SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1999 or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number: 0-22895
OMEGA RESEARCH, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2223464
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8700 WEST FLAGLER STREET, MIAMI, FLORIDA 33174
(Address of principal executive offices) (Zip Code)
(305) 485-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (17 CFR 229.405) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [X]
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT ON MARCH 8, 2000, BASED UPON THE CLOSING MARKET
PRICE OF THE REGISTRANT'S VOTING STOCK ON THE NASDAQ NATIONAL MARKET ON MARCH 8,
2000, WAS APPROXIMATELY $35,842,000.
THE REGISTRANT HAD 24,552,140 SHARES OF COMMON STOCK, $.01 PAR VALUE,
OUTSTANDING AS OF MARCH 8, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
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TABLE OF CONTENTS
PAGE NO.
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PART I
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ITEM 1. BUSINESS..............................................................1
Overview and Recent Developments.................................1
Industry Background..............................................3
Products and Services............................................5
Sales and Marketing..............................................8
Strategic Relationships..........................................9
Product Development and Year 2000 Compliance....................11
Customer Support and Training...................................12
Competition.....................................................13
Intellectual Property...........................................14
Government Regulation...........................................15
Employees.......................................................16
ITEM 2. PROPERTIES...........................................................17
ITEM 3. LEGAL PROCEEDINGS....................................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................17
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS..........................................18
Common Stock Information........................................18
Dividend Policy.................................................18
Recent Sales of Unregistered Securities.........................19
Use of Proceeds.................................................19
ITEM 6. SELECTED FINANCIAL DATA..............................................20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................21
Overview .......................................................21
Results of Operations...........................................24
Years Ended December 31, 1999 and 1998..........................25
Years Ended December 31, 1998 and 1997..........................27
Income Taxes....................................................28
Variability of Results..........................................28
Liquidity and Capital Resources.................................29
Recently Issued Accounting Standards............................30
Year 2000 Compliance............................................31
Forward-Looking Statements; Business Risks......................31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK....................................................40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE......................41
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PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT.......................................................42
ITEM 11. EXECUTIVE COMPENSATION...............................................45
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................................52
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................53
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K..................................................55
SIGNATURES....................................................................59
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PART I
ITEM 1. BUSINESS.
OVERVIEW AND RECENT DEVELOPMENTS
Omega Research, Inc. ("Omega Research" or, together with its
subsidiaries, the "Company"), a Florida corporation, was incorporated in 1982 to
develop, market and sell investment analysis and trading strategy testing and
automation (collectively, "trading strategy") software tools to individual and
professional investors and traders (collectively, "traders"). The Company's
current products and services provide traders with the ability to develop,
historically test and computer automate trading strategies and to access
streaming real-time charts, quotes and news via the Internet.
The Company is in the process of changing its business model. The
Company has taken steps to transform itself from a trading strategy client
software company to an on-line brokerage firm that intends to provide to active
traders a best-of-breed, Internet-based trading platform: One that incorporates
and seamlessly integrates powerful trading strategy tools, historical and
streaming real-time market data and news, and a high-speed electronic order
execution system. The Company's historical business model has consisted of sales
of client software products, payment for which is committed to in full by the
customer at the time of sale. Under the new business model, the Company will
seek to derive recurring revenues from customers by offering monthly
subscription services for trading strategy tools integrated with streaming
real-time market data and news for which a monthly fee is payable, and by
offering, through an affiliate, on-line brokerage services for which commissions
are payable. The Company believes that it will be able to leverage its
historical success in selling trading strategy tools to build a subscriber base
of active traders that will use its affiliated on-line brokerage services or, at
a minimum, its trading strategy subscription services.
Omega Research has been, and remains, a leading provider of real-time
trading strategy client software for the Microsoft Windows operating system. In
February 1999, Omega Research released its current generation of premium
software products, branded "2000I," which included upgrade versions of its
then-existing products and new products. As of February 22, 1999, Omega
Research's client software product line has consisted of TRADESTATION 2000I,
OPTIONSTATION 2000I, RADARSCREEN 2000I, OMEGA RESEARCH PROSUITE 2000I and
SUPERCHARTS 4.
TRADESTATION enables traders to historically test the profitability of
their own trading strategies, and then computer-automate those strategies to
generate real-time buy and sell signals. OPTIONSTATION enables traders who are
not options experts or mathematicians to benefit from advanced stock, index and
futures options trading strategies. RADARSCREEN enables traders to scan the
markets in real time to identify favorable buying and selling opportunities
based upon their own trading strategies. OMEGA RESEARCH PROSUITE is an
integrated suite of TRADESTATION, OPTIONSTATION and RADARSCREEN. SUPERCHARTS
provides traders with state-of-the-art technical analysis capabilities.
Approximately five months ago, the Company began to implement the
change in its business model. On October 26, 1999, Omega Research acquired
Window on WallStreet Inc. ("Window On WallStreet"), a leading provider of
Internet-based streaming real-time market data (FINANCIAL DATA CAST NETWORK, or
"FDCN") and a developer of client software and on-line trading strategy tools,
in a merger transaction in which the Window On WallStreet shareholders received
1,999,995 newly-
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issued shares of Omega Research common stock. For more information about Omega
Research's merger with Window On WallStreet, review the Company's Current Report
on Form 8-K/A filed on January 7, 2000 described in "ITEM 14. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - (b) Current Reports on
Form 8-K" and See "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS - Recent Sales of Unregistered Securities."
On November 8, 1999, the Company announced that it would focus on
serving active on-line traders through the design, marketing and implementation
of a monthly-subscription, Internet-based, trading strategy portal that is to be
named TRADESTATION.COM. TRADESTATION.COM, expected to be launched later this
year, will include premium trading strategy tools of TRADESTATION seamlessly
integrated with the FDCN'S streaming real-time market quotes and news.
TRADESTATION.COM is also expected to contain features that support the use of
real-time trading strategies, such as subject-focused discussion forums, chat
rooms, educational content and on-line technical support.
On January 19, 2000, the Company signed a definitive, 100%
share-exchange merger agreement with onlinetradinginc.com corp.
("OnlineTrading.com"). OnlineTrading.com provides electronic order execution
technology that directly accesses electronic communications networks ("ECN's"),
exchanges and market makers in order to provide OnlineTrading.com's customers
with high-speed and efficient order execution that avoids traditional market
maker participation and brokerage order-flow arrangements. The prime objective
of the pending merger with OnlineTrading.com is to offer to active traders
on-line brokerage services that are integrated with TRADESTATION.COM, thereby
creating a trading platform that incorporates and seamlessly integrates powerful
trading strategy tools, historical and streaming real-time market data and news,
and a high-speed electronic order execution system.
Pursuant to an Agreement and Plan of Merger and Reorganization, as
amended (the "Merger Agreement"), a newly-formed holding company named
OnlineTrading.com Group, Inc. ("OnlineTrading.com Group") will own 100% of the
issued and outstanding capital stock of Omega Research and OnlineTrading.com.
Upon completion of the merger, as a result of share exchanges between
OnlineTrading.com Group and each of Omega Research and OnlineTrading.com, and
the listing of OnlineTrading.com Group shares, OnlineTrading.com Group will be
the sole publicly-traded company in the group, with its outstanding shares of
common stock listed on The Nasdaq National Market. OnlineTrading.com Group,
based upon the exchange ratio set forth in the Merger Agreement, would initially
be owned between 62% and approximately 57% (on a fully diluted basis) by Omega
Research's shareholders and between 38% and approximately 43% (on a fully
diluted basis) by OnlineTrading.com's shareholders. The precise percentages will
be determined by the formulae set forth in the Merger Agreement. The initial
eight-member Board of Directors of OnlineTrading.com Group would consist of five
directors (two of whom would be independent directors) designated by Omega
Research, and three directors (one of whom would be an independent director)
designated by OnlineTrading.com. Closing of the Merger Agreement is conditioned
upon and subject to the filing and effectiveness of a registration statement on
Form S-4, the approval of the shareholders of each of Omega Research and
OnlineTrading.com, and the satisfaction of other conditions precedent. For more
information about the Company's pending merger with OnlineTrading.com, review
the Company's Current Report on Form 8-K filed on January 28, 2000 described in
"ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - (b)
Current Reports on Form 8-K."
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On January 25, 2000, the Company launched WINDOWONWALLSTREET.COM, its
first Internet subscription service. WINDOWONWALLSTREET.COM offers streaming
real-time charts, quotes and news powered by some of the Company's award-winning
trading tools. The Company believes that the subscriber base being built with
WINDOWONWALLSTREET.COM will contain many potential OnlineTrading.com brokerage
clients.
On February 29, 2000, the Company announced that in light of the
apparent successful launch of WINDOWONWALLSTREET.COM, the Company was
accelerating its transition to its new business model by focusing its marketing
efforts and resources on WINDOWONWALLSTREET.COM (as opposed to its client
software).
The word "Company," as used in this report specifically with respect to
the Company's planned new business model, refers collectively to
OnlineTrading.com Group as the anticipated publicly-traded holding company,
Omega Research as its wholly-owned subsidiary responsible for the development
and operation of the trading strategy tools/real-time market data services
business, and OnlineTrading.com as its wholly-owned subsidiary responsible for
brokerage services. Each of those subsidiaries are intended to be operated as
separate, independent companies. The anticipated brokerage services to be
provided through OnlineTrading.com are subject to the closing of the Merger
Agreement, of which no assurance can be given.
The Company's principal executive offices are located at 8700 West
Flagler Street, Miami, Florida 33174, and its telephone number is (305)
485-7000.
THIS REPORT (PARTICULARLY "ITEM 1. BUSINESS" AND "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS")
CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. SEE "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - FORWARD-LOOKING
STATEMENTS; BUSINESS RISKS."
INDUSTRY BACKGROUND
In the last several years there has been dramatic growth in the
electronic brokerage industry. In the early 1990s, several broker-dealers gave
customers the ability to enter orders with them through private computer
networks. In 1995, broker-dealers introduced the first systems that allowed
customers to submit orders through the Internet. More than 160 broker-dealers
now offer on-line trading. In fewer than five years, on-line brokerage has
become an important channel for conducting retail brokerage transactions.
U.S. Bancorp Piper Jaffray ("Piper Jaffray") estimated that by the end
of the third quarter of 1999 there were over 10.8 million on-line brokerage
accounts, up from 3.7 million in 1997 and 7.3 million in 1998. Piper Jaffray
estimated that over $900 billion in assets were held in on-line brokerage
accounts at year-end 1999. On-line equity trading volume has also grown
dramatically over the past several years. Piper Jaffray reported that there was
a daily average of approximately 807,000 on-line trades in the fourth quarter of
1999.
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Not only have on-line equity trading volumes risen, they are accounting
for an increasing percentage of overall equity trading. CS First Boston reported
that in the first quarter of 1999 almost one in six equity trades (15.91%) took
place on-line. On-line trading accounts for an even higher percentage of overall
equity and options trades by retail investors. Piper Jaffray estimated that
on-line trading activity accounted for 48% of all retail trades in the second
half of 1999, up from 37% in the first half of 1999. For all of 1999, Piper
Jaffray estimated that on-line firms processed 43% of all retail trades, up from
27% in 1998.
Industry analysts foresee continued growth both in the number of
on-line brokerage accounts and account assets. Forrester Research predicted
that, by 2003, 9.7 million U.S. households will manage more than $3 trillion in
20.4 million on-line accounts. Jupiter Communications estimated that, by 2003,
20.3 million households will trade on-line, and also predicted total on-line
account assets at more than $3 trillion. Forrester Research has also recently
predicted that, by 2004, Europe will have 14 million on-line brokerage accounts.
Concurrently with the growth of on-line trading, there has been, in the
last several years, dramatic growth in the financial markets as increasing
amounts of capital have been actively invested in an effort to generate superior
returns. Traditionally, financial instruments were held to maturity or for long
investment horizons, but in today's environment of abundant data flow and low
transaction costs, financial instruments are increasingly being actively traded.
FleetBoston Robertson Stephens Inc. reported that during 1999 The Nasdaq Stock
Market ("Nasdaq") and New York Stock Exchange ("NYSE") composite volumes
experienced the largest jump in history. Nasdaq volume reached 271 billion in
1999, a 37% increase over the 1998 volume of 198 billion. NYSE volume also
increased in 1999, to 209 billion, a 24% increase over 1998 volume of 169
billion.
The broad availability of financial market information on-line has
enabled individuals to become more sophisticated and knowledgeable about
trading, having experienced greater access to stock quotes, other financial
market data, trading advice and other trading information through the Internet
or through other on-line services. In addition to increased information flows,
the increased popularity and proliferation of on-line brokerage services have
resulted in reduced transaction costs to the individual trader, facilitating the
increase in trading activity.
While both brokerage services and financial market data have been
available for some time, historically only large institutional investors with
access to mainframe or minicomputer-based systems, and direct or personal access
to securities exchanges, have had the capability to manipulate, organize and
analyze such data to support their trading decisions, and then execute with
efficiency those trading decisions. Historically, such organizational and
analytical data activities have been expensive and time consuming, and usually
performed in the "back office" of institutional traders through custom
programming by information technology professionals. With the proliferation of
on-line brokerage services, the increasing and less-expensive accessibility to
large quantities of various types of market data, the increasingly-powerful
processing capabilities of personal computers, and the rapidly-growing
capabilities of the Internet, the Company believes that individual traders are
demanding powerful, Internet-based, real-time trading platforms that are
seamlessly integrated with the best-available order execution technology.
Individual traders desire to improve both their decision-making regarding, and
their execution of, trades. The Company believes that a need has arisen for an
on-line brokerage to provide to the growing market of active traders an
institutional quality, Internet-based platform that includes analytical tools
which support the design and testing of custom trading strategies, the
automation of those strategies in real time, and the execution of those
strategies through state-of-the-art electronic order execution systems.
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PRODUCTS AND SERVICES
As a result of the Company's decision to change its business model, the
beginning of this "Products and Services" discussion is set forth in two parts.
The first part discusses the Company's client software products (principally the
2000I line released in February 1999), which constituted virtually all products
sold by the Company during 1999. The second part discusses the Company's
recently-implemented and future-planned Internet-based services. Those consist
of trading tools seamlessly integrated with streaming real-time market quotes
and news, and, assuming and subject to the consummation of the OnlineTrading.com
merger, the Company's planned on-line brokerage services.
The first of the Company's Internet-based, monthly-subscription
services, WINDOWONWALLSTREET.COM, was first marketed on Window On WallStreet's
web site in December 1999, and was launched by Window On WallStreet in late
January 2000. In February 2000, the focus of the Company's marketing efforts
were shifted from the 2000I product line to WINDOWONWALLSTREET.COM.
CLIENT SOFTWARE
In the first quarter of 1999, the Company released its current
generation of client software products: TRADESTATION 2000I, RADARSCREEN 2000I,
OPTIONSTATION 2000I and OMEGA RESEARCH PROSUITE 2000I. The Company's 2000I
software products contain numerous new features, functions and improvements when
compared to the prior versions, including 32-bit architecture and Microsoft COM
technology (most notably, this technology enables users to run multiple software
applications within a single workspace).
The Company's client software products, each of which operates in a
Microsoft Windows environment, are marketed to individual and professional
traders. The 2000I software is compatible with the following real-time Internet
and broadcast financial market datafeeds: BMI (broadcast); DTN Real Time
(broadcast); DTNstant (broadcast); eSignal (Internet); Hyperfeed (Internet and
broadcast) and InSite (Internet). An agreement is also in place to add
compatibility with FutureSource Information Systems, Inc.'s MDS network and
stand-alone datafeeds (broadcast). In addition to being compatible with
real-time datafeeds, the Company's 2000I software products are able to access
and display end-of-day market data.
Omega Research's principal client software products currently are:
CURRENT OPERATING LIST
PRODUCT VERSION SYSTEM PRICE
- ------- ------- ------ -----
OMEGA RESEARCH PROSUITE 2000I Microsoft Windows $4,799
TRADESTATION 2000I Microsoft Windows $2,399
RADARSCREEN 2000I Microsoft Windows $2,399
OPTIONSTATION 2000I Microsoft Windows $2,399
SUPERCHARTS REAL-TIME 4.0 Microsoft Windows $1,199
SUPERCHARTS END-OF-DAY 4.0 Microsoft Windows $ 395
TRADESTATION 2000I. TRADESTATION has been the flagship product of the
Company, serving as a platform for numerous third-party software solutions.
TRADESTATION has been marketed to equities, futures and foreign currency
traders. TRADESTATION empowers the trader to design and
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develop custom trading strategies based upon the trader's objective rules and
criteria, test the profitability of such trading strategies against historical
data, and then computer-automate a chosen trading strategy to monitor the
applicable market and alert the trader in real-time when the criteria of the
trading strategy have been met and an order should, therefore, be placed. The
principal features of TRADESTATION which enable the trader to design and develop
custom trading strategies are EASYLANGUAGE and the POWEREDITOR. EASYLANGUAGE is
a proprietary computer language developed by Omega Research consisting of
English-like statements and trading terms which can be input by the trader to
describe particular objective rules and criteria. The POWEREDITOR is a compiler
of EASYLANGUAGE statements that provides the trader with considerable
flexibility to modify and combine different trading rules and criteria which
ultimately result in the design of the trader's custom trading strategies. The
Company's TRADESTATION product has also been marketed worldwide to institutional
traders on a monthly subscription basis by Telerate, Inc., a subsidiary of
Bridge Information Systems, Inc. See "Strategic Relationships" below.
RADARSCREEN 2000I. RADARSCREEN, a product officially released in
February 1999, enables traders to scan up to hundreds or thousands (depending
upon the data service and computer hardware used) of stocks or other securities
to identify favorable buying and selling opportunities based upon their own
trading strategies, which may be designed through the use of EASYLANGUAGE and
the POWEREDITOR. The program also updates dynamically and ranks securities in
real time based upon user-defined criteria and alerts the trader in real time
when the strategies' criteria are met.
OPTIONSTATION 2000I. OPTIONSTATION is an options trading analysis
product for stock, index and futures options which enables traders, without
requiring them to be options experts or mathematicians, to explore complex
trading strategies. Specifically, OPTIONSTATION is designed to sort through all
of the possible options positions on one or more securities and identify the
most favorable risk-reward profile based upon user-defined assumptions.
EASYLANGUAGE and the POWEREDITOR can be used with OPTIONSTATION to customize the
user's options analyses. OPTIONSTATION is designed to perform two critical tasks
of options trading--position search and position analysis. OPTIONSTATION's
Position Search helps the trader find the best risk-reward profile based upon
the trader's market assumptions. The OPTIONSTATION Position Analysis and
OPTIONSTATION Position Chart features enable traders to design and customize
options positions and then graphically view and analyze each position's
profitability and risk. The program will alert the trader in real time when the
trader's specified criteria have been met.
OMEGA RESEARCH PROSUITE 2000I. OMEGA RESEARCH PROSUITE is the Company's
premium client software product, as it includes, as an integrated suite,
TRADESTATION 2000I, RADARSCREEN 2000I and OPTIONSTATION 2000I. Due to the
utilization of Microsoft COM technology, all three programs (plus additional
third party programs, such as, e.g., Microsoft Excel) may be viewed and utilized
simultaneously within a single workspace. OMEGA RESEARCH PROSUITE is best suited
to traders who are active in multiple markets and to traders who are seeking a
full range of analysis tools. For example, a trader who uses OMEGA RESEARCH
PROSUITE may use TRADESTATION to conduct analysis to determine the optimum time
to buy or sell stocks or futures based upon his or her own trading strategies,
then use RADARSCREEN to scan the markets to identify which stocks or futures he
or she wants to buy or sell based upon such trading strategies, and then use
OPTIONSTATION to determine whether, based upon his or her market assumptions, an
option strategy may be preferable to trading the underlying securities.
SUPERCHARTS. SUPERCHARTS is a technical analysis charting product
available in both real-time and end-of-day versions. SUPERCHARTS has a built-in
library of more than 80 popular technical
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indicators and 15 drawing tools that highlight significant market patterns.
SUPERCHARTS provides the trader with sophisticated charting and technical
analysis capabilities, including the ability to draw trend lines, identify chart
patterns and chart historical fundamental data. SUPERCHARTS can generate an
alert on a real-time or end-of-day basis when a simple user-defined criterion
occurs with respect to a specific security. SUPERCHARTS also contains certain
trading strategy capabilities in order to introduce the less-experienced trader
to such functions. EASYLANGUAGE is included to a limited degree in SUPERCHARTS.
ADDITIONAL PRODUCTS AND SERVICES. The Company has offered additional
products and services to support its client software sales, such as:
HISTORYBANK.COM, the Company's historical financial market database and
end-of-day financial market data service included free of charge with orders for
2000I products; OMEGAWORLD, the Company's annual trading strategy development
conference; the STRATEGY TRADING AND DEVELOPMENT CLUB, a bi-monthly CD-ROM and
accompanying booklet that describes and demonstrates sample trading strategies
designed using EASYLANGUAGE; OMEGA RESEARCH MAGAZINE, a quarterly magazine about
trading strategy development that has been distributed free of charge to the
Company's customer base; and seminars, workshops and instructional videotapes
(often offered free of charge) that have been used to enhance traders' abilities
to use fully and effectively the Company's products. In February 2000, in
connection with the Company's transition to its new business model, OMEGA
RESEARCH MAGAZINE and the seminars, workshops and instructional videotapes were
discontinued.
WINDOW ON WALLSTREET LEGACY PRODUCTS. Window On WallStreet has, over
the years, developed client software products and Internet-based products and
services (including FDCN), all of which are being phased out in an orderly
fashion. FDCN and certain features and functions of some of those other products
and services have been, and will be, incorporated into WINDOWONWALLSTREET.COM
and TRADESTATION.COM. In particular, FDCN is intended to serve as the backbone
of the streaming real-time market data and news services that are and will be
part of those products and services.
NEW BUSINESS MODEL
WINDOWONWALLSTREET.COM. On January 25, 2000, the Company launched
WINDOWONWALLSTREET.COM. WINDOWONWALLSTREET.COM offers to its subscribers, on a
monthly-subscription basis, browser-based streaming real-time charts, quotes and
news presented and powered by some of the Company's award-winning trading tools.
The features of WINDOWONWALLSTREET.COM include powerful analytical charting,
Nasdaq Level II market maker data, time and sales data, quote lists, option
chains, market leaders data, streaming news, Internet SmartSearch (a feature
that enables the trader to access relevant Internet research services), live
ticker, portfolio management, profit/loss tracking, discussion forum, and
wireless access. The streaming real-time financial market data currently
included are NYSE, Nasdaq, American Stock Exchange ("AMEX") and Options Price
Reporting Authority ("OPRA"). The subscription price currently being offered is
$79.95 per month. If the subscriber commits to a one-year subscription, and pays
in advance, the price currently offered is $839.40 ($69.95 per month). All
exchange fees payable to NYSE, Nasdaq, AMEX and OPRA for non-professional
subscribers are included in the pricing (those currently total $5.00 per month),
other than those payable to receive Nasdaq Level II data (which currently costs
$50.00 per month). Exchange fees payable by professional subscribers are also
not included in the above-described pricing.
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TRADESTATION.COM. Later this year, the Company intends to launch
TRADESTATION.COM, which is currently under development. The Company has targeted
late Spring for the launch, but given the substantial development yet to be
completed, the launch date may be later than currently expected.
TRADESTATION.COM is planned to be an Internet-based monthly subscription service
that will include substantially all of the features and functions of
WINDOWONWALLSTREET.COM, including streaming real-time charts, quotes and news,
plus the powerful trading strategy tools of TRADESTATION: tools that enable the
development of custom trading strategies that may be historically tested and
then automated to produce buy and sell signals in real time. TRADESTATION.COM's
tools will likely also include the functions of RADARSCREEN. TRADESTATION.COM is
also expected to include discussion forums, chat rooms, educational content and
detailed technical support information that support the use of its trading
strategy tools. Conceptually, TRADESTATION.COM is being designed as a web-based
"portal" for the active on-line trader who wishes to develop, test and implement
in real time objective trading strategies. The Company has not yet determined
the monthly subscription price at which TRADESTATION.COM will be offered. Such
decision is expected to be made shortly before its launch. Sometime following
the launch of TRADESTATION.COM, the Company plans to launch OPTIONSTATION.COM,
either as a separate trading platform for options traders or as premium service
within TRADESTATION.COM.
ONLINETRADING.COM'S ON-LINE BROKERAGE SERVICES. Assuming that the
Merger Agreement is consummated (which, although no assurance can be given, is
expected to occur in June of this year), the Company intends to integrate the
TRADESTATION.COM platform with OnlineTrading.com's high-speed electronic order
execution brokerage services. The planned benefit of such integration is that
OnlineTrading.com's on-line brokerage customers will be able to utilize
TRADESTATION.COM to develop real-time trading strategies and then electronically
initiate execution of their buy and sell orders, including buy and sell orders
that result from alerts generated in real time by TRADESTATION.COM. Those buy
and sell orders would then be executed through OnlineTrading.com's high-speed
electronic order execution system. The Company has not yet made a decision as to
whether WINDOWONWALLSTREET.COM shall be usable in such fashion with
OnlineTrading.com's order execution technology; however, it is currently
intended that OPTIONSTATION.COM, if and when launched, will be so integrated.
SALES AND MARKETING
The Company has marketed its client software products using a
combination of methods, including inbound telesales, the use of distributors,
and, most recently, on-line sales through its web site. Marketing efforts in
support of sales have included television advertising and print media, direct
mail, advertising on the Company's web site, hundreds of sales seminars
conducted annually throughout the United States (which were discontinued in
February 2000 in connection with the Company's transition to its new business
model), and establishment of marketing and other relationships with data
vendors, on-line brokerages and software and service solution providers. In
connection with the Company's transition to its new business model, its
marketing methods, and the mix of such methods, is expected to change
significantly. For example, those relationships, as related to the new business
model, with data vendors and on-line brokerages (companies that the Company is
now or soon will be competing with) will likely no longer be desirable or
available, and the mix of television, print, web site, direct mail and in-person
marketing methods will be determined and continually modified as the Company
tests such methods and mixtures and analyzes and interprets the results.
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In February 1999, the Company launched a redesigned and expanded web
site. In addition to enabling on-line ordering and payment for virtually all
1999 products and services, the new web site included the following features:
on-line registration for Company conferences and on-line subscriptions to
Company newsletters; expanded free access to downloadable technical files,
indicators and studies; on-line search functions that enable users to find Omega
Research product distributors and user groups by geographic area; an expanded
industry events section; on-line search capabilities for locating Omega Research
Solution Providers (as described below in "Strategic Relationships - Omega
Research Solution Provider Network"); on-line search capabilities that allow
users to find answers to technical issues by having access to the Company's
technical assistance knowledge base; and comprehensive information about the
Company's products and services. The web site will be substantially redesigned,
and new web sites will be created (as, for example, a new web site was created
for WINDOWONWALLSTREET.COM) in connection with the Company's planned offering of
TRADESTATION.COM and OPTIONSTATION.COM, as well as in connection with the
anticipated merger with OnlineTrading.com.
The majority of the Company's direct sales for its client software
products has been generated by telesales. The telesales process has consisted of
the generation of leads through media and direct mail advertising, delivery of
product information to prospective purchasers, and follow-up calls to the
recipients of the product information to attempt to complete the sale. The size
of this sales force was substantially reduced in February 2000 in connection
with the Company's transition to its new business model.
In the first quarter of 1999, the Company implemented 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. This system will need to be substantially modified, and/or
integrated with additional systems that will need to be obtained or designed and
implemented, in connection with the Company's transition to its new business
model.
The Company has advertised its 2000I products on a regular basis on the
CNBC television network, and to a much lesser extent on certain local television
and radio stations. The Company has advertised its 2000I products in
publications popular with traders such as INVESTORS BUSINESS DAILY and TECHNICAL
ANALYSIS OF STOCKS & COMMODITIES. The Company has also undertaken 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 have included flyers, brochures, videotapes, books or demo
CDs.
The Company engages in sales to customers outside of the United States
through the use of independent distributors and responses to direct telephonic
or electronic mail inquiries from foreign persons. Less than 10% of the
Company's revenues were derived from customers outside of the United States for
the years ended December 31, 1999, 1998 and 1997. International sales are made
in U.S. dollars.
STRATEGIC RELATIONSHIPS
Omega Research has over the years established strategic marketing and
other strategic partner relationships with data vendors, software and service
solution providers, on-line brokerages and other relevant third parties with
respect to its client software products. In light of the Company's transition to
its new business model, the number and significance of the Company's strategic
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relationships, as they relate to the Company's client software products, will
substantially decrease. With respect to the Company's new business model, those
types of relationships with data vendors and on-line brokerages are expected to
be undesirable and unavailable. However, the Company's solution provider network
(discussed below) should be able to use TRADESTATION.COM as a platform.
BRIDGE TELERATE AGREEMENT. In August 1994, the Company entered into a
Software License, Maintenance and Development Agreement (the "Bridge Telerate
Agreement") with Dow Jones Markets, Inc. (now known as Telerate, Inc. and a
subsidiary of Bridge Information Systems, Inc.), under which Omega Research
licenses to Telerate, Inc. ("Bridge Telerate") the right to market and
distribute TRADESTATION to its data subscribers worldwide, who are primarily
institutional investors. In 1999, the Company and Bridge Telerate completed
development of technical compatibility between TRADESTATION 2000I and the
Bridgefeed technology on which the Bridge Telerate datafeeds currently run. The
Bridge Telerate Agreement expires in January 2002. The Bridge Telerate Agreement
requires Bridge Telerate to use commercially reasonable efforts to market
TRADESTATION, to market the product under a name including "TRADESTATION," and
to pay to Omega Research a per-subscription royalty, subject to minimum annual
royalties which escalate each year of the agreement. The Company has no
technical support obligation under the agreement to the customers of Bridge
Telerate, but is obligated to provide limited technical support to Bridge
Telerate managers. During the term of the Bridge Telerate Agreement, Omega
Research is not permitted to enter into a similar licensing arrangement
regarding TRADESTATION with five enumerated competitors of Bridge Telerate.
Bridge Telerate is not prohibited by the agreement from offering to its data
service subscribers its own or another company's trading strategy software.
MARKET DATA SERVICES. The real-time market data included in
WINDOWONWALLSTREET.COM is, and the real-time market data to be included in
TRADESTATION.COM will be, licensed from S&P ComStock, Inc. A portion of the
technology used to deliver real-time market data services is licensed from a
third-party development company. A significant portion of the computer hardware
and software used by the Company to provide market data services is located at
facilities leased to the Company by Verio Inc. located in Dallas, Texas.
CROSS-MARKETING AGREEMENTS. The Company currently has written
agreements with other data vendors, each of which contains provisions for the
maintenance of technical compatibility between one or more of the Company's
client software products and the data vendors' data services.
OMEGA RESEARCH SOLUTION PROVIDER NETWORK. The Company developed its
principal client software products as "platform applications," unique and
valuable software applications that also serve as platforms for third-party
solutions which add value to the products (collectively, the "Omega Research
Platform"). The Omega Research Platform was designed to be open and extendible,
encouraging the development of as many complementary third-party solutions as
possible. To date, more than 150 independent software developers ("Omega
Research Solution Providers") have developed specific trading strategies or
other trading applications for the Omega Research Platform. This is attributable
chiefly to EASYLANGUAGE, the Company's proprietary computer language comprised
of English-like statements and trading terms that can be used by traders and
third-party developers to describe their own trading rules and criteria. The
Company expects that TRADESTATION.COM shall also serve as a platform for
solution providers.
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PRODUCT DEVELOPMENT AND YEAR 2000 COMPLIANCE
The Company believes that its future success depends in large part on
its ability to transfer and implement, on a high-quality, efficient and
user-friendly basis, the functions and features of its 2000I line of products to
Internet, browser-based platforms, and to integrate those platforms with the
FDCN'S steaming real-time market data and news and with state-of-the-art on-line
order execution technology, and to develop and implement well-designed and
user-friendly web sites. To date, the Company has relied primarily on internal
development of its products and services, but is currently relying or will or
may rely to some extent on licenses from third parties with respect to market
data services technology and order execution technology (assuming the merger
with OnlineTrading.com closes). The Company performs all quality assurance and
develops documentation and other training materials internally. In 1999, 1998
and 1997, product development expenses were approximately $5.1 million, $4.0
million and $2.4 million, respectively. The Company may, in the near future,
explore acquisitions of, or strategic or other relationships with, quality
software development companies as a means of expanding its product development
resources. The Company and OnlineTrading.com are currently working together
(with the assistance of a third-party development company) on the development of
proprietary order routing and execution technology that the Company intends to
use in its new business model. The Company also intends to continue to improve
the speed and efficiency of its 2000I line of products. As of December 31, 1999,
the Company's product development team was comprised of 72 persons, as compared
to 54 as of December 31, 1998, a 33% increase. That number of persons was 82 as
of March 8, 2000, a 14% increase from December 31, 1999.
The Company views its product development cycle (with respect to both
client software and its new business model) as a four-step process to achieve
technical feasibility. The first step is to conceptualize in detail the defining
features and functions that the targeted trader group requires from the product
or service, and to undertake a cost-benefit analysis to determine the proper
scope and integration of such features and functions. Once the functional
requirements of the product or service have been determined, the second step is
to technically design the product or service. The third step is the detailed
implementation, or engineering, of this technical design. The fourth step is
rigorous quality assurance testing to ensure that the final product or service
generally meets the functional requirements determined in the first step.
Several refinements are typically added in the quality assurance phase of
development. Once this process is completed, technological feasibility has been
achieved and the working model is available for final testing.
The market for trading strategy tools, streaming real-time data and
news services, and on-line order execution services is characterized by rapidly
changing technology, evolving industry standards in computer hardware,
programming tools and languages, operating systems, database technology and
information delivery systems, changes in customer requirements and frequent new
product and service introductions and enhancements. The Company's future success
will depend upon its ability to develop and maintain competitive technologies
and to develop and introduce its new products and services in a timely and
cost-effective manner that meets changing conditions such as evolving customer
needs, existing and new competitive product and service offerings, emerging
industry standards and changing technology. There can be no assurance that the
Company will be able to develop and market, on a timely basis, if at all, new
products and services that fulfill the objectives of the Company's new business
model, respond to changing market conditions or that will be accepted by
customers. Any failure by the Company to anticipate or to respond quickly to
changing market conditions, or any significant delays in the development and
implementation of the Company's new business model and/or introduction of new
products and services and/or
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enhancements, could cause customers to delay or decide against purchases of the
Company's products and services and would have a material adverse effect on the
Company's business, financial condition and results of operations.
Omega Research's most recent versions of its client software products,
TRADESTATION 2000I, RADARSCREEN 2000I, OPTIONSTATION 2000I and OMEGA RESEARCH
PROSUITE 2000I are Year 2000 compliant in all material respects.
WINDOWONWALLSTREET.COM is also Year 2000 compliant in all material respects, as
are Window On WallStreet's 6.5, 7.0 and 7.5 versions of Internet Trader,
Internet Trader Deluxe, Internet Trader Pro, Day Trader and Professional
Investor.
With respect to the shipping versions of Omega Research's client
software products immediately prior to the 2000I line, TRADESTATION 4,
OPTIONSTATION 1.2, TRADESTATION PROSUITE 4 and SUPERCHARTS 4, Omega Research
offered, in June 1999, to all registered customers in good-payment standing of
those versions, as a courtesy, an appropriate solution to those products' Year
2000 compliance issues. No versions prior to version 6.0 of any Window On
WallStreet product, all of which are discontinued products, are Year 2000
compliant. With respect to the 5.0 shipping versions of those discontinued
client software products, Window On WallStreet offered, in December 1999, to all
registered customers of version 5.0 products in good-payment standing, as a
courtesy, a free upgrade to a Year 2000 compliant Window On WallStreet product.
The Company did not incur any material expenditures specifically to provide Year
2000 solutions for its products. During 1999, the Company utilized internal
resources having an approximate aggregate value of under $200,000 to provide all
requisite Year 2000 solutions.
There have not been, and will not be, any Year 2000 modifications or
solutions for any versions of the Company's products introduced prior to those
versions specifically mentioned above, or for any other products not
specifically named above, or any other discontinued products.
CUSTOMER SUPPORT AND TRAINING
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, electronic mail and fax. The majority of these services
are provided during the first sixty days of ownership of a Company client
software product and the related costs associated with such support are accrued
at the date of sale. With respect to monthly subscription services, technical
support is provided as a courtesy to subscribers during the subscription period.
The Company also provides a substantial amount of technical support information
on its web sites.
PRODUCT-USE TRAINING. The Company considers product-use and service-use
training important to try to ensure that its customers develop the ability to
use its products and services as fully and effectively as is possible. The
majority of the Company's training materials consist of extensive on-line
documentation and technical assistance information on its web sites.
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COMPETITION
The markets for (i) on-line brokerage services, (ii) client software
and Internet-based trading tools and (iii) real-time market data services are
intensely competitive and rapidly evolving, and there appears to be substantial
consolidation of those three products and services occurring in the industry.
The Company's new business model embraces this evolution and consolidation.
However, the Company believes that due to the current and anticipated rapid
growth of the market for integrated trading tools, real-time market data and
on-line brokerage services, competition, as well as consolidation, 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 services
and enhancements developed by the Company and its competitors, the ability of
the Company to complete its pending merger with OnlineTrading.com and to
integrate the respective businesses in an orderly, efficient and otherwise
successful manner, product and service functionality, data availability, ease of
use, pricing, reliability, customer service and support, and sales and marketing
efforts.
The Company faces and will face direct competition from several
publicly-traded and privately-held companies with respect to its new business
model, principally (i) on-line brokerages and (ii) data vendors with
Internet-based subscription services. The Company's on-line brokerage
competitors include the approximately 160 on-line brokerages currently active in
the United States, including, but not limited to, A.B. Watley, Inc., Ameritrade,
Inc., Charles Schwab & Co., Inc. (including CyberCorp., an on-line broker with
an active trader customer base which is in the process of being acquired by
Charles Schwab & Co., Inc.), Datek Online Holdings Corporation, Discover
Brokerage Direct, Inc., DLJdirect, E*Trade Group, Inc., Fidelity Brokerage
Services, Inc., National Discount Brokers, Quick & Reilly, Inc., SURETRADE,
Inc., TRADESCAPE.com Inc. and Waterhouse Securities, Inc. Those brokers
currently serve, in the aggregate, more than 92% of existing on-line accounts,
and many are focusing on attracting more active traders to use their services.
The Company's principal data vendor competitors include, but are not limited to,
Bridge Information Systems, Inc. (Bridge Channel, Telerate Channel), Data
Broadcasting Corporation (eSignal), Data Transmission Network Corporation
(DTN.IQ and InterQuote), Hyperfeed Technologies, Inc. (Hyperfeed), Quote.com,
Inc. (Quote.com), S&P ComStock, Inc. (ComStock on the Net and MyComStock.com),
Telescan, Inc. (Wall Street City) and Track Data Corporation (MyTrack). The
Company's competitors in the trading tools industry include, but are not limited
to, Equis International, Inc. (a subsidiary of Reuters Group PLC) and each of
the data vendors and on-line brokers listed above (all of whom develop, are in
the process of developing or seek to develop or otherwise obtain, trading tools
as value-added front ends for their data services and/or value-added tools for
their brokerage services). The Company also will compete with trading tools and
data services on the Internet that are available for free, and believes that
trading tools and data services that are available on the Internet either for
free or at modest prices will increase in sophistication over time. There can be
no assurance that the Company will be able to compete effectively with its
competitors, adequately educate potential customers as to the benefits that the
Company's products and services provide, or continue to offer such products and
services.
Many of the Company's existing and potential competitors, which include
(i) large, established software or Internet companies that do not currently
focus on trading tools/market data services, (ii) large discount and traditional
national brokerages that are focusing more closely on on-line services, trading
tools and real-time market data for active traders, and (iii) data vendors that
are adding on-line brokerages (such as Track Data Corporation) and/or increasing
the sophistication of their trading tools, have longer operating histories,
significantly greater financial, technical and
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marketing resources, greater name recognition and a larger installed customer
base than has the Company. The Company can, against such forces, be considered
to have virtually no prior operating experience given its recent decision to
shift to its new business model, especially given that the Company has not
completed its pending merger with OnlineTrading.com and no assurance can be
given that such completion will occur. One or more of these competitors may be
able to respond more quickly to new or emerging technologies or changes in
customer requirements or to devote greater resources to the development,
promotion and sale of their products and services than may the Company. There
can be no assurance that the Company's existing or potential competitors will
not develop products and services 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, or that the Company will be
able to timely and adequately complete the implementation of its new business
model (in particular, consummation of its pending merger with
OnlineTrading.com), and integrate, implement and offer products and services
competitive with those of its competitors. Increased competition could result in
price reductions, reduced margins, failure to obtain any significant market
share, or loss of market share, any of which could materially adversely affect
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.
INTELLECTUAL PROPERTY
The Company's success is and will be heavily dependent on its
proprietary technology, including Internet, web site and order execution
technology currently in development. The Company views its software technology
as proprietary, and relies, and will be relying, on a combination of copyright,
trade secret and trademark laws, nondisclosure agreements and other contractual
provisions and technical measures to establish and protect its proprietary
rights. The Company has no material 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 trademarks TRADESTATION and OPTIONSTATION,
and registrations in the United States for the trademarks SUPERCHARTS, PROSUITE,
EASYLANGUAGE and POWEREDITOR, and for the service mark OMEGAWORLD. The Company
uses a "click-wrap" license on its web site (for on-line orders of client
software products), and in its client software products (for other types of
sales), and uses and plans to continue to use a subscription agreement for its
Internet-based subscription services, each directed to users of those products
and services, in order to protect its copyrights and trade secrets and to
prevent such users from commercially exploiting such copyrights and trade
secrets for their own gain. Since these licenses are not physically signed by
the licensees, many authorities believe that they may not be enforceable under
many state laws and the laws of many foreign jurisdictions. The laws of Florida,
which such licenses purport to make the governing law, are unclear on this
subject.
Despite 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 (including the Company's substantially increasing
use of the Internet in connection with its transition to its new business
model). In addition, effective protection of intellectual property rights may be
unavailable or limited in certain countries, including some in which the Company
may attempt to expand its sales efforts. There can be no assurance that the
steps taken by the Company to protect
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its proprietary rights will be adequate or that the Company's competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's technologies or products.
There has been substantial litigation in the software industry
involving intellectual property rights. The Company does not believe that it is
infringing, or that the technology in development will infringe, the
intellectual property rights of others. The risk of infringement by the Company
is heightened with respect to its new business model technology in development,
as such will not have stood any "test of time" as has the Company's client
software technology. 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
or services from third parties (all data is licensed from third parties), or
markets products licensed from others generally, its exposure to infringement
actions may increase because 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 services 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.
GOVERNMENT REGULATION
If and when the Company completes its pending merger with
OnlineTrading.com, OnlineTrading.com, which will then be a wholly-owned
subsidiary of OnlineTrading.com Group, shall be (as it currently is) subject to
extensive securities industry regulation under both federal and state laws.
Broker-dealers are subject to regulations covering all aspects of the securities
business, including: sales methods; trade practices among broker-dealers; use
and safe-keeping of customers' funds and securities; arrangements with clearing
houses; capital structure; record keeping; conduct of directors, officers and
employees; and supervision. To the extent OnlineTrading.com solicits orders from
customers or makes investment recommendations, it is subject to additional rules
and regulations governing, among other things, sales practices and the
suitability of recommendations to its customers. Neither OnlineTrading.com
Group, nor Omega Research, is expected to be a broker or dealer.
OnlineTrading.com's mode of operation and profitability may be directly
affected by: additional legislation; changes in rules promulgated by the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), the Board of Governors of the Federal Reserve
System, the various stock exchanges and other self-regulatory organizations; and
changes in the interpretation or enforcement of existing rules and laws.
The SEC, the NASD or other self-regulatory organizations and state
securities commissions can censure, fine, issue cease-and-desist orders, enjoin
or suspend or expel a broker-dealer or any of its officers or employees.
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Marketing campaigns by OnlineTrading.com to bring brand name
recognition to it and to promote the benefit of its services, such as the
anticipated TradeStation.com trading platform and its high-speed electronic
order execution, are regulated by the NASD, and all marketing materials must be
reviewed by an appropriately-licensed OnlineTrading.com principal prior to
release, and must conform to standards articulated by the SEC and NASD. The NASD
may request that revisions be made to marketing materials, and can impose
certain penalties for violations of its advertising regulations, including
censures or fines, suspension of all advertising, the issuance of
cease-and-desist orders, and the suspension or expulsion of a broker-dealer or
any of its officers or employees.
The SEC, the NASD and various other regulatory agencies have stringent
rules with respect to the maintenance of specific levels of net capital by
securities broker-dealers. Net capital is the net worth of a broker or dealer
(assets minus liabilities), less deductions for certain types of assets as well
as other charges. If a firm fails to maintain the required net capital it may be
subject to suspension or revocation of registration by the SEC and suspension or
expulsion by the NASD, and it could ultimately lead to the firm's liquidation.
It is possible that other federal or state agencies will attempt to
regulate OnlineTrading.com's current and planned on-line and other electronic
activities with rules that may include compliance requirements relating to
record keeping, data processing, other operation methods, privacy, and pricing,
content and quality of goods and services as the market for on-line commerce
evolves. Because of the growth in the electronic commerce market, Congress had
held hearings on whether to regulate providers of services and transactions in
the electronic commerce market. As a result, federal or state authorities could
enact laws, rules or regulations, not only with respect to on-line brokerage
services, but other on-line services the Company provides and plans to provide.
Such laws, rules and regulations, if and when enacted, could have a material
adverse effect on the Company's business, financial condition, results of
operations and prospects.
EMPLOYEES
As of December 31, 1999, the Company had 282 full-time equivalent
employees consisting of 72 in product development (including software
engineering, product management, documentation and quality assurance), 173 in
sales and marketing (including sales, marketing, customer support and order
fulfillment), and 37 in general administration (including executive management,
finance, information technology services and administration). 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 R. Cruz or Ralph L. Cruz, the Company's Co-Chief
Executive Officers, or of certain key technology personnel, could 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.
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ITEM 2. PROPERTIES.
The Company's corporate headquarters are located in Miami, Florida, in
a leased facility originally consisting of approximately 17,300 square feet of
office space under a lease which commenced in February 1997 and which expires in
August 2002. The Company has entered into a sublease and two lease amendments
with respect to its corporate headquarters which, taken together, had the effect
of significantly expanding these facilities to approximately 60,500 square feet
of office space. The Company recently opened a leased facility in Boca Raton,
Florida, consisting of approximately 6,000 square feet of space to be used for
additional product development and data services operations. That lease expires
January 1, 2005, and has a five-year renewal option. The Company acquired an
approximate 13,500 square foot leased facility in Richardson, Texas in
connection with the Window On WallStreet acquisition, at which most Window On
WallStreet employees are based and at which certain data services development
and technical operations are based. That lease expires July 31, 2002, and has a
three-year renewal option. The Company also leases warehouse space south of
Miami, Florida consisting of approximately 4,800 square feet, which is used for
fulfillment of orders. The warehouse lease is on a month to month term. The
Company's corporate headquarters contain all of the Company's facilities except
for data services, a portion of product development, and fulfillment. 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.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
COMMON STOCK INFORMATION
The Company's Common Stock, par value $.01 per share ("Common Stock"),
is quoted under the symbol "OMGA" on The Nasdaq Stock Market (Nasdaq National
Market).
The Company completed an initial public offering pursuant to a
Registration Statement that was declared effective on September 30, 1997. Prior
to the initial public offering, the Company's Common Stock was not listed or
traded on any organized market system. The high and low closing sales prices
based on actual transactions for the Company's Common Stock on The Nasdaq Stock
Market during each of the quarters presented are as follows:
High Low
------------- ------------
Closing Sales Price
-------------------------------
1998:
First Quarter...................... $ 5 3/8 $ 2 3/4
Second Quarter..................... 6 3 5/8
Third Quarter...................... 4 5/8 2 1/8
Fourth Quarter..................... 3 1 3/16
1999:
First Quarter...................... 14 5/16 2 15/16
Second Quarter..................... 12 7/8 8
Third Quarter...................... 12 7/16 3 7/8
Fourth Quarter..................... 10 3 13/16
As of March 8, 2000, there were 52 holders of record of the Common
Stock, and, based upon information previously provided to the Company by
depositories and brokers, the Company believes it has in excess of 3,900
beneficial owners.
DIVIDEND POLICY
The Company currently expects operating losses for at least the next
several quarters and intends to retain any future earnings to finance its growth
and development and therefore does not anticipate paying any cash dividends in
the foreseeable future. Payment of any future dividends will depend upon the
future earnings and capital requirements of the Company and other factors which
the Board of Directors considers appropriate. The Company did not distribute any
dividends during the year ended December 31, 1999 or 1998. During 1997, the
Company distributed cash dividends in the aggregate amount of $16.5 million
(including the Dividend described in the following paragraph which was paid
immediately prior to the consummation of the Company's initial public offering)
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
18
<PAGE>
R. Cruz and Ralph L. Cruz, of the Company's former office facilities. The
carrying value of the facility on the Company's books was approximately
$507,000.
The Company's Board of Directors declared and paid a dividend of $15.4
million to the Company's then existing shareholders (the "Dividend") immediately
prior to the consummation of the Company's initial public offering. The Dividend
was equal to the Company's estimate at that time of its cumulative taxable
income prior to its conversion to a C corporation to the extent such taxable
income had not been previously distributed. Subsequent to the payment of the
Dividend, the Company preliminarily determined that the actual cumulative
taxable income would be less than was originally estimated. Accordingly, in the
fourth quarter of 1997, the recipients of the Dividend repaid $800,000, plus
interest, to the Company. During the third quarter of 1998, upon finalization of
the Company's 1997 tax returns and final determination of S corporation earnings
at the date of the conversion to a C corporation, the recipients of the Dividend
repaid an additional $135,000, plus interest, to the Company, reducing the
Dividend to $14.5 million. See Note 7 of Notes to Consolidated Financial
Statements.
RECENT SALES OF UNREGISTERED SECURITIES
In connection with the October 26, 1999 merger with Window On
WallStreet, the Company issued 1,999,995 unregistered shares (the "WOW Shares")
of the Company's Common Stock to the nine former shareholders of Window On
WallStreet in exchange for the cancellation of all of the outstanding shares of
capital stock of Window On WallStreet. The WOW Shares, post merger, represented
approximately 8.2% of the then outstanding Common Stock of Omega Research. In
addition, the Company assumed all outstanding stock options to purchase Window
On WallStreet common stock which, based on an exchange ratio of 0.210974 shares
of Omega Research Common Stock for each share of Window On WallStreet common
stock, were exercisable at the time of assumption for an aggregate of 182,529
shares of Omega Research Common Stock (82,783 shares at an exercise price of
$.48 per share, and 99,746 shares at an exercise price of $8.06 per share). The
Window On WallStreet options generally vest ratably over four years and have a
term of ten years. See "ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K - (b) Current Reports on Form 8-K."
During the fourth quarter of 1999, the Company granted options to
purchase an aggregate of 412,125 shares of Common Stock pursuant to the
Company's Amended and Restated 1996 Incentive Stock Plan (the "Incentive Plan").
Nearly all such options vest ratably over a five-year period and are exercisable
at prices ranging from $4.22 to $8.44 per share, which was the fair market value
of the Company's Common Stock on the respective dates on which the options were
granted. The options expire, if they remain unexercised, on the tenth
anniversary of the date on which they were granted.
All the foregoing shares of the Company's Common Stock and options were
issued or granted (as the case may be) by the Company in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act.
Other than as described above, the Company did not issue or sell any
unregistered securities during the fourth quarter of 1999.
USE OF PROCEEDS
The Company's initial public offering was effected pursuant to a
Registration Statement on Form S-1 (File No. 333-32077) which was declared
effective by the Securities and Exchange Commission on September 30, 1997.
19
<PAGE>
For a description of the Company's use of proceeds from such offering
through September 30, 1999, see Item 2(d) of Part II of the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1997. During the
fourth quarter of 1999, the Company used a portion of such proceeds to repay
outstanding debt of Window On WallStreet of approximately $4.1 million, fund
operations with approximately $3.0 million, including $1.0 million paid for
acquisition costs with respect to the Window On WallStreet acquisition, and used
$530,000 for capital expenditures. The balance of the net offering proceeds (the
portion that has not been used) of approximately $3.9 million continues to be
temporarily invested in short-term, interest bearing instruments pending the use
by the Company for working capital and other general corporate purposes.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated 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
Consolidated Financial Statements and Notes thereto included elsewhere in this
report. The Consolidated Statement of Operations Data presented below for each
of the years in the three-year period ended December 31, 1999 and the
Consolidated Balance Sheet Data as of December 31, 1999 and 1998 have been
derived from the Company's Consolidated Financial Statements included on pages
F-1 through F-23 of this report, which have been audited by Arthur Andersen LLP.
The Consolidated Balance Sheet Data as of December 31, 1997 have been derived
from audited financial statements not included in this report. The Consolidated
Statement of Operations Data presented below for the years ended December 31,
1996 and 1995 and the Consolidated Balance Sheet Data as of December 31, 1996
and 1995 have been derived from unaudited financial statements not included in
this report. See also Note 12 of Notes to Consolidated Financial Statements for
quarterly financial information for fiscal years 1999 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(In thousands, except per share data) (1)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues:
Licensing fees.................................... $ 33,768 $ 25,057 $ 27,729 $ 15,994 $ 9,404
Other revenues.................................... 9,102 6,654 5,221 4,118 1,595
--------- --------- --------- --------- ---------
Total net revenues........................... 42,870 31,711 32,950 20,112 10,999
Total operating expenses............................. 40,745 30,616 24,727 13,616 7,731
--------- --------- --------- --------- ---------
Income from operations....................... 2,125 1,095 8,223 6,496 3,268
--------- --------- --------- --------- ---------
Pro forma net (loss) income (2)...................... $ (967) $ (429) $ 4,665 $ 3,690 $ 1,980
========= ========= ========= ========= =========
Pro forma (loss) earnings per share: (2).............
Basic............................................. $ (0.04) $ (0.02) $ 0.21 $ 0.18 $ 0.09
Diluted........................................... $ (0.04) $ (0.02) $ 0.21 $ 0.17 $ 0.09
Weighted average shares outstanding:
Basic............................................. 24,294 23,914 21,829 20,886 20,934
Diluted........................................... 24,294 23,914 22,620 22,033 22,018
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(In thousands) (1)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..............................$ 2,176 $ 7,650 $ 12,827 $ 1,097 $ 364
Marketable securities.................................. 1,695 5,737 1,015 - -
Working capital........................................ 22,390 24,928 24,983 5,051 2,154
Total assets........................................... 31,380 30,774 29,153 7,571 3,747
Long term debt......................................... - 2,641 2,365 2,167 -
Shareholders' equity .................................. 25,475 24,495 24,017 4,304 3,200
- ------------------
<FN>
(1) Amounts have been restated to reflect the acquisition of Window On WallStreet, which was accounted
for under the pooling-of-interests method. See Note 2 of Notes to Consolidated Financial Statements.
(2) The Company was treated as an S corporation for federal and state income tax purposes prior to
September 30, 1997. Pro forma income taxes have been provided as if the Company had been a C
corporation for all periods prior to September 30, 1997. Upon terminating its S corporation
election, the Company was required to record a non-recurring credit. See Note 9 of Notes to
Consolidated Financial Statements.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL
DATA"AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS CONTAINED IN THIS REPORT.
OVERVIEW
Omega Research was incorporated in 1982 to develop, market and sell
trading strategy software tools to traders. The Company's current products and
services provide traders with the ability to develop, historically test and
computer automate trading strategies and to access streaming real-time charts,
quotes and news via the Internet.
The Company is in the process of changing its business model. The
Company has taken steps to transform itself from a trading strategy client
software company to an on-line brokerage firm that intends to provide to active
traders a best-of-breed, Internet-based trading platform: One that incorporates
and seamlessly integrates powerful trading strategy development tools,
historical and streaming real-time market data and news, and a direct access
electronic order execution system. The Company's historical business model has
consisted of sales of client software products, payment for which is committed
to in full by the customer at the time of sale. Under the new business model,
the Company will seek to derive recurring revenues from customers by offering
monthly subscription services for trading strategy development tools integrated
with streaming real-time market data and news for which a monthly fee is
payable, and by offering on-line brokerage services for which commissions are
payable. The Company believes that it will be able to leverage its historical
success in selling trading strategy tools to build a subscriber base of active
traders that will use its on-line brokerage services or, at a minimum, its
trading strategy subscription services.
To support the change in the business model, the Company expects to
increase significantly its sales and marketing, product development and
infrastructure expenditures. As a result, the Company expects to incur net
losses through the year 2000. These anticipated losses could reduce
21
<PAGE>
the Company's available cash resources, increase its capital requirements and
require the Company to seek debt and/or equity financing. See "Liquidity and
Capital Resources" below.
Historically, the Company's revenues have been derived principally from
two sources: (i) licensing fees for use of the Company's client 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 and other third parties and revenue from the Company's
FINANCIAL DATA CAST NETWORK ("FDCN") subscription service. Licensing fees are
recognized upon product shipment in accordance with Statement of Position
("SOP") 97-2, SOFTWARE REVENUE RECOGNITION. See Note 1 of Notes to Consolidated
Financial Statements.
While the Company has no obligation to perform future services
subsequent to shipment of client software, the Company voluntarily provides
telephone, electronic mail and fax 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.
On February 22, 1999, the Company released its latest generation of
premium software products, branded "2000I," which included upgrade versions of
its then existing products and new products. Accordingly, as of February 22,
1999, the Company's client software product line consisted of TRADESTATION
2000I, RADARSCREEN 2000I, OPTIONSTATION 2000I, OMEGA RESEARCH PROSUITE 2000I and
SUPERCHARTS 4. See "ITEM 1. BUSINESS - Overview and Recent Developments" and -
"Products and Services."
The Company began to implement the change in its business model with
its October 1999 acquisition of Window On WallStreet, a provider of
Internet-based streaming real-time market data through its FDCN subscription
service. The Company's Consolidated Financial Statements have been restated to
reflect the acquisition of Window On WallStreet, which was accounted for as a
pooling-of-interests. In November 1999, the Company announced that it would
focus on serving active on-line traders by offering a new monthly subscription,
Internet-based, trading strategy portal that is to be named TRADESTATION.COM.
TRADESTATION.COM is expected to be launched later this year. On January 19,
2000, the Company signed a definitive, 100% share-exchange merger agreement with
OnlineTrading.com, a direct access on-line broker. That merger is also expected
to be accounted for as a pooling-of-interests. OnlineTrading.com provides
electronic order execution technology that directly accesses ECN's, exchanges
and market makers in order to provide OnlineTrading.com's customers with
high-speed and efficient order execution that avoids traditional market maker
participation and brokerage order-flow arrangements. The Company launched its
first Internet subscription service, WINDOWONWALLSTREET.COM, on January 25,
2000. WINDOWONWALLSTREET.COM offers streaming real-time charts, quotes and news,
powered by certain of the Company's award-winning trading tools. See "ITEM 1.
BUSINESS - Overview and Recent Developments" and - "Products and Services."
Through 1999, substantially all of the Company's licensing fees were
derived from the licensing of client software products to individual traders.
The Company's client software products are sold primarily by the Company's
telesales force. To date, a majority of the licensing fees have been generated
through sales of TRADESTATION and the OMEGA RESEARCH PROSUITE. For sales of most
of the Company's client software products, customers have typically provided the
Company with a credit card number and were billed for their purchases
automatically and on a monthly basis over the course of 12 months. The Company
has offered a 16-month payment term for OMEGA RESEARCH PROSUITE 2000I sales.
That payment plan results in deferred revenues with respect to the amounts
22
<PAGE>
not due within twelve months from the date of sale. The concentration of the
Company's revenue, prior to the consummation of the merger with
OnlineTrading.com, is expected to migrate towards its subscription services
during 2000. Furthermore, as a result of the Company's transition from a seller
of client software to a provider of Internet subscription services, it is
expected that net revenues will be adversely impacted and it is difficult to
predict when, if at all, or to what extent, the Company's Internet subscription
services will offset such reductions.
The majority of the Company's other revenues for the year ended
December 31, 1999 were derived from royalties associated with a licensing
agreement with Bridge Telerate relating to TRADESTATION. Under that agreement,
Bridge Telerate has the right to offer TRADESTATION to its customers on a
subscription basis. Bridge Telerate pays a per unit royalty to the Company,
subject to a minimum annual royalty commitment. The remaining other revenues has
been comprised of fees and commissions paid to the Company pursuant to
cross-marketing agreements with data service vendors and other third parties,
revenues from the FDCN subscription service and revenues generated from
OMEGAWORLD, the Company's annual conference for users of Omega Research
products. The Company's decision to focus its marketing resources on
WINDOWONWALLSTREET.COM and future Internet subscription services is expected to
result in reduced commission revenue from data service vendors. However, it is
difficult to predict when, if at all, or to what extent, the Company's Internet
subscription service revenues will offset such reductions. Other revenues are
recognized as earned in accordance with the terms of the applicable contract;
Internet subscription services are recognized monthly as service is provided;
and, with respect to OMEGAWORLD, at the time the conference is conducted.
The Company provides client software customers with a 30-day right of
return and, as a result, records a provision for estimated returns at the time
of sale. Depending on the circumstances, the Company has often allowed customers
to return client software 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. Due to expanded marketing and sales efforts
including television advertising and free audiotape or book offers, and an
increased awareness of trading, the Company has reached a broader audience that
includes more individuals who may not necessarily be suited to use the Company's
products. Consequently, the Company's rate of returns and provision for bad
debts have increased over the last three years, particularly in the last of
those years. There can be no assurance that this trend will not continue,
particularly in light of the Company's recent decision to transition its
business from a client software company to an on-line brokerage firm and
provider of subscription-based services.
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 86, ACCOUNTING FOR THE COST OF CAPITALIZED SOFTWARE TO BE SOLD, LEASED OR
OTHERWISE MARKETED, 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. There
were no capitalized software development costs as of December 31, 1999 or 1998.
In the future, the Company believes that the time between the technological
feasibility of the Company's Internet-based services and the general release of
such services will be insignificant, and, as a result, development costs
qualifying for capitalization are expected to be immaterial.
23
<PAGE>
In 1988, the Company elected to be taxed under Subchapter S of the
Internal Revenue Code of 1986, as amended (the "Code"), and, as a result, the
Company's earnings prior to September 30, 1997 (the effective date of the
Company's initial public offering) were taxed at the federal level directly to
the Company's shareholders (the State of Florida does not have a personal income
tax). Effective September 30, 1997, the Company terminated its S corporation
election and became subject to corporate-level federal and state income taxes.
As a result of terminating this election, the Company was required to record a
non-recurring credit (the "SFAS No. 109 Credit"). The SFAS No. 109 Credit
represents the recognition of net deferred tax assets arising from the book and
tax basis differences that arise primarily as a result of accounts receivable
reserves. The SFAS No. 109 Credit, net of a $1.8 million provision for income
taxes payable, was approximately $1.2 million as of September 30, 1997, the date
the S corporation election was terminated. See "Income Taxes" below.
The pro forma income tax adjustments for the year ended December 31,
1997 in the Company's historical financial statements reflect 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 Omega Research (as a stand-alone company, prior to its merger with
Window On WallStreet) for the period prior to September 30, 1997. In addition,
the non-recurring net tax credit of $1.2 million has been excluded from pro
forma net income.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items
in the Company's statement of operations reflected as a percentage of total net
revenues:
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
----- ----- -----
Net Revenues:
Licensing fees .................... 78.8% 79.0% 84.2%
Other net revenues ................ 21.2 21.0 15.8
----- ----- -----
Total net revenues .......... 100.0 100.0 100.0
----- ----- -----
Operating expenses:
Cost of licensing fees and services 6.9% 7.9% 8.2%
Product development ............... 12.0 12.6 7.1
Sales and marketing ............... 44.3 49.1 37.1
General and administrative ........ 29.0 26.9 22.7
Acquisition costs ................. 2.8 -- --
----- ----- -----
Total operating expenses .... 95.0 96.5 75.1
Income from operations ................. 5.0% 3.5% 24.9%
===== ===== =====
24
<PAGE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
NET REVENUES
TOTAL NET REVENUES. The Company's total net revenues increased 35% from
$31.7 million in 1998 to $42.9 million in 1999.
LICENSING FEES. Licensing fees increased 35% from $25.1 million in 1998
to $33.8 in 1999, primarily due to an increase in net revenues resulting from
the release, on February 22, 1999, of the Company's 2000I line of client
software products. As a result of the Company's recent announcement regarding
the acceleration of its Internet subscription services, it is expected that in
the short term the level of licensing fees will decrease as the Company focuses
on building a subscriber base from its Internet subscription services. The
Company has provided what it believes are appropriate provisions for returns, in
light of its 30-day right of return policy, but no assurance can be given that
the rate of returns will not increase beyond the reserved levels, particularly
due to the Company's announcements regarding its new business model.
OTHER REVENUES. Other revenues increased 37% from $6.7 million in 1998
to $9.1 million in 1999, primarily due to increases in data service revenues
associated with FDCN, the Company's real-time market data subscription service,
and, to a lesser extent, an increase in minimum royalties under the Company's
license agreement with Bridge Telerate, as well as revenues generated from
OMEGAWORLD, the Company's annual conference for users of Omega Research
products.
OPERATING EXPENSES
COST OF LICENSING FEES AND SERVICES. Cost of licensing fees and
services consisted primarily of costs related to data redistribution, product
media, packaging and storage and inventory costs. Cost of licensing fees and
services was approximately $3.0 million in 1999 as compared to $2.5 million in
1998. Cost of licensing fees and services as a percentage of total net revenues
decreased from 8% in 1998 to 7% in 1999, primarily due to a shift in product mix
to higher-priced products during 1999 as well as the impact of a one-time
payment made to a third party in conjunction with the development of certain
technology for the Company during 1998, offset by decreased margins for the FDCN
subscription services.
PRODUCT DEVELOPMENT. Product development expenses included expenses
associated with the development of new products and services, enhancements to
existing products and services, testing of products and services and the
creation of documentation, and consisted primarily of salaries, other personnel
costs and depreciation of computer and related equipment. Product development
expenses increased from $4.0 million in 1998 to $5.1 million in 1999 primarily
due to an increase in the number of individuals employed in product development.
Product development expenses as a percentage of total net revenues decreased
from 13% in 1998 to 12% in 1999, primarily due to a higher rate of growth in net
revenues compared to the increase in personnel and related expenses. The Company
anticipates that the absolute dollar amount of product development expense will
increase for the foreseeable future as the Company develops new products and
services in connection with its new business model and enhances existing
products and services.
SALES AND MARKETING. Sales and marketing expenses have consisted
primarily of marketing programs, including advertising, brochures, direct mail
programs and seminars to promote the
25
<PAGE>
Company's client software products to investors, sales commissions, salaries for
the customer support center and marketing personnel, other personnel costs, web
site design and administration costs, and shipping expenses. Sales and marketing
expenses were $19.0 million in 1999 compared to $15.6 million in 1998, primarily
due to increased marketing and sales personnel, increased commissions resulting
from higher net revenues, increased travel expenses and increased costs related
to OMEGAWORLD. Sales and marketing expenses as a percentage of total net
revenues decreased from 49% in 1998 to 44% in 1999 primarily due to a higher
rate of growth in net revenues compared to the increase in personnel and related
expenses. The Company expects sales and marketing expenses to increase
significantly in the near term, as the Company redirects its resources towards
marketing Internet subscription services and the other components of its new
business model.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of provision for bad debt, employee-related costs for administrative
personnel such as executive, human resources, finance and information technology
employees, as well as professional fees, rent and other facilities expense.
General and administrative expenses were $12.4 million in 1999 compared to $8.5
million in 1998 primarily as a result of an increase in bad debt expense, and,
to a lesser extent, an increase in personnel and related costs as well as
facility expenses, partially offset by decreased consulting and professional
expenses as a result of the favorable settlement of the class action law suit
brought against the Company in 1998. General and administrative expenses as a
percentage of total net revenues increased from 27% in 1998 to 29% in 1999,
primarily as a result of the increase in the provision for bad debt. The Company
believes that the absolute dollar amount of its general and administrative
expenses in the future will depend, to a large extent, on the level of provision
required for bad debt, the level of hiring of additional personnel to support
the expected growth of the Company and the Company's change in its business
model.
ACQUISITION COSTS. Acquisition expenses of $1.2 million were recognized
in the fourth quarter of fiscal year 1999 for transaction costs associated with
the Window On WallStreet acquisition. Significant additional costs in
conjunction with the Company's pending merger with OnlineTrading.com are
expected to be incurred during fiscal year 2000.
OTHER INCOME (EXPENSE), NET
INTEREST EXPENSE. Interest expense increased from approximately
$907,000 in 1998 to approximately $1.7 million in 1999 due to the issuance of
common stock of the pooled company (Window On WallStreet) associated with
nonpayment and consolidation of its debt with related parties. Interest expense
during 1999 included $1.3 million of noncash charges related to the issuance of
common stock of Window On WallStreet, as compared to $600,000 during 1998.
Window On WallStreet outstanding debt of approximately $4.1 million was repaid,
in accordance with its terms, by the Company upon consummation of the merger.
OTHER INCOME, NET. Other income, net consists primarily of investment
income from cash and cash equivalents. The Company generally invests in
overnight investments, tax exempt commercial paper and investment grade
short-term municipal bonds. The amount of interest income fluctuates based on
the amount of funds available for investment and the prevailing interest rates.
Other income, net was approximately $445,000 in 1999 and $435,000 in 1998.
26
<PAGE>
YEARS ENDED DECEMBER 31, 1998 AND 1997
NET REVENUES
TOTAL NET REVENUES. The Company's total net revenues were $31.7 million
in 1998 compared to $33.0 million in 1997.
LICENSING FEES. Licensing fees were $25.1 million in 1998 as compared
to $27.7 million in 1997, primarily due to a decrease in net sales of all of the
Company's principal products. The Company believes that licensing fees in 1998
were impacted by slower than anticipated demand for its products, which was
first experienced during the fourth quarter of 1997. Management believes that
the slower demand was due in part to customer delays in decision making in
anticipation of the release of the Company's 2000I line of client software
products, which were released on February 22, 1999.
OTHER REVENUES. Other revenues increased 27% from $5.2 million in 1997
to $6.7 million in 1998, primarily due to increases in minimum royalties under
the Company's license agreement with Bridge Telerate, and, to a lesser extent,
revenues generated from OMEGAWORLD, the Company's annual conference for users of
Omega Research products.
OPERATING EXPENSES
COST OF LICENSING FEES AND SERVICES. Cost of licensing fees and
services was $2.5 million in 1998 compared to $2.7 million in 1997. Cost of
licensing fees and services as a percentage of total net revenues remained
relatively unchanged at 8%.
PRODUCT DEVELOPMENT. Product development expenses increased from $2.4
million in 1997 to $4.0 million in 1998, primarily due to an increase in the
number of individuals employed in product development. Product development
expenses as a percentage of total net revenues increased from 7% in 1997 to 13%
in 1998, primarily due to increased personnel and related expenses as well as
decreased revenues.
SALES AND MARKETING. Sales and marketing expenses were $15.6 million in
1998 compared to $12.2 million in 1997, primarily due to increased marketing and
sales personnel, increased advertising (including print advertising, the use of
sales seminars, television advertising and direct mailers), and increased
shipping costs and costs related to OMEGAWORLD, offset by decreased
telecommunications expenses. Sales and marketing expenses as a percentage of
total net revenues increased from 37% in 1997 to 49% in 1998 as a result of the
increased marketing expenses and decreased revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$8.5 million in 1998 compared to $7.5 million in 1997, primarily as a result of
increased professional fees related to the defense of the class action lawsuit
brought against the Company in 1998, costs of being a public company, expenses
related to the implementation and lease of a new telephone system, and increased
personnel costs. General and administrative expenses as a percentage of total
net revenues increased from 23% in 1997 to 27% in 1998, primarily as a result of
the increase in those expenses and decrease in revenues.
27
<PAGE>
OTHER INCOME (EXPENSE), NET
INTEREST EXPENSE. Interest expense increased from approximately
$265,000 in 1997 to approximately $907,000 in 1998, primarily due to noncash
interest associated with the conversion of Window On WallStreet's detachable
warrants into its common stock upon nonpayment of certain debt with related
parties.
OTHER INCOME, NET. Other income, net increased from approximately
$196,000 in 1997 to approximately $435,000 in 1998, primarily due to income
earned on the proceeds from the Company's initial public offering.
INCOME TAXES
For income tax purposes, the Company was an S corporation prior to
September 30, 1997. Accordingly, net income and related timing differences which
arose in the recording of income and expense items for financial reporting and
tax reporting purposes were included in the individual tax returns of the S
corporation shareholders. Effective September 30, 1997, the Company terminated
its S corporation election, and, as a result, adopted SFAS No. 109, ACCOUNTING
FOR INCOME TAXES. SFAS No. 109 requires that deferred income tax balances be
recognized based on the differences between the financial statement and income
tax bases of assets and liabilities using the enacted tax rates.
Upon adoption of SFAS No. 109 during the third quarter of 1997, the
Company recorded a benefit for income taxes which reflects the SFAS No. 109
Credit, a non-recurring deferred income tax credit of approximately $3.0
million, which was partially offset by a $1.8 million provision for income taxes
payable. The SFAS No. 109 Credit recognized net deferred tax assets arising from
book and tax basis differences that arose primarily as a result of accounts
receivable reserves. The $1.8 million in income taxes payable relate to federal
and state income taxes owed by the Company as a result of an approximate $4.6
million in S corporation taxable earnings which were recognized by the Company
for tax purposes in the fourth quarter of 1997 and the year ended December 31,
1998.
The pro forma income tax adjustments for the year ended December 31,
1997 in the Company's historical financial statements reflect 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 calculated
those amounts based upon an estimated combined effective tax rate of 39.5% for
Omega Research for periods prior to September 30, 1997.
The effective tax rates for 1999 and 1998 were 210% and 169%,
respectively. The increase as compared with the 38.6% statutory rate is
primarily due to an increase in the valuation allowance established at Window On
WallStreet to offset net operating loss carryforwards. The effective tax rates
of Omega Research as a stand-alone company were approximately 37% and 35% during
1999 and 1998, below the 38.6% statutory rate primarily as a result of the
impact of tax-free investment income.
VARIABILITY OF RESULTS
The operating results for any quarter are not necessarily indicative of
results for any future period or for the full year. The Company's quarterly
revenues and operating results have varied in the past, and are likely to vary
even further from quarter to quarter in the future due to the
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Company's transition to a new business model. 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, level and rate of acceptance of releases of new products
and services and/or enhancements, increased competition, variations in the
revenue mix, and announcements of new products and services and/or enhancements
by the Company or its competitors and other factors. Such fluctuations may
result in volatility in the price of the Common Stock. See Note 12 of Notes to
Consolidated Financial Statements for quarterly financial information.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently anticipates that its available cash resources and
cash flows from operations will be sufficient to meet its presently anticipated
working capital and capital expenditure requirements for at least the next 12
months. However, the Company is experiencing a period of net losses which is
expected to continue at least through the year 2000. Further, as the Company
transitions to its new business model, it may need to raise additional funds in
order to execute that transition, support more rapid expansion, develop new or
enhanced services and products, respond to competitive pressures, and acquire
complementary businesses or technologies and/or take advantage of unanticipated
opportunities. The Company has also recently substantially increased its rental
obligations under real property, facilities and equipment leases. The Company's
future liquidity and capital requirements will depend upon numerous factors,
including the period of time it takes the Company to execute its transition to
its new business model, and customer acceptance thereof, costs and timing of
expansion of research and development and marketing efforts and the success of
such efforts, the success of the Company's existing and new product and service
offerings, and competing technological and market developments. The Company's
forecast of the period of time through which its financial resources will be
adequate to support its operations involves risks and uncertainties, and actual
results could vary. The factors described earlier in this paragraph, as well as
other factors, will impact the Company's future capital requirements and the
adequacy of its available funds. If additional funds are raised through the
issuance of equity securities, the percentage ownership of the shareholders of
the Company will be reduced, shareholders may experience additional dilution in
net book value per share or such equity securities may have rights, preferences
or privileges senior to those of the holders of the Company's common stock.
There can be no assurance that additional financing (debt or equity),
if required, will be available when needed on terms favorable to the Company, if
at all. If adequate funds are not available on acceptable terms, the Company may
be unable to complete effectively its transition to its new business model.
develop or enhance its services and products, take advantage of future
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on the Company's business, financial condition, results
of operations and prospects.
As of December 31, 1999, the Company had cash and cash equivalents of
approximately $2.2 million, investments in short term marketable securities of
$1.7 million, and working capital of approximately $22.4 million. Marketable
securities consist of investment grade municipal bonds maturing, on average,
within a year.
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Cash used in operating activities in 1999 totaled approximately $5.0
million, compared to cash provided by operating activities of approximately
$33,000 and $2.8 million in 1998 and 1997, respectively. The decrease in net
cash provided by operations in 1999 was primarily due to an increase in net loss
by the Company and an increase over 1998 in cash paid for income taxes of $3.8
million by Omega Research prior to the Window On WallStreet acquisition. The
decrease in net cash provided by operations in 1998 was primarily attributable
to lower net income of the Company and an increase in cash paid for income taxes
of $1.6 million by Omega Research. The Company began paying taxes in the fourth
quarter of 1997 and, in addition, paid during 1998 the remaining $900,000 of the
$1.8 million tax liability recognized in September 1997.
The Company's investing activities provided cash of $2.3 million during
1999 and used cash of $6.3 million and $2.2 million in 1998 and 1997,
respectively. During 1999, cash provided from investing activities was made up
of $4.0 million of proceeds from maturity of marketable securities primarily
offset by capital expenditures related to the acquisition of computer and
related equipment and software required to support expansion of the Company's
operations. The principal use of cash in investing activities in 1998 and 1997
was for investments in marketable securities, net of marketable securities that
matured. The balance of such investing activities during 1998 and 1997 was
primarily for capital expenditures related to the acquisition of computer and
related equipment and software required to support expansion of the Company's
operations. During 1997, investing activities also used cash as a result of
purchases of furniture and fixtures and leasehold improvements related to the
Company's move to a new corporate headquarters in February 1997.
In 1999, the Company's financing activities used cash of $2.8 million
as compared to cash provided of $1.0 million and $11.1 million in 1998 and 1997,
respectively. Net cash used in financing activities during 1999 was related to
the payment of existing debt of Window On WallStreet (net of current year
borrowings) of $3.3 million, offset by proceeds from the issuance of common
stock from the Company's 1997 Employee Stock Purchase Plan and the exercise of
stock options under the Company's Incentive Stock Plan.
Cash provided during 1998 related primarily to borrowings of debt from
related parties by Window On WallStreet in addition to the repayment of the
excess portion of the Dividend distributed on September 30, 1997. See "ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - Divided
Policy" The balance of the cash provided during 1998 related to the issuance of
common stock from the Company's 1997 Employee Stock Purchase Plan and the
exercise of stock options under the Company's Incentive Stock Plan.
Cash provided during 1997 of $11.1 million was primarily attributable
to $27.4 million of net proceeds from Omega Research's initial public offering
completed during the fourth quarter of 1997, offset by cash distributions
totaling $16.5 million (net of the 1997 repayment discussed above) to the
Company's S corporation shareholders prior to the Company's initial public
offering, and to a lesser extent, related party borrowings of approximately
$240,000 by Window On WallStreet. A portion of the distributions were financed
with a $15 million short-term bank loan which was repaid with the proceeds of
the initial public offering.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board issued SFAS No.
137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL OF
FASB STATEMENT NO. 133. SFAS No.
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137 defers for one year the effective date of SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 will now apply to
all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No.
133 will require the Company to recognize all derivatives on the balance sheet
as either assets or liabilities measured at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. The Company will adopt
SFAS No. 133 effective for the year ended December 31, 2001. The Company
believes that the adoption of SFAS No. 133 will not have a material impact on
its consolidated financial statements, as it has entered into no derivative
contracts and has no current plans to do so in the future.
YEAR 2000 COMPLIANCE
The Company has not encountered any significant difficulties with
respect to Year 2000 compliance issues with respect to its customer integrated
support and general ledger system, its telephone system, or any vendor products
or services. See "ITEM 1. BUSINESS - Product Development and Year 2000
Compliance" for a discussion of Year 2000 implications with respect to the
Company's products.
FORWARD-LOOKING STATEMENTS; BUSINESS RISKS
This report contains statements that are forward-looking within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended. Such forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
When used in this report, the words "believes," "estimates," "plans," "expects,"
"intends," "anticipates," "contemplates," "may," "will," "assuming," "prospect,"
"should," "could," "looking forward" and similar expressions, to the extent
used, are intended to identify the forward-looking statements. All
forward-looking statements are based on current expectations and beliefs
concerning future events that are subject to risks and uncertainties. Actual
results may differ materially from the results suggested herein. Factors that
may cause or contribute to such differences and impact future events and the
results of those events, and business risks of and for the Company generally,
include, but are not limited to, the items described below, as well as in other
sections of this report and in other of the Company's public filings, and in the
Company's press releases, particularly those released during and subsequent to
the 1999 third quarter, any of which could have a material adverse effect on the
business, results of operations, financial condition and prospects of the
Company:
/bullet/ CHANGE IN BUSINESS MODEL. The Company is in the process of changing its
business model from a trading strategy client software company to an
on-line brokerage firm that provides an Internet platform of trading
strategy tools and streaming real-time market data and news, and trade
execution through a direct access electronic order execution system.
The Company has limited experience in the real-time market data
industry (all of such experience has been acquired by Window On
WallStreet, and Window On WallStreet had only one year of experience
operating a real-time data service at the time it was acquired by Omega
Research). The Company has no experience in the brokerage services
industry, and will rely completely upon the experience of
OnlineTrading.com, assuming and subject to the closing of its pending
merger with that brokerage firm. OnlineTrading.com itself has only been
providing brokerage services for approximately four years, and mostly
to institutional investors (as opposed to the individual active traders
the Company seeks to attract). The Company's lack of experience in key
components of its new business model, even after considering the
experience of Window On
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WallStreet and, once acquired, OnlineTrading.com, is substantial, and
may result in delays, mistakes and liabilities unlikely to happen to a
company that has more experience. Such delays, mistakes and
liabilities, if and to the extent they occur, may cause material
adverse effects upon the Company's business, financial condition,
results of operations and prospects. See "ITEM 1. - BUSINESS - Overview
and Recent Developments."
If customer acceptance of the Company's Internet-based trading strategy
tools, real-time market data services or on-line brokerage services
does not meet the Company's expectations (due to technical difficulties
or errors in the products or services, unfavorable critical reviews,
failure to market effectively, the introduction by others of
more-accepted products and services, or other reasons), the Company's
business, financial condition, results of operations and prospects
would be materially adversely affected. All software, including
Internet-based software, contains errors, particularly new,
highly-complex, innovative products or services. Accordingly, there is
a substantial risk that the Company's Internet-based trading strategy
tools, real-time market data services and on-line brokerage services in
development will contain numerous technical errors, some of which may
be significant and deeply, negatively impact customer acceptance of
such products and services.
The Company's decision to change its business model also means that the
Company must develop and depend upon a different operational
infrastructure than the one which supported its client software
business, and substantially modify its approaches to product
development and sales and marketing. The Company's infrastructure must
be changed to support three separate kinds of businesses (development
of trading strategy tools, organization and delivery of streaming
real-time data and news, and on-line brokerage services) that need to
be seamlessly integrated. This will require substantial changes in the
Company's information technology and databases, its mechanisms and
methods of delivery of products and services, its administrative
functions, and its use of personnel resources. Product development must
change its focus to a large extent from client software to Internet and
web site-related technology, sales and marketing must change its focus
from high-priced client software sales to brokerage services
(commission revenues) and Internet-based, lower-priced, monthly
subscriptions for trading strategy tools integrated with streaming
real-time data and news (monthly subscription revenues). The Company
has virtually no prior experience in marketing these services, as Omega
Research has not ever been in those businesses, and Window On
WallStreet and OnlineTrading.com have engaged in little or no media
advertising of their respective services. There are substantial risks
that the Company will fail, to some degree, to sufficiently rebuild its
infrastructure and integrate the three key components of the new
business model (trading tools/real-time data/on-line brokerage
services), and/or to re-focus its product development and sales and
marketing on the new business model. Such failures, if and to the
extent they occur, may cause material adverse effects upon the
Company's business, financial condition, results of operations and
prospects. See "ITEM 1. BUSINESS - Products and Services - Sales and
Marketing and - Product Development and Year 2000 Compliance."
The Company's transition to its new business model has placed, and will
continue to place, a 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 and
middle management groups and administrative infrastructure, and its
ability to attract, hire,
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and retain skilled employees, particularly in product development,
marketing and sales, web site design and information technology.
Because the new business model is one with no historical record for the
Company, and, to the Company's knowledge, one with no historical record
for any other company, the Company's attempts to anticipate revenues
and costs, to prepare budgets which organize the implementation of the
Company's transition to the new business model, and to make decisions
regarding seeking to obtain third-party financing that may be required,
will generally be based upon theoretical assumptions. Future events and
results may differ drastically from those planned or anticipated,
which, if negative, would result in a material adverse effect on the
Company's business, financial condition, results of operations and
prospects. See "POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS"
below.
The substantial risks discussed above are magnified by the rapid pace
at which the Company is attempting to complete the transition to the
new business model. The Company is assuming that its pending merger
with OnlineTrading.com will close no later than mid-June (even though
there is risk that the merger will close later or not at all) and that
its new business model will be fully launched in a relatively short
period of time after closing. If that occurs, the Company will have
changed its business entirely in a period of approximately eight
months. This rapid pace obviously increases the likelihood of
occurrence of the various possible mistakes and failures discussed
above, and increases the risks of the likelihood of resulting material
adverse effects that will damage the Company's business, financial
condition, results of operations and prospects.
/bullet/ FAILURE TO CLOSE ONLINETRADING.COM MERGER; OTHER RISKS OF COMBINATION
WITH ONLINETRADING.COM. The Company's change to its new business model
is dependent upon closing of its pending merger with OnlineTrading.com.
If that merger does not occur, the Company's choices would be to modify
its new business model to exclude on-line brokerage services, to seek
to develop arrangements to integrate its trading strategy
tools/streaming real-time data platform with third-party on-line
brokers, to search for a different on-line broker with which to merge
or create a joint venture relationship, or to create its own on-line
brokerage service. The Company does not believe that excluding on-line
brokerage services from its new business model or developing
integration arrangements with third-party on-line brokers are favorable
alternatives. The Company believes that integrated on-line brokerage
services are critical in meeting the current and evolving needs of the
active trader, and that the potential success of the new business model
is dramatically reduced if it includes only trading strategy tools and
streaming real-time data without integration of that platform with
electronic order execution services owned and provided by the Company.
Further, the Company believes that, in its new business model,
brokerage commissions are likely to become the Company's largest source
of revenues. Finding a new on-line broker partner may or may not be
feasible, and in all cases would cause a huge delay in the Company's
transition to its new business model. The Company's development of its
own on-line brokerage services would likely cause an even longer delay,
as well as contain the additional risk of the Company entering a
heavily government-regulated business in which it has no prior
experience. The merger transaction agreements are subject to conditions
precedent which, if not fulfilled, would result in failure to complete
the merger with OnlineTrading.com. Those conditions precedent include,
but are not limited to, another company making a superior proposal to
merge with OnlineTrading.com which
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OnlineTrading.com's Board of Directors believes it is duty-bound to
accept, satisfying all broker-dealer regulatory requirements relating
to the merger (including NASD approval), approval by the shareholders
of the Company and of OnlineTrading.com of the merger, the filing with
the SEC and effectiveness of a registration statement on Form S-4, and
the listing of the new holding company's shares on The Nasdaq National
Market. Failure of the merger to occur as and when planned, or at all,
would have a material adverse effect on the Company's business,
financial condition, results of operations and prospects. See "ITEM 1.
BUSINESS - Overview and Recent Developments."
Assuming the merger does occur, the success of the Company's new
business model will be dependent, in part, upon the two companies being
able to rapidly integrate with one another from technological,
operational and marketing aspects. The two companies are currently
working on the completion of OnlineTrading.com's first proprietary
order routing and execution technology, the integration of that
technology with TRADESTATION.COM (which itself is currently under
development) in order to be able to provide electronic order execution
from the TRADESTATION.COM platform, and the required operational,
information technology and marketing integrations. Given the rapid pace
and the number of items currently in development, there are substantial
risks that the necessary completions and integrations will not occur as
or when planned, contain significant errors or problems, or will not be
completed in a manner that results in timely commercial viability. To
the extent such errors, problems or failures occur, they are likely to
result in material adverse effects to the Company's business, financial
condition, results of operations and prospects. See "ITEM 1. BUSINESS -
Product Development and Year 2000 Compliance."
/bullet/ LIQUIDITY CONCERNS. The Company is experiencing a period of net losses
which is expected to continue at least through the year 2000. As of
March 8, 2000, the Company had less than $4 million in cash, cash
equivalents and marketable securities to address these current and
anticipated losses and other cash requirements of the Company as it
transitions to its new business model. As the Company implements its
transition to its new business model and thereafter, the Company may
need to raise additional funds in order to support more rapid
expansion, develop new or enhanced services and products, respond to
competitive pressures, acquire necessary or complementary businesses or
technologies, and take advantage of unanticipated opportunities. The
Company has also recently substantially increased its rental
obligations under real property, facilities and equipment leases. The
Company's future liquidity and capital requirements will depend upon
numerous factors, including the period of time it takes the Company to
execute its transition to its new business model, and customer
acceptance thereof, costs and timing of expansion of research and
development and marketing efforts, the success and timing of such
efforts, the success of the Company's existing and new product and
service offerings, and competing technological and market developments.
Funds may be raised through debt financing and/or the issuance of
equity securities (there being no assurance that any such type of
financing on terms satisfactory to the Company will occur). Any equity
financing or debt financing which requires issuance of equity
securities or warrants to the lender would reduce the percentage
ownership of the shareholders of the Company. The shareholders may, if
issuance of equities occurs, experience additional dilution in net book
value per share, or the issued equities may have rights, preferences or
privileges senior to those of the holders of the Company's common
stock. See "ITEM 7. MANAGEMENT'S DISCUSSION AND
34
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ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity
and Capital Resources."
/bullet/ POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's
quarterly revenues and operating results have fluctuated significantly
in the past, including the fourth quarter of 1999 (when compared to the
other quarters of that year), during 1998 (when compared to 1997), and
during the fourth quarter of 1997 (when compared to the other quarters
of that year), and will likely fluctuate in the future. These
fluctuations may be expected to be even greater during 2000, and
thereafter, due to the unpredictability inherent in the Company's
change to its new business model. Causes of such significant
fluctuations may include, but are not limited to: the timing,
completion (if any) and costs of: (i) the Company's merger with
OnlineTrading.com, (ii) the Company's development of TRADESTATION.COM
and other trading strategy platforms, (iii) development of
OnlineTrading.com's first proprietary electronic order routing and
execution technology, (iv) the integration of TRADESTATION.COM as a
platform for OnlineTrading.com's electronic order routing and execution
technology, (v) modifications by the Company to its infrastructure,
including information technology and databases, mechanisms and methods
of delivery of products and services, administrative functions, product
development and sales and marketing, and (vi) the respective launch
dates of the various stages of the Company's transition to its new
business model; cash flow problems that may occur; the transition in
the Company's business model from deriving revenues on expensive client
software sales at the time of the sale to deriving revenues on
lower-priced subscription services on a monthly basis; the Company's
actual returns and bad debt exceeding or being smaller than its
reserves (which are estimates) of returns and bad debt; costs and
payment obligations associated with debt and/or equity financings, if
any; the level of product/service and price competition; continuous
changes in the Company's sales incentive or marketing strategies (which
have undergone significant change recently and are expected to continue
to evolve); changes in demand for the Company's products and services;
costs that may occur with respect to regulatory compliance or other
regulatory issues; changes in operating expenses; the Company's attempt
to enter additional related new markets or expand into additional
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 and market factors, including changes in the securities and
financial markets. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Variability of
Results."
/bullet/ COMPETITION. The markets for (i) on-line brokerage services, (ii)
trading strategy tools and (iii) real-time market data services are
intensely competitive and rapidly evolving, and there appears to be
substantial consolidation of those three products and services
occurring in the industry. The Company's new business model embraces
this evolution and consolidation. However, the Company believes that
due to the current and anticipated rapid growth of the market for
integrated trading strategy tools, real-time market data and on-line
brokerage services, competition, as well as consolidation, 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 services and enhancements developed by
the Company and its competitors, the ability of the Company to complete
its pending merger with OnlineTrading.com and to integrate the
respective businesses in an orderly, efficient and otherwise successful
manner, product and service functionality, data
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availability, ease of use, pricing, reliability, customer service and
support, and sales and marketing efforts. See "ITEM 1. BUSINESS -
Competition."
/bullet/ EXPOSURE TO POSSIBLE LITIGATION FROM BROKERAGE CUSTOMERS (ASSUMING THE
COMPANY COMPLETES ITS TRANSITION TO ITS NEW BUSINESS MODEL). Many
aspects of the securities brokerage business, including on-line trading
services, involve substantial risks of liability. In recent years there
has been an increasing incidence of litigation involving the securities
brokerage industry, including class action and other suits that
generally seek substantial damages, including in some cases punitive
damages. Any such litigation could have a material adverse effect on
the Company's business, financial condition, results of operations and
prospects. See "POTENTIAL LIABILITY TO CUSTOMERS" below.
/bullet/ POTENTIAL LIABILITY TO CUSTOMERS. The Company's products and services
and planned products and services are and will be used by traders in
the financial markets, and, as a result, an investor or trader might
claim that investment or trading losses or lost profits resulted from
use of a flawed version of one of the Company's trading tools or
inaccurate assumptions made by the trading tools regarding data, or
inaccurate data, which could result in litigation against the Company.
This risk was heightened by the Company's decision to provide financial
market information to its customers, which routinely contain errors and
omissions, but which are nevertheless relied upon by customers in
making investment and trading decisions using the Company's trading
tools. This risk will again be substantially heightened by the
Company's planned offering, if and when it occurs, of brokerage
services, which will likely result in certain brokerage customers from
time to time asserting that the Company's acts or omissions (or that
errors or inaccuracies in the Company's trading tools or market data)
have caused such customers losses or lost profits. Contributing to
these possible occurrences are risks that the electronic communications
and other systems upon which the Company's products and services rely,
and will continue to rely, may operate too slowly or fail. Major
failures of this kind will affect all of the Company's customers who
are on-line simultaneously, possibly resulting in a class action
lawsuit being filed against the Company. In addition, there can be no
assurance that the Company's Year 2000 compliance efforts, or that
compliance modifications, have not and will not adversely affect the
Company's products and services in ways not anticipated by the Company,
or that customers will not assert that the Company has or had an
obligation to provide Year 2000 solutions for older versions of
existing products or for discontinued products, any of which
occurrences could result in claims by customers. Any such litigation
could result in substantial damages and significant costs to the
Company in terms of the deployment of its financial and managerial
resources. See "EXPOSURE TO POSSIBLE LITIGATION FROM BROKERAGE
CUSTOMERS (ASSUMING THE COMPANY COMPLETES ITS TRANSITION TO ITS NEW
BUSINESS MODEL)" above, "SYSTEMS FAILURE (ASSUMING THE COMPANY
COMPLETES ITS TRANSITION TO ITS NEW BUSINESS MODEL)" below and "ITEM 1.
BUSINESS - Product Development and Year 2000 Compliance."
/bullet/ RETURNS AND BAD DEBT. Historically, the Company's net revenues from
licensing fees for sales of client software have been determined by
estimating reserves for returns and bad debt on a quarterly basis based
upon historical experience and other relevant factors. There can be no
assurance, in particular given the possible effects of the Company's
announcements of its change in business model and shift of focus to
WindowOnWallStreet.com, that actual returns and bad debt will not
exceed estimated returns and bad debt. See "POTENTIAL FLUCTUATIONS IN
QUARTERLY OPERATING
36
<PAGE>
RESULTS" above and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Overview."
/bullet/ RISKS ASSOCIATED WITH RELIANCE ON THE INTERNET. The Company's change in
its business model means that the future growth of the Company will
depend upon it continuing to adopt the Internet as its primary medium
for commerce and communication, including the delivery of browser-based
trading tools, high-quality streaming real-time market data, on-line
electronic trade routing and execution systems, and comprehensive web
sites that include discussion forums, chat rooms, educational content,
marketing materials and customer support. There can be no assurance
that the Company will successfully develop and implement such Internet
capabilities, or effectively adjust its marketing and customer support
approaches. Further, the Company is and will be relying increasingly on
its web sites and related systems, and the Internet generally, to
maximize the use and cost-efficiency of its products and services, to
accept orders and payments, to track and account for orders and
payments and fulfill reporting obligations under regulatory laws and
marketing agreements with third parties, to register attendees for
events, to market its products and services, and to provide technical
information and assistance to its customers. In addition to the risk
that the Company may not adequately transition its business to the
Internet, there is the risk that, over time, the Internet may not prove
to be a viable commercial marketplace because of a failure to continue
to develop the necessary infrastructure, such as reliable network
backbones and adequate band-widths, or the failure to develop
complementary services, such as high-speed modems. The Internet has
experienced, and is expected to continue to experience, significant
growth in the number of users and amount of traffic. There can be no
assurance that the Internet infrastructure will continue to be able to
support the demands placed on it by this continued growth. See "ITEM 1.
BUSINESS - Products and Services and - Sales and Marketing."
/bullet/ SYSTEMS FAILURE (ASSUMING THE COMPANY COMPLETES ITS TRANSITION TO ITS
NEW BUSINESS MODEL). As an on-line brokerage, the Company will receive
and process trade orders through Internet-based trading platforms and
on-line order execution systems. Thus, the Company will depend heavily
on the integrity of the electronic systems supporting this type of
trading, including the trading strategy tools containing buy and sell
alerts that initiate trading decisions or order placement. Heavy stress
placed on these systems during peak trading times could cause these
systems to operate too slowly or fail. Additionally, the integrity of
these systems is increasingly being attacked by persons sometimes
referred to as "hackers" who intentionally introduce viruses or other
defects to cause damage, inaccuracies or complete failure. If these
systems or any other systems in the trading process slow down
significantly or fail even for a short time, the Company's brokerage
customers would suffer delays in trading, potentially causing
substantial losses and possibly subjecting the Company to claims for
such losses or to litigation claiming fraud or negligence. During a
systems failure, the Company may be able to take orders by telephone,
however, only associates with appropriate securities broker's licenses
can accept telephone orders, and an adequate number of associates may
not be available to take customer calls in the event of a systems
failure. In addition, a hardware or software failure, power or
telecommunications interruption or natural disaster could cause a
systems failure. Any systems failure that interrupts the Company's
operations could have a material adverse effect on its business,
financial condition, results of operations and prospects. See
"POTENTIAL LIABILITY TO CUSTOMERS" and "EXPOSURE TO POSSIBLE LITIGATION
FROM BROKERAGE CUSTOMERS (ASSUMING THE COMPANY COMPLETES ITS TRANSITION
TO ITS NEW BUSINESS MODEL)" above.
37
<PAGE>
/bullet/ RISKS ASSOCIATED WITH FLUCTUATIONS IN THE SECURITIES AND FINANCIAL
MARKETS. The Company's current and planned products and services are
and will be marketed to customers who invest or trade in the securities
and financial markets. To the extent that interest in investing or
trading decreases due to volatility in the securities or financial
markets, tax law changes, recession, depression, or otherwise, the
Company's business, financial condition, results of operations and
prospects could be materially adversely affected. It is possible, if
not likely, that increased losses by customers that occur as a result
of any such recession, depression or other negative event will increase
the quantity and size of legal claims made against the Company. See
"POTENTIAL LIABILITY TO CUSTOMERS" and "EXPOSURE TO POSSIBLE LITIGATION
FROM BROKERAGE CUSTOMERS (ASSUMING THE COMPANY COMPLETES ITS TRANSITION
TO ITS NEW BUSINESS MODEL)" above.
/bullet/ OPERATION IN A HIGHLY REGULATED INDUSTRY AND COMPLIANCE FAILURES
(ASSUMING THE COMPANY COMPLETES ITS TRANSITION TO ITS NEW BUSINESS
MODEL). The securities industry in the U.S., Canada and the other
jurisdictions in which the Company may operate is subject to extensive
regulation covering all aspects of the securities business. Regulatory
authorities are currently focusing intensely on the on-line trading
industry, particularly the segment that seeks the accounts of active
traders by offering well-integrated, sophisticated trading platforms
and order execution. The various government authorities and industry
self-regulatory organizations that will supervise and regulate the
Company generally have broad enforcement powers to censure, fine, issue
cease-and-desist orders or suspend, enjoin or expel the Company or any
of its officers or employees who violate applicable laws or
regulations. Additionally, new rules relating to active traders may be
enacted which severely limit the operations and potential success of
the Company's new business model. The Company's ability to comply with
all applicable laws and rules is largely dependent on the Company's
establishment and maintenance of compliance and reporting systems, as
well as its ability to attract and retain qualified compliance and
other personnel. The Company could be subject to disciplinary or other
regulatory or legal actions in the future due to noncompliance. In
addition, it is possible that any past noncompliance of
OnlineTrading.com could subject the Company to future civil lawsuits or
regulatory actions, the outcome of which could have a material adverse
effect on the Company's financial condition and operating results. See
"ITEM 1. BUSINESS - Overview and Recent Developments" and - "Government
Regulation."
/bullet/ DEPENDENCE UPON OUTSIDE DATA SOURCES. The Company's business is
dependent upon its ability to enter into contracts with private
business information compilers in order to provide market data and news
to its customers. The Company obtains such information pursuant to
non-exclusive licenses from private information compilers, some of
which are current or potential competitors of the Company. The private
sector contracts typically provide for royalties based on usage or
minimums. The Company has such licenses from certain data suppliers to
provide such information that such suppliers also market in competition
with the Company. The Company must also comply with rules and
regulations of the exchanges that are the sources of market data
information. Failure to comply could result in the Company becoming a
prohibited recipient of market data from exchanges the rules or
regulations of which were violated. While the Company is not aware of
any material data supplier contracts that are in jeopardy of being
terminated or not renewed, there can be no assurance that the Company
will be able to renew its current contracts with data sources, maintain
comparable price levels for information, or negotiate additional
contracts with data sources as necessary to maintain existing products
and
38
<PAGE>
services or introduce new products and services. There is no assurance
comparable alternative sources of information could be obtained should
existing contracts be terminated or not renewable. Termination of the
Company's relationship with one or more information suppliers could
have a material adverse effect on the Company's operations. See "ITEM
1. BUSINESS - Products and Services" and "SYSTEMS FAILURES (ASSUMING
THE COMPANY COMPLETES ITS TRANSITION TO ITS NEW BUSINESS MODEL)" and
"POTENTIAL LIABILITY TO CUSTOMERS" above.
/bullet/ 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. The loss of one or more of these key employees, including
William R. Cruz or Ralph L. Cruz, the Company's Co-Chief Executive
Officers, or of certain key technology personnel, could have a material
adverse effect on the Company. See "ITEM 1. BUSINESS - Employees."
/bullet/ DEPENDENCE ON RELATIONSHIP WITH BRIDGE TELERATE. The Company is party
to a Software License, Maintenance and Development Agreement with
Bridge Telerate relating to TRADESTATION. The agreement provides a
substantial minimum royalty stream through January 12, 2002, the loss
of which would materially adversely affect the Company's revenues and
earnings (or size of its losses) in those years. While the agreement is
non-cancelable, there can be no assurance that the Company's
anticipated royalties and other anticipated benefits from its relations
with Bridge Telerate will be realized. See "LIQUIDITY CONCERNS" above
and "ITEM 1. BUSINESS - Strategic Relationships."
/bullet/ NET CAPITAL REQUIREMENTS (ASSUMING THE COMPANY COMPLETES ITS TRANSITION
TO ITS NEW BUSINESS MODEL). The SEC, the NASD and various other
regulatory agencies have stringent rules with respect to the
maintenance of specific levels of net capital by securities
broker-dealers. Net capital is the net worth of a broker or dealer
(assets minus liabilities), less deductions for certain types of assets
as well as other charges. If a firm fails to maintain the required net
capital it may be subject to suspension or revocation of registration
by the SEC and suspension or expulsion by the NASD, and it could
ultimately lead to the firm's liquidation. If such net capital rules
are changed or expanded, or if there is an unusually large charge
against net capital, operations that require the use of capital would
be limited. Such operations may include trading activities and the
financing of customer account balances. Also, the Company's ability to
withdraw capital from its brokerage subsidiary (OnlineTrading.com) is
restricted under SEC rules, which in turn could materially impact the
Company's available working capital and materially impact or limit the
Company's ability to repay debt as and when due, redeem or purchase
shares of the Company's outstanding stock, if required, and pay
dividends in the future. A large operating loss or charge against net
capital could adversely affect the Company's ability to expand or even
maintain its then present levels of business, which could have a
material adverse effect on the Company's business, financial condition,
results of operations and prospects. See "LIQUIDITY CONCERNS" above,
and "ITEM 1. BUSINESS - Government Regulation."
/bullet/ INTERNET BUSINESS RISKS RELATING TO CUSTOMER PRIVACY AND SECURITY AND
INCREASING REGULATION. A significant risk for the Company's existing
and planned Internet operations is that customers may refuse to
transact business over the Internet due to privacy or security
concerns. The Company currently incorporates and plans to incorporate
security measures into its privacy policy. However, a major breach of
customer privacy or security could have serious
39
<PAGE>
consequences for the Company's Internet-based operations. Use of the
Internet, particularly for commercial transactions, may not continue to
increase as rapidly as it has during the past few years as a result of
privacy or security concerns, or for other reasons. If this occurs, the
growth of the Company's Internet-based operations would be materially
hindered. If Internet activity becomes heavily regulated in these
respects, that could also have significant negative consequences for
the growth of the Company's current and planned Internet-based
operations. See "RISKS ASSOCIATED WITH RELIANCE ON THE INTERNET" above
and "ITEM 1. BUSINESS - Government Regulation."
/bullet/ RISK OF INTELLECTUAL PROPERTY LITIGATION. There has been substantial
litigation in the software industry involving intellectual property
rights. Although the Company does not believe that it is or will be
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, or result in the Company being unable to use
intellectual property which is integral to one or more of its products
or services. The risk of infringement claims against the Company is
heightened with respect to its new business model technology in
development, as such will not have stood any "test of time" as has the
Company's client software technology. See "ITEM 1. BUSINESS -
Intellectual Property."
/bullet/ INTELLECTUAL PROPERTY. The Company's success is and will be heavily
dependent on its proprietary technology, including its existing trading
tools, as well as trading tool, Internet, web site and order execution
technology currently in development. The Company views its technology
as proprietary, and relies, and will be relying, on a combination of
copyright, trade secret and trademark laws, nondisclosure agreements
and other contractual provisions and technical measures to protect its
proprietary rights. Policing unauthorized use of the Company's products
and services is difficult, however, and the Company is unable to
determine the extent to which piracy of its products and services
exists. 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 and services. See "ITEM 1. BUSINESS - Intellectual
Property."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
40
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements and notes thereto and the report of the
independent auditors thereon set forth on pages F-1 through F-23 herein are
filed as part of this report and incorporated herein by reference.
The Financial Statement Schedule and the report of the independent
auditors thereon set forth on pages S-1 through S-3 herein are filed as part of
this report and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
41
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company and their ages and
positions with the Company as of March 8, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
William R. Cruz 38 Co-Chairman of the Board and Co-Chief Executive Officer
Ralph L. Cruz 36 Co-Chairman of the Board and Co-Chief Executive Officer
Salomon Sredni(1) 32 President and Chief Operating Officer and Director
Peter A. Parandjuk 37 Chief Technology Officer, Vice President of Research and Technology
and Director
Marc J. Stone 39 Vice President of Corporate Development, General Counsel, Secretary and
Director
Gregg F. Stewart 38 Chief Financial Officer, Vice President of Finance and Treasurer
Janette Perez 42 Executive Vice President of Marketing and Sales
Stephen C. Richards(1)(2) 46 Director
Brian D. Smith(1)(2) 55 Director
- --------------------
<FN>
(1) Member of the Audit Committee of the Company's Board of Directors.
(2) Member of the Compensation Committee of the Company's Board of Directors.
</FN>
</TABLE>
The Company's directors hold office until the next annual meeting of
shareholders. The Company's executive officers serve at the discretion of the
Board of Directors.
WILLIAM R. CRUZ co-founded the Company in 1982 and has been a director
since that time. Mr. Cruz was appointed Co-Chief Executive Officer of the
Company in 1996 and was the Company's President since its founding through
August 1999. Mr. Cruz studied classical violin at the University of Miami, which
he attended on a full scholarship, and Julliard School of Music. He left
Julliard School of Music prior to graduation to co-found the Company. He has won
numerous classical violin competitions. Mr. Cruz has been primarily responsible
for overseeing 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. He left Indiana University prior to
graduation to devote full time to the Company. He has won numerous classical
violin competitions. Mr. Cruz has been primarily responsible for overseeing the
Company's marketing strategies.
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, a director of the Company in July 1997 and a member of the Audit
Committee of the Board of Directors in January 1998. In August 1999, Mr. Sredni
was named President and Chief Operating Officer, and maintained Chief Financial
Officer functions until September 1999. From August 1994 to
42
<PAGE>
November 1996, Mr. Sredni was Vice President of Accounting and Corporate
Controller at IVAX Corporation, a publicly-held pharmaceutical company. Prior to
that time, from January 1988 to August 1994, Mr. Sredni was with Arthur Andersen
LLP, an international accounting firm. Mr. Sredni is a Certified Public
Accountant and a member of the American Institute of Certified Public
Accountants and the Florida Institute of Certified Public Accountants. Mr.
Sredni has a bachelor's degree in Accounting from The Pennsylvania State
University.
PETER A. PARANDJUK joined 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. In October 1998, Mr. Parandjuk was appointed Chief
Technology Officer and Vice President of Research and Technology. Mr. Parandjuk
has a bachelor's degree in Applied Mathematics from the State University of New
York at Buffalo.
MARC J. STONE joined the Company in May 1997 as its Vice President of
Corporate 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 a predecessor law firm of Bilzin Sumberg Dunn Price & Axelrod LLP ("Bilzin
Sumberg"), which currently serves as the Company's regular outside counsel.
Prior to that time, from 1985 to 1992, Mr. Stone was an associate with that
predecessor law firm. Mr. Stone is of counsel to Bilzin Sumberg. Mr. Stone has
bachelor's degrees in English and American Literature and Theatre Arts and
Dramatic Literature from Brown University, and received his law degree from
University of California (Boalt Hall) School of Law at Berkeley. Mr. Stone is a
member of the Bar of the State of New York, The Florida Bar, the American Bar
Association and the New York State Bar Association.
GREGG F. STEWART joined the Company in September 1999 as its Chief
Financial Officer, Vice President of Finance and Treasurer. Before joining Omega
Research, he served as Vice President - Finance & Treasurer of Interim
HealthCare, Inc. from October 1998 until September 1999. Prior to that, from
1990 to 1998, he held several positions with Alamo Rent-A-Car, Inc., including
Executive Director, Replacement Division (1996 to 1998), Controller,
Consolidated Group (1995 to 1996) and Assistant Treasurer (1990 to 1995). Prior
to that, from 1986 to 1990, he served in several financial positions with USAir,
Inc. Mr. Stewart is a Certified Public Accountant and holds a Bachelor of
Science in Accounting from Marquette University, Milwaukee, Wisconsin.
JANETTE PEREZ joined the Company in January of 1996 as its Public
Relations Manager and was appointed Corporate Relations Director in November
1997. In July 1998, she was appointed Vice President of Marketing and in
September 1999, she was appointed Executive Vice President of Marketing and
Sales. During 1994 and 1995, Ms. Perez traveled abroad. Prior to that, from 1979
to January 1994, Ms. Perez was Office Manager and Controller for Simon Bolivar
International, a specialty advertising firm.
STEPHEN C. RICHARDS is currently Chief Online Trading Officer of
E*Trade Group, Inc. ("E*Trade"), a position he has held since March 1999. From
1998 to February 1999, Mr. Richards served as Senior Vice President, Corporate
Development and New Ventures at E*Trade following two years as E*Trade's Senior
Vice President of Finance, Chief Financial Officer and Treasurer. Prior to
joining E*Trade in April 1996, Mr. Richards was Managing Director and Chief
Financial Officer of Correspondent Clearing at Bear Stearns & Companies, Inc.,
where he was employed for
43
<PAGE>
more than 11 years. He is also a former Vice President/Deputy Controller of
Becker Paribas, and former First Vice President/Controller of Jefferies and
Company, Inc. Mr. Richards also serves as a director of Versus Technologies,
Inc. which is listed on the Montreal and Toronto Stock Exchanges. He received a
Bachelor of Arts in Statistics and Economics from the University of California
at Davis and an MBA in Finance from the University of California at Los Angeles.
Mr. Richards is a Certified Public Accountant. Mr. Richards became a director in
August 1999, at which time he was also elected to the Compensation Committee and
the Audit Committee of the Board of Directors.
BRIAN D. SMITH, who is currently a private investor, served as
President of Data Broadcasting Corporation ("DBC"), a provider of market data
services, from 1990 until 1996. Prior to becoming President, Mr. Smith, since
1983, held several key positions with DBC and its predecessor companies. Prior
to that, Mr. Smith worked for 13 years for General Electric Company in
engineering, sales and management positions, and for Texas Instruments in
engineering. Mr. Smith also served as Chief Executive Officer of Mobile
Broadcasting Corp., a wireless communications company, from December 1996 to
December 1997. Mr. Smith became a director in December 1997, and was elected to
the Compensation Committee and the Audit Committee of the Board of Directors in
January 1998.
INDEPENDENT DIRECTORS; COMMITTEES OF THE BOARD OF DIRECTORS
During 1999, two nonemployee, independent members, Brian D. Smith and
Stephen C. Richards (or Christos M. Cotsakos, who was an independent member
prior to August 1999 until replaced by Mr. Richards), served on the Company's
Board of Directors (the "Independent Directors").
In January 1998, the Company's Board of Directors appointed the
Independent Directors and Salomon Sredni as the members of the first Audit
Committee of the Board of Directors, and they were reappointed in July 1998. In
August of 1999, Mr. Smith and Sredni were reappointed, and Mr. Richards (who
replaced Mr. Cotsakos) was appointed, and all of them currently serve, as
members of the Audit Committee. The Audit Committee recommends the annual
engagement of the Company's auditors, with whom the Audit Committee reviews 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. In January 1998, the Board of Directors established a Compensation
Committee consisting solely of the Independent Directors, who were reappointed
in July 1998 and August 1999 (Mr. Richards replacing Mr. Cotsakos in August
1999), and both of them currently serve, on the Compensation Committee. The
Compensation Committee determines executive officers' salaries and bonuses and
administers the Omega Research, Inc. Amended and Restated 1996 Incentive Stock
Plan, as amended (the "Incentive Stock Plan"), and the Omega Research, Inc. 1997
Employee Stock Purchase Plan, as amended (the "Purchase Plan").
The Board of Directors does not currently have a nominating committee
or a committee that performs similar functions.
44
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers (as defined under the Exchange
Act) and directors, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the SEC. Officers, directors and greater than ten
percent shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Company and written representations that no Forms 5 were required when
applicable, the Company believes that during the fiscal year ended December 31,
1999 all Section 16(a) filing requirements applicable to such officers,
directors and greater than ten percent beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION TABLES.
The following tables provide information about executive compensation.
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to all
compensation paid or earned for services rendered to the Company in the three
years ended December 31, 1999 by the Co-Chief Executive Officers of the Company
and the four other most highly compensated executive officers of the Company
whose aggregate annual compensation exceeded $100,000 (together, the "Named
Executive Officers"). The Company did not have a pension plan or a long-term
incentive plan, had not issued any restricted stock awards and had not granted
any stock appreciation rights as of December 31, 1999. The value of all
perquisites and other personal benefits received by each Named Executive Officer
did not exceed 10% of the Named Executive Officer's total annual compensation.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS(2) COMPENSATION(3)
- --------------------------- ------ ------ --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
William R. Cruz....................... 1999 $150,000 -- -- $5,400
Co-Chief Executive Officer 1998 150,000 -- -- --
1997 150,000 -- -- 3,800
Ralph L. Cruz......................... 1999 150,000 -- -- 5,400
Co-Chief Executive Officer 1998 150,000 -- -- --
1997 150,000 -- -- 3,800
Salomon Sredni........................ 1999 193,636 $ 25,000 100,000 6,000
President and Chief Operating Officer 1998 165,000 10,000 150,000 --
1997 130,000 34,125(4) -- --
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS(2) COMPENSATION(3)
- --------------------------- ------ ------ --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Peter A. Parandjuk.................... 1999 186,323 5,761 -- 6,000
Chief Technology Officer and Vice 1998 165,000 15,077 205,000 --
President of Research and Technology 1997 130,000 34,125(4) -- 3,800
Marc J. Stone......................... 1999 186,323 -- -- --
Vice President of Corporate 1998 165,000 10,000 130,000 --
Development, General Counsel 1997 76,483(5) 107,875(4)(6) 140,000(7) --
and Secretary
Janette Perez......................... 1999 176,763 -- 50,000 6,000
Executive Vice President of 1998 97,083 30,255(9) 100,000 --
Marketing and Sales (8) 1997 36,875 9,858 12,000 573
<FN>
(1) See "Other Compensation Arrangements - Executive Officer Bonus Plan" for a discussion of the Company's
bonus plan for executive offers for fiscal years 1998 and 1999.
(2) Represents shares of Common Stock issuable upon the exercise of options granted under the Company's
Incentive Stock Plan.
(3) Represents 401(k) Plan Company contributions on behalf of the Named Executive Officer during the
current year, but paid out during the subsequent year.
(4) $4,875 of this amount was earned in 1997, but paid in 1998.
(5) Mr. Stone joined the Company on May 30, 1997. His annual base salary for 1997 was $130,000.
(6) Includes a one-time bonus of $90,000 paid to Mr. Stone at the time he became an employee of the
Company.
(7) The record and beneficial ownership of unexercised options for an aggregate of 70,000 shares of the
Company's Common Stock, constituting one-half of those 140,000 options, were transferred in 1999 to the
former spouse of the Named Executive Officer pursuant to a marital settlement agreement. Accordingly,
the Named Executive Officer disclaims any pecuniary ownership of such transferred options.
(8) Ms. Perez became an executive officer in July 1998.
(9) $9,000 of this amount was earned in 1998, but paid in 1999.
</FN>
</TABLE>
OPTION GRANTS IN 1999 FISCAL YEAR
The following table summarizes the options which were granted during
the fiscal year ended December 31, 1999 to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER TOTAL VALUE AT ASSUMED
OF OPTIONS MARKET ANNUAL RATE OF
SECURITIES GRANTED TO EXERCISE PRICE VALUE AT STOCK PRICE
UNDERLYING EMPLOYEES OR BASE ON GRANT GRANT-DATE APPRECIATION FOR
OPTIONS IN FISCAL PRICE DATE EXPIRATION MARKET PRICE OPTION TERM (1)
------------ ------------------
NAME GRANTED(#)(2) YEAR (3) ($)(SH) ($)(SH) DATE 0%($)(4) 5%($) 10%($)
- ---- ------------- -------- ------- ------- ---- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William R. Cruz -- -- -- -- -- -- -- --
Ralph L. Cruz -- -- -- -- -- -- -- --
Salomon Sredni 100,000 9.8% $8.57 $8.00 5/4/09 -- $446,116 $1,217,994
Peter A. Parandjuk -- -- -- -- -- -- -- --
Marc J. Stone -- -- -- -- -- -- -- --
Janette Perez 50,000 4.9% 8.57 8.00 5/4/09 -- 223,058 608,997
</TABLE>
46
<PAGE>
(1) Potential realizable value is based on the assumption that the Common
Stock price appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the option term. The amounts
have been calculated based on the requirements promulgated by the SEC.
The actual value, if any, a Named Executive Officer may realize will
depend on the excess of the stock price over the exercise price on the
date the option is exercised (if the executive officer were to sell the
shares on the date of exercise), so there is no assurance that the
value realized will be at or near the potential realizable value as
calculated in this table.
(2) These options vest over five years and have a term of ten years from
the date of grant, subject to acceleration under certain circumstances.
(3) Does not include the outstanding stock options of Window On WallStreet
assumed by Omega Research in connection with Omega Research's
acquisition of that company. See "Other Compensation Arrangements -
Window On WallStreet Assumed Options" below.
(4) For purposes of and as provided under the Company's Incentive Stock
Plan, "fair market value" on the date of grant of any option is the
average of the high and low sales prices of a share of Common Stock on
The Nasdaq National Market on the trading day immediately preceding
such date of grant. The Compensation Committee of the Company believes
this calculation more accurately reflects "fair market value" of the
Company's Common Stock on any given day as compared to simply using the
closing market price on the date of grant. As a result, the closing
market price on the date of grant at times may be different than the
exercise price per share.
AGGREGATE OPTION EXERCISES IN 1999 FISCAL YEAR
AND 1999 FISCAL YEAR-END OPTION VALUES
The following table provides information regarding the value of all options
exercised during 1999 by the Named Executive Officers, and of all unexercised
options held at December 31, 1999 by the Named Executive Officers measured in
terms of the closing market price of the Company's Common Stock on December 31,
1999.
47
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999(#) DECEMBER 31, 1999($)(1)
-------------------------------------- -----------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William R. Cruz -- -- -- -- -- --
Ralph L. Cruz -- -- -- -- -- --
Salomon Sredni 20,000 $148,750 94,000 276,000 $411,080 $ 694,320
Peter A. Parandjuk -- -- 191,000 264,000 874,480 1,122,920
Marc J. Stone (2) -- -- 54,000 146,000 179,200 506,800
Janette Perez 1,000 7,688 23,800 137,200 78,590 303,360
<FN>
(1) Based on a per share price of $6.00 on December 31, 1999, which was the closing market price of the Company's
Common Stock on the last day of the Company's 1999 fiscal year.
(2) See footnote (7) to "SUMMARY COMPENSATION TABLE" above.
</FN>
</TABLE>
OTHER COMPENSATION ARRANGEMENTS.
EXECUTIVE OFFICER BONUS PLAN. In February 1998, the Compensation
Committee of the Board of Directors approved a cash bonus plan for the 1998
fiscal year for the then executive officers of the Company, other than William
R. Cruz and Ralph L. Cruz who have no bonus plan, that provided for cash bonuses
of up to 40% of the executive officer's base salary determined by the extent, if
any, to which the Company's 1998 net income exceeded its 1997 net income. The
Co-Chief Executive Officers were also authorized to grant up to a $10,000 bonus
to each such executive officer regardless of whether application of the bonus
formula would result in a bonus payout. As 1998 net income of the Company was
lower than 1997 net income, no bonus was paid other than the $10,000 per
executive officer bonus. In February 1999, the Compensation Committee of the
Board of Directors approved a cash bonus plan for the 1999 fiscal year for the
executive officers of the Company, other than William R. Cruz and Ralph L. Cruz
who have no bonus plan, that provides for cash bonuses of up to 50% of the
executive officer's base salary depending upon the extent, if any, to which the
Company achieves its net income goals for 1999. As 1999 net income goals of the
Company were not met, no bonus was paid other than a $25,000 special bonus paid
to Salomon Sredni in connection with his promotion to President and Chief
Operating Officer.
1996 INCENTIVE STOCK PLAN. The Incentive Stock Plan, pursuant to which
officers, employees and nonemployee consultants may be granted stock options,
stock appreciation rights, stock awards, performance shares and performance
units, was adopted by the Board of Directors and approved by the shareholders in
June 1996. It was amended and restated in August 1997 and further amended by the
Board of Directors in February 1998. In December 1998 the Board of Directors
increased, subject to shareholder approval, the authorized number of shares of
Common Stock for issuance under the Incentive Stock Plan from 3,000,000 to
4,500,000, subject to future antidilution adjustments, which was approved at the
Company's annual meeting of shareholders held on August 13, 1999. In January
2000, the Board of Directors, as part of its authorization of the Merger
Agreement with OnlineTrading.com, authorized an increase, subject to the
approval by the Company's shareholders of the Merger Agreement and merger with
OnlineTrading.com, in the number of shares of Common Stock reserved for issuance
under the Incentive Stock Plan from 4,500,000 to 7,500,000, subject to future
antidilution adjustments.
48
<PAGE>
Prior to January 1998, the Incentive Stock Plan had been administered
by the Board of Directors of the Company, but, since the establishment of the
Compensation Committee of the Board of Directors in January 1998, the Incentive
Stock Plan has been administered by the Compensation Committee, whose members
must qualify as "nonemployee directors" (as such term is defined in Rule 16b-3
under the Exchange Act). The Compensation Committee is authorized to determine,
among other things, the employees to whom, and the times at which, options and
other benefits are to be granted, the number of shares subject to each option,
the applicable vesting schedule and the exercise price (provided that, for
incentive stock options, the exercise price shall not be less than 100% of the
fair market value of the Common Stock on the date of grant). The Compensation
Committee also determines the treatment to be afforded to a participant in the
Incentive Stock Plan in the event of termination of employment for any reason,
including death, disability or retirement, or change in control. Under the
Incentive Stock Plan, the maximum term of an incentive stock option is ten years
and the maximum term of a nonqualified stock option is fifteen years.
In February 1998, the Board of Directors amended the Incentive Stock
Plan to permit the Compensation Committee to delegate to the Company's Co-Chief
Executive Officers the authority to grant options to employees of the Company
identified by the Co-Chief Executive Officers. At present, the Compensation
Committee has delegated to the Co-Chief Executive Officers the authority to
grant options covering up to 250,000 shares of Common Stock per annum, but
retains the ability to revoke the delegation at any time.
The Board of Directors has the power to amend the Incentive Stock Plan
from time to time. Shareholder approval of an amendment is only required to the
extent that it is necessary to maintain the Incentive Stock Plan's status as a
protected plan under applicable securities laws or as a qualified plan under
applicable tax laws.
As of December 31, 1999, options to purchase 3,478,869 shares were
outstanding under the Incentive Stock Plan, of which options to purchase
1,326,000 shares had been granted to executive officers of the Company. During
1999, options granted to executive officers totaled options to purchase 220,000
shares of Common Stock which were granted at exercise prices ranging from $5.54
to $8.57 per share. In general, options granted under the Incentive Stock Plan
vest at the rate of 20% per year and have a total term of ten years. The options
which have been granted under the Incentive Stock Plan to the executive officers
of the Company 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, the Window On WallStreet options assumed
by Omega Research (discussed below) and the Nonemployee Director Stock Plan
(defined and discussed below) that were outstanding as of December 31, 1999 have
a weighted average exercise price of $3.49 per share. See Note 7 of Notes to
Consolidated Financial Statements.
WINDOW ON WALLSTREET ASSUMED OPTIONS. In October 1999, the Company
assumed all outstanding stock options to purchase Window On WallStreet common
stock ("WOW Options"), which, based on an exchange ratio of .210974 shares of
Common Stock for each share of Window On WallStreet common stock, were
exercisable at the time of assumption for an aggregate of 182,529 shares of
Common Stock (82,783 shares of Common Stock at an exercise price of $.48 per
share, and 99,746 shares of Common Stock at an exercise price of $8.06 per
share). The WOW
49
<PAGE>
Options generally vest ratably over a four-year period and their terms are ten
years. As of December 31, 1999, there were 176,783 WOW Options outstanding.
1997 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN. The 1997 Nonemployee
Director Stock Option Plan, as amended (the "Nonemployee Director Stock Plan"),
pursuant to which annual grants of a nonqualified stock option are made to each
nonemployee director of the Company, was adopted by the Board of Directors and
approved by the shareholders in July 1997. It was amended by the Board of
Directors in January 1998 to increase the number of shares that may be covered
by an option granted to nonemployee directors upon their initial election to the
Board. Upon initial election to the Board of Directors, each nonemployee
director may be granted an option to purchase up to 75,000 shares of Common
Stock as determined by the Company's Board of Directors at such time. Upon each
re-election to the Board of Directors at the annual meeting of shareholders,
each nonemployee director will be granted an additional option to purchase 3,000
shares of Common Stock. Each option will be granted at an exercise price equal
to the fair market value of the Common Stock on the date of grant. The Company
has reserved 175,000 shares of Common Stock for issuance under the Nonemployee
Director Stock Plan, subject to antidilution adjustments. In August 1999, Mr.
Smith was awarded an additional option to purchase 3,000 shares at an exercise
price of $5.60 per share upon re-election to the Board of Directors and Stephen
C. Richards was issued an option to purchase 25,000 shares at an exercise price
of $5.60 per share upon his initial election to the Board of Directors. These
options have a term of five years and vest in equal installments over three
years. In August 1999, the vesting of Mr. Cotsakos's options to purchase 75,000
shares of Common Stock were accelerated upon his retirement from the Board due
to his significant contribution to the Company, which permitted him to exercise
any or all such options for 180 days following his retirement from the Board. As
of December 31, 1999, options to purchase 128,000 shares were outstanding under
the Nonemployee Director Stock Plan.
The Board of Directors has the power to amend the Nonemployee Director
Stock Plan from time to time. Shareholder approval of an amendment is only
required to the extent that it is necessary to maintain the Nonemployee Director
Stock Plan's status as a protected plan under applicable securities laws.
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 is 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 the 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
50
<PAGE>
first or last business day of the Plan Period. If an employee is not a
participant on the last day of the Plan Period, such employee is not entitled to
exercise his or her option, and the amount of his or her accumulated payroll
deductions will be refunded. An employee's rights under the Purchase Plan
terminate upon his or her voluntary withdrawal from the Purchase Plan at any
time or upon termination of employment. No options were granted under the
Purchase Plan during 1997. The first Plan Period began January 1, 1998. During
the years ended December 31, 1999 and 1998, 23,585 and 12,506 shares,
respectively, of Common Stock were issued under the plan at an average price of
$3.27 and $3.06, respectively.
The Board of Directors has the power to amend or terminate the Purchase
Plan. Shareholder approval of an amendment is only required to the extent that
it is necessary to maintain the Purchase Plan's status as a protected plan under
applicable securities laws or as a qualified plan under applicable tax laws.
401(K) PLAN. The Company has a defined contribution retirement plan
which complies with Section 401(k) of the Code. All employees with at least
three months of continuous service are eligible to participate and may
contribute up to 15% of their compensation. Company contributions are vested 20%
for each year of service. Matching contributions accrued under the 401(k) Plan
amounted to approximately $242,000, $0 and $63,000 in 1999, 1998 and 1997,
respectively.
NON-COMPETITION AGREEMENTS.
Virtually all employees of the Company, including the Named 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 employees from competing with
the Company during their employment with the Company and for a period of two
years thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
The Company formed the Compensation Committee of the Board of Directors
in January 1998, at which time the two Independent Directors were appointed as
members. The compensation (including salaries, bonuses and stock options) of the
Company's executive officers for 1999 was determined by the Compensation
Committee. In 1999, neither member of the Compensation Committee had any
relationship with the Company requiring disclosure under Item 404 of the
Regulation S-K.
DIRECTOR COMPENSATION.
The Company's Independent Directors receive $750 for attendance at each
meeting of the Board of Directors and each committee thereof, with an additional
$150 paid for each committee meeting which is chaired by an Independent
Director. Pursuant to the Nonemployee Director Stock Plan, each Independent
Director also receives an option to purchase up to 75,000 shares of Common Stock
upon initial election as a director of the Company as determined by the
Company's Board of Directors at such time, and an option to purchase 3,000
shares of Common Stock upon each re-election as an Independent Director at the
Company's annual meeting of shareholders. See "Other Compensation
Arrangements--1997 Nonemployee Director Stock Option Plan." All directors may
51
<PAGE>
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 do not receive
additional compensation for service as a director. During 1999, Mr. Richards
received a one-time retainer of $10,000 in connection with his initial
appointment to the Board of Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 8, 2000 by (i)
each person who is known to the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each director of the Company, (iii) each Named
Executive Officer, and (iv) all directors and executive officers of the Company
as a group. Except as otherwise described in the footnotes below, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information provided by such owners, have sole investment and voting power with
respect to such shares. The address of each person who beneficially owns more
than 5% of the Common Stock is the Company's principal executive office.
SHARES BENEFICIALLY OWNED(1)
----------------------------
NAME OF BENEFICIAL OWNER (1) NUMBER PERCENT
---------------------------- ------ -------
William R. Cruz(2)...................... 9,156,654 37.3%
Ralph L. Cruz(3)........................ 9,156,554 37.3
Peter A. Parandjuk...................... 199,550 *
Salomon Sredni.......................... 126,750 *
Marc J. Stone........................... 62,000 *
Janette Perez........................... 36,000 *
Brian D. Smith.......................... 16,666 *
Stephen C. Richards..................... 4,000 *
All executive officers and
directors as a group (9 persons)(4)..... 18,758,174 75.1%
- --------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC that deem shares to be beneficially owned by any person who has or
shares voting or investment power with respect to such shares. Includes
options held by executive officers and/or directors which are
exercisable within 60 days of March 8, 2000. Does not include any
shares of Common Stock that may be deemed beneficially owned by
OnlineTrading.com as a result of that certain Omega Shareholder
Agreement dated January 19, 2000 among OnlineTrading.com Group,
OnlineTrading.com and certain of the Company's shareholders or that
certain Omega Stock Option Agreement dated January 19, 2000 between
Omega Research and OnlineTrading.com, both of which were executed in
connection with the Merger Agreement. See "ITEM 14. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - (b) Current Reports on
Form 8-K."
(2) Includes 1,950,000 shares held by a Texas limited partnership as to
which William R. Cruz possesses sole voting and dispositive powers
through his direct and indirect 100% ownership of a Texas
52
<PAGE>
limited liability company that is the 1% sole general partner of such
limited partnership and William R. Cruz and the William R. Cruz 1999
Grantor Retained Annuity Trust #1 are the limited partners. The William
R. Cruz 1999 Grantor Retained Annuity Trust #1 provides for annual
distributions of principal and income to William R. Cruz for five years
commencing with respect to calendar year 1999, and thereafter any
remainder interest is payable to the William R. Cruz 1997 Family Trust
for the benefit of certain family members and/or charitable
organizations. Also includes 7,206,554 shares held by another Texas
limited partnership as to which William R. Cruz possesses sole voting
and dispositive powers through his 100% ownership of the sole general
partner of such limited partnership and William R. Cruz is the sole
limited partner. Does not include 900 shares owned by the spouse of
William R. Cruz with respect to which Mr. Cruz disclaims beneficial
ownership.
(3) The shares are held by two Texas limited partnerships as to which Ralph
L. Cruz possesses sole voting and dispositive powers through his direct
and/or indirect 100% ownership of the sole general partner of each of
such limited partnerships and in one limited partnership Ralph L. Cruz
is the sole limited partner and in the other Ralph L. Cruz and his
spouse are the limited partners.
(4) See other footnotes above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning cash dividends paid by the Company to its
shareholders in 1997 (including the Dividend which was paid by the Company to
its then-existing shareholders immediately prior to the consummation of the
Company's initial public offering) and the dividend of the Company's former
office facilities to William R. Cruz and Ralph L. Cruz declared in the second
quarter of 1997, see "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS - Dividend Policy."
The Company and William R. Cruz, Ralph L. Cruz and certain of their
respective affiliates (collectively, the "Cruz Shareholders") have entered into
an S Corporation Tax Allocation and Indemnification Agreement (the "Tax
Agreement") relating to the Dividend and their respective income tax
liabilities. The Tax Agreement provides that to the extent the Company's
earnings during the period in which it was an S corporation ("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
Dividend paid prior to the consummation of the Company's initial public
offering, the Cruz Shareholders will make a payment equal to such difference to
the Company and if the S Corporation Earnings are greater than the Dividend, the
Company will make an additional distribution equal to such difference to William
R. Cruz and Ralph L. Cruz, in either case, with interest thereon. Subject to
certain limitations, the Tax Agreement also provides for the
cross-indemnification of the Cruz Shareholders and 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 Cruz 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 such party's tax
liability as a result of any such determination. To the extent a payment is made
pursuant to the Tax Agreement by the Company to the Cruz Shareholders after the
one year anniversary of the date on which the Company's S corporation status
terminated, except to the extent it relates to the change of the Company's
method of accounting from the cash method to the accrual method effective on
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<PAGE>
July 1, 1997 (the "Change in Accounting Method"), the Company will be required
to make an additional payment to the Cruz Shareholders equal to any income taxes
payable by such persons on such payments. The Company will not receive a tax
deduction for any payments made pursuant to the Tax Agreement. The Cruz
Shareholders have not provided security for their obligations under the Tax
Agreement; accordingly, the Company's ability to collect any such payments will
be dependent upon the financial condition of such persons at the time such
payments are to be made. The Company is not aware of any tax adjustments which
might require payments under the Tax Agreement other than related to the Change
in Accounting Method. See "ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS - Dividend Policy" and Note 7 of Notes to
Consolidated Financial Statements.
Marc J. Stone, the Company's Vice President of Corporate Development,
General Counsel and Secretary and a director, was a partner in a predecessor law
firm to Bilzin Sumberg until immediately prior to joining the Company in May
1997. Thereafter, Mr. Stone was of counsel to the predecessor firm and is
currently of counsel to Bilzin Sumberg. Bilzin Sumberg and its predecessor firms
have acted as the Company's regular outside legal counsel since 1994. The total
fees and costs paid by the Company to the predecessor firm of Bilzin Sumberg
(Rubin Baum Levin Constant Friedman & Bilzin) in 1999, 1998 and 1997 were
approximately $84,000, $10,000, and $349,000, respectively, and to Bilzin
Sumberg in 1999 and 1998 were approximately $87,000 and $69,000, respectively.
The Company believes that the fees paid are no less favorable to the Company
than could be obtained from comparable law firms in the Miami area.
54
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) DOCUMENTS FILED AS PART OF THIS REPORT.
1. Financial Statements. The Financial Statements and
notes thereto and the report of the independent
auditors thereon set forth on pages F-1 through F-23
herein are filed as part of this report and
incorporated herein by reference.
2. Financial Statement Schedules. The Financial
Statement Schedule and the report of the independent
auditors thereon set forth on pages S-1 through S-3
herein are filed as part of this report and
incorporated herein by reference.
3. Exhibits.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 - Agreement and Plan of Merger and
Reorganization dated as of January
19, 2000 by and among Omega
Research, Inc.,
onlinetradinginc.com corp.,
OnlineTrading.com Group, Inc.
(formerly known as Online Trading
Group, Inc.), Omega Acquisition
Corporation and Onlinetrading
Acquisition Corporation, together
with the following exhibits
thereto: (i) Form of Omega
Affiliate Agreement; (ii) Form of
Online Affiliate Agreement; (iii)
Form of Employment Agreement; (iv)
Form of Non-Competition and
Non-Disclosure Agreement
(incorporated by reference to
Exhibit 2.1 to the Company's
Current Report on Form 8-K
reporting event on January 19, 2000
and filed on January 28, 2000)
2.2 - Form of Omega Shareholder Agreement
dated January 19, 2000 among
OnlineTrading.com Group, Inc.
(formerly known as Online Trading
Group, Inc.), onlinetradinginc.com
corp and each applicable Omega
Research shareholder (incorporated
by reference to Exhibit 2.2 to the
Company's Current Report on Form
8-K reporting event on January 19,
2000 and filed on January 28, 2000)
2.3 - Form of Online Shareholder
Agreement dated January 19, 2000
among OnlineTrading.com Group, Inc.
(formerly known as Online Trading
Group, Inc.), Omega Research, Inc.
and each applicable
OnlineTrading.com shareholder
(incorporated by
55
<PAGE>
reference to Exhibit 2.3 to the
Company's Current Report on Form
8-K reporting event on January 19,
2000 and filed on January 28, 2000)
2.4 - Omega Stock Option Agreement dated
January 19, 2000 between Omega
Research, Inc. and
onlinetradinginc.com corp.
(incorporated by reference to
Exhibit 2.4 to the Company's
Current Report on Form 8-K
reporting event on January 19, 2000
and filed on January 28, 2000)
2.5 - Online Stock Option Agreement dated
January 19, 2000 between Omega
Research, Inc. and
onlinetradinginc.com corp.
(incorporated by reference to
Exhibit 2.5 to the Company's
Current Report on Form 8-K
reporting event on January 19, 2000
and filed on January 28, 2000)
2.6 - First Amendment to Agreement and
Plan of Merger and Reorganization
effective March 7, 2000 among Omega
Research, Inc.,
onlinetradinginc.com corp.,
OnlineTrading.com Group, Inc.
(formerly known as Online Trading
Group, Inc.), Omega Acquisition
Corporation and OnlineTrading
Acquisition Corporation (filed
herewith)
2.7 - Agreement and Plan of Merger, dated
as of October 25, 1999, by and
among Omega Research, Inc., WOW
Acquisition Corporation and Window
on WallStreet Inc., together with
the following exhibits thereto: (i)
Articles of Merger; (ii) Form of
Company Affiliate Agreement; (iii)
Form of Agreement Regarding
Employment; (iv) Form of
Shareholder Non-Competition and
Non-Disclosure Agreement; (v) Form
of Stock Option Agreement (All
Employees); (vi) Form of Stock
Option Agreement (Jennings and
Black); (vii) Form of Investment
Acknowledgment Agreement; (viii)
Registration Rights Agreement; and
(ix) Opinion Letter Matters
(incorporated by reference to
Exhibit 2.1 to the Company's
Current Report on Form 8-K
reporting event on October 26, 1999
and filed on November 8, 1999)
3.1 - Second Amended and Restated
Articles of Incorporation of Omega
Research, Inc.+
3.2 - Second Amended and Restated Bylaws
of Omega Research, Inc.+
10.1 - Omega Research, Inc. Amended and
Restated 1996 Incentive Stock Plan,
as amended through August 13, 1999
(incorporated by reference to
Exhibit 10.1 to
56
<PAGE>
the Company's Quarterly Report on
Form 10-Q for the fiscal quarter
ended September 30, 1999)*
10.2 - Omega Research, Inc. 1997
Nonemployee Director Stock Option
Plan, as amended ++
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. /degree/
10.7 - Form of Indemnification Agreement +
10.8 - Omega Research, Inc. 1997 Employee
Stock Purchase Plan, as amended by
Amendment to Omega Research 1997
Employee Stock Purchase Plan
(incorporated by referenced to
Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for
the fiscal quarter ended September
30, 1998).*
10.9 - Form of non-competition agreement +
10.10 Letter Agreement dated October 27,
1997 from Dow Jones Markets, Inc.
to Omega Research, Inc.++
10.11 - Sublease (for fourth floor of 8700
Flagler Building) and Modification
of Lease Agreement (incorporated by
reference to Exhibit 10.11 to the
Company's Annual Report on Form
10-K for the fiscal year ended
December 31, 1998)
10.12 - Second Modification of Lease
Agreement, dated January 31, 2000,
between Nationwide Theaters West
Flagler, L.L.C. and Omega Research,
Inc. (filed herewith)
10.13 - Office/Showroom/Warehouse Lease
Agreement dated June 12, 1996
between Springcreek Place Ltd. and
Window on WallStreet Inc. (then
named MarketArts, Inc.), as amended
by Addendum to Lease dated October
12, 1998, and as further amended by
Addendum to Lease dated May 28,
1999 (filed herewith)
57
<PAGE>
10.14 - Lease Agreement, dated November 16,
1999, between Fairfax Boca 92, L.P.
and Omega Research, Inc. (filed
herewith)
23.1 - Consent of Arthur Andersen LLP
(filed herewith)
27.1 - Financial Data Schedule (filed
herewith)
----------------------------------
+ Previously filed as part of
Registration Statement No. 333-3207
on Form S-1 filed with the
Commission on July 25, 1997.
/degree/ previously filed as part of
Amendment No.1 to Registration
Statement No. 333-3207 filed with
the Commission on August 25, 1997.
++ Previously filed as part of Annual
Report on Form 10-K for the fiscal
year ended December 31, 1997.
* Indicates a management contract or
compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K.
(i) On November 8, 1999, the Company filed a Current Report on Form 8-K
dated November 8, 1999 reporting in Item 2 thereof the consummation on October
26, 1999 of the merger with Window On WallStreet and in Item 7 thereof the
filing of a copy of the Agreement and Plan of Merger, dated as of October 25,
1999, among the Company, Window On WallStreet and WOW Acquisition Corporation.
(ii) On November 10, 1999, the Company filed a Current Report on Form
8-K, dated November 10, 1999, reporting in Item 5 thereof the announcement on
November 8, 1999 of its Internet strategy.
(iii) On January 7, 2000, the Company filed a Current Report on Form
8-K/A, dated January 7, 2000, which amended the Current Report on Form 8-K dated
and previously filed on November 8, 1999 (as noted above) to include and
incorporate therein Item 7(a) (Financial Statements of Business Acquired) and
Item 7(b) (Pro Forma Financial Information).
(iv) On January 28, 2000, the Company filed a Current Report on Form
8-K, dated January 28, 2000, reporting in Item 5 thereof that the Company
entered into an Agreement and Plan of Merger and Reorganization on January 19,
2000 with OnlineTrading.com, under which Omega Research and OnlineTrading.com
are proposed to be merged in a 100% stock transaction, and in Item 7 thereof the
filing, among other documents, of a copy of the Merger Agreement.
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
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
Dated: March 22, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/S/ WILLIAM R. CRUZ Co-Chairman of the Board and March 22, 2000
- -----------------------------------
William R. Cruz Co-Chief Executive Officer
(Co-Principal Executive Officer)
/S/ RALPH L. CRUZ Co-Chairman of the Board and March 22, 2000
- -----------------------------------
Ralph L. Cruz Co-Chief Executive Officer
(Co-Principal Executive Officer)
/S/ SALOMON SREDNI Chief Operating Officer, President March 22, 2000
- -----------------------------------
Salomon Sredni and Director (Principal Operating Officer)
/S/ GREGG F. STEWART Chief Financial Officer, Vice President of March 22, 2000
- -----------------------------------
Gregg F. Stewart Finance and Treasurer
(Principal Financial and Accounting Officer)
/S/ PETER A. PARANDJUK Director March 22, 2000
- -----------------------------------
Peter A. Parandjuk
/S/ MARC J. STONE Director March 22, 2000
- -----------------------------------
Marc J. Stone
/S/ STEPHEN C. RICHARDS Director March 22, 2000
- -----------------------------------
Stephen C. Richards
/S/ BRIAN D. SMITH Director March 22, 2000
- -----------------------------------
Brian D. Smith
</TABLE>
59
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998............... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997........................................ F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997........................................ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997........................................ F-6
Notes to Consolidated Financial Statements................................. F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Omega Research, Inc.:
We have audited the accompanying consolidated balance sheets of Omega
Research, Inc. (a Florida corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Omega Research, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Miami, Florida,
February 18, 2000.
F-2
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,175,852 $ 7,649,771
Marketable securities 1,695,304 5,736,958
Accounts receivable, net 13,695,059 9,659,700
Inventory 67,371 283,065
Other current assets 1,469,383 696,440
Deferred income taxes 9,192,000 4,541,000
------------ ------------
Total current assets 28,294,969 28,566,934
PROPERTY AND EQUIPMENT, net 2,611,454 2,020,832
OTHER ASSETS 473,344 186,676
------------ ------------
Total assets $ 31,379,767 $ 30,774,442
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,786,739 $ 1,487,128
Notes payable -- 600,000
Accrued expenses 1,861,321 1,171,452
Deferred revenue 1,256,824 380,133
------------ ------------
Total current liabilities 5,904,884 3,638,713
LONG TERM DEBT -- 2,640,925
------------ ------------
Total liabilities 5,904,884 6,279,638
COMMITMENTS & CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 25,000,000 shares
authorized, none issued and outstanding -- --
Common stock, $.01 par value; 100,000,000
shares authorized, 24,475,104 and 24,269,959
issued and outstanding at December 31, 1999
and 1998, respectively 244,751 242,700
Additional paid-in capital 26,560,893 24,616,256
Accumulated deficit (1,330,761) (364,152)
------------ ------------
Total shareholders' equity 25,474,883 24,494,804
------------ ------------
Total liabilities and shareholders' equity $ 31,379,767 $ 30,774,442
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET REVENUES:
Licensing fees $ 33,767,832 $ 25,057,098 $ 27,729,549
Other revenues 9,102,137 6,653,655 5,220,899
------------ ------------ ------------
Total net revenues 42,869,969 31,710,753 32,950,448
------------ ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees and services 2,985,409 2,494,445 2,688,277
Product development 5,144,658 4,001,981 2,355,716
Sales and marketing 18,979,103 15,573,786 12,217,117
General and administrative 12,435,758 8,545,073 7,465,942
Acquisition costs 1,200,000 -- --
------------ ------------ ------------
Total operating expenses 40,744,928 30,615,285 24,727,052
------------ ------------ ------------
Income from operations 2,125,041 1,095,468 8,223,396
------------ ------------ ------------
OTHER INCOME (EXPENSE), net:
Interest expense (1,691,185) (907,196) (265,469)
Other income, net 445,535 435,181 195,995
------------ ------------ ------------
Total other expense, net (1,245,650) (472,015) (69,474)
------------ ------------ ------------
Income before income taxes 879,391 623,453 8,153,922
INCOME TAX PROVISION (BENEFIT) 1,846,000 1,052,000 (934,000)
------------ ------------ ------------
(Loss) income before pro forma income
tax adjustments (966,609) (428,547) 9,087,922
PRO FORMA INCOME TAX
ADJUSTMENTS (Note 1):
Pro forma income taxes for periods
prior to September 30, 1997 -- -- 3,255,731
Non-recurring tax credit -- -- 1,167,000
------------ ------------ ------------
Pro forma net (loss) income $ (966,609) $ (428,547) $ 4,665,191
============ ============ ============
(LOSS) EARNINGS PER SHARE (Note 10):
Basic and Diluted $ (0.04) $ (0.02) $ 0.21
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
----------------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 21,479,995 $ 214,800 $ -- $ 4,088,967 $ 4,303,767
Issuances of common stock 2,766,108 27,661 27,412,784 -- 27,440,445
Cash distributions to shareholders, net -- -- -- (16,532,826) (16,532,826)
Non-cash distributions to shareholders -- -- -- (506,781) (506,781)
Conversion from S corporation to
C corporation -- -- (3,792,091) 3,792,091 --
Compensation expense on stock
option grants -- -- 122,041 -- 122,041
Issuance of detachable warrants by
pooled company in conjunction
with issuance of notes -- -- 102,896 -- 102,896
Net income -- -- -- 9,087,922 9,087,922
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1997 24,246,103 242,461 23,845,630 (70,627) 24,017,464
Issuances of common stock 23,856 239 54,749 -- 54,988
Compensation expense on stock
option grants -- -- 113,877 -- 113,877
Issuance of detachable warrants by
pooled company in conjunction
with issuance of notes -- -- 126,000 -- 126,000
Conversion of detachable warrants into
common stock by pooled company
upon nonpayment of notes -- -- 476,000 -- 476,000
Repayment of distributions -- -- -- 135,022 135,022
Net loss -- -- -- (428,547) (428,547)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1998 24,269,959 $ 242,700 $ 24,616,256 $ (364,152) $ 24,494,804
Issuances of common stock 205,145 2,051 463,671 -- 465,722
Compensation expense on stock
option grants -- -- 140,796 -- 140,796
Issuance of common stock by pooled
company upon nonpayment of notes -- -- 1,340,170 -- 1,340,170
Net loss -- -- -- (966,609) (966,609)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1999 24,475,104 $ 244,751 $ 26,560,893 $ (1,330,761) $ 25,474,883
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) income before pro forma income tax adjustments $ (966,609) $ (428,547) $ 9,087,922
Adjustments to reconcile (loss) income before pro forma
income tax adjustments to net cash (used in) provided by
operating activities:
Depreciation and amortization 1,097,104 742,966 717,083
Provision for doubtful accounts 5,721,857 2,222,834 2,450,736
Compensation expense on stock option grants 140,796 113,877 122,041
Noncash interest associated with the conversion of
detachable warrants into common stock by pooled
company upon nonpayment of notes 1,340,170 476,000 --
Deferred income tax benefit (4,651,000) (1,578,000) (2,963,000)
(Increase) decrease in:
Accounts receivable (9,757,216) (1,877,540) (7,543,001)
Inventory 215,694 132,803 (276,061)
Other current assets (773,118) (168,380) (515,476)
Other assets (217,293) 128,672 (1,315)
Increase (decrease) in:
Accounts payable 1,299,611 (25,042) 942,453
Accrued expenses 689,869 558,239 235,784
Income taxes payable -- (509,000) 509,000
Deferred revenue 876,691 243,863 --
------------ ------------ ------------
Net cash (used in) provided by operating activities (4,983,444) 32,745 2,766,166
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,608,782) (1,310,391) (1,081,398)
Capitalized software development costs -- -- (48,694)
Purchases of marketable securities -- (5,722,368) (1,014,590)
Proceeds from maturity of marketable securities 4,041,654 1,000,000 --
Acquisition of data rights and customer lists (120,000) (222,900) (40,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities 2,312,872 (6,255,659) (2,184,682)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 465,722 54,988 27,440,445
Proceeds from issuance of warrants by pooled company -- -- 3,222
Repayments from (distributions to) shareholders, net -- 135,022 (16,532,826)
Proceeds from borrowings of debt 815,422 855,750 15,238,712
Repayment of borrowings of debt (4,084,491) -- (15,001,594)
------------ ------------ ------------
Net cash (used in) provided by financing activities (2,803,347) 1,045,760 11,147,959
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (5,473,919) (5,177,154) 11,729,443
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,649,771 12,826,925 1,097,482
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,175,852 $ 7,649,771 $ 12,826,925
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ -- $ 17,979
============ ============ ============
Cash paid for income taxes $ 6,933,366 $ 3,138,740 $ 1,520,000
============ ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION:
Effective June 30, 1997, the Company declared a dividend distributing land
and a building with a carrying value of $506,781, to its shareholders.
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Omega Research, Inc. ("Omega Research" or, together with its subsidiaries,
the "Company"), a Florida corporation, was incorporated in 1982 to develop,
market and sell trading strategy tools to individual and professional investors
and traders. The Company's products and services provide investors and traders
with the ability to develop, historically test and computer automate trading
strategies and to access streaming real-time charts, quotes and news via the
Internet.
The following is a summary of significant accounting policies followed in
the preparation of these financial statements:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its direct and indirect wholly owned subsidiaries, Window On WallStreet Inc.
("Window On WallStreet") and Direct XChange Securities, Inc. All significant
intercompany transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents consist primarily of overnight investments, tax exempt commercial
paper and short-term municipal bonds with an original maturity of three months
or less.
MARKETABLE SECURITIES
Marketable securities consist of investment grade municipal bonds maturing,
on average, within a year. The cost of these investments approximates fair
market value and management has designated the securities as available for sale.
ACCOUNTS RECEIVABLE
Accounts receivable are principally from individuals and distributors of the
Company's products. The Company performs periodic credit evaluations and
maintains allowances for potential credit losses of approximately $6.3 million
and $3.7 million at December 31, 1999 and 1998, respectively, and allowances for
potential returns of approximately $23.2 million and $7.5 million at December
31, 1999 and 1998, respectively.
The Company provides all client software customers with a 30-day right of
return, and, as a result, records a provision for returns at the time of sale.
The Company, depending on the circumstances, permits customers to return client
software products after the 30-day period in order to maintain as high a level
of customer satisfaction as possible. The reserve for returns and the provision
for bad debt, in accordance with generally accepted accounting principles, are
F-7
<PAGE>
estimated based on historical experience and other relevant information. There
is no certainty that future returns or bad debt will not exceed established
estimates. In addition, 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 that have been
provided.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, marketable securities,
accounts receivable, accounts payable, notes payable and long term debt
approximate fair value as of December 31, 1999 and 1998.
INVENTORY
Inventory, which consists primarily of software media, manuals and related
packaging materials, are stated at the lower of cost or market with cost
determined on a first-in, first-out ("FIFO") basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets.
Maintenance and repairs are charged to expense when incurred; betterments
are capitalized. Upon the sale or retirement of assets, the cost and accumulated
depreciation are removed from the accounts, and any gain or loss is recognized
currently.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
86, ACCOUNTING FOR THE COST OF CAPITALIZED SOFTWARE TO BE SOLD, LEASED OR
OTHERWISE MARKETED, 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. There
were no capitalized software development costs as of December 31, 1999 or 1998.
LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.
F-8
<PAGE>
REVENUE RECOGNITION
LICENSING FEES
Sales of client software products, net of provisions for estimated returns,
are recognized at the time the product is shipped, in accordance with the
provisions of the American Institute of Certified Public Accountants Statement
of Position ("SOP") 97-2, SOFTWARE REVENUE RECOGNITION. SOP 97-2 requires
companies to defer revenue and profit recognition if four required criteria of a
sale are not met. In addition, SOP 97-2 requires revenue recognized from
software arrangements to be allocated to each element of an arrangement based on
the relative fair values of the elements, such as software products, upgrades,
enhancements, post contract customer support, installation, or training. SOP
97-2 was adopted by the Company effective January 1, 1998 and did not have a
material impact on the Company's financial position or results of operations.
While the Company has no obligation to perform future services subsequent to
shipment of client software, the Company provides telephone and electronic mail
customer support as an accommodation to purchasers of its products as a means of
fostering customer satisfaction. The majority of such services are provided
during the first 60 days of ownership of the Company's products. Costs
associated with this effort are generally insignificant in relation to product
sales value.
Certain products have been sold with bundled services (see discussion of
OTHER REVENUES below). The portion of software sales related to such bundled
services are deferred and recognized as revenue on a monthly basis as the
service is provided.
OTHER REVENUES
The Company has, with respect to its client software products, entered into
certain agreements with entities that market and sell financial market data
subscriptions. Except for the agreement described in Note 11 (which is a royalty
arrangement), the Company receives, in certain cases, monthly payments in the
nature of commissions based on the use by the Company's client software
customers of financial market data feed subscriptions which are accessed through
one of the Company's client software products. The Company records these
revenues as they are earned in accordance with the terms of the applicable
contracts.
In addition, the Company provides streaming real-time market information via
the Internet through the FINANCIAL DATA CAST NETWORK ("FDCN") acquired in the
Window On WallStreet merger. Revenue is recognized on a monthly basis as the
service is provided. Payments received in advance of service are deferred and
recognized on a monthly basis as the services are provided.
ADVERTISING COSTS
Advertising costs are expensed when the initial advertisement is run, and
are included in sales and marketing expenses in the accompanying statements of
operations. Advertising costs for the years ended December 31, 1999, 1998 and
1997 were $6.2 million, $7.0 million and $6.4 million, respectively.
F-9
<PAGE>
STOCK-BASED COMPENSATION
In accordance with SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, in
accounting for stock-based transactions with non-employees, the Company records
compensation expense in the statement of operations when these types of options
are issued. As permitted by SFAS No. 123, the Company accounts for its
stock-based compensation paid to employees in accordance with Accounting
Principles Board ("APB") Opinion No. 25.
INCOME TAXES
For income tax purposes, the Company was an S corporation prior to September
30, 1997. Accordingly, net income and related timing differences which arose in
the recording of income and expense items for financial reporting and tax
reporting purposes were included in the individual tax returns of the S
corporation shareholders. Effective September 30, 1997, the Company terminated
its S corporation election, and, as a result, adopted SFAS No. 109, ACCOUNTING
FOR INCOME TAXES. SFAS No. 109 requires that deferred income tax balances be
recognized based on the differences between the financial statement and income
tax bases of assets and liabilities using the enacted tax rates (see Note 9).
PRO FORMA INCOME TAX ADJUSTMENTS
The pro forma income tax adjustments included in the accompanying statement
of operations for the year ended December 31, 1997 are for informational
purposes only. Pro forma income taxes have been provided at an estimated
effective rate of 39.5% for Omega Research for periods prior to September 30,
1997. In addition, a non-recurring tax credit of $1.2 million has been excluded
from pro forma net income (see Note 9).
EARNINGS PER SHARE
Earnings per share is calculated in accordance with SFAS No. 128, EARNINGS
PER SHARE. SFAS No.128 requires presentation of basic and diluted earnings per
share on the face of the statement of operations. Basic earnings per share is
computed by dividing the net income (loss) available to common shareholders by
the weighted average shares of outstanding common stock. The calculation of
diluted earnings per share is similar to basic earnings per share except that
the denominator includes dilutive common stock equivalents such as stock options
and warrants (see Note 10).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Such
estimates include established reserves for returns and reserves for potentially
uncollectable accounts receivable.
F-10
<PAGE>
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE
Computer software developed or obtained for internal use is accounted for
in accordance with SOP 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 establishes criteria for
determining which costs of developing or obtaining internal-use computer
software should be charged to expense and which should be capitalized. The
Company adopted SOP 98-1 prospectively effective January 1, 1999. Such adoption
did not have a material effect on the Company's financial position or results of
operations.
COMPREHENSIVE INCOME
Comprehensive income is defined as the change in a business enterprise's
equity during a period arising from transactions, events or circumstances
relating to non-owner sources, such as foreign currency translation adjustments
and unrealized gains or losses on available-for-sale securities. It includes all
changes in equity during a period except those resulting from investments by or
distributions to owners. Comprehensive income is equal to net income (loss) for
all periods presented.
SEGMENT INFORMATION
During the three years ended December 31, 1999, management evaluated and
operated the business of the Company as a single segment.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL OF FASB
STATEMENT NO. 133. SFAS No. 137 defers for one year the effective date of SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 will now apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 133 will require the Company to recognize all
derivatives on the balance sheet as either assets or liabilities measured at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. The Company will adopt SFAS No. 133 effective for the year ended
December 31, 2001. The Company believes that the adoption of SFAS No. 133 will
not have a material impact on its consolidated financial statements, as it has
entered into no derivative contracts and has no current plans to do so in the
future.
(2) ACQUISITIONS
Effective October 26, 1999, the Company acquired Window On WallStreet, a
leading provider of Internet-based streaming real-time market data and a
developer of client software and on-line trading strategy tools. Under the terms
of the merger agreement, Window On WallStreet shareholders received 1,999,995
newly issued shares of the Company's common stock for all of the issued and
outstanding shares of Window On WallStreet's common stock. In addition, the
Company (i) repaid in accordance with its terms approximately $4.1 million of
debt and (ii) assumed all outstanding stock options to purchase Window On
WallStreet common stock which,
F-11
<PAGE>
based on an exchange ratio of 0.210974, were exercisable for an aggregate of
182,529 shares of the Company's common stock.
The acquisition of Window On WallStreet was accounted for as a
pooling-of-interests. Accordingly, the financial statements herein have been
restated to give retroactive effect to this acquisition. Below is a
reconciliation of Net revenues and Pro forma net (loss) income amounts
previously reported with amounts included herein:
1998 1997
------------ ------------
Net revenues:
The Company, as previously reported $ 28,216,505 $ 29,226,274
Window On WallStreet 3,494,248 3,724,174
------------ ------------
The Company, as restated $ 31,710,753 $ 32,950,448
============ ============
Pro forma net (loss) income:
The Company, as previously reported $ 1,955,547 $ 5,451,582
Window On WallStreet (2,384,094) (786,391)
------------ ------------
The Company, as restated $ (428,547) $ 4,665,191
============ ============
There were no material relationships or intercompany transactions between
the Company and Window On WallStreet prior to the Merger.
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following as of December 31,
1999 and 1998:
<TABLE>
<CAPTION>
USEFUL LIFE
IN YEARS 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Computers and software 3-5 $ 4,682,353 $ 3,195,754
Furniture and equipment 3-7 495,877 448,048
Leasehold improvements 3-5 178,811 144,015
Autos 5 -- 110,205
----------- -----------
5,357,041 3,898,022
Accumulated depreciation and amortization (2,745,587) (1,877,190)
----------- -----------
$ 2,611,454 $ 2,020,832
=========== ===========
</TABLE>
(4) ACCRUED EXPENSES
Accrued expenses consist of the following as of December 31, 1999 and 1998:
1999 1998
---------- ----------
Payroll and related accruals $ 579,153 $ 654,883
Accrued data distribution and exchange fees 550,977 --
Accrued technical support costs 161,000 173,500
Other 570,191 343,069
---------- ----------
$1,861,321 $1,171,452
========== ==========
F-12
<PAGE>
(5) DEFERRED REVENUE
Deferred revenue is comprised of deferrals for (i) licensing fees revenue
for which amounts are not due within the next twelve months and for obligations
which have not yet been fulfilled (such as committed upgrades), (ii) payments
received in advance of service or bundled with client software purchases and
(iii) registration fees and sponsorship and exhibitor deposits for OmegaWorld,
the Company's annual conference, designed to highlight the benefits of trading
strategy development, held during the second quarter of each year. Deferred
revenue consists of the following as of December 31, 1999 and 1998:
1999 1998
---------- ----------
Licensing fees revenue $ 842,000 $ 58,095
Subscription service revenues 290,300 265,453
OmegaWorld 124,524 56,585
---------- ----------
$1,256,824 $ 380,133
========== ==========
(6) RELATED PARTY DEBT
SHORT TERM DEBT
Short term debt consists of the following as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- ---------
<S> <C> <C>
Note payable to Red Oak Capital dated June 11, 1998, bearing
interest at 10%, due December 31, 1998. $ -- $ 495,000
Note payable to individual dated June 11, 1998, bearing
interest at 10%, due December 31, 1998. -- 5,000
Note payable to Red Oak Capital dated December 23, 1998,
bearing interest at 10%, due February 28, 1999. -- 100,000
------- ---------
$ -- $ 600,000
======= =========
</TABLE>
The above notes dated June 11, 1998 were issued by Window On WallStreet
together with detachable warrants which entitled the holders, related parties to
Window On WallStreet, to purchase 425,000 shares of Window On WallStreet's
common stock, no par value, at $2.48 per share. Such warrants resulted in a
charge to interest expense of $126,000 during 1998. Furthermore, the debt
agreement provided for the conversion of all warrants into shares of Window On
WallStreet's common stock to the holder if the notes were not paid as of
December 31, 1998. As the notes were not paid as of December 31, 1998, under the
terms of the note, the holders converted the warrants into 425,000 shares of
Window On WallStreet's common stock at zero cost. Accordingly, an additional
charge reflected in interest expense was recorded by the Company at December 31,
1998 in the amount of $476,000.
Furthermore, as the above notes dated June 11, 1998 were not paid as of the
end of March 1999, Window On WallStreet issued an additional 75,000 shares of
its common stock, no par
F-13
<PAGE>
value, to the note holders in accordance with the agreement. In addition, in
accordance with the terms of the above note dated December 23, 1998, Window On
WallStreet issued 120,000 shares of its common stock, no par value, to the
holders of the notes. Accordingly, a charge reflected in interest expense was
recorded by the Company during the year ended December 31, 1999 in the aggregate
amount of approximately $218,000. These notes were later consolidated and paid
by the Company.
LONG TERM DEBT
Long term debt consists of the following as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- ----------
<S> <C> <C>
Notes payable to Red Oak Capital dated August 14, 1996, bearing interest
at 10%, payable at various dates beginning September 2000, net of
unamortized discount at December 31, 1998 of $52,035. Amount includes
accrued interest recharacterized as notes payable $ -- $2,631,167
Notes payable to individual dated August 14, 1996, bearing interest at
10%, payable at various dates beginning September 2000, net of unamortized
discount at December 31, 1998 of $242. Amount includes accrued interest
recharacterized as notes payable -- 9,758
------- ----------
$ -- $2,640,925
======= ==========
</TABLE>
On April 13, 1999, Window On WallStreet signed an agreement with the related
parties holding the notes, consolidating all of the existing debt, short term
and long term, into two notes in the aggregate principal amount of approximately
$3.9 million (the "New Notes"). The New Notes accrued interest at 10% per annum
in cash plus one fully paid and non-assessable share of Window On WallStreet
common stock, no par value, for each $45.26 of principal amount outstanding
(rounded up to the nearest share) at the end of each month. Interest not paid
was capitalized as part of the principal amount of the New Notes on a monthly
basis.
As part of this refinancing of debt, Window On WallStreet issued an
additional 400,000 shares of its common stock as a financing fee. Excluding the
financing fee of 400,000 issued shares, during 1999 Window On WallStreet issued
601,580 shares of its common stock to the holders of the New Notes related to
the common stock component of interest expense. Accordingly, the Company
recorded additional charges reflected in interest expense of $448,000 for the
financing fee and $674,000 for the common stock component of interest expense.
Charges to interest expense totaled approximately $1.3 million including the
$218,000 discussed above.
At the time of the acquisition of Window On WallStreet, the Company repaid
all existing debt in accordance with the terms of the agreement.
F-14
<PAGE>
(7) SHAREHOLDERS' EQUITY
SHARE SPLIT
Effective January 29, 1997, the Company authorized an increase in the amount
of its authorized common stock to 100 million shares and changed the par value
of each share to $.01. In addition, on January 30, 1997, 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.
PREFERRED STOCK
On July 16, 1997, the Company authorized 25 million shares of preferred
stock with a par value of $.01 per share. No specific preferences or rights have
been established to date with respect to any of these shares nor have any of
these shares been issued.
INITIAL PUBLIC OFFERING
On October 6, 1997, the Company closed its initial public offering of 2.6
million shares of common stock of the Company at $11.00 per share (the "Initial
Public Offering"). On November 5, 1997, the Company closed the underwriters'
purchase of 158,108 additional shares of common stock pursuant to the exercise
of a portion of their over-allotment option granted in the Initial Public
Offering. Total proceeds to the Company, net of underwriting discounts and
offering expenses of approximately $2.9 million, were $27.4 million.
DISTRIBUTIONS TO SHAREHOLDERS
On September 30, 1997, the Company terminated its S corporation status and
the Company became a C corporation making it subject to federal and state income
taxes on its earnings. In conjunction with the Company becoming a C corporation,
the Company declared and paid a cash dividend to the Company's existing
shareholders of $15.4 million (the "Dividend"). The Dividend was equal to the
Company's estimate at that time of its cumulative taxable income prior to its
conversion to a C corporation to the extent such taxable income had not been
previously distributed. Subsequent to the payment of the Dividend, the Company
preliminarily determined that the actual cumulative taxable income would be less
than was originally estimated. Accordingly, in the fourth quarter of 1997, the
recipients of the Dividend repaid $800,000, plus interest, to the Company.
During the third quarter of 1998, upon finalization of the Company's 1997 tax
returns and final determination of S corporation earnings at the date of
conversion to a C corporation, the recipients of the Dividend repaid an
additional $135,000, plus interest, to the Company, reducing the Dividend to
$14.5 million.
ISSUANCE OF STOCK BY POOLED COMPANY
During 1998, Window On WallStreet issued detachable warrants in association
with the issuance of certain notes to related parties, which entitled the
holders to purchase 425,000 shares of Window On WallStreet's common stock, no
par value, at $2.48 per share. At that time, a charge was made to Additional
Paid-in Capital of $126,000. The related debt agreement
F-15
<PAGE>
provided for the conversion of all warrants into shares of Window On
WallStreet's common stock at zero cost to the holder if the notes were not paid
as of December 31, 1998. As the notes were not paid as of December 31, 1998,
under the terms of the note, the holder converted the warrants into 425,000
shares of Window On WallStreet's common stock at zero cost, resulting in a
charge to Additional Paid-in Capital of $476,000.
During 1999, Window On WallStreet issued 1,196,580 shares of its common
stock, no par value, due to nonpayment, consolidation and interest on debt to
related parties. The resulting charge to Additional Paid-in Capital was
approximately $1.3 million.
STOCK OPTION PLANS
The Company has reserved 4,500,000 shares of its common stock for issuance
under its Amended and Restated 1996 Incentive Stock Plan, as amended (the
"Option Plan"). Under the Option Plan, incentive and nonqualified stock options,
stock appreciation rights, stock awards, performance shares and performance
units are available to employees or consultants of the Company. Currently, only
options have been granted. The terms of each option agreement are determined by
the Compensation Committee of the Board of Directors. The exercise price of
incentive stock options may not be less than fair market value at the date of
grant and their terms may not exceed ten years. The options issued under the
Option Plan generally vest ratably over a five-year period. In January 2000, the
Board of Directors, as part of its authorization of the Merger Agreement (see
Note 13) with onlinetradinginc.com corp. ("OnlineTrading.com") authorized an
increase, subject to approval by the Company's shareholders of the Merger
Agreement and the merger with OnlineTrading.com, in the number of shares of
common stock reserved for issuance under the Option Plan from 4,500,000 to
7,500,000, subject to future anti-dilution adjustments.
The Company has reserved 175,000 shares of its common stock for issuance
under its 1997 Director Stock Option Plan, as amended (the "Director Plan").
Under the Director Plan, an independent director is awarded an initial grant of
up to 75,000 non-qualified stock options and annual grants of up to 3,000
non-qualified stock options. The terms of each option grant are determined by
the Board of Directors.
As discussed in Note 2, the Company assumed all outstanding stock options to
purchase Window On WallStreet common stock ("WOW Options"). The WOW Options
generally vest ratably over a four-year period and their terms are ten years.
A summary of stock option activity including stock options granted under the
Option Plan, Director Plan and the WOW Options is as follows:
F-16
<PAGE>
<TABLE>
<CAPTION>
OPTION PRICE PER SHARE
NUMBER ----------------------------------
OF SHARES LOW HIGH WEIGHTED
---------- ----- ----- --------
<S> <C> <C> <C> <C>
Outstanding, December 31, 1996 689,328 $ .48 $ 8.06 $1.40
Granted 584,692 1.25 11.00 5.04
Canceled (38,004) 2.00 11.00 5.02
Exercised (8,000) 1.25 1.25 1.25
---------
Outstanding, December 31, 1997 1,228,016 .48 11.00 3.02
Granted 1,902,214 1.59 8.06 2.41
Canceled (68,635) 2.00 11.00 5.15
Exercised (11,350) 1.25 2.00 1.47
---------
Outstanding, December 31, 1998 3,050,245 .48 11.00 2.60
Granted 1,076,245 1.66 10.25 5.86
Canceled (131,278) 1.66 11.00 3.91
Exercised (181,560) 1.25 11.00 2.14
---------
Outstanding, December 31, 1999 3,813,652 .48 11.00 3.49
=========
</TABLE>
Additional information regarding options outstanding at December 31, 1999 is
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
RANGE OF -------------------------------------------------- --------------------------------
EXERCISABLE NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
PRICES OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
- ----------------------- AS OF CONTRACTUAL EXERCISE AS OF EXERCISE
LOW HIGH 12/31/99 LIFE PRICE 12/31/99 PRICE
- ------------ -------- ---------------- --------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$0.48 $ 0.48 82,572 5.8 $0.48 81,728 $ 0.48
1.25 1.66 1,503,252 8.3 1.52 467,647 1.42
2.00 3.00 780,647 8.0 2.81 142,475 2.80
3.03 4.53 605,440 8.0 4.05 112,133 3.20
4.59 6.35 297,200 8.6 5.48 46,500 5.16
6.94 10.25 489,961 8.9 8.39 54,472 7.72
11.00 11.00 54,580 7.6 11.00 25,405 11.00
----- ------ --------- --- ----- ------- -----
$0.48 $11.0 3,813,652 8.2 $3.49 930,360 $2.58
===== ====== ========= === ===== ======= =====
</TABLE>
All options issued during 1996 were issued to key employees at an exercise
price that was subsequently determined to be approximately $291,000 in the
aggregate below fair market value at the date of grant as determined by an
independent appraisal. Several of the options issued during 1997 were determined
to be, in the aggregate, approximately $341,000 below fair value as determined
by an independent appraisal. These differences are being amortized over the
five-year vesting period of the related stock options. For the years ended
December 31, 1999, 1998 and 1997, the Company recorded compensation expense of
approximately $141,000, $114,000 and $122,000, respectively. Included in
compensation expense in 1999, 1998 and 1997 was approximately $5,000, $7,000 and
$23,000, respectively, related to options issued to consultants of the Company,
accounted for under the provisions of SFAS No. 123. Options to purchase 930,360,
421,979 and 176,238 shares were exercisable at December 31, 1999, 1998 and 1997,
respectively.
F-17
<PAGE>
The Company, as permitted by SFAS No. 123, applies APB Opinion No. 25 for
options granted to employees. Accordingly, no compensation is recognized for
such grants to the extent their exercise price is equal to the fair market value
of the underlying stock at the date of grant. Had compensation cost for the
Company's stock options been based on fair value at the grant dates consistent
with the methodologies of SFAS No. 123, the Company's pro forma net loss (and
pro forma loss per share) would have been approximately $1.8 million ($0.07 per
share) and $1.0 million ($0.04 per share) for the years ended December 31, 1999
and 1998, and pro forma net income (and pro forma earnings per share on a
diluted basis) would have been $4.5 million ($0.20 per share) for the year ended
December 31, 1997. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes model with the following assumptions:
1/1/97 - 10/1/97 -
9/30/97 12/31/97 1998 1999
-------- --------- ---- ----
Risk free interest rate 6 % 5 % 5 % 5 %
Dividend yield - - - -
Volatility factors 70% 81% 81% 75%
Weighted average life (years) 7 7 5 5
EMPLOYEE STOCK PURCHASE PLAN
In July 1997, the Board of Directors of the Company adopted and the
shareholders approved the 1997 Employee Stock Purchase Plan (the "Purchase
Plan") and reserved 500,000 shares of common stock pursuant to the exercise of
nontransferable options granted to participating employees. The exercise price
for the option for each six-month Purchase Plan period is 85% of the lesser of
the fair market value of the Company's common stock on the first or last
business day of the Purchase Plan period. The Purchase Plan provides for the
first options to be granted for the Purchase Plan period which commenced January
1, 1998. During the years ended December 31, 1999 and 1998, 23,585 and 12,506
shares of common stock were issued under the plan at an average price of $3.27
and $3.06, respectively.
(8) EMPLOYEE BENEFIT PLAN
The Company provides retirement benefits through a defined contribution
401(k) plan (the "401(k) Plan") which was established during 1994. Employees
become eligible based upon meeting certain service requirements. The Company
matches employee contributions based upon a formula defined in the 401(k) Plan.
Matching contributions accrued under the 401(k) Plan amounted to approximately
$242,000, $0 and $63,000 in 1999, 1998 and 1997, respectively.
F-18
<PAGE>
(9) INCOME TAXES
The components of income tax provision (benefit) for the years ended
December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current taxes:
Federal $ 5,568,000 $ 2,254,000 $ 1,739,894
State 929,000 376,000 289,106
----------- ----------- -----------
Total current taxes 6,497,000 2,630,000 2,029,000
----------- ----------- -----------
Deferred tax benefit:
Federal (3,988,000) (1,353,000) (2,540,811)
State (663,000) (225,000) (422,189)
----------- ----------- -----------
Total deferred tax benefit (4,651,000) (1,578,000) (2,963,000)
----------- ----------- -----------
Total income tax provision (benefit) $ 1,846,000 $ 1,052,000 $ (934,000)
=========== =========== ===========
</TABLE>
Deferred income taxes are recorded when revenues and expenses are recognized
in different periods for financial statement and tax return purposes. The
temporary differences that created deferred income taxes are as follows:
Deferred tax assets: 1999 1998
------------ ------------
Reserves and allowances $ 8,371,425 $ 4,355,665
Net operating loss carryforwards 2,390,220 961,213
Deferred revenue and accrued liabilities 749,708 176,615
Other 403,647 324,118
------------ ------------
Total deferred tax assets 11,915,000 5,817,611
Valuation allowance (2,723,000) (1,276,611)
------------ ------------
Deferred income taxes, net $ 9,192,000 $ 4,541,000
============ ============
The valuation allowance is primarily due to losses incurred by the pooled
company which historically had unprofitable operations.
A reconciliation of the difference between the expected provision (benefit)
for income taxes using the statutory Federal tax rate and the Company's actual
provision (benefit) is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Provision (benefit) using statutory
Federal tax rate $ 307,787 $ 218,209 $ 2,853,873
Pro forma taxes for periods prior to
September 30, 1997 -- -- (3,255,731)
Tax credits -- (26,463) (1,229,911)
Change in valuation allowance 1,446,389 578,143 306,692
Other 91,824 282,111 391,077
----------- ----------- -----------
Total income tax provision (benefit) $ 1,846,000 $ 1,052,000 $ (934,000)
=========== =========== ===========
</TABLE>
The effective tax rates for 1999 and 1998 were 210% and 169%, respectively.
The increase as compared with the 35% Federal statutory rate is primarily due to
an increase in the valuation
F-19
<PAGE>
allowance established at Window On WallStreet to offset net operating loss
carryforwards. The effective tax rates of Omega Research as a stand-alone
company were approximately 37% and 35% during 1999 and 1998, respectively.
For income tax purposes, the Company was an S corporation prior to September
30, 1997. Accordingly, net income and related timing differences which arose in
the recording of income and expense items for financial reporting and tax
reporting purposes were included in the individual tax returns of the S
corporation shareholders. Effective September 30, 1997, the Company terminated
its S corporation election. The $1.2 million benefit for income taxes recorded
during the third quarter of 1997 is comprised of a non-recurring deferred income
tax credit (the "SFAS 109 Credit") of approximately $3.0 million partially
offset by a $1.8 million provision for income taxes payable. The SFAS 109 Credit
recognized net deferred tax assets arising from book and tax basis differences
that arose primarily as a result of accounts receivable reserves. The $1.8
million in income taxes payable relate to federal and state income taxes owed by
the Company as a result of an approximate $4.6 million in S corporation taxable
earnings paid by the Company during the fourth quarter of 1997 and the
year-ended December 31, 1998.
Window On WallStreet has available net operating loss carryforwards totaling
approximately $6.3 million, which will begin to expire in 2012. Window On
WallStreet also has tax credit carryforwards totaling approximately $100,000,
which will begin to expire in 2012. The utilization of these net operating
losses and tax credits will be subject to limitations of approximately $518,000
per year which are cumulative to the extent not utilized by the Company. The
deferred tax asset related to these carryforwards has been reduced to zero by a
valuation allowance.
(10) (LOSS) EARNINGS PER SHARE
Weighted average shares outstanding for the years ended December 31, 1999,
1998 and 1997 are calculated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares outstanding (basic) 24,294,179 23,913,762 21,829,417
Impact of dilutive options after applying
the treasury stock method -- -- 790,647
---------- ---------- ----------
Weighted average shares outstanding (diluted) 24,294,179 23,913,762 22,620,064
---------- ---------- ----------
Options outstanding which are not included in the
calculation of diluted earnings per share because
their impact is antidilutive 3,793,652 3,050,245 115,483
========== ========== ==========
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has seven non-cancelable operating leases for facilities. The
only significant facility operating leases are for the Company's corporate
headquarters. The original lease is for five and one-half years and commenced in
February 1997. In December 1998, February 1999
F-20
<PAGE>
and January 2000, the Company entered into a sub-lease and two lease amendments
for additional space at the facilities with lease terms ending on the same day
as the original lease. In addition to the leases for facilities, the Company
leases its telephone system and computer equipment server farm.
Future minimum lease payments as of December 31, 1999 under all operating
leases are as follows:
2000 $2,783,700
2001 2,689,514
2002 1,076,065
2003 131,556
2004 131,556
Thereafter 10,963
----------
$6,823,354
==========
Total rent expense for 1999, 1998 and 1997 was approximately $689,000,
$439,000 and $343,000, respectively.
BRIDGE TELERATE ROYALTY AGREEMENT
The Company has entered into a Software License, Maintenance and Development
Agreement (the "Agreement") with Dow Jones Markets, Inc. (then known as Dow
Jones Telerate, Inc., now known as Telerate, Inc., and a subsidiary of Bridge
Information Systems, Inc.) ("Bridge Telerate"). Under the Agreement, the Company
modified one of its software products to create a Bridge Telerate version and
granted Bridge Telerate a license to promote, market, sublicense and distribute
the Bridge Telerate version for six years. During 1999, 1998 and 1997, the
Company earned approximately $4.0, $3.0 and $2.2 million, respectively, in
royalties (based upon minimum royalty requirements) under the terms of this
Agreement.
LITIGATION
On January 28, 1998, a class action lawsuit, captioned Richard M. Rhodes v.
William R. Cruz; Ralph L. Cruz; Omega Research, Inc.; BancAmerica Robertson
Stephens; Lehman Brothers; and Hambrecht & Quist (Case No. 98-0174-CIV-Lenard),
was filed in the United States District Court for the Southern District of
Florida. On July 1, 1999, pursuant to the stipulation of the parties, the Court
of Appeals for the Eleventh Circuit issued a final order which dismissed with
prejudice all claims against the Company and all other defendants.
In addition to the above, from time to time the Company may become engaged
in routine litigation incidental to its business. The Company does not believe
that such routine litigation would have a material adverse effect on its
financial position or results of operations.
(12) QUARTERLY FINANCIAL INFORMATION
The following tables summarize selected quarterly financial data of the
Company for the years ended December 31, 1999 and 1998 as restated for the
acquisition of Window On WallStreet, which was accounted for as a
pooling-of-interests.
F-21
<PAGE>
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Previously reported $ 9,440,788 $10,977,164 $10,792,560
Window On WallStreet 994,596 646,872 690,064
----------- ----------- -----------
Restated $10,435,384 $11,624,036 $11,482,624 $ 9,327,925 $42,869,969
=========== =========== =========== =========== ===========
GROSS PROFIT: *
Previously reported $ 8,957,997 $10,521,775 $10,332,922
Window On WallStreet 634,599 264,494 346,523
----------- ----------- -----------
Restated $ 9,592,596 $10,786,269 $10,679,445 $ 8,826,250 $39,884,560
=========== =========== =========== =========== ===========
NET INCOME (LOSS):
Previously reported $ 1,210,616 $ 1,644,370 $ 1,639,340
Window On WallStreet (560,511) (1,826,075) (1,272,563)
----------- ----------- -----------
Restated $ 650,105 $ (181,705) $ 366,777 $(1,801,786) $ (966,609)
=========== ============ =========== ============ ===========
EARNINGS (LOSS) PER SHARE:
Previously reported-
Basic and Diluted $ .05 $ .07 $ .07
Restated-
Basic $ .03 $ (.01) $ .02 (.07) (.04)
Diluted .02 (.01) .01 (.07) (.04)
<CAPTION>
1998
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Previously reported $ 7,030,794 $ 7,651,597 $ 6,469,473 $ 7,064,641 $28,216,505
Window On WallStreet 1,065,236 766,382 192,152 1,470,478 3,494,248
----------- ----------- ----------- ----------- -----------
Restated $ 8,096,030 $ 8,417,979 $ 6,661,625 $ 8,535,119 $31,710,753
=========== =========== =========== =========== ===========
GROSS PROFIT: *
Previously reported $ 6,579,542 $ 7,132,764 $ 6,156,909 $ 6,549,212 $26,418,427
Window On WallStreet 875,186 667,944 108,439 1,146,312 2,797,881
----------- ----------- ----------- ----------- -----------
Restated $ 7,454,728 $ 7,800,708 $ 6,265,348 $ 7,695,524 $29,216,308
=========== =========== =========== =========== ===========
NET INCOME (LOSS):
Previously reported $ 801,954 $ 817,018 $ 216,103 $ 120,472 $ 1,955,547
Window On WallStreet (359,842) (475,045) (870,110) (679,097) (2,384,094)
----------- ----------- ----------- ----------- -----------
Restated $ 442,112 $ 341,973 $ (654,007) $ (558,625) $ (428,547)
=========== =========== =========== =========== ===========
F-22
<PAGE>
<CAPTION>
1998
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EARNINGS (LOSS) PER SHARE:
Previously reported-
Basic and diluted $ .04 $ .04 $ .01 $ .01 $ .09
Restated-
Basic and diluted $ .02 $ .01 $ (.03) $ (.02) $ (.02)
<FN>
* Gross profit is defined as total net revenues less cost of licensing fees and
services.
</FN>
</TABLE>
(13) SUBSEQUENT EVENTS (UNAUDITED)
On January 19, 2000, the Company signed a definitive, 100% share-exchange
merger agreement with OnlineTrading.com, an on-line broker. OnlineTrading.com
provides order execution technology that directly accesses electronic
communications networks ("ECN's"), exchanges and market makers, in order to
provide OnlineTrading.com's customers with high speed and efficient order
execution that avoids traditional market maker participation and brokerage
order-flow arrangements.
Pursuant to an Agreement and Plan of Merger and Reorganization, as amended
(the "Merger Agreement"), a newly-formed holding company named OnlineTrading.com
Group, Inc. ("OnlineTrading.com Group") will own 100% of the issued and
outstanding capital stock of Omega Research and OnlineTrading.com. Upon
completion of the merger, as a result of share exchanges between
OnlineTrading.com Group and each of Omega Research and OnlineTrading.com, and
the listing of OnlineTrading.com Group shares, OnlineTrading.com Group will be
the sole publicly-traded company in the group with its outstanding shares of
common stock listed on The Nasdaq National Market. OnlineTrading.com Group,
based upon the exchange ratio set forth in the Merger Agreement, would initially
be owned between 62% and approximately 57% (on a fully diluted basis) by Omega
Research's shareholders and between 38% and approximately 43% (on a fully
diluted basis) by OnlineTrading.com's shareholders. The precise percentages will
be determined by the formulae set forth in the Merger Agreement. Closing of the
Merger Agreement is conditioned upon and subject to the filing and effectiveness
of a registration statement on Form S-4, the approval of the shareholders of
each of Omega Research and OnlineTrading.com, and the satisfaction of the other
conditions precedent to consummating the Merger Agreement
The Company is currently in the process of changing its business model. The
Company has taken certain steps to transform itself from a trading strategy
client software company to an on-line broker that intends to provide to active
traders a best-of-breed, Internet-based trading platform: One that incorporates
and seamlessly integrates powerful trading strategy development tools,
historical and streaming real-time market data and news, and a direct access
electronic order execution system.
On February 29, 2000, the Company announced that in light of the launch of
WINDOWONWALLSTREET.COM, the Company was accelerating its transition to its new
business model by focusing its marketing efforts on WINDOWONWALLSTREET.COM (as
opposed to its client software).
F-23
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
PAGE
----
Report of Independent Certified Public Accountants on Schedule.......... S-2
Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 1999, 1998 and 1997..................................... S-3
S-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To Omega Research, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements included in this Form
10-K and have issued our report thereon dated February 18, 2000. 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 subjected 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
ARTHUR ANDERSEN LLP
Miami, Florida,
February 18, 2000.
S-2
<PAGE>
OMEGA RESEARCH, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts $ 3,723,000 $ 5,721,857 $ (3,151,857) $ 6,293,000
Allowance for returns 7,546,525 60,635,821 (44,942,346) 23,240,000
------------ ------------ ------------ ------------
$ 11,269,525 $ 66,357,678 $(48,094,203) $ 29,533,000
============ ============ ============ ============
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts $ 3,229,166 $ 2,222,834 $ (1,729,000) $ 3,723,000
Allowance for returns 4,196,838 26,638,651 (23,288,964) 7,546,525
------------ ------------ ------------ ------------
$ 7,426,004 $ 28,861,485 $(25,017,964) $ 11,269,525
============ ============ ============ ============
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts $ 830,430 $ 2,450,736 $ (52,000) $ 3,229,166
Allowance for returns 1,797,000 16,200,633 (13,800,795) 4,196,838
------------ ------------ ------------ ------------
$ 2,627,430 $ 18,651,369 $(13,852,795) $ 7,426,004
============ ============ ============ ============
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------ ----------- -----------
<S> <C> <C>
2.1 - Agreement and Plan of Merger and Reorganization dated as of January 19,
2000 by and among Omega Research, Inc., onlinetradinginc.com corp.,
OnlineTrading.com Group, Inc. (formerly known as Online Trading Group,
Inc.), Omega Acquisition Corporation and Onlinetrading Acquisition
Corporation, together with the following exhibits thereto: (i) Form of
Omega Affiliate Agreement; (ii) Form of Online Affiliate Agreement; (iii)
Form of Employment Agreement; (iv) Form of Non-Competition and
Non-Disclosure Agreement (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K reporting event on January 19, 2000
and filed on January 28, 2000)
2.2 - Form of Omega Shareholder Agreement dated January 19, 2000 among
OnlineTrading.com Group, Inc. (formerly known as Online Trading Group,
Inc.), onlinetradinginc.com corp and each applicable Omega Research
shareholder (incorporated by reference to Exhibit 2.2 to the Company's
Current Report on Form 8-K reporting event on January 19, 2000 and filed on
January 28, 2000)
2.3 - Form of Online Shareholder Agreement dated January 19, 2000 among
OnlineTrading.com Group, Inc. (formerly known as Online Trading Group,
Inc.), Omega Research, Inc. and each applicable OnlineTrading.com
shareholder (incorporated by reference to Exhibit 2.3 to the Company's
Current Report on Form 8-K reporting event on January 19, 2000 and filed on
January 28, 2000)
2.4 - Omega Stock Option Agreement dated January 19, 2000 between Omega Research,
Inc. and onlinetradinginc.com corp. (incorporated by reference to Exhibit
2.4 to the Company's Current Report on Form 8-K reporting event on January
19, 2000 and filed on January 28, 2000)
2.5 - Online Stock Option Agreement dated January 19, 2000 between Omega
Research, Inc. and onlinetradinginc.com corp. (incorporated by reference to
Exhibit 2.5 to the Company's Current Report on Form 8-K reporting event on
January 19, 2000 and filed on January 28, 2000)
2.6 - First Amendment to Agreement and Plan of Merger and Reorganization
effective March 7, 2000 among Omega Research, Inc., onlinetradinginc.com
corp., OnlineTrading.com Group, Inc. (formerly known as Online Trading
Group, Inc.), Omega Acquisition Corporation and OnlineTrading Acquisition
Corporation (filed herewith)
<PAGE>
2.7 - Agreement and Plan of Merger, dated as of October 25, 1999, by and among
Omega Research, Inc., WOW Acquisition Corporation and Window on WallStreet
Inc., together with the following exhibits thereto: (i) Articles of Merger;
(ii) Form of Company Affiliate Agreement; (iii) Form of Agreement Regarding
Employment; (iv) Form of Shareholder Non-Competition and Non-Disclosure
Agreement; (v) Form of Stock Option Agreement (All Employees); (vi) Form of
Stock Option Agreement (Jennings and Black); (vii) Form of Investment
Acknowledgment Agreement; (viii) Registration Rights Agreement; and (ix)
Opinion Letter Matters (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K reporting event on October 26, 1999
and filed on November 8, 1999)
3.1 - Second Amended and Restated Articles of Incorporation of Omega Research,
Inc.+
3.2 - Second Amended and Restated Bylaws of Omega Research, Inc.+
10.1 - Omega Research, Inc. Amended and Restated 1996 Incentive Stock Plan, as
amended through August 13, 1999 (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1999)*
10.2 - Omega Research, Inc. 1997 Nonemployee Director Stock Option Plan, as
amended ++
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. /degree/
10.7 - Form of Indemnification Agreement +
10.8 - Omega Research, Inc. 1997 Employee Stock Purchase Plan, as amended by
Amendment to Omega Research 1997 Employee Stock Purchase Plan (incorporated
by referenced to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998)*
<PAGE>
10.9 - Form of non-competition agreement +
10.10 - Letter Agreement dated October 27, 1997 from Dow Jones Markets, Inc. to
Omega Research, Inc.++
10.11 - Sublease (for fourth floor of 8700 Flagler Building) and Modification of
Lease Agreement (incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998)
10.12 - Second Modification of Lease Agreement, dated January 31, 2000, between
Nationwide Theaters West Flagler, L.L.C. and Omega Research, Inc. (filed
herewith)
10.13 - Office/Showroom/Warehouse Lease Agreement dated June 12, 1996 between
Springcreek Place Ltd. and Window on WallStreet Inc. (then named
MarketArts, Inc.), as amended by Addendum to Lease dated October 12, 1998,
and as further amended by Addendum to Lease dated May 28, 1999 (filed
herewith)
10.14 - Lease Agreement, dated November 16, 1999, between Fairfax Boca 92, L.P. and
Omega Research, Inc. (filed herewith)
23.1 - Consent of Arthur Andersen LLP (filed herewith)
27.1 - Financial Data Schedule (filed herewith)
- ----------------------------------
<FN>
+ Previously filed as part of Registration Statement No. 333-3207 on Form S-1
filed with the Commission on July 25, 1997.
/degree/ Previously filed as part of Amendment No.1 to Registration Statement No.
333-3207 filed with the Commission on August 25, 1997.
++ Previously filed as part of Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
* Indicates a management contract or compensatory plan or arrangement.
</FN>
</TABLE>
EXHIBIT 2.6
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This First Amendment ("Amendment") hereby amends effective March 7,
2000 the Agreement and Plan of Merger and Reorganization (the "Plan of Merger"),
dated January 19, 2000, by and among Omega Research, Inc., a Florida corporation
("Omega"), onlinetradinginc.com corp., a Florida corporation ("Online"), Online
Trading Group, Inc., a Florida corporation("Newco"), Omega Acquisition
Corporation, a Florida corporation and wholly owned subsidiary of Newco ("Omega
Merger Sub"), and Onlinetrading Acquisition Corporation, a Florida corporation
and wholly owned subsidiary of Newco ("Online Merger Sub"). Capitalized terms
not otherwise defined herein shall have the respective meanings set forth in the
Agreement.
WHEREAS, the parties entered into the Agreement on January 19, 2000;
and
WHEREAS, the parties desire to amend the terms of the Agreement to
incorporate the terms herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree that the
Agreement shall be amended as follows:
1. Section 1.4 (a) shall be amended and restated in its entirety
to read as follows:
"(a) At the Effective Time, the Articles of
Incorporation (the "Omega Articles of Incorporation")
of Omega Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Articles of
Incorporation of the Omega Surviving Corporation;
provided, however, that Article I of the Omega
Articles of Incorporation shall be amended to read as
follows: "The name of the corporation is Omega
Research, Inc."
2. Section 1.4 (c) shall be amended and restated in its entirety
to read as follows:
"(c) At the Effective Time, the Articles of
Incorporation (the "Online Articles of
Incorporation") of Online Merger Sub, as in effect
immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Online Surviving
Corporation; provided, however, that Article I of the
Online Articles of Incorporation shall be amended to
read as follows: "The name of the corporation is
OnlineTrading.com, Inc."
<PAGE>
3. The parties hereto hereby authorize and consent to the filing
of an amendment to the Articles of Incorporation of Newco pursuant to which
Article I of the Articles of Incorporation shall be amended to change the name
of Newco to "OnlineTrading.com Group, Inc." and, upon such filing with the
Secretary of State of the State of Florida, all references to "Online Trading
Group, Inc." in the Agreement and any and all other agreements and instruments
entered into between or among the parties hereto in connection therewith shall
be modified to reflect the name change to "OnlineTrading.com Group, Inc."
4. Except as otherwise specifically set forth in this Amendment,
the Agreement shall remain in full force and effect in accordance with the terms
thereof. This Amendment shall be governed by and construed in accordance with
the laws of the State of Florida. This Amendment may be executed by one or more
of the parties hereto on any number of separate counterparts and all said
counterparts taken together, shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered effective as of the day and year first written
above.
ONLINETRADINGINC.COM CORP. OMEGA RESEARCH, INC.
By: /s/ STEVEN ZUM TOBEL By: /s/ RALPH L. CRUZ
----------------------------- ----------------------
Name: Steven zum Tobel Name: Ralph L. Cruz
Title: President Title: Co-Chief Executive Officer
ONLINE TRADING GROUP, INC. OMEGA ACQUISITION CORPORATION
By: /s/ RALPH L. CRUZ By: /s/ RALPH L. CRUZ
----------------------------- ---------------------------
Name: Ralph L. Cruz Name: Ralph L. Cruz
Title: Co-Chief Executive Officer Title: Co-Chief Executive Officer
ONLINETRADING ACQUISITION CORPORATION
By: /s/ RALPH L. CRUZ
-----------------------------
Name: Ralph L. Cruz
Title: Co-Chief Executive Officer
2
EXHIBIT 10.12
SECOND MODIFICATION OF LEASE AGREEMENT
This Second Modification of Lease Agreement, made and entered into as of the
31st day of January, 2000, by and between Nationwide Theaters West Flagler, L.L.
C., a Delaware limited liability company, as successor in interest to 8700 West
Flagler, Ltd., a Florida limited partnership, whose address for purposes hereof
is 1000 Brickell Avenue, 12th Floor, Miami, Florida 33131, hereinafter called
"Landlord" and Omega Research, Inc., a Florida corporation whose address for
purposes herein is 8700 W. Flagler Street, Suite 250, Miami, Florida 33174,
hereinafter called "Tenant".
WITNESSETH:
WHEREAS, Landlord has leased to Tenant approximately 17,289 square feet
of Net Rentable Area on the Second (2nd) Floor of The 8700 Flagler Building
under Lease Agreement dated August 8, 1996 (hereinafter referred to as the
"Lease Agreement") commencing December 1, 1996 and terminating May 31, 2002; and
WHEREAS, by Memorandum of Commencement Date dated February 4, 1997, the
parties changed and amended the commencement date to February 17, 1997 and
expiration date to August 16, 2002; and
WHEREAS, by Modification of Lease Agreement dated February 22, 1999,
Landlord let to Tenant an additional 34,725 square feet of Net Rentable Area
located on the Fourth (4th) Floor for the period commencing May 1, 2000 and
terminating August 16, 2002; an
WHEREAS, Tenant desires to expand the Leased Premises and Landlord is
willing to grant said expansion,
NOW, THEREFORE, Landlord and Tenant do hereby agree to modify the
foregoing Lease Agreement as follows:
1. All capitalized terms used herein shall have the same meaning as the
capitalized terms in the Lease Agreement. In the event of any conflict
between the terms of this Second Modification of Lease Agreement and
the Lease Agreement, then the terms of this Second Modification of
Lease Agreement shall control.
2. LEASED PREMISES: That commencing May 1, 2000, the Leased Premises shall
be modified and amended to hereby incorporate an additional 8,496
square feet of Net Rentable Area on the Third (3rd) Floor of the
Building (hereinafter referred to as "Expansion Space") (see Exhibit
"A") for a total Net Rentable Area of 60,510 square feet.
3. BASE RENTAL FOR EXPANSION SPACE: That commencing May 1, 2000, Tenant
agrees to pay Landlord the additional Base Rental of Three Hundred
Eighty-Six Thousand Six Hundred Twenty-Five and 04/100 Dollars
($386,625.04) plus applicable sales tax for the Expansion space at the
rates and amounts outlined below in accordance with the terms and
conditions of the Lease Agreement herewith:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------- ------------------------- ------------------------- ------------------------ -------------------------
PERIOD TERM BASE RENTAL RATES MONTHLY INSTALLMENTS ANNUAL BASE RENTAL
- ----------------------- ------------------------- ------------------------- ------------------------ -------------------------
Year 1 05/01/00-04/30/01 $19.50 $13,806.00 $165,672.00
(12 months)
- ----------------------- ------------------------- ------------------------- ------------------------ -------------------------
Year 2 05/01/01-04/30/02 $20.00 $14,160.00 $169,920.00
(12 months)
- ----------------------- ------------------------- ------------------------- ------------------------ -------------------------
Year 3 05/01/02-08/16/02 $20.50 $14,514.00 $51,033.04
(3.5 months)
- ----------------------- ------------------------- ------------------------- ------------------------ -------------------------
TOTAL
BASE RENTAL: $386,625.04
- ----------------------- ------------------------- ------------------------- ------------------------ -------------------------
</TABLE>
<PAGE>
4. TENANT IMPROVEMENTS: Tenant shall complete improvements to the
Expansion Space in accordance with plans and specifications to be
approved by both Landlord and Tenant, Landlord's approval not to be
unreasonably withheld or delayed. Landlord shall provide an allowance
of $42,480.00 which is calculated based upon $5.00 per square foot of
Net Rentable Area for improvements for finishing the Expansion Space.
Said allowance shall be payable fifty (50%) percent on May 1, 2000 upon
presentation of paid invoices and releases of liens equal to or greater
than fifty (50%) percent of the total cost of the work, whichever is
less. The remaining fifty (50%) percent shall be paid upon presentation
of additional paid invoices and releases of liens which total of all
paid invoices is equal to or greater than 100% of said allowance or
100% of the total cost of the work, whichever is less.
5. ADDITIONAL RENT: Effective May 1, 2000, for the purpose of calculating
Operating Expenses and Impositions, the provisions of Paragraph 4 of
the Lease Agreement shall apply; the Base Year for the Expansion Space
shall be 2000, and the Tenant's Proportionate Share for the total
Expansion space, which includes the 34,725 square feet of net Rentable
Area on the Fourth (4th) Floor and the 8,496 square feet of Net
Rentable Area on the Third (3rd) Floor, shall be .3291. The provisions
of Paragraph 4 of the Lease Agreement shall remain the same for the
original 17,289 square feet of Net Rentable Area on the Second (2nd)
Floor.
7. PARKING SPACES: Effective May, 1, 2000, Landlord shall provide an
additional 34 parking spaces to Tenant on a non-reserved basis for the
Expansion Space.
8. WAIVER OF DEFENSES & CLAIMS: Tenant does hereby confirm and ratify
that, as of the date hereof, the Lease Agreement is in good standing in
full force and effect, and that Tenant has no defenses, setoffs,
counterclaims or cross claims against Landlord.
10. APPLICATION OF LEASE AGREEMENT: All terms and conditions of the Lease
Agreement shall remain in full force and effect and shall be equally
applicable in all respects hereto, except as specifically modified or
provided herein.
IN WITHNESS WHEREOF, the undersigned have executed this Second
Modification of Lease Agreement as of the date first above written.
LANDLORD:
Nationwide Theaters West Flagler,
L.L.C., a Delaware limited liability
company
WITNESSES:
ILLEGIBLE By: /s/ Paul L. White
- -------------------------------- -----------------------------------
Paul L. White, President
ILLEGIBLE Attest: /s/ Lorraine H. Monalet
- -------------------------------- -------------------------------
Assistant Secretary
TENANT:
Omega Research, Inc., a Florida
corporation
WITNESSES:
/s/ Salomon Sreani By: /s/ Marc J. Stone
- -------------------------------- -----------------------------------
Salomon Sreani Marc J. Stone, Vice President &
Company
/s/ Jay Dev Attest: ILLEGIBLE
- --------------------------------- -------------------------------
Jay Dev
<PAGE>
EXHIBIT "A"
Attached to and made a part of the Second Modification of Lease Agreement dated
January 31, 2000, by and between Nationwide Theatres West Flagler, L.L.C., a
corporation, as Tenant, covering approximately 8,496 square feet of Net Rentable
Area located on the Third (3rd) Floor in the building known as Flagler West
Corporate Park, located at 8700 W. Flagler Street, Miami, FL 33174.
[FLOOR PLAN]
EXHIBIT 10.13
OFFICE/SHOWROOM/WAREHOUSE
LEASE AGREEMENT
THE STATE OF TEXAS
COUNTY OF DALLAS
THIS LEASE AGREEMENT, made and entered into as of the ___ day of ______ , 19___,
by and between the Landlord and Tenant hereinafter named.
WITNESSETH:
1. DEFINITIONS AND BASIC PROVISIONS. The following definitions and
basic provisions shall be used in conjunction with and limited by the reference
thereto in the provisions of this lease:
(a) "Landlord": SPRINGCREEK PLACE, LTD.
---------------------------------------------------
(b) "Tenant": MARKETARTS INC., A TEXAS CORPORATION
-----------------------------------------------------
(c) "Premises": 1800 NORTH GLENVILLE, SUITE 110
---------------------------------------------------
RICHARDSON,TX 75081
-----------------------------------------------------------------------
as generally outlined on the plan attached hereto as Exhibit "A", said premises
consisting of 6,345 SQUARE FEET OF NET RENTABLE AREA. (In determining net
rentable area, all measurements are from the outer surfaces of walls, whether
exterior walls and/or hallway walls, except party walls where measurements are
from centerline.) The net rentable area of the project is 76,280 square feet.
(d) "LEASE TERM". A period of 36.5 months, commencing on JULY 15 ,
1996 (the "commencement date") and ending on JULY 31, 1999.
(e) "BASIC RENTAL": $ $4.097.81 per month.
(f) "SECURITY DEPOSIT": $ 4,097.81 .
(g) "PERMITTED USE": OFFICE AND STORAGE .
(h) "COMMON AREA MAINTENANCE FEE": BASE YEAR 1996 .
The Common Area Maintenance Fee is based on operating costs existing
during the calendar year in which the Lease commences (the "Base Year"). In the
event that the operating costs pertaining to the common area ever exceed, for
the calendar year during the term hereof succeeding the Base Year, such
operating costs incurred during the Base Year, then Tenant shall pay the
Landlord, as additional rental, Tenant's proportionate share (as defined and set
forth in Paragraph 4 of this Lease) of such increase. Tenant's proportionate
share of any such increase shall be billed by Landlord, and paid by Tenant, at
the time and in the manner provided for in the billing and payment of Rental
Escalation as set forth in Paragraph 4 of this Lease.
2. LEASE GRANT. Landlord, in consideration of the rent to be paid and
the other covenants and agreements to be performed by Tenant and upon the terms
and conditions hereinafter stated, does hereby lease, demise and let unto Tenant
the premises (as defined in paragraph 1(c) hereof) commencing on the
commencement date (as defined in paragraph 1(d) hereof, or as adjusted as
hereinafter provide) and ending on the last day of the lease term, unless sooner
terminated as herein provided. If this lease is executed before the premises
become vacant, or otherwise available and ready for occupancy, or if any present
tenant or occupant of the premises holds over, and Landlord cannot acquire
possession of the premises prior to the commencement date of this lease,
Landlord shall not be deemed to be in default hereunder, and Tenant agrees to
accept possession of the premises at such time as Landlord is able to tender the
same and such date shall be deemed to be the commencement date and this lease
shall continue for the lease term described in paragraph 1(d) hereof. Landlord
hereby waives payment of rent covering any period prior to the rendering of
possession of the premises to Tenant hereunder. Likewise, should Tenant occupy
the premises prior to the commencement date specified in paragraph 1(d), the
commencement date shall be altered to coincide with said occupancy with the
ending date of the lease remaining unchanged before occupying the premises.
Tenant shall be deemed to have accepted the same as suitable for the purpose
herein amended and to have acknowledged that the same comply fully with
Landlord's covenants and obligations.
3. RENT. In consideration of this lease, Tenant promises and agrees to
pay Landlord the basic rental (as defined in paragraph 1(a) hereof) without
deduction or set off, for each month of the entire lease term. One such monthly
installment together with the security deposit (as defined in paragraph 1(f)
hereof) shall be payable by Tenant to Landlord contemporaneously with the
execution hereof, and a like monthly installment shall be due and payable
without demand on or before the first day of each succeeding calendar month
during the term hereof. Rent for any fractional month at the beginning or end of
the lease term shall be prorated. The security deposit shall be held by Landlord
without liability for interest and as security for the performance by Tenant of
Tenant's covenants and obligations under this lease, it being expressly
understood that such deposit shall not be considered an advance payment of
1
<PAGE>
rental or a measure of Landlord's damages in case of default by Tenant. Upon the
occurrence of any event of default by Tenant, Landlord may, from time to time,
without prejudice to any such remedy, use such deposit to the extent necessary
to make good any arrearages of rent and any other damage, injury, expenses or
liability caused to Landlord by such event of default. Following any such
application of the security deposit, Tenant shall pay to Landlord on demand the
amount so applied in order to restore the security deposit to its original
amount. If Tenant is not then in default hereunder, any remaining balance of
such deposit shall be returned by Landlord to Tenant upon termination of this
lease. If Landlord transfers its interest in the premises during the lease term,
Landlord may assign the security deposit to the transferee and thereafter shall
have no further liability for the return of such security deposit.
If the monthly rental installment is not received by the Landlord on or
before the 10th day of the month for which said monthly rental installment is
due, a service charge of 10% of the monthly rental installment owed shall become
due and payable in addition to the monthly rental installment owed. Said service
charge is for the purpose of reimbursing Landlord for the extra costs and
expenses incurred in connection with the handling and processing of late monthly
rental.
4. RENTAL ESCALATION. The basic rental payable under paragraph 1(e)
hereof is based on factors existing during the calendar year in which the lease
commences ("base year") said factors including operating expenses which include
general maintenance, maintenance of the common areas (including but not limited
to landscape and irrigation maintenance, exterior lighting and utilities, and
parking lot cleaning and repairs) water, sewer, and drainage charges, waste
removal, building and roof repairs, real property taxes and assessments, fire,
casualty and liability insurance and management for the project. In the event
that during the lease term said operating expenses for 1997 or any succeeding
calendar year exceed BASE YEAR 1996 EXPENSES ("base expense rate") for the net
rentable area of the project (as defined in paragraph 1(c) hereof), Tenant,
within thirty (30) days after written notification of the foregoing by Landlord,
shall:
(a) Pay to Landlord Tenant's proportionate share ( 8.32 %) of such
increase for the year in question, said proportionate share being defined to
mean a fraction, the numerator of which is the square footage of the premises
set out in paragraph 1(c), and the denominator of which is the total net
rentable area of the project also set out in paragraph 1(c). The product
resulting from the application of such fraction to the increase shall constitute
the amount of additional rent Tenant shall pay. Landlord may apply all or part
of Tenant's security deposit to satisfy the additional rent called for
hereunder, and following any such application, Tenant shall on demand pay to
Landlord the amount so applied in order to restore the security deposit to the
original amount.
(b) Additionally, beginning January 1 of the calendar year next
following any year in which Tenant is obligated to pay its proportionate
increase set out in subparagraph 4(a) above, the basic rental per month set out
in paragraph 1(e) shall be increased by an amount equal to the additional rent
determined in accordance with subparagraph 4(a) above divided by twelve. Any
such additional rent collected shall be applied to any increase over the base
expense rate for the calendar year in which the additional rent is paid. After
the end of every calendar year Landlord will deliver to Tenant a statement
including (i) the previous calendar year's operating expenses (as defined in
paragraph 4). (ii) Tenant's proportionate share of any increases. (iii) the
adjustment, if any, reflecting the additional rent paid, and (iv) the net amount
due Landlord or due to be reimbursed to tenant; provided, however, in no event
shall the monthly rental ever be less than the basic rental specified in
paragraph 1(a).
Notwithstanding any expiration or termination of this lease prior to
the lease expiration date (except in the case of a cancellation by mutual
agreement) Tenant's obligation to pay any and all additional rent under this
lease shall continue and shall cover all periods up to the lease expiration
date. Tenant's obligation to pay any and all additional rent under this lease
and Landlord's and Tenant's obligation to make the adjustments referred to in
this paragraph 4 shall survive any expiration of termination of this lease.
5. SERVICES.
(a) Landlord agrees to make available to the premises at Landlord's
sole cost and expense (i) water; (ii) air conditioning and heating units in
existing locations; (iii) electric service and outlets and; (iv) electrical
lighting service for all common areas in the manner and to the extent deemed by
Landlord to be standard.
(b) Tenant shall pay for the electricity, gas, and water utilized in
operating any and all facilities serving the leased premises. Tenant shall also
pay for exterior trash and waste receptacles and removal and for janitorial
services within the leased premises.
(c) Failure to any extent to furnish or any stoppage or interruption of
these defined services resulting from any cause shall not render Landlord liable
in any respect for damages to either person, property or business, nor be
construed as an eviction of Tenant, nor any abatement of rent, nor relieve
Tenant from fulfillment of any covenant or agreement hereof. Tenant shall have
no claim for abatement of rent or damages on account of any interruptions in
service occasioned thereby or resulting therefrom.
6. LEASEHOLD IMPROVEMENTS. Landlord has made no representations as to
the condition of the premises or the building or to remodel, repair or decorate,
except as expressly set forth herein. Tenant acknowledges that it is accepting
the premises in their "as is" condition.
2
<PAGE>
7. USE. Tenant shall use the premises only for the permitted use (as
defined in paragraph 1(g) hereof. Tenant will not occupy or use the premises, or
permit any portion of the premises to be occupied or used for any business or
purpose other than the permitted use or for any use or purpose which is unlawful
in part or in whole or deemed to be disreputable in any manner or extra
hazardous on account of fire, nor permit anything to be done which will in any
way increase the rate of fire insurance on the building or contents; and in
event that, by reason of acts of Tenant, there shall be any increase in rate of
insurance on the building or contents created by Tenant's acts or conduct of
business then such acts of Tenant shall be deemed to be an event of default
hereunder and Tenant hereby agrees to pay to Landlord the amount of such
increase on demand and acceptance of such payment shall not constitute a waiver
of any of Landlord's other rights provided herein. Tenant will conduct its
business and control its agents, employees and invitees in such a manner as not
to create any nuisance, nor interfere with, annoy or disturb other tenants or
the Landlord in management of the building. Tenant will maintain the premises in
a clean, healthful and safe condition and will comply with all laws, ordinances,
orders, rules and regulations (state, federal, municipal and other agencies or
bodies having any jurisdiction thereof) with reference to use, condition or
occupancy of premises. Tenant will not, without the prior written consent of the
Landlord, paint, install lighting or decoration, or install any signs, window or
door lettering or advertising media of any type on or about the premises or any
part thereof. Should Landlord agree in writing to any of the foregoing items in
the preceding sentence, Tenant will maintain such permitted items in good
condition and repair at all times.
8. REPAIRS AND MAINTENANCE.
(a) BY LANDLORD: Landlord shall at its expense maintain only the foundation,
underground or otherwise concealed plumbing, and the structural soundness of the
exterior walls (excluding all windows, window glass, plate glass, and all doors)
of the building in good repair and condition, except for reasonable wear and
tear. Landlord shall be responsible for termite eradication. Tenant shall give
immediate written notice to Landlord of the need for repairs or corrections and
Landlord shall proceed promptly to make such repairs or corrections. Landlord's
liability hereunder shall be limited to the cost of such repairs or corrections.
Landlord represents that at the beginning date of this lease agreement the
plumbing and heating and air-conditioning equipment are in good operating
condition.
(b) BY TENANT: Tenant shall at its expense and risk maintain all other parts of
the building and other improvements on the demised premises in good repair and
condition, including but not limited to repairs (including all necessary
replacements) to the interior plumbing, windows, window glass, plate glass,
interior and exterior doors, heating systems, air-conditioning equipment, fire
protection sprinkler system, and the interior of the demised premises in
general. All warranties and guarantees in effect on any of the items mentioned
above will be for Tenant's or Landlord's use as applicable. In event Tenant
should neglect reasonably to maintain the demised premises, Landlord shall have
the right (but not the obligation) to cause repairs or corrections to be made
and any reasonable costs therefore shall be payable by Tenant to Landlord as
additional rental on the next rental installment date.
9. ALTERATIONS AND IMPROVEMENTS. At the end or other termination of
this lease, Tenant shall deliver up the premises with all improvements located
thereon (except as otherwise herein provided) in good repair and condition,
reasonable wear and tear excepted, and shall deliver to Landlord all keys to the
premises. The cost and expense of any repair necessary to restore the condition
of the leased premises to said condition in which they are to be delivered to
Landlord shall be borne by Tenant. Tenant will not make or allow to be made any
alterations or physical additions in or to the premises without the prior
written consent of Landlord, which consent shall not be unreasonably withheld as
to non-structural alterations. All alterations, additions or improvements
(whether temporary or permanent in character) made in or upon the premises
either by Landlord or Tenant shall be Landlord's property on termination of this
lease and shall remain on the premises without compensation to Tenant. All
furniture, moveable trade fixtures and equipment installed by Tenant may be
removed by Tenant at the termination of this lease if Tenant so elects and shall
be so removed if required by Landlord, or if not so removed shall, at the option
of the Landlord, become the property of Landlord. All such installations,
removals and restoration shall be accomplished in a good workmanlike manner so
as not to damage the premises or the primary structure or structural qualities
of the building or the plumbing, electrical lines or other utilities.
10. COMMON AREAS. The use and occupation by Tenant of the leased
premises shall include the use in common with others entitled thereto of the
common areas, parking areas, service roads, loading facilities, sidewalks, and
other facilities as may be designated from time to time by Landlord, subject
however, to the terms and conditions of this agreement and to reasonable rules
and regulations for the use thereof as prescribed from time to time by the
Landlord.
All commons areas described above shall at all times be subject to the exclusive
control and management of Landlord and Landlord shall have the right from time
to time to establish, modify and enforce reasonable rules and regulations with
respect to all facilities and areas mentioned in this Article. Landlord shall
have the right to construct, maintain, and operate lighting facilities on all
said areas and improvements, to police same, from time to time change the area,
level location and arrangement of parking areas and other facilities hereinabove
referred to, and restrict parking by tenants, their officers, agents, and
employees to employee parking areas.
All common areas and facilities not within the leased premises, which Tenant may
be permitted to use and occupy, are to be used and occupied under revocable
license and if the amount of such areas be
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diminished, Landlord shall not be subject to any liability nor shall Tenant be
entitled to any compensation or diminution or abatement of rent, nor shall such
diminution of such areas be deemed constructive or actual eviction.
11. ASSIGNMENT AND SUBLETTING. Tenant shall not assign or in any manner
transfer this lease or any estate or interest therein, or sublet the premises or
any part thereof, or grant any license, concession or other right of occupancy
of any portion of the premises without prior written consent of the Landlord.
Consent by Landlord to one or more assignments or sublettings shall not operate
as a waiver of Landlord's rights as to any subsequent assignments and
sublettings. Notwithstanding any assignment or subletting, Tenant and any
guarantor of Tenant's obligations under this lease shall at all times remain
fully responsible and liable for the payment of the rent herein specified and
for compliance with all of Tenant's other obligations under this lease. In the
event of the transfer and assignment by Landlord of its interest in this lease
and the Building containing the premises, Landlord shall thereby be released
from any further obligations hereunder and Tenant agrees to look solely to such
successor in interest of the Landlord for performance of such obligations.
Tenant shall not mortgage, pledge or otherwise encumber its interest in this
lease or in the premises.
12. INDEMNITY. Landlord shall not be liable for and Tenant will
indemnify and save harmless Landlord of and from all fines, suits, claims,
demands, losses and actions (including attorneys' fees) for any injury to person
or damage to or loss of property on or about the premises caused by the
negligence or misconduct or breach of this lease by Tenant, its employees,
subtenants, invitees or by any other person entering the premises or the
Building under express or implied invitation of Tenant, or arising out of
Tenant's use of the premises. Landlord shall not be liable or responsible for
any loss or damage to any property or death or injury to any person occasioned
by theft, fire, Act of God, public enemy, injunction, riot, strike,
insurrection, war, court order, requisition or other governmental body or
authority, by other tenants of the Building or any other matter beyond control
of Landlord, or for any injury or damage or inconvenience which may arise
through repair or alteration of any part of the Building, or failure to make
repairs, or from any cause whatever except Landlord's gross negligence.
13. MORTGAGES. Tenant accepts this lease subject to any deeds of trust,
security interests or mortgages which might now or hereafter constitute a lien
upon the Building or Improvements therein or on the premises and to zoning
ordinances and other Building and fire ordinances and governmental regulations
relating to the use of the property. Tenant shall at any time hereafter, on
demand, execute any instruments, releases or other documents that may be
required by any mortgages for the purpose of subjecting and subordinating this
lease to the lien of any such deed of trust, security interest or mortgage. With
respect to any deed of trust, security interest or mortgage hereafter
constituting a lien on the Building or Improvements therein or the premises,
Landlord, at its sole option, shall have the right to waive the applicability of
this paragraph 13 so that this lease will not be subject and subordinate to any
such deed of trust, security interest or mortgage.
14. CASUALTY INSURANCE. Landlord shall, at all times during the term of
this lease maintain a policy or policies of Insurance with the premiums thereon
fully paid in advance, issued by and binding upon some solvent insurance
company, insuring the Building against loss or damage by fire, explosion, or
other hazards and contingencies for the full insurable value thereof; provided
that Landlord shall not be obligated to insure any furniture, equipment,
machinery, goods or supplies not covered by this lease which Tenant may bring or
obtain upon the leased premises, or any additional improvements which Tenant may
construct thereon.
Tenant shall procure and maintain throughout the term of this lease a policy or
policies of insurance at its sole cost and expense, insuring Tenant and Landlord
against any and all liability for injury to or death of a person or persons,
occasioned by or arising out of or in connection with the use or occupancy of
the Premises, the limits of such policy or policies to be in an amount not less
than $1,000,000.00 with respect to injuries to or death of any one person and in
an amount of not less than $1,000,000 with respect to any one accident or
disaster, and shall furnish evidence satisfactory to Landlord of the maintenance
of such insurance. Tenant shall obtain a written obligation on the part of each
insurance company to notify Landlord at least ten (10) days prior to
cancellation of such insurance.
15. INSPECTION. Landlord or representatives shall have the right to
enter into and upon any and all parts of premises at reasonable hours to (i)
inspect same or clean or make repairs or alterations or additions as Landlord
may deem necessary (but without obligation to do so, except as expressly
provided for herein). or (ii) show the premises to prospective tenants,
purchasers or lenders; and Tenant shall not be entitled to any abatement or
reduction of rent by reason thereof, nor shall such be deemed to be an actual or
constructive eviction.
16. CONDEMNATION. If, during the term of this lease or any extension or
renewal thereof, all of the premises should be taken for any public or
quasi-public use under any governmental law, ordinance or regulation or by right
of eminent domain or by private purchase in lieu thereof, this lease shall
terminate and the rent shall be abated during the unexpired portion of this
lease, effective on the date physical possession is taken by the condemning
authority, and Tenant shall have no claim against Landlord for the value of any
unexpired term of this lease.
In the event a portion but not all of the premises shall be taken for
any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain, by private sale in lieu thereof and
the partial taking or condemnation shall render the premises unsuitable for
Tenant's business, then Landlord shall have the option, in its sole discretion,
of terminating this lease or at Landlord's sole
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risk and expense, restoring and reconstructing the premises to the extent
necessary to make same reasonably tenantable. Should Landlord elect to restore,
the lease shall continue in full force and effect with the rent payable during
the unexpired portion of this lease being adjusted to such an extent as may be
fair and reasonable under the circumstances, and Tenant shall have no claim
against Landlord for the value of any interrupted portion of this lease.
In the event of any condemnation or taking, total or partial, Tenant
shall not be entitled to any part of the award or price paid in lieu thereof,
and Landlord shall receive the full amount of such award or price. Tenant hereby
expressly waiving any right or claim to any part thereof.
17. FIRE OR OTHER CASUALTY. In the event that the premises should be
totally destroyed by fire, tornado or other casualty or in the event the
premises or the Building should be so damaged that rebuilding or repairs cannot
be completed within ninety (90) days after the date of such damage, either
Landlord or Tenant may at its option terminate this lease in which event the
rent shall be abated during the unexpired portion of this lease effective with
the date of such damage. In the event the premises should be damaged by fire,
tornado or other casualty covered by Landlord's insurance but only to such
extent that rebuilding or repairs can be completed within ninety (90) days after
the date of such damage, or if the damage should be more serious but neither
Landlord nor Tenant elects to terminate this lease, in either such event
Landlord shall within (30) days after the date of such damage commence to
rebuild or repair the premises and shall proceed with reasonable diligence to
restore the premises to substantially the same condition in which it was
immediately prior to the happening of the casualty, except that Landlord shall
not be required to rebuild, repair or replace any part of the furniture,
equipment , fixtures and other improvements which may have been placed by Tenant
or other Tenants within the project or the premises. Landlord shall allow Tenant
a fair diminution of rent during the time the premises are unfit for occupancy.
In the event any mortgages under a deed of trust, security agreement or mortgage
on the premises should require that the insurance proceeds be used to retire the
mortgage debt, Landlord shall have no obligation to rebuild and this lease shall
terminate upon notice to Tenant. Any insurance which may be carried by Landlord
or Tenant against loss or damage to the project or to the premises shall be for
the sole benefit of the party carrying such insurance and under its sole
control.
18. HOLDING OVER. Should Tenant, or any of its successors in interest,
hold over the premises, or any part thereof, after the expiration of the term of
this lease, unless otherwise agreed in writing, such holding over shall
constitute and be construed as Tenancy from month to month only, at a rental
equal to the rent payable for the last month of the term of this lease plus
fifty percent (50%) of such amount. The inclusion of the preceding sentence
shall not be construed as Landlord's consent for the Tenant to hold over.
19. TAXES ON TENANT'S PROPERTY. Tenant shall be liable for all taxes
levied or assessed against personal property, furniture or fixtures placed by
Tenant in the premises. If any such taxes for which Tenant is liable are levied
or assessed against Landlord or Landlord's property and if Landlord elects to
pay the same or if the assessed value of Landlord's property is increased by
inclusion of personal property, furniture or fixtures placed by Tenant in the
premises, and Landlord elects to pay the taxes based on such increase, Tenant
shall pay to Landlord upon demand that part of such taxes for which Tenant is
primarily liable hereunder.
20. EVENTS OF DEFAULT. The following events shall be deemed to be
events of default by Tenant under this lease:
(a) Tenant shall fail to pay any installment of the rent hereby
reserved and such failure shall continue for a period of ten (10) days.
(b) Tenant shall fail to comply with any term, provision or
covenant of this lease, other than the payment of rent, and shall not cure such
failure within ten (10) days after written notice thereof to Tenant.
(c) Tenant shall make an assignment for the benefit of creditors.
(d) Tenant shall file a petition under any section or chapter of
the National Bankruptcy Act, as amended, or under any similar law or statute of
the United States or any state hereof; or Tenant shall be adjudged bankrupt or
insolvent in proceeding filed against Tenant thereunder and such adjudication
shall not be vacated or set aside within thirty (30) days.
(e) A receiver or Trustee shall be appointed for all or
substantially all of the assets of Tenant and such receivership shall not be
terminated or stayed within thirty (30) days.
(f) Tenant shall desert or vacate any substantial portion of the
premises for a period of five (5) or more days.
21. REMEDIES. Upon the occurrence of any event of default specified in
paragraph 20 hereof, Landlord shall have the option to pursue any one or more of
the following remedies without any notice or demand whatsoever:
(a) Terminate this lease in which event Tenant shall immediately
surrender the premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession and expel or remove Tenant
and any other person who may be occupying said premises or any part thereof, by
force if necessary,
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without being liable for prosecution or any claim of damages thereof; and Tenant
agrees to pay to Landlord on demand the amount of all loss and damage which
Landlord may suffer by reason of such termination, whether through inability to
relet the premises on satisfactory terms or otherwise, including the loss of
rental for the remainder of the lease term.
(b) Enter upon and take possession of the premises and expel or remove
Tenant and any other person who may be occupying the premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim for damages thereof, and if Landlord so elects, relet the premises on such
terms as Landlord shall deem advisable and receive the rent thereof; and Tenant
agrees to pay to Landlord on demand any deficiency that may arise by reason of
such reletting for the remainder of the lease term.
(c) Enter upon the premises by force if necessary, without being liable
for prosecution or any claim for damages thereof, and do whatever Tenant is
obligated to do under the terms of this lease; and tenant agrees to reimburse
Landlord on demand for any expenses which landlord may incur in thus effecting
compliance with Tenant's obligations under this lease, and Tenant further agrees
that Landlord shall not be liable for any damages resulting to the Tenant from
such action.
No re-entry or taking possession of the premises by Landlord shall be construed
as an election on its part to terminate this lease, unless a written notice of
such intention be given to Tenant. Notwithstanding any such reletting or
re-entry or taking possession, Landlord may at any time thereafter elect to
terminate this lease for a previous default. Pursuit of any of the foregoing
remedies shall not preclude pursuit of any of the other remedies herein provided
or any other remedies provided by law, nor shall pursuit of any remedy herein
provided constitute a forfeiture or waiver of any rent due to Landlord hereunder
or of any damages accruing to Landlord by reason of the violation of any of the
terms, provisions and covenants herein contained. Landlord's acceptance of rent
following an event of default hereunder shall not be construed as Landlord's
waiver of such event of default. No waiver by Landlord of any violation or
breach of any of the terms, provisions, and covenants herein contained shall be
deemed or construed to constitute a waiver of any other violation or breach of
any of the terms, provisions, and covenants herein contained. Forbearance by
Landlord to enforce one or more of the remedies herein provided upon an event of
default shall not be deemed or construed to constitute a waiver of any other
violation or default. The loss or damage that Landlord may suffer by reason of
termination of this lease or the deficiency from any reletting as provided for
above shall include the expense of repossession and any repairs or remodeling
undertaken by Landlord following possession. Should Landlord at any time
terminate this lease for any default, in addition to any other remedy Landlord
may have, Landlord may recover from Tenant all damages Landlord may incur by
reason of such default including the cost of recovering the premises and the
loss of rental for the remainder of the lease term.
22. SURRENDER OF PREMISES. No act or thing done by the Landlord or its
agents during the term hereby granted shall be deemed an acceptance of a
surrender of the premises, and no agreement to accept a surrender of the
premises shall be valid unless the same be made in writing and subscribed by the
Landlord.
23. ATTORNEY'S FEES. In case it should be necessary or proper for
Landlord to bring any action under this lease or to consult or place said lease,
or any amount payable by Tenant thereunder, with an attorney concerning or for
the enforcement of any of Landlord's rights hereunder, then Tenant agrees in
each and any such case to pay to Landlord a reasonable attorneys' fee.
24. LANDLORD'S LIEN. In addition to the statutory Landlord's lien,
Landlord shall have, at all times, a valid security interest to secure payment
of all rentals and other sums of money becoming due hereunder from Tenant, and
to secure payment of any damages or loss which Landlord may suffer by reason of
the breach by Tenant of any covenant, agreement or condition contained herein,
upon all goods, wares, equipment, fixture, furniture, improvements and other
personal property of Tenant presently or which may hereafter be situated on the
premises, and all proceeds therefrom and such property shall not be removed
therefrom without the consent of Landlord until all arrearages in rent as well
as any and all other sums of money then due to Landlord hereunder shall first
have been paid and discharged and all the covenants, agreements and conditions
hereof have been fully complied with and performed by Tenant. Upon the
occurrence of an event of default by Tenant, Landlord may, in addition to any
other remedies provided herein, enter upon the premises and take possession of
any and all goods, wares, equipment, fixtures, furniture, improvements and other
personal property of Tenant situated on the premise, without liability for
trespass or conversion, and sell the same at public or private sale, with or
without having such property at the sale, after giving Tenant reasonable notice
of the time and place of any public sale or of the time after which any private
sale is to be made, at which sale the Landlord or its assigns may purchase
unless otherwise prohibited by law. Unless otherwise provided by law, and
without intending to exclude any other manner of giving Tenant reasonable
notice, the requirement of reasonable notice shall be met if such notice is
given in the manner prescribed in paragraph 27 of this lease at least five (5)
days before the time of sale. The proceeds from any such disposition, less any
and all expenses connected with the taking of possession, holding and selling of
the property (including reasonable attorneys' fees and other expenses), shall be
applied as a credit against the indebtedness secured by the security interest
granted in this paragraph 24. Any surplus shall be paid to Tenant or as
otherwise required by law; and the Tenant shall pay any deficiencies forthwith.
Upon request by Landlord, Tenant agrees to execute and deliver to Landlord a
financing statement in form sufficient to perfect the security interest of
Landlord in the aforementioned property and proceeds thereof under the
provisions of the Uniform Commercial Code in force in the State of Texas. The
statutory lien for rent is not hereby waived, the security interest herein
granted being in addition and supplementary thereto.
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25. MECHANIC'S LIENS: Tenant will not permit any mechanic's lien or
liens to be placed upon the premises or the Building or improvements thereon
during the term hereof caused by or resulting from any work performed, materials
furnished or obligation incurred by or at the request of Tenant, and in the case
of the filing of any such lien Tenant will promptly pay same. If default in
payment thereof shall continue for twenty (20) days after written notice thereof
from Landlord to the Tenant, the Landlord shall have the right and privilege at
Landlord's option of paying the same or any portion thereof without inquiry as
to the validity thereof, and any amounts so paid, including expenses and
interest, shall be so much additional indebtedness hereunder due from Tenant to
Landlord and shall be repaid to Landlord immediately on rendition of bill
therefor together with interest at ten percent (10%) per annum until repaid.
26. WAIVER OF SUBROGATION. Anything in this lease to the contrary
notwithstanding, the parties hereto hereby waive any and all rights of recovery,
claim, action or cause of action, against each other, their agents, offices, and
employees, for any loss or damage that may occur to the premises hereby demised,
or any improvement thereto, or said Building of which the premises are a part,
or any improvements thereto, by reason of fire, the elements, or any other cause
which could be insured against under the terms of standard fire and extended
overage insurance policies, regardless of cause or origin, including negligence
of the parties hereto, their agents, officers, and employees.
27. NOTICES. Each provision of this agreement, or of any applicable
governmental laws, ordinances, regulations, and other requirements with
reference to the sending, mailing or delivery of any notice, or with reference
to the making of any payment by Tenant to Landlord, shall be deemed to be
complied with when and if the following steps are taken:
(a) All rent and other payment required to be made by Tenant to
Landlord hereunder shall be payable to Landlord in Dallas County, Texas at the
address hereinbelow set forth, or at such other address as Landlord may specify
from time to time by written notice delivered in accordance herewith;
(b) Any notice or document required to be delivered hereunder
shall be deemed to be delivered if actually received and whether or not received
when deposited in the United States mail, postage prepaid, certified or
registered mail (with or without return receipt requested) addressed to the
parties hereto at the respective addresses set out opposite their names below,
or at such other address as they have theretofore specified by written notice
delivered in accordance herewith:
LANDLORD: Springcreek Place, Ltd., c/o John S. Dryden, P.O. Box 800068,
Dallas, Texas 75380-0068
TENANT: MarketArts Inc., c/o Mr. John R. Jennings, Chief Executive
Officer, 1820 North Glenville, Suite 100, Richardson, Texas 75081
28. FORCE MAJEURE. Whenever a period of time is herein prescribed for
action to be taken by Landlord, the Landlord shall not be liable or responsible
for, and there shall be excluded from the computation for any such period of
time, any delays due to strikes, riots, Acts of God, Shortages of labor or
materials, war, governmental laws, regulations or restrictions or any other
causes of any kind whatsoever which are beyond the control of Landlord.
29. SEPARABILITY. If any clause or provision of this lease is illegal,
invalid or unenforceable under present or future laws effective during the term
of this lease, then and in that event, it is the intention of the parties hereto
that the remainder of this lease shall not be affected thereby, and it is also
the intention of the parties to this lease that in lieu of each clause or
provision of this lease that is illegal, invalid or unenforceable, there be
added as a part of this lease a clause or provision as similar in terms to such
illegal, invalid or unenforceable clause or provision as may be possible and be
legal, valid and enforceable.
30. ENTIRE AGREEMENT; AMENDMENTS; BINDING EFFECT. This lease contains
the entire agreement between the parties and may not be altered, changed or
amended, except by instrument in writing signed by both parties hereto. No
provision of this lease shall be deemed to have been waived by Landlord unless
such waiver be in writing signed by Landlord and addressed to Tenant, nor shall
any custom or practice which may grow up between the parties in the
administration of the terms hereof be construed to waive or lessen the right of
Landlord to insist upon the performance by Tenant in strict accordance with the
terms hereof. The terms, provisions, covenants and conditions contained in this
lease shall apply to inure to the benefit of, and be binding upon the parties
hereto, and upon their respective successors in interest and legal
representatives, except as otherwise herein expressly provided.
31. QUIET ENJOYMENT. Provided Tenant has performed all of the terms,
covenants, agreements and conditions of this lease, including the payment of
rent, to be performed by Tenant, Tenant shall peaceably and quietly hold and
enjoy the premises for the term hereof, without hindrance from Landlord, subject
to the terms and conditions of this lease.
32. RULES AND REGULATIONS. Tenant and Tenant's agents, employees, and
invitees will comply fully with all requirements of the rules and regulations of
the Building and related facilities which are attached hereto as "Exhibit "B",
and made a part hereof as though fully set out herein. Landlord shall at all
times have the right to change such rules and regulations or to promulgate other
rules and regulations in such reasonable manner as may be deemed advisable for
safety, care, or cleanliness of the Building
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and related facilities or premise, and for preservation of good order therein,
all of which rules and regulations, changes and amendments will be forwarded to
Tenant in writing and shall be carried out and observed by Tenant. Tenant shall
further be responsible for the compliance with such rules and regulations by the
employees, servants, agents, visitors and invitees of Tenant.
33. BROKER'S OR AGENT'S COMMISSION. Tenant represents and warrants that
there are no claims for brokerage commissions or finder's fees in connection
with the execution of this lease, except as listed below, and Tenant agrees to
indemnify and hold harmless Landlord against all liabilities and costs arising
from such claims, including without limitation attorneys' fees in connection
therewith.
34. GENDER. Words of any gender used in this lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires.
35. JOINT AND SEVERAL LIABILITY. If there be more than one Tenant, the
obligations hereunder imposed upon Tenant shall be joint and several. If there
be a guarantor of Tenant's obligations hereunder, the obligations imposed upon
Tenant shall be the joint and several obligations of Tenant and such guarantor
and Landlord need not first proceed against the Tenant hereunder before
proceeding against such guarantor, nor shall any such guarantor be released from
its guaranty for any reason whatsoever, including without limitation, in case of
any amendments hereto, waivers hereof or failure to give such guarantor any
notices hereunder.
36. CAPTIONS. The captions contained in this lease are for convenience
of reference only, and in no way limit or enlarge the terms and conditions of
this lease.
37. SPECIAL PROVISIONS:
Tenant accepts the lease space on an "as is" basis except for the
following:
A. Landlord agrees to separate the utilities and hvac equipment.
B. Landlord agrees to restore the party wall between suites 110
and 114.
C. Landlord agrees to reinstall he hallway connecting suites 100
and 110.
D. Landlord agrees to repaint and recarpet suite 110 and touchup
the paint job in suite 100.
E. Landlord agrees to allow the placement of antennas and/or the
other electronic signal receiving and/or emitting devices on
the roof and/or back sides of suites 100 and 110.
EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN.
LANDLORD: Springcreek Place, Ltd.
By: /s/ John S. Dryden
--------------------------------------------------------
46 Corp. General Partner
John S. Dryden, President
--------------------------------------------------------
Date: 6/12/96
--------------------------------------------------------
TENANT: MarketArts Inc., a Texas Corporation
ATTEST: BY: /s/ John R. Jennings
--------------------------------------------------------
John R. Jennings
Chief Executive Officer
- ------------- --------------------------------------------------------
(TITLE)
--------------------------------------------------------
Date: 5/31/96
--------------------------------------------------------
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ADDENDUM TO LEASE AGREEMENT BETWEEN
MARKETARTS, INC. (TENANT) AND
SPRINGCREEK PLACE, LTD. (LANDLORD) DATED 6-12-96
Whereas the aforementioned parties agree to modify the referenced lease agrement
to include the space located at 1820 N. Glenville, suite 100 comprised of 7,180
square feet. The terms and conditions set forth in the original lease agreement
shall remain the same with the following modifications:
I. The new space comprised of 7,180 square feet shall be leased at a
rate of $12/sf. This equates to an additional $7,180.00/month.
II. Expenses shall be computed with a base year 1998 on the new space.
III. The commencement date shall be 11-1-98 and the expiration date
shall be 7-31-99.
If this is acceptable, then please indicate by executing this document on the
designated line below. Once you have a fully executed document it will become a
part of and should be attached to the original lease agreement.
TENANT: /s/ John R. Jennings
--------------------------------
MARKETARTS, INC.
DATE: 9/29/98
--------------------------------
LANDLORD: /s/ John S. Dryden
--------------------------------
SPRINGCREEK PLACE, LTD.
DATE: 10/12/98
--------------------------------
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ADDENDUM TO LEASE AGREEMENT BETWEEN
MARKETARTS, INC. (TENANT) AND SPRINGCREEK
PLACE, LTD. (LANDLORD) DATED JUNE 12, 1996
AND AMENDED ON 10-12-98
This document when fully executed should be attached to and will become a part
of the two aforementioned documents. All the terms and conditions set forth in
these two documents shall remain the same with the following exceptions:
I. The expiration date shall be extended to 7-31-2002.
II. The rate shall change to $11,270.83 per month ($10/sf).
III. The base year shall be changed to 1999.
IV. Tenant accepts the lease space on an "as is" basis.
V. Landlord and Tenant agree that effective August 1, 1999, the
first sentence of Paragraph 11 of the Lease Agreement dated
June 12, 1996 shall be deleted in its entirety and replaced
with the following:
Tenant shall not assign or in any manner transfer this lease
or any estate or interest therein, or sublet the premises or
any part thereof, or grant any license, concession or other
right of occupancy of any portion of the premises without the
prior written consent of the Landlord, which consent shall not
be unreasonably withheld or delayed. Landlord and Tenant agree
that in the event Tenant is purchased or acquired by a larger
company and the usage of the premises does not change,
Landlord will not withhold its consent for the assignment of
lease.
VI. Operating Expense Cap. Notwithstanding anything to the
contrary set forth in this Lease, when determining Tenant's
pro rata share of excess operating expenses for lease years
subsequent to the first lease year, operating expenses may not
increase more than fifteen percent (15%) from the immediately
preceding lease year. Provided, the foregoing cap on operating
expenses shall not apply to taxes and insurance. Tenant's pro
rata share of the excess of these expenses shall always be
based on the actual amount of such expenses.
VII. Renewal Option. If, at the end of this renewal term of this
Lease, the Tenant is not in default in any of the terms,
conditions or covenants of the Lease, Tenant, but not any
assignee or subtenant of Tenant, is hereby granted an option
to renew this Lease for one (1) additional term of thirty-six
(36) months upon the same terms and conditions contained in
this Lease with the following exceptions:
A. The renewal option term will contain no further
renewal options unless expressly granted by Landlord
in writing; and
B. The rental for the renewed term shall be based on the
then prevailing rental rates for properties of
equivalent quality, size, utility and location, with
the length of the lease term and credit standing of
the Tenant to be taken into account.
If Tenant desires to renew this Lease, Tenant will notify the
Landlord of its intention to renew no later than six (6)
months prior to the expiration date of the Lease; Landlord
shall, within the next fifteen (15) days notify Tenant in
writing of the proposed rental rate and the Tenant shall,
within the next fifteen (15) days following receipt of the
proposed rate, notify the Landlord in writing of its
acceptance or rejection of the proposed rental rate. Rejection
of the proposed rental rate terminates any renewal option
pursuant to this paragraph.
Page 1 of 2
<PAGE>
VIII. Option to Cancel. Landlord hereby grants to Tenant to the
right and option to cancel this Lease at any time after the
expiration of the twelfth (12th) month and prior to the
expiration of the twenty-fifth (25th) month from the
commencement of this Lease provided Tenant (i) gives Landlord
at least sixty (60) days prior written notice of the exercise
of this option specifying therein the effective date of the
cancellation, and (ii) simultaneously with the giving of such
notice pays to Landlord 40% of the aggregate of the remaining
rent owed under the Lease Agreement as consideration for the
cancellation of this Lease.
If this is acceptable, then please indicate by executing this agreement on the
designated line below.
ACCEPTED BY TENANT: /S/ KEITH BLACK
-----------------------------------
DATE: 5/25/99
-------------
MarketArts, Inc.
ACCEPTED BY LANDLORD: /S/ JOHN S. DRYDEN
----------------------------------
DATE: 5/28/99
-------------
Springcreek Place, Ltd.
Page 2 of 2
EXHIBIT 10.14
LEASE AGREEMENT
BOCA RATON, FLORIDA
THIS LEASE AGREEMENT (this "Lease") is made as of this 16th day of
November, 1999, by and between FAIRFAX BOCA 92, L.P., a Georgia limited
partnership ("Landlord"), and OMEGA RESEARCH, INC., a Florida corporation
("Tenant");
W I T N E S S E T H:
1. PREMISES. In consideration of the rents, terms and covenants of this
Lease, Landlord hereby leases, lets and demises to Tenant those certain premises
(the "Premises") containing approximately 5,996 rentable square feet (inclusive
of a 15% common area factor) situated on the first (1st) floor of Pod D in
Building 235, 901 Yamato Road, Boca Raton, Florida 33431 (the "Building"), as
shown outlined on EXHIBIT A, attached hereto and made a part hereof. The land
upon which the Building is located is more particularly described on EXHIBIT B,
attached hereto and made a part hereof (the "Land"; the Building and the Land
together with all improvements located thereon are collectively referred to
herein as the "Project"). All of the windows and outside walls of the Premises,
and any space in the Premises used for shafts, pipes, conduits, ducts, telephone
ducts and equipment, electric or other utilities, or other Building facilities,
and the use thereof and access thereto through the Premises for the purposes of
operation, maintenance, inspection, display and repairs are hereby reserved to
Landlord.
The final calculation (the "Calculation") of the actual rentable square footage
of the Premises shall be made by Landlord's architect, at Landlord's expense,
utilizing the final working drawings of the Premises for purposes of making such
calculations. The Calculation shall be inclusive of a common area factor of
fifteen percent (15%) and shall be performed in accordance with applicable BOMA
standards therefore. Until such Calculation is made, which Calculation shall
take place no later than ten (10) days following the final execution date of the
Lease. Tenant's Base Rent hereunder shall be based upon the assumption that the
rentable square footage of the Premises shall be 5,996 square feet.
2. TERM. The Term (as hereinafter defined) of this Lease shall be for a
term of five (5) years commencing on the later to occur of (i), January 1, 2000,
or (ii) five (5) days after substantial completion of the Tenant Build-Out,
subject only to Landlord's completion of minor "punch list items" which would
not materially interfere with Tenant's use and enjoyment of the Premises (the
"Commencement Date") and ending at 12:00 midnight on the date immediately
preceding the fifth (5th) anniversary of the Commencement Date (the "Expiration
Date") (such term, taking into account any sooner termination or renewal or
extension, is hereinafter referred to as the "Term"). Tenant's occupancy of all
or any portion of the Premises prior to the Commencement Date shall be subject
to and Tenant agrees to comply with (as though the Term has commenced) all of
the provisions of this Lease. For purposes of this Lease, the terms "substantial
completion" and "substantially completed" respecting the Tenant Build-Out shall
mean that all of the work detailed in the work letter (the "Work Letter")
attached hereto as EXHIBIT E hereof shall have been substantially completed by
Landlord in accordance with the terms and conditions of said Work Letter and the
standards set forth therein, which substantial completion shall be evidenced by
(a) Landlord's architect's certification of same, and (b) a certificate of
occupancy for the Premises by the applicable governing authority having
jurisdiction to issue same. All punch list items shall be completed by Landlord
in a commercially reasonable manner and in any event no later than thirty (30)
days subsequent to the date of substantial completion of the Tenant Build-Out.
The term Tenant Build-Out shall mean, collectively, all of the Landlord's Work
and the Base Building Work as defined in the Work Letter Agreement.
Tenant shall have the option to extend the Term of this Lease for one
(1) additional five (5) year period, at the rental rate for such renewal period
set forth in Section 3 hereof, exercisable by written notice to Landlord given
no less than one hundred eighty (180) days prior to the Expiration Date. In the
event the Premises shall not have been substantially completed no later than
ninety (90) days following the full execution of this Lease, then when the
Commencement Date shall ultimately occur hereunder, Tenant shall receive an
abatement of future Base Rent payments hereunder (in chronological order of due
dates therefor), equal to two (2) days of Base Rent for each day of delay
<PAGE>
in Substantial Completion beyond such ninety (90) day period. In the event for
any reason whatsoever (including any matters enumerated in Section 26 hereof)
the Commencement date shall not have occurred hereunder prior to one hundred and
fifty (150) days after full execution of this Lease, Tenant shall have the
right, exercisable by written notice to Landlord given at any time thereafter
prior to Substantial Completion of the Tenant Build-Out to terminate this Lease.
Tenant has provided and Landlord has approved, a design space plan for the
Premises in the form attached hereto as EXHIBIT F hereof, which Landlord shall
use to prepare the construction documents in accordance with the terms of the
Work Letter.
3. BASE RENT. (a) Tenant agrees to pay Base Rent in monthly
installments on the first day of each month, during the Term of the Lease in an
amount equal to the product of the number of rentable square feet contained in
the Premises, multiplied by the annual rate per rentable square foot set forth
below:
The initial annual Base Rent shall be $11.50 per RSF and shall escalate by four
percent (4%) per annum beginning on the first anniversary of the Commencement
Date. If Tenant shall exercise its renewal option, the Base Rent and Additional
Rent as provided in Section 4 hereof during the term of the renewal period shall
continue to escalate at four percent (4%) per annum on each applicable
anniversary of the Commencement Date during said renewal period.
Each monthly installment of Base Rent shall be payable to Landlord at the
address set forth in Section 32 below on the first day of each calendar month,
in legal tender of the United States of America, without abatement, demand,
reduction or offset whatsoever, except as may be expressly provided in this
Lease. The monthly installment of Base Rent shall be due and payable on or
before the first day of each calendar month following the Commencement Date
during the Term; provided, that if the Commencement Date should be a date other
than the first day of a calendar month, the monthly Base Rent shall be prorated
to the end of that calendar month. Tenant shall pay, as Additional Rent, all
other sums due from Tenant under this Lease, including, but not limited to, any
rent tax or other tax imposed upon Landlord based upon rent payments (other than
income taxes and impositions of like character)(the term "Rent" means all Base
Rent, Additional Rent and all other amounts payable hereunder from Tenant to
Landlord).
(b) In addition to the Base Rent payable pursuant to Section
3(a) above, Tenant shall promptly pay to the applicable utility company the cost
of electric power consumed in the Premises attributable to (i) the Supplemental
Air Conditioning System (as hereinafter defined), and (ii) the UPS System (as
hereinafter defined). Tenant shall, at Tenant's sole cost and expense, install a
submeter or submeters to measure all such electric power consumed by the
Supplemental Air Conditioning System and the UPS System and Tenant shall pay the
cost of such electric power therefor directly to the applicable utility company,
as determined by the submeter calculated at the rate structure then existing of
the utility company supplying electrical energy to the Premises.
If the Term shall begin on any day other than January 1 or shall end on a day
other than December 31, the amount of any Base Rent (and any Additional Rent
described in Section 4 hereof) payable by Tenant applicable to the year in which
the Term begins or ends, respectively, shall be prorated on the ratio of the
actual number of days of the Term and such year bears to 365.
4. OPERATING EXPENSES. Tenant shall pay to Landlord, as Additional Rent
hereunder, in monthly installments, together with the Base Rent due hereunder,
as Tenant's share of all operating expenses incurred by Landlord in connection
with the maintenance, repair and operation of the Project and in lieu of any
obligation on the part of Tenant to pay any pro rata share or other sum on
account thereof, but subject nevertheless to Tenant's other obligations
expressly set forth in this Lease regarding the payment of Additional Rent or
other sums due from Tenant to Landlord hereunder, the sum of $7.05 per RSF per
annum during the first year of the Term of this Lease, increasing at the rate of
four (4%) percent per annum on each anniversary of the Commencement Date,
including any renewal period.
5. LATE PAYMENT CHARGE. Other remedies for nonpayment of Rent
notwithstanding, if any payment of Base Rent or Additional Rent is not received
by Landlord on or before the fifth (5th) day of the month for which such payment
of Rent is due, or if any other payment due Landlord by Tenant is not received
by Landlord on or before the tenth (10th) day of the month next following the
month in which Tenant is invoiced, a late payment charge of five percent (5%) of
such amount for
<PAGE>
each and every thirty (30) day period that said amount remains unpaid (but in no
event shall the amount of such late charge exceed an amount based upon the
highest legally permissible rate chargeable at any time by Landlord under the
circumstances) shall become due and payable in addition to such amounts owed
under this Lease. Should Tenant make a partial payment of past due amounts, the
amount of such partial payment shall be applied first to reduce all accrued and
unpaid late charges, in inverse order of their maturity, and then to reduce all
other past due amounts, in inverse order of their maturity.
6. TENANT ACCEPTANCE. Upon Landlord's substantial completion of the
Tenant Build-Out (subject to Landlord's completion of any punch list items) and
Tenant's acceptance of same, Tenant shall be deemed to have accepted the
Premises from Landlord pursuant to this Lease on an "as-is" basis, and each
party acknowledges that, except as specifically provided herein, Landlord has
made, makes and shall make no representations or warranties with respect to the
Premises, express or implied. Without limiting the generality of the foregoing,
but subject to the obligations of Landlord respecting the Tenant Build-Out set
forth in the Work Letter and Landlord's other obligations set forth in this
Lease, Tenant acknowledges and agrees that Landlord, except as specifically
provided herein, has made, makes and shall make (i) no representation or
warranty of tenantability or habitability with respect to the Premises, (ii) no
representation or warranty of fitness with respect to any personal property
contained therein, and (iii) no representation or warranty with respect to the
physical condition of the Premises or the operating order or condition of any
fixtures, equipment or systems of the Premises, save and except that Landlord
does represent and warrant to Tenant that all Building systems and equipment,
including HVAC (excluding, however, the Supplemental Air-Conditioning System, as
hereinafter defined) and all water and utility systems, and the roof and
structure of the Building and its parking areas are now and will on the
Commencement Date be in good working order and condition. Tenant agrees that,
except for the representations specifically made herein, Tenant is not relying
upon any representations or warranties of Landlord with respect to the
tenantability, habitability, fitness, physical condition or operating order of
the Premises or any of the personal property or fixtures, equipment or systems
contained therein.
7. SECURITY DEPOSIT. [INTENTIONALLY OMITTED]
8. USAGE. Tenant warrants and represents to Landlord that the Premises
shall be used and occupied only for the purpose of general offices (including
conference and computer facilities, employee kitchen and related facilities) and
for no other purpose.
9. BUILDING SERVICES. During the Term of this Lease, Landlord agrees to
operate and maintain the Building in a manner similar to and in accordance with
a standard of comparable buildings in the Boca Raton, Florida market area
("Comparable Buildings") and to provide to Tenant the following services, which
include, but are not limited to:
(a) General cleaning and janitorial service required as a
result of normal, prudent use of the Premises in accordance with EXHIBIT C
attached hereto and made a part hereof and only on Mondays through Fridays,
inclusive, with New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day (herein collectively called the "Holidays")
excepted;
(b) Heating, ventilating and air-conditioning service daily on
Mondays through Fridays, inclusive, with Holidays excepted, from 8:00 A.M. to
6:00 P.M. and on Saturdays, if not a Holiday, from 8:00 A.M. to 1:00 P.M. The
range of temperatures maintained in the Building shall be comparable to those
maintained in other like-kind office buildings in the City of Boca Raton,
Florida as the same may be regulated by governmental authority. Should Tenant
desire either heating or air conditioning at times when such services are not
furnished by Landlord under the terms of this Lease, such shall be provided upon
not less than four (4) hours prior notice (which notice may be given by
telephone) to Landlord during Landlord's normal business hours, and Tenant shall
pay to Landlord $10.00 per hour. Tenant may, at its option, give such notices on
a periodic basis covering multiple day/time periods, cancelable as to any
particular day or time by Tenant on not less than four (4) hours prior notice
(which cancellation notice may be given by telephone). Notices given by
telephone pursuant to this Section 9(b) shall be effective only if given to a
representative of Landlord actually answering the call and shall not be
effective if left on an answering machine, or with a voice mail messengering
service or with a third-party answering service. Tenant may, in accordance with
Section 12 hereof, install supplemental air conditioning systems in the Premises
at the sole cost and expense of Tenant, which systems shall be separately
<PAGE>
metered (the installation cost of such meter to be Tenant's expense) and all
utility costs associated with such systems shall be Tenant's responsibility.
(c) Electric current for lighting and reasonable facilities
for furnishing usual and normal electric power for office space on a 24 hour a
day, seven (7) day a week basis. Tenant shall not, without Landlord's prior
written consent, use or install any equipment (i) which consumes more than 30
Amps and 208 volts or (ii) uses electric current in excess of the capacity of
the feeders or lines to the Building or the risers or wiring installation of the
Building or the Premises;
(d) On-site property management services;
(e) Installation of all replacement fluorescent lamps, light
bulbs and ballasts as needed in the Premises (including any non-standard,
special or upgraded lamps and ballasts within the Premises), provided Tenant
shall pay to Landlord upon demand as Additional Rent the costs of all ballast
replacements (whether standard or non-standard) and the replacement of all
non-standard light bulbs and the incremental difference in the cost of
non-standard fluorescent lamps. Tenant, however, shall not be charged any
installation fee for any of the foregoing installations; and
(f) Passenger and freight elevators serving each of the floors
of the Premises in common with other tenants.
Failure by Landlord to any extent to furnish these defined services or any other
services not enumerated or any cessation thereof shall not, except as expressly
set forth in the next succeeding paragraphs of this Section 9, give rise to any
abatement of rent, shall not render Landlord liable in any respect for damages
to either person or property except to the extent that such failure to provide
services or the cessation thereof was caused by Landlord's gross negligence or
willful misconduct, and shall not relieve Tenant from fulfillment of any
covenant contained in this Lease. Should any of the equipment or machinery break
down, or for any cause cease to function properly, Landlord shall use reasonable
diligence to repair the same promptly, but Tenant shall have no claim for
abatement on account of any interruption in service occasioned from the repairs,
except as specifically provided below.
Notwithstanding the foregoing, Tenant shall have the right to abate rent in the
event of any failure to provide heating, ventilating and air conditioning
service, water service or electric current contemplated in this Section 9 or any
cessation thereof if same (i) shall continue uncured for five (5) consecutive
days or more, and (ii) shall materially interfere with Tenant's use and
enjoyment of the Premises as contemplated by this Lease.
Subject to Section 26, if Landlord fails to provide any services contemplated in
this Section 9, Tenant shall have the right (a) if no emergency exists (a
condition which creates a risk of imminent danger to persons or substantial
damage to property), to perform the same after giving thirty (30) days' notice
to Landlord and to any party entitled to receive notices pursuant to Section 32
of this Lease, provided Landlord shall not commence to cure such default within
such thirty (30) day period and thereafter proceed with due diligence to do so;
and (b) in any emergency situation to perform the same immediately without
notice or delay. Tenant agrees that if Tenant is entitled and elects to rectify
any default as aforesaid, Tenant shall effect such cure in a reasonable manner
and so as not to interfere unreasonably with the rights of third parties,
including other tenants. Landlord shall on demand reimburse Tenant for the
reasonable costs and expenses incurred by Tenant in rectifying defaults as
aforesaid. Tenant shall provide Landlord with copies of the invoices or other
written evidence of the costs incurred by Tenant for which Tenant claims
reimbursement. Any act done by Tenant pursuant to this Section shall not
constitute a waiver of any such default by Landlord or a waiver of any covenant,
term or condition herein contained or the performance thereof. Tenant agrees
that the cure or rectification by any party entitled to receive notice pursuant
to Section 32 of the Lease hereof shall be deemed a cure or rectification by
Landlord hereunder. Notwithstanding anything to the contrary contained in this
Section, Tenant shall not have any right to perform any obligation of Landlord
which affects the structure of the Building and, in the event such performance
affects the mechanical, electrical or other Building systems, Tenant hereby
indemnifies and agrees to hold Landlord harmless from and against any loss,
claims, damages and liabilities suffered by Landlord as a result of Tenant's
exercise of its self-help rights granted herein. If Tenant, in compliance with
the provisions of this Section, incurs costs which Tenant believes are costs of
Landlord and if Tenant is not in default under this Lease, Tenant, commencing
thirty (30) days after notice to Landlord of the amount and evidence of the
payment of such costs by Tenant, shall be
<PAGE>
entitled to set-off the agreed-upon amount of such costs against the payment of
Base Rent and Additional Rent due under this Lease. The actual amount of
set-off, if any, shall be determined by agreement of the parties or, failing
such agreement, resolution by either party seeking a declaratory judgment in the
Circuit Court of Palm Beach County, Florida; upon a final, non-appealable
judgment, which shall be limited to a determination of the amount owed by
Landlord or Tenant under this Section.
10. INTENTIONALLY OMITTED.
11. REPAIRS AND MAINTENANCE. (a) TENANT'S REPAIRS AND MAINTENANCE.
Except as provided in Section 11(c) hereof, Tenant shall, at its own cost and
expense, maintain the Premises in condition existing on the date of this Lease,
including all necessary repairs and replacements, normal wear and tear excepted.
Unless covered by the insurance required to be carried pursuant to Section 17
hereof, and subject nevertheless to the terms and conditions of Section 18
hereof, Tenant shall further, at its own cost and expense, repair or restore any
damage or injury to all or any part of the Building caused by Tenant or Tenant's
agents, employees, invitees, licensees, visitors or contractors, including but
not limited to any repairs or replacements necessitated by (i) the construction
or installation of improvements to the Premises by or on behalf of Tenant, (ii)
the installation, use or operation of Tenant's property, or (iii) the moving of
any property into or out of the Premises; provided, however, if Tenant fails to
make the repairs or replacements promptly, Landlord may, at its option upon ten
(10) business days written notice, make the repairs or replacements and the
costs of such repairs or replacements shall be charged to Tenant as Additional
Rent and shall become due and payable by Tenant with the monthly installment of
Base Rent next due hereunder.
(b) CONDITION AT END OF TERM. On the Expiration Date, Tenant
shall surrender the Premises to Landlord in the condition in which Premises were
originally received from Landlord, except for ordinary wear and tear and damage
by casualty or taking not required to be repaired by Tenant hereunder. So long
as Tenant is not in default hereunder, Tenant may remove from the Premises on or
prior to the Expiration Date all property situated therein which is not owned by
Landlord, and Tenant shall, on or prior to the Expiration Date, remove all of
Tenant's office equipment, trade fixtures and moveable furnishings from the
Premises, and the UPS power backup system, if any, installed by or on behalf of
Tenant. Property not so removed shall become the property of Landlord, and
Landlord may at Tenant's expense remove such property from the Premises and
dispose thereof without any liability of Landlord to Tenant.
(c) LANDLORD'S REPAIRS AND MAINTENANCE. Landlord shall during
the Term maintain the Building in a manner comparable to other Comparable
Buildings, including, but not limited to, public areas of the Building,
landscaped areas of the Land and Building, elevators, stairs, common restrooms
and main lobby area for the Building, heating, ventilating and air conditioning
systems (exclusive of any Tenant supplemental air conditioning systems that
Tenant shall install), other mechanical systems, plumbing, life safety systems,
electrical systems and the roof and structure.
12. ALTERATIONS AND IMPROVEMENTS. (a) No alteration, addition,
improvement or installation (hereinafter collectively "Alterations" or
individually referred to as an "Alteration") to the Premises shall be made or
permitted to be made by Tenant, except as provided in Section 12(b) below,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. As a condition of giving any consent under
this Section 12, Landlord may require, among other things, that Tenant (a)
deliver to Landlord and obtain Landlord's approval of final plans and
specifications for the Alterations, (b) obtain Landlord's approval of all
contractors and subcontractors performing Alterations, (c) obtain all permits,
approvals and certificates required by governmental or quasi-governmental
bodies, and upon completion, certificates of final approval and shall deliver
promptly duplicates of all such governmental permits, approvals and certificates
to Landlord, (d) carry and cause all contractors and subcontractors to carry,
worker's compensation, general liability, personal and property damage
insurance, and (e) if notice is given by Landlord to Tenant concurrently with
the delivery of Landlord's approval of any Alteration that Landlord will require
the removal of an Alteration at the expiration or earlier termination of the
term, Landlord shall have the right to require Tenant, at its sole cost and
expense, to remove any "Non-Standard" (hereinafter defined) Alteration, at the
expiration or earlier termination of the Term. For purposes of this Section
12(a), a "Non-Standard" Alteration shall be any Alteration (y) that shall in
Landlord's reasonable opinion require demolition costs on a per square foot
basis materially greater than the costs on a per square foot basis to demolish
the tenant improvements initially installed in the
<PAGE>
Premises and approved by Landlord and (z) that is of a nature not generally
found in comparable office space at the time of the request for approval.
Notwithstanding the foregoing provisions of this Section 12(a), Tenant shall
have no right without Landlord's prior written consent, to make any Alterations
which would (i) adversely affect the load bearing structural components and
structural soundness of the Building, (ii) adversely affect the central
environmental systems (excluding ventilation ducts, diffusers and returns),
(iii) adversely affect the electrical, plumbing or other utility systems of the
Building or (iv) adversely affect the roofing systems, window glass, window
gaskets or glazing.
Tenant shall have the right, without Landlord's consent, to install a
supplemental air-conditioning system (the "Supplemental Air-Conditioning
System") and a UPS power backup system (the "UPS System"), to service Tenant's
use of and operations at the Premises. If such installation requires penetrating
the roof, then Tenant shall remain responsible for repairs of such roof
penetration. Such installations and the future maintenance thereof by Tenant
shall be at Tenant's sole cost and expense and shall comply with all applicable
governmental laws, rules and regulations respecting same. Said systems shall be
hooked up to the Building's electrical system, however, separately metered and
paid by Tenant directly to the utility company by separate billing from said
utility company. The Supplemental Air-Conditioning System shall be a 2.5 ton
split system. Landlord will advise as to location of such air-conditioning
equipment which shall either be on the roof of the Building on the exterior of
the Building located within ten (10) feet of the building facade abutting the
Premises.
The parties agree that the Tenant Improvement Allowance applicable to the Tenant
Build-Out shall be as set forth in the Work Letter.
(b) Notwithstanding the foregoing, Tenant may, without
Landlord's consent, make Alterations that are non-structural in nature and do
not adversely affect the Building mechanical, plumbing or electrical systems;
provided (i) Tenant shall give Landlord fifteen (15) days advance notice of such
Alterations which notice shall include a description of such Alterations; (ii)
all such Alterations shall be installed or constructed in accordance with all
laws; (iii) Tenant shall obtain all necessary permits required by governmental
or quasi-governmental bodies; (iv) all contractors shall be approved by
Landlord, such approval not to be unreasonably withheld or delayed; (v) Tenant
shall deliver to Landlord upon completion thereof as-built plans therefor; (vi)
if the Alteration is a Non-Standard Alteration and if notice is given by
Landlord to Tenant within said fifteen (15) day period that Landlord requires
the removal of such Non-Standard Alteration at the expiration or earlier
termination of the Term, then Tenant shall, at its sole costs and expense,
remove any Non-Standard Alteration at the expiration or earlier termination of
the Term; and (vii) Tenant shall carry and cause its contractors to carry
worker's compensation, general liability, personal and property damage
insurance.
(c) Notwithstanding any provision in this Section 12 or
otherwise in this Lease to the contrary, Tenant shall not make any Alteration
that shall affect the facade or exterior face of the Building or otherwise
affect the appearance of the Building from the exterior of the Building in any
respect. Landlord reserves the right to unreasonably withhold its consent to any
such Alteration in Landlord's sole and absolute discretion.
(d) Except as set forth in Section 11 (b) above, all
Alterations which may be made to the Premises, shall become the property of
Landlord and remain and be surrendered with the Premises. Tenant agrees to
repair any damage to the Premises caused by or in connection with the removal of
any articles of personal property, business or trade fixtures, including without
limitation thereto, repairing the floor and patching and painting the walls
where damaged.
13. STANDARDS FOR WORK. (a) Whenever in this Lease Landlord or Tenant
is permitted or required to maintain and repair, or make additions, alterations,
substitutions or replacements, or reconstruct or restore the Building or the
Premises, such party shall cause such work (the "Work") to be done and completed
in a good, substantial and workmanlike manner, free from faults and defects, and
in compliance with all legal requirements, and shall utilize only new
first-class materials and supplies. The party performing such Work shall be
solely responsible for construction means, methods, techniques, sequences and
procedures, and for coordinating all activities related to the Work, and the
other party shall have no duty or obligation to inspect the Work, but shall have
the right to do so.
<PAGE>
(b) Whenever Landlord or Tenant is required to perform any
Work upon the Building or the Premises, such party shall promptly commence the
Work and, once the Work is commenced, diligently and continually pursue the Work
and complete the Work within a reasonable time. The party performing such Work
shall supervise and direct the Work utilizing its best efforts and reasonable
care, and shall assign such qualified personnel to the Work as may be necessary
to cause the Work to be completed in an expeditious fashion.
(c) The party performing such Work shall (i) provide and pay
for all labor, materials, goods, supplies, equipment, appliances, tools,
construction equipment and machinery and other facilities and services necessary
for the proper execution and completion of the Work; (ii) promptly pay when due
all costs and expenses incurred in connection with the Work; (iii) pay all
sales, consumer, use and similar taxes required by law in connection with the
Work; (iv) secure and pay for all permits, fees and licenses necessary for the
performance of the Work; and (v) at all times maintain the Premises and the
Project free and clear from any and all liens, claims, security interests and
encumbrances arising from or in connection with the Work, including, without
limitation, liens for materials delivered, supplied or furnished, or for
services or labor performed or rendered. All materials, supplies, goods,
appliances and equipment incorporated in the Work shall be free from any liens,
security interests or title retention arrangements, other than the lien or
security interest (if any) of the holder of any Mortgage placed upon the
Premises by Landlord. However, nothing contained in this Section is intended to
restrict or affect any right the party performing such Work may otherwise have
under this Lease for reimbursement of any costs or expenses incurred in
connection with such Work.
(d) The party performing such Work shall (i) be responsible
for the acts and omissions of all of its employees and all other persons
performing any of the Work; (ii) be responsible for initiating, maintaining and
supervising all necessary safety precautions and programs in connection with the
Work; (iii) take all reasonable precautions for the safety of, and provide all
reasonable protection to prevent damage, injury or loss to, the Work, all
persons performing the Work, all other persons who may be involved in or
affected by the Work, all materials and equipment to be incorporated in the Work
and all other property in the Building or on the land or adjacent thereto; (iv)
purchase and maintain in full force and effect, and cause its contractors and
subcontractors to purchase and maintain in full force and effect, such insurance
(if any) in addition to that otherwise required of such party under this Lease
as may be necessary to protect such party from claims under worker's
compensation acts and other employee benefit acts, from claims for damages
because of bodily injury, including death, and from claims for damage to
property which arise out of performance of the Work. Such additional insurance
policies, if any, shall meet the requirements set forth elsewhere herein with
respect to the insurance policies otherwise required to be obtained and
maintained by such party under this Lease. The party performing such Work shall
pay and shall indemnify and save the other party and its officers, employees and
agents harmless from all liabilities, damages, losses, costs, expenses, causes
of action, suits, claims, demands and judgments of any nature arising out of, by
reason of or in connection with the Work.
14. COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Tenant, at Tenant's
expense, shall comply with all laws, ordinances, orders, rules and regulations
of state, federal, county, municipal or other agencies or bodies having
jurisdiction relating to the Premises (excluding, however, compliance with
above-ceiling fire safety regulations which shall be borne by Landlord). Tenant
will comply with the Rules and Regulations adopted by Landlord which are set
forth on EXHIBIT D, attached hereto and hereby made a part hereof. Landlord
shall have the right at all times to change the Rules and Regulations in any
reasonable manner as Landlord may deem necessary or advisable, provided same
shall not materially interfere with Tenant's use of and operations at the
Premises. All changes and amendments in the Rules and Regulations will be sent
by Landlord to Tenant in writing and shall thereafter be carried out and
observed by Tenant. Landlord shall not enforce the Rules and Regulations in a
discriminatory manner against Tenant. Landlord shall comply with all laws,
ordinances, orders, rules and regulations of state, federal, county, municipal
or other agencies or bodies having jurisdiction relating to the Building other
than the Premises and portions of the Project leased to other tenants.
15. CONDEMNATION. (a) SUBSTANTIAL TAKING. If, during the Term, all or a
substantial part of the Premises or the Building, including, without limitation,
its common areas and parking areas, is permanently taken for any public or
quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain or by purchase or exchange in lieu thereof, and the
taking would prevent or materially interfere with the use of the Premises for
the purpose for which they are
<PAGE>
then being used, the Term shall terminate and the Rent shall be abated during
the otherwise unexpired portion of the Term effective on the date physical
possession of the condemned property is taken by the condemning authority. The
determination of whether such taking would prevent or materially interfere with
the use of the Premises shall be made by Landlord, however Landlord shall act
reasonably in making such determination.
(b) LESS THAN SUBSTANTIAL TAKING. In the event a portion of
the Premises or the Building, including, without limitation, its common areas
and parking areas, shall be taken for any public or quasi-public use under any
governmental law, ordinance or regulation, or by right of eminent domain or by
purchase or exchange in lieu thereof, and the Term is not terminated as provided
in subsection (a) above, Landlord may, at Landlord's option and at Landlord's
expense, restore and reconstruct the Building and other improvements of which
the Premises are a part to the extent necessary to make them reasonably
tenantable, and the Rent for the remainder of the Term shall be abated to such
extent as may be fair and reasonable considering all the circumstances.
16. FIRE AND CASUALTY. (a) SUBSTANTIAL DAMAGE. If the Premises or the
Building, including, without limitation, its common areas and parking areas,
should be totally destroyed by fire or other casualty, or if the Premises or the
Building, including without limitation, its common areas and parking areas,
should be so damaged such that the rebuilding cannot reasonably be completed
within one hundred and eighty (180) days after the date of written notification
by Tenant to Landlord of the destruction, either Landlord or Tenant may
terminate this Lease and the Rent shall be abated for the otherwise unexpired
portion of the Term, effective as of the date of such casualty. The
determination of whether such rebuilding can reasonably be completed within such
period shall be made by Landlord, however, Landlord shall act reasonably in
making such determination.
(b) LESS THAN SUBSTANTIAL DAMAGE. If the Premises or the
Building, including, without limitation, its parking areas or common areas,
should be partially damaged by fire or other casualty, and the rebuilding or
repairs can reasonably be completed within one hundred and eighty (180) days
after written notification by Tenant to Landlord of the damage, or if Landlord
or Tenant does not elect to terminate the Lease as set forth in Section 16(a)
above, Landlord shall proceed with reasonable diligence to rebuild or repair the
Building or other improvements of which the Premises are a part to substantially
the same condition as existed prior to the damage. If the Premises are to be so
rebuilt or repaired and are untenantable in whole or in part following the
damage, the Rent payable hereunder during the period for which the Premises are
untenantable shall be adjusted to such an extent as may be fair and reasonable
under the circumstances. In the event that Landlord fails to complete the
necessary repairs or rebuilding within one hundred eighty (180) days from the
date of written notification by Tenant to Landlord of the damage, with due
allowance for any force majeure, Tenant may at its option terminate this Lease
effective as of the end of such period for repair or rebuilding, by delivering
written notice of such termination to Landlord.
17. INSURANCE. (a) LANDLORD'S INSURANCE. Landlord agrees to maintain
during the Term the following insurance (the cost of which is to be borne by
Landlord): (i) "all risk" coverage insurance on the Building and the other
improvements on the Property, exclusive of any improvements constructed within
the Premises by or on behalf of Tenant, in an amount equal to the full
replacement cost thereof; and (ii) a policy or policies of worker's compensation
and comprehensive general liability insurance, including personal injury and
property damage in the amount of One Million and No/100 Dollars ($1,000,000.00)
for property damage and One Million and No/100 Dollars ($1,000,000.00) per
occurrence for personal injuries or deaths of persons occurring in or about the
Property. Tenant shall not permit the Premises to be used in any way which
would, in the opinion of Landlord, be extra hazardous on account of fire or
other hazard or casualty or which would otherwise and in other ways increase the
premiums for or render void any insurance relating to the Building or the
contents thereof or any liability of Landlord. If Tenant's specific use and
occupancy of the Premises causes any increase in any insurance premiums paid by
Landlord with respect to the Building, or if Tenant abandons the Premises and
thereby causes an increase in such premiums, then Tenant shall pay the Landlord
upon demand as Additional Rent the amount of such increase. Landlord shall not
be obligated in any way or manner to insure any personal property (including but
not limited to any furniture, machinery, equipment, goods or supplies) of Tenant
or which Tenant may have upon or within the Premises or any fixtures installed
by or paid for by Tenant upon or within the Premises or any additional
improvements which Tenant may construct on the Premises.
<PAGE>
(b) TENANT'S INSURANCE. Tenant shall, at its sole expense, at
all times during the Term of this Lease maintain in effect a policy or policies
of insurance (i) covering its personal property located in the Premises and
tenant improvements to the Premises paid for and installed by Tenant and
Landlord other than as set forth in (a) above, providing protection against any
peril included under insurance practices within the classification "all risk"
and to the full insurable value of such personal property and tenant
improvements and (ii) comprehensive public liability insurance with respect to
the Premises and the conduct or operation of Tenant's business therein, with
limits of not less than One Million and No/100 Dollars ($1,000,000.00) for death
or bodily injury to any one or more persons in a single occurrence and One
Million and No/100 Dollars ($1,000,000.00) for property damage. Tenant hereby
waives any and all rights of recovery against Landlord for any insured loss or
liability occurring to Tenant's personal property and tenant improvements and
the aforesaid policy or policies shall contain appropriate provisions
recognizing this release by Tenant and waiving all rights of subrogation by the
insurance carrier. Except for Landlord's or Landlord's agents', employees',
invitees', licensees' or contractors' negligence or willful misconduct, Tenant
hereby indemnifies and holds Landlord harmless from all claims, demands,
actions, damages, loss, liabilities, judgments, costs and expenses, including,
without limitation, attorneys' fees and costs which are suffered by, recovered
from or asserted against Landlord and arise from or in connection with the use
or occupancy of the Premises and/or any accident, injury or damage occurring in
the Premises. Tenant shall maintain a policy or policies of insurance with the
premiums paid in advance issued by and binding upon a solvent insurance company,
authorized to transact business in Florida, insuring all personal property of
Tenant upon or within the Premises in an amount equal to the full replacement
cost of such property. Tenant shall deliver certificates of such insurance to
Landlord on or before the Commencement Date, and thereafter from time to time
upon request.
18. WAIVER OF SUBROGATION. Any other term or condition of this Lease to
the contrary notwithstanding, Landlord and Tenant, to the fullest extent
permitted by law, each hereby waive all claims, causes of action and rights of
recovery against the other for and hereby release the other from liability for,
loss or damage to the extent such loss or damage is insured by valid and
collectible insurance in effect at the time of such loss or damage. To the
extent commercially available on a reasonable basis, Landlord's and Tenant's
insurance coverage required to be carried pursuant to Section 17 hereof shall
contain appropriate waiver of subrogation provisions consistent with this
Section 18.
19. LIABILITY AND INDEMNIFICATION. Landlord shall not be liable to
Tenant's employees, agents, invitees, licensees, contractors or visitors, or to
any other person, for any injury to person or damage to property on or about the
Premises caused by the negligence or misconduct of Tenant, its agents, servants,
or employees or of any other person entering upon the Premises under express or
implied invitation by Tenant. Except for Landlord's negligence or willful
misconduct, Tenant agrees to indemnify and hold harmless Landlord of and from
any loss, attorneys' fees, expenses or claims arising out of (i) any such damage
or injury, (ii) any and all defaults by Tenant hereunder, or otherwise by reason
of or resulting from the use or occupancy of the Premises.
Except for Tenant's negligence or willful misconduct, Landlord agrees to
indemnify and hold harmless Tenant from any loss, attorneys' fees, expenses or
claims arising out of Landlord's negligence or willful misconduct.
20. QUIET ENJOYMENT. Landlord warrants that it has full right to
execute and to perform this Lease and that Tenant, upon payment in full of the
required Rent and full performance of the terms, conditions, covenants and
agreements contained in this Lease, shall peaceably and quietly have, hold and
enjoy the Premises during the Term, subject only to the matters set forth in
Section 21 below. Landlord shall not be responsible for the acts or omissions of
any other Tenant, lessee or third party that may interfere with Tenant's use and
enjoyment of the Premises.
21. LANDLORD'S RIGHT OF ENTRY. With reasonable notice (except in the
case of an emergency), Landlord or its authorized agent shall at any and all
reasonable times have the right to enter the Premises to inspect the same, to
supply janitorial service or any other service to be provided by Landlord, to
show the Premises to perspective purchasers or tenants (only during the last
twelve (12) months of the Term with respect to prospective tenants), and to
alter, improve or repair the Premises or any other portion of the Building.
Tenant shall make available a representative of Tenant during all reasonable
time periods (except in an emergency) during which Landlord shall access the
Premises. Except for Landlord's negligence or willful misconduct, Tenant hereby
waives any claim for damages for injury or inconvenience to or interference with
Tenant's business, any loss
<PAGE>
of occupancy or use of the Premises, and any other loss occasioned thereby.
Landlord agrees to use good faith efforts to minimize disruption to Tenant's
business during any periods when Landlord requires access to the Premises.
Landlord shall at all times have and retain a key with which to unlock all of
the doors in, upon and about the Premises, provided, however, that Tenant shall
not be obligated to provide Landlord with keys to the computer room as shown on
attached floor plan. Tenant shall not change Landlord's lock system or in any
other manner prohibit Landlord from entering the Premises. Landlord shall have
the right to use any and all means which Landlord may deem proper to open any
door in an emergency without liability therefore.
22. ASSIGNMENT OR SUBLET. (a) Tenant shall not assign, in whole or in
part, this Lease, or allow it to be assigned, in whole or in part, by operation
of law or otherwise (including without limitation by transfer of a majority
interest in a partnership or a majority interest of stock, merger or
dissolution, which transfer of majority interest, merger or dissolution shall be
deemed an assignment) or mortgage or pledge the same, or sublet the Premises in
whole or in part, without the prior written consent of Landlord (which consent
shall not be unreasonably withheld or delayed) and in no event shall any such
assignment or sublease release Tenant or any guarantor from any obligation or
liability hereunder. The foregoing provision of this Section 22 shall not apply
to restrict any transfer of stock whenever Tenant is a corporation the
outstanding stock of which is listed on a recognized national stock exchange or
the National Association of Securities Dealers National Market System or in
connection with an initial public offering or a private placement of stock
pursuant to Section 3(a)(11), (4)(2) or Regulations D and S of the Securities
Act of 1933, as amended. No assignee or sublessee of the Premises or any portion
thereof may assign or sublet the Premises or any portion thereof.
(b) Any assignment or sublease made by Tenant without
Landlord's consent when Landlord's consent is required pursuant to the terms of
this Lease shall be void, and, at Landlord's option, constitute a default under
the terms and conditions of this Lease.
(c) Consent by Landlord to any assignment, transfer or
subletting to any party, shall not be construed as a waiver or a release of
Tenant from the terms of any covenant or obligation under this Lease, nor shall
its consent to one assignment, transfer or subletting to another person,
partnership, firm or corporation be deemed to be a consent to any subsequent
assignment, transfer or subletting to another person, partnership, firm or
corporation.
(d) In the case of an approved subletting, Landlord shall have
the right to any and all sums or economic consideration in excess of the Base
Rent and Additional Rent payable hereunder from such subletting reasonably
attributable to the sublet portion of the Premises, as and when received (net of
the reasonable costs of obtaining such sublessees, including, without
limitation, any tenant improvement allowance or buildout costs borne by Tenant
in connection with any such subletting and any brokerage commission due with
respect to any such subletting). In the case of an assignment of this Lease,
Landlord shall have the right to any and all sums or other economic
consideration in excess of the Base Rent and Additional Rent reasonably
attributable to such assignment of this Lease, as and when received (net of the
reasonable costs of obtaining such assignees, including, without limitation, any
tenant improvement allowance or buildout costs borne by Tenant in connection
with any such assignment and any brokerage commission due with respect to any
such assignment).
(e) Notwithstanding the above provisions of this Section 22,
Tenant shall have the right to sublet or assign all or part of the Premises
without the prior consent of Landlord to: (i) any person, corporation,
partnership or other entity which shall control, be under the control of, or be
under common control with, Tenant and/or (ii) any corporation, partnership or
other business entity resulting from the merger, consolidation or other business
combination with Tenant to any person or entity that acquires all or
substantially all of Tenant's assets as a going concern of the business that is
being conducted in the Premises, as long as the assignee or sublessee assumes in
full the obligations of Tenant under this Lease, provided, however, that (1)
such assignee or subtenant must be a bona fide entity, (2) such assignee's or
subtenant's proposed use of the Premises must be consistent with the uses
permitted under this Lease, (3) the character, reputation, and business of the
proposed assignee or sublessee is consistent with the tenants then in the
Building, including Tenant and (4) Tenant shall nonetheless be required to
provide Landlord with at least fifteen (15) business days advance written notice
of any such assignment or subletting including with such notice the following
information, documentation and notice: (aa) the identity of such sublessee or
assignee, (bb) the planned use of the Premises and the business to be conducted
therefrom, and (cc) reasonable
<PAGE>
documentation to evidence that the proposed sublessee or assignee shall in fact
be an affiliate meeting the qualifications of this Section 22(e). Further, if
requested by Landlord, Tenant shall provide to Landlord such other information
as may be reasonably requested by Landlord during such fifteen (15) business day
period to substantiate Tenant's right to consummate said subleases or
assignments as contemplated by this Section 22(e). For purposes of this Section
22, the term "control" shall mean possession, direct or indirect, of the power
to direct, or cause the direction of, the management and policies of any person
or entity, if through the ownership of at least twenty percent (20%) of the
voting securities, partnership interests or similar ownership rights. Landlord
acknowledges that such information is confidential information and may not be
used, disclosed or acted upon for the purpose of insider trading or otherwise in
contravention of the Securities Act of 1933, as amended, or the Exchange Act of
1934.
23. EVENTS OF DEFAULT. Each of the following shall be deemed to be an
Event of Default by Tenant under this Lease: (a) Tenant shall fail to pay any
installment of Base Rent and Additional Rent when due or any other amount
required pursuant to this Lease within five (5) days after written notice by
Landlord to Tenant that such sum is due and unpaid; provided, however, that
notwithstanding the foregoing, Landlord shall have no obligation to notify
Tenant of the failure to pay any sum due from Tenant under this Lease on more
than two (2) occasions during any twelve (12) month period; (b) Tenant shall
fail to comply with any term, provision or covenant of this Lease, other than
payment of Base Rent, Additional Rent, or any other required amount, and the
failure is not cured within thirty (30) days after written notice to Tenant (or
if such failure to comply on the part of Tenant would reasonably require more
than thirty (30) days to rectify, unless Tenant commences rectification within
the thirty (30) day notice period and thereafter promptly, effectively and
continuously proceeds with the rectification of the failure to comply on the
part of Tenant and, in all events, cures such failure to comply on the part of
Tenant no later than the time period reasonably required to effectuate such
cure; (c) Tenant shall file a petition for relief or be adjudged bankrupt or
insolvent under the Federal Bankruptcy Act, as amended, U.S.C.A. Title 11
(entitled "Bankruptcy") Section 101 ET SEQ. as amended, or any similar law or
statute of the United States or any state; or a receiver or trustee shall be
appointed for all or substantially all of the assets of Tenant; or Tenant shall
make a transfer in fraud of creditors or shall make an assignment for the
benefit of creditors and fails to have such receiver or trustee dismissed within
ninety (90) days from the date of such appointment; or (d) Tenant shall do or
permit to be done any act which results in a lien being filed against the
Premises or the Building and fails to remove such lien by payment, bond or
otherwise within twenty (20) business days from receipt of Landlord's notice to
remove.
24. REMEDIES FOR TENANT'S DEFAULT. Upon the occurrence of any Event of
Default, Landlord may at its option pursue any one or more of the following
remedies, and any and all other rights or remedies accruing to Landlord by law
or otherwise, without any notice or demand: (a) commence dispossessory
proceedings with or without the termination of this Lease; (b) declare the
entire amount of Rent calculated on the current rate being paid by Tenant, and
other sums which in Landlord's reasonable determination would become due and
payable during the remainder of the Term (including, but not limited to,
increases in Rent pursuant to the terms hereof), discounted to present value by
using a reasonable discount rate selected by Landlord, and reduced by the
reasonable rental value of the Premises for the remainder of the Term thereof
(taking into account in such calculation the reasonable costs of obtaining
substitute tenants (including, without limitation, any reasonably anticipated
tenant improvement allowance, or any reasonably anticipated tenant build-out
expense, and any brokerage commissions reasonably anticipated to be incurred in
connection with same) and the reasonable time period under the circumstances of
anticipated vacancy prior to reletting), to be due and payable immediately. Upon
such acceleration of such amounts, Tenant agrees to pay the same at once,
together with all Rent and other amounts theretofore due, at Landlord's address
as provided herein; provided however, that such payment shall not constitute a
penalty or forfeiture but shall constitute liquidated damages for Tenant's
failure to comply with the terms and provisions of this Lease (Landlord and
Tenant agreeing that Landlord's actual damages in such an event are impossible
to ascertain and that the amount set forth above is a reasonable estimate
thereof). The acceptance of such payment by Landlord shall not constitute a
waiver of rights or remedies to Landlord for any failure of Tenant thereafter
occurring to comply with any term, provision, condition or covenant of this
Lease; (c) commence proceedings against Tenant for all amounts owed by Tenant to
Landlord, whether as Base Rent, Additional Rent, damages or otherwise; (d)
terminate the Term, in which event Tenant shall immediately surrender the
Premises to Landlord and Tenant agrees to pay on demand the amount of all loss
and damage which Landlord may suffer by reason of the termination of the Term
under this subsection or otherwise (the remedy set forth in this clause (d) is
an alternative remedy to that set forth in clause
<PAGE>
(a) above but may not be exercised together with the remedy described in clause
(a) above; (e) as an alternative remedy to the remedy set forth in clause (a)
above, with or without terminating this Lease, relet the Premises on behalf of
Tenant and receive directly the rent by reason of the reletting in which event
Tenant agrees to pay Landlord on demand any deficiency that may arise by reason
of any reletting of the Premises and to reimburse Landlord upon demand for any
expenditures made by it for remodeling or repairing in order to relet the
Premises and for all other expenses incurred in connection with such reletting;
Landlord shall not be liable for any failure to relet the Premises, in whole or
in part, nor for any failure to collect any rent due from any such reletting;
rather, Tenant shall remain liable for all Rent and for all such expenses; (f)
enter upon and take possession of the Premises, without being liable for
prosecution of any claim for damages or for trespass or other tort; (g) do or
caused to be done whatever Tenant is obligated to do under the terms of this
Lease, in which case Tenant agrees to reimburse Landlord on demand for any and
all costs or expenses which Landlord may thereby incur and Tenant agrees that
Landlord shall not be liable for any damages resulting to Tenant from effecting
compliance with Tenant's obligations under this subsection, whether caused by
the negligence of Landlord or otherwise; or (h) enforce the performance of
Tenant's obligations hereunder by injunction or other equitable relief (which
remedy may be exercised upon any breach or default or any threatened breach or
default of Tenant's obligations hereunder).
25. WAIVER OF DEFAULT OR REMEDY. Tenant understands and acknowledges
that no assent, express or implied, by Landlord to any breach of any one or more
of the terms, covenants or conditions hereof shall be deemed or taken to be a
waiver of any succeeding or other breach, whether of the same or any other term,
covenant or condition hereof.
26. FORCE MAJEURE. Landlord and Tenant (except with respect to the
payment of Base Rent, Additional Rent or any other monetary obligation under
this Lease and except as provided in Section 2 hereof) shall be excused for the
period of any delay and shall not be deemed in default with respect to the
performance of any of the terms, covenants and conditions of this Lease when
prevented from so doing by a cause or causes beyond the Landlord's or Tenant's
(as the case may be) control, which shall include, without limitation, all labor
disputes, governmental regulations or controls, fire or other casualty,
inability to obtain any material or services, acts of God, or any other cause
not within the reasonable control of Landlord or Tenant (as the case may be).
27. ATTORNEY'S FEES. In the event of any lawsuit or court action
between Landlord and Tenant arising out of or under this Lease or the terms and
conditions stated herein, the prevailing party in such lawsuit or court action
shall be entitled to and shall collect from the non-prevailing party the
reasonable attorney's fees and court costs actually incurred by the prevailing
party with respect to said lawsuit or court action. The prevailing party shall
be deemed to be that party who obtains substantially the same relief sought
whether by compromise, settlement or judgment.
28. HOLDING OVER. Tenant will, at the termination of this Lease by
lapse of time or otherwise, yield up immediate possession of the Premises to
Landlord. If Tenant retains possession of the Premises or any part thereof after
such termination, then such holding over shall create a tenancy at sufferance
upon the terms and conditions set forth in this Lease; provided however that the
Base Rent shall, in addition to all other sums which are to be paid by Tenant
hereunder, whether or not as Additional Rent, be equal to one hundred fifty
percent (150%) of the Base Rent being paid to Landlord under this Lease
immediately prior to such termination (prorated for each day Tenant remains in
possession); provided, however, that in the event Landlord has provided Tenant
notice of termination and Tenant retains possession the Base Rent shall be two
hundred percent (200%) of the Base Rent being paid to Landlord under this Lease
immediately prior to such termination (prorated for each day Tenant remains in
possession); and there shall be no renewal of this Lease by operation of law.
The provisions of this Section 28 shall not constitute a waiver of any right of
re-entry as herein set forth or as provided by law; nor shall receipt of any
rent or other act in apparent affirmance of the tenancy operate as a waiver of
the right to terminate this Lease for a breach of any of the terms, covenants or
obligations herein on Tenant's part to be performed.
29. RIGHTS OF MORTGAGEES AND OTHERS. Tenant accepts this Lease subject
and subordinate to the lien or security title of any recorded mortgage, deed of
trust or deed to secure debt presently existing or hereafter created upon the
Premises and to all existing recorded restrictions, covenants, easements and
agreements with respect to the Building or any part thereof, and all amendments,
modifications and restatements thereof and all replacements and substitutions
therefor; provided, however, that nothing contained in any of the foregoing
enumerated instruments (whether now
<PAGE>
existing or hereafter entered into) prevents or shall prevent or materially
interferes with or shall materially interfere with Tenant's rights and
privileges under this Lease, Landlord's consents herein granted to Tenant or
Tenant's intended use or occupancy of the Premises as set forth in this Lease
(save and except for any mortgagee's right to foreclose out Tenant's
subordinated leasehold estate in the Premises as a consequence of said
mortgagee's foreclosure of Landlord's interest therein). Any provisions of this
Lease requiring the future approval or consent of Landlord shall not be deemed
to have been unreasonably withheld if any mortgagee (which shall include the
holder of any mortgage, deed of trust or deed to secure debt) of the Premises or
Building or any portion thereof shall refuse or withhold its approval or consent
thereto (provided such holder of any mortgage or deed to secure debt shall act
with the same standard of reasonableness as imposed upon Landlord hereunder).
Any requirement of Landlord pursuant to this Lease which is imposed pursuant to
the direction of any such mortgagee shall be deemed to have been reasonably
imposed by Landlord if made in good faith, provided same shall not unreasonably
interfere with Tenant's use and enjoyment of the Premises and Tenant's rights
under this Lease.
30. ESTOPPEL CERTIFICATES. Within ten (10) business days following any
written request which a party may make from time to time (but not more often
than four (4) times in any calendar year), the other party shall execute,
acknowledge and deliver to the requesting party a certificate stating that this
Lease is unmodified and in full effect (or, if there have been modifications,
that this Lease is in full effect as modified, and setting forth such
modifications); the amounts and dates to which Base Rent, Additional Rent and
other sums payable hereunder have been paid; such other reasonable information
pertaining to the Lease as may be requested by Landlord or Tenant, as the case
may be; and either that to the knowledge of the signer of such certificate no
default exists hereunder or specifying each such default of which the signer has
knowledge. Landlord and Tenant intend that any statement delivered pursuant to
this Section 30 may be relied upon by the requesting party and any individual or
entity named by the requesting party in the request therefor.
31. SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and inure
to the benefit of Landlord and Tenant and their respective heirs,
representatives and assigns, subject, however, to the provisions of Section 23
above. It is hereby covenanted and agreed that should Landlord's interest in the
Premises cease to exist for any reason during the Term, then notwithstanding the
happening of such event this Lease nevertheless shall remain unimpaired and in
full force and effect and Tenant hereby agrees to be bound and obligated
hereunder to the then owner of the Premises as landlord provided the new owner
accepts the obligations of landlord hereunder.
32. NOTICE. (a) Except for legal process, which may also be served as
by law provided or as provided below, all notices required or desired so be
given with respect to this Lease shall be in writing and shall be deemed to be
given to and received by the party intended to receive such notice when
delivered by overnight courier, hand delivered or three (3) days after such
notice shall have been deposited, postage prepaid, in the United States mail,
certified, return receipt requested, properly addressed to the addresses
specified below. In the event of a change of address by either party, such party
shall give written notice thereof n accordance with the foregoing.
LANDLORD'S ADDRESS FOR NOTICES: TENANT'S ADDRESS FOR NOTICES:
------------------------------ ----------------------------
Fairfax Boca 92, L.P. Omega Research, Inc.
c/o Flagship Group, Inc. 8700 West Flagler Street, Suite 250
2300 Windy Ridge Parkway, Suite 50 Miami, Florida 33174
Atlanta, GA 30339-5671 Attention: Marc J. Stone, Esq.
Attention: T. Gordy Germany
33. BROKERAGE CLAIMS. Tenant and Landlord hereby warrant and represent
to the other that Tenant or Landlord, as the case may be, has not dealt with any
broker, agent or finder in connection with this Agreement other than Larkin,
Schmidt, Weidenbaum Commercial Real Estate. Both Landlord and Tenant covenant
and agree to hold each other harmless from and against any and all loss,
liability, damage, claim, judgment, cost or expense (including but not limited
to attorneys' fees and expenses and court costs) that may be incurred or
suffered by the other party because of any claim for any fee, commission or
similar compensation with respect to this Agreement, made by any other broker,
agent or finder claiming to have dealt with such party, whether or not such
claim is meritorious. Landlord agrees to pay Larkin, Schmidt, Weidenbaum
Commercial Real Estate pursuant to a separate agreement.
<PAGE>
34. SIGNS. Tenant shall not install, paint, display, inscribe, place or
affix any sign, picture, advertisement, notice, lettering, or direction
(hereinafter collectively called "Signs") on the exterior of the Premises, the
common areas of the Building, the interior surface of glass or any other
location which could be visible from outside of the Premises without first
securing written consent from Landlord therefore. Any Sign permitted by Landlord
shall at all times conform with all municipal ordinances or other laws,
regulations, deed restrictions and protective covenants applicable thereto.
Tenant shall remove all Signs at the expiration or other termination of this
Lease, at Tenant's sole risk and expense, and shall in a good and workmanlike
manner properly repair any damage caused by the installation, existence, or
removal of Tenant's Signs. Notwithstanding the foregoing, Tenant shall have the
right, without Landlord's consent, to place its firm name on the door of the
Premises. Additionally, if during the term of the Lease the Building shall
contain a directory of tenants, Tenant shall have the right during the Term of
the Lease to have its firm name displayed thereon.
35. ENTIRE AGREEMENT, AMENDMENT AND LIMITATION OF WARRANTIES. IT IS
EXPRESSLY AGREED BY TENANT, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF
THIS LEASE, THAT THIS LEASE, WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC
DOCUMENTS, IS THE ENTIRE AGREEMENT OF THE PARTIES; THAT THERE ARE, AND WERE NO
VERBAL REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR
PROMISES PERTAINING TO THIS LEASE OR THE EXPRESSLY MENTIONED EXTRINSIC DOCUMENTS
NOT INCORPORATED IN WRITING IN THIS LEASE. LANDLORD AND TENANT EXPRESSLY AGREE
THAT, EXCEPT AS EXPRESSLY SET FORTH IN THIS LEASE, THERE ARE AND SHALL BE NO
IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR USE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE AND THERE ARE NO
WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE. IT IS
LIKEWISE AGREED THAT THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR EXTENDED
EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY BOTH LANDLORD AND TENANT.
36. LIMITATION OF LIABILITY. Landlord's obligations and liability with
respect to this Lease shall be limited solely to Landlord's interest in the
Building, as such interest is constituted from time to time, and neither
Landlord nor any officer, director, shareholder or partner of Landlord, or of
any partner of Landlord, shall have any personal liability whatsoever with
respect to this Lease.
37. SUBMISSION OF AGREEMENT. Submission of this Lease to Tenant for
signature does not constitute a reservation of space or an option to acquire a
right of entry. This Lease is not binding or effective until execution by and
delivery to both Landlord and Tenant.
38. CORPORATE AUTHORITY. (a) If Tenant executes this Lease as a
corporation, each of the persons executing this Lease on behalf of Tenant does
hereby represent and warrant that Tenant is a duly organized and validly
existing corporation, that Tenant is qualified to do business in the State in
which the Building is located, that Tenant has full right, power and authority
to enter into this Lease, and that each person signing on behalf of Tenant is
authorized to do so and Tenant shall provide Landlord evidence reasonably
acceptable to Landlord of such authority. Upon Landlord's request, Tenant shall
provide Landlord with evidence reasonably satisfactory to Tenant confirming the
foregoing representations and warranties.
(b) If Landlord executes this Lease as a corporation, each of
the persons executing this Lease on behalf of Landlord does hereby represent and
warrant that Landlord is a duly organized and validly existing corporation, that
Landlord is qualified to do business in the State in which the Building is
located, that Landlord has full right, power and authority to enter into this
Lease, and that each person signing on behalf of Landlord is authorized to do so
and Landlord shall provide Tenant evidence reasonably acceptable to Tenant of
such authority. Upon Tenant's request, Landlord shall provide Tenant with
evidence reasonably satisfactory to Tenant confirming the foregoing
representations and warranties.
39. MISCELLANEOUS. The captions appearing in this Lease are inserted
only as a matter of convenience and in no way define, limit, construe or
describe the scope or intent of any provision hereof. If any provision of this
Lease shall ever be held to be invalid or unenforceable in any circumstance or
as to any person, such invalidity or unenforceability shall not affect such
provision
<PAGE>
in any other circumstance or as to any other person or any other provision of
this Lease. This Lease, or any portion hereof, shall not be recorded unless both
parties hereto agreed to the recording.
40. GOVERNING LAW. This Lease shall be governed and construed in
accordance with the laws of the State in which the Building is located.
41. COUNTERPARTS. This Lease may be executed in multiple counterparts,
each of which shall be deemed an original and all of which shall constitute one
agreement, and the signatures of any party to any counterpart shall be deemed to
be a signature to, and may be appended to, any other counterpart.
42. RADON DISCLOSURE. Radon is a naturally occurring radioactive gas
that, when it has accumulated in a building in sufficient quantities, may
present health risks to persons who are exposed to it over a time. Levels of
radon that exceed federal and state guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may be
obtained from the County Public Health Unit
43. RIGHT OF REFUSAL. Landlord will provide to Tenant a second right of
refusal to lease additional contiguous space on the same floor, subject to the
existing right of refusal respecting same heretofore given by Landlord to
Associated Industries Insurance Services ("AIIS"). Such notice shall be provided
to Tenant simultaneously, along with the notice to said tenant that has the
existing first right of refusal. Tenant shall have fifteen (15) days in which to
notify Landlord of its intent to exercise this right (subject, however, to the
first right of refusal). If AIIS declines to exercise the first right of refusal
and Tenant exercises the second right of refusal, such additional space shall be
provided to Tenant within thirty (30) days, on an "as-is" basis, and at the same
rental rate which tenant is paying for the original premises. If Tenant shall
decline to exercise such right to let said space, Landlord may at any time with
six (6) months after such notice is given to Tenant so let such space to third
parties, failing which the right of refusal shall be deemed reinstated as to
such space.
44. PARKING. Tenant, its agents, invitees, employees and contractors
shall have the right throughout the Term, on a non-exclusive and unreserved
twenty-four (24) hours a day, seven (7) days a week, free of charge basis, to
utilize up to 3.75 parking spaces for each 1,000 square feet of Premises demised
hereunder, rounded up to the nearest whole number of parking spaces, in the
parking areas located adjacent to the Building. Landlord represents to Tenant
that there currently exists, and will throughout the Term of the Lease exist,
adequate parking spaces under applicable codes to allow for the foregoing
allocation to Tenant. The parties agree that the Tenant shall be allocated
twenty-four (24) parking spaces during the Term of the Lease to be increased as
aforesaid only if Tenant exercises its right of refusal under Section 43 hereof.
45. SATELLITE DISHES. At Tenant's sole cost and expense, and subject to
Tenant complying with any and all rules, regulations, laws, ordinances, safety
standards and statutes of any municipal, county, state or federal governmental
or quasi-governmental agency or authority, Tenant may install, and once
installed, modify, remove and replace from time to time, up to ten (10)
satellite or microwave dishes or antenna (four of which shall not exceed
eighteen (18) inches in diameter and six (6) of which shall not exceed six (6)
feet in diameter) (the "Rooftop Communication System") on the roof of the
Building. The Rooftop Communication System shall be located on the roof area
immediately above the Premises. No dish shall exceed 100 pounds in weight
(inclusive of anchoring weights). The Rooftop Communication System shall be
installed, at Tenant's expense, by Tenant's in-house engineering staff, or by a
contractor approved by Landlord, which contractor approval shall not be
unreasonably withheld or delayed. There shall be no penetrations of the roof
membrane, and Tenant shall take no action which may void Landlord's roof
warranty. The Rooftop Communication System shall include the use of any Building
shafts required to bring Tenant's data cables from the roof area to the
Premises. Tenant shall have access to the roof and Tenant's equipment relating
to such Rooftop Communications System at all reasonable times throughout the
Term. Tenant shall be responsible for procuring and shall provide Landlord with
copies of whatever licenses, certifications or permits may be required for the
use of such Rooftop Communication System or operation of any equipment served
thereby, and shall fully indemnify and hold Landlord harmless from any and all
causes of action resulting from Tenant's installation, maintenance, removal, use
and operation of the Rooftop Communication System. Landlord makes no warranties
whatsoever as to the permissibility of such Rooftop Communication System under
applicable laws of fitness for use for a particular purpose or merchantability.
Tenant shall not be obligated to pay rent or otherwise compensate Landlord with
respect to the Rooftop Communication System.
<PAGE>
Notwithstanding the foregoing, in the event that at any time during the
Term of the Lease Tenant's use and operation of the Rooftop Communication System
shall result in any material interference with or disruption of the use and
operation of the satellite communications systems or other operations of either
or both of two other tenants at the Project - Bell South and/or Associated
Industries - then, in such event, Tenant shall, at Tenant's expense, cause the
Rooftop Communication System to be relocated elsewhere on the roof of the
Building, or, if such relocation elsewhere on the roof of the Building shall not
correct the interference and/or disruption problem, to another Project
building's rooftop or elsewhere at the Project. The determination of any such
relocation area shall be made by Landlord and Tenant jointly, each agreeing to
act reasonably.
In the event that the City of Boca Raton or any other applicable
governmental authority shall at any time during the term of the Lease require
the installation of any screening device respecting the Rooftop Communication
System to shield its visibility, the design and aesthetics of same shall be
subject to Landlord's consent, not to be unreasonably withheld or delayed.
Tenant shall maintain, at Tenant's sole cost and expense, the Rooftop
Communication System in good order and repair at all times.
Tenant may remove the Rooftop Communication System, at any time during
the Term of the Lease, upon fifteen (15) days' prior written notice to Landlord.
Tenant covenants and agrees that, if requested by Landlord, Tenant shall, at
Tenant's sole cost and expense, remove any such Rooftop Communication System (a)
at or prior to the expiration or earlier termination of this Lease, or (b) in
the event Tenant violates the covenants contained in this Section beyond any
applicable curative period. In the event the Rooftop Communication System is
removed by Tenant, Tenant shall surrender the roof area to Landlord in good
condition, except for ordinary wear and tear and damage by fire, casualty and
other elements, and the negligence or willful misconduct of Landlord, its
agents, employees and/or contractors.
IN WITNESS WHEREOF, the undersigned have executed and delivered this Lease under
seal as of the day and year first above written.
LANDLORD:
FAIRFAX BOCA 92, L.P., a Georgia limited
partnership
By: Fairfax Properties, Inc.
Its duly authorized general partner
ILLEGIBLE By: /s/ T. Gordon Germany
---------------------------------
Witness: ILLEGIBLE
--------------------------- Its: Pres
--------------------------------
TENANT:
OMEGA RESEARCH, INC.
/s/ Mikki E. Blyskal By: /s/ Gregg Stewart
---------------------------------
Witness: /s/ Loren Constantino
--------------------------- Its: Chief Financial Officer
--------------------------------
[CORPORATE SEAL]
<PAGE>
EXHIBIT "A"
[OUTLINE OF PREMISES]
<PAGE>
EXHIBIT "B"
[LEGAL DESCRIPTION OF LAND]
PROPERTY LOCATED IN FLOOD ZONE A6, ELEV. 11 (2/1/79)
PER FLOOD RATE INSURANCE MAP, PLAM BEACH COUNTY,
FLORIDA, COMMUNITY PANEL NUMBER 120192 0220 B, AS
REVISED OCTOBER 15, 1962
DESCRIPTION: Parcel "B" of North Forty
A parcel of land lying and being in Sections 1 and 12, Township 47 South, Range
42 East and Sections 6 and 7, Township 47 South, Rage 43 East, Palm Beach
County, Florida, described as follows:
Commence at the Northeast corner of said Section 12; thence South
00/degree/29'15" West, along the East line of said Section 12, a distance of
80.01 feet to the North right-of-way line of N.W. 51st Street and the Point of
Beginning of this description; thence North 88/degree/35'00" West, along a line
80.00 feet South of, and parallel with, as measured at right angles to the North
line of said Section 12, a distance of 453.93 feet; thence North
00/degree/24'40" East, a distance of 149.73 feet; thence North 89/degree/35'20"
West, a distance of 4.27 feet; thence North 00/degree/24'40" East, a distance of
69.93 feet; thence North 89/degree/35'20" West, a distance of 2.46 feet; thence
North 00/degree/24'40" East, a distance of 578.59 feet; thence South
89/degree/35'20" East, a distance of 14.51 feet; thence North 00/degree/24'40"
West, a distance of 13.99 feet; thence South 88/degree/35'00" East, a distance
of 504.73 feet to the East line said Section 1; thence continue South
88/degree/35'00" East, a distance of 57.50 feet; thence South 00/degree/29'15"
West, parallel with the East line of said Section 1, a distance of 250.00 feet;
thence South 88/degree/35'00" East, a distance of 20.00 feet; thence South
00/degree/29'15" West, a distance of 435.82 feet to a line 45.00 feet North of
an parallel with the South line of said Section 6; thence South 89/degree/42"30"
East, along said parallel line, a distance of 40.00 feet; thence South
00/degree/29'15" West, a distance of 45.00 feet to the South line of said
Section 6; thence continue South 00/degree/29'15" West, a distance 80.00 feet to
a line 80.00 feet South of an parallel with the South line of said Section 6,
said point being further described as being the North right-of-way line of N.W.
51st Street; thence North 89/degree/42'30" West, along said parallel line, a
distance of 117.50 feet to the said Point of Beginning of this description.
Said lands situate, lying and being in Palm Beach County, Florida.
Containing 10.03 acres, more or less.
<PAGE>
EXHIBIT "C"
CLEANING AND JANITORIAL SERVICES
CLEANING SERVICE FOR THE NORTH 40 INCLUDES:
DAILY OPERATIONS
LOBBY -
1. Dust mop floors. Damp mop hard surface floors.
2. Spot clean interior glass partitions, doors, frames, light switches.
Baseboards, etc. Wash entrance glass on both sides.
3. Dust all partitions, doors, door frame surfaces and all horizontal
surfaces.
4. Wash exterior surfaces of all trash containers.
5. Empty and damp wipe ashtrays.
CORRIDORS, ELEVATORS AND STAIRWELLS -
1. Empty and damp wipe ashtrays.
2. Dust to hand height all horizontal surfaces of ledges, sills,
ventilating louvers, frames, etc.
3. Clean and sanitize all drinking fountains.
4. Empty waste containers.
5. Vacuum all carpeted areas.
6. Spot wash walls and exterior surfaces of elevator doors.
7. Sweep and remove leaves from atrium floors.
8. Dust grab rails.
9. Sweep and wash steps and landings, as necessary.
GENERAL OFFICE AREA -
1. Empty all waste baskets in offices and replace basket liners as
required.
2. Dust and spot clean all countertops.
3. Dust all horizontal surfaces of desks, chairs, tables and office
equipment.
4. Dust all exposed filing cabinets, bookcases and shelves.
5. Dust to hand height all horizontal surfaces of equipment, ledges,
sills, shelves, frames, partitions, etc.
6. Dust all telephones.
7. Vacuum clean all exposed carpeting.
8. Dust mop or sweep all non-carpeted floors.
<PAGE>
9. Spot wash walls, glass surfaces, doors, frames, light switches,
baseboards, desk tops, and countertops.
REST ROOMS -
1. Clean and disinfect all fixtures, toilets, urinals and partitions. Mop
floors and clean mirrors. Stock all dispensers.
2. Empty and damp wipe ashtrays.
WORK HOURS -
All cleaning shall be performed on a five (5) day week, Monday through Friday,
between 6:30 P.M. and 11:00 P.M.
ADDITIONAL WORK REQUESTED BY TENANT -
Any additional work requested by tenants can be per an agreed additional charge
and can be paid for by management or the requesting tenant.
INSURANCE -
Any company performing janitorial services in The North 40 will maintain
worker's compensation and contractor's liability insurance.
QUARTERLY OR AS REQUIRED:
- - Wash windows interior and exterior
- - Clean all mechanical, equipment rooms, plumbing pipes in stairwells
- - Dust blinds and clean any finger prints
- - Clean all light fixtures, fire equipment boxes and exit lights
- - Spot clean all carpet, including traffic areas
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
To ensure minimizing of inconvenience to tenants and to maintain the interior
space in a condition comparable to other first class office space in the Boca
Raton, Florida market area, the following Building regulations are provided and
are applicable to Tenant, except as otherwise specifically addressed in the
Lease:
1. The sidewalks, entry passages, corridors, halls, elevators and
stairways shall not be obstructed by Tenant, or used by Tenant for any
purpose other than those of ingress and egress. The floors, skylights
and windows that reflect or admit light into any place in said Building
shall not be covered or obstructed by Tenant subject to Tenant's right
to install window coverings such as blinds. The water closes and other
water apparatus shall not be used for any other purpose than those for
which they were constructed, and no sweepings, rubbish, or other
obstructing substances shall be thrown therein.
2. No advertisement, sign or other notice shall be inscribed, painted or
affixed on any party of the outside or inside of said Building, except
upon the interior doors and windows permitted by Landlord, which signs,
etc. shall be of such order, size and style and at such places as shall
be designated by Landlord. Exterior signs on doors will be provided for
Tenant by Landlord, the cost of such signage to be charged to and paid
for by Tenant.
3. Nothing shall be thrown by Tenant, its clerks or servants out of the
windows or doors or down the passages or skylights of the Building. No
rooms shall be occupied or used as a sleeping or lodging apartments at
any time.
4. Tenant shall not employ any persons other than the janitors of Landlord
or others reasonably approved by Landlord (who will be provided with
pass keys into the offices) for the purpose of cleaning or taking
charge of said Premises. It is understood and agreed that the Landlord
shall not be responsible to Tenant for any loss of property from the
Premises, however occurring, or for any damage done to the furniture or
other effects of Tenant by the janitor or any of its employees,
provided, however, that Landlord shall use its good faith reasonable
efforts to employ service companies for providing such janitorial
services which maintain quality controls for personnel employed.
5. No animals (except service animals), birds, bicycles or other vehicles
shall be allowed in the offices, halls, corridors, elevators or
elsewhere in the Building.
6. No painting shall be done, nor shall any alterations be made to any
part of the Building by putting up or changing any partitions, doors or
windows, nor shall there be any nailing, boring, or screwing into the
woodwork or plastering, nor shall any connection be made to the
electric wires or electric fixtures without the consent in writing on
each occasion of Landlord or its Agent. All glass, locks and trimmings
in or upon the doors and windows of the Building shall be kept whole
and, when any part thereof shall be broken, the same shall be
immediately replaced ore repaired and put in order under the direction
and to the satisfaction of Landlord, or its Agent, and shall be left
whole and in good repair. Tenant shall not injure, overload or deface
the Building, the woodwork or the walls of the Premises, nor carry on
upon the Premises any noisome, noxious, noisy or offensive business.
7. Tenant shall not (without Landlord's prior written consent) put up or
operate any steam engine, boiler, machinery or stove upon the Premises,
or carry on any mechanical business thereof, or do any cooking thereon,
or use or allow to be used upon the Premises oil, burning fluids,
camphene, gasoline or kerosene for heating, warming or lighting. No
article deemed extra hazardous on account of fire and no explosives
shall be brought into the Premises. No offensive gases or liquids will
be permitted.
8. Landlord will post on the directory of its Building, if any, at no
charge to Tenant, names of the executives of Tenant, such executives to
be designated by Tenant. All additional names which Tenant shall desire
put upon said directory must be first consented to by Landlord, and if
so approved, a chare will be made for such additional listing as
prescribed by Landlord to
<PAGE>
be paid to Landlord by Tenant.
9. The Landlord, and its agents, shall have the right to enter the
Premises at all reasonable hours for the purpose of making any repairs,
alterations or additions which it shall deem necessary for the safety ,
preservation or improvement of said Building, and the Landlord shall be
allowed to take all material into and upon such Premises that may be
required to make such repairs, improvements and additions, or any
alterations for the benefit of the Tenant without in any way being
deemed or held guilty or an eviction of the Tenant, and the rent
reserved shall in no wise abate while said repairs, alterations or
additions are being made; and Tenant shall not be entitled to maintain
a set-off or counterclaim for damage against Landlord by reason or loss
or interruption to the business of Tenant because of the prosecution of
any such work. All such repairs, decorations, additions and
improvements shall be done during ordinary business hours or, if any
such work is not the request of the Tenant to be done during any other
hours, Tenant shall pay for all overtime costs.
10. Tenant shall instruct its mover to contact the Building Manager two (2)
working days prior to truck arrival for coordination of move-in and/or
large furniture/equipment deliveries. Such moves will normally be made
after 6:00 p.m. Friday and prior to 8:00 a.m. Monday. Tenant shall be
responsible for any damage to Building interior including, but not
limited to, floors and carpet. A Landlord representative will be
present for all such moves.
11. Landlord reserves the right to make such other and reasonable rules and
regulations as, in its judgment, may from time to time be needed for
the safety, care and cleanliness of the Premises and for the
preservation of good order therein.
<PAGE>
EXHIBIT "E"
WORK LETTER AGREEMENT
The following provisions shall govern (A) the construction of the
building shell which Landlord shall perform in accordance with the terms of this
EXHIBIT E, and (B) the buildout of the Premises, which Landlord shall perform in
accordance with the terms of this EXHIBIT E.
A. CONSTRUCTION. Tenant has submitted to Landlord a space plan for the
buildout of the Premises (the "SPACE PLANS") prepared by Tenant's architect
showing the interior layout of the Premises and attached hereto as EXHIBIT A-1
and by this reference made a part hereof. The Space Plans have been supplemented
and elaborated upon by the construction drawings prepared and modified by
Landlord's and Tenant's architects (said Space Plans as so modified and
supplemented by the construction drawings being herein collectively referred to
as the "Plans"). Landlord agrees to build out the Premises substantially in
accordance with the Plans ("LANDLORD'S Work") at Tenant's sole cost and expense
except as set forth below (Landlord's architect has submitted the Plans to the
City of Boca Raton, Florida for permitting. The Plans also provide the finishes
that Tenant desires as well as specific electrical requirements.
Landlord will engage Islandia Construction Company ("CONTRACTOR") to
perform the Landlord's Work and the Base Building Work (as hereinafter defined).
Upon obtaining the applicable permits required therefor, Contractor will
promptly commence with construction of Landlord's Work and the Base Building
Work pursuant to a fixed price construction contract (utilizing the standard AIA
Fixed Price Construction Contract Form and the Standard AIA Form General
Conditions) (the "Construction Contract"), having a fixed construction price of
$204,854.00, of which a maximum amount of $139,009.00 shall be applicable to the
Landlord's Work and a maximum amount of $65,845.00 shall be applicable to the
Base Building Work, which fixed construction price (and Landlord's Work and Base
Building Work components thereof) shall be subject only to (i) increases on
account of change orders requested or approved in writing by Tenant, and (ii)
pricing modifications reasonably required (calculated at Contractor's actual
cost therefor) to comply with any additional requirements imposed by any
applicable governmental permitting authorities, and which fixed construction
price shall be categorized and priced on a "line-item" basis as set forth on
EXHIBIT B hereof.
Landlord and Landlord's architect and Contractor will cooperate with
Tenant and Tenant's architect to accommodate modifications to the Plans as
requested by Tenant and will advise of the effect that any changes may have on
pricing or schedules. No material changes shall be made to the Construction
Contract without Tenant's prior written consent if such changes would materially
alter the Landlord's Work or the Base Building Work, including the materials and
specifications enumerated in the Plans applicable thereto, or if such changes
would increase in any respect the fixed construction price applicable to the
Landlord's Work set forth therein or if such changes would delay in any material
respect the timely completion of Landlord's Work or the Base Building Work.
B. BASE BUILDING WORK. In addition to Landlord's Work, Landlord shall,
at Landlord's cost, complete the base building work (the "BASE BUILDING WORK")
which shall include HVAC work
<PAGE>
with corresponding low pressure duct work, diffusers and thermostats, VAVs at a
ratio of 1/2000 square feet, fire sprinklers and fire proofing per code, ceiling
tile (minimum requirement Armstrong 2X2 Cortege regular), and lighting (3-lamp
parabolic fixtures T-8 with electronic ballast) at a ratio of 1 fixture per 80
rentable square feet. Any additional light fixtures shown on Tenant's
Architect's Reflected Ceiling Plan shall be installed as part of the
Construction Contract but shall not constitute Base Building Work..
C. TENANT ALLOWANCE. Landlord agrees to provide to Tenant an allowance
with respect to the Premises of $20.00 per rentable square foot (calculated as
provided in the Lease) (the "TENANT IMPROVEMENT ALLOWANCE"). The Tenant
Improvement Allowance may be applied to the cost of all (i) tenant improvements,
(ii) space planning, (iii) design and construction documents and (iv) general
contractor fees, including, without limitation, the Landlord's Work (but
excluding the Base Building Work which shall be paid for solely by Landlord). In
the event the Tenant Improvement Allowance shall exceed the amount of Landlord's
Work or any of the other expenses enumerated in items (i) through (iv) above,
all of which shall be funded out of the Tenant Improvement Allowance, to the
extent there remains undisbursed portions thereof, upon presentation of invoices
or other reasonable documentation respecting same. Any unused portion of the
Tenant Improvement Allowance shall be converted to an equivalent amount of Base
Rent abatement in direct chronological order of due dates; provided, however,
that Landlord shall have no obligation to provide any Base Rent abatement at any
time that Tenant shall be in default under the Lease or at any time that the
remainder of the Tenant Improvement Allowance shall be less than the remaining
costs of Landlord's Work. To the extent that the costs of Landlord's Work exceed
the Tenant Improvement Allowance (the "Deficiency Amount"), Tenant shall remit
its pro rata percentage share of each such installment due under the
Construction Contract, calculated by utilizing a fraction, the numerator of
which is the Deficiency Amount and the denominator of which is the sum of (i)
the cost of Landlord's Work and (ii) the cost of the Base Building Work, to
Contractor, as and when periodic payments are due under the Construction
Contract.
D. CHANGES TO PLANS. Tenant shall have the right to request changes in
the Plans and any such change shall be initialed by Tenant and reviewed and
approved by Landlord, Landlord's architect and the Contractor. No change shall
be permitted without the consent of Landlord which, as to non-structural changes
that do not affect building systems, shall not be unreasonably withheld.
Further, if changes are made by Tenant to the Plans after Landlord's approval,
and should these changes to Tenant's Plans require Landlord to postpone
substantial completion of the space or delay the Commencement Date, then
Landlord shall have the right to refuse to permit the making of such changes
unless and until Tenant shall have committed in writing, in a manner reasonably
satisfactory to Landlord, to pay to Landlord, on the date Rent would have
commenced hereunder in the absence of such delay, a sum of money equivalent to
the Base Rent for the Premises for the period during which Tenant would have
been obligated to pay Base Rent to Landlord had not the Commencement Date been
so delayed.
E. TENANT'S WORK. Notwithstanding anything to the contrary in this
EXHIBIT E, Tenant shall be responsible for all work, construction and
installation in the Premises which is not designated as Landlord's Work
(including but not limited to all fixtures, furniture, equipment and other
office installations) or part of the Base Building Work. More specifically, the
satellite dish-
<PAGE>
related work and the installation of fixtures, furnishing and Tenant's business
equipment shall be considered Tenant's Work. Such work shall be referred to as
"Tenant's Work" and shall be at Tenant's sole cost and expense.
F. PERMITS, CERTIFICATE OF OCCUPANCY. Except as provided below,
Landlord shall obtain all necessary permits in connection with Landlord's Work
and the Base Building Work. On or before the date Landlord tenders delivery of
the Premises to Tenant, Landlord agrees to obtain all final inspection approvals
which are required for Landlord to deliver the Premises to Tenant with
Landlord's Work and the Base Building Work completed, including, without
limitation, the certificate of occupancy which Landlord is required to deliver
under Section 2 of the Lease as part of the evidence of "substantial completion"
of the Tenant Build-Out (as defined in the Lease) and that can be obtained by
Landlord prior to Tenant installing its fixtures, furniture and equipment.
Tenant shall be responsible for applying for and obtaining all permits required
for Tenant to perform Tenant's Work, or to operate within the Premises, and for
obtaining the final fire inspection approval after installation of its fixtures,
furniture and equipment.
G. NOTICE. Tenant shall, by notice to Landlord, designate an individual
who Tenant agrees shall be available to meet and consult with Landlord and
Landlord's architect at the Premises as Tenant's representative respecting the
matters which are the subject of this Exhibit and who, as between Landlord and
Tenant, shall have the power to legally bind Tenant, in making requests for
changes, giving approval of plans or work, giving directions to Landlord or the
like, under this Exhibit.
H. SUBSTANTIAL COMPLETION. For purposes of this Work Letter
"substantially complete" and "substantial completion" shall have the meanings
assigned to such terms in Section 2 of the Lease.
I. NO LIABILITY. Notwithstanding the review and approval by Landlord of
Tenant's Space Plans, Landlord shall have no responsibility or liability in
regard to the safety, sufficiency, adequacy or legality thereof and Tenant shall
be solely responsible for the compliance of such plans and specifications (and
improvement constructed as a result thereof) with all applicable laws and
regulations, the architectural completeness and sufficiency thereof and other
matters relating thereto.
J. TENANT DELAY. Should Tenant or its agents fail to timely comply in
all material respects with all of the provisions of this EXHIBIT E imposed upon
Tenant and same shall cause a delay in substantial completion of the Landlord's
Work and/or Base Building Work (collectively, a "TENANT DELAY"), then Tenant
shall pay to Landlord, on the date Rent would have commenced hereunder in the
absence of such delay, a sum of money equivalent to the Rent for the Premises
for the period during which Tenant would have been obligated to pay Rent to
Landlord had the Commencement Date not been so delayed. In addition, in the
event of any Tenant Delay, the date on which any penalties would accrue under
Section 2 of the Lease shall be extended on a day-for-day basis for each day of
Tenant Delay.
K. WARRANTY. Landlord shall obtain from Contractor a warranty that the
Tenant Improvements shall be free from defects in workmanship and materials and
Landlord shall cause the
<PAGE>
Contractor, at no cost and expense to Tenant, to remedy or cause to be remedied
any defect in such work, provided Tenant gives the Contractor written notice
thereof no later than one (1) year after the later to occur of (i) the date of
Substantial Completion or (ii) the date on which Tenant takes occupancy of the
Premises.
<PAGE>
EXHIBIT A-1 TO WORK LETTER
SPACE PLANS
See Exhibit "F" to Lease Agreement.
<PAGE>
EXHIBIT B TO WORK LETTER
ISLANDIA BUILDING CORP.
A PROFESSIONAL FLORIDA BUILDER CCC4156975
530 Ibis Drive, Delray Beach, Florida 33444
Office 561-279-4033 - Fax 561-279-4574 - Mobile 561-702-1010
CONSTRUCTION COST BREAKDOWN
OWNER: Flagship Group - Omega suite PHONE: 800-875-9796
SUITE: First Floor 901 Yamato Road FAX: 770-952-2440
DATE: 11/1/99 BUDGET SQ. FT. A/C
Proposed/Actual 5996
TOTAL JOB SUMMARY
PROPOSED
ITEM PROPOSED FINAL SF ACTUAL
---- -------- ----- ---------
1 CABINETRY $ 8,400 X $ 1.07
2 FINISH CARPENTRY MATERIAL $ 8,861 X $ 1.48
3 CARPETING $ 9,375 X $ 1.56
4 VINYL TILE $ 1,400 X $ 0.23
5 CERAMIC TILE ENTRY $ 1,275 X $ 0.21
6 VINYL BASE 1000LF $ 800 X $ 0.13
7 DEBRIS/DUMPSTER $ 1,000 X $ 0.17
8 DEMOLITION $ 5,250 X $ 0.88
9 DRYWALL $ 31,990 X $ 5.33
10 ELECTRICAL $ 41,700 X $ 6.95
11 HVAC $ 30,900 X $ 5.15
12 ACOUSTICAL CEILINGS $ 9,995 X $ 1.87
13 PLUMBING $ 625 X $ 0.10
14 BUILDING PERMIT $ 2,652 X $ 0.44
15 PAINTING INT/EXT $ 5,395 X $ 0.90
16 FIRE ALARM CONTROL - equipment $ 2,909 X $ 0.50
17 FIRE SPRINKLER $ 8,200 X $ 1.37
19 FIRE EXTINGUISHER W/CABINET $ 445 X $ 0.07
20 TEMPORARY LABOR $ 1,184 X $ 0.20
21 FIRE EQUIPMENT - WSA $ 1,000 X $ 0.17
22 BLUE PRINTS $ 225 X $ 0.04
23 CLEANING $ 875 X $ 0.15
24 FIRE CAULKING $ 350 X $ 0.06
25 OVERHEAD & FEE @ 14% $ 24,202 $ 4.04
26 DESIGN FEE ART KAMM $ 7,776 $ 1.30
TOTAL COST $204,854 $ 34.17
Options:
Electrical fixtures specified with Alternate
Lightenia or Metaluz 2x4 three bulb T-B electronic balast parabole.
General Notes
1. Price includes R11 batt insulation in lieu of sound batt as specified.
2. If panic hardware is required at exits add $922
3. Price includes comments from Rick Mora 10/20/99 memo w/exception of door
hardware.
4. Best cylinders for locks supplied and installed by others.
5. If fire rating existing steel deck becomes necessary add $14,500 for
spray and $1,500 to drop main a/c
6. electrical demo and reconnecting existing communication lines for
existing tenants not included.
7. Price subject to final review by the city of Boca Raton Building
Department.
<PAGE>
Flagship omega 3
CONSTRUCTION COST BREAKDOWN
OWNER: Flagship Group - Omega suite PHONE: 800-875-9796
SUITE: First Floor 901 Yamato Road FAX: 770-952-2440
DATE: 11/1/99
Revised: 11/10/99 Actual Square Footage 5996
OMEGA
ITEM PROPOSED TOTAL ACTUAL
---- -------- ----- ---------
1 CABINETRY $ 8,400 X $ 1.07
2 FINISH CARPENTRY MATERIAL $ 8,861 X $ 1.48
3 CARPETING $ 9,375 X $ 1.56
4 VINYL TILE $ 1,400 X $ 0.23
5 CERAMIC TILE ENTRY $ 1,275 X $ 0.21
6 VINYL BASE 1000LF $ 800 X $ 0.13
7 DEBRIS/DUMPSTER $ 1,000 X $ 0.17
8 DRYWALL $ 31,980 X $ 5.33
9 PLUMBING $ 626 X $ 0.10
10 BUILDING PERMIT $ 2,652 X $ 0.44
11 PAINTING INT/EXT $ 5,395 X $ 0.90
12 TEMPORARY LABOR $ 1,184 X $ 0.20
13 CLEANING $ 875 X $ 0.15
14 BLUE PRINTS $ 225 X $ 0.04
22 FIRE EXTINGUISHER W/CABINET $ 445 X $ 0.07
16 DEMOLITION $ 2,500 X $ 0.42
17 DESIGN AND ENGINEERING Islandia
fee Not Incl. $7,776 $ 1.30
15 ELECTRICAL - including below
listed its $ 30,825 X $ 5.14
A. Wiring for air handler and condenser $ 1,680.00
B. Wiring for 16KVA UPS $ 400.00
C. Wiring for Shunt Trip $ 150.00
D. Additional 10 2x4 fixtures $ 1,450.00
E. Flourecent Hi-Hats $ 2,200.00
16 HVAC - Mechanical $ 9,300 $ 1.55
A. Additional air handlet + Condenser
for computer room $ 4,800.00
B. Additonal VAV Box #3 with Drops $ 3,000.00
C. Fire dampers computer room $ 1,500.00
17 Overhead and Fee @ 14% $ 16,116 $ 2.69
18 Subtotal $131,233 $139,009 $ 23.18
<PAGE>
Flagship omega 3
CONSTRUCTION COST BREAKDOWN
OWNER: Flagship Group - Omega suite PHONE: 800-875-9796
SUITE: First Floor 901 Yamato Road FAX: 770-952-2440
DATE: 11/1/99
Revised: 11/10/99 Actual Square Footage 5996
OMEGA - CONTINUED
Options:
Electrical fixtures specified with Alternate
Lightenia or Metalux 2x4 three bulb T-B electronic balast parabole.
General Notes
1. Price includes R11 batt insulation in lieu of sound batt as specified.
2. If panic hardware is required at exits add $922
3. Price includes comments from Rick Mora 10/20/99 memo w/exception of door
hardware, which cannot be fitted with Best Look Cylinders.
4. Best cylinders for locks supplied and installed by others.
5. Price subject to final review by the city of Boca Raton Building
Department.
<PAGE>
Flagship omega 3
CONSTRUCTION COST BREAKDOWN
OWNER: Flagship Group - Omega suite PHONE: 800-875-9796
SUITE: First Floor 901 Yamato Road FAX: 770-952-2440
DATE: 11/1/99
Revised: 11/10/99 Actual Square Footage 5996
ABOVE CEILING
FLAGSHIP GR0UP, INC.
ITEM PROPOSED TOTAL ACTUAL
---- -------- ----- ---------
17 ACOUSTICAL CEILINGS $ 9,995 X $ 1.67
18 ELECTRICAL $ 10,875 $ 1.81
2x4 electronic ballest Lithonia $ 10,875.00
18 HVAC $ 21,600 X $ 3.60
Supply and install 3 New VAV Systems
19 FIRE ALARM CONTROL - equipment $ 2,989 X $ 0.50
20 FIRE SPRINKLER $ 8,200 X $ 1.37
23 FIRE EQUIPMENT - WSA $ 1,000 X $ 0.17
24 FIRE CAULKING $ 350 X $ 0.06
25 DEMOLITION $ 2,749
25 OVERHEAD & FEE @ 14% $ 8,087 X $ 1.35
26 Subtotal $ 65,845 $ 65,845 $ 10.98
TOTAL Omega + Flagship $204,854.00 $ 34.17
GENERAL NOTES:
1. Best cylinders for locks supplied and installed by others.
2. If fire rating existing steel deck becomes necessary add $14,500 for
spray and $1,500 to drop main a/c
3. electrical demo and reconnecting existing communication lines for
existing tenants not included.
4. Price subject to final review by the city of Boca Raton Building
Department.
<PAGE>
EXHIBIT "F"
[APPROVED SPACE PLAN]
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K into the Company's
previously filed Form S-8 Registration Statement File No. 333-40881.
/s/ ARTHUR ANDERSEN LLP
Miami, Florida,
March 17, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001042814
<NAME> OMEGA RESEARCH, INC. AND SUBSIDIARIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,175,852
<SECURITIES> 1,695,304
<RECEIVABLES> 43,228,059
<ALLOWANCES> 29,533,000
<INVENTORY> 67,371
<CURRENT-ASSETS> 28,294,969
<PP&E> 5,357,041
<DEPRECIATION> 2,745,587
<TOTAL-ASSETS> 31,379,767
<CURRENT-LIABILITIES> 5,904,884
<BONDS> 0
0
0
<COMMON> 244,751
<OTHER-SE> 25,230,132
<TOTAL-LIABILITY-AND-EQUITY> 31,379,767
<SALES> 33,767,832
<TOTAL-REVENUES> 42,869,969
<CGS> 2,985,409
<TOTAL-COSTS> 32,037,662
<OTHER-EXPENSES> (445,535)
<LOSS-PROVISION> 5,721,857
<INTEREST-EXPENSE> 1,691,185
<INCOME-PRETAX> 879,391
<INCOME-TAX> 1,846,000
<INCOME-CONTINUING> (966,609)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (966,609)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
