones and adequate band-widths, or
the 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 introduced or new versions of products
are released there can be no assurance that errors will not be found and
persist after
11
<PAGE>
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. See
"Business--Strategic Relationships."
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 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 operations. See
"Business--Products."
12
<PAGE>
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 on a worldwide basis the
Company's TRADESTATION and SUPERCHARTS products to Dow Jones Markets' existing
and potential subscribers, most of which are institutions. If Dow Jones
Markets, in the exercise of such discretion, markets such products in a manner
which is 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, or Dow Jones
Markets fails to perform under either agreement, 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 agreement with respect to
TRADESTATION have exceeded actual royalties and Dow Jones Markets has not
commenced its marketing of SUPERCHARTS. 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 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,
13
<PAGE>
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 investment analysis software 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 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,
14
<PAGE>
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 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 accumulated
undistributed 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
15
<PAGE>
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."
CERTAIN BENEFITS TO CURRENT SHAREHOLDERS
The current shareholders of the Company will derive certain benefits as a
result of this offering, including the creation of a public market for the
shares of Common Stock, the receipt by the Selling Shareholders of net proceeds
in the estimated amount of $11,253,000 ($12,940,950 if the Underwriters'
over-allotment option is exercised in full), and the use by the Company of a
portion of the net proceeds from this offering to finance the payment of a cash
dividend which at June 30, 1997 would have been approximately $10.6 million,
but the actual amount of which is expected to be materially higher. See
"Distribution of S Corporation Earnings" and "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
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 August 25, 1997, options to
purchase 910,750 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
16
<PAGE>
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."
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."
17
<PAGE>
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 an 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, 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
18
<PAGE>
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.
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. At June 30,
1997 the loan would have been approximately $10.6 million, but the actual
amount of such loan is expected to be materially higher. 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."
19
<PAGE>
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.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------------
PRO PRO FORMA
ACTUAL FORMA(2) AS ADJUSTED
-------- ---------- ------------
(In thousands, except per share
data)
<S> <C> <C> <C>
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
======= ======== ========
</TABLE>
- -------------
(1) Excludes (i) 910,750 shares of Common Stock issuable upon exercise of stock
options granted under the Incentive Stock Plan as of August 25, 1997, with
a weighted average exercise price of $2.04 per share; (ii) 2,089,250
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 persons (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.
20
<PAGE>
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:
<TABLE>
<S> <C> <C>
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
=======
</TABLE>
- -------------
(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 910,750 shares of Common Stock issuable upon exercise of stock
options granted under the Incentive Stock Plan as of August 25, 1997, with
a weighted average exercise price of $2.04 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:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
------------------------ ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
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%
=========== ====== ============ ======
</TABLE>
- -------------
(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."
21
<PAGE>
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Licensing fees ................................................ $ 3,040 $ 5,593 $ 7,853 $ 7,913 $13,943
Other revenues ................................................ -- -- 707 1,502 3,877
-------- -------- -------- -------- --------
Total revenues ................................................ 3,040 5,593 8,560 9,415 17,820
-------- -------- -------- -------- --------
Operating expenses:
Cost of licensing fees .......................................... 243 377 831 876 1,717
Product development ............................................. 184 320 492 652 1,041
Sales and marketing ............................................. 1,174 1,832 2,712 3,561 5,618
General and administrative .................................... 404 657 798 1,038 2,422
-------- -------- -------- -------- --------
Total operating expenses ....................................... 2,005 3,186 4,833 6,127 10,798
-------- -------- -------- -------- --------
Income from operations .......................................... 1,035 2,407 3,727 3,288 7,022
Other income, net ................................................ 25 31 18 24 60
-------- -------- -------- -------- --------
Income before pro forma income taxes ........................... 1,060 2,438 3,745 3,312 7,082
Pro forma income taxes(1) ....................................... 419 963 1,479 1,308 2,797
-------- -------- -------- -------- --------
Pro forma net income(1) .......................................... $ 641 $ 1,475 $ 2,266 $ 2,004 $ 4,285
======== ======== ======== ======== ========
Pro forma net income per share(1)(2) ........................... $ 0.21
========
Pro forma weighted average number of shares outstanding(2) ...... 20,541
========
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1996 1997
--------- -------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Licensing fees ................................................ $ 6,322 $12,092
Other revenues ................................................ 1,787 2,527
-------- -------
Total revenues ................................................ 8,109 14,619
-------- -------
Operating expenses:
Cost of licensing fees .......................................... 881 856
Product development ............................................. 377 843
Sales and marketing ............................................. 2,603 4,946
General and administrative .................................... 998 2,595
-------- -------
Total operating expenses ....................................... 4,859 9,240
-------- -------
Income from operations .......................................... 3,250 5,379
Other income, net ................................................ 9 18
-------- -------
Income before pro forma income taxes ........................... 3,259 5,397
Pro forma income taxes(1) ....................................... 1,287 2,132
-------- -------
Pro forma net income(1) .......................................... $ 1,972 $3,265
======== =======
Pro forma net income per share(1)(2) ........................... $ 0.15
=======
Pro forma weighted average number of shares outstanding(2) ...... 21,186
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997
-------------------------------------------- -----------------------------------
PRO PRO FORMA
1992 1993 1994 1995 1996 ACTUAL FORMA(3) AS ADJUSTED(4)
-------- -------- -------- -------- -------- -------- ---------- ---------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- -------------
(1) The statement of income data reflects a pro forma provision for income
taxes as if the Company had been 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."
22
<PAGE>
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)
licensing 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. As a result of recently expanded marketing and sales efforts,
including television advertising, the Company has reached a broader audience
which includes more individuals who are not necessarily suited to use the
Company's products. Consequently, the Company's rate of returns and provision
for bad debts have increased over the last several quarters. There can be no
assurance that this trend will not continue. See "Risk Factors-- Risks of
Returns and Collection of Accounts Receivable."
Approximately 9.3% 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
23
<PAGE>
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.
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.
24
<PAGE>
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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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%
====== ====== ====== ====== ======
</TABLE>
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 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.
25
<PAGE>
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 advertising (including
print advertising, the use of sales seminars and television advertising) of
$1.2 million, personnel costs for the customer support center and commissions
of $628,000, shipping costs of $248,000 and telephone expenses of $142,000.
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 and in personnel to manage the growth of the
Company and rent related to the Company's new corporate headquarters. The
Company believes that 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.
26
<PAGE>
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 of $1.4 million, shipping costs of $413,000, travel and
trade convention expenses of $162,000 and telephone expenses of $66,000. 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 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
27
<PAGE>
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
of $390,000, commissions of $307,000 and telephone expenses of $63,000. 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.
28
<PAGE>
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.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1996 1996 1997 1997
---------- ---------- ----------- ---------- ---------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
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%
======== ======== ======== ======== ======== ========
</TABLE>
29
<PAGE>
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, announcements of new products by the Company or
its competitors and other factors. 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
intends to obtain a short-term bank 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 net income for 1994. The increase in net
cash provided by operations in 1996 and 1997 was primarily attributable to
increased net income of the Company. Cash provided by operating activities was
reduced by increases in receivables of $600,000, $1.2 million, $3.2 million and
$4.8 million in 1994, 1995, 1996 and the first six months of 1997,
respectively. Accounts receivable increased as a result of increased sales
generated by expanded marketing and sales efforts. Although the Company has,
since 1992, granted its customers extended payment terms, only recently have
they been extended from 10 to 12 months.
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 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."
30
<PAGE>
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
31
<PAGE>
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 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.
32
<PAGE>
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 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.
33
<PAGE>
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, in
order 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 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. The Company
believes that 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, 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.
34
<PAGE>
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.
Omega Research's principal products are:
<TABLE>
<CAPTION>
INITIAL LATEST CURRENT
PRODUCT OPERATING SYSTEM LIST PRICE RELEASE DATE RELEASE DATE VERSION
- ------------------------ ------------------- ------------ -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
TRADESTATION Microsoft Windows $2,399 1991 1996 4.0
OPTIONSTATION Microsoft Windows $1,799 1996 1996 1.2
SUPERCHARTS REAL-TIME Microsoft Windows $ 839 1996 1996 4.0
SUPERCHARTS END-OF-DAY Microsoft Windows $ 200 1992 1996 4.0
</TABLE>
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
35
<PAGE>
indicators and 15 drawing tools that highlight significant market patterns.
SUPERCHARTS provides the investor with sophisticated charting and technical
analysis capabilities, including the ability to draw trend lines, identify
chart patterns and chart historical fundamental data. SUPERCHARTS can generate
an alert on a real-time or end-of-day basis when a simple user-defined
criterion occurs with respect to a specific security. SUPERCHARTS also contains
certain trading 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."
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.)
36
<PAGE>
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.
PRODUCT DEVELOPMENT
The Company believes that its future success depends in part on its
ability to maintain and improve its core software technologies, 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
37
<PAGE>
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."
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 79% since December 31, 1995 and approximately 48% 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
38
<PAGE>
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 software 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,
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, financial condition and results of
operations. 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.
39
<PAGE>
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 "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.
40
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
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
</TABLE>
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 in May 1997
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 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
41
<PAGE>
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 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."
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.
42
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- -------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(1)
- --------------------------- ---------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
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
</TABLE>
- -------------
(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 $130,000.
OPTION GRANTS. The following table summarizes the options which were
granted during the fiscal year ended December 31, 1996 to the Named Executive
Officers.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT
------------------------------------------------------------ ASSUMED
% OF ANNUAL
NUMBER TOTAL VALUE AT RATES OF
OF OPTIONS MARKET GRANT-DATE STOCK PRICE
SECURITIES GRANTED TO EXERCISE PRICE ON MARKET APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE GRANT PRICE OPTION TERM(1)
OPTIONS IN FISCAL PRICE DATE EXPIRATION ------------ ------------------------
NAME GRANTED(2) YEAR ($)/(SH) ($)(SH)(3) DATE 0%($) 5%($) 10%($)
------------ --------- ---------- ------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William R. Cruz ...... -- -- -- -- -- -- -- --
Ralph L. Cruz ......... -- -- -- -- -- -- -- --
Peter A. Parandjuk 250,000 43.0% $1.25 $1.75 11/30/06 $ 125,000 $400,141 $822,262
Salomon Sredni ...... 140,000 24.1 1.25 1.75 11/30/06 70,000 224,079 460,467
</TABLE>
- -------------
(1) Potential realizable value is based on the assumption that the Common Stock
price appreciates at the annual rate shown (compounded annually) from the
date of grant until the end of the option term. The amounts have been
calculated based on the requirements promulgated by the Securities and
Exchange Commission. The actual value, if any, a Named Executive Officer
may realize will depend on the excess of the stock price over the exercise
price on the date the option is exercised (if the executive were to sell
the shares on the date of exercise), so there is no assurance that the
value realized will be at or near the potential realizable value as
calculated in this table.
(2) These options vest over five years and have a term of ten years from the
date of grant, subject to acceleration under certain circumstances.
(3) Prior to this offering, there has been no public market for the Common
Stock of the Company. The Market Price on Grant Date is based on the Board
of Director's determination of the fair market value of the Common Stock
on the date of grant of the option.
43
<PAGE>
OPTION EXERCISES AND UNEXERCISED OPTION HOLDINGS. The following table
provides information regarding the value of all unexercised options held at
December 31, 1996 by the Named Executive Officers. No Named Executive Officer
exercised any stock options during the fiscal year ended December 31, 1996.
AGGREGATE OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
William R. Cruz ......... -- -- -- --
Ralph L. Cruz ............ -- -- -- --
Peter A. Parandjuk ...... -- 250,000 -- $187,500
Salomon Sredni ......... -- 140,000 -- 105,000
</TABLE>
- --------
(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.
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 and amended and restated in August 1997. 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 August 25, 1997, options to purchase 910,750 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
44
<PAGE>
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
August 25, 1997 have a weighted average exercise price of $2.04 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 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 Company's 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 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
Purchase Plan provides for the first options to be granted for the Plan Period
commencing January 1, 1998.
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.
45
<PAGE>
EMPLOYEE BONUS PROGRAMS. The Company has an informal profit-sharing
incentive program (the "Profit-Sharing Program"), which will be discontinued by
the Company effective as of October 1, 1997. Under the Profit-Sharing Program,
the Company makes 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 31, 1994, 1995, 1996, and the six months ended June 30, 1997,
amounted to $81,000, $20,000, $423,000 and $277,000, respectively. Commencing
as of October 1, 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.
46
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of August 25, 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED
PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING(1)(2)
EXECUTIVE OFFICERS, --------------------------- SHARES -----------------------
DIRECTORS AND 5% SHAREHOLDERS NUMBER PERCENT OFFERED(2) NUMBER PERCENT
- ------------------------------------ --------------- --------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
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) ...... 19,480,000 100.0% 1,100,000 18,380,000 83.2%
</TABLE>
- -------------
(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 1997 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 August 25, 1997.
47
<PAGE>
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 August 25, 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 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.
48
<PAGE>
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 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.
49
<PAGE>
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 August 25, 1997,
options to purchase 910,750 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."
50
<PAGE>
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.
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 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 that, 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
51
<PAGE>
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 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."
52
<PAGE>
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.
53
<PAGE>
OMEGA RESEARCH, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
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-7
</TABLE>
F-1
<PAGE>
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 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).
F-2
<PAGE>
OMEGA RESEARCH, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997
--------------------------- -------------------------------
1995 1996 HISTORICAL PRO FORMA
------------ ------------ ------------- ---------------
(Unaudited) (Unaudited)
(Note 7)
<S> <C> <C> <C> <C>
ASSETS
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
========== =========== =========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these balance sheets.
F-3
<PAGE>
OMEGA RESEARCH, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
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
============ ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-4
<PAGE>
OMEGA RESEARCH, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------------ ---------- ----------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
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
=========== ========= ======== ============ ======== ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-5
<PAGE>
OMEGA RESEARCH, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -------------------------------
1994 1995 1996 1996 1997
--------------- --------------- --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
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)
------------ ------------ ------------ ------------ ------------
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
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-6
<PAGE>
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 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.
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.
F-7
<PAGE>
OMEGA RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
REVENUE RECOGNITION
LICENSING FEES
Sales, net of provisions for estimated returns, 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.
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.
F-8
<PAGE>
OMEGA RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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:
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,
F-9
<PAGE>
OMEGA RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1996 1997
-------------- ---------------
<S> <C> <C>
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
=========== ===========
</TABLE>
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-10
<PAGE>
OMEGA RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE --------------------------- JUNE 30,
IN YEARS 1995 1996 1997
------------- ------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C>
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
========== ========== ==========
</TABLE>
(3) ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
(4) STOCK OPTIONS:
The Company has reserved 3,000,000 shares of its common stock for issuance
under its Amended and Restated 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 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:
F-11
<PAGE>
OMEGA RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) STOCK OPTIONS:--(CONTINUED)
<TABLE>
<CAPTION>
NO. OF SHARES EXERCISE PRICE
--------------- ---------------
<S> <C> <C>
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
=======
</TABLE>
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 will be terminated effective
as of September 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.
(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:
F-12
<PAGE>
OMEGA RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
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 product 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.
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.
F-13
<PAGE>
OMEGA RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) SUBSEQUENT EVENTS:--(CONTINUED)
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 were
$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-14
<PAGE>
THE OMEGA RESEARCH
SOLUTION PROVIDER NETWORK
Market
Timing
Systems Market
Profile
Fuzzy Logic Statistical
& Artificial Reports
Intelligence
Cycle
Options [LOGO] OMEGA Analysis
Analysis RESEARCH
Data
Neural Services
Networks Over 150 Solution Providers
Portfolio
EasyLanguage Management
Experts
Pattern
Recognition
<PAGE>
[OMEGA RESEARCH LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE 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 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
II-1
<PAGE>
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.
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.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------
<S> <C>
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.+
4.1 Specimen Stock Certificate for Common Stock.*
5.1 Opinion of Rubin Baum Levin Constant Friedman & Bilzin regarding legality of Common Stock.+
10.1 Omega Research, Inc. Amended and Restated 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.+
<FN>
- -------------
+ Previously filed as part of Registration Statement No. 333-32077 on Form S-1
filed with the Commission on July 25, 1997.
* Filed herewith.
** Confidential treatment requested for portions of this exhibit, which
portions have been separately filed with the Commission.
</FN>
</TABLE>
(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
II-3
<PAGE>
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
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Miami, Florida on
the 27th day of August, 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
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- --------------------------------------------- ----------------
<S> <C> <C>
/s/ WILLIAM R. CRUZ Co-Chairman of the Board and August 27, 1997
- ---------------------------- Co-Chief Executive Officer
William R. Cruz (Co-Principal Executive Officer)
/s/ RALPH L. CRUZ Co-Chairman of the Board and August 27, 1997
- ---------------------------- Co-Chief Executive Officer
Ralph L. Cruz (Co-Principal Executive Officer)
/s/ SALOMON SREDNI Vice President of Operations, August 27, 1997
- ---------------------------- Chief Financial Officer and Director
Salomon Sredni (Principal Financial and Accounting Officer)
/s/ PETER A. PARANDJUK Director August 27, 1997
- ----------------------------
Peter A. Parandjuk
/s/ MARC J. STONE Director August 27, 1997
- ----------------------------
Marc J. Stone
</TABLE>
II-5
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS ON SCHEDULE
To the 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 purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subject to the auditing procedures
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
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
<PAGE>
OMEGA RESEARCH, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1996, 1995 AND 1994
(In Thousands)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Fiscal year ended December 31, 1996:
Allowance for doubtful accounts ...... $134 $ 830 $ (134) $ 830
Allowance for returns ............... 252 5,340 (3,795) 1,797
----- ------- -------- -------
Allowance for doubtful accounts
and returns ........................ $386 $6,170 $ (3,929) $2,627
===== ======= ======== =======
Fiscal year ended December 31, 1995:
Allowance for doubtful accounts ...... $117 $ 134 $ (117) $ 134
Allowance for returns ............... 154 1,415 (1,317) 252
----- ------- -------- -------
Allowance for doubtful accounts
and returns ........................ $271 $1,549 $ (1,434) $ 386
===== ======= ======== =======
Fiscal year ended December 31, 1994:
Allowance for doubtful accounts ...... $150 $ 117 $ (150) $ 117
Allowance for returns ............... 210 1,075 (1,131) 154
----- ------- -------- -------
Allowance for doubtful accounts
and returns ........................ $360 $1,192 $ (1,281) $ 271
===== ======= ======== =======
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBER
NUMBER DESCRIPTION PAGE
- -------- ----------- ------------
<S> <C>
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.+
4.1 Specimen Stock Certificate for Common Stock.*
5.1 Opinion of Rubin Baum Levin Constant Friedman & Bilzin regarding
legality of Common Stock.+
10.1 Omega Research, Inc. Amended and Restated 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.+
- -------------
+ Previously filed as part of Registration Statement No. 333-32077 on Form S-1
filed with the Commission on July 25, 1997.
* Filed herewith.
** Confidential treatment requested for portions of this exhibit, which
portions have been separately filed with the Commission.
</TABLE>
EXHIBIT 1.1
3,700,000 Shares(1)
OMEGA RESEARCH, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
____________, 1997
ROBERTSON, STEPHENS & COMPANY LLC
LEHMAN BROTHERS INC.
HAMBRECHT & QUIST LLC
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
Omega Research, Inc., a Florida corporation (the "Company"), and
certain shareholders of the Company named in SCHEDULE B hereto (hereafter called
the "Selling Shareholders") address you as the Representatives of each of the
persons, firms and corporations listed in SCHEDULE A hereto (herein collectively
called the "Underwriters") and hereby confirm their respective agreements with
the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and
sell 2,600,000 shares of its authorized and unissued common stock, $.01 par
value per share, to the several Underwriters. The Selling Shareholders, acting
severally and not jointly, propose to sell an aggregate of 1,100,000 shares of
the Company's authorized and outstanding common stock, $.01 par value per share,
to the several Underwriters. The 2,600,000 shares of common stock, $.01 par
value per share, of the Company to be sold by the Company are hereinafter called
the "Company Shares" and the 1,100,000 shares of common stock, $.01 par value
per share, of the Company to be sold by the Selling Shareholders are hereinafter
called the "Selling Shareholder Shares." The Company Shares and the Selling
Shareholder Shares are hereinafter collectively referred to as the "Firm
Shares." The Company and the Selling Shareholders also propose to grant,
severally and not jointly, to the Underwriters an option to purchase up to
555,000 additional shares of the Company's common stock, $.01 par value per
share (the "Option Shares"), as provided in Section 7 hereof. As used in this
Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. All shares of common stock, $.01 par value per share, of the Company to
be outstanding after giving effect to the sales contemplated hereby, including
the Shares, are hereinafter referred to as "Common Stock."
- ------------
(1) Plus an option to purchase up to 555,000 additional shares from the
Company and the Selling Shareholders to cover over-allotments.
<PAGE>
For the period commencing April 1, 1988 until September __, 1997 (the
"Termination Date"), the Company was treated as an S Corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code").
Immediately prior to the Termination Date, William R. Cruz and Ralph L. Cruz,
together with their affiliates, collectively owned 100% of the issued and
outstanding Common Stock of the Company.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
AND THE SELLING SHAREHOLDERS.
I. The Company and the Selling Shareholders represent and
warrant to and agree with each Underwriter that:
(a) A registration statement on Form S-1
(File No. 333-32077) with respect to the Shares, including a prospectus subject
to completion, has been prepared by the Company in conformity in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the applicable rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the Act and
has been filed with the Commission; such amendments to such registration
statement, such amended prospectuses subject to completion and such abbreviated
registration statements pursuant to Rule 462(b) of the Rules and Regulations as
may have been required prior to the date hereof have been similarly prepared and
filed with the Commission; and the Company will file such additional amendments
to such registration statement, such amended prospectuses subject to completion
and such abbreviated registration statements as may hereafter be required. True
and correct copies of such registration statement and amendments, of each
related prospectus subject to completion (the "Preliminary Prospectuses") and of
any abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations have been delivered to you.
If the registration statement relating to
the Shares has been declared effective under the Act by the Commission, the
Company will prepare and promptly file with the Commission the information
omitted from the registration statement pursuant to Rule 430A(a) or, if
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, shall
agree to the utilization of Rule 434 of the Rules and Regulations, the
information required to be included in any term sheet filed pursuant to Rule
434(b) or (c), as applicable, of the Rules and Regulations pursuant to
subparagraph (1), (4) or (7) of Rule 424(b) of the Rules and Regulations or as
part of a post-effective amendment to the registration statement (including a
final form of prospectus). If the registration statement relating to the Shares
has not been declared effective under the Act by the Commission, the Company
will prepare and promptly file an amendment to the registration statement,
including a final form of prospectus, or, if Robertson, Stephens & Company LLC,
on behalf of the several Underwriters, shall agree to the utilization of Rule
434 of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations. The term "Registration Statement" as used in this Agreement shall
mean such registration statement, including financial statements, schedules and
exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
or Rule 434(d) of the Rules and Regulations) and, in the event of any amendment
thereto or the filing of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations relating thereto after the effective date of
such registration statement, shall also mean (from and after the effectiveness
of such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations); PROVIDED,
-2-
<PAGE>
HOWEVER, that if in reliance on Rule 434 of the Rules and Regulations and with
the consent of Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last provided to the Underwriters
by the Company and circulated by the Underwriters to all prospective purchasers
of the Shares (including the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 434(d) of the Rules
and Regulations). Notwithstanding the foregoing, if any revised prospectus shall
be provided to the Underwriters by the Company for use in connection with the
offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer to such revised prospectus
from and after the time it is first provided to the Underwriters for such use.
If in reliance on Rule 434 of the Rules and Regulations and with the consent of
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that a confirmation is sent or
given for purposes of Section 2(10)(a) of the Act, the Prospectus and the term
sheet, together, will not be materially different from the prospectus in the
Registration Statement.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or instituted
proceedings for that purpose, and each such Preliminary Prospectus has conformed
in all material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act and
the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, (ii) the Registration
Statement, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (iii) the Prospectus, and any amendments or supplements thereto,
did not and will not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
(c) The Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation with full corporate power and authority to
own, lease and operate its properties and conduct its business as described in
the Prospectus; the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company;
no proceeding has been instituted in any such jurisdiction, revoking, limiting
or curtailing, or seeking to revoke, limit or curtail, such power and authority
or qualification; the Company is in possession of and operating in compliance in
all material respects with all authorizations, licenses, certificates, consents,
orders and permits from state, federal and other regulatory authorities which
-3-
<PAGE>
are material to the conduct of its business, all of which are valid and in full
force and effect; the Company is not in violation of its charter or bylaws or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any material bond, debenture, note or other
evidence of indebtedness, or in any material lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company is a party or by which the Company or its
properties may be bound; and the Company is not in material violation of any
law, order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its properties. The Company has no
subsidiaries or equity interest (including a right to acquire any equity
interest) in any other entity. The Company does not own or control, directly or
indirectly, any corporation, association or other entity.
(d) The Company has full legal right, power
and authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of the
Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; the performance
of this Agreement and the consummation of the transactions herein contemplated
will not result in a breach or violation of any of the terms and provisions of,
or constitute a default under, (i) any bond, debenture, note or other evidence
of indebtedness, or under any lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company is a party or by which the Company or its properties may be bound,
(ii) the charter or bylaws of the Company, or (iii) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or over its properties. No consent, approval, authorization or order of
or qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its properties
is required for the execution and delivery of this Agreement and the
consummation by the Company of the transactions herein contemplated, except such
as may be required under the Act or under state or other securities or Blue Sky
laws, all of which requirements under the Act have been satisfied.
(e) There is not any pending or, to the best
of the Company's knowledge, threatened, action, suit, claim or proceeding
against the Company or any of its officers or any of its properties, assets or
rights before any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its officers or
properties, assets or rights which (i) might result in any material adverse
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company or might materially and adversely affect
the Company's properties, assets or rights, (ii) might prevent consummation of
the transactions contemplated hereby or (iii) is required to be disclosed in the
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the Act
or the Rules and Regulations which have not been accurately described in all
material respects in the Registration Statement or Prospectus or filed as
exhibits to the Registration Statement.
(f) All outstanding shares of capital stock
of the Company (including the Selling Shareholder Shares) have been duly
authorized and validly issued and are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and the authorized and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption "Capitalization"
and conforms in all material respects to the statements relating thereto
-4-
<PAGE>
contained in the Registration Statement and the Prospectus (and such statements
correctly state the substance of the instruments defining the capitalization of
the Company); the Company Shares and the Option Shares to be purchased from the
Company hereunder have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by the
Company against payment therefor in accordance with the terms of this Agreement,
will be duly and validly issued and fully paid and nonassessable, and will be
sold free and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest; and no preemptive right, co-sale right, registration
right, right of first refusal or other similar right of shareholders exists with
respect to any of the Company Shares or Option Shares to be purchased from the
Company hereunder or the issuance and sale thereof other than those that have
been expressly waived prior to the date hereof and those that will automatically
expire upon and will not apply to the consummation of the transactions
contemplated on the Closing Date. No further approval or authorization of any
Shareholders, the Board of Directors of the Company or others is required for
the issuance and sale or transfer of the Shares except as may be required under
the Act or under state or other securities or Blue Sky laws. Except as disclosed
in the Prospectus or in the financial statements of the Company, and the related
notes thereto, included in the Prospectus, the Company has no outstanding
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted or to be granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(g) Arthur Andersen LLP, which has examined
the financial statements of the Company, together with the related schedules and
notes, as of December 31, 1994, 1995 and 1996 and for each of the years in the
three (3) years ended December 31, 1996 filed with the Commission as a part of
the Registration Statement, which are included in the Prospectus, are
independent accountants within the meaning of the Act and the Rules and
Regulations; the audited consolidated financial statements of the Company,
together with the related schedules and notes, and the unaudited financial
information, forming part of the Registration Statement and Prospectus,
accurately and fairly present in all material respects the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and all audited financial statements of
the Company, together with the related schedules and notes, and the unaudited
financial information, filed with the Commission as part of the Registration
Statement, have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved except as may be
otherwise stated therein. The selected and summary financial and statistical
data included in the Registration Statement accurately and fairly present in all
material respects the information shown therein and have been compiled on a
basis consistent with the audited financial statements presented therein. No
other financial statements or schedules are required to be included in the
Registration Statement.
(h) Subsequent to the respective dates as of
which information is given in the Registration Statement and Prospectus, there
has not been (i) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company,
(ii) any transaction that is material to the Company, (iii) any obligation,
direct or contingent, that is material to the Company, incurred by the Company,
(iv) any change in the capital stock or outstanding indebtedness of the Company
that is material to the Company, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, or (vi) any loss or
damage (whether or not insured) to the property of the Company which has been
sustained or will have been sustained which has, or will result in, a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company.
-5-
<PAGE>
(i) Except as set forth in the Registration
Statement and Prospectus, (i) the Company has good and marketable title to all
properties and assets described in the Registration Statement and Prospectus as
owned by it, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest, other than such as would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company, (ii) the agreements to which the
Company is a party described in the Registration Statement and Prospectus are
valid agreements, enforceable by the Company, except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in breach or default in any
material respect under any of such agreements, and (iii) the Company has valid
and legally enforceable leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration Statement
and Prospectus, the Company owns or leases all such properties as are necessary
to its operations as now conducted and as proposed to be conducted.
(j) The Company has timely filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes shown thereon as due, and, except as disclosed in the Prospectus,
there is no tax deficiency that has been or, to the best of the Company's
knowledge, might be asserted against the Company that might have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company; and all tax liabilities are
adequately provided for on the books of the Company.
(k) The Company maintains insurance with
insurers of recognized financial responsibility of the types and in the amounts
generally deemed adequate for its business and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased by
the Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect; the Company has never been refused any insurance coverage sought or
applied for; and the Company has no reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company.
(l) To the best of the Company's knowledge,
no labor disturbance by the employees of the Company exists or is threatened or
imminent; and the Company is not aware of any existing, threatened or imminent
labor disturbance by the employees of any of its principal suppliers,
subassemblers, value added resellers, subcontractors, original equipment
manufacturers, authorized dealers or distributors that might be expected to
result in a material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company. No
collective bargaining agreement exists with any of the Company's employees and,
to the best of the Company's knowledge, no such agreement is threatened or
imminent.
(m) Except as disclosed in the Prospectus,
the Company owns or possesses legally enforceable rights to use all patents,
patent rights, inventions, trade secrets, know-how, trademarks, service marks,
trade names and copyrights which are necessary to conduct its business as
described in the Registration Statement and Prospectus; the expiration of any
patents, patent rights, trade secrets, trademarks, service marks, trade names or
copyrights would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company; except as disclosed in the Prospectus, the Company has not received any
notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company by others with respect to any
-6-
<PAGE>
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights; and the Company has not received any notice
of, and has no knowledge of, any infringement of or conflict with asserted
rights of others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company.
(n) The Common Stock has been approved for
quotation on The Nasdaq National Market, subject to official notice of issuance.
(o) The Company has been advised concerning
the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules
and regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will
not distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted by
the Act.
(q) The Company has not at any time during
the last five (5) years (i) made any unlawful contribution to any candidate for
foreign office or failed to disclose fully any contribution in violation of
applicable law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(r) The Company has not taken and will not
take, directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(s) Each officer, director and shareholder
of the Company has agreed in writing that such holder of Securities (as defined
below) will not, directly or indirectly, for a period of 180 days from the date
that the Registration Statement is declared effective by the Commission (the
"Lock-up Period"), offer, sell, contract to sell, grant any option to purchase,
pledge or otherwise dispose of or transfer (collectively, a "Disposition") any
shares of Common Stock or any securities convertible into or exchangeable for,
or any right to purchase or acquire, shares of Common Stock (collectively,
"Securities") now owned or hereafter acquired directly by such holder or with
respect to which such holder has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, transfers to family limited
partnerships or trusts for the benefit of such holder and his or her family, or
transfers to the grantors and beneficiaries of holders which are trusts,
provided that, in each case, each donee or transferee thereof agrees in writing
to be bound by this restriction or (ii) with the prior written consent of
Robertson, Stephens & Company LLC. The foregoing restriction has been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from Securities. Furthermore, each holder of Securities has
also agreed and consented to the entry of stop transfer instructions with the
Company's
-7-
<PAGE>
transfer agent against the transfer of the Securities held by such holder except
in compliance with this restriction. The Company has provided to counsel for the
Underwriters a complete and accurate list of all security holders of the Company
and the number and type of securities held by each security holder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the agreements pursuant to which its officers, directors and
shareholders have agreed to such or similar restrictions (the "Lock-up
Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or shareholders from any Lock- up Agreements currently existing or hereafter
effected without the prior written consent of Robertson, Stephens & Company LLC.
(t) Except as set forth in the Registration
Statement and Prospectus, (i) the Company is in compliance in all material
respects with all rules, laws and regulations relating to the use, treatment,
storage and disposal of toxic substances and protection of health or the
environment ("Environmental Laws"), (ii) the Company has received no notice from
any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make any
material capital expenditures to comply with Environmental Laws and (iv) no
property which is owned, leased or occupied by the Company has been designated
as a Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. ss. 9601, ET SEQ.), or otherwise
designated as a contaminated site under applicable federal, state or local law.
(u) The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and prompt appropriate action is taken
with respect to any differences.
(v) There are no outstanding loans, advances
(except normal advances for business expenses in the ordinary course of
business) or guarantees of indebtedness by the Company to or for the benefit of
any of the officers or directors of the Company or any of the members of the
families of any of them.
(w) The Company has complied with all
provisions of Section 517.075, Florida Statutes relating to doing business with
the Government of Cuba or with any person or affiliate located in Cuba.
(x) For all periods from its most recent
election under Subchapter S of the Code until the Termination Date, the Company
was qualified as an S Corporation pursuant to an election validly made under
Subchapter S of the Code (which election has not been revoked or terminated for
any such period) and, except as disclosed in the Prospectus, the Company has not
been, and will not be, subject to federal corporate income taxes for such
periods. The Company's Subchapter S election was duly terminated on the
Termination Date, and the Company will be subject to federal and state corporate
income taxes from and after the date of such termination.
II. Each Selling Shareholder, severally and not jointly,
represents and warrants to and agrees with each Underwriter
and the Company that:
(a) Such Selling Shareholder now has and on
the Closing Date, and on any later date on which Option Shares are purchased,
will have valid marketable title to the Shares to be sold by such Selling
Shareholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or
-8-
<PAGE>
equitable interest other than pursuant to this Agreement; and upon delivery of
such Shares hereunder and payment of the purchase price as herein contemplated,
each of the Underwriters will obtain valid marketable title to the Shares
purchased by it from such Selling Shareholder, free and clear of any pledge,
lien, security interest pertaining to such Selling Shareholder or such Selling
Shareholder's property, encumbrance, claim or equitable interest, including,
without limitation, any liability for estate or inheritance taxes, or any
liability to or claims of any creditor, devisee, legatee or beneficiary of such
Selling Shareholder.
(b) Such Selling Shareholder has duly
authorized (if applicable), executed and delivered, in the form heretofore
furnished to the Representatives, an irrevocable Power of Attorney (the "Power
of Attorney") appointing Salomon Sredni and Marc J. Stone as attorneys-in-fact
(collectively, the "Attorneys" and each individually, an "Attorney") and a
Letter of Transmittal and Custody Agreement (the "Custody Agreement") with the
Company, as custodian (the "Custodian"); each of the Power of Attorney and the
Custody Agreement constitutes a valid and binding agreement on the part of such
Selling Shareholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and each of such
Selling Shareholder's Attorneys, acting alone, is authorized to execute and
deliver this Agreement and the certificate referred to in Section 6(h) hereof on
behalf of such Selling Shareholder, to determine the purchase price to be paid
by the several Underwriters to such Selling Shareholder as provided in Section 3
hereof, to authorize the delivery of the Selling Shareholder Shares and the
Option Shares to be sold by such Selling Shareholder under this Agreement and to
duly endorse (in blank or otherwise) the certificate or certificates
representing such Shares or a stock power or powers with respect thereto, to
accept payment therefor, and otherwise to act on behalf of such Selling
Shareholder in connection with this Agreement.
(c) All consents, approvals, authorizations
and orders required for the execution and delivery by such Selling Shareholder
of the Power of Attorney and the Custody Agreement, the execution and delivery
by or on behalf of such Selling Shareholder of this Agreement and the sale and
delivery of the Selling Shareholder Shares and the Option Shares to be sold by
such Selling Shareholder under this Agreement (other than, at the time of the
execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws) have been obtained and are in full force and effect; such Selling
Shareholder, if other than a natural person, has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization as the type of entity that it purports to be; and such Selling
Shareholder has full legal right, power and authority to enter into and perform
its obligations under this Agreement and such Power of Attorney and Custody
Agreement, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Shareholder under this Agreement.
(d) Such Selling Shareholder will not,
during the Lock-up Period, effect the Disposition of any Securities now owned or
hereafter acquired directly by such Selling Shareholder or with respect to which
such Selling Shareholder has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, or transfers to family limited
partnerships or to trusts for the benefit of such holder and his or her family
or to the grantors and beneficiaries of holders which are trusts, provided that
each donee thereof agrees in writing to be bound by this restriction, or (ii)
with the prior written consent of Robertson, Stephens & Company LLC. The
foregoing restriction is expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than the Selling Shareholder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index)
-9-
<PAGE>
that includes, relates to or derives any significant part of its value from
Securities. Such Selling Shareholder also agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the securities held by such Selling Shareholder except in compliance
with this restriction.
(e) Certificates in negotiable form for all
Shares to be sold by such Selling Shareholder under this Agreement, together
with a stock power or powers duly endorsed in blank by such Selling Shareholder,
have been placed in custody with the Custodian for the purpose of effecting
delivery hereunder.
(f) This Agreement has been duly authorized
by each Selling Shareholder that is not a natural person and has been duly
executed and delivered by or on behalf of such Selling Shareholder and is a
valid and binding agreement of such Selling Shareholder, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; and the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation of any
of the terms and provisions of or constitute a default under any bond,
debenture, note or other evidence of indebtedness, or under any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which such Selling Shareholder is a party or by which
such Selling Shareholder, or any Selling Shareholder Shares or any Option Shares
to be sold by such Selling Shareholder hereunder, may be bound or, to the best
of such Selling Shareholders' knowledge, result in any violation of any law,
order, rule, regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over such Selling Shareholder or over the properties of such
Selling Shareholder, or, if such Selling Shareholder is other than a natural
person, result in any violation of any provisions of the charter, bylaws or
other organizational documents of such Selling Shareholder.
(g) Such Selling Shareholder has not taken
and will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Shareholder has not
distributed and will not distribute any prospectus or other offering material in
connection with the offering and sale of the Shares.
(i) All information furnished by or on
behalf of such Selling Shareholder relating to such Selling Shareholder and the
Selling Shareholder Shares that is contained in the representations and
warranties of such Selling Shareholder in such Selling Shareholder's Power of
Attorney or set forth in the Registration Statement or the Prospectus is, and at
the time the Registration Statement became or becomes, as the case may be,
effective and at all times subsequent thereto up to and on the Closing Date, and
on any later date on which Option Shares are to be purchased, was or will be,
true, correct and complete, and does not, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, and on any later date on which
Option Shares are to be purchased, will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make such information not misleading.
(j) Such Selling Shareholder will review the
Prospectus and will comply with all agreements and satisfy all conditions on its
part to be complied with or satisfied pursuant to this Agreement on or prior to
the Closing Date, or any later date on which Option Shares are to be purchased,
as the case may be, and will advise one of its Attorneys and Robertson, Stephens
& Company LLC prior to the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be,
-10-
<PAGE>
if any statement to be made on behalf of such Selling Shareholder in the
certificate contemplated by Section 6(h) would be inaccurate if made as of the
Closing Date or such later date on which Option Shares are to be purchased, as
the case may be.
(k) Such Selling Shareholder does not have
any preemptive right, co-sale right or right of first refusal or other similar
right to purchase any of the Shares that are to be sold by the Company or any of
the other Selling Shareholders to the Underwriters pursuant to this Agreement;
such Selling Shareholder does not have any registration right or other similar
right to participate in the offering made by the Prospectus; and such Selling
Shareholder does not own any warrants, options or similar rights to acquire, and
does not have any right or arrangement to acquire, any capital stock, rights,
warrants, options or other securities from the Company, other than those
described in the Registration Statement and the Prospectus.
(l) Such Selling Shareholder is familiar
with the Registration Statement and has no knowledge of any material fact,
condition or information not disclosed in the Registration Statement which has
adversely affected or may adversely affect the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company;
and the sale of the Selling Shareholders Shares and the Option Shares by such
Selling Shareholders is not prompted by any information concerning the Company
which is not set forth in the Registration Statement and Prospectus. The
information pertaining to such Selling Shareholder under the caption
"Management" and "Principal and Selling Shareholders" in the Prospectus is
complete and accurate in all material respects.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Shareholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Shareholders, respectively, at a purchase price of $_____ per share,
the respective number of Company Shares as hereinafter set forth and Selling
Shareholder Shares set forth opposite the names of the Company and the Selling
Shareholders in SCHEDULE B hereto. The obligation of each Underwriter to the
Company and to each Selling Shareholder shall be to purchase from the Company or
such Selling Shareholder that number of Company Shares or Selling Shareholder
Shares, as the case may be, which (as nearly as practicable, as determined by
you) is in the same proportion to the number of Company Shares or Selling
Shareholder Shares, as the case may be, set forth opposite the name of the
Company or such Selling Shareholder in SCHEDULE B hereto as the number of Firm
Shares which is set forth opposite the name of such Underwriter in SCHEDULE A
hereto (subject to adjustment as provided in Section 10) is to the total number
of Firm Shares to be purchased by all the Underwriters under this Agreement.
The certificates in negotiable form for the Selling
Shareholder Shares have been placed in custody (for delivery under this
Agreement) under the Custody Agreement. Each Selling Shareholder agrees that the
certificates for the Selling Shareholder Shares of such Selling Shareholder so
held in custody are subject to the interests of the Underwriters hereunder, that
the arrangements made by such Selling Shareholder for such custody, including
the Power of Attorney is to that extent irrevocable and that the obligations of
such Selling Shareholder hereunder shall not be terminated by the act of such
Selling Shareholder or by operation of law, whether by the death or incapacity
of such Selling Shareholder or the occurrence of any other event, except as
specifically provided herein or in the Custody Agreement. If any Selling
Shareholder should die or be incapacitated, or if any other such event should
occur, before the delivery of the certificates for the Selling Shareholder
Shares hereunder, the Selling Shareholder Shares to be sold by such Selling
Shareholder shall, except as specifically provided herein or in the Custody
Agreement, be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death, incapacity or other event had not
occurred, regardless of whether the Custodian shall have received notice of such
death or other event.
-11-
<PAGE>
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company with regard to the Shares being purchased from the Company, and
to the order of the Custodian for the respective accounts of the Selling
Shareholders with regard to the Shares being purchased from such Selling
Shareholders (and the Company and such Selling Shareholders agree not to deposit
and to cause the Custodian not to deposit any such check in the bank on which it
is drawn, and not to take any other action with the purpose or effect of
receiving immediately available funds, until the business day following the date
of its delivery to the Company or the Custodian, as the case may be, and, in the
event of any breach of the foregoing, the Company or the Selling Shareholders,
as the case may be, shall reimburse the Underwriters for the interest lost and
any other expenses borne by them by reason of such breach), at the offices of
Rubin Baum Levin Constant Friedman & Bilzin, 2500 First Union Financial Center,
Miami, FL 33131 (or at such other place as may be agreed upon among the
Representatives and the Company and the Attorneys), at 7:00 A.M., San Francisco
time (a) on the third (3rd) full business day following the first day that
Shares are traded, (b) if this Agreement is executed and delivered after 1:30
P.M., San Francisco time, the fourth (4th) full business day following the day
that this Agreement is executed and delivered or (c) at such other time and date
not later than seven (7) full business days following the first day that Shares
are traded as the Representatives, the Company and the Attorneys may determine
(or at such time and date to which payment and delivery shall have been
postponed pursuant to Section 10 hereof), such time and date of payment and
delivery being herein called the "Closing Date;" PROVIDED, HOWEVER, that if the
Company has not made available to the Representatives copies of the Prospectus
within the time provided in Section 4(d) hereof, the Representatives may, in
their sole discretion, postpone the Closing Date until no later than two (2)
full business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the Closing Date and will be in such
names and denominations as you may request, such request to be made at least two
(2) full business days prior to the Closing Date. If the Representatives so
elect, delivery of the Firm Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the
several Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), on the
inside front cover concerning stabilization and over- allotment by the
Underwriters, and under the second, sixth, seventh and eighth paragraphs under
the caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company and the Selling Shareholders that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or
-12-
<PAGE>
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees
with the several Underwriters that:
(a) The Company will use its best efforts to
cause the Registration Statement and any amendment thereof, if not effective at
the time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as soon as practicable; the Company will use its
best efforts to cause any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations as may be required subsequent to the date
the Registration Statement is declared effective to become effective as soon as
practicable; the Company will notify you, promptly after it shall receive notice
thereof, of the time when the Registration Statement, any subsequent amendment
to the Registration Statement or any abbreviated registration statement has
become effective or any supplement to the Prospectus has been filed; if the
Company omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence reasonably satisfactory to you
that the Prospectus contains such information and has been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (1) or (4)
of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective which
is declared effective by the Commission; if the Company files a term sheet
pursuant to Rule 434 of the Rules and Regulations, the Company will provide
evidence reasonably satisfactory to you that the Prospectus and term sheet
meeting the requirements of Rule 434(b) or (c), as applicable, of the Rules and
Regulations, have been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and
Regulations; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information; promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of Hale and Dorr LLP, counsel for the several
Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
under the Act to deliver a prospectus nine (9) months or more after the
effective date of the Registration Statement in connection with the sale of the
Shares, it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and such
prospectus or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act; and it will file no amendment or
supplement to the Registration Statement or Prospectus which shall not
previously have been submitted to you a reasonable time prior to the proposed
filing thereof or to which you shall reasonably object in writing, subject,
however, to compliance with the Act and the Rules and Regulations and the
provisions of this Agreement.
(b) The Company will advise you, promptly
after it shall receive notice or obtain knowledge, of the issuance of any stop
order by the Commission suspending the effectiveness of the Registration
Statement or of the initiation or threat of any proceeding for that purpose; and
it will
-13-
<PAGE>
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use its best efforts to
qualify the Shares for offering and sale under the securities laws of such
jurisdictions as you may designate and to continue such qualifications in effect
for so long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction in which it is not otherwise
required to be so qualified or to so execute a general consent to service of
process. In each jurisdiction in which the Shares shall have been qualified as
above provided, the Company will make and file such statements and reports in
each year as are or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon
as available, and, in the case of the Prospectus and any term sheet or
abbreviated term sheet under Rule 434, in no event later than the first (1st)
full business day following the first day that Shares are traded, copies of the
Registration Statement (three of which will be signed and which will include all
exhibits), each Preliminary Prospectus, the Prospectus and any amendments or
supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you may
from time to time reasonably request. Notwithstanding the foregoing, if
Robertson, Stephens & Company LLC, on behalf of the several Underwriters, shall
agree to the utilization of Rule 434 of the Rules and Regulations, the Company
shall provide to you copies of a Preliminary Prospectus updated in all respects
through the date specified by you in such quantities as you may from time to
time reasonably request.
(e) The Company will make generally
available to its security holders as soon as practicable, but in any event not
later than the forty-fifth (45th) day following the end of the fiscal quarter
first occurring after the first anniversary of the effective date of the
Registration Statement, an earnings statement (which shall be in reasonable
detail but need not be audited) complying with the provisions of Section 11(a)
of the Act and covering a twelve (12) month period beginning after the effective
date of the Registration Statement.
(f) During a period of five (5) years after
the date hereof, the Company will furnish to its Shareholders as soon as
practicable after the end of each respective year, annual reports (including
financial statements audited by independent certified public accountants) and
the Company will furnish to its shareholders upon request unaudited quarterly
reports of operations for each of the first three quarters of the fiscal year,
and will furnish to you and the other several Underwriters hereunder, upon
request (i) concurrently with making available such reports to its Shareholders,
statements of operations of the Company for each of the first three (3) quarters
in the form made available to the Company's Shareholders, (ii) concurrently with
furnishing to its Shareholders, a balance sheet of the Company as of the end of
such fiscal year, together with statements of operations, of Shareholders'
equity, and of cash flows of the Company for such fiscal year, accompanied by a
copy of the certificate or report thereon of independent certified public
accountants, (iii) as soon as they are available, copies of all reports
(financial or other) mailed to Shareholders, (iv) as soon as they are available,
copies of all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the National Association of Securities
Dealers, Inc. ("NASD"), (v) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to shareholders or prepared by the Company, and (vi) any additional
information of a public nature concerning the Company or its business which you
may reasonably request. During such five (5) year period, if the Company shall
have active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
-14-
<PAGE>
(g) The Company will apply the net proceeds
from the sale of the Shares being sold by it in the manner set forth under the
caption "Use of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer
agent and, if necessary under the jurisdiction of incorporation of the Company,
a registrar (which may be the same entity as the transfer agent) for its Common
Stock.
(i) The Company will file Form SR in
conformity with the requirements of the Act and the Rules and Regulations.
(j) If the transactions contemplated hereby
are not consummated by reason of any failure, refusal or inability on the part
of the Company or any Selling Shareholder to perform in any material respect any
agreement on their respective parts to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder (other than Section 6(e)),
or if the Company shall terminate this Agreement pursuant to Section 11(a)
hereof, or if the Underwriters shall terminate this Agreement pursuant to
Section 11(b)(i) (other than as a result of a failure of the condition set forth
in Section 6(e)), the Company shall reimburse the several Underwriters for all
reasonable out-of-pocket expenses (including reasonable fees and disbursements
of Underwriters' Counsel) incurred by the Underwriters in investigating or
preparing to market or marketing the Shares.
(k) If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Common Stock has been or
is likely to be materially adversely affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event; provided, however, that if, in the opinion of the
Company's legal counsel, such press release is not legally required, the Company
shall have the right not to disseminate such release.
(l) During the Lock-up Period, the Company
will not, without the prior written consent of Robertson Stephens & Company LLC,
effect the Disposition of, directly or indirectly, any Securities other than the
sale of the Company Shares and the Option Shares to be sold by the Company
hereunder and the Company's issuance of options or Common Stock under the
Company's presently authorized 1996 Incentive Stock Plan, the 1997 Employee
Stock Purchase Plan and the 1997 Non-employee Director Stock Option Plan
(collectively, the "Option Plans").
5. EXPENSES.
(a) The Company and each Selling Shareholder
agrees with each Underwriter that:
(i) The Company shall pay and bear all
costs and expenses in connection with the preparation, printing and filing of
the Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreement, the Preliminary Blue Sky Survey and
any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and Power of
Attorney, and any instruments related to any of the foregoing; the issuance and
delivery of the Shares hereunder to the several Underwriters, including transfer
taxes, if any, the cost of all certificates representing the Shares and transfer
agents' and registrars' fees; the fees and disbursements of counsel for the
Company; all fees and other charges of the Company's independent
-15-
<PAGE>
certified public accountants; the cost of furnishing to the several Underwriters
copies of the Registration Statement (including appropriate exhibits),
Preliminary Prospectus and the Prospectus, and any amendments or supplements to
any of the foregoing; NASD filing fees and the cost of qualifying the Shares
under the laws of such jurisdictions as you may designate (including filing fees
and fees and disbursements of Underwriters' Counsel in connection with such NASD
filings and Blue Sky qualifications); and all other expenses directly incurred
by the Company and the Selling Shareholders in connection with the performance
of their obligations hereunder; provided, however, that, notwithstanding the
foregoing, the Selling Shareholders shall pay and bear all underwriting
discounts and commissions with respect to the shares to be sold by the Selling
Shareholders. Any additional expenses incurred as a result of the sale of the
Shares by the Selling Shareholders will be borne by the Company. The
Underwriters shall be responsible for their own costs incurred in connection
with the road show. The provisions of this Section 5(a)(i) are intended to
relieve the Underwriters from the payment of the expenses and costs which the
Selling Shareholders and the Company hereby agree to pay, but shall not affect
any agreement which the Selling Shareholders and the Company may make, or may
have made, for the sharing of any of such expenses and costs. Such agreements
shall not impair the obligations of the Company and the Selling Shareholders
hereunder to the several Underwriters.
(ii) In addition to its other
obligations under Section 8(a) hereof, the Company agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(a) hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Underwriters shall promptly return
such payment to the Company together with interest, compounded daily, determined
on the basis of the prime rate (or other commercial lending rate for borrowers
of the highest credit standing) listed from time to time in THE WALL STREET
JOURNAL which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(iii) In addition to their other
obligations under Section 8(b) hereof, each Selling Shareholder agrees that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(b) hereof relating to such
Selling Shareholder, he will reimburse the Underwriters (to the extent the
Underwriters have not been reimbursed by the Company pursuant to Section
5(a)(ii) above) on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of such Selling
Shareholder's obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Selling Shareholders, together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Underwriters within
thirty (30) days of a request for reimbursement shall bear interest at the Prime
Rate from the date of such request.
(b) In addition to their other obligations
under Section 8(c) hereof, the Underwriters severally and not jointly agree
that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding described in Section 8(c) hereof,
they will reimburse the Company and each Selling Shareholder on a monthly basis
for all reasonable legal or other expenses
-16-
<PAGE>
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and each such Selling
Shareholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have been
improper, the Company and each such Selling Shareholder shall promptly return
such payment to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company and each such Selling Shareholder
within thirty (30) days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(c) It is agreed that any controversy
arising out of the operation of the interim reimbursement arrangements set forth
in Sections 5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any
requested reimbursement payments, the method of determining such amounts and the
basis on which such amounts shall be apportioned among the reimbursing parties,
shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock Exchange,
Inc. or pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for arbitration or
a written notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such arbitration
will be limited to the operation of the interim reimbursement provisions
contained in Sections 5(a)(ii), 5(a)(iii) and 5(b) hereof and will not resolve
the ultimate propriety or enforceability of the obligation to indemnify for
expenses which is created by the provisions of Sections 8(a), 8(b) and 8(c)
hereof or the obligation to contribute to expenses which is created by the
provisions of Section 8(e) hereof.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date and
any later date on which Option Shares are to be purchased, as the case may be,
of the representations and warranties of the Company and the Selling
Shareholders herein, to the performance by the Company and the Selling
Shareholders of their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have
become effective not later than 2:00 P.M., San Francisco time, on the date
following the date of this Agreement, or such later date as shall be consented
to in writing by you; and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
initiated or, to the knowledge of the Company, any Selling Shareholder or any
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel.
(b) All corporate proceedings and other
legal matters in connection with this Agreement, the form of Registration
Statement and the Prospectus, and the registration, authorization, issue, sale
and delivery of the Shares, shall have been reasonably satisfactory to
Underwriters' Counsel, and such counsel shall have been furnished with such
papers and information as they may reasonably have requested to enable them to
pass upon the matters referred to in this Section 6.
(c) Subsequent to the execution and delivery
of this Agreement and prior to the Closing Date, or any later date on which
Option Shares are to be purchased, as the case may be, there shall not have been
any change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company from that set forth in the
Registration Statement or Prospectus, which,
-17-
<PAGE>
in your sole judgment, is material and adverse or that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus; and
(d) You shall have received on the Closing
Date and on any later date on which Option Shares are to be purchased, as the
case may be, the following opinion of counsel for the Company and the Selling
Shareholders, dated the Closing Date or such later date on which Option Shares
are to be purchased, addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters, to the effect that:
(i) The Company has been duly
incorporated and its status is active under the laws of the jurisdiction of its
incorporation;
(ii) The Company has the corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) The Company is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure to
be so qualified or be in good standing would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company. To such counsel's knowledge, the Company does
not own or control, directly or indirectly, any corporation, association or
other entity;
(iv) The authorized, issued and
outstanding capital stock of the Company is as set forth in the Prospectus under
the caption "Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company (including the Selling
Shareholder Shares) have been duly and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, will not have been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right;
(v) The Firm Shares or the Option
Shares, as the case may be, to be issued by the Company pursuant to the terms of
this Agreement have been duly authorized and, upon issuance and delivery against
payment therefor in accordance with the terms hereof, will be duly and validly
issued and fully paid and nonassessable, and, to such counsel's knowledge, will
not have been issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar right;
(vi) The Company has the corporate power
and authority to enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;
(vii) This Agreement has been duly
authorized by all necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company and, assuming due authorization,
execution and delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except insofar as indemnification
provisions may be limited by applicable law and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general equitable
principles;
(viii) The Registration Statement has
become effective under the Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has
-18-
<PAGE>
been issued and no proceedings for that purpose have been instituted or are
pending or threatened under the Act;
(ix) The Registration Statement and the
Prospectus, and each amendment or supplement thereto (other than the financial
statements (including supporting schedules) and financial data derived therefrom
as to which such counsel need express no opinion), as of the effective date of
the Registration Statement, complied as to form in all material respects with
the requirements of the Act and the applicable Rules and Regulations;
(x) The information in the Prospectus
under the caption "Description of Capital Stock," to the extent that it
constitutes matters of law or legal conclusions, has been reviewed by such
counsel and is a fair summary of such matters and conclusions; and the form of
certificate evidencing the Common Stock and filed as an exhibit to the
Registration Statement complies with Florida law;
(xi) The description in the Registration
Statement and the Prospectus of the charter and bylaws of the Company and of
statutes are accurate and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations;
(xii) To such counsel's knowledge, there
are no agreements, contracts, leases or documents to which the Company is a
party of a character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as required;
(xiii) The performance of this Agreement
and the consummation of the transactions herein contemplated (other than
performance of the Company's indemnification obligations hereunder, concerning
which no opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any bond, debenture, note or other evidence of indebtedness, or
any lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel which is material
to the Company, its properties or operations (including, without limitation,
each lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement included as an exhibit to the Registration Statement)
and to which the Company is a party or by which its properties are bound, or any
applicable statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company, or over any of
its properties or operations;
(xiv) No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body having jurisdiction over the Company, or over any of
its properties or operations is necessary in connection with the consummation by
the Company of the transactions herein contemplated, except such as have been
obtained under the Act or such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the distribution
of the Shares by the Underwriters;
(xv) To such counsel's knowledge, there
are no legal or governmental proceedings pending or threatened against the
Company of a character required to be disclosed in the Registration Statement or
the Prospectus by the Act or the Rules and Regulations, other than those
described therein;
(xvi) To such counsel's knowledge, the
Company is not presently (a) in violation of its charter or bylaws, or (b) in
breach of any applicable statute, rule or regulation known to
-19-
<PAGE>
such counsel or, to such counsel's knowledge, any order, writ or decree of any
court or governmental agency or body having jurisdiction over the Company, or
over any of its properties or operations;
(xvii) To such counsel's knowledge, no
holders of Common Stock or other securities of the Company have registration
rights with respect to securities of the Company;
(xviii) The Power of Attorney and
Custody Agreement of each Selling Shareholder has been duly executed and
delivered by or on behalf of such Selling Shareholder; and the Power of Attorney
and Custody Agreement of each Selling Shareholder constitutes the valid and
binding agreement of such Selling Shareholder, enforceable in accordance with
its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles;
(xix) To such counsel's knowledge, each
of the Selling Shareholders has full right, power and authority to enter into
and to perform its obligations under this Agreement and to sell, transfer,
assign and deliver the Shares to be sold by such Selling Shareholder hereunder;
(xx) This Agreement has been duly
executed and delivered by or on behalf of each Selling Shareholder; and
(xxi) Upon the delivery of and payment
for the Shares as contemplated by this Agreement, each of the Underwriters will
receive valid marketable title to the Shares purchased by it from such Selling
Shareholder, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest. In rendering such opinion, such counsel may assume
that the Underwriters are without notice of any defect in the title of the
Shares being purchased from the Selling Shareholders.
In addition, such counsel shall state that
such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
Arthur Anderson LLP, the independent certified public accountants of the
Company, at which such conferences the contents of the Registration Statement
and Prospectus and related matters were discussed, and although they have not
verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel which leads them to believe that, at the time the Registration
Statement became effective and at all times subsequent thereto up to and on the
Closing Date and on any later date on which Option Shares are to be purchased,
the Registration Statement and any amendment or supplement thereto (other than
the financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the Closing Date or any later date on
which the Option Shares are to be purchased, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement thereto
(except as aforesaid) contained any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may
rely as to questions of law not involving the laws of the United States or the
State of Florida upon opinions of local counsel, and as to questions of fact
upon representations or certificates of officers of the Company, the Selling
Shareholders or officers of the Selling Shareholders (when the Selling
Shareholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
-20-
<PAGE>
(e) You shall have received on the Closing
Date and on any later date on which Option Shares are to be purchased, as the
case may be, an opinion of Underwriters' Counsel, in form and substance
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing
Date and on any later date on which Option Shares are to be purchased, as the
case may be, a letter from Arthur Andersen LLP addressed to the Underwriters,
dated the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations and based upon the procedures
described in such letter delivered to you concurrently with the execution of
this Agreement (herein called the "Original Letter"), but carried out to a date
not more than five (5) business days prior to the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of such letter, or to reflect
the availability of more recent financial statements, data or information. The
letter shall not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company from that
set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from Arthur Andersen LLP
shall be addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the balance sheet of the Company as of December 31, 1994, 1995 and 1996, and
related statements of operations, shareholders' equity, and cash flows for the
twelve (12) months ended December 31, 1994, 1995 and 1996, (iii) state that
Arthur Andersen LLP has performed the procedures set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information for each of the quarters in the two-quarter period ended June 30,
1997 (the "Quarterly Financial Statements"), (iv) state that in the course of
such review, nothing came to their attention that leads them to believe that any
material modifications need to be made to any of the Quarterly Financial
Statements in order for them to be in compliance with generally accepted
accounting principles consistently applied across the periods presented, and (v)
address other matters agreed upon by Arthur Andersen LLP and you. In addition,
you shall have received from Arthur Andersen LLP a letter addressed to the
Company and made available to you for the use of the Underwriters stating that
their review of the Company's system of internal accounting controls, to the
extent they deemed necessary in establishing the scope of their examination of
the Company's financial statements as of December 31, 1996, did not disclose any
weaknesses in internal controls that they considered to be material weaknesses.
(g) You shall have received on the Closing
Date and on any later date on which Option Shares are to be purchased, as the
case may be, a certificate of the Company, dated the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, signed by a
Co-Chief Executive Officer and the Chief Financial Officer of the Company, to
the effect that, and you shall be satisfied that:
(i) The representations and warranties
of the Company in this Agreement are true and correct, as if made on and as of
the Closing Date or any later date on which Option Shares are to be purchased,
as the case may be, and the Company has performed in all material
-21-
<PAGE>
respects and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be;
(ii) No stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or, to the knowledge of the
Company, threatened under the Act;
(iii) When the Registration Statement
became effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and any amendments
or supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations and in all material
respects conformed to the requirements of the Act and the Rules and Regulations,
the Registration Statement, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, the Prospectus, and any amendment or supplement thereto,
did not and does not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates
as of which information is given in the Registration Statement and Prospectus,
there has not been (a) any material adverse change in the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company, (b) any transaction that is or series of transactions that are material
to the Company, (c) any obligation, direct or contingent, that is material to
the Company, incurred by the Company, (d) any change in the capital stock or
outstanding indebtedness of the Company that is material to the Company, (e) any
dividend or distribution of any kind declared, paid or made on the capital stock
of the Company, except as described in the Prospectus, or (f) any loss or damage
(whether or not insured) to the property of the Company which has been sustained
or will have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company.
(h) You shall be satisfied that, and you
shall have received a certificate, dated the Closing Date, or any later date on
which Option Shares are to be purchased, as the case may be, from the Attorneys
for each Selling Shareholder to the effect that, as of the Closing Date, or any
later date on which Option Shares are to be purchased, as the case may be, they
have not been informed that:
(i) The representations and warranties
made by such Selling Shareholder herein are not true or correct on the Closing
Date or on any later date on which Option Shares are to be purchased, as the
case may be; or
(ii) Such Selling Shareholder has not
complied in any material respect with any obligation or satisfied any condition
which is required to be performed or satisfied on the part of such Selling
Shareholder at or prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be.
(i) The Company shall have obtained and
delivered to you an agreement from each officer, director and shareholder of the
Company in writing prior to the date hereof that such holder of Securities will
not, during the Lock-up Period, effect the Disposition of any Securities now
owned or hereafter acquired directly by such person or with respect to which
such holder of Securities has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, transfers to family limited
partnerships or to trusts for the benefit of such holder and his or her family,
or transfers to the grantors and beneficiaries of holders which are trusts,
provided that, in each case, each donee or transferee
-22-
<PAGE>
thereof agrees in writing to be bound by this restriction or (ii) with the prior
written consent of Robertson, Stephens & Company LLC. The foregoing restriction
shall have been expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than such
holder. Such prohibited hedging or other transactions would include, without
limitation, any short sale (whether or not against the box) or any purchase,
sale or grant of any right (including, without limitation, any put or call
option) with respect to any Securities or with respect to any security (other
than a broad-based market basket or index) that includes, relates to or derives
any significant part of its value from Securities. Furthermore, such holder
shall have also agreed and consented to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the Securities held by
such holder except in compliance with this restriction.
(j) The Company and the Selling Shareholders
shall have furnished to you such further certificates and documents as you shall
reasonably request (including certificates of officers of the Company, the
Selling Shareholders or officers of the Selling Shareholders (when the Selling
Shareholder is not a natural person) as to the accuracy of the representations
and warranties of the Company and the Selling Shareholders herein, as to the
performance by the Company and the Selling Shareholders of their respective
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
(k) The Company and the Selling Shareholders
shall have entered into an S Corporation Tax Allocation and Indemnification
Agreement in form and substance reasonably satisfactory to you.
All such opinions, certificates, letters and
documents will be in compliance with the provisions hereof only if they are
reasonably satisfactory to Underwriters' Counsel. The Company and the Selling
Shareholders shall furnish you with such number of conformed copies of such
opinions, certificates, letters and documents as you shall reasonably request.
7. OPTION SHARES.
(a) On the basis of the representations,
warranties and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company and the Selling Shareholders hereby
grant, severally and not jointly, to the several Underwriters, for the purpose
of covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to an aggregate of
555,000 Option Shares at the purchase price per share for the Firm Shares set
forth in Section 3 hereof. Such option may be exercised by the Representatives
on behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of thirty (30) days after the date on which the Firm
Shares are initially offered to the public by giving written notice to the
Company and the Attorneys. The maximum aggregate number of shares of Option
Stock to be sold by the Company and each Selling Shareholder is set forth
opposite their respective names on SCHEDULE B hereto. The number of Option
Shares to be purchased by each Underwriter upon the exercise of such option
shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in SCHEDULE A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in SCHEDULE A hereto), adjusted by the Representatives
in such manner as to avoid fractional shares.
The certificates in negotiable form for the
Selling Shareholder Shares have been placed in custody (for delivery under this
Agreement) under the Custody Agreement. Each Selling Shareholder agrees that the
certificates for the Selling Shareholder Shares of such Selling Shareholder so
held in custody are subject to the interests of the Underwriters hereunder, that
the arrangements made by
-23-
<PAGE>
such Selling Shareholder for such custody, including the Power of Attorney is to
that extent irrevocable and that the obligations of such Selling Shareholder
hereunder shall not be terminated by the act of such Selling Shareholder or by
operation of law, whether by the death or incapacity of such Selling Shareholder
or the occurrence of any other event, except as specifically provided herein or
in the Custody Agreement. If any Selling Shareholder should die or be
incapacitated, or if any other such event should occur, before the delivery of
the certificates for the Selling Shareholder Shares hereunder, the Selling
Shareholder Shares to be sold by such Selling Shareholder shall, except as
specifically provided herein or in the Custody Agreement, be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such death, incapacity or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death or other event.
Delivery of definitive certificates for the
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of the option granted by this Section 7 shall be made against payment
of the purchase price therefor by the several Underwriters by certified or
official bank check or checks drawn in next-day funds, payable to the order of
the Company with regard to the Option Shares being purchased from the Company,
and payable to the order of the Custodian for the respective accounts of the
Selling Shareholders with regard to the Option Shares being purchased from the
Selling Shareholders (and the Company and the Selling Shareholders agree not to
deposit (and to cause the Custodian not to deposit) any such check in the bank
on which it is drawn, and not to take any other action with the purpose or
effect of receiving immediately available funds, until the business day
following the date of its delivery to the Custodian). In the event of any breach
of the foregoing, the Company or the Selling Shareholders, as the case may be,
shall reimburse the Underwriters for the interest lost and any other expenses
borne by them by reason of such breach. Such delivery and payment shall take
place at the offices of Rubin Baum Levin Constant Friedman & Bilzin, 2500 First
Union Financial Center, Miami, FL 33131, or at such other place as may be agreed
upon among the Representatives, the Company and the Attorneys (i) on the Closing
Date, if written notice of the exercise of such option is received by the
Company and the Attorneys at least two (2) full business days prior to the
Closing Date, or (ii) on a date which shall not be later than the third (3rd)
full business day following the date the Company and the Attorneys receive
written notice of the exercise of such option, if such notice is received by the
Company and the Attorneys less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be
so delivered will be made available to you at such office or such other location
including, without limitation, in New York City, as you may reasonably request
for checking at least one (1) full business day prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date of
payment and delivery. If the Representatives so elect, delivery of the Option
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives.
It is understood that you, individually, and
not as the Representatives of the several Underwriters, may (but shall not be
obligated to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the date of payment and delivery for the Option Shares to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for
in Section 7(a) hereof, the obligations of the several Underwriters to purchase
such Option Shares will be subject (as of the date hereof and as of the date of
payment and delivery for such Option Shares) to the accuracy of the
representations and warranties, and compliance in all material respects with the
agreements of the Company and the Selling Shareholders herein, to the accuracy
of the statements of the Company, the Selling Shareholders and officers of the
Company made pursuant to the provisions hereof, to the
-24-
<PAGE>
performance by the Company and the Selling Shareholders of their respective
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be reasonably
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may request in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance in all material
respects of any of the covenants or agreements of the Company and the Selling
Shareholders or the satisfaction of any of the conditions herein contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold
harmless each Underwriter against any losses, claims, damages or liabilities (or
legal actions in respect thereof), joint or several, to which such Underwriter
may become subject (including, without limitation, in its capacity as an
Underwriter or as a "qualified independent underwriter" within the meaning of
Schedule E of the Bylaws of the NASD), under the Act, the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or otherwise, arising out of or
based upon (i) any breach of any representation, warranty, agreement or covenant
of the Company herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof; and, PROVIDED FURTHER, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations.
The indemnity agreement in this Section 8(a)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter within the meaning
of the Act or the Exchange Act. This indemnity agreement shall be in addition to
any liabilities which the Company may otherwise have.
(b) Each Selling Shareholder, severally and
not jointly, agrees to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities (or legal actions in respect thereof),
joint or several, to which such Underwriter may become subject (including,
without limitation, in its capacity as an Underwriter or as a "qualified
independent underwriter" within the meaning of Schedule E or the Bylaws of the
NASD) under the Act, the Exchange Act or otherwise, arising out of or based upon
(i) any breach of any representation, warranty, agreement or covenant of the
Company herein contained, (ii) any breach of any representation, warranty,
agreement or covenant of such
-25-
<PAGE>
Selling Shareholder herein contained, (iii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iv) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and agrees to reimburse each Underwriter for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the Selling Shareholders shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or any such amendment or supplement thereto, in reliance upon, and
in conformity with, written information relating to any Underwriter furnished to
the Company by such Underwriter, directly or through you, specifically for use
in the preparation thereof; and, PROVIDED FURTHER, that the indemnity agreement
provided in this Section 8(b) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of a material fact or omission or alleged omission
to state therein a material fact purchased Shares, if a copy of the Prospectus
in which such untrue statement or alleged untrue statement or omission or
alleged omission was corrected had not been sent or given to such person within
the time required by the Act and the Rules and Regulations, unless such failure
is the result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each person, if any, who controls any Underwriter within the meaning
of the Act or the Exchange Act. This indemnity agreement shall be in addition to
any liabilities which such Selling Shareholder may otherwise have.
(c) Each Underwriter, severally and not
jointly, agrees to indemnify and hold harmless the Company and each Selling
Shareholder against any losses, claims, damages or liabilities (or legal actions
in respect thereof), joint or several, to which the Company or such Selling
Shareholder may become subject under the Act or otherwise, arising out of or
based upon (i) any breach of any representation, warranty, agreement or covenant
of such Underwriter herein contained, (ii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(c) to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof, and agrees to reimburse the Company and each such Selling Shareholder
for any legal or other expenses reasonably incurred by the Company and each such
Selling Shareholder in connection with investigating or defending any such loss,
claim, damage, liability or action.
The indemnity agreement in this Section 8(c)
shall extend upon the same terms and conditions to, and shall inure to the
benefit of, each officer of the Company who signed the Registration Statement
and each director of the Company, each Selling Shareholder and each person, if
any, who controls the Company or any Selling Shareholder within the meaning of
the Act or the Exchange
-26-
<PAGE>
Act. This indemnity agreement shall be in addition to any liabilities which
each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified
party under this Section 8 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof but the omission to so notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; PROVIDED,
HOWEVER, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
shall not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with appropriate
local counsel) approved by the indemnifying party representing all the
indemnified parties under Section 8(a), 8(b) or 8(c) hereof, as the case may be,
who are parties to such action), (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. In no event
shall any indemnifying party be liable in respect of any amounts paid in
settlement of any action unless the indemnifying party shall have approved the
terms of such settlement; PROVIDED that such consent shall not be unreasonably
withheld. No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnification could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on all claims that are the subject matter of such
proceeding.
(e) In order to provide for just and
equitable contribution in any action in which a claim for indemnification is
made pursuant to this Section 8 but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, all the parties
hereto shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that, except as set forth in Section 8(f) hereof, the Underwriters severally
and not jointly are responsible pro rata for the portion represented by the
percentage that the underwriting discount bears to the initial public offering
price, and the Company and the Selling Shareholders are responsible for the
remaining portion, PROVIDED, HOWEVER, that (i) no Underwriter shall be required
to contribute any amount in excess of the amount by which the underwriting
discount applicable to the Shares purchased by such Underwriter exceeds the
amount of damages which such Underwriter has otherwise required to pay and (ii)
no person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from
-27-
<PAGE>
any person who is not guilty of such fraudulent misrepresentation. The
contribution agreement in this Section 8(e) shall extend upon the same terms and
conditions to, and shall inure to the benefit of, each person, if any, who
controls any Underwriter, the Company or any Selling Shareholder within the
meaning of the Act or the Exchange Act and each officer of the Company who
signed the Registration Statement and each director of the Company.
(f) The aggregate liability of each Selling
Shareholder under the representations, warranties, covenants and agreements
contained in this Agreement and under the indemnity and contribution agreements
contained in the provisions of this Section 8 shall be limited to an aggregate
amount equal to the sum of (i) the initial public offering price of the Selling
Shareholder Shares sold by such Selling Shareholder to the Underwriters (minus
the amount of the underwriting discount paid thereon to the Underwriters by such
Selling Shareholder) plus (ii) an amount equal to 60.4% of the aggregate amount
received by such Selling Shareholder from the Company in the form of a dividend
as described in the portion of the Prospectus entitled "Distribution of S
Corporation Earnings." The Company and such Selling Shareholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 8, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 8 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Act and the Exchange Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO
SURVIVE DELIVERY. All representations, warranties, covenants and agreements of
the Company, the Selling Shareholders and the Underwriters herein or in
certificates delivered pursuant hereto, and the indemnity and contribution
agreements contained in Section 8 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter within the meaning of the
Act or the Exchange Act, or by or on behalf of the Company or any Selling
Shareholder, or any of their officers, directors or controlling persons within
the meaning of the Act or the Exchange Act, and shall survive the delivery of
the Shares to the several Underwriters hereunder or termination of this
Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or
Underwriters shall fail to take up and pay for the number of Firm Shares agreed
by such Underwriter or Underwriters to be purchased hereunder upon tender of
such Firm Shares in accordance with the terms hereof, and if the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters so
agreed but failed to purchase does not exceed 10% of the Firm Shares, the
remaining Underwriters shall be obligated, severally in proportion to their
respective commitments hereunder, to take up and pay for the Firm Shares of such
defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed to take up and pay for exceeds 10% of the Firm
Shares, the remaining Underwriters shall have the right, but shall not be
obligated, to take up and pay for (in such proportions as may be agreed upon
among them) the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase, the Closing Date
shall be postponed for twenty-four (24) hours to allow the several Underwriters
the privilege of substituting within twenty-four (24) hours
-28-
<PAGE>
(including non-business hours) another underwriter or underwriters (which may
include any nondefaulting Underwriter) reasonably satisfactory to the Company.
If no such underwriter or underwriters shall have been substituted as aforesaid
by such postponed Closing Date, the Closing Date may, at the option of the
Company, be postponed for a further twenty-four (24) hours, if necessary, to
allow the Company the privilege of finding another underwriter or underwriters,
satisfactory to you, to purchase the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement, supplements to the Prospectus or other
such documents which may thereby be made necessary, and (ii) the respective
number of Firm Shares to be purchased by the remaining Underwriters and
substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to
the preceding paragraph of this Section 10, neither the Company nor any Selling
Shareholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Shareholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Shareholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any
person substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at
the earlier of (i) 6:30 A.M., San Francisco time, on the first full business day
following the effective date of the Registration Statement, or (ii) the time of
the initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which the
Shares are first generally offered by the Underwriters to the public by letter,
telephone, telegram or telecopy, whichever shall first occur. By giving notice
as set forth in Section 12 before the time this Agreement becomes effective,
you, as Representatives of the several Underwriters, or the Company, may prevent
this Agreement from becoming effective without liability of any party to any
other party, except as provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several
Underwriters, shall have the right to terminate this Agreement by giving notice
as hereinafter specified at any time on or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the case
may be, (i) if the Company or any Selling Shareholder shall have failed, refused
or been unable to perform in any material respect any agreement on his part to
be performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled is not fulfilled, including, without
limitation, any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company from that set forth in
the Registration Statement or Prospectus, which, in your sole
-29-
<PAGE>
judgment, is material and adverse, or (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices shall
have been generally established on the New York Stock Exchange or on the
American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 11, you shall
promptly notify the Company by telephone, telecopy or telegram, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone, telecopy
or telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except
as herein otherwise specifically provided, shall be in writing and if sent to
you shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to you c/o Robertson, Stephens & Company
LLC, 555 California Street, Suite 2600, San Francisco, California 94104,
telecopier number (415) 781-0278, Attention: General Counsel; if sent to the
Company, such notice shall be mailed, delivered, telegraphed (and confirmed by
letter) or telecopied (and confirmed by letter) to Omega Research, Inc., 8700
West Flagler Street, Suite 250, Miami, FL 33174-2428, telecopier number (305)
221-9115, Attention: Marc J. Stone, General Counsel,; if sent to one or more of
the Selling Shareholders, such notice shall be sent mailed, delivered,
telegraphed (and confirmed by letter) or telecopied (and confirmed by letter) to
Salomon Sredni and Marc J. Stone, as Attorneys-in-Fact for the Selling
Shareholders, c/o Omega Research, Inc., 8700 West Flagler Street, Suite 250,
Miami, FL 33174-2428, telecopier number (305) 221-9115.
13. PARTIES. This Agreement shall inure to the benefit of and
be binding upon the several Underwriters and the Company and the Selling
Shareholders and their respective legal representatives, executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or entity, other
than the parties hereto and their respective legal representatives, executors,
administrators, successors and assigns, and the controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 8 hereof, any legal or equitable right, remedy or claim in respect of
this Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective legal
representatives, executors, administrators, successors and assigns and said
controlling persons and said officers and directors, and for the benefit of no
other person or entity. No purchaser of any of the Shares from any Underwriter
shall be construed a successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Shareholders
under this Agreement, you shall act on behalf of each of the several
Underwriters, and the Company and the Selling Shareholders
-30-
<PAGE>
shall be entitled to act and rely upon any statement, request, notice or
agreement made or given by you jointly or by Robertson, Stephens & Company LLC
on behalf of you.
14. DEFAULT BY SELLING SHAREHOLDERS. If on any Closing Date
any Selling Shareholder fails to sell the Shares or Option Shares which such
Selling Shareholder has agreed to sell on such date as set forth in SCHEDULE B
hereto, the Company agrees that it will sell or arrange for the sale of that
number of shares of Common Stock to the Underwriters which represents the Shares
or Option Shares which such Selling Shareholder has failed to so sell, as set
forth in SCHEDULE B hereto, or such fewer number of shares as may be requested
by the Underwriters.
15. ATTORNEYS. Any person executing and delivering this
Agreement as Attorney-in-fact for the Selling Shareholders represents by so
doing that he has been duly appointed as Attorney-in-fact by such Selling
Shareholder pursuant to a validly existing and binding Power of Attorney which
authorizes such Attorney-in-fact to take such action.
16. APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Florida.
17. COUNTERPARTS. This Agreement may be signed in several
counterparts, each of which will constitute an original.
[This space intentionally left blank]
-31-
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Shareholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Shareholders
and the several Underwriters.
Very truly yours,
OMEGA RESEARCH, INC.
By
---------------------------------
Chairman of the Board
and Co-Chief Executive Officer
By
---------------------------------
Attorney-in-Fact for the Selling Shareholders
named in SCHEDULE B hereto
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
LEHMAN BROTHERS INC.
HAMBRECHT & QUIST LLC
On their behalf and on behalf of each of the
several Underwriters named in SCHEDULE A hereto.
By: ROBERTSON, STEPHENS & COMPANY LLC
By: ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By:
----------------------------------
Authorized Signatory
-32-
<PAGE>
SCHEDULE A
NUMBER OF
FIRM SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ ---------
ROBERTSON, STEPHENS & COMPANY LLC....................................
LEHMAN BROTHERS INC..................................................
HAMBRECHT & QUIST LLC................................................
Total................................................................
-1-
<PAGE>
SCHEDULE B
NUMBER OF NUMBER OF
COMPANY SHARES OPTION SHARES
TO TO
COMPANY BE SOLD BE SOLD(2)
- ------- -------------- --------------
Omega Research, Inc............ 2,600,000 390,000
Total:......................... 2,600,000 390,000
========= =======
NUMBER OF NUMBER OF
SELLING SHAREHOLDER OPTION
SHARES TO SHARES TO
NAME OF SELLER SHAREHOLDER BE SOLD BE SOLD
- -------------------------- ------------------- ----------
William R. Cruz................ 550,000 82,500
Ralph L. Cruz.................. 550,000 82,500
Total.......................... 1,100,000 165,000
========= =======
Total................ 3,700,000 555,000
- ------------
(2) In the event the Underwriters elect to purchase less than 555,000 Option
Shares, the shares to be purchased shall be allocated among the Company and
the Selling Shareholders in the same proportion as the number of Option
Shares to sold by the Company and the Selling Shareholders as set forth on
Schedule B above bears to 555,000.
-2-
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
[GRAPHIC OMITTED]
COMMON STOCK OMEGA COMMON STOCK
NUMBER RESEARCH SHARES
OR INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
SEE REVERSE FPR
CERTAIN DEFINITIONS
CUSIP 68211E 10 1
</TABLE>
THIS CERTIFIES THAT
IS THE RECORD OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE PAR VALUE
OF $.01 EACH OF THE COMMON STOCK OF
OMEGA RESEARCH, INC.
(Hereinafter referred to as the "CORPORATION") transferable on the books of the
corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate is not valid
unless countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
SECRETARY PRESIDENT
[SEAL]
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY (New York, N.Y.)
Transfer Agent
and Registrar
By:
AUTHORIZED SIGNATURE
<PAGE>
OMEGA RESEARCH, INC.
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT
CHARGE A FULL STATEMENT OF: (A) THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES
AND LIMITATIONS APPLICABLE TO EACH CLASS OF CAPITAL STOCK AUTHORIZED TO BE
ISSUED; (B) THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED
FOR EACH SERIES AUTHORIZED TO BE ISSUED WITHIN EACH SUCH CLASS; AND (C) THE
AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE SUCH VARIATIONS FOR SUBSEQUENT
SERIES. REQUESTS MAY BE DIRECTED TO THE SECRETARY OF THE CORPORATION OR TO THE
TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -- (Cust) _______ Custodian (Minor) _______ under Uniform
Gifts to Minors Act (State) __________________
Additional abbreviations may also be used though not in the above list.
For Value Received _____________ hereby sells, assigns and transfers unto
_______________________________________________________________________________
_______________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
_____________________ shares of the common stock represented by the within
Certificate and does hereby irrevocably constitute and appoint ________________
_______________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
DATED: _______________________________ SIGNED: ______________________________
SIGNED: ______________________________
NOTICE: The signature(s) on this
assignment must conform in all
respects with the name as written upon
the face of this Certificate.
SIGNATURE(S) GUARANTEED
By: ________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(SUCH AS BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT
UNIONS) WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM.
EXHIBIT 10.1
OMEGA RESEARCH, INC.
AMENDED AND RESTATED
1996 INCENTIVE STOCK PLAN*
1. PURPOSE. The OMEGA RESEARCH, INC. Amended and Restated 1996
Incentive Stock Plan (the "Plan") is intended to provide incentives which will
attract and retain highly competent persons at all levels as 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 ss. 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
- --------
*As amended by the Company's Board of Directors and approved by the Company's
shareholders on August 14, 1997.
<PAGE>
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 employees
or prospective employees (conditioned upon, and effective not earlier than his
becoming an employee) of the Company, and independent contractors (including
persons other than individuals) providing consulting or advisory services to the
Company, as the Committee in its sole discretion determines to be 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.
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:
(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.
2
<PAGE>
(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 automatically without further
action by the Committee on the date of such failure to continue to meet the
requirements of Section 422 of the Code.
(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.
3
<PAGE>
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 or
other contractual arrangement 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 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.
4
<PAGE>
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, her or its 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 or contractual relationship
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 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
5
<PAGE>
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, her or its 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 or contractual relationship
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 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
6
<PAGE>
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
stock options and/or stock appreciation rights and/or the obligation to make
future grants of options or rights to employees or other persons affiliated with
the 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 such participant otherwise than as
required by law or by will or the laws of descent and distribution, and shall be
exercisable, in the case of an individual, only by him during his lifetime. 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:
(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
7
<PAGE>
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. In the case of a participant who is not an
individual, transferability shall be determined by the Committee in its sole and
absolute discretion.
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
or contractual relationship 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 requirements prior to the delivery of any certificates for such
Common Shares. The Committee may,
8
<PAGE>
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 person'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.
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).
9
<PAGE>
19. SHAREHOLDER APPROVAL. The 1996 Incentive Stock Plan was
originally adopted by the Board of the Company and approved by the Company's
shareholders effective June 30, 1996 and the Plan, as amended and restated
herein was adopted by the Board of the Company and approved by the Company's
shareholders as of August 14, 1997.
10
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
"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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT C
ESCROW AGREEMENT
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT D
QA TEST SCRIPT
<PAGE>
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,
<PAGE>
%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.
<PAGE>
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.
<PAGE>
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 (e.g. OptionStation /trademark/****************).
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
EXHIBIT 10.6
S CORPORATION TAX ALLOCATION
AND INDEMNIFICATION AGREEMENT
THIS S CORPORATION TAX ALLOCATION AND INDEMNIFICATION AGREEMENT (the
"Agreement") is made and entered into this ____ day of _____________, 1997
between OMEGA RESEARCH, INC., a Florida corporation (the "Company"), and WILLIAM
R. CRUZ, RALPH L. CRUZ, MICHELLE R. CRUZ, THE WILLIAM R. CRUZ 1997 GRANTOR
RETAINED ANNUITY TRUST #1 and THE RALPH L. CRUZ GRANTOR RETAINED ANNUITY TRUST
#1 (collectively, the "Stockholders") (the Company and the Stockholders are
hereinafter referred to individually as a "party" and collectively as the
"parties").
W I T N E S S E T H
WHEREAS, the Company contemplates a public offering the principal purposes
of which are to establish a public market for its stock, to provide enhanced
equity incentives to attract and retain key employees, to increase visibility in
its markets, to facilitate future access to public capital markets and to obtain
additional working capital (the "Public Offering");
WHEREAS, immediately prior to the completion of such Public Offering, the
Company plans to distribute a dividend to the Stockholders equal to the
Company's undistributed Accumulated Adjustments Account as defined in Section
1368(e)(1) of the Code (as hereinafter defined);
WHEREAS, the Company and the Stockholders have entered into this Agreement
as a condition to the foregoing distribution and the contemplated Public
Offering;
WHEREAS, from its inception through March 31, 1988, the Company was taxed
as a C corporation (as defined in the Code), and the Company became an S
corporation (as defined in section 1361 of the Code) on April 1, 1988 and will
continue to be an S corporation until the Termination Date (as hereinafter
defined), after which it will again be taxed as a C corporation;
WHEREAS, the Stockholders currently are the only stockholders of the
Company, and will continue to be so until the closing of the Public Offering
(the "Closing");
WHEREAS, in July 1997, the Company voluntarily filed a request on Form
3115 (the "Form 3115") with the Internal Revenue Service (the "IRS") to change
its method of accounting from the cash method of accounting to the accrual
method of accounting (the "Accounting Change") effective on January 1, 1997;
WHEREAS, as a result of the filing Form 3115 and the Accounting Change,
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 of accounting for years prior to 1997 and the
amount it did report as taxable income under the cash method for such years;
<PAGE>
WHEREAS, the Company and the Stockholders wish to provide for
indemnifications specifically pertaining to the Accounting Change; and
WHEREAS, the Company and the Stockholders wish to provide for a tax
allocation and indemnification agreement in connection with the Company's
termination as an S corporation.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used herein, have the following
meanings:
"C Short Year" means that portion of the S Termination Year of the Company
defined in Section 1362(e)(1)(B) of the Code.
"Code" means the Internal Revenue Code of 1986, as amended.
"S Corporation Period" means the period commencing April 1, 1988 and
ending on the day before the Termination Date.
"S Corporation Taxable Income" means the taxable income of the Company
from all sources during the S Corporation Period.
"S Short Year" means that portion of the S Termination Year of the Company
defined in Section 1362(e)(1)(A) of the Code.
"S Termination Year" shall have the meaning set forth in Section
1362(e)(4) of the Code.
"Termination Date" means the effective date of the Company's termination
of its status as an S corporation pursuant to Section 1362(d)(1) of the Code.
ARTICLE 2
ELECTION TO TERMINATE; S TERMINATION YEAR
2.1 TERMINATION OF S STATUS. The parties intend to terminate the Company's
status as an S corporation by electing to do so under Code Section 1362(d)(1).
2.2 EFFECTIVE DATE. Pursuant to Section 1362(d)(1) of the Code, the
election to terminate the Company's status as an S corporation shall be
effective on the date immediately preceding the date of the effective date of
the Company's Registration Statement on Form S-1 relating to the Public
Offering, which date shall be the "Termination Date".
2
<PAGE>
2.3 S TERMINATION YEAR. The Company's fiscal year in which the S
corporation status of the Company is terminated will be an S Termination Year
for federal tax purposes.
2.4 S SHORT YEAR. Pursuant to Section 1362(e)(1) of the Code, the S
Termination Year of the Company shall be divided into two short taxable years:
an S Short Year and a C Short Year. The S Short Year of the Company shall be
that portion of the Company's S Termination Year beginning on the first day of
such fiscal year and ending on the day immediately preceding the Termination
Date. For federal income tax purposes, the Company will be treated as an S
corporation during its S Short Year.
2.5 C SHORT YEAR. Pursuant to Section 1362(e)(1)(B) of the Code, that
portion of the S Termination Year of the Company beginning on the Termination
Date and ending on the last day of the 1997 fiscal year shall be the C Short
Year of the Company. For federal income tax purposes, the Company will be taxed
as a C corporation during its C Short Year.
ARTICLE 3
ALLOCATION OF INCOME
3.1 ALLOCATION ELECTION. The Company intends to allocate tax items to its
S Short Year and C Short Year using normal accounting rules pursuant to the
election method contained in Section 1362(e)(3) of the Code, and the
Stockholders covenant and agree to consent to such election method.
ARTICLE 4
TAXES
4.1 LIABILITY FOR TAXES INCURRED DURING S CORPORATION YEARS INCLUDING S
SHORT YEAR. Subject to any indemnification and/or distribution otherwise
required herein, the Stockholders, severally and not jointly, covenant and agree
that they shall pay any and all taxes attributable to their allocable shares of
taxable income of the Company they are required to pay for all taxable periods
(or that portion of any period including the S Short Year) during which the
Company was an S corporation.
4.2 LIABILITY FOR TAXES INCURRED DURING C CORPORATION YEARS INCLUDING C
SHORT YEAR. Subject to any indemnification otherwise required herein, the
Company covenants and agrees that the Company shall pay any and all taxes
attributable to taxable income of the Company required to be paid by the Company
for the C Short Year and all taxable periods thereafter during which the Company
is a C corporation.
4.3 COMPANY'S INDEMNIFICATION FOR TAX LIABILITIES. The Company hereby
agrees to indemnify, defend and hold harmless each Stockholder from and against
all liability with respect to all
3
<PAGE>
federal and state income taxes of any kind whatsoever (computed at the highest
federal and/or state income tax rate in effect for the year of adjustment)
including interest, penalties and additions to taxes, imposed upon a Stockholder
as a result of any final determination of an adjustment (by reason of an amended
return, claim for refund, audit or otherwise)to the Stockholders' taxable income
resulting in an increase in the Stockholders' S corporation taxable income and a
corresponding decrease in the federal or state, as the case may be, income tax
liability payable by the Company, provided, however, the Company's
indemnification shall be limited to the reduction, if any, in its tax liability
(including interest, penalties and additions to taxes) as a result of any such
determination. The amount of the foregoing indemnity shall be adjusted as
required by Section 4.7 (requiring the gross-up of the indemnification amount)
and Section 5.1(b) (providing for the payment of a Special Dividend in lieu of
the indemnification hereunder) and shall be further limited with respect to an
adjustment arising from the Accounting Change to an amount such that the
aggregate indemnification payments for the Accounting Change plus the federal
and states taxes payable by the Company as the result of the Accounting Change
does not exceed in the aggregate $1,800,000; provided, however, that any
indemnity payment made to the Stockholders arising from the Accounting Change
shall not be grossed-up as otherwise required by Section 4.7.
The Company acknowledges further that it shall be solely responsible for
any federal, state and local taxes (including interest and penalties, if any)
relating to the Built-In Gains tax imposed by Section 1374 of the Code and the
tax on Excess Passive Investment Income imposed by Section 1375 of the Code.
4.4 STOCKHOLDERS' INDEMNIFICATION FOR TAX LIABILITIES. The Stockholders,
severally (according to the percentage of the outstanding shares of the
Company's Common Stock owned by each Stockholder for the years of adjustment)
and not jointly, hereby agree to indemnify, defend and hold harmless the Company
from and against all liability with respect to all federal and state income
taxes of any kind whatsoever (computed at the highest federal and/or state
income tax rate in effect for the year of adjustment) including interest,
penalties and additions to taxes resulting from any final determination of an
adjustment (by reason of an amended return, claim for refund, audit or
otherwise) to the Stockholders' taxable income resulting in a decrease in the
Stockholders' S corporation taxable income and a corresponding increase in the
federal or state, as the case may be, income tax liability payable by the
Company; provided, however, the Stockholder's indemnifi cation shall be limited
to the reduction, if any, in his/her tax liability (including interest,
penalties and additions to taxes) as a result of such determination.
In addition to the foregoing, the Stockholders, severally (according to
the percentage of the outstanding shares of the Company's Common Stock owned by
each Stockholder for the years of adjustment) and not jointly, hereby agree to
indemnify, defend and hold harmless the Company from and against all tax
liability
4
<PAGE>
directly attributable to the Accounting Change to the extent and in an amount by
which all federal and state income taxes of any kind whatsoever (including
interest, penalties and additions to taxes) for tax years subsequent to the S
Corporation Period exceed $1,800,000.00 dollars.
4.5 PAYMENTS. The Stockholders or the Company, as the case may be, shall
make any payment required under this Agreement within thirty (30) calendar days
after receipt of notice from the other party that a payment is due by such party
to the appropriate taxing authority.
4.6 SUBROGATION. The party (or parties) providing the indemnity under
either Section 4.3 or Section 4.4 (defined solely for purposes of this Section
4.6 as the "Indemnifying Party") shall be subrogated to all rights of recovery
(the "Subrogation Claims") that the party (or parties) being indemnified under
Section 4.3 or Section 4.4, respectively (defined solely for purposes of this
Section 4.6 as the "Indemnified Party") may have against any person or
organization in respect of the tax liabilities for which the Indemnifying Party
is providing indemnity. Such right of subrogation shall not exceed the amount
paid by the Indemnifying Party to the Indemnified Party. The Indemnified Party
shall execute and deliver instruments and papers and do whatever else is
reasonably necessary to secure such rights of subrogation for the Indemnifying
Party. The Indemnified Party shall provide all reasonable assistance as
requested by the Indemnifying Party in order for the Indemnifying Party to
pursue the Subrogation Claims. The Indemnified Party shall do nothing after any
Subrogation Claim arises to prejudice the rights of the Indemnifying Party.
4.7 PAYMENTS AFTER POST-TERMINATION TRANSITION PERIOD. If any Stockholder
is required to include any payment received pursuant to this Agreement after the
expiration of the "post-termination transition period" (as defined in Section
1377(b) of the Code) in computing his gross income in a tax return, other than
any payment made under Section 4.3 where the Stockholder failed to give the
Company timely notice to allow the Company to make such payment prior to the
expiration of the "post-termination transition period" or any payment related to
the Accounting Change, then (i) the Stockholder shall notify the Company of such
inclusion in income, and (ii) in addition to all other payments made under this
Agreement, the Company shall also pay to the Stockholder an amount which, when
added to the payment so included, will place the recipient Stockholder in the
same net after-tax position that he would have been in had the payment not been
so included.
4.8 NOTICES OF AUDITS AND ADJUSTMENTS.
(a) If any Stockholder receives notice after the date hereof of an
intention by a taxing authority to audit any return of the Stockholder that
includes any item of income, gain, deduction, loss or credit reported by the
Company with respect to the Company's S Corporation Period, such Stockholder
shall inform the Company, in writing, of the audit promptly after receipt of
such
5
<PAGE>
notice. If any Stockholder receives notice from a taxing authority of any
proposed adjustment for which the Company may be required to indemnify (or pay
an additional distribution pursuant to Section 5.1(b) hereto) the Stockholder
hereunder (a "Proposed Adjustment"), the Stockholder shall give notice to the
Company of the Proposed Adjustment promptly after receipt of such notice from a
taxing authority. Upon receipt of such notice from a Stockholder, the Company
may, by in turn giving prompt written notice to each of the Stockholders,
request that the Stockholders contest such Proposed Adjustment. If the Company
shall request that any Proposed Adjustment be contested, then the Stockholders
shall, at the Company's expense, contest the Proposed Adjustment or permit the
Company and its representatives, at the Company's request and expense, to
contest the Proposed Adjustment (including pursuing all administrative and
judicial appeals and processes). The Company shall pay to the Stockholders on
demand all costs and expenses (including attorneys' and accountants' fees) that
the Stockholders may incur in contesting such Proposed Adjustments. No
Stockholder shall make, accept or enter into a settlement or other compromise
with respect to any taxes indemnified hereunder, or forego or terminate any
proceeding undertaken hereunder without the consent of the Company, which
consent shall not be unreasonably withheld.
(b) If the Company receives notice after the date hereof of an
intention by a taxing authority to audit any return of the Company that includes
any item of income, gain, deductions, loss or credit reported by the Company
with respect to the period during which the Company was a S corporation, the
Company shall inform the Stockholders, in writing, of the audit promptly after
receipt of such notice. If the Company receives notice from a taxing authority
of any proposed adjustment for which any of the Stockholders may be required to
indemnify the Company hereunder (a "Company Proposed Adjustment"), the Company
shall give notice to each of the Stockholders of the Company Proposed Adjustment
promptly after receipt of such notice from a taxing authority. Upon receipt of
such notice from the Company, any of the Stockholders may, by in turn giving
prompt written notice to the Company, request that the Company contest such
Company Proposed Adjustment. If any of the Stockholders shall request that any
Company Proposed Adjustment be contested, then the Company shall contest the
Company Proposed Adjustment (including pursuing all administrative and judicial
appeals and processes) at the Company's expense and shall permit the Stockholder
to participate in such proceeding. The Company shall not make, accept or enter
into a settlement or other compromise with respect to any taxes indemnified
hereunder, or forego or terminate any proceeding undertaken hereunder without
the consent of the Stockholders, which consent shall not be unreasonably
withheld.
ARTICLE 5
DISTRIBUTIONS
5.1 DISTRIBUTION OF ACCUMULATED ADJUSTMENTS ACCOUNT. (a) Prior to the
consummation of the Public Offering, the Company's board of directors shall
declare a cash dividend (the "Special
6
<PAGE>
Dividend") payable to the Stockholders. The Special Dividend will be equal to
the Company's estimated accumulated adjustments account (as the term is defined
in Section 1368 of the Code) (the "AAA") as of the Termination Date. The Company
agrees to pay the Special Dividend to the Stockholders immediately prior to the
Termination Date and that: (a) if the Special Dividend exceeds the AAA as
reported by the Company on its originally filed federal S corporation income tax
return for calendar year 1997 (the "Final AAA"), such excess shall be paid by
the Stockholders to the Company, and (b) if the Final AAA exceeds the Special
Dividend, such excess shall be paid by the Company to the Stockholders, in
either case, within thirty (30) days of the date of such determination and
together with interest thereon, at the Applicable Federal Rate (as defined in
Section 1274 of the Code) in effect as of the date of such payment, for the
period from the date the Special Dividend was paid to the date of such payment.
The Final AAA shall be determined by the Company's tax return for the Company's
S Short Year in a manner consistent with prior practice.
(b) Notwithstanding the filing of the Company's tax returns for the
1997 year and the determination of the Final AAA, if the Company is required to
indemnify the Stockholders pursuant to Section 4.3 and such indemnification
amount is required to be paid by the Company to the Stockholders prior to the
expiration of the post-termination period, in lieu of such indemnity payment,
the Company shall increase the Special Dividend payable to the Stockholders by
the amount of such indemnity payment and distribute such amount prior to the
expiration of the post-termination period.
ARTICLE 6
MISCELLANEOUS
6.1 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which counterparts
collectively shall constitute one instrument representing the Agreement between
the parties hereto.
6.2 CONSTRUCTION OF TERMS. Nothing herein expressed or implied is
intended, or shall be construed, to confer upon or give any person, firm or
corporation, other than the parties hereto or their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
6.3 COST OF ENFORCEMENT; INTEREST. If, within thirty (30) days after
demand to comply with the obligations of one of the parties to this Agreement
served in writing on the other, compliance or reasonable assurance of compliance
is not forthcoming, and the other party engages the services of an attorney to
enforce rights under this Agreement, the prevailing party in any action shall be
entitled to recover all reasonable costs and expenses (including reasonable fees
of attorneys and legal assistants, whenever incurred, whether before trial or
appellate proceeding, at trial, on appeal or otherwise).
7
<PAGE>
6.4 GOVERNING LAW. This Agreement shall be governed by, and construed and
enforced in accordance with the laws of the State of Florida, other than those
provisions relating to the conflict of laws of different jurisdictions if the
effect of the application of such provisions would be to cause the laws of a
jurisdiction other than Florida to apply hereto.
6.5 JURISDICTION; VENUE. The parties agree that jurisdiction for any
litigation arising out of this Agreement or any document delivered in connection
herewith shall be in Miami, Florida.
6.6 NOTICES. All notices and other communications required or permitted to
be given hereunder shall be in writing and shall be deemed to have been duly
given when received, if personally delivered; when transmitted, if transmitted
by electronic fax, telecopy or similar electronic transmission method; the day
after it is sent, if sent by recognized expedited delivery service; and five
days after it is sent, if mailed, first class mail, postage prepaid. In each
case notice shall be sent to the parties at 8700 West Flagler Street, Suite 250,
Miami, Florida 33174, or to such other address as any party shall have specified
by notice in writing to the other parties.
6.7 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or
supplemented only by a written agreement executed by all of the parties hereto.
6.8 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors and permitted assigns, but neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties, nor is
this Agreement intended to confer upon any other person except the parties any
rights or remedies hereunder.
6.9 INTERPRETATION. The title, article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
6.10 SEVERABILITY. In the event that any one or more of the provisions of
this Agreement shall be held to be illegal, invalid or unenforceable in any
respect, the same shall not in any respect affect the validity, legality, or
enforceability of the remainder of this Agreement, and the parties shall use
their best efforts to replace such illegal, invalid or unenforceable provisions
with an enforceable provision approximating, to the extent possible, the
original intent of the parties.
6.11 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no representations, promises, warranties, covenants, or
undertakings, other than those
8
<PAGE>
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and the understandings between the parties with respect to such
subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
OMEGA RESEARCH, INC.,
a Florida corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-----------------------------------
WILLIAM R. CRUZ
-----------------------------------
RALPH L. CRUZ
-----------------------------------
MICHELLE R. CRUZ
THE WILLIAM R. CRUZ 1997 GRANTOR
RETAINED ANNUITY TRUST #1
By:
--------------------------------
Ralph L. Cruz, as Trustee
THE RALPH L. CRUZ 1997 GRANTOR
RETAINED ANNUITY TRUST
By:
--------------------------------
William R. Cruz, as Trustee
9
EXHIBIT 10.8
OMEGA RESEARCH, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. PURPOSE................................................1
2. DEFINITIONS............................................1
3. ADMINISTRATION OF THE PLAN.............................3
4. ELIGIBILITY............................................4
5. OFFERING PERIODS.......................................5
6. PARTICIPATION..........................................5
7. PAYROLL DEDUCTIONS.....................................5
8. GRANT OF OPTION........................................6
9. EXERCISE OF OPTION.....................................6
10. DELIVERY...............................................7
11. WITHDRAWAL.............................................7
12. TERMINATION OF EMPLOYMENT..............................7
13. INTEREST...............................................8
14. STOCK..................................................8
15. DESIGNATION OF BENEFICIARY.............................8
16. TRANSFERABILITY........................................9
17. USE OF FUNDS...........................................9
18. REPORTS................................................9
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION,
DISSOLUTION, LIQUIDATION, MERGER OR ASSET SALE.........9
20. AMENDMENT OR TERMINATION..............................10
21. NOTICES...............................................11
22. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION........11
23. WITHHOLDING OF ADDITIONAL INCOME TAXES................11
24. CONDITIONS UPON ISSUANCE OF SHARES....................12
25. GOVERNING LAW.........................................13
26. APPROVAL OF BOARD OF DIRECTORS AND
STOCKHOLDERS OF THE COMPANY...........................13
<PAGE>
OMEGA RESEARCH, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee Stock
Purchase Plan of Omega Research, Inc., a Florida corporation (the "Plan").
1. PURPOSE. The purpose of the Plan is to provide all eligible employees
of the Company with an opportunity to purchase Common Stock of the Company
through accumulated payroll deductions so that they may share in the growth of
the Company by acquiring or increasing their proprietary interest in the
Company. The Plan is designed to encourage such employees to remain in the
employ of the Company. The Plan is intended to constitute and qualify as an
"employee stock purchase plan" within the meaning of Section 423(b) of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan, accordingly, shall be construed so as to extend and limit participation in
a manner consistent with the requirements of such section of the Code. All
capitalized terms as used herein shall have the meanings as set forth herein.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Common Stock" shall mean shares of the authorized but unissued
common stock of the Company, par value $.01 per share, or shares of Common Stock
reacquired by the Company, including shares purchased in the open market.
(c) "Company" shall mean Omega Research, Inc., a Florida corporation,
and any Designated Parent or Designated Subsidiary of the Company.
(d) "Compensation" shall mean total cash compensation, including,
without limitation, all base pay or salary, commissions, bonuses, overtime
payments, shift premium, incentive compensation, incentive payments and other
compensation.
(e) "Designated Parent" shall mean any Parent which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean an employee of the Company (i) whose
customary employment is more than twenty (20) hours per week and for more than
five (5) months in any calendar year and (ii) who has completed at least three
(3) months of employment. For purposes of the Plan, the employment relationship
shall be treated as continuing intact while the individual is on military
<PAGE>
leave, sick leave or other leave of absence approved by the Company. Where the
period of leave exceeds ninety (90) days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship shall be deemed to have terminated on the ninety-first (91st) day
of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
(j) "Fair Market Value" shall mean, as of any date, the value of the
Common Stock of the Company determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including, without
limitation, the Nasdaq National Market or The Nasdaq
SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on
such exchange or system for the last market trading day
prior to the date of such determination, as reported in The
Wall Street Journal or such other source as the Board or
the Committee administering the Plan deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its
Fair Market Value shall be the mean of the closing bid and
asked prices for the Common Stock for the last market
trading day prior to the date of such determination, as
reported in The Wall Street Journal or such other source as
the Board or the Committee deems reliable, or;
(3) In the absence of an established market for the Common
Stock, its Fair Market Value shall be determined in good
faith by the Board or the Committee, in its sole and
absolute discretion.
(k) "Offering Periods" shall consist of the six (6) month periods
commencing on the first Trading Day on or after January 1 and July 1 and ending
on the last Trading Day on or before June 30 and December 31 of each calendar
year, respectively. The duration and timing of Offering Periods may be changed
pursuant to Section 5 of the Plan.
2
<PAGE>
(l) "Parent" shall mean any present or future corporation, domestic
or foreign, which is a parent corporation of the Company, as such term is
defined in Section 424(e) of the Code.
(m) "Purchase Price" shall mean an amount equal to eighty-five
percent (85%) of the Fair Market Value of a share of Common Stock on the
Enrollment Date or on the Exercise Date, whichever is lower, in either event
rounded up to avoid fractions of a dollar other than 1/4, 1/2 and 3/4.
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan that have not yet been exercised and the
number of shares of Common Stock that have been authorized for issuance under
the Plan but not yet placed under option.
(o) "Subsidiary" shall mean any present or future corporation,
domestic or foreign, which is a subsidiary corporation of the Company, as such
term is defined in Section 424(f) of the Code.
(p) "Trading Day" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Compensation Committee
appointed by the Board (the "Committee"). The Committee shall consist of not
less than two (2) members of the Board. The Board may from time to time remove
members from, or add members to, the Committee. Vacancies on the Committee,
however caused, shall be filled by the Board. The Committee may select one (1)
of its members as Chairman, and one (1) of its members as Secretary, and shall
hold meetings at such times and places as it may determine. A majority of the
members of the Committee shall constitute a quorum. Acts by a majority of the
members of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee. The Committee may make such rules and regulations for the conduct of
its business as it shall deem advisable.
(b) The Committee shall have full and exclusive discretionary
authority (i) to construe, interpret and apply any provisions of the Plan or of
any option granted under it; (ii) to adopt such rules and regulations for
administering the Plan as it shall deem advisable, provided that any such rules
and regulations shall be applied on a uniform basis to all Employees under the
Plan; (iii) to determine eligibility and to adjudicate all disputed claims filed
under the Plan or any option granted under it; and (iv) to make all other
determinations deemed advisable for administering the Plan. Every finding or
3
<PAGE>
determination made by the Committee shall, to the fullest extent permitted by
law, be final and binding upon all parties, unless otherwise determined by the
Board. No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
under it.
(c) In the event the Board fails to appoint or refrains from
appointing the Committee, the Board shall have all power and authority to
administer the Plan. In such event, the word "Committee" wherever used herein
shall be deemed to mean the Board.
4. ELIGIBILITY.
(a) Subject to the limitations as provided in Sections 4, 7 and 8
hereof, an option shall be granted under the Plan to all Employees of the
Company to purchase Common Stock of the Company, and such Employees shall have
the same rights and privileges with respect to such option.
(b) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(c) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan:
(i) if such Employee, immediately after such option was granted,
would own stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of any Parent or
Subsidiary; or
(ii) if such option would permit his or her rights to purchase
stock under all employee stock purchase plans of the Company and of any Parent
or Subsidiary under Section 423(b) of the Code to accrue at a rate which exceeds
Twenty-Five Thousand Dollars ($25,000) of fair market value of such stock
(determined at the time such option is granted) for each calendar year in which
such option is outstanding at any time.
(d) For purposes of Section 423(b)(3) of the Code and Section
4(c)(i) hereof:
(i) the rules of Section 424(d) of the Code (relating to
attribution of stock ownership) shall apply in determining the stock ownership
of an individual; and
(ii) stock which such Employee may purchase under outstanding
options shall be treated as stock owned by such Employee.
4
<PAGE>
(e) For purposes of Section 423(b)(8) of the Code and Section
4(c)(ii) hereof, the right to purchase stock under an option granted under the
Plan shall accrue on the Exercise Date of each Offering Period.
5. OFFERING PERIODS. The Plan shall be implemented by successive six (6)
month Offering Periods with a new Offering Period commencing on the first
Trading Day on or after January 1 and July 1 of each calendar year, or on such
other date as the Board or the Committee shall determine, and ending on the last
Trading Day on or before June 30 and December 31 of each such year,
respectively, and shall continue thereafter until terminated in accordance with
Section 20 hereof; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after January 1, 1998. The
Board or the Committee shall have the power to change the duration and timing of
Offering Periods (including the commencement dates thereof) with respect to
future Offering Periods without shareholder approval if such change is announced
at least five (5) business days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.
6. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to the Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 11 hereof.
7. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during each Offering Period in an amount (expressed as a whole percentage) not
less than one percent (1%) but not exceeding ten percent (10%) of the
Compensation that he or she receives on each pay day during such Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 11 hereof, but may not increase or decrease the
rate of his or her payroll
5
<PAGE>
deductions during an Offering period. A participant's subscription agreement
shall remain in effect for successive Offering Periods unless terminated as
provided in Section 11 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423 of the Code and Section 4(c) hereof, a participant's payroll
deductions may be decreased to zero percent (0%) at any time during an Offering
Period. Payroll deductions shall recommence at the rate provided in such
participant's subscription agreement at the beginning of the first Offering
Period that is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 11 hereof.
8. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period at the
applicable Purchase Price a maximum number of full shares of the Company's
Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the Participant's
account as of such date by the applicable Purchase Price; provided, however,
that no Employee shall be permitted to purchase during each Offering Period more
than Five Hundred (500) shares of the Company's Common Stock (subject to any
adjustment pursuant to Section 19 hereof), and provided further, that such
purchase shall be subject to the limitations as provided in Sections 4, 7 and 14
hereof. Exercise of such option shall occur as provided in Section 9 hereof,
unless the participant has withdrawn pursuant to Section 11 hereof. Such option
shall expire on the last day of such Offering Period. Neither the granting of an
option to any Employee under the Plan nor the payroll deductions from his or her
Compensation shall constitute such Employee a stockholder of the shares covered
by such option until such shares have been actually purchased by such Employee.
9. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as
provided in Section 11 hereof, his or her option thereunder for the purchase of
shares of Common Stock of the Company shall be exercised automatically on the
Exercise Date of each Offering Period, and the maximum number of full shares
subject to such option shall be purchased for such participant at the applicable
Purchase Price with the accumulated payroll deductions in his or her account on
such date, subject to the limitations as provided in Sections 4, 7, 8 and 14
hereof. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account that are not sufficient to purchase a
full share on any Exercise Date shall be retained in the participant's account
for the subsequent Offering Period, subject to earlier withdrawal by the
participant as provided in Section 11 hereof. Any other accumulated payroll
deductions in a participant's account not used to exercise his or her option on
such date shall be returned as promptly as practicable to such
6
<PAGE>
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her. No option granted under the
Plan shall be exercised after the Exercise Date of the Offering Period during
which such option is granted or after the expiration of twenty-seven (27) months
from the date such option is granted.
10. DELIVERY. As promptly as practicable after each Exercise Date on which
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
11. WITHDRAWAL.
(a) A participant may withdraw all but not less than all of the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to the Plan not later than seven (7) business
days prior to the Exercise Date of each Offering Period, absent a written waiver
of such seven (7) day period, in whole or in part, by the Committee, in its sole
and absolute discretion. All of the participant's payroll deductions credited to
his or her account shall be paid to such participant promptly after receipt of
notice of withdrawal and such participant's option for the Offering Period shall
be automatically terminated, and no further payroll deductions for the purchase
of shares shall be made for such Offering Period. If a participant withdraws
from an Offering Period, payroll deductions shall not resume at the beginning of
the succeeding Offering Period unless the participant delivers to the Company a
new subscription agreement pursuant to Section 6 hereof.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan that
may hereafter be adopted by the Company or in any succeeding Offering Periods
that commence after the termination of the Offering Period from which the
participant withdraws.
12. TERMINATION OF EMPLOYMENT.
Upon a participant's ceasing to be an Employee for any reason, including,
without limitation, retirement, voluntary or involuntary termination,
resignation, layoff, discharge or death, he or she shall be deemed to have
elected to withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option shall be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 15 hereof, and
such participant's option shall be automatically terminated.
7
<PAGE>
13. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
14. STOCK.
(a) The maximum number of shares of the Company's Common Stock which
may be issued under the Plan shall be Five Hundred Thousand (500,000) shares,
subject to adjustment as provided in Section 19 hereof. If any option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, the unpurchased shares subject thereto shall again be available under the
Plan. If, on any Exercise Date, the number of shares with respect to which
options are to be exercised exceeds the number of shares then available under
the Plan, the Company shall make a pro rata allocation of the shares remaining
available for purchase in as uniform a manner as shall be practicable and as it
shall determine to be equitable, and the amount of any accumulated payroll
deductions in a participant's account not used to exercise his or her option on
such Exercise Date shall be refunded pursuant to Section 9 hereof.
(b) The participant shall have no interest or voting rights in shares
covered by his or her option until (i) such option has been exercised pursuant
to Section 9 hereof and (ii) the certificate representing the shares purchased
pursuant to the exercise of such option have been delivered to such participant
pursuant to Section 10 hereof.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
another person of legal age as joint tenants with right of survivorship or as
tenants by the entireties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash from the participant's account under the Plan
in the event of such participant's death subsequent to an Exercise Date on which
an option is exercised but prior to delivery to such participant of such shares
and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any shares and cash from the participant's account
under the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of
8
<PAGE>
such participant's death, the Company shall deliver such shares and/or cash to
the executor or administrator of the estate of the participant, or, if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor an option or any rights with regard to the exercise of
an option or to the receipt of shares under the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way (otherwise than by
will, the laws of descent and distribution or as provided in Section 15 hereof)
by the participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds from an Offering Period in accordance with
Section 11 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amount of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION,
MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase during each Offering Period as provided in Section 8
hereof, as well as the price per share and the number of shares of Common Stock
covered by each option under the Plan that has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall
9
<PAGE>
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board or the
Committee. The New Exercise Date shall be before the date of the Company's
proposed dissolution or liquidation. The Board or the Committee shall notify
each participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for the participant's option has been
changed to the New Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 11
hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a parent or
subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "Sale
Exercise Date") and such Offering Period shall end on the Sale Exercise Date.
The Sale Exercise Date shall be before the date of the Company's proposed sale
or merger. The Board or the Committee shall notify each participant in writing,
at least ten (10) business days prior to the Sale Exercise Date, that the
Exercise Date for the participant's option has been changed to the Sale Exercise
Date and that the participant's option shall be exercised automatically on the
Sale Exercise Date, unless prior to such date the participant has withdrawn from
the Offering Period as provided in Section 11 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 19 hereof, no such termination may
affect any option previously granted, provided that an Offering Period may be
terminated by the Board on any Exercise Date if the Board determines that the
termination of the Plan is in the best interests of the Company and its
shareholders. Except as provided in Section 19 hereof, no amendment may make any
change in any option theretofore granted that adversely affects the rights of
any participant under such option, absent the written consent of such
participant. To the extent necessary to comply with Section 423
10
<PAGE>
of the Code (or any successor rule or provision or any other applicable law,
regulation or stock exchange rule), the Company shall obtain shareholder
approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant's rights may be considered to have been adversely affected as
provided in this Section 20, the Board or the Committee shall be entitled to
change an Offering Period, limit the frequency and/or number of changes in the
amount withheld during an Offering Period, establish the exchange ratio
applicable to amounts withheld in a currency other than United States dollars,
permit payroll withholding in excess of the amount designated by a participant
in order to adjust for delays or mistakes in the Company's processing of
properly completed withholding elections, establish reasonable waiting and
adjustment periods and/or accounting and crediting procedures to ensure that
amounts applied toward the purchase of Common Stock for each participant
properly correspond with amounts withheld from the participant's Compensation,
and establish such other limitations or procedures as the Board or the
Committee, in its sole discretion, determines advisable that are consistent with
the Plan.
21. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By electing to
participate in the Plan, each participant agrees to notify the Company in
writing within thirty (30) days after the participant transfers Common Stock
acquired under the Plan, if such transfer occurs within two (2) years after the
grant of the option pursuant to which such stock was purchased or one (1) year
after the exercise date of such option. Each participant further agrees to
provide any information about such a transfer as may be requested by the Company
in order to assist it in complying with the tax laws.
23. WITHHOLDING OF ADDITIONAL INCOME TAXES. By electing to participate in
the Plan, each participant acknowledges that the Company is required to withhold
taxes with respect to the payroll deductions elected by such participant under
the Plan pursuant to Section 7 hereof, and each participant agrees that the
Company may deduct from compensation otherwise payable to such participant any
amount necessary to satisfy such tax withholding obligations. Each participant
further acknowledges that when Common Stock is purchased under the Plan by such
participant pursuant to Section 9 hereof, the Company may withhold taxes with
respect to all or a portion of the excess of the Fair Market Value over the
Purchase Price of such Common Stock, and each participant agrees that such taxes
may be withheld from
11
<PAGE>
compensation otherwise payable to such participant. It is intended that any such
tax withholding will be accomplished in such a manner that the full amount of
payroll deductions elected by a participant under the Plan pursuant to Section 7
hereof will be used to purchase Common Stock pursuant to Section 9 hereof.
However, if an amount sufficient to satisfy such tax withholding obligations has
not, for any reason, been withheld from compensation otherwise payable to a
participant, then, notwithstanding any other provision of the Plan, the Company
may withhold such taxes from such participant's accumulated payroll deductions
and apply the remaining amount of such deductions to the purchase of Common
Stock, unless such participant pays to the Company an amount sufficient to
satisfy such tax withholding obligations prior to the Exercise Date applicable
to such purchase of Common Stock. Each participant further acknowledges that the
Company may be required to withhold taxes in connection with the disposition of
Common Stock purchased by a participant under the Plan pursuant to Section 9
hereof, and agrees that the Company may take whatever action it considers
appropriate to satisfy such tax withholding requirements, including, without
limitation, deducting from compensation otherwise payable to such participant an
amount sufficient to satisfy such withholding requirements or conditioning any
such disposition upon the payment by such participant to the Company of an
amount sufficient to satisfy such withholding requirements.
24. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued with respect to an option unless the
exercise of such option and the issuance and delivery of such shares pursuant
thereto shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) The Plan is intended to provide shares of Common Stock for
investment and not for resale. The Company does not, however, intend to restrict
or influence any Employee in the conduct of his or her own affairs. An Employee
may, therefore, sell stock purchased under the Plan at any time such Employee
chooses, subject to compliance with any applicable federal or state securities
laws and subject to any restrictions imposed under Section 23 hereof to ensure
that any applicable tax withholding obligations are satisfied. THE EMPLOYEE
ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PURCHASE PRICE OF THE STOCK.
(c) As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the
12
<PAGE>
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned applicable
provisions of law.
25. GOVERNING LAW. The validity and construction of the Plan shall be
governed by the laws of the State of Florida, without giving effect to the
principles of conflicts of law thereof.
26. APPROVAL OF BOARD OF DIRECTORS AND STOCKHOLDERS OF THE COMPANY. The
plan was adopted by the Board and approved by the stockholders of the Company on
July 24, 1997.
13
<PAGE>
EXHIBIT A
OMEGA RESEARCH, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
____ Original Application Enrollment Date: ________
____ Change in Payroll Deduction Rate
____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Omega
Research, Inc. 1997 Employee Stock Purchase Plan (the "Plan") and subscribes to
purchase shares of the Common Stock of the Company in accordance with this
Subscription Agreement and the Plan.
2. I hereby authorize payroll deductions from each of my paychecks in the
amount of ______ percent (__%) of my Compensation on each payday (from one
percent (1%) to ten percent (10%)) during each Offering Period in accordance
with the Plan. (Please note that no fractional percentages are permitted.)
3. I understand that such payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price determined
in accordance with the Plan. I understand that if I do not withdraw from an
Offering Period, any accumulated payroll deductions will be used to
automatically exercise my option under the Plan.
4. I have received a copy of the Plan. I understand that my participation
in the Plan is in all respects subject to the terms and provisions of the Plan.
5. Any shares of Common Stock purchased for me under the Plan should be
issued in the name(s) of (Employee or Employee and another person of legal age
as joint tenants with right of survivorship or as tenants by the entireties
only):
_____________________________________________________________________________.
6. I understand that if I dispose of any share of the Common Stock of the
Company received by me pursuant to my exercise of an option granted under the
Plan within two (2) years after the grant of such option or one (1) year after
the exercise of such option, I will be treated for federal income tax purposes
as having received ordinary compensation income for the taxable year in which
such disposition occurs in an amount equal to the excess of the fair market
value of such share at the time of such disposition over the purchase price that
I paid for such share. I hereby agree to notify the Company in writing of such
disposition within thirty (30) days after the date of such disposition, and I
will make adequate provision for any applicable federal, state or other tax
withholding obligations resulting from such disposition. The Company may, but
shall not be obligated to, withhold from my compensation any amount necessary to
satisfy
<PAGE>
such tax withholding obligations, including any such withholding necessary to
make available to the Company any tax deductions or benefits attributable to
such disposition.
7. I understand that if I dispose of any share of the Common Stock of the
Company received by me pursuant to my exercise of an option granted under the
Plan at any time after the expiration of such aforementioned two (2) year and
one (1) year holding periods, I will be treated for federal income tax purposes
as having received ordinary compensation income for the taxable year in which
such disposition occurs in an amount equal to the lesser of:
(a) the excess of the fair market value of such share at the time of such
disposition over the purchase price that I paid for such share; or
(b) the excess of the fair market value of such share at the time of grant
of such option over such purchase price.
The remainder of the gain, if any, recognized on such disposition will be taxed
as capital gain.
8. I hereby agree to be bound by all of the terms and provisions of the
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Plan.
9. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares, if any, due me under the
Plan:
NAME: (Please print)
-----------------------------------------------------------
(First) (Middle) (Last)
- ------------------------------- ----------------------------------
Relationship
----------------------------------
(Address)
Employee's Social
Security Number: ----------------------------------
Employee's Address: ----------------------------------
----------------------------------
2
<PAGE>
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT
THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
-------------- ----------------------------------
Signature of Employee
----------------------------------
Name of Employee (Print
type)
----------------------------------
Spouse's Signature (If beneficiary
other than spouse)
----------------------------------
Name of Spouse (Print or type)
3
<PAGE>
EXHIBIT B
OMEGA RESEARCH, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Omega Research,
Inc. 1997 Employee Stock Purchase Plan that began on ____________, 19__ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby authorizes and directs the Company to
pay to the undersigned as promptly as practicable all of the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares of
the Common Stock of the Company in such Offering Period and the undersigned
shall be eligible to participate in any succeeding Offering Periods only by
delivering to the Company a new Subscription Agreement.
Name and Address of Participant:
----------------------------------
----------------------------------
----------------------------------
Signature:
----------------------------------
Date:
-----------------------------
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
Miami, Florida,
August 27, 1997.
