10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2005
or
o	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: 0-24347

The Ultimate Software Group, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	65-0694077
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2000 Ultimate Way, Weston, FL (Address of principal executive offices)	33326 (Zip Code)

Registrant’s telephone number, including area code:

(954) 331-7000

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:

Title of Class:
Common Stock, par value $.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

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 þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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.  o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o     Accelerated filer þ     Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

The aggregate market value of Common Stock, par value $.01 per share, held by non-affiliates of the Registrant, based upon the closing sale price of such shares on the NASDAQ National Market on June 30, 2005 was approximately $362.2 million.

As of February 17, 2006, there were 23,754,800 shares of the Registrant’s Common Stock, par value $.01, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the 2006 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.

THE ULTIMATE SOFTWARE GROUP, INC.

INDEX

		Page(s)
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		13
Item 1B.	Unresolved Staff Comments		13
Item 2.	Properties		13
Item 3.	Legal Proceedings		13
Item 4.	Submission of Matters to a Vote of Security Holders		13
PART II
Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters		14
Item 6.	Selected Financial Data		15
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		33
Item 8.	Financial Statements and Supplementary Data		35
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		63
Item 9A.	Controls and Procedures		63
Item 9B.	Other Information		65
PART III
Item 10.	Directors and Executive Officers of the Registrant		66
Item 11.	Executive Compensation		69
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		69
Item 13.	Certain Relationships and Related Transactions		69
Item 14.	Principal Accountant Fees and Services		69
PART IV
Item 15.	Exhibits and Financial Statement Schedules		70
Signatures			75
Amended Director Fee Option Award Agreement
Notice of Termination of License Agreement
Commercial Office Lease
Agreement of Purchase and Sale
Assignment of Agreement of Purchase and Sale
Weston Town Center South Office Building Lease
Consent of KPMG LLP
Section 302 Chief Executive Officer Certification
Section 302 Chief Financial Officer Certification
Section 906 Chief Executive Officer Certification
Section 906 Chief Financial Officer Certification
Cautionary Statement "Safe Harbor" Provisions

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PART I

This Annual Report on Form 10-K (the “Form 10-K”) of The Ultimate Software Group, Inc. (“Ultimate Software” or the “Company”) may contain certain forward-looking statements 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. These forward-looking statements represent the Company’s expectations or beliefs, including, but not limited to, statements concerning the Company’s operations and financial performance and condition. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict. The Company’s actual results could differ materially from those contained in the forward-looking statements due to risks and uncertainties associated with fluctuations in the Company’s quarterly operating results, concentration of the Company’s product offerings, development risks involved with new products and technologies, competition, the Company’s contractual relationships with third parties, contract renewals with business partners, compliance by our customers with the terms of their contracts with us, and other factors disclosed in the Company’s filings with the Securities and Exchange Commission. Other factors that may cause such differences include, but are not limited to, those discussed in this Form 10-K, including Exhibit 99.1 hereto. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

UltiPro^® and Intersourcing^® and their related designs are registered trademarks of Ultimate Software in the United States. This Form 10-K also includes names, trademarks, service marks and registered trademarks and service marks of companies other than Ultimate Software.

Item 1.   Business

Overview

Ultimate Software designs, markets, implements and supports human resources, payroll and workforce management solutions in the United States.

Ultimate Software’s UltiPro Workforce Management Software (“UltiPro”) is an end-to-end, single source Web-based solution designed to deliver the functionality businesses need to manage the employee life cycle, from compensating and managing benefits to recruiting and hiring to terminating, whether their processes are centralized at headquarters or distributed across multiple divisions or branch offices. UltiPro’s end-to-end functionality includes comprehensive online recruitment tools, human resources (“HR”) and benefits management, a strong payroll engine, time and attendance management, workforce scheduling, on-line benefits enrollment, training management, compensation and performance management, reporting and analytical decision-making tools, and a self-service Web portal for executives, managers, administrators, and employees. Ultimate Software believes that UltiPro helps customers streamline HR and payroll processes to significantly reduce administrative and operational costs, while also empowering managers and staff to analyze workforce trends for better decision making, access critical information quickly and perform routine business activities efficiently.

UltiPro Workforce Management is marketed both through the Company’s direct sales team as well as through alliances with business service providers (“BSPs”) that market co-branded UltiPro to their customer bases. Ultimate Software’s direct sales team focuses primarily on companies with more than 500 employees and sells UltiPro both as a service model (typically hosted and priced on a per-employee-per-month basis) and as a license model (typically in-house). The Company’s BSP alliances focus primarily on companies with under 500 employees and typically sell an Internet solution, which includes UltiPro, priced on a monthly/service basis. In 2004, Ultimate Software extended its BSP program to allow for alliances that target very large corporations, generally those having more than 10,000 employees and interested in a broad array of human resource outsourcing (“HRO”) services that the Company’s direct sales force would not often pursue in the standard sales process. When the BSP sells its Internet solution, incorporating UltiPro in the offering, the BSP is obligated to remit a fee to Ultimate Software, typically measured on a per-employee-per-month basis and, in some cases, subject to a guaranteed monthly minimum amount.

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UltiPro leverages the Microsoft technology platform, which is recognized in the industry as a cost-effective, reliable and scalable platform. As part of its comprehensive payroll and workforce management solutions, Ultimate Software provides implementation and training services to its customers as well as support services, which have been certified by the Support Center Practices Certification program for seven consecutive annual evaluations.

The Company’s direct sales force markets UltiPro as an in-house human resources, payroll and workforce management solution and alternatively as a hosted offering branded “Intersourcing” (the “Intersourcing Offering”). Intersourcing provides Web access to comprehensive workforce management functionality for organizations that need to simplify the information technology (IT) support requirements of their business applications. Ultimate Software believes that Intersourcing is attractive to companies that want to focus on their core competencies to increase sales and profits. Through the Intersourcing model introduced in 2002, Ultimate Software provides the hardware, infrastructure, ongoing maintenance and backup services for its customers at a data center located in Miami, Florida and managed by International Business Machines (“IBM”). In August 2005, the Company opened its second data center in Atlanta, Georgia, also managed by IBM.

As previously disclosed, Ultimate Software and Ceridian Corporation (“Ceridian”) signed an agreement in 2001, as amended, granting Ceridian a non-exclusive license to use UltiPro software as part of an on-line offering for Ceridian to market primarily to businesses with less than 500 employees (the “Original Ceridian Agreement”). Ceridian marketed that solution under the name SourceWeb. During December 2004, RSM McGladrey Employer Services (“RSM”), an existing BSP of Ultimate Software, acquired Ceridian’s SourceWeb HR/payroll and self-service product and existing SourceWeb base of small and mid-size business customers throughout the United States (the “RSM Acquisition”). The financial terms of the Original Ceridian Agreement have not changed as a result of the RSM Acquisition. During 2005, Ceridian continued to be financially obligated to pay, and did pay, Ultimate Software a minimum fee of $500,000 per month. Effective January 1, 2006, these minimum fee payments are subject to increases of 5% per annum, compounded annually. The aggregate minimum payments that Ceridian is obligated to pay Ultimate Software under the Original Ceridian Agreement over the minimum term of the agreement are $42.7 million. To date, Ceridian has paid to Ultimate Software a total of $29.1 million under the Original Ceridian Agreement. Ultimate Software expects to continue to recognize a minimum of $642,000 per month in subscription revenues (a component of recurring revenues) from the Original Ceridian Agreement until its termination. The amount of subscription revenues recognized under the Original Ceridian Agreement during the year ended December 31, 2005, totaling $7.7 million, was the same as that recognized in 2004. Effective March 9, 2006, Ceridian provided Ultimate Software with a two years’ advance written notice of termination of the Original Ceridian Agreement, as permitted under the terms of the Agreement. Pursuant to such notice, the Original Ceridian Agreement will terminate on March 9, 2008 (unless terminated earlier for an uncured material breach).

Ultimate Software is a Delaware corporation formed in April 1996 to assume the business and operations of The Ultimate Software Group, Ltd. (the “Partnership”), a limited partnership founded in 1990. Ultimate Software’s headquarters is located at 2000 Ultimate Way, Weston, Florida 33326 and its telephone number is (954) 331-7000. To date, the Company has derived no revenue from customers outside of the United States and has no assets located outside of the United States.

Revenue Sources

The Company’s revenues are derived from three principal sources: recurring revenues, services revenues and software licenses (“license revenues”).

Recurring revenues consist of maintenance revenues, Intersourcing revenues from the Company’s hosted offering of UltiPro and subscription revenues from per-employee-per-month (“PEPM”) fees generated by business partners. Maintenance revenues are derived from maintaining, supporting and providing periodic updates for the Company’s products under software license agreements. Subscription revenues are principally derived from PEPM fees earned through the Intersourcing Offering, Base Hosting (defined below) and the BSP sales channel, as well as revenues generated from the Original Ceridian Agreement. Maintenance

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revenues are recognized ratably over the service period, generally one year. To the extent there are upfront fees associated with the Intersourcing Offering, Base Hosting or the BSP sales channel, subscription revenues are recognized ratably over the minimum term of the related contract upon the delivery of the product and services. Ongoing PEPM fees from the Intersourcing Offering, Base Hosting and the BSP sales channel are recognized as subscription revenues (a component of recurring revenues in the consolidated statements of operations) as the services are delivered.

Services revenues include revenues from fees charged for the implementation of the Company’s software products and training of customers in the use of such products, fees for other services, including services provided to BSPs, including RSM in 2005 and Ceridian in 2004, the provision of payroll-related forms and the printing of Form W-2’s for certain customers, as well as certain reimbursable out-of-pocket expenses. Revenues for training and implementation consulting services are recognized as services are performed to the extent the pricing for such services is on a time and materials basis and the payment terms are within the Company’s ordinary and customary payment cycle. In the event payments for services are outside the ordinary and customary period for the Company, the related revenues are recognized as payments come due based on their relative fair values. Other services are recognized as the product is shipped or as the services are rendered, depending on the specific terms of the arrangement.

Arrangement fees related to fixed-fee implementation services contracts are recognized using the percentage of completion accounting method, which involves the use of estimates. Percentage of completion is measured at each reporting date based on hours incurred to date compared to total estimated hours to complete the implementation job. If a sufficient basis to measure the progress towards completion does not exist, revenue is recognized when the project is completed or when the Company receives final acceptance from the customer.

License revenues include revenues from software license agreements for the Company’s products, entered into between the Company and its customers in which the license fees are non-cancellable. License revenues are generally recognized upon the delivery of the related software product when all significant contractual obligations have been satisfied. Until such delivery, the Company records amounts received when contracts are signed as customer deposits which are included with deferred revenues in the consolidated balance sheets.

The percentage contribution for each of the three principal sources of revenue was as follows:

	For the Years Ended December 31,
	2005			2004			2003
Revenues:
Recurring		56.7	%		54.2	%		48.6	%
Services		31.5			34.6			38.8
License		11.8			11.2			12.6
Total revenues		100.0	%		100.0	%		100.0	%

Features of UltiPro

Ultimate Software’s UltiPro product is a payroll and workforce management solution designed to offer the following features to its customers:

Web Workforce Portal.  UltiPro includes a Web workforce portal that can serve as a company’s communications hub and the central gateway for business activities. It provides functionality for everyone in the customer’s organization, not just human resources/payroll and finance departments, but also executives, staff managers and individual employees. With UltiPro’s workforce portal, a company’s HR/payroll staff, managers and administrators can complete daily employee administration tasks, administer benefits, manage staff and access reporting in real-time, from one central location. Managers and executives can perform real-time Web queries on their workforce data, access commonly requested reports and analyze workforce statistics and trends on-demand. Employees can review their own pay and benefits information, get questions answered

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and complete routine updates instantly. HR and other administrators can expedite more than 100 routine business processes such as hiring, rehiring or terminating an employee; inputting salary increases; and changing an employee’s job, division, or department. Ultimate Software believes that UltiPro’s workforce portal can increase administrative efficiencies by providing reporting, staff management processes and business intelligence to management over the Internet and can reduce operating costs by eliminating the need for organizations to print and distribute paper communications, handbooks, forms and paychecks.

Feature-Rich, Built-in Functionality.  UltiPro includes human resources, payroll and benefits management, comprehensive reporting (more than 600 standard and customizable reports delivered, including government compliance reporting and strategic analytics), a workforce portal with Web-based employee and manager self-service, Web-based benefits enrollment, Web employee administration (including workflow), recruitment and training management, time and attendance management, workforce scheduling, and compensation and performance management. Based upon the amount of built-in and integrated functionality, the Company believes that UltiPro minimizes the need for extensive customizations or changes to source code, facilitates streamlined management of the total employment cycle, enables organizations to minimize the time invested in tactical, burdensome HR/payroll administrative activities, and provides strategic HR management reports and tools.

Implementation and System Update Efficiency.  Ultimate Software offers a solution that has been designed to minimize the time and effort required for implementing, customizing and updating. UltiPro delivers an extensive amount of functionality “out-of-the-box” so that few customizations are required by the typical customer. The Company also provides an implementation methodology, experienced implementation staff and customer training to facilitate rapid implementation. Ultimate Software continues to refine and improve its implementation process to enable its customers to implement more quickly than competitive solutions with comparable functionality deployed. To facilitate customizations and fast system upgrades, the Company has designed UltiPro to allow customers to load system updates, and not overwrite their customizations because the system stores custom changes as sub-classed objects or data that reside “outside” the core program, thus avoiding the time-consuming process of rewriting custom changes.

Reduced Total Cost of Ownership.  The Company believes that the UltiPro solution provides cost saving opportunities for its customers and that UltiPro, whether purchased as a license or as a service through Intersourcing, is competitively priced. In addition, the Company believes that its current practices in implementing the UltiPro solution result in a cost savings for customers when compared with implementations of other similar solutions in the industry. A customer may also reduce the administrative and information technology support costs associated with the organization’s human resources, benefits and payroll functions over time. Tight integration helps to reduce administrative costs by facilitating accurate information processing and reporting, and reducing discrepancies, errors and the need for time-consuming adjustments. In addition, administrative costs can be reduced by providing an organization with greater access to information and control over reporting.

Leveraging of Leading Technologies.  Ultimate Software has consistently focused on identifying leading technologies and integrating them into its products. UltiPro Workforce Management is a three-tier solution that leverages Microsoft’s technical architecture as well as XML to increase design efficiencies within the system and particularly for workflow capabilities. With UltiPro version 6.0, released in 2002, Ultimate Software introduced new technology architecture for UltiPro to enable advanced Web Services capabilities. Ultimate Software’s Distributed Process Management platform leverages leading technologies such as Microsoft’s Component Object Model (COM), Microsoft Message Queuing (MSMQ), eXtensible Markup Language (XML), Simple Object Access Protocol (SOAP) and Web Services Definition Language (WSDL) to create a distributed processing framework that is Internet-enabled. This allows customers to initiate commonly requested services such as running a report from the Web. These requests are automatically routed to a separate process application server to ensure efficient processing and load balancing. UltiPro’s XML Web Services feature set allows customers to scale as they grow and take advantage of additional Web Services as needed.

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Ultimate Software has been working on the Microsoft .NET platform, and it is expected to be the foundation of the Company’s next major product release. Ultimate Software is using AJAX (Asynchronous JavaScript and XML) to enable delivery of richer user interfaces, such as allowing users to get information from the Web server without having to submit the Web page and wait for the server to redraw the screen. With AJAX, building data entry pages is expected to be more rapid than traditional programming methods, and the end-result pages should be more user-friendly. Basic things like validating controls on the Web page are expected to happen almost instantaneously versus waiting for a compiled list of errors after clicking a “submit” button.

Ease of Use and Navigation.  Ultimate Software designs its products to be user-friendly and to simplify the complexities of managing employees and complying with government regulations in the payroll and workforce management areas. UltiPro uses familiar Internet interface techniques and functions through a Web browser, which the Company believes makes it convenient and easy to use. A customer’s executives, managers, administrators and employees have Web access to manage payroll and employee functions, run reports or find answers to routine questions through an intuitive user interface. The Company refers to this easy navigation as “Two clicks to anywhere.”

Comprehensive Customer Services and Industry-Specific Expertise.  Ultimate Software believes it provides the highest quality customer services, including on-demand hosting services, professional implementation services, knowledge management (or training) services and ongoing product and customer support services. As of December 31, 2005, Ultimate Software employed approximately 220 people in customer services, which includes the implementation, product support, technical support and knowledge management (or training) departments and approximately 30 additional people in hosting services. Ultimate Software’s customer support center has received the Support Center Practices (“SCP”) Certification for the seventh consecutive year. The SCP program was created by the Service & Support Professionals Association (SSPA) and a consortium of information technology companies to create a recognized quality certification for support centers. SCP Certification quantifies the effectiveness of customer support based upon relevant performance standards and represents best practices within the technology support industry according to SSPA. Recognizing the importance of issuing timely updates that reflect changes in tax and other regulatory laws, Ultimate Software employs a dedicated research team to track jurisdictional tax changes to the more than 12,000 tax codes included in UltiPro as well as changes in other employee-related regulations.

Technology

Ultimate Software seeks to provide its clients with optimum performance, advanced functionality and ease of scalability and access to information through the use of leading Internet standard technologies. The UltiPro Workforce Management solution was designed to leverage cutting-edge technologies such as XML and Web Services that use open standards to provide customers with a cost-effective platform for performing critical business functions rapidly over the Web and allowing different systems to communicate with one another. The use of Microsoft technology helps the Company to deliver what it believes to be a highly deployable and manageable payroll and workforce management solution that includes the following key technological features:

Web-Based Technologies and Internet Integration.  Ultimate Software supports emerging Web technologies and Internet/extranet connectivity to increase access to and usability of its applications. UltiPro is a Web solution with a backoffice component for handling such functions as payroll processing, company and system setup, and security. One of the highlights of UltiPro’s technology is the Company’s Distributed Process Management (“DPM”) framework of XML Web Services, a framework that enables business functions to be performed over the Web, and allows different enterprise systems to talk to one another over the Internet. UltiPro’s DPM was designed to automate and distribute HR and payroll processes, for example, entering group time or generating reports, across multiple servers to reduce the amount of time and manual work required. The DPM framework leverages Microsoft’s Component Object Model (COM), eXtensible Markup Language (XML), Simple Object Access Protocol (SOAP), Web Services Definition Language (WSDL) and Microsoft Message Queuing (MSMQ) to improve system speed and performance. The Company believes that the DPM

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framework makes UltiPro highly scalable to accommodate a high volume of processing requests cost-effectively, particularly for companies that run hundreds or even thousands of payrolls.

Application Framework.  Ultimate Software has designed certain aspects of its system using a multi-tiered architecture in order to enhance the system’s speed, flexibility, scalability and maintainability. When an application’s logic resides only on a client workstation, a user’s ability to process high volume data transactions is limited. When the logic resides only on a server, the user’s interactive capabilities are reduced. To overcome such limitations, Ultimate Software built more separation into the application design to increase the extensibility, scalability and maintainability of the application. The UltiPro Workforce Management application consists of several core components in a layered architecture that leverages Microsoft technology. UltiPro’s multi-layered architecture, including an Operating System Layer, Business Logic Layer, Presentation Layer and User Interface Layer, makes it easier to update and maintain UltiPro, as well as integrate UltiPro with other enterprise systems. The Company believes that UltiPro’s application framework provides a highly extensible set of services that can scale depending on the customer’s business size. In addition, UltiPro was built using a data-driven, object-oriented application framework that enhances the development and usability of the solution. Object-oriented programming features code reusability and visual form/object inheritance, which decrease the time and cost of developing and fully implementing a new system. With object-oriented programming, system updates do not overwrite prior customizations to the system because custom changes are sub-classed objects that reside “outside” the core program.

Business Intelligence Tools.  In addition to an extensive library of standard reports that offer flexibility and ease of use, the Company extends what users can do with employee data by embedding business intelligence tools from Cognos Corporation, a third-party provider (“Cognos”). In addition to offering sophisticated data query and report authoring, these tools enable users to apply on-line analytical processing (“OLAP”) to multidimensional data cubes, allowing users to explore data on employees graphically and statistically from diverse angles. Ultimate Software maintains a link between Cognos’ report catalog and UltiPro’s data dictionary, eliminating the necessity for users to create and maintain ad hoc reporting catalogs. A Cognos Web Package is delivered to UltiPro customers to allow users to access reports and conduct data queries from a Web browser.

Ultimate Software Solutions

Ultimate Software’s core solution, UltiPro Workforce Management, was originally designed for midsized enterprise customers, primarily those with 500 to 15,000 employees but is appropriate for and is used by both smaller and larger organizations. Ultimate Software also offers the “Powered by UltiPro” BSP Solution (the “BSP Solution”) with Internet payroll to business services providers that have relationships with smaller organizations, typically those with fewer than 500 employees and since 2004 has been available to BSPs to use for very large corporations.

UltiPro Workforce Management Software (“UltiPro”)

UltiPro Workforce Management is designed to provide customers the functionality they need to manage every aspect of the employee life cycle in one place, from compensating and managing benefits to recruiting and hiring to terminating, whether a customer’s processes are centralized at headquarters or managed by multiple divisions or branch offices. UltiPro’s HR and benefits management functionality is wholly integrated with a flexible payroll engine, reporting and analytical decision-making tools, and a central Web portal that can serve as the customer’s gateway for its workforce to access company-related activities. Ultimate Software believes that UltiPro helps customers streamline HR and payroll processes to significantly reduce administration and operational costs, while also empowering executives and staff to access critical information quickly and perform routine business activities more efficiently.

UltiPro Workforce includes, but is not limited to, the following functionality:

UltiPro’s Workforce Portal.  UltiPro’s workforce portal can act as the gateway for a company’s executives, management team, HR/payroll staff, administrators, and employees to business activities. Ultimate Software believes that UltiPro’s workforce portal allows its customers to improve service to their employees

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through better communications and save time because managers and administrators can complete hundreds of common employee-related tasks, including administering benefits, managing staff and accessing reporting and business intelligence in real-time, from one central location.

eManager Self-Service.  As authorized, managers have self-service access to staff information such as salary, compensation history, key dates and emergency contacts, with reporting and workforce analysis tools to facilitate decision-making. A customer’s managers can view and update staff information, manage department activities, post job openings, leverage recruiting and hiring tools, and perform Web queries on workforce data. UltiPro’s document management features can be used to house and categorize employee-related documents such as drivers’ licenses, consent forms, and completed I-9s with required identification. Administrators and managers have the ability to attach Microsoft Word documents, PDFs, JPEG files, spreadsheets, or any other file types supported by Microsoft Internet Explorer to employee files. The documents can be grouped and sorted to individual requirements, as necessary.

eEmployee Self-Service.  UltiPro eEmployee Self-Service gives a customer’s employees immediate security-protected access to view their own paycheck details and benefits summaries, frequently used forms and company information. They can also update personal information such as address, phone number, emergency contacts and skills; change preferences such as direct deposit accounts and benefits selections; make routine requests such as asking for vacation time; and enroll in training.

eAdministration.  UltiPro’s eAdministration includes eWork Events, eStandard Reporting, and eSystem Administration. eWork Events enables users to authorize HR/payroll staff, managers or supervisors to make updates on the Web through more than 100 pre-defined workflow processes to expedite business activities such as hiring an employee or inputting a salary increase. eStandard Reporting allows authorized managers or HR/payroll staff to run standard UltiPro reports, including upcoming performance reviews, headcount reports, average salary reports, government compliance reports, general ledger reporting, and other point-in-time HR/payroll reports from the Web without requiring the time of central HR/payroll or IT staff. eSystem Administration was designed for the non-technical user to administer UltiPro’s roles-based security, built-in workflow and system business rules, as well as enable system administrators to post company communications, link to external Web sites from the UltiPro portal, and, through UltiPro’s ePalette feature, select the colors of UltiPro’s Web pages to match the customer’s own company image.

eHuman Resources.  UltiPro tracks HR-related information including employment history, performance, job and salary information, career development, and health and wellness programs. In addition, UltiPro facilitates the recording and tracking of key information for government compliance and reporting, including Consolidated Omnibus Budget Reconciliation Act compliance; Health Insurance Portability & Accountability Act certificates; Occupational Safety & Health Administration and workers’ compensation; Family Medical Leave Act tracking; and Equal Employment Opportunity compliance. UltiPro also enables compliance with the Health Insurance Portability & Accountability Act confidentiality legislation for protecting sensitive data such as employee social security numbers. eHuman Resources includes benefits administration, recruitment and staffing tools, compensation management and training management functionality.

Payroll Processing.  UltiPro’s payroll engine handles hundreds of payroll-related computations intended to minimize the customer’s need for side calculations or additional programming. For example, UltiPro delivers complex wage calculations such as average pay rates for overtime calculations, shift premiums, garnishments and levy calculations. With ePayroll Processing, a company’s central payroll department, remote offices or multiple divisions can process payroll on the Web in several steps. ePayroll Processing includes eTime Entry to allow customers’ supervisors or managers at branch offices to input and submit time for their team through the Web.

UltiPro Business Intelligence.  Using UltiPro’s Business Intelligence tools, customers can provide their managers and executives with Web access to workforce-related reports, workforce analytics and point-in-time reporting, without installing reporting software on users’ PCs or writing custom reports. With UltiPro Business Intelligence, users can run and print pre-formatted reports for the executive team or run instant queries on the Web for answers to routine questions. UltiPro Business Intelligence also delivers workforce analytics to enable managers to evaluate workforce trends strategically on topics such as compensation, turnover and overtime.

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eTraining Enrollment.  With eTraining Enrollment, customers’ employees can view course schedules and descriptions and register on-line. Managers can also approve staff training requests from the Web.

eBenefits Enrollment.  With eBenefits Enrollment, customers’ employees can review their benefit choices and make selections on the Web. Benefits administrators can set up enrollment sessions from the Web and use tools to monitor enrollment progress. eBenefits Enrollment also walks employees through all of the benefit and personal information changes necessary as a result of a life event such as getting married, having a baby or moving.

eRecruitment.  UltiPro eRecruitment automates, tracks and manages the hiring and recruiting process to help reduce overall “cost per hire” and “time to hire.” With UltiPro eRecruitment, users can post openings to job sites they subscribe to, track applications and hire candidates from within UltiPro’s workforce portal.

eCo-Branding.  For organizations that want to co-brand UltiPro for the purpose of delivering services to a customer base, UltiPro offers eCo-Branding as an extra-cost option. eCo-Branding provides Web access to important personal information for customers’ employees, including the ability to view current paycheck and direct deposit details, paycheck history and benefits details. Customers can display their own company logo with the “Powered by UltiPro” logo to their user base to strengthen their brand.

Position Management.  UltiPro Position Management helps customers manage their resource budget, measure trends and forecast future needs. Users can manage by full-time employee equivalents and dollars, and evaluate budgeted versus actual numbers. Authorized users can check the status of fund allocations, available open positions and staffing requirements. Because HR and payroll are integrated, reporting on position information for budgeted and actual does not require multiple spreadsheets.

UltiPro Wireless.  Ultimate Software recognizes the mobile workforce today and delivers a wireless application geared for today’s mobile employees, managers, administrators and executives. UltiPro Wireless provides employees with access to their paycheck details and company directory via a wireless device. Managers can elect to receive wireless notifications for workflow events requiring their approval (such as an employee vacation request).

Other Key Features.  UltiPro also includes tax management to deliver Federal, state and local tax updates automatically every quarter as part of the core solution; Enterprise Integration Tools that provide the ability to interface with third-party applications and providers such as general ledger, tax filing services, time clocks, banks, 401(k) and benefit providers, check printing services and unemployment management services; and Distributed Process Management XML Web Services that batch and distribute HRMS/payroll processes across multiple servers to increase efficiency, reduce the time required to ensure processes are completed, and allow them to be initiated over the Web.

UltiPro Time & Attendance.  Through a strategic partnership with Workbrain Corporation, Ultimate Software has the right to market and distribute Workbrain’s recruitment product, referred to as Workbrain Express, to Ultimate Software’s customer base and prospective customers as part of the UltiPro Workforce Management solution. Ultimate Software has rebranded Workbrain Express as UltiPro Time and Attendance, marketing the components as UltiPro Time, UltiPro Leave Management, and UltiPro Workforce Scheduling (collectively, “UTA”). Ultimate Software is the single-source contact for customer implementations and ongoing solution support for UTA.

‘‘Powered by UltiPro” BSP Solution (the “BSP Solution”)

“Powered by UltiPro” BSP Solution is designed for and primarily marketed to business service providers that have relationships with smaller organizations, those with fewer than 500 employees. The BSP Solution enables business service providers to deliver Web-based workforce management and payroll services to their customers and Web-access for their customers’ employees to view their paycheck and basic benefits information. In 2004, Ultimate Software extended its BSP program to allow BSPs that target very large corporations to use UltiPro as part of an HR Outsourcing offering. The very large corporations targeted in this type of offering, generally having more than 10,000 employees, are those that Ultimate Software’s direct sales

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force would not typically see in the sales process. Business service providers have the opportunity to co-brand UltiPro and to price their offerings on a per-employee-per-month or other monthly basis.

The BSP Solution has been packaged to be easy to use and convenient for smaller companies and is appropriate for larger companies as well. For the small company market, companies with less than 500 employees, the BSP Solution leverages select functionality from UltiPro Workforce Management, and has a specially designed Web browser interface for payroll administrators to sign up their businesses for the service, enter employee hours worked and submit payroll. If there are no changes to employees’ standard paycheck information, submitting a payroll generally can be done in less than a minute by clicking an icon. With changes, the process generally can take several minutes. The initial process of registering for Web payroll services generally takes less than an hour if the administrator has all the appropriate data available for entry. To ensure the process is rapid and easy for registrants, there is a checklist on-line with what they need before beginning the signup process. Through a secure, password-protected login, employees can view their current paycheck and direct deposit details, paycheck history, and benefits details such as medical, dental and 401(k) deductions.

Intersourcing Offering

In 2002, the Company began offering a hosting service, branded Intersourcing, whereby the Company provides the hardware, infrastructure, ongoing maintenance and back-up services for its customers at a data center located in Miami, Florida and managed by IBM (the “Intersourcing Offering”). A second data center located in Atlanta, Georgia, also managed by IBM, was opened in August 2005.

Different types of hosting arrangements include the sale of hosting services as a part of the Intersourcing Offering and, to a lesser extent, the sale of hosting services to customers that license UltiPro on a perpetual basis (“Base Hosting”). Hosting services, typically available in a shared environment, provide Web access to comprehensive workforce management functionality for organizations that need to simplify the information technology (IT) support requirements of their business applications and are priced on a per-employee-per-month basis. In the shared environment, Ultimate Software provides an infrastructure with applicable servers shared among many customers who use a Web browser to access the application software through the related data center.

The Intersourcing Offering is designed to provide an appealing pricing structure to customers who prefer to minimize the initial cash outlay associated with typical capital expenditures. Intersourcing customers purchase the right to use UltiPro on an ongoing basis for a specific term in a shared or dedicated hosted environment. The pricing for Intersourcing, including both the hosting element as well as the right to use UltiPro, is on a per-employee-per-month basis.

Research and Development Activities

Ultimate Software incurs research and development expenses, consisting primarily of software development personnel costs, in the normal course of its business. Such research and development expenses are for enhancements and future betterments to the Company’s existing products and for the development of new products. During 2005, 2004 and 2003, the Company spent $20.2 million, $18.3 million and $18.2 million, respectively, on research and development activities. During 2005, $0.2 million of research and development expenses were capitalized for the development of UltiPro Canadian HR/payroll (“UltiPro Canada”) functionality. UltiPro Canada is being built from the existing product infrastructure of UltiPro (e.g., using UltiPro’s source code and architecture). UltiPro Canada will provide HR/payroll functionality which includes the availability of Canadian tax rules, as well as Canadian human resources functionality, taking into consideration labor laws in Canada and including changes to the language where necessary (i.e., English to French). Capitalization of software costs for UltiPro Canada began during the fourth fiscal quarter of 2005, when technological feasibility (as defined by Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”) (“SFAS No. 86”) was attained. In accordance with SFAS No. 86, software capitalization for UltiPro Canada will end when it is available for

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general release to Ultimate Software’s customers, which is expected to occur in approximately the first half of fiscal 2007. There were no software costs capitalized in 2004 or 2003.

Customer Services

Ultimate Software believes that delivering quality customer services provides the Company with a significant opportunity to differentiate itself in the marketplace and is critical to the comprehensive solution. Ultimate Software provides its customers services in two broad categories: (i) professional services which include implementation, customer relationship management, and knowledge management (or training) services and (ii) customer support services and product maintenance. Additionally, Ultimate Software provides hosting services for those customers that subscribe to the Company’s Intersourcing model. These services include, but are not limited to, purchasing and supporting hardware and system software; installing new versions of UltiPro; and backing up customer data.

Professional Services.  Ultimate Software’s professional services include implementation, customer relationship management and knowledge management (or training) services. Ultimate Software believes that its implementation services are differentiated from those of other vendors by speed, predictability and completeness. The Company believes that its successful record with rapid implementations is due to its standardized methodology, long-tenured consultants, the large amount of delivered product functionality, and comprehensive conversion and integration tools.

Ultimate Software has an experienced team of system and functional consultants that are dedicated to assisting customers with rapid implementations. In addition, Ultimate Software provides its customers with the opportunity to participate in formal training programs conducted by its knowledge management services team. Training programs are designed to increase customers’ ability to use the full functionality of the product, thereby maximizing the value of customers’ investments. Courses are designed to align with the stages of implementation and to give attendees hands-on experience with UltiPro. Trainees learn such basics as how to enter new employee information, set up benefit plans and generate standard reports, as well as more complex processes such as defining company rules, customizing the system and creating custom reports. The Company maintains training facilities in Atlanta, Georgia; Schaumburg, Illinois; Dallas, Texas; and at its headquarters in Weston, Florida. In addition to offering classes at these facilities, the Company conducts Web-based training and on-site training at customer facilities. After customers have implemented UltiPro and have been turned over to the Company’s customer support and maintenance program, the Company assigns a customer relationship manager to the account to assist customers on an ongoing basis with special projects, including enhancing their existing systems, managing upgrades and writing custom reports. These services, like all of the Company’s professional services, are typically billed on a time and materials basis.

Customer Support and Maintenance.  Ultimate Software offers comprehensive technical support and maintenance services, which have historically been purchased by all of its customers. Ultimate Software’s customer support center has received the Support Center Practices Certification sponsored by the Service Strategies Corporation (SSC) for the seventh consecutive year. This certification recognizes companies that “deliver exceptional service and support to their customers.” Ultimate Software’s customer support services include: software updates that reflect tax and other legislative changes; telephone support 24 hours a day, 7 days a week; unlimited access to the Company’s employee tax center on the World Wide Web; seminars on year-end closing procedures; and periodic newswires. In addition, the Company’s customer support services team maintains a support Web site for its customers and individual representatives attend user-organized user group meetings on a routine basis throughout the United States.

Customers

As of December 31, 2005, Ultimate Software had licensed its software to more than 1,300 customers that represent approximately 7,000 companies serving in excess of 2 million employees. Ultimate Software’s customers operate in a wide variety of industries, including manufacturing, food services, sports, technology, finance, insurance, retail, real estate, transportation, communications, healthcare and services. During 2005, 2004 and 2003, one of the Company’s customers, Ceridian, accounted for 9%, 16% and 17%, respectively, of total

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revenues. No other customer accounted for more than 10% of total revenues in 2005, 2004 or 2003. The decrease in the percentage of total revenues contributed by Ceridian in 2005 resulted from the expiration of the Ceridian Services Agreement on December 31, 2004 combined with the fixed nature of the recurring revenues recognized pursuant to the Original Ceridian Agreement when total revenues increased in 2005 as compared to the previous two years. The Company anticipates a continued reduction in the percentage of total revenues contributed by Ceridian, as fixed recurring revenues under the Original Ceridian Agreement of $642,000 per month will be recognized until the termination of the Original Ceridian Agreement on March 9, 2008.

Sales and Marketing

Ultimate Software markets and sells its products and services through its direct sales force, marketing group, and a network of business service provider alliances.

Direct Sales.  Ultimate Software’s direct sales force includes business development vice presidents, directors and managers who have defined territories. The sales cycle begins with a sales lead generated through a national, corporate marketing campaign or a territory-based activity. In one or more on-site visits, sales managers work with application and technical consultants to analyze prospective client needs, demonstrate the Company’s product and, when required, respond to RFPs (Requests for Proposals). The sale is finalized after clients complete their internal sign-off procedures and terms of the contract are negotiated and signed.

With a license sale, the terms of the Company’s sales contract typically include a license agreement for the product, an annual maintenance agreement, per-day training rates and hourly charges for implementation services. Typical payment terms include a deposit at the time the contract is signed and additional payments upon the occurrence of other specified events such as the implementation of the software and/or specific payment dates designated in the contract. Payment for implementation and training services under the contract is typically made as such services are provided. A service sale is a hosting, or Intersourcing, agreement that typically requires, but is not limited to, a PEPM fee, setup fees and hourly charges for implementation.

Business Service Provider (BSP) Network.  The BSP network is a co-branding alliance strategy that enables BSPs to co-brand and market UltiPro and/or the BSP Solution primarily to businesses with fewer than 500 employees and since 2004 has been available for very large companies, generally those having more than 10,000 employees, as well. The goal of the program is to extend the Company’s market penetration in markets where the Company’s direct sales force does not have a significant presence and to build a recurring revenue stream through PEPM pricing.

Marketing.  Ultimate Software supports its sales force with a comprehensive marketing program that includes public relations, advertising, direct mail, trade shows, seminars and Web site maintenance. Working closely with the direct sales force, customers and strategic partners, the marketing team defines positioning strategies and develops a well-defined plan for implementing these strategies. Marketing services include market surveys and research, overall campaign management, creative development, production control, demand generation, results analysis, and communications with field offices, customers and marketing partners.

Intellectual Property Rights

The Company’s success is dependent in part on its ability to protect its proprietary technology. The Company relies on a combination of copyright, trademark and trade secret laws, as well as confidentiality agreements and licensing arrangements, to establish and protect its proprietary rights. The Company does not have any patents or patent applications pending, and existing copyright, trademark and trade secret laws afford only limited protection. Accordingly, there can be no assurance that the Company will be able to protect its proprietary rights against unauthorized third-party copying or use, which could materially adversely affect the Company’s business, operating results and financial condition.

Despite the Company’s efforts to protect its proprietary rights, attempts may be made to copy or reverse engineer aspects of the Company’s products or to obtain and use information that the Company regards as proprietary. Moreover, there can be no assurance that others will not develop products that perform comparably

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to the Company’s proprietary products. Policing the unauthorized use of the Company’s products is difficult. Litigation may be necessary in the future to enforce the Company’s intellectual property rights, to protect the Company’s trademarks, copyrights or trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company’s business, operating results and financial condition.

As is common in the software industry, the Company from time to time may become aware of third-party claims of infringement by the Company’s products of third-party proprietary rights. While the Company is not currently subject to any such claim, the Company’s software products may increasingly be subject to such claims as the number of products and competitors in the Company’s industry segments grows and the functionality of products overlaps and as the issuance of software patents becomes increasingly common. Any such claim, with or without merit, could result in significant litigation costs and require the Company to enter into royalty and licensing agreements, which could have a material adverse effect on the Company’s business, operating results and financial condition. Such royalty and licensing agreements, if required, may not be available on terms acceptable by the Company or at all.

Competition

The market for the Company’s products is highly competitive. The Company’s products compete primarily on the basis of technology, delivered functionality and price/performance.

Ultimate Software’s competitors include (i) large service bureaus, primarily ADP and, to a lesser extent, Ceridian; (ii) companies, such as PeopleSoft/Oracle and Lawson, that offer human resource management and payroll (“HRMS/payroll”) software products for use on mainframes, client/server environments and/or Web servers; and (iii) Kronos, a time and attendance vendor that has expanded its product offerings to include HRMS. Many of Ultimate Software’s competitors or potential competitors have significantly greater financial, technical and marketing resources than the Company. As a result, they may be able to respond more quickly to new or emerging technologies and to changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than can the Company. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of the Company’s prospective customers.

Product Liability

Software products such as those offered by the Company frequently contain undetected errors or failures when first introduced or as new versions are released. Testing of the Company’s products is particularly challenging because it is difficult to simulate the wide variety of computing environments in which the Company’s customers may deploy these products. Despite extensive testing, the Company from time to time has discovered defects or errors in products. There can be no assurance that such defects, errors or difficulties will not cause delays in product introductions and shipments, result in increased costs and diversion of development resources, require design modifications or decrease market acceptance or customer satisfaction with the Company’s products or result in claims by customers against the Company. In addition, there can be no assurance that, despite testing by the Company and by current and potential customers, errors will not be found after commencement of commercial shipments, resulting in loss of or delay in market acceptance, which could have a material adverse effect upon the Company’s business, operating results and financial condition.

Backlog

Backlog consists of Intersourcing and Base Hosting services sold under signed contracts for which the services have not yet been delivered. At December 31, 2005, the Company had backlog of $33.1 million compared to $26.4 million as of December 31, 2004. The Company expects to fill $24.2 million of the backlog during 2006. The Company does not believe that backlog is a meaningful indicator of sales that can be expected for any future period. There can be no assurance that backlog at any point in time will translate into revenue in any subsequent period.

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Employees

As of December 31, 2005, the Company employed 512 persons, including 77 in sales and marketing, 159 in professional services, 139 in research and development, 61 in customer support and 76 in finance, information technology and administration. The Company believes that its relations with employees are good. However, competition for qualified personnel in the Company’s industry is generally intense and the management of the Company believes that its future success will depend in part on its continued ability to attract, hire and retain qualified personnel.

Available Information

The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports and any registration statements, including but not limited to Form S-3, are available free of charge on the Company’s Internet website at www.ultimatesoftware.com as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission. Information contained on Ultimate Software’s website is not part of this report.

Item 1A.  Risk Factors

For a discussion of certain risks with respect to Ultimate Software and its financial condition and results of operations, see Exhibit 99.1 of this Form 10-K.

Item 1B.  Unresolved Staff Comments

None.

Item 2.   Properties

As of December 31, 2005, Ultimate Software’s corporate headquarters, including its principal administrative, marketing, engineering and support operations, was located in three adjacent office buildings in Weston, Florida. The Company leases all the available square footage in two buildings, or approximately 61,000 total square feet, under two leases, each expiring in 2017. In December 2004, the Company purchased, with available cash, all the available square footage of an adjacent building that serves as an extension of the Company’s corporate headquarters, with approximately 5,000 square feet. In August 2005, the Company entered into a five year lease agreement expiring in 2011 for a fourth building located in Weston, Florida near the other three adjacent locations. The space consists of approximately 9,000 square feet designated for corporate use. The Company expects to move a portion of its operations into the fourth building in approximately April 2006.

In addition, the Company presently leases office space for its sales operations in Albany, New York; Atlanta, Georgia; Columbia, Maryland; Dallas, Texas; Detroit, Michigan; Millburn, New Jersey; Nashville, Tennessee; Ridgeland, Mississippi; Seal Beach, California; and Schaumburg, Illinois. Sales operations in other locations are not supported by leased office space. The Company believes that its existing facilities, including the fourth building used in its corporate headquarters described above, are suitable and adequate for its current operations for the next 12 months. The Company further believes that suitable space will be available as needed to accommodate any expansion of its operations on commercially reasonable terms.

Item 3.   Legal Proceedings

From time-to-time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. The Company is not currently a party to any legal proceedings the adverse outcome of which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on the Company’s operating results or financial condition.

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 2005.

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PART II

Item 5.   Market for the Registrant’s Common Equity and Related Stockholder Matters

The following table sets forth, for the periods indicated, the high and low sales prices of the Company’s Common Stock, as quoted on the NASDAQ National Market.

	2005				2004
	High		Low		High		Low
First Quarter	$	16.060	$	11.960	$	14.150	$	8.500
Second Quarter		16.940		13.810		14.140		9.900
Third Quarter		18.900		15.830		13.250		9.710
Fourth Quarter		20.290		15.950		13.950		11.670

As of February 17, 2006 the Company had approximately 134 holders of record, representing approximately 2,600 stockholder accounts.

The Company has never declared or paid any cash dividends on its capital stock and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain future earnings to fund the development and growth of its business. The payment of dividends in the future, if any, will be at the discretion of the Board of Directors. Under the terms of the Company’s revolving line of credit with Silicon Valley Bank, the Company may not pay dividends without the prior written consent of Silicon Valley Bank. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

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Item 6.   Selected Financial Data

The following selected consolidated financial data is qualified by reference to and should be read in conjunction with “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and the Company’s Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K. The statement of operations data presented below for each of the years in the three-year period ended December 31, 2005 and the balance sheet data as of December 31, 2005 and 2004 have been derived from the Company’s Consolidated Financial Statements included elsewhere in this Form 10-K, which have been audited by KPMG LLP whose report appears elsewhere in this Form 10-K. The statement of operations data below for the years ended December 31, 2002 and December 2001 and the balance sheet data as of December 31, 2003, 2002 and 2001 have been derived from audited consolidated financial statements not included herein.

	Years Ended December 31,
	2005			2004			2003			2002			2001
	(In thousands, except per share data)
Statement of Operations Data:
Revenues:
Recurring	$	50,259		$	39,049		$	29,344		$	19,345		$	14,364
Services		27,894			24,924			23,478			23,634			28,289
License		10,450			8,055			7,594			12,170			16,826
Total revenues		88,603			72,028			60,416			55,149			59,479
Cost of revenues:
Recurring		13,740			11,961			9,495			8,098			5,789
Services		21,410			18,448			17,277			18,267			20,219
License		709			993			807			1,163			1,287
Total cost of revenue		35,859			31,402			27,579			27,528			27,295
Operating expenses:
Sales and marketing		21,783			20,630			17,788			17,479			18,261
Research and development		19,999			18,317			18,229			17,675			12,775
General and administrative		8,131			6,806			5,871			6,890			10,065
Total operating expenses		49,913			45,753			41,888			42,044			41,101
Operating income (loss)		2,831			(5,127	)		(9,051	)		(14,423	)		(8,917	)
Interest expense		(225	)		(182	)		(221	)		(283	)		(208	)
Interest and other income		819			285			103			138			375
Net income (loss)	$	3,425		$	(5,024	)	$	(9,169	)	$	(14,568	)	$	(8,750	)
Net income (loss) per share — Basic(1)	$	0.15		$	(0.23	)	$	(0.49	)	$	(0.90	)	$	(0.55	)
Net income (loss) per share — Diluted(1)	$	0.13		$	(0.23	)	$	(0.49	)	$	(0.90	)	$	(0.55	)
Weighted average number of shares outstanding:
Basic(1)		23,040			21,743			18,738			16,189			15,944
Diluted(1)		26,288			21,743			18,738			16,189			15,944
Balance Sheet Data:
Cash and cash equivalents	$	17,731		$	14,766		$	13,783		$	8,974		$	8,464
Investments in marketable securities		15,035			10,544			—			—			—
Total assets		69,581			52,546			35,812			31,143			34,251
Deferred revenue		33,031			28,476			24,610			27,815			20,215
Long-term borrowings, including capital lease obligations		1,828			1,231			796			1,206			408
Stockholders’ equity (deficit)		23,546			13,524			1,661			(7,368	)		4,590

(1) See Note 2 of the Notes to Consolidated Financial Statements for information regarding the computation of net income (loss) per share.

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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of the Company contains certain forward-looking statements 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. These forward-looking statements represent the Company’s expectations or beliefs, including, but not limited to, statements concerning the Company’s operations and financial performance and condition. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict. The Company’s actual results could differ materially from those contained in the forward-looking statements due to risks and uncertainties associated with fluctuations in the Company’s quarterly operating results, concentration of the Company’s product offerings, development risks involved with new products and technologies, competition, the Company’s contractual relationships with third parties, contract renewals with business partners, compliance by our customers with the terms of their contracts with us, and other factors disclosed in the Company’s filings with the Securities and Exchange Commission. Other factors that may cause such differences include, but are not limited to, those discussed in this Form 10-K, including Exhibit 99.1 hereto. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Executive Summary

Ultimate Software’s UltiPro Workforce Management Software (“UltiPro”) is a Web-based solution designed to deliver the functionality businesses need to manage the employee life cycle, from compensating and managing benefits to recruiting and hiring to terminating, whether the customer’s processes are centralized at headquarters or distributed across multiple divisions or branch offices. The Company’s main sources of revenues include sales from the Intersourcing Offering (defined below), sales of perpetual software licenses for UltiPro (and the related annual maintenance) and sales of services (mostly implementation) related to both Intersourcing and license sales.

The Company’s primary business strategy was originally centered on sales of perpetual software licenses of UltiPro. In an effort to reduce the volatility and unpredictable nature of a business strategy predominantly focused on license sales, the Company introduced Intersourcing as an additional revenue source during 2002.

In 2002, Ultimate Software began offering hosting services, branded “Intersourcing” by the Company, whereby Ultimate Software provides the hardware, infrastructure, ongoing maintenance and back-up services for its customers at a data center located in Miami, Florida and managed by International Business Machines (“IBM”). In August 2005, the Company opened its second data center in Atlanta, Georgia, also managed by IBM. Intersourcing is designed to appeal to those customers that want to minimize their internal technology support requirements for the application and hardware.

After the introduction of Intersourcing in mid-2002, the sales mix gradually began to shift towards Intersourcing, especially during 2003 and continuing in 2004 and 2005. Management believes the shift in sales mix helps to produce a more predictable revenue stream by providing recurring revenue and cash from Intersourcing over the related contract periods, typically 24 months. As Intersourcing units are sold, the recurring revenue backlog associated with Intersourcing grows, enhancing the predictability of future revenue streams. Intersourcing sales typically include a one-time upfront fee, priced on a per-employee basis, and ongoing monthly fees, priced on a per-employee-per-month (“PEPM”) basis. To the extent there are upfront fees associated with the Intersourcing sale, subscription revenues are recognized ratably over the term of the related contract beginning when the related customer processes its first live payroll (or goes “Live”). Ongoing monthly PEPM fees are recognized as recurring subscription revenues each month commencing when the related customer goes Live.

The sales mix composition for the year ended December 31, 2005 favored Intersourcing with approximately 60% Intersourcing units and 40% license units. While the Company expects the sales mix in the future

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to generally favor Intersourcing unit sales (consistent with recent experience), the composition can vary from management’s expectations from quarter to quarter.

In connection with the Company’s business strategy, which has a significant focus on Intersourcing sales, a financial metric used by the Company in measuring future financial performance is new annual recurring revenues. New annual recurring revenues represent the expected one-year value from (i) new Intersourcing sales from the Company’s hosted model (including prorated one-time fees); (ii) maintenance revenues related to new license sales; (iii) recurring revenues from new business service providers (“BSPs’’), as well as recurring revenues from new sales by existing BSPs; and (iv) recurring revenues from additional sales to Ultimate Software’s existing client base. New annual recurring revenues attributable to sales during 2005 were $16.5 million as compared to $12.0 million for 2004.

Another major component of recurring revenues is subscription revenues generated from the Company’s business service provider (“BSP”) channel. The BSP contributing the most revenues from the BSP channel during each of 2005, 2004 and 2003 was Ceridian Corporation (“Ceridian”) under the Original Ceridian Agreement (defined below). See also “Overview — Original Ceridian Agreement.”

As previously disclosed, Ultimate Software and Ceridian signed an agreement in 2001, as amended, granting Ceridian a non-exclusive license to use UltiPro software as part of an on-line offering for Ceridian to market primarily to businesses with less than 500 employees (the “Original Ceridian Agreement”). Ceridian marketed that solution under the name SourceWeb. During December 2004, RSM McGladrey Employer Services (“RSM”), an existing BSP of Ultimate Software, acquired Ceridian’s SourceWeb HR/payroll and self-service product and existing SourceWeb base of small and mid-size business customers throughout the United States (the “RSM Acquisition”). The financial terms of the Original Ceridian Agreement have not changed as a result of the RSM Acquisition. Ceridian will continue to be financially obligated to pay Ultimate Software a minimum fee of $500,000 per month with increases of 5% per annum, compounded beginning in January 2006. The aggregate minimum payments that Ceridian is obligated to pay Ultimate Software under the Original Ceridian Agreement over the minimum term of the agreement are $42.7 million. To date, Ceridian has paid to Ultimate Software a total of $29.1 million under the Original Ceridian Agreement. Ultimate Software expects to continue to recognize a minimum of $642,000 per month in subscription revenues (a component of recurring revenues) from the Original Ceridian Agreement until its termination. The amounts of subscription revenues recognized under the Original Ceridian Agreement during the year ended December 31, 2005, totaling $7.7 million were the same as those recognized in 2004. Effective March 9, 2006, Ceridian provided Ultimate Software with a two years’ advance written notice of termination of the Original Ceridian Agreement, as permitted under the terms of the Agreement. Pursuant to such notice, the Original Ceridian Agreement will terminate on March 9, 2008 (unless terminated earlier for an uncured material breach).

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

Sources of revenue for the Company include:

•  Sales of perpetual licenses for UltiPro;

•  Sales of perpetual licenses for UltiPro in conjunction with services to host the UltiPro application (“Hosting Services”);

•  Sales of the right to use UltiPro through “Intersourcing” (the “Intersourcing Offering”), which includes Hosting Services;

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•  Sales of Hosting Services on a stand-alone basis to customers who already own a perpetual license or are simultaneously acquiring a perpetual license for UltiPro (“Base Hosting”);

•  Sales of services including implementation, training (also known as knowledge management) and other services, including the provision of payroll-related forms and the printing of Form W-2’s for certain customers, as well as services provided to BSPs;

•  Recurring revenues derived from (1) maintenance revenues generated from maintaining, supporting and providing periodic updates for the Company’s software and (2) subscription revenues generated from PEPM fees earned through the Intersourcing Offering, Base Hosting and the BSP sales channel, amortization of Intersourcing or Hosting Services’ one-time fees, and revenues generated from the Original Ceridian Agreement.

Perpetual Licenses for UltiPro Sold With or Without Hosting Services

Sales of perpetual licenses for UltiPro and sales of perpetual licenses for UltiPro in conjunction with Hosting Services are multiple-element arrangements that involve the sale of software and consequently fall under the guidance of Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” for revenue recognition.

The Company licenses software under non-cancelable license agreements and provides services including maintenance, training and implementation consulting services. In accordance with the provisions of SOP 97-2, license revenues are generally recognized when (1) a non-cancelable license agreement has been signed by both parties, (2) the product has been shipped, (3) no significant vendor obligations remain and (4) collection of the related receivable is considered probable. To the extent any one of these four criteria is not satisfied, license revenue is deferred and not recognized in the consolidated statements of operations until all such criteria are met.

For multiple-element software arrangements, each element of the arrangement is analyzed and the Company allocates a portion of the total fee under the arrangement to the elements based on vendor-specific objective evidence of fair value of the element (“VSOE”), regardless of any separate prices stated within the contract for each element. Fair value is considered the price a customer would be required to pay when the element is sold separately.

The Residual Method (as defined below) is used to recognize revenue when a license agreement includes one or more elements to be delivered at a future date and VSOE of the fair value of all undelivered elements exists. The fair value of the undelivered elements is determined based on the historical evidence of stand-alone sales of these elements to third parties. Undelivered elements in a license arrangement typically include maintenance, training and implementation services (the “Standard Undelivered Elements”). The fair value for maintenance fees is based on the price of the services sold separately, which is determined by the annual renewal rate historically and consistently charged to customers (the “Maintenance Valuation”). Maintenance fees are generally priced as a percentage of the related license fee. The fair value for training services is based on standard pricing (i.e., rate per training day charged to customers for class attendance), taking into consideration stand-alone sales of training services through year-end seminars and historically consistent pricing for such services (the “Training Valuation”). The fair value for implementation services is based on standard pricing (i.e., rate per hour charged to customers for implementation services), taking into consideration stand-alone sales of implementation services through special projects and historically consistent pricing for such services (the “Implementation Valuation”). Under the residual method (the “Residual Method”), the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee attributable to the delivered element, the license fee, is recognized as revenue. If VSOE for one or more undelivered elements does not exist, the revenue is deferred on the entire arrangement until the earlier of the point at which (i) such VSOE does exist or (ii) all elements of the arrangement have been delivered.

Perpetual licenses of UltiPro sold without Hosting Services typically include a license fee and the Standard Undelivered Elements. Fair value for the Standard Undelivered Elements is based on the Maintenance

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Valuation, the Training Valuation and the Implementation Valuation. The delivered element of the arrangement, the license fee, is accounted for in accordance with the Residual Method.

Perpetual licenses of UltiPro sold with Hosting Services typically include a license fee, the Standard Undelivered Elements and Hosting Services. Fair value for the Standard Undelivered Elements is based on the Maintenance Valuation, the Training Valuation and the Implementation Valuation. Hosting Services are delivered to customers on a PEPM basis over the term of the related customer contract (“Hosting PEPM Services”). Upfront fees charged to customers represent fees for the hosting infrastructure, including hardware costs, third-party license fees and other upfront costs incurred by the Company in relation to providing such services (“Hosting Upfront Fees”). Hosting PEPM Services and Hosting Upfront Fees (collectively, “Hosting Services”) represent undelivered elements in the arrangement since their delivery is over the course of the related contract term. The fair value for Hosting Services is based on standard pricing (i.e., rate charged PEPM), taking into consideration stand-alone sales of Hosting Services through the sale of such services to existing customers (i.e., those who already own the UltiPro perpetual license at the time Hosting Services are sold to them) and historically consistent pricing for such services (the “Hosting Valuation”). The delivered element of the arrangement, the license fee, is accounted for in accordance with the Residual Method.

The Company’s customer contracts are non-cancelable agreements. The Company does not provide for rights of return or price protection on its software. The Company provides a limited warranty that its software will perform in accordance with user manuals for varying periods, which are generally less than one year from the contract date. The Company’s customer contracts generally do not include conditions of acceptance. However, if conditions of acceptance are included in a contract or uncertainty exists about customer acceptance of the software, license revenue is deferred until acceptance occurs.

Sales Generated from the Intersourcing Offering

Subscription revenues generated from the Intersourcing Offering are recognized in accordance with Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables” as a services arrangement since the customer is purchasing the right to use UltiPro rather than licensing the software on a perpetual basis. Fair value of multiple elements in Intersourcing arrangements is assigned to each element based on the guidance provided by EITF 00-21.

The elements that typically exist in Intersourcing arrangements include hosting services, the right to use UltiPro, maintenance of UltiPro (i.e., product enhancements and customer support) and professional services (i.e., implementation services and training in the use of UltiPro). The pricing for hosting services, the right to use UltiPro and maintenance of UltiPro is bundled (the “Bundled Elements”). Since these three Bundled Elements are components of recurring revenues in the consolidated statements of operations, allocation of fair values to each of the three elements is not necessary and they are not reported separately. Fair value for the Bundled Elements, as a whole, is based upon evidence provided by the Company’s pricing for Intersourcing arrangements sold separately. The Bundled Elements are provided on an ongoing basis and represent undelivered elements under EITF 00-21; they are recognized on a monthly basis as the services are performed, once the customer has begun to process payrolls used to pay its employees (i.e., goes “Live”).

Implementation and training services (the “Professional Services”) provided for Intersourcing arrangements are priced on a time and materials basis and are recognized as services revenue in the consolidated statements of operations as the services are performed. Under EITF 00-21, fair value is assigned to service elements in the arrangement based on their relative fair values, using the prices established when the services are sold on a stand-alone basis. Fair value for Professional Services is based on the respective Training Valuation and Implementation Valuation. If evidence of the fair value of one or more undelivered elements does not exist, the revenue is deferred and recognized when delivery of those elements occurs or when fair value can be established.

The Company believes that applying EITF 00-21 to Intersourcing arrangements as opposed to applying SOP 97-2 is appropriate given the nature of the arrangements whereby the customer has no right to the UltiPro license.

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Sales of Base Hosting Services

Subscription revenues generated from Base Hosting are recognized in accordance with EITF 00-3, “Application of AICPA Statement of Position 97-2 to Arrangements that Include the Right to Use Software Stored on Another Entity’s Hardware,” which provides guidance as to the application of SOP 97-2 to hosting arrangements that include a license right to the software. The elements that typically exist for Base Hosting arrangements include hosting services and implementation services. Base Hosting is different than Intersourcing arrangements in that the customer already owns a perpetual license or is purchasing a perpetual license for UltiPro and is purchasing hosting services subsequently in a separate transaction whereas, with Intersourcing, the customer is purchasing the right to use (not license) UltiPro. Implementation services provided for Base Hosting arrangements are substantially less than those provided for Intersourcing arrangements since UltiPro is already implemented in Base Hosting arrangements and only needs to be transitioned to a hosted environment. Fair value for hosting services is based on the Hosting Valuation. The fair value for implementation services is based on the Implementation Valuation in accordance with guidelines provided by SOP 97-2.

Services, including Implementation and Training Services

Services revenues include revenues from fees charged for the implementation of the Company’s software products and training of customers in the use of such products, fees for other services, including services provided to BSPs, including RSM, the provision of payroll-related forms and the printing of Form W-2’s for certain customers, as well as certain reimbursable out-of-pocket expenses. Revenues for training and implementation consulting services are recognized as services are performed to the extent the pricing for such services is on a time and materials basis and the payment terms are within the Company’s ordinary and customary payment cycle. In the event payments for services are outside the ordinary and customary period for the Company, the related revenues are recognized as payments come due based on their relative fair values. Other services are recognized as the product is shipped or as the services are rendered depending on the specific terms of the arrangement.

Arrangement fees related to fixed-fee implementation services contracts are recognized using the percentage of completion accounting method, which involves the use of estimates. Percentage of completion is measured at each reporting date based on hours incurred to date compared to total estimated hours to complete. If a sufficient basis to measure the progress towards completion does not exist, revenue is recognized when the project is completed or when the Company receives final acceptance from the customer.

Recurring Revenues

Recurring revenues include maintenance revenues and subscription revenues. Maintenance revenues are derived from maintaining, supporting and providing periodic updates for the Company’s software. Subscription revenues are principally derived from PEPM fees earned through the Intersourcing Offering, Base Hosting and the BSP sales channel, as well as revenues generated from the Original Ceridian Agreement. Maintenance revenues are recognized ratably over the service period, generally one year. Maintenance and support fees are generally priced as a percentage of the initial license fee for the underlying products. To the extent there are upfront fees associated with the Intersourcing Offering, Base Hosting or the BSP sales channel, subscription revenues are recognized ratably over the minimum term of the related contract upon the delivery of the product and services. In the cases of Intersourcing and Base Hosting sales, amortization of the upfront fees commences when the customer processes its first Live payroll, which typically occurs four to six months after the sale, and extends until the end of the contract period. In the case of BSP channel sales, amortization of the upfront fee typically commences when the contract is signed, which is when the BSP’s rights under the agreement begin, continuing until the initial contract term ends. Ongoing PEPM fees from the Intersourcing Offering, Base Hosting and the BSP sales channel are recognized as subscription revenue as the services are delivered, typically on a monthly basis. Commencing on August 28, 2002, subscription revenues generated from the Original Ceridian Agreement are recognized ratably over the minimum term of the contract, which extends until March 9, 2008 (7 years from the effective date of the Original Ceridian Agreement). Subscription revenues of $642,000 per month are based on guaranteed minimum payments from Ceridian of approximately $42.7 million over the minimum contract term, including $29.1 million received to date. The Company

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recognizes the same amount of recurring subscription revenue from the Original Ceridian Agreement on a fiscal reporting basis, which totaled $7.7 million per year for each of 2005, 2004 and 2003. The Company will continue to recognize $642,000 per month (or $7.7 million per annum) as recurring subscription revenue until March 9, 2008 when the Original Ceridian Agreement terminates.

Maintenance services provided to customers include product updates and technical support services. Product updates are included in general releases to the Company’s customers and are distributed on a periodic basis. Such updates may include, but are not limited to, product enhancements, payroll tax updates, additional security features or bug fixes. All features provided in general releases are unspecified upgrade rights. To the extent specified upgrade rights or entitlements to future products are included in a multi-element arrangement, revenue is recognized upon delivery provided fair value for the elements exists. In multi-element arrangements that include a specified upgrade right or entitlement to a future product, if fair value does not exist for all undelivered elements, revenue for the entire arrangement is deferred until all elements are delivered or when fair value can be established.

Subscription revenues generated from the BSP sales channel include both the right to use UltiPro and maintenance. The BSP is charged a fee on a PEPM basis and, in several cases, is subject to a guaranteed monthly minimum amount for the term of the related agreement. Revenue is recognized on a PEPM basis. To the extent the BSP pays the Company a one-time upfront fee, the Company accounts for such fee by recognizing it as subscription revenue over the minimum term of the related agreement.

The Company recognizes revenue in accordance with the Securities Exchange Commission (“SEC”) Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB No. 101”) and the SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB No. 104”). Management believes the Company is currently in compliance in all material aspects with the current provisions set forth in SOP 97-2, SOP 98-9, EITF 00-21, EITF 00-3, SAB No. 101 and SAB No. 104.

Concentration of Revenues

During the years ended December 31, 2005, 2004 and 2003, Ceridian accounted for 8.7%, 15.5% and 16.6%, respectively, of total revenues. No other customer accounted for more than 10% of total revenues in the periods presented. Due to the significant concentration of total revenues with this single customer, the Company has exposure if this customer loses its credit worthiness. The Ceridian Services Agreement, under which services revenues were recognized in 2004, expired on December 31, 2004 and no services revenues has been or will be recognized with respect to it in 2005 or thereafter. See Note 3 of the Notes to Consolidated Financial Statements.

The decrease in the percentage of total revenues contributed by Ceridian in 2005 resulted from the expiration of the Ceridian Services Agreement on December 31, 2004 combined with the fixed nature of the recurring revenues recognized pursuant to the Original Ceridian Agreement when total revenues increased in 2005 as compared to the previous two years. The Company anticipates a continued reduction in the percentage of total revenues contributed by Ceridian, as fixed recurring revenues under the Original Ceridian Agreement of $642,000 per month will be recognized until the termination of the Original Ceridian Agreement on March 9, 2008.

The composition of the revenues recognized from Ceridian, as a percentage of total revenues, for the years ended December 31, 2005, 2004 and 2003 was as follows:

	2005			2004			2003
Recurring revenues		8.7	%		10.9	%		12.8	%
Services revenues		—			4.6			3.8
Total revenues		8.7	%		15.5	%		16.6	%

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Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts at an amount estimated to be sufficient to provide adequate protection against losses resulting from collecting less than full payment on accounts receivable. In assessing the adequacy of the allowance for doubtful accounts, the Company considers multiple factors including historical bad debt experience, the general economic environment, and the aging of its receivables. A considerable amount of judgment is required when the realization of receivables is assessed, including assessing the probability of collection and current credit-worthiness of each customer. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts may be required.

Overview

Ultimate Software designs, markets, implements and supports payroll and workforce management solutions.

UltiPro is a Web-based solution designed to deliver the functionality businesses need to manage the employee life cycle, from compensating and managing benefits to recruiting and hiring to terminating, whether their processes are centralized at headquarters or distributed across multiple divisions or branch offices. UltiPro’s human resources (“HR”) and benefits management functionality is wholly integrated with a flexible payroll engine, reporting and analytical decision-making tools, and a self-service Web portal for executives, managers, administrators, and employees to review and update work-related and personal information. Ultimate Software believes that UltiPro helps customers streamline HR and payroll processes to significantly reduce administrative and operational costs, while also empowering executives and staff to access critical information quickly and perform routine business activities efficiently.

UltiPro is marketed both through the Company’s direct sales team as well as through alliances with BSPs that market co-branded UltiPro to their customer bases. Ultimate Software’s direct sales team focuses primarily on companies with more than 500 employees and sells both a license model (typically in-house) and a service model (typically hosted and priced on a PEPM). The Company’s BSP alliances focus primarily on companies with under 500 employees and, since 2004, very large companies, generally those with over 10,000 employees, as well. The Company’s BSP alliances typically sell an Internet solution, which includes UltiPro, priced on a monthly/service basis. When the BSP sells its Internet solution, incorporating UltiPro in the offering, the BSP is obligated to remit a fee to the Company, typically measured on a PEPM basis and, in some cases, subject to a guaranteed monthly minimum amount.

The Company’s direct sales force markets UltiPro as an in-house human resources, payroll and workforce management solution and alternatively as a hosted offering branded “Intersourcing”. Intersourcing provides Web access to comprehensive workforce management functionality for organizations that need to simplify the information technology (“IT”) support requirements of their business applications. Ultimate Software believes that Intersourcing is attractive to companies that want to focus on their core competencies to increase sales and profits. Through the Intersourcing model, introduced in 2002, the Company provides the hardware, infrastructure, ongoing maintenance and backup services for its customers at two data centers located in Miami, Florida and Atlanta, Georgia (opened in August 2005), both managed by IBM.

Intersourcing Offering

In 2002, the Company began offering a hosting service, branded Intersourcing, whereby the Company provides the hardware, infrastructure, ongoing maintenance and back-up services for its customers at a data center located in Miami, Florida, which is managed by IBM. In August 2005, the Company opened its second data center, which is located in Atlanta, Georgia and is also managed by IBM. Different types of hosting arrangements include the sale of Hosting Services as a part of the Intersourcing Offering, discussed below, and, to a lesser extent, the sale of Hosting Services to customers that license UltiPro on a perpetual basis. Hosting Services, typically available in a shared environment, provide Web access to comprehensive workforce management functionality for organizations that need to simplify the IT support requirements of their business applications and are priced on a PEPM basis. In the shared environment, Ultimate Software provides an

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infrastructure with applicable servers shared among many customers who use a Web browser to access the application software through the data centers.

The Intersourcing Offering is designed to provide an appealing pricing structure to customers who prefer to minimize the initial cash outlay associated with typical capital expenditures. Intersourcing customers purchase the right to use UltiPro on an ongoing basis for a specific term, typically in a shared environment. The pricing for Intersourcing, including both the hosting element as well as the right to use UltiPro, is on a PEPM basis.

Original Ceridian Agreement

During 2001, Ultimate Software and Ceridian reached an agreement, as amended in 2002, which granted Ceridian a non-exclusive license to use UltiPro software as part of an on-line offering that Ceridian can market primarily to businesses with under 500 employees (the “Original Ceridian Agreement”). Ceridian marketed that solution under the name SourceWeb.

Under the agreement, Ceridian is responsible for all marketing costs and expenses, and must sell the licensed software on a per period, per employee, per paycheck basis or other repetitive payment model. Ceridian is required to pay the Company a monthly license fee based on the number of employees paid using the licensed software. These payments are subject to a minimum monthly payment of $500,000 per month with increases of 5% per annum, compounded beginning in January 2006. The aggregate minimum payments that Ceridian is obligated to pay Ultimate Software under the Original Ceridian Agreement over the minimum term of the Agreement are $42.7 million. To date, Ceridian has paid to Ultimate Software a total of $29.1 million under the Original Ceridian Agreement.

Effective March 9, 2006, Ceridian provided Ultimate Software with a two years’ advance written notice of termination of the Original Ceridian Agreement, as permitted under the terms of the Agreement. Pursuant to such notice, the Original Ceridian Agreement will terminate on March 9, 2008 (unless terminated earlier for an uncured material breach).

During December 2004, RSM McGladrey Employer Services (“RSM”), an existing BSP of Ultimate Software, acquired Ceridian’s SourceWeb HR/payroll and self-service product and existing SourceWeb base of small and midsize business customers throughout the United States (the “RSM Acquisition”). The financial terms of the Original Ceridian Agreement have not changed as a result of the RSM Acquisition. Ceridian continues to be financially obligated to pay Ultimate Software a minimum fee of $500,000 per month with increases of 5% per annum, compounded beginning in January 2006.

Ultimate Software expects to continue to recognize a minimum of $642,000 per month, or $7.7 million per year, in recurring subscription revenues from the Original Ceridian Agreement until its termination on March 9, 2008.

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Results of Operations

The following table sets forth the Statements of Operations data of the Company, as a percentage of total revenues, for the periods indicated.

	For the Years Ended December 31,
	2005			2004			2003
Revenues:
Recurring		56.7	%		54.2	%		48.6	%
Services		31.5			34.6			38.8
License		11.8			11.2			12.6
Total revenues		100.0			100.0			100.0
Cost of revenues:
Recurring		15.5			16.6			15.7
Services		24.2			25.6			28.6
License		0.8			1.4			1.3
Total cost of revenues		40.5			43.6			45.6
Operating expenses:
Sales and marketing		24.5			28.7			29.4
Research and development		22.6			25.4			30.2
General and administrative		9.2			9.4			9.7
Total operating expenses		56.3			63.5			69.3
Operating income (loss)		3.2			(7.1	)		(14.9	)
Interest expense		(0.2	)		(0.3	)		(0.4	)
Interest and other income		0.9			0.4			0.2
Net income (loss)		3.9	%		(7.0	)%		(15.1	)%

Comparison of Fiscal Years Ended December 31, 2005 and 2004

Revenues

The Company’s revenues are derived from three principal sources: recurring revenues, services revenues and software licenses (“license revenues”).

Recurring revenues include annual maintenance on software license agreements for the Company’s products and subscription revenues. Maintenance revenues are derived from maintaining, supporting and providing periodic updates for the Company’s software. Subscription revenues are principally derived from PEPM fees earned through the Intersourcing Offering, Base Hosting and the BSP sales channel, as well as revenues generated from the Original Ceridian Agreement. Maintenance revenues are recognized ratably over the service period, generally one year. To the extent there are upfront fees associated with the Intersourcing Offering, Base Hosting or the BSP sales channel, subscription revenues are recognized ratably over the minimum term of the related contract upon the delivery of the product and services. Ongoing PEPM fees from the Intersourcing Offering, Base Hosting and the BSP sales channel are recognized as subscription revenues as the services are delivered. All of the Company’s customers that purchased software during 2005 and 2004 also purchased maintenance and support service contracts. Maintenance and support fees are generally priced as a percentage of the initial license fee for the underlying products.

Services revenues include revenues from fees charged for the implementation of the Company’s software products and training of customers in the use of such products, fees for services provided to BSPs, including those related to RSM in 2005 and Ceridian in 2004, the provision of payroll-related forms and the printing of

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Form W-2’s for certain customers and certain reimbursable out-of-pocket expenses. Revenues for training and implementation consulting services are recognized as services are performed. Revenues for services provided to BSPs were recognized ratably based on the terms of the related agreement. Other services are recognized as the product is shipped or as the services are rendered.

License revenues include revenues from software license agreements for the Company’s products, entered into between the Company and its customers in which the license fees are non-cancelable. License revenues are generally recognized upon the delivery of the related software product when all significant contractual obligations have been satisfied. Until such delivery, the Company records amounts received when contracts are signed as customer deposits which are included with deferred revenues in the consolidated balance sheets.

Total revenues, consisting of recurring, services and license revenues, increased 23.0% to $88.6 million for 2005 from $72.0 million for 2004.

Recurring revenues increased 28.7% to $50.3 million for 2005 from $39.0 million for 2004 primarily due to an increase in revenues generated from the Intersourcing Offering and an increase in maintenance revenues. The increase in revenues generated from the Intersourcing Offering resulted from incremental Intersourcing units sold in 2005 and an increase in the number of Intersourcing customers that processed their first live payroll during 2005 as those revenues were layered on to the Intersourcing revenue base in existence at December 31, 2004. The increase in maintenance revenues resulted from higher license sales on which maintenance revenues are generated. The Company’s high retention rate of approximately 97% for existing customers’ annual renewals in 2005 combined with the annual price increases that typically accompany renewals also contributed to the increase in maintenance revenues. Recurring subscription revenues recognized in 2005 from the Original Ceridian Agreement, totaling $7.7 million, were the same as in 2004. Beginning on August 28, 2002, subscription revenues generated from the Original Ceridian Agreement of $642,000 per month have been recognized, and are expected to be recognized, over the minimum term of the contract. Future recurring revenues to be recognized from the Original Ceridian Agreement are expected to be comparable to 2005, or $7.7 million per year, through March 9, 2008. The impact on recurring revenues for units sold under the Intersourcing Offering (as opposed to the impact on license revenues for licensed units sold) is expected to be a gradual increase from one period to the next, based on the revenue recognition of the Intersourcing fees over the terms of the related contracts. The Company continues to believe that a combination of units sold under the Intersourcing Offering and regular licensed units sold will provide a more predictable business model in the future.

Services revenues increased 11.9% to $27.9 million for 2005 from $24.9 million for 2004 primarily as a result of an increase of $2.4 million in implementation revenues and a $0.6 million increase in training revenues, partially offset by a decrease in BSP services revenues of $0.6 million. The increase in implementation revenues is principally a result of additional billable hours stemming from an increase in the number of revenue-generating consultants, incremental units sold, partially offset by a lower net rate per hour. The increase in training revenues was attributable to more units sold in 2005 versus the prior year and additional Web-based training. The decrease in BSP services revenues since 2004 is due to the expiration of the Ceridian Services Agreement effective December 31, 2004, partially offset by additional BSP services revenues generated from RSM during 2005.

License revenues increased 29.7% to $10.5 million for 2005 from $8.1 million for 2004 primarily due to a higher number of unit sales in 2005 as compared to unit sales in 2004 and a slightly higher average selling price per unit.

Cost of Revenues

Cost of revenues consists of the cost of recurring, services and license revenues. Cost of recurring revenues consists of costs to provide maintenance and technical support to the Company’s customers, the cost of providing periodic updates and the cost of subscription revenues, including amortization of capitalized software. Cost of services revenues primarily consists of costs to provide implementation services and training to the Company’s customers and, to a lesser degree, costs related to sales of payroll-related forms, costs associated with certain reimbursable out-of-pocket expenses, discussed below, and costs to support additional

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services provided to BSPs (or BSP services). Cost of license revenues primarily consists of fees payable to a third-party for software products distributed by the Company and, to a lesser degree, amortization of capitalized software costs. UltiPro includes third-party software for enhanced report writing purposes. When UltiPro licenses are sold, customers pay the Company on a per user basis for the license rights to the third-party report writing software. Capitalized software is amortized using the straight-line method over the estimated useful life of the related asset, which is typically three years.

Cost of recurring revenues increased 14.9% to $13.7 million for 2005 from $12.0 million for 2004. The $1.7 million increase in cost of recurring revenue for 2005 was attributable to additional costs associated with the growth in the Intersourcing Offering, including labor costs, depreciation and amortization of related computer equipment and costs associated with the operations of the Company’s two data centers, including the impact of opening the second data center in August 2005.

Cost of services revenues increased 16.1% to $21.4 million for 2005 from $18.4 million for 2004 primarily due to higher costs of implementation and higher costs of BSP services. Costs of implementation services increased by $1.7 million in comparison to 2004 due to additional labor costs associated with hiring additional consultants to support the increase in unit sales. Costs of BSP services increased $1.1 million in comparison to 2004 due to increased personnel to provide contractual services to the BSP channel, including RSM, which was more labor-intensive in 2005.

Cost of license revenues decreased 28.7% to $0.7 million for 2005 from $1.0 million for 2004. The decrease in cost of license revenues for 2005 was mostly due to a $0.2 million reduction in the amortization of capitalized software. Capitalized software impacting the cost of license revenues were fully amortized as of July 31, 2004.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries and benefits, sales commissions, travel and promotional expenses, and facility and communication costs for direct sales offices, as well as advertising and marketing costs. Sales and marketing expenses increased 5.6% to $21.8 million for 2005 from $20.6 million for 2004. The increase in sales and marketing expenses was primarily due to a $2.0 million increase in labor costs (including sales commissions which correlate with increased revenues and performance-based bonuses), partially offset by a decrease in advertising and marketing costs of $0.2 million.

Research and Development

Research and development expenses consist primarily of software development personnel costs. Research and development expenses increased 9.2% to $20.0 million in 2005 from $18.3 million in 2004. Excluding the impact of capitalized costs associated with UltiPro Canada which totaled $0.2 million for the year (all incurred in the fourth fiscal quarter of 2005 commencing when technological feasibility was attained), research and development expenses increased $1.9 million in 2005 principally due to higher labor costs, including the impact of staffing needs related to the ongoing development of UltiPro Canada. The Company expects to capitalize additional research and development costs relative to the UltiPro Canada project during 2006 as it anticipates a general release of UltiPro Canada in approximately the first half of 2007, at which time capitalization would cease under SFAS No. 86 guidelines.

General and Administrative

General and administrative expenses consist primarily of salaries and benefits of executive, administrative and financial personnel, as well as external professional fees and the provision for doubtful accounts. General and administrative expenses increased 19.5% to $8.1 million for 2005 from $6.8 million for 2004. The $1.3 million increase in general and administrative expenses was primarily due to increased labor costs, an increase in performance-based bonuses principally associated with the Company’s executive incentive program tied to the overall financial performance of the Company and an increase in the provision for doubtful accounts associated with the growth of the Company’s operations, partially offset by lower professional fees, which include legal, accounting and auditing fees.

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Interest Expense

Interest expense increased 23.6% to $225,000 for 2005 from $182,000 for 2004 primarily due to the increase in borrowings from the Credit Facility, defined below.

Interest and Other Income

Interest and other income increased 187.7% to $819,000 for 2005 from $285,000 for 2004 primarily due to interest income on cash available for investments.

Provision for Income Taxes

No provision or benefit for Federal, state or foreign income taxes was made for 2005 due to the operating losses and operating loss carryforwards from prior periods incurred in the respective periods. Net operating loss carryforwards available at December 31, 2005, expiring at various times through the year 2025 and which are available to offset future taxable income, approximated $67.0 million. The timing and levels of future profitability may result in the expiration of net operating loss carryforwards before utilization. Additionally, utilization of such net operating losses may be limited as a result of cumulative ownership changes in the Company’s equity instruments.

Comparison of Fiscal Years Ended December 31, 2004 and 2003

Revenues

Total revenues, consisting of recurring, services and license revenues, increased 19.2% to $72.0 million for 2004 from $60.4 million for 2003.

Recurring revenues increased 33.1% to $39.0 million for 2004 from $29.3 million for 2003 primarily due to a total increase of $6.5 million in revenues generated from the Intersourcing Offering resulting from incremental Intersourcing units sold and an increase in the number of Intersourcing customers that processed their first live payroll during 2004 combined with additional maintenance revenues generated from incremental licenses sold. Recurring subscription revenues recognized in 2004 from the Original Ceridian Agreement, totaling $7.7 million, were the same as in 2003.

Services revenues increased 6.2% to $24.9 million for 2004 from $23.5 million for 2003 primarily as a result of an increase of $1.1 million in services revenue generated from the Ceridian Services Agreement and an increase of $0.5 million in implementation revenues, partially offset by a decrease of $0.3 million in certain reimbursable out-of-pocket expenses.

License revenues increased 6.1% to $8.0 million for 2004 from $7.6 million for 2003 primarily due to a higher average selling price in 2004 as unit sales were comparable.

Cost of Revenues

Cost of recurring revenues increased 26.0% to $12.0 million for 2004 from $9.5 million for 2003. The $2.5 million increase in cost of recurring revenue for 2004 was attributable to additional costs associated with the growth in the Intersourcing Offering, including labor costs, depreciation and amortization of related computer equipment and costs associated with the data center located in Miami, Florida.

Cost of services revenues increased 6.8% to $18.4 million for 2004 from $17.3 million for 2003 primarily as a result of increased costs to provide additional services to BSPs, principally labor-related, and higher implementation and training costs, partially offset by a decrease in certain reimbursable out-of-pocket expenses.

Cost of license revenues increased 23% to $1.0 million for 2004 from $0.8 million for 2003. The increase in cost of license revenues for 2004 was due to increased labor costs and additional third-party royalty fees, partially offset by a reduction in the amortization of capitalized software. Capitalized software impacting the cost of license revenues were fully amortized as of July 31, 2004.

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Sales and Marketing

Sales and marketing expenses increased 16.0% to $20.6 million for 2004 from $17.8 million for 2003. The increase in sales and marketing expenses was primarily due to a $2.3 million increase in labor costs and, to a lesser extent, an increase in advertising and marketing costs of $0.5 million. The main contributing factors for the increase in labor costs in 2004 were sales commissions and salaries, benefits and travel costs. The increase in sales commissions was predominantly related to the increase in recurring revenues from Intersourcing, which are amortized over the initial term of the contracts, usually two years, commencing when the customer processes its first Live payroll. The addition of personnel to the sales infrastructure during the three months ended September 30, 2003 was the primary cause for the increase in salaries, benefits and travel costs in 2004.

Research and Development

Research and development expenses consist primarily of software development personnel costs. Research and development expenses of $18.3 million in 2004 were consistent with expenses of $18.2 million in 2003 with 2004 labor costs increasing slightly over 2003.

General and Administrative

General and administrative expenses increased 15.9% to $6.8 million for 2004 from $5.9 million for 2003 primarily due to an increase of $0.6 million principally related to additional external professional fees associated with Sarbanes-Oxley section 404 compliance and an increase of $0.2 million in the provision for doubtful accounts.

Interest Expense

Interest expense decreased 17.6% to $182,000 for 2004 from $221,000 for 2003 primarily due to the reduction in borrowings from the Credit Facility, defined below.

Interest and Other Income

Interest and other income increased 176.7% to $285,000 for 2004 from $103,000 for 2003 primarily due to interest income on cash available for investments.

Provision for Income Taxes

No provision or benefit for Federal, state or foreign income taxes was made for 2004 due to the operating losses and operating loss carryforwards from prior periods incurred in the respective periods. Net operating loss carryforwards available at December 31, 2004, expiring at various times through the year 2024 and which are available to offset future taxable income, were $62.9 million.

Quarterly Results of Operations

The following table sets forth certain unaudited quarterly results of operations for each of the quarters in the years ended December 31, 2005 and 2004. In management’s opinion, this unaudited information has been prepared on the same basis as the audited consolidated financial statements and includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the quarters presented. This information should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto, included elsewhere in this Form 10-K.

The Company’s quarterly revenues and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. The Company’s operating results may fluctuate as a result of a number of factors, including, but not limited to, increased expenses (especially as they relate to product development and sales and marketing), timing of product releases, increased competition, variations in the mix of revenues, announcements of new products by the Company or its competitors and capital spending patterns of the Company’s customers. The Company establishes its expenditure levels based

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upon its expectations as to future revenues, and, if revenue levels are below expectations, expenses can be disproportionately high. A drop in near term demand for the Company’s products could significantly affect both revenues and profits in any quarter. Operating results achieved in previous fiscal quarters are not necessarily indicative of operating results for the full fiscal years or for any future periods. As a result of these factors, there can be no assurance that the Company will be able to maintain profitability on a quarterly basis. The Company believes that, due to the underlying factors for quarterly fluctuations, period-to-period comparisons of its operations are not necessarily meaningful and that such comparisons should not be relied upon as indications of future performance.

	Quarters Ended
	Dec. 31,			Sep. 30,			Jun. 30,			Mar. 31,			Dec. 31,			Sep. 30,			Jun. 30,			Mar. 31,
	2005			2005			2005			2005			2004			2004			2004			2004
	(Unaudited)
	(In thousands, except per share amounts)
Revenues:
Recurring	$	13,574		$	12,956		$	12,141		$	11,588		$	11,068		$	10,075		$	9,207		$	8,699
Services		8,845			6,484			6,389			6,176			6,907			6,079			6,129			5,809
License		2,542			2,746			2,778			2,384			2,533			2,011			2,114			1,397
Total revenues		24,961			22,186			21,308			20,148			20,508			18,165			17,450			15,905
Cost of revenues:
Recurring		3,716			3,588			3,367			3,069			3,019			3,103			2,957			2,882
Services		6,419			5,171			4,786			5,034			5,051			4,283			4,457			4,657
License		245			165			176			123			162			288			270			273
Total cost of revenues		10,380			8,924			8,329			8,226			8,232			7,674			7,684			7,812
Operating expenses:
Sales and marketing		5,803			5,523			5,267			5,190			5,380			5,158			5,261			4,831
Research and development		4,762			5,251			5,184			4,802			4,414			4,805			4,543			4,555
General and administrative		2,430			1,945			1,948			1,808			1,785			1,894			1,669			1,458
Total operating expenses		12,995			12,719			12,399			11,800			11,579			11,857			11,473			10,844
Operating income (loss)		1,586			543			580			122			697			(1,366	)		(1,707	)		(2,751	)
Interest expense		(44	)		(65	)		(61	)		(55	)		(49	)		(34	)		(70	)		(29	)
Interest and other income		293			223			170			133			167			69			34			15
Net income (loss)	$	1,835		$	701		$	689		$	200		$	815		$	(1,331	)	$	(1,743	)	$	(2,765	)
Weighted average shares outstanding:
Basic		23,403			23,229			22,952			22,565			22,447			22,353			21,479			20,680
Diluted		26,740			26,566			26,023			25,431			25,221			22,353			21,479			20,680
Net earnings (loss) per share
Basic	$	0.08		$	0.03		$	0.03		$	0.01		$	0.04		$	(0.06	)	$	(0.08	)	$	(0.13	)
Diluted	$	0.07		$	0.03		$	0.03		$	0.01		$	0.03		$	(0.06	)	$	(0.08	)	$	(0.13	)

Liquidity and Capital Resources

The Company has historically funded operations primarily through the private and public sale of equity securities and, to a lesser extent, equipment financing and borrowing arrangements.

As of December 31, 2005, the Company had $32.8 million in cash, cash equivalents and total investments in marketable securities, reflecting a net increase of $7.5 million since December 31, 2004. As of December 31, 2005, the Company had working capital of $15.2 million as compared to $3.7 million as of December 31, 2004. The $11.5 million increase in working capital resulted primarily from cash proceeds of $5.8 million

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derived from exercises of employee stock options to purchase Common Stock during 2005 and cash provided from operations as the Company’s net financial results returned to profitability in 2005 as compared to a net loss in 2004.

Net cash provided by operating activities was $5.4 million for the year ended December 31, 2005 as compared to $0.3 million for the year ended December 31, 2004. The $5.1 million increase was primarily due to the improvement in the results of operations for 2005 as compared to 2004, partially offset by increased prepaid expenses, including prepaid Intersourcing commissions related to the growth in Intersourcing operations (which are amortized when the related Intersourcing client processes its first live payroll), and an increase in accounts receivable due to increased sales.

Net cash used in investing activities was $7.7 million for the year ended December 31, 2005 as compared to net cash used in investing activities of $15.3 million for the year ended December 31, 2004. The $7.6 million decrease in net cash used in investing activities was primarily due to the net increase in investments in marketable securities of $6.0 million and a decrease in cash purchases of property and equipment totaling $1.7 million. The Company began investing in marketable securities available-for-sale during the three months ended December 31, 2004.

Net cash provided by financing activities was $5.3 million for 2005 as compared to $16.0 million for 2004. The $10.7 million decrease in net cash provided by financing activities was primarily related to a private placement during the year ended December 31, 2004, which did not recur in 2005. During the year ended December 31, 2004, net proceeds from the May 2004 private sale of the Company’s Common Stock were $14.4 million, after deducting commissions and other stock issuance costs. The decrease in net cash provided by financing activities attributable to the May 2004 private placement was partially offset by an increase in net proceeds from exercises of employee stock options to purchase Common Stock of $3.5 million as compared to 2004.

Days sales outstanding, calculated on a trailing three-month basis (“DSO”), as of December 31, 2005 and 2004, were 67 days and 57 days, respectively. The increase in DSO’s as of December 31, 2005 was attributable to the increase in accounts receivable principally from incremental license and Intersourcing revenues generated during 2005 as well as several large payments due by December 31, 2005 which were not received until early January 2006.

Deferred revenues were $33.0 million at December 31, 2005 as compared to $28.5 million at December 31, 2004. The increase of $4.5 million in deferred revenues for 2005 was primarily due to an increase in deferred Intersourcing revenue from additional business of $4.1 million, an increase in deferred maintenance of $1.9 million and an increase in deferred services of $0.5 million (primarily implementation), partially offset by a decrease in deferred revenue of $1.7 million principally from the net amortization of Ceridian’s recurring subscription revenue. The net reduction to deferred revenues associated with Ceridian should continue as the Company expects to recognize $642,000 per month in recurring subscription revenues and to collect $525,000 per month in 2006 (subject to contracted annual increases) from Ceridian until the termination of the related agreement — see Original Ceridian Agreement.

In June 2005, the Company entered into a new credit facility with Silicon Valley Bank (the “Bank”), which was effective as of May 27, 2005 for the Revolver, defined below, and as of June 13, 2005 for the Equipment Loan, as defined below (the “Credit Facility”). The Credit Facility is comprised of a revolving line of credit (the “Revolver”) and an equipment term loan (the “Equipment Loan”). As of December 31, 2005, $4.0 million was available for borrowing under the Credit Facility, with $1.0 million outstanding under the Equipment Loan.

The Revolver expires on May 26, 2006 and provides for advances of up to an aggregate of $2.5 million, subject to limitations related to the amount of the Company’s cash and investments held at or through the Bank (the “Investments”). To the extent Investments are less than $12 million, the amount of advances under the Revolver are limited to 75% of the Company’s eligible accounts receivable, not to exceed an aggregate of $2.5 million. To the extent Investments are more than $12 million, there are no such limitations for drawing advances under the Revolver, not to exceed $2.5 million. The Revolver bears interest, payable monthly, at a

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rate equal to the Prime Rate per annum. The Company intends to negotiate the potential renewal of the Credit Facility (the “Renewal Credit Facility”) but there can be no assurance that the Renewal Credit Facility will be obtained or as to the terms of the Renewal Credit Facility.

The Equipment Loan provides for advances of up to an aggregate of $2.5 million, subject to certain terms of the agreement, and is payable in 36 equal monthly installments, plus interest. The payment period for each advance under the Equipment Loan expires 36 months after the date of borrowing. Interest on the Equipment Loan is based on the Prime Rate plus 0.5% (fixed at the time of the advance) or a fixed rate of 7.0%, with the selection of the type of available rate at the discretion of the Company.

Borrowings under the Credit Facility are secured by all of the Company’s corporate assets, including a negative pledge on intellectual property, and the Company is required to comply with certain financial and other covenants. Under the terms of the Credit Facility, the Company may not pay dividends without the prior written consent of Silicon Valley Bank. The material financial covenants require that the Company maintain, on a monthly basis, a minimum quick ratio (representing the ratio of quick assets (or cash and accounts receivable) plus total marketable securities to current liabilities, plus all indebtedness to the Bank and excluding deferred revenue) of 1.75 to 1.0 and certain quarterly revenue levels as of the end of each quarter, as provided in the Credit Facility. As of December 31, 2005, the Company was in compliance with all covenants included in the terms of the Credit Facility.

The Company believes that cash and cash equivalents, investments in marketable securities, cash generated from operations and cash available under the Credit Facility will be sufficient to fund its operations for at least the next 12 months. This belief is based upon, among other factors, management’s expectations for future revenue growth, controlled expenses and collections of accounts receivable.

Issuer Purchases of Equity Securities

On October 30, 2000, the Company announced that its Board of Directors authorized the repurchase of up to 1,000,000 shares of the Company’s outstanding Common Stock (the “Stock Repurchase Plan”). Stock repurchases may be made periodically in the open market, in privately negotiated transactions or a combination of both. There were no repurchases of the Company’s Common Stock during 2005, 2004 and 2003. As of December 31, 2005, 2004 and 2003, the Company had purchased 257,647 shares of the Company’s Common Stock under the Stock Repurchase Plan.

For purposes of mitigating the expected dilution created by stock-based compensation, the Company’s Board of Directors has authorized the Company to resume repurchasing its common stock under the Stock Repurchase Program, commencing in 2006. An aggregate of 742,353 shares of common stock remain authorized for repurchase under the Stock Repurchase Plan. The extent and timing of these repurchase transactions will depend on market conditions and other business considerations.

Recent Accounting Literature

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”), which replaces APB Opinion No. 20, “Accounting Changes” (“APB 20”) and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements” (“SFAS 3”). APB 20 required that changes in accounting principles be recognized by including the cumulative effect of the change in the period in which the new accounting principle was adopted. SFAS 154 requires retrospective application of the change to prior periods’ financial statements, unless it is impracticable to determine the period-specific effects of the change. SFAS 154 also provides that a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate effected by a change in accounting principle, and also provides that correction of errors in previously issued financial statements should be termed a “restatement”. The FASB identified the reason for the issuance of SFAS 154 to be part of a broader attempt to eliminate differences with the International Accounting Standards Board (“IASB”). SFAS 154 is effective for the Company’s fiscal year ending December 31, 2006. The Company does not believe the adoption of this statement will have an impact on its consolidated financial statements.

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In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values and the recording of such expense in the consolidated statements of operations. In March 2005, the SEC issued Staff Accounting Bulletin (“SAB”) 107, which provides interpretive guidance related to the interaction between SFAS 123R and certain SEC rules and regulations, as well as provides the SEC staff’s views regarding the valuation of share-based payment arrangements for public companies. In April 2005, the SEC amended compliance dates for SFAS 123R to allow companies to implement SFAS 123R at the beginning of their next fiscal year, instead of the next fiscal reporting period that begins after June 15, 2005. The Company is required to adopt the provisions of SFAS 123R effective January 1, 2006, at which time the pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition.

Effective January 1, 2006, the Company will adopt SFAS 123R, using the modified prospective method (with the Black-Scholes fair value model), which requires the Company to record compensation expense (i) for all stock option and other share-based awards granted after the date of adoption and (ii) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, prior period amounts presented herein have not been restated to reflect the adoption of SFAS 123R. The impact of adopting SFAS 123R is expected to approximate the impact of SFAS 123 as described in the disclosure of pro forma net earnings (loss) and earnings (loss) per share in Note 2 of the Notes to Consolidated Financial Statements.

FASB Staff Position (“FSP”) FAS 123R-2, “Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123R,” provides guidance on the application of grant date as defined in SFAS 123R. As a practical accommodation, a mutual understanding of the key terms and conditions of an award is approved in accordance with the relevant corporate governance requirements if certain conditions are met. The guidance in this FSP is to be applied upon initial adoption of SFAS 123R. The Company will adopt this FSP during the first quarter of fiscal year 2006, and does not expect this FSP to have a material impact on the Company.

FSP FAS 123R-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” provides a practical transition election related to accounting for tax effects of share-based payment awards to employees. Because some entities do not have, and may not be able to recreate, information about the net excess tax benefits that would have qualified as such had those entities adopted Statement 123 for recognition purposes, this FSP provides an elective alternative transition method. An entity that adopts SFAS 123R using either the modified retrospective or modified prospective application, may make a one-time election to adopt the transition method described in this FSP. An entity may take up to one year from the latter of its initial adoption of SFAS 123R or the effective date of this FSP (which is November 2005) to evaluate its available transition alternatives and make its one-time election. The Company is evaluating the effects this FSP will have on its consolidated financial statements.

FSP FAS 123R-4, “Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event,” addresses the classification of options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence of a contingent event. This FSP amends FAS 123R so that a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employee’s control does not meet the condition to classify as a liability until it becomes probable that the event will occur. The guidance in this FSP shall be applied upon initial adoption of SFAS 123R. The Company does not believe the adoption of this statement will have an impact on its consolidated financial statements.

FSP FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period,” addresses the accounting for rental costs associated with operating leases that are incurred during a construction period. Rental costs incurred during and after a construction period are for the right to control the use of a leased asset during and after construction of a lessee asset. Since there is no distinction between the right to use a leased asset during the construction period and the right to use that asset after the construction period, rental

32

costs associated with ground or building operating leases that are incurred during a construction period shall be recognized as rental expense on a straight-line basis. The guidance in this FSP is effective in the first fiscal quarter ended March 31, 2006 for the Company. The Company is evaluating the effects this FSP will have on its consolidated financial statements.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements (as that term is defined in applicable SEC rules) that are reasonably likely to have a current or future material effect on the Company’s financial condition, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

As of December 31, 2005, the Company’s outstanding contractual cash obligations were as follows (in thousands):

	Payments Due by Period
			Less Than
	Total		1 Year		1-3 Years		4-5 Years		After 5 Years
Capital lease obligations(1)	$	2,422	$	1,456	$	772	$	194	$	—
Other long-term obligations(2)		20,198		1,822		4,160		3,654		10,562
Purchase obligations(3)		—		—		—		—		—
Other long-term liabilities(4)		1,298		399		899		—		—
Total contractual cash obligations	$	23,918	$	3,677	$	5,831	$	3,848	$	10,562

(1)	The Company leases certain equipment under non-cancelable agreements, which are accounted for as capital leases and expire at various dates through 2008. See Note 7 of the Notes to Consolidated Financial Statements for information regarding capital lease obligations.
(2)	The Company leases corporate office space and certain equipment under non-cancelable operating lease agreements expiring at various dates. See Note 11 of the Notes to Consolidated Financial Statements for information regarding operating lease obligations.
(3)	Purchase orders or contracts for the purchase of goods and services are not included in the table above. The Company is not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. The Company does not have significant agreements for the purchase of goods or services specifying minimum quantities or set prices.
(4)	The Company had a $5.0 million revolving line of credit (the “Credit Facility”) that expired on May 27, 2005. In June 2005, the Company entered into a new credit facility with Silicon Valley Bank (the “Bank”). The Credit Facility is comprised of a revolving line of credit (the “Revolver”) and an equipment term loan (the “Equipment Loan”). As of December 31, 2005, $4.0 million was available for borrowing under the Credit Facility, with $1.0 million outstanding under the Equipment Loan. See Note 8 of the Notes to Consolidated Financial Statements for information regarding long-term debt. There were no other long-term liabilities, other than those referred to in the table above, which were payable in cash. Other long-term liabilities in the Company’s consolidated balance sheet as of December 31, 2005 include deferred revenues which do not represent obligations payable in cash. See Note 2 of the Notes to Consolidated Financial Statements for information regarding deferred revenues.

Item 7A.   Quantitative and Qualitative Disclosures about Market Risk

In the ordinary course of its operations, the Company is exposed to certain market risks, primarily interest rates. Uncertainties that are either non-financial or non-quantifiable, such as political, economic, tax, other regulatory or credit risks are not included in the following assessment of the Company’s market risks.

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Market risks.  The Company manages market risk in accordance with its investment guideline objectives, including:

•  Maximum safety of principal

•  Maintenance of appropriate liquidity for regular cash needs

•  Maximum yields in relationship to guidelines and market conditions

•  Diversification of risks

•  Fiduciary control of all investments

The Company targets its fixed income investment portfolio to have maturities of 24 months or less. Investments are held to enhance the preservation of capital and not for trading purposes.

Interest rates.  Cash equivalents consist of money market accounts with original maturities of less than three months. Short-term investments include obligations of U.S. government agencies and corporate debt securities. Corporate debt securities include commercial paper which must carry minimum short-term ratings of P-1 by Moody’s and A-1 by Standard & Poors. Other corporate debt obligations must carry a minimum rating of A-2 by Moody’s or A by Standard & Poors. Asset-backed securities must carry a minimum AAA rating by Moody’s and Standard & Poor’s with a maximum average life of two years at the time of purchase.

Interest on the Credit Facility, which expires on May 26, 2006, is based on Prime Rate per annum. The Company was charged a weighted average interest rate of 6.5% per annum during the year ended December 31, 2005 under the Credit Facility. As of December 31, 2005, $4.0 million was available for borrowing under the Credit Facility with $1.0 million outstanding under the Equipment Loan.

As of December 31, 2005, total investments in available-for-sale marketable securities were $15.0 million. The Company is subject to financial market risks, including changes in interest rates and the valuations of its investment portfolio. Changes in amounts borrowed or interest rates could impact the Company’s anticipated interest income from interest-bearing cash accounts, or cash equivalents and investments in marketable securities, as well as interest expense on borrowings under the Credit Facility.

Interest rate risk.  As of December 31, 2005, virtually all of the investments in the Company’s portfolio were at fixed rates (with a weighted average interest rate of 4.4% per annum). In addition, the Credit Facility is a variable rate borrowing facility.

To illustrate the potential impact of changes in interest rates, the Company has performed the following analysis based on its December 31, 2005 consolidated balance sheet and assuming no changes in its investment and borrowing structure. Under this analysis, an immediate and sustained 100 basis point increase in the various base rates would result in a decrease in the fair market value of the Company’s total portfolio of approximately $73,000 over the next 12 months. An immediate and sustained 100 basis point decrease in the various base rates would result in an increase of the fair market value of the Company’s total portfolio of approximately $73,000 over the next 12 months.

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Item 8.   Financial Statements and Supplementary Data

INDEX

	Page(s)
Report of Independent Registered Public Accounting Firm		36
Consolidated Balance Sheets as of December 31, 2005 and 2004		37
Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003		38
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2005, 2004 and 2003		39
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003		40
Notes to Consolidated Financial Statements		41

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

The Ultimate Software Group, Inc.:

We have audited the accompanying consolidated balance sheets of The Ultimate Software Group, Inc. and subsidiary (the “Company”) as of December 31, 2005 and 2004 and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2005 and 2004 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 6, 2006, expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/  KPMG LLP

KPMG LLP

March 6, 2006

Miami, Florida

Certified Public Accountants

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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	As of December 31,
	2005			2004
	(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	17,731		$	14,766
Accounts receivable, net of allowance for doubtful accounts of $500 for 2005 and 2004		18,126			12,600
Short-term investments in marketable securities		14,422			8,103
Prepaid expenses and other current assets		5,526			3,114
Total current assets		55,805			38,583
Property and equipment, net		10,026			9,512
Long-term investments in marketable securities		613			2,441
Other assets, net		3,137			2,010
Total assets	$	69,581		$	52,546
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,613		$	2,202
Accrued expenses		6,832			6,015
Current portion of deferred revenue		29,385			25,591
Current portion of long-term debt		338			170
Current portion of capital lease obligations		1,393			928
Total current liabilities		40,561			34,906
Capital lease obligations, net of current portion		966			952
Long-term debt, net of current portion		862			279
Deferred revenue, net of current portion		3,646			2,885
Total liabilities		46,035			39,022
Commitments and contingencies (Note 11)
Stockholders’ equity:
Series A Junior Participating Preferred Stock, $.01 par value, 500,000 shares authorized, no shares issued		—			—
Preferred Stock, $.01 par value, 2,000,000 shares authorized, no shares issued		—			—
Common Stock, $.01 par value, 50,000,000 shares authorized, 23,786,097 and 22,749,363 shares issued in 2005 and 2004, respectively		238			227
Additional paid-in capital		110,245			103,643
Accumulated comprehensive loss		(31	)		(15	)
Accumulated deficit		(85,852	)		(89,277	)
		24,600			14,578
Treasury stock, at cost, 257,647 shares		(1,054	)		(1,054	)
Total stockholders’ equity		23,546			13,524
Total liabilities and stockholders’ equity	$	69,581		$	52,546

The accompanying Notes to Consolidated Financial Statements

are an integral part of these financial statements.

37

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Years Ended December 31,
	2005			2004			2003
	(In thousands, except per share amounts)
Revenues:
Recurring	$	50,259		$	39,049		$	29,344
Services		27,894			24,924			23,478
License		10,450			8,055			7,594
Total revenues		88,603			72,028			60,416
Cost of revenues:
Recurring		13,740			11,961			9,495
Services		21,410			18,448			17,277
License		709			993			807
Total cost of revenues		35,859			31,402			27,579
Sales and marketing		21,783			20,630			17,788
Research and development		19,999			18,317			18,229
General and administrative		8,131			6,806			5,871
Total operating expenses		49,913			45,753			41,888
Operating income (loss)		2,831			(5,127	)		(9,051	)
Interest and other expense		(225	)		(182	)		(221	)
Interest and other income		819			285			103
Net income (loss)	$	3,425		$	(5,024	)	$	(9,169	)
Net income (loss) per share:
Basic	$	0.15		$	(0.23	)	$	(0.49	)
Diluted	$	0.13		$	(0.23	)	$	(0.49	)
Weighted average shares outstanding:
Basic		23,040			21,743			18,738
Diluted		26,288			21,743			18,738

The accompanying Notes to Consolidated Financial Statements

are an integral part of these financial statements.

38

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

					Additional		Accumulated											Total
	Common Stock				Paid-in		Comprehensive			Accumulated			Treasury Stock					Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Shares		Amount			Equity (Deficit)
	(In thousands)
Balance, December 31, 2002		16,788	$	168	$	68,602	$	—		$	(75,084	)		258	$	(1,054	)	$	(7,368	)
Net loss		—		—		—		—			(9,169	)		—		—			(9,169	)
Issuances of Common Stock from exercises of stock options		148		1		571		—			—			—		—			572
Issuance of Common Stock for private placement		3,908		39		17,455		—			—			—		—			17,494
Non-cash issuances of options to Board to purchase Common Stock for board fees		—		—		132		—			—			—		—			132
Balance, December 31, 2003		20,844		208		86,760		—			(84,253	)		258		(1,054	)		1,661
Net loss		—		—		—		—			(5,024	)		—		—			(5,024	)
Unrealized loss on investments in marketable securities available-for-sale		—		—		—		(15	)		—			—		—			(15	)
Comprehensive loss		—		—		—		—			—			—		—			(5,039	)
Issuances of Common Stock from exercises of stock options and warrant		507		5		2,287		—			—			—		—			2,292
Issuance of Common Stock for private placement		1,398		14		14,319		—			—			—		—			14,333
Non-cash issuances of options to Board to purchase Common Stock for board fees		—		—		141		—			—			—		—			141
Non-cash compensation expense for stock option modification		—		—		136		—			—			—		—			136
Balance, December 31, 2004		22,749		227		103,643		(15	)		(89,277	)		258		(1,054	)		13,524
Net income		—		—		—		—			3,425			—		—			3,425
Unrealized loss on investments in marketable securities available-for-sale		—		—		—		(16	)		—			—		—			(16	)
Comprehensive income		—		—		—		—			—			—		—			3,409
Issuances of Common Stock from exercises of stock options and warrants		1,037		11		5,835		—			—			—		—			5,846
Non-cash issuances of options to Board to purchase Common Stock for board fees		—		—		125		—			—			—		—			125
Non-cash stock-based compensation expense for restricted stock awards		—		—		642		—			—			—		—			642
Balance, December 31, 2005		23,786	$	238	$	110,245	$	(31	)	$	(85,852	)		258	$	(1,054	)	$	23,546

The accompanying Notes to Consolidated Financial Statements

are an integral part of these financial statements.

39

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2005			2004			2003
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	3,425		$	(5,024	)	$	(9,169	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		4,426			5,055			5,032
Provision for doubtful accounts		869			419			213
Non-cash issuance of stock options for board fees		125			141			132
Non-cash compensation expense for stock based compensation		642			136			—
Changes in operating assets and liabilities:
Accounts receivable		(6,395	)		(3,727	)		876
Prepaid expenses and other current assets		(2,412	)		(405	)		(1,436	)
Other assets, net		(1,066	)		(471	)		(838	)
Accounts payable		411			(347	)		(144	)
Accrued expenses		817			637			(151	)
Deferred revenue		4,555			3,866			(3,205	)
Net cash provided by (used in) operating activities		5,397			280			(8,690	)
Cash flows from investing activities:
Purchases of marketable securities		(21,421	)		(10,560	)		—
Maturities of marketable securities		16,914			—			—
Purchases of property and equipment		(3,022	)		(4,695	)		(1,953	)
Capitalized software		(182	)		—			—
Acquisition		—			—			(350	)
Net cash used in investing activities		(7,711	)		(15,255	)		(2,303	)
Cash flows from financing activities:
Principal payments on capital lease obligations		(1,318	)		(1,116	)		(918	)
Net proceeds from issuances of Common Stock		5,846			16,625			18,066
Net borrowings (repayments) under Credit Facility		751			449			(1,346	)
Net cash provided by financing activities		5,279			15,958			15,802
Net increase in cash and cash equivalents		2,965			983			4,809
Cash and cash equivalents, beginning of year		14,766			13,783			8,974
Cash and cash equivalents, end of year	$	17,731		$	14,766		$	13,783
Supplemental disclosure of cash flow information:
Cash paid for interest	$	110		$	72		$	144

Supplemental disclosure of non-cash investing and financing activities:

•  The Company entered into capital lease obligations to acquire new equipment totaling $1,797, $1,382 and $1,404 in 2005, 2004 and 2003, respectively.

The accompanying Notes to Consolidated Financial Statements

are an integral part of these financial statements.

40

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   NATURE OF OPERATIONS

The Ultimate Software Group, Inc. (“Ultimate Software” or the “Company”) designs, markets, implements and supports payroll and workforce management solutions, marketed primarily to middle-market organizations with 500 to 10,000 employees. The Company reaches its customer base and target market through its direct sales force and a network of national, regional and local strategic partners.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary, Ultimate Benefits, Inc., an inactive company. Intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

All highly liquid instruments with an original maturity of three months or less when acquired are considered cash equivalents and are comprised of interest-bearing accounts.

Accounts Receivable

Accounts receivable are principally from end-users of the Company’s products. The Company performs credit evaluations of its customers and has recorded allowances for estimated losses. The Company maintains an allowance for doubtful accounts at an amount estimated to be sufficient to provide adequate protection against losses resulting from collecting less than full payment on accounts receivables. A considerable amount of judgment is required when the realization of receivables is assessed, including assessing the probability of collection and current credit-worthiness of each customer. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts may be required.

Investments in Marketable Securities

The Company classifies its investments in marketable securities with readily determinable fair values as securities available-for-sale in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“FAS 115”) and FASB Staff Position Financial Accounting Standards No. 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“FSP FAS 115-1”). The Company has classified all investments as available-for-sale. Available-for-sale securities consist of debt and equity securities not classified as trading securities nor as securities to be held to maturity. Unrealized holding gains and losses on securities available-for-sale are reported as a net amount in accumulated other comprehensive loss in stockholders’ equity until realized. Gains and losses on the sale of securities available-for-sale are determined using the specific identification method. Included in accumulated other comprehensive loss for 2005 and 2004 is $31,011 and $15,558, respectively, of unrealized losses on trading securities held at each year end. There was no unrealized gain or loss in 2003 as no such securities were held during that period.

41

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The amortized cost and market value of the Company’s investments in available-for-sale securities at December 31, 2005 are shown in the table below (in thousands).

			Gross		Gross
	Amortized		Unrealized		Unrealized		Market
	Cost		Gain		Loss		Value
Investments in marketable securities:
U.S. Agency — non callable	$	3,265	$	—	$	18	$	3,247
U.S. Agency — discount notes		1,738		—		1		1,737
Commercial paper		2,449		—		1		2,448
Corporate debentures — bonds		3,447		—		17		3,430
Certificates of deposit		3,568		7		1		3,574
Bank notes		599		—		—		599
		15,066		7		38		15,035
Investments in cash equivalents:
U.S. Agency — discount notes		999		—		—		999
Commercial paper		1,743		—		—		1,743
		2,742		—		—		2,742
Total investments, available-for-sale	$	17,808	$	7	$	38	$	17,777

The amortized cost and estimated fair value of the available-for-sale securities by contractual maturity at December 31, 2005 are shown below (in thousands):

	Amortized		Estimated
	Cost		Fair Value
Due in one year or less	$	17,193	$	17,164
Due after one year		615		613
Total	$	17,808	$	17,777

Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation and amortization. Property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets, which range from two to twenty years. Leasehold improvements and assets under capital leases are amortized over the shorter of the life of the asset or the term of the lease over periods ranging from two to fifteen years. Maintenance and repairs are charged to expense when incurred; betterments are capitalized. Upon the sale or retirement of assets, the cost, accumulated depreciation and amortization are removed from the accounts and any gain or loss is recognized.

Property and equipment consists of the following (in thousands):

	As of		As of
	December 31,		December 31,
	2005		2004
Property and equipment	$	32,453	$	27,742
Less: accumulated depreciation and amortization		22,427		18,230
	$	10,026	$	9,512

42

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue Recognition

Sources of revenue for the Company include:

•  Sales of perpetual licenses for UltiPro Workforce Management Software (“UltiPro”), a Web-based solution designed to deliver the functionality businesses need to manage the employee life cycle, whether their processes are centralized at headquarters or distributed across multiple divisions or branch offices;

•  Sales of perpetual licenses for UltiPro in conjunction with services to host the UltiPro application (“Hosting Services”);

•  Sales of the right to use UltiPro, including Hosting Services (the “Intersourcing Offering”);

•  Sales of Hosting Services on a stand-alone basis to customers who already own a perpetual license or are simultaneously acquiring a perpetual license for UltiPro (“Base Hosting”);

•  Sales of other services including implementation, training and other services, including the provision of payroll-related forms and the printing of Form W-2’s for certain customers, as well as services provided to business service providers (“BSPs”) in 2005 and 2004; and

•  Recurring revenues derived from (1) maintenance revenues generated from maintaining, supporting and providing periodic updates for the Company’s software and (2) subscription revenues generated from per-employee-per-month (“PEPM”) fees earned through the Intersourcing Offering, Base Hosting and the business service provider (“BSP”) sales channel, as well as revenues generated from the Original Ceridian Agreement (defined below).

Perpetual Licenses for UltiPro Sold With or Without Hosting Services

Sales of perpetual licenses for UltiPro and sales of perpetual licenses for UltiPro in conjunction with Hosting Services are multiple-element arrangements that involve the sale of software and consequently fall under the guidance of Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” for revenue recognition.

The Company licenses software under non-cancelable license agreements and provides services including maintenance, training and implementation consulting services. In accordance with the provisions of SOP 97-2, license revenues are generally recognized when (1) a non-cancelable license agreement has been signed by both parties, (2) the product has been shipped, (3) no significant vendor obligations remain and (4) collection of the related receivable is considered probable. To the extent any one of these four criteria is not satisfied, license revenue is deferred and not recognized in the consolidated statement of operations until all such criteria are met.

For multiple-element software arrangements, each element of the arrangement is analyzed and the Company allocates a portion of the total fee under the arrangement to the elements based on vendor-specific objective evidence of fair value of the element (“VSOE”), regardless of any separate prices stated within the contract for each element. Fair value is considered the price a customer would be required to pay when the element is sold separately.

The residual method is used to recognize revenue when a license agreement includes one or more elements to be delivered at a future date and vendor specific objective evidence of the fair value of all undelivered elements exists. The fair value of the undelivered elements is determined based on the historical evidence of stand-alone sales of these elements to third parties. Undelivered elements in a license arrangement typically include maintenance, training and implementation services (the “Standard Undelivered Elements”). The fair value for maintenance fees is based on the price of the services sold separately, which is determined by the annual renewal rate historically and consistently charged to customers (the “Maintenance Valuation”).

43

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Maintenance fees are generally priced as a percentage of the related license fee. The fair value for training services is based on standard pricing (i.e., rate per training day charged to customers for class attendance), taking into consideration stand-alone sales of training services through year-end seminars and historically consistent pricing for such services (the “Training Valuation”). The fair value for implementation services is based on standard pricing (i.e., rate per hour charged to customers for implementation services), taking into consideration stand-alone sales of implementation services through special projects and historically consistent pricing for such services (the “Implementation Valuation”). Under the residual method (the “Residual Method”), the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee attributable to the delivered element, the license fee, is recognized as revenue. If VSOE for one or more undelivered elements does not exist, the revenue is deferred on the entire arrangement until the earlier of the point at which (i) such VSOE does exist or (ii) all elements of the arrangement have been delivered.

Perpetual licenses of UltiPro sold without Hosting Services typically include a license fee and the Standard Undelivered Elements. Fair value for the Standard Undelivered Elements is based on the Maintenance Valuation, the Training Valuation and the Implementation Valuation. The delivered element of the arrangement, the license fee, is accounted for in accordance with the Residual Method.

Perpetual licenses of UltiPro sold with Hosting Services typically include a license fee, the Standard Undelivered Elements and Hosting Services. Fair value for the Standard Undelivered Elements is based on the Maintenance Valuation, the Training Valuation and the Implementation Valuation. Hosting Services are delivered to customers on a PEPM basis over the term of the related customer contract (“Hosting PEPM Services”). Upfront fees charged to customers represent fees for the hosting infrastructure, including hardware costs, third-party license fees and other upfront costs incurred by the Company in relation to providing such services (“Hosting Upfront Fees”). Hosting PEPM Services and Hosting Upfront Fees (collectively, “Hosting Services”) represent undelivered elements in the arrangement since their delivery is over the course of the related contract term. The fair value for Hosting Services is based on standard pricing (i.e., rate charged per-employee-per-month), taking into consideration stand-alone sales of Hosting Services through the sale of such services to existing customers (i.e., those who already own the UltiPro perpetual license at the time Hosting Services are sold to them) and historically consistent pricing for such services (the “Hosting Valuation”). The delivered element of the arrangement, the license fee, is accounted for in accordance with the Residual Method.

The Company’s customer contracts are non-cancelable agreements. The Company does not provide for rights of return or price protection on its software. The Company provides a limited warranty that its software will perform in accordance with user manuals for varying periods, which are generally less than one year from the contract date. The Company’s customer contracts generally do not include conditions of acceptance. However, if conditions of acceptance are included in a contract or uncertainty exists about customer acceptance of the software, license revenue is deferred until acceptance occurs.

Sales Generated from the Intersourcing Offering

Subscription revenues generated from the Intersourcing Offering are recognized in accordance with Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables” as a services arrangement since the customer is purchasing the right to use UltiPro rather than licensing the software on a perpetual basis. Fair value of multiple elements in Intersourcing arrangements is assigned to each element based on the guidance provided by EITF 00-21.

The elements that typically exist in Intersourcing arrangements include hosting services, the right to use UltiPro, maintenance of UltiPro (i.e., product enhancements and customer support) and professional services (i.e., implementation services and training in the use of UltiPro). The pricing for hosting services, the right to use UltiPro and maintenance of UltiPro is bundled (the “Bundled Elements”). Since these three Bundled Elements are components of recurring revenues in the consolidated statements of operations, allocation of fair

44

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

values to each of the three elements is not necessary and they are not reported separately. Fair value for the Bundled Elements, as a whole, is based upon evidence provided by the Company’s pricing for Intersourcing arrangements sold separately. The Bundled Elements are provided on an ongoing basis and represent undelivered elements under EITF 00-21; they are recognized on a monthly basis as the services are performed, once the customer has begun to process payrolls used to pay its employees (i.e., goes “Live”).

Implementation and training services (the “Professional Services”) provided for Intersourcing arrangements are priced on a time and materials basis and are recognized as services revenue in the consolidated statements of operations as the services are performed. Fair value for Professional Services is based on the respective Training Valuation and Implementation Valuation. Under EITF 00-21, fair value is assigned to service elements in the arrangement based on their relative fair values, using the prices established when the services are sold on a stand-alone basis. If evidence of the fair value of one or more undelivered elements does not exist, the revenue is deferred and recognized when delivery of those elements occurs or when fair value can be established. The Company believes that applying EITF 00-21 to Intersourcing arrangements as opposed to applying SOP 97-2 is appropriate given the nature of the arrangements whereby the customer has no right to the UltiPro license.

Sales of Base Hosting Services

Subscription revenues generated from Base Hosting are recognized in accordance with EITF 00-3, “Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware,” which provides guidance as to the application of SOP 97-2 to hosting arrangements that include a license right to the software. The elements that typically exist for Base Hosting arrangements include hosting services and implementation services. Base Hosting is different than Intersourcing arrangements (described above) in that the customer already owns a perpetual license or is purchasing a perpetual license for UltiPro and is purchasing hosting services subsequently in a separate transaction whereas, with Intersourcing, the customer is purchasing the right to use (not license) UltiPro. Implementation services provided for Base Hosting arrangements are substantially less than those provided for Intersourcing arrangements since UltiPro is already implemented in Base Hosting arrangements and only needs to be transitioned to a hosted environment. Fair value for hosting services is based on the Hosting Valuation. The fair value for implementation services is based on the Implementation Valuation in accordance with guidelines provided by SOP 97-2.

Services, including Implementation and Training Services

Services revenues include revenues from fees charged for the implementation of the Company’s software products and training of customers in the use of such products, fees for other services, including services provided to BSPs, including RSM McGladrey Employer Services (“RSM”), the provision of payroll-related forms and the printing of Form W-2’s for certain customers, as well as certain reimbursable out-of-pocket expenses. Revenues for training and implementation consulting services are recognized as services are performed to the extent the pricing for such services is on a time and materials basis and the payment terms are within the Company’s ordinary and customary payment cycle. In the event payments for services are outside the ordinary and customary period for the Company, the related revenues are recognized as payments come due based on their relative fair values. Other services are recognized as the product is shipped or as the services are rendered depending on the specific terms of the arrangement.

Arrangement fees related to fixed-fee implementation services contracts are recognized using the percentage of completion accounting method, which involves the use of estimates. Percentage of completion is measured at each reporting date based on hours incurred to date compared to total estimated hours to complete the related implementation project. If a sufficient basis to measure the progress towards completion does not

45

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

exist, revenue is recognized when the project is completed or when the Company receives final acceptance from the customer.

Recurring Revenues

Recurring revenues include maintenance revenues and subscription revenues. Maintenance revenues are derived from maintaining, supporting and providing periodic updates for the Company’s software. Subscription revenues are principally derived from ongoing PEPM fees earned through the Intersourcing Offering, Base Hosting and the business service provider (BSP) sales channel (defined below), as well as revenues generated from the Original Ceridian Agreement (defined below). Maintenance revenues are recognized ratably over the service period, generally one year. Maintenance and support fees are generally priced as a percentage of the initial license fee for the underlying products. To the extent there are upfront fees associated with the Intersourcing Offering, Base Hosting or the BSP sales channel, subscription revenues are recognized ratably over the minimum term of the related contract upon the delivery of the product and services. Ongoing PEPM fees from the Intersourcing Offering, Base Hosting and the BSP sales channel are recognized as subscription revenue as the services are delivered. Commencing on August 28, 2002, subscription revenues generated from the Original Ceridian Agreement are recognized ratably over the minimum term of the contract. See Note 3 for discussion of the minimum term of the Original Ceridian Agreement. Subscription revenues of approximately $642,000 per month, or $7.7 million per year, are based on guaranteed minimum payments from Ceridian Corporation of approximately $42.7 million over the contract term, including $29.1 million received to date.

Maintenance services provided to customers include product updates and technical support services. Product updates are included in general releases to the Company’s customers and are distributed on a periodic basis. Such updates may include, but are not limited to, product enhancements, payroll tax updates, additional security features or bug fixes. All features provided in general releases are unspecified upgrade rights. To the extent specified upgrade rights or entitlements to future products are included in a multi-element arrangement, revenue is recognized upon delivery provided fair value for the elements exists. In multi-element arrangements that include a specified upgrade right or entitlement to a future product, if fair value does not exist for all undelivered elements, revenue for the entire arrangement is deferred until all elements are delivered or when fair value can be established.

Subscription revenues generated from the BSP sales channel include both the right to use UltiPro and maintenance. The BSP is charged a fee on a PEPM basis and, in some cases, is subject to a guaranteed monthly minimum amount for the term of the related agreement. Revenue is recognized on a PEPM basis. To the extent the BSP pays the Company a one-time upfront fee, the Company accounts for such fee by recognizing it as subscription revenue over the minimum term of the related agreement.

The Company recognizes revenue in accordance with the Securities Exchange Commission (“SEC”) Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB No. 101”) and the SEC Staff Accounting Bulleting No. 104, “Revenue Recognition” (“SAB No. 104”). Management believes the Company is currently in compliance with the current provisions set forth in SOP 97-2, SOP 98-9, EITF 00-21, EITF 00-3, SAB No. 101 and SAB No. 104.

Concentration of Revenues

During the years ended December 31, 2005, 2004 and 2003, Ceridian Corporation (“Ceridian”) accounted for 8.7%, 15.5%, 16.6%, respectively, of total revenues. No other customer accounted for more than 10% of total revenues in the periods presented. Due to the significant concentration of total revenues with this single customer, the Company has exposure if this customer loses its credit worthiness. See Note 3.

46

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The decrease in the percentage of total revenues contributed by Ceridian in 2005 resulted from the expiration of the Ceridian Services Agreement (defined below) on December 31, 2004 combined with the fixed nature of the recurring revenues recognized pursuant to the Original Ceridian Agreement when total revenues increased in 2005 as compared to the previous two years. The Company anticipates a continued reduction in the percentage of total revenues contributed by Ceridian, as fixed recurring revenues under the Original Ceridian Agreement of $642,000 per month will be recognized until the termination of the Original Ceridian Agreement on March 9, 2008.

The composition of the revenues recognized from Ceridian, as a percentage of total revenues, for the years ended December 31, 2005, 2004 and 2003 was as follows:

	2005			2004			2003
Recurring revenues		8.7	%		10.9	%		12.8	%
Services revenues		—			4.6			3.8
Total revenues		8.7	%		15.5	%		16.6	%

Deferred Revenue

Deferred revenue is primarily comprised of deferrals for recurring revenues for which maintenance services have not yet been rendered, implementation consulting services for which the services have not yet been rendered, Intersourcing services which are recognized over the term of the related contract as the services are performed, typically two years, and subscription revenues which are recognized ratably over the minimum term of the related contract upon the delivery of the product and services.

Cost of Revenues

Cost of revenues consists of the cost of recurring, services and license revenues. Cost of recurring revenues consists of costs to provide maintenance and technical support to the Company’s customers, the cost of providing periodic updates and the cost of subscription revenues, including amortization of capitalized software. Cost of services revenues primarily consists of costs to provide implementation services and training to the Company’s customers and, to a lesser degree, costs related to sales of payroll-related forms, costs associated with certain reimbursable out-of-pocket expenses, discussed below, and costs to support additional services provided to BSPs (or BSP services). Cost of license revenues primarily consists of fees payable to a third-party for software products distributed by the Company and, to a lesser degree, amortization of capitalized software costs. UltiPro includes third-party software for enhanced report writing purposes. When UltiPro licenses are sold, customers pay the Company on a per user basis for the license rights to the third-party report writing software. Capitalized software is amortized using the straight-line method over the estimated useful life of the related asset, which is typically three years.

Income Taxes

The Company is subject to corporate Federal and state income taxes and accounts for income taxes under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” SFAS No. 109 provides for a liability approach under which deferred income taxes are provided based upon enacted tax laws and rates applicable to the periods in which the taxes become payable.

Software Development Costs

SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,” requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company’s product development process, technological feasibility is

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established upon completion of a working model. During 2005, $0.2 million of research and development expenses were capitalized for the development of UltiPro Canadian HR/payroll (“UltiPro Canada”) functionality. UltiPro Canada is being built from the existing product infrastructure of UltiPro (e.g., using UltiPro’s source code and architecture). UltiPro Canada provides HR/payroll functionality which includes the availability of Canadian tax rules, as well as Canadian human resources functionality, taking into consideration labor laws in Canada and including changes to the language where necessary (i.e., English to French). There were no software costs capitalized in 2004 or 2003. Annual amortization is based on the greater of the amount computed using (a) the ratio that current gross revenues for the related product bears to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on. Capitalized software is amortized using the straight-line method over the estimated useful lives of the assets, which are typically three years. Amortization of capitalized software was $86,000, $1,151,000 and $1,519,000 in 2005, 2004 and 2003, respectively. Accumulated amortization of capitalized software was $5.6 million, $5.5 million and $4.4 million as of December 31, 2005, 2004 and 2003, respectively. Capitalized software, net of amortization, was $0.2 million, $0.1 million and $1.2 million as of December 31, 2005, 2004 and 2003, respectively. The Company evaluates the recoverability of capitalized software based on estimated future gross revenues reduced by the estimated costs of completing the products and of performing maintenance and customer support. If the Company’s gross revenues were to be significantly less than its estimates, the net realizable value of the Company’s capitalized software intended for sale would be impaired, which could result in the write-off of all or a portion of the unamortized balance of such capitalized software.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of a Conditional Asset Retirement Obligation

The Company adopted FASB Interpretation (FIN) No. 47, “Accounting for Conditional Asset Retirement Obligation, an interpretation of FASB Statement No. 143,” effective December 31, 2005. FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. The adoption of FIN 47 did not have a material impact on the Company’s consolidated financial statements.

Fair Value of Financial Instruments

The Company’s financial instruments, consisting of cash and cash equivalents, investments in marketable securities, accounts receivable, accounts payable, long-term debt and capital lease obligations, approximated fair value as of December 31, 2005 and 2004.

Accounting for Stock-Based Compensation

The Company adopted SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment of SFAS No. 123” (“SFAS No. 148”) in December 2002. SFAS No. 148 amended SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), to provide alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in not only annual, but also interim, financial statements about the effect the fair

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value method would have had on reported results. The disclosure provisions of SFAS No. 148 became effective for the Company for annual reporting in 2002 and interim reporting in 2003.

As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), the Company continues to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and has made the pro forma disclosures required by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” for the years ended December 31, 2005, 2004 and 2003.

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment, (“SFAS No. 123R”), effective as of the beginning of the first annual reporting period that begins after June 15, 2005, which, in the case of the Company, is January 1, 2006. See discussion of the Company’s adoption of SFAS 123R at “Recent Accounting Literature” below.

SFAS No. 123 requires pro forma information for options issued to employees determined as if the Company had accounted for its stock-based compensation plan under the fair value method. The fair value of each option granted was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:

	For the Years Ended December 31,
	2005			2004			2003
Volatility		41	%		46	%		48	%
Risk-free interest rate		4.25	%		3.5	%		3.1	%
Dividend yield		0	%		0	%		0	%
Expected term (years)		4.5			4.0			4.0

The Company’s pro forma information is as follows (in thousands, except per share amounts):

	For the Years Ended December 31,
	2005			2004			2003
Net income (loss):
As reported	$	3,425		$	(5,024	)	$	(9,169	)
Compensation expense, pro forma		(2,975	)		(1,997	)		(1,424	)
Pro forma	$	450		$	(7,021	)	$	(10,593	)
Income (loss) per share, basic:
As reported	$	0.15		$	(0.23	)	$	(0.49	)
Compensation expense, pro forma		(0.13	)		(0.09	)		(0.08	)
Pro forma	$	0.02		$	(0.32	)	$	(0.57	)
Income (loss) per share, diluted:
As reported	$	0.13		$	(0.23	)	$	(0.49	)
Compensation expense, pro forma		(0.11	)		(0.09	)		(0.08	)
Pro forma	$	0.02		$	(0.32	)	$	(0.57	)

The weighted average grant date fair value per share of options granted during 2005, 2004 and 2003 were $5.95, $5.02 and $2.22, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Earnings Per Share

SFAS No. 128, “Earnings Per Share,” requires dual presentation of earnings per share — “basic” and “diluted.” Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted average number of common shares (the denominator) for the period. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

The following is a reconciliation of the shares used in the computation of basic and diluted net loss per share (in thousands):

	For the Years Ended December 31,
	2005		2004		2003
Basic weighted average shares outstanding		23,040		21,743		18,738
Effect of dilutive equity instruments		3,248		—		—
Dilutive shares outstanding		26,288		21,743		18,738
Other common stock equivalents (i.e., stock options, restricted stock awards and warrants) outstanding which are not included in the calculation of diluted income (loss) per share because their impact is antidilutive		343		5,935		5,797

Comprehensive Income (Loss)

SFAS No. 130, “Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the Company’s consolidated financial statements. The objective of SFAS No. 130 is to report a measure (comprehensive income (loss) of all changes in equity of an enterprise that result from transactions and other economic events in a period other than transactions with owners. Accumulated other comprehensive loss, as presented on the accompanying audited consolidated balance sheets, consists entirely of unrealized gains on available-for-sale securities.

Comprehensive income (loss) for the years ended December 31, 2005, 2004 and 2003 was as follows (in thousands):

	For the Years Ended December 31,
	2005			2004			2003
Net income (loss)	$	3,425		$	(5,024	)	$	(9,169	)
Other comprehensive loss:
Unrealized loss on investments in Marketable securities available-for-sale		(16	)		(15	)		—
Comprehensive income (loss)	$	3,409		$	(5,039	)	$	(9,169	)

Guarantees

The Company adopted FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” (“FIN 45”) on January 1, 2003. The provision for initial recognition and measurement of liability is applied on a prospective basis to guarantees issued or modified after December 31, 2002. FIN 45 expands previously issued accounting guidance and disclosure requirements for certain guarantees and requires recognition of an initial liability for the fair value of an obligation assumed by issuing a guarantee. As an element of standard commercial terms in

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its standard sales contracts for UltiPro, the Company includes an indemnification clause that indemnifies the customer against certain liabilities and damages arising from any claims of patent, copyright, or other proprietary rights of any third party. Due to the nature of the intellectual property indemnification provided to its customers, the Company cannot estimate the fair value, or determine the total nominal amount, of the indemnification until such time as a claim for such indemnification is made. In the event of a claim made against the Company under such provision, the Company evaluates estimated losses for such indemnification under SFAS No. 5, “Accounting for Contingencies,” as interpreted by FIN 45, considering such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. To date, the Company has not had any claims made against it under such provision and, accordingly, has not accrued any liabilities related to such indemnifications in its consolidated financial statements.

Segment Information

The Company adopted SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” effective December 31, 1998 (“SFAS No. 131”). SFAS No. 131 establishes standards for the way that public companies report selected information about operating segments in annual and interim financial reports to shareholders. It also establishes standards for related disclosures about an enterprise’s business segments, products, services, geographic areas and major customers. The Company operates its business as a single segment.

Reimbursable Out-Of-Pocket Expenses

Effective January 1, 2002, the Company adopted Financial Accounting Standards Board Emerging Issues Task Force No. 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred” (“EITF 01-14”). EITF 01-14 requires companies to characterize reimbursements received for out-of-pocket expenses incurred. Reimbursable out-of-pocket expenses, which are included in services revenues and cost of services revenues in the Company’s accompanying consolidated statements of operations, were $1.3 million, $1.0 million and $1.3 million for 2005, 2004 and 2003 respectively. Prior to the adoption of EITF 01-14, the Company’s historical consolidated financial statements offset these amounts within cost of services revenues.

Recent Accounting Literature

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”), which replaces APB Opinion No. 20, “Accounting Changes” (“APB 20”) and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements” (“SFAS 3”). APB 20 required that changes in accounting principles be recognized by including the cumulative effect of the change in the period in which the new accounting principle was adopted. SFAS 154 requires retrospective application of the change to prior periods’ financial statements, unless it is impracticable to determine the period-specific effects of the change. SFAS 154 also provides that a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate effected by a change in accounting principle, and also provides that correction of errors in previously issued financial statements should be termed a “restatement”. The FASB identified the reason for the issuance of SFAS 154 to be part of a broader attempt to eliminate differences with the International Accounting Standards Board (IASB). SFAS 154 is effective for the Company’s fiscal year ending December 31, 2006. The Company does not believe the adoption of this statement will have an impact on its consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

financial statements based on their fair values and the recording of such expense in the consolidated statements of operations. In March 2005, the SEC issued Staff Accounting Bulletin (“SAB”) 107, which provides interpretive guidance related to the interaction between SFAS 123R and certain SEC rules and regulations, as well as provides the SEC staff’s views regarding the valuation of share-based payment arrangements for public companies. In April 2005, the SEC amended compliance dates for SFAS 123R to allow companies to implement SFAS 123R at the beginning of their next fiscal year, instead of the next fiscal reporting period that begins after June 15, 2005. The Company is required to adopt the provisions of SFAS 123R effective January 1, 2006, at which time the pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition.

Effective January 1, 2006, the Company will adopt SFAS 123R, using the modified prospective method (with the Black-Scholes fair value model), which requires the Company to record compensation expense (i) for all stock option and other share-based awards granted after the date of adoption and (ii) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, prior period amounts presented herein have not been restated to reflect the adoption of SFAS 123R. The impact of adopting SFAS 123R is expected to approximate the impact of SFAS 123 as described in the disclosure of pro forma net earnings (loss) and earnings (loss) per share in this Note 2.

FASB Staff Position (“FSP”) FAS 123R-2, “Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123R,” provides guidance on the application of grant date as defined in SFAS 123R. As a practical accommodation, a mutual understanding of the key terms and conditions of an award is approved in accordance with the relevant corporate governance requirements if certain conditions are met. The guidance in this FSP is to be applied upon initial adoption of SFAS 123R. The Company will adopt this FSP during the first quarter of fiscal year 2006, and does not expect this FSP to have a material impact on the Company.

FSP FAS 123R-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” provides a practical transition election related to accounting for tax effects of share-based payment awards to employees. Because some entities do not have, and may not be able to re-create, information about the net excess tax benefits that would have qualified as such had those entities adopted Statement 123 for recognition purposes, this FSP provides an elective alternative transition method. An entity that adopts SFAS 123R using either the modified retrospective or modified prospective application, may make a one-time election to adopt the transition method described in this FSP. An entity may take up to one year from the later of its initial adoption of SFAS 123R or the effective date of this FSP (which is November 2005) to evaluate its available transition alternatives and make its one-time election. The Company is evaluating the effects this FSP will have on its consolidated financial statements.

FSP FAS 123R-4, “Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event,” addresses the classification of options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence of a contingent event. This FSP amends FAS 123R so that a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employee’s control does not meet the condition to classify as a liability until it becomes probable that the event will occur. The guidance in this FSP shall be applied upon initial adoption of SFAS 123R. The Company does not believe the adoption of this statement will have an impact on its consolidated financial statements.

FSP FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period,” addresses the accounting for rental costs associated with operating leases that are incurred during a construction period. Rental costs incurred during and after a construction period are for the right to control the use of a leased asset during and after construction of a lessee asset. Since there is no distinction between the right to use a leased asset during the construction period and the right to use that asset after the construction period, rental costs associated with ground or building operating leases that are incurred during a construction period shall

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

be recognized as rental expense on a straight-line basis. The guidance in this FSP is effective in the first fiscal quarter ended March 31, 2006 for the Company. The Company is evaluating the effects this FSP will have on its consolidated financial statements.

3.   SIGNIFICANT TRANSACTIONS

As previously disclosed, Ultimate Software and Ceridian signed an agreement in 2001, as amended, granting Ceridian a non-exclusive license to use UltiPro software as part of an on-line offering for Ceridian to market primarily to businesses with less than 500 employees (the “Original Ceridian Agreement”). Ceridian marketed that solution under the name SourceWeb. During December 2004, RSM McGladrey Employer Services (“RSM”), an existing BSP of Ultimate Software, acquired Ceridian’s SourceWeb HR/payroll and self-service product and existing SourceWeb base of small and mid-size business customers throughout the United States (the “RSM Acquisition”). The financial terms of the Original Ceridian Agreement have not changed as a result of the RSM Acquisition. Ceridian will continue to be financially obligated to pay Ultimate Software a minimum fee of $500,000 per month with increases of 5% per annum, compounded beginning in January 2006. The aggregate minimum payments that Ceridian is obligated to pay Ultimate Software under the Original Ceridian Agreement over the minimum term of the agreement are $42.7 million. To date, Ceridian has paid to Ultimate Software a total of $29.1 million under the Original Ceridian Agreement. Ultimate Software expects to continue to recognize a minimum of $642,000 per month in subscription revenues (a component of recurring revenues) from the Original Ceridian Agreement until its termination. The amounts of subscription revenues recognized under the Original Ceridian Agreement during the year ended December 31, 2005, totaling $7.7 million were the same as those recognized in the same period a year ago. Effective March 9, 2006, Ceridian provided Ultimate Software with a two years’ advance written notice of termination of the Original Ceridian Agreement, as permitted under the terms of the Agreement. Pursuant to such notice, the Original Ceridian Agreement will terminate on March 9, 2008 (unless terminated earlier for an uncured material breach).

During 2004, Ultimate Software entered into a services agreement (the “Ceridian Services Agreement”) with Ceridian. Under the Ceridian Services Agreement, Ceridian paid Ultimate Software a total of $3.3 million in 2004, in exchange for services provided by Ultimate Software during the term of the agreement. Services revenue from the Ceridian Services Agreement, which expired on December 31, 2004, was recognized on a straight-line basis from January 1, 2004 through December 31, 2004. The Company offers and provides certain services to other BSPs, including RSM.

4.   STOCK REPURCHASE PLAN

On October 30, 2000, the Company announced that its board of directors authorized the repurchase of up to 1,000,000 shares of the Company’s outstanding Common Stock (the “Stock Repurchase Plan”). Stock repurchases may be made periodically in the open market, in privately negotiated transactions or a combination of both. There were no repurchases of the Company’s Common Stock during 2005, 2004 and 2003. As of December 31, 2005, 2004 and 2003, the Company had purchased 257,647 shares of the Company’s Common Stock under the Stock Repurchase Plan.

For purposes of mitigating some of the expected dilution created by stock-based compensation, the Company’s Board of Directors has authorized the Company to resume repurchasing its common stock under the Stock Repurchase Program, commencing in 2006. An aggregate of 742,353 shares of common stock remain authorized for repurchase under the Stock Repurchase Program. The extent and timing of these repurchase transactions will depend on market conditions and other business considerations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5.   ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

	As of December 31,
	2005		2004
Sales commissions	$	2,337	$	1,291
Other items individually less than 5% of total current liabilities		4,495		4,724
	$	6,832	$	6,015

6.   PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

	As of December 31,
	2005		2004
Computer equipment	$	25,426	$	21,073
Leasehold improvements		4,071		4,038
Furniture and fixtures		1,431		1,306
Building		870		670
Land		655		655
		32,453		27,742
Less: accumulated depreciation and amortization		22,427		18,230
	$	10,026	$	9,512

Included in property and equipment is equipment acquired under capital leases as follows (in thousands):

	As of December 31,
	2005		2004
Equipment	$	9,340	$	7,543
Less: accumulated amortization		7,886		6,057
	$	1,454	$	1,486

Depreciation and amortization expense on property and equipment totaled $4,305,000, $3,754,000 and $3,424,000, for the years ended December 31, 2005, 2004 and 2003, respectively.

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7.   CAPITAL LEASE OBLIGATIONS

The Company leases certain equipment under non-cancelable agreements, which are accounted for as capital leases and expire at various dates through 2008. Interest rates on these leases range from 1.0% to 10.0%. The annual maturities of the capital lease obligations are as follows as of December 31, 2005 (in thousands):

Year	Amount
2006	$	1,456
2007		772
2008		194
		2,422
Less amount representing interest		(63	)
Lease obligations reflected as current ($1,393) and non-current ($966)	$	2,359

8.   REVOLVING CREDIT FACILITY AND LONG-TERM DEBT

In June 2005, the Company entered into a new credit facility with Silicon Valley Bank (the “Bank”), which was effective as of May 27, 2005 for the Revolver, defined below, and as of June 13, 2005 for the Equipment Loan, as defined below (the “Credit Facility”). The Credit Facility is comprised of a revolving line of credit (the “Revolver”) and an equipment term loan (the “Equipment Loan”). As of December 31, 2005, $4.0 million was available for borrowing under the Credit Facility, with $1.0 million outstanding under the Equipment Loan.

The Revolver expires on May 26, 2006 and provides for advances of up to an aggregate of $2.5 million, subject to limitations related to the amount of the Company’s cash and investments held at or through the Bank (the “Investments”). To the extent Investments are less than $12 million, the amount of advances under the Revolver are limited to 75% of the Company’s eligible accounts receivable, not to exceed an aggregate of $2.5 million. To the extent Investments are more than $12 million, there are no such limitations for drawing advances under the Revolver, not to exceed $2.5 million. The Revolver bears interest, payable monthly, at a rate equal to the Prime Rate per annum.

The Equipment Loan provides for advances of up to an aggregate of $2.5 million, subject to certain terms of the agreement, and is payable in 36 equal monthly installments, plus interest. The payment period for each advance under the Equipment Loan expires 36 months after the date of borrowing. Interest on the Equipment Loan is based on the Prime Rate plus 0.5% (fixed at the time of the advance) or a fixed rate of 7.0%, with the selection of the type of available rate at the discretion of the Company. The annual maturities of the long-term debt obligations as of December 31, 2005 are as follows (in thousands): $338 in 2006, $612 in 2007 and $250 in 2008. Interest expense related to the long-term debt obligations as of December 31, 2005 are as follows (in thousands): $61 in 2006, $30 in 2007 and $7 in 2008.

Borrowings under the Credit Facility are secured by all of the Company’s corporate assets, including a negative pledge on intellectual property, and the Company is required to comply with certain financial and other covenants. Under the terms of the Credit Facility, the Company may not pay dividends without the prior written consent of Silicon Valley Bank. The material financial covenants require that the Company maintain, on a monthly basis, a minimum quick ratio (representing the ratio of quick assets (or cash and accounts receivable) plus total marketable securities to current liabilities, plus all indebtedness to the Bank and excluding deferred revenue) of 1.75 to 1.0 and certain quarterly revenue levels as of the end of each quarter, as provided in the Credit Facility. As of December 31, 2005, the Company was in compliance with all covenants included in the terms of the Credit Facility.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9.   INCOME TAXES

No provision or benefit for Federal or state income taxes was made for 2005, 2004 and 2003 due to the operating losses incurred in the respective periods.

The provision for income taxes is different from that which would be obtained by applying the statutory Federal income tax rate of 35% to income (loss) before income taxes as a result of the following (in thousands):

	For the Year Ended December 31,
	2005			2004			2003
Income tax provision (benefit) at statutory Federal tax rate	$	1,199		$	(1,758	)	$	(3,210	)
State and local income taxes (benefit)		197			(289	)		(527	)
Non deductible expenses		219			197			195
Change in valuation allowance		(1,549	)		1,916			3,608
Other, net		(66	)		(66	)		(66	)
Provision for income taxes	$	—		$	—		$	—

The components of the net deferred tax assets included in the accompanying consolidated balance sheets are as follows (in thousands):

	As of December 31,
	2005			2004			2003
Deferred tax assets:
Net operating losses	$	27,460		$	25,721		$	23,092
Deferred revenue		4,459			4,467			4,160
Depreciation and amortization		1,201			1,029			904
Accruals not currently deductible		111			85			227
Allowance for doubtful accounts		204			204			214
Charitable contributions		248			163			121
Stock-based compensation		701			410			297
Other, net		3			3			3
Gross deferred tax assets		34,387			32,082			29,018
Less valuation allowance		(33,888	)		(31,759	)		(28,377	)
Net deferred tax assets		499			323			641
Deferred tax liabilities:
Software development costs		(97	)		(33	)		(502	)
Prepaid commissions		(402	)		(290	)		(139	)
Gross deferred tax liabilities		(499	)		(323	)		(641	)
Net deferred taxes	$	—		$	—		$	—

The Company has provided a full valuation allowance on the deferred tax assets as realization of such amounts is not considered more likely than not. The Company reviews the valuation allowance requirement periodically and makes adjustments as warranted. Of the total valuation allowance at December 31, 2005, approximately $5,858,000 is attributed to net operating losses generated from the exercise of non-statutory employee stock options, the benefit of which will be credited to additional paid-in capital when realized. Of

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the change in the valuation allowance for 2005, 2004 and 2003, approximately $3,678,000, $1,466,000 and $212,000, respectively is attributable to exercise of non-statutory employee stock options.

At December 31, 2005, the Company had approximately $67,000,000 of net operating loss carryforwards for Federal income tax reporting purposes available to offset future taxable income. Of the total net operating loss carryforwards, approximately $14,376,000 is attributable to deductions from the exercise of non-statutory employee stock options. The carryforwards expire through 2025. Utilization of such net operating losses may be limited as a result of cumulative ownership changes in the Company’s equity instruments.

10.   STOCKHOLDERS’ EQUITY

Private Sales of Common Stock

On May 12, 2004, the Company entered into a definitive agreement to sell 1,398,182 newly issued shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”) to three institutional investors in a private placement for gross proceeds of approximately $15.4 million (the “Recent Capital Raised”). These shares of Common Stock were sold at $11.00 per share. After deducting commissions and other stock issuance costs, the Company received approximately $14.4 million. The Company filed a registration statement with the Securities and Exchange Commission on Form S-3 (Registration No. 333-115894) covering resales of the Common Stock by investors, which registration statement was declared effective on June 25, 2004.

From January 1, 2003 through July 16, 2003, the Company raised an aggregate of approximately $17.5 million of capital, net of estimated stock issuance costs, through the private sales of (i) a total of 1,708,000 shares of Common Stock, and warrants to purchase an aggregate 170,800 shares of Common Stock at $4.00 per share to investors, including Ceridian Corporation and some existing shareholders; and (ii) a total of 2,200,000 shares of Common Stock at $5.30 per share, before stock issuance costs, to two institutional investors.

Stock-Based Compensation

The Company’s 2005 Equity and Incentive Plan (the “Plan”) authorizes the grant of options to directors, officers and employees of the Company to purchase shares of the Company’s Common Stock. The Plan also authorizes the grant to such persons of restricted and non-restricted shares of Common Stock, stock appreciation rights, stock units and cash performance awards (collectively, and together with stock options, the “Awards”). The Plan was approved by the Company’s stockholders at the annual meeting of stockholders on May 17, 2005. Prior to that date, options to purchase shares of Common Stock were issued under the Company’s Nonqualified Stock Option Plan (the “Prior Plan”). Effective May 17, 2005, no additional options may be granted under the Prior Plan. However, options previously granted under the Prior Plan remain outstanding to the extent they have not been exercised or have not expired. As of December 31, 2005, the aggregate number of shares of Common Stock that were available to be issued under all Awards granted under the Plan was 1,560,953 shares. Options granted to officers and employees under the Plan and the Prior Plan generally have a 10-year term, vesting 25% immediately and 25% on the anniversary of the grant date for each of the following three years. Options granted to non-employee directors under the Plan and the Prior Plan generally have a 10-year term and vest immediately on the grant date. However, options granted to non-employee directors under the Plan first become exercisable on the earliest of (i) the fifth anniversary of the date of grant, (ii) the date on which the director ceases to be a member of the Board of Directors and (iii) the effective date of a change in control of the Company.

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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of stock options under the Company’s Plan as of December 31, 2005, 2004 and 2003, and changes during the years then ended, is presented below:

				Weighted
				Average
	Shares			Exercise Price
Outstanding at December 31, 2002		4,831,709		$	5.84
Granted		1,020,641			5.90
Exercised		(135,495	)		3.86
Canceled		(78,345	)		5.14
Outstanding at December 31, 2003		5,638,510		$	5.89
Granted		674,756			12.29
Exercised		(478,446	)		4.55
Canceled		(34,675	)		8.03
Outstanding at December 31, 2004		5,800,145		$	6.70
Granted		652,262			15.21
Exercised		(924,369	)		5.99
Canceled		(38,530	)		11.18
Outstanding at December 31, 2005		5,489,508		$	7.77

The following table summarizes information about stock options outstanding under the Plan at December 31, 2005:

	Options Outstanding						Options Exercisable
			Weighted-
			Average
			Remaining
Range of			Contractual		Weighted-				Weighted-
Exercise			Life		Average				Average
Prices	Number		(Years)		Exercise Price		Number		Exercise Price
$ 0.89 - $ 3.38		853,467		5.44	$	2.83		853,467	$	2.83
$ 3.38 - $ 4.23		604,172		6.79		3.85		464,329		3.83
$ 4.25 - $ 6.63		577,627		3.08		5.17		563,646		5.16
$ 7.21 - $ 7.21		801,331		1.81		7.21		801,331		7.21
$ 7.63 - $ 8.03		758,458		3.81		7.77		758,458		7.77
$ 8.38 - $10.00		653,361		5.46		9.45		568,797		9.47
$10.54 - $13.05		619,076		8.55		12.32		307,304		12.33
$13.63 - $15.90		413,053		9.21		14.44		103,584		14.44
$16.68 - $16.68		142,513		9.55		16.68		35,863		16.68
$17.11 - $17.11		66,450		9.80		17.11		16,614		17.11
$ 0.89 - $17.11		5,489,508		5.38	$	7.77		4,473,393	$	6.78

58

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Warrants to purchase shares of the Company’s Common Stock, expiring in 2006 and 2007, are fully vested and exercisable as of the date of issuance. A summary of warrants as of December 31, 2005, 2004 and 2003, and changes during the years then ended, is presented below:

				Weighted
				Average
	Shares			Exercise Price
Outstanding at December 31, 2002		67,500		$	—
Granted		170,800			4.00
Exercised		(12,500	)		4.00
Canceled		—			4.00
Outstanding at December 31, 2003		225,800		$	4.00
Granted		—			4.00
Exercised		(28,750	)		4.00
Canceled		—			4.00
Outstanding at December 31, 2004		197,050		$	4.00
Granted		—			4.00
Exercised		(125,000	)		4.00
Canceled		—			4.00
Outstanding at December 31, 2005		72,050		$	4.00

Restricted Stock Awards

Under the provisions of the Plan, the Company may, at its discretion, grant restricted stock awards to certain officers and employees. During fiscal year 2005, the Company granted 169,000 shares of restricted common stock of which none has been forfeited as of December 31, 2005. Compensation expense for restricted stock awards is measured based on the market price of the stock at the date of grant and is recognized on a straight-line basis over the vesting period. Holders of restricted stock awards have all rights of a stockholder including the right to vote the shares and receive all dividends and other distributions paid or made with respect thereto. Each Award becomes vested on the fourth (4th) anniversary of the respective date of grant, subject to the Grantee’s continued employment with the Company or any Subsidiary on each such vesting date. Included in the Company’s financial results for the year ended December 31, 2005 was $0.2 million of compensation expense for the restricted stock awards. There was no such expense in 2004 or 2003.

Stock Unit Awards

As provided in the 2005 Equity and Incentive Plan (“the Plan”), the Chief Executive Officer and the Chief Operating Officer deferred receipt of one-half of their cash performance awards under the Plan for 2005 in exchange for the grant of a Stock Unit Award under the Plan. Upon this election, the Company provided a matching contribution equal to one-half of the amount deferred. The number of Stock Units subject to such Stock Unit Award is determined by dividing the total amount deferred (including the Company’s matching contribution) by the fair market value of a share of the Company’s Common Stock on the date of payment of the non-deferred portion of the cash performance awards. The Stock Units become vested on the fourth anniversary of the date of grant. Included in the Company’s financial results for the year ended December 31, 2005 was $0.4 million of compensation expense for the deferred portion of the performance awards. There was no such expense in 2004 or 2003.

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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Common Stock

The holders of Common Stock are entitled to one vote per share for each share held of record on all matters submitted to a vote of the stockholders.

Other Equity Transactions

The following table summarizes information about stock options granted by the Company to non-employee directors to purchase the Company’s Common Stock in exchange for services rendered for 2005, 2004 and 2003 (“Board Options”):

Exercise Price
of Stock			Number of Options
Options Granted (1)(2)(3)			Granted
	2003:	1.19		10,850
		1.58		7,892
		2.58		4,818
		2.67		7,067
	2004:	4.05		3,074
		3.17		3,926
		3.87		4,146
		3.65		4,806
	2005:	4.71		2,857
		4.88		2,761
		5.42		2,488
		5.86		2,300

(1)	All stock option grants to non-employee directors during 2005, 2004 and 2003 were granted at an exercise price equal to 30% of the fair market value of the Company’s Common Stock on the date of grant.
(2)	Stock options granted in 2004 and 2003 are currently exercisable and stock options granted in 2005 become exercisable on the earliest of (i) the fifth anniversary of the date of grant, (ii) the date on which the director ceases to be a member of the Board of Directors and (iii) the effective date of a change in control of the Company. All such stock options were valued on the date of grant in accordance with the requirements prescribed in APB 25. See Note 2. These options were granted in lieu of cash retainers and meeting fees.
(3)	The compensation expense related to the Board Options granted in 2005, 2004 and 2003, determined pursuant to the application of APB 25, was $125,000, $136,000 and $132,000, respectively, and is included in general and administrative expenses in the accompanying consolidated statements of operations.

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THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11.   COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases corporate office space and certain equipment under non-cancellable operating lease agreements expiring at various dates. Total rent expense under these agreements was $2,189,000, $2,659,000 and $2,408,000 for the years ended December 31, 2005, 2004 and 2003, respectively. Future minimum annual rental commitments related to these leases are as follows at December 31, 2005 (in thousands):

Year	Amount
2006	$	1,822
2007		2,156
2008		2,004
2009		1,829
2010		1,825
Thereafter		10,562
	$	20,198

Product Liability

Software products such as those offered by the Company frequently contain undetected errors or failures when first introduced or as new versions are released. Testing of the Company’s products is particularly challenging because it is difficult to simulate the wide variety of computing environments in which the Company’s customers may deploy these products. Despite extensive testing, the Company from time to time has discovered defects or errors in products. There can be no assurance that such defects, errors or difficulties will not cause delays in product introductions and shipments, result in increased costs and diversion of development resources, require design modifications or decrease market acceptance or customer satisfaction with the Company’s products. In addition, there can be no assurance that, despite testing by the Company and by current and potential customers, errors will not be found after commencement of commercial shipments, resulting in loss of or delay in market acceptance, which could have a material adverse effect upon the Company’s business, operating results and financial condition.

Litigation

From time-to-time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. The Company is not currently a party to any legal proceeding the adverse outcome of which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on the Company’s operating results or financial condition.

12.   RELATED PARTY TRANSACTIONS

During the fourth quarter of 2001, the Company began leasing equipment with a computer leasing company (the “Leasing Company”) that is owned by an irrevocable trust (the “Trust”) for the benefit of the children of Robert A. Yanover, a member of the Company’s Board of Directors. Additionally, the Leasing Company’s business is managed and operated by a management company (the “Management Company”) pursuant to a management agreement. Mr. Yanover has a 50% ownership interest in the general partner of the Management Company. The Company did not finance equipment with the Leasing Company in 2005, 2004 or 2003. The Company financed equipment with the Leasing Company totaling $1,007,000 and $258,000 during 2002 and 2001, respectively. Related amortization was $0, $331,000 and $506,000 and total cash paid was $0,

61

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$499,000 and $569,000 during 2005, 2004 and 2003, respectively. The unamortized capital lease obligation with the Leasing Company and related accumulated amortization were both $0 at December 31, 2005, $0 and $1,265,000, respectively, at December 31, 2004, and $360,000 and $933,000, respectively, at December 31, 2003. The Company believes that the terms of the leases were no less favorable to the Company than could have been obtained from an unaffiliated party.

13.   EMPLOYEE BENEFIT PLAN

The Company provides retirement benefits for eligible employees, as defined, through a defined contribution benefit plan that is qualified under Section 401(k) of the Internal Revenue Code (the “Plan”). Contributions to the Plan, which are made at the sole discretion of the Company, were $756,000, $718,000 and $587,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

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Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report pursuant to Securities Exchange Act of 1934 Rule 13a-15. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2005. Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is included below.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

The Ultimate Software Group, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting that The Ultimate Software Group, Inc. and subsidiary (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the COSO. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2005 and 2004 and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2005, and our report dated March 6, 2006 expressed an unqualified opinion on those consolidated financial statements.

/s/  KPMG LLP

KPMG LLP

March 6, 2006

Miami, Florida

Certified Public Accountants

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Changes in Internal Control Over Financial Reporting

There have been no significant changes in internal control over financial reporting during the fourth quarter of 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.  Other Information

During 2001, Ultimate Software and Ceridian reached an agreement, as amended in 2002, which granted Ceridian a non-exclusive license to use UltiPro software as part of an on-line offering that Ceridian can market primarily to businesses with under 500 employees (the “Original Ceridian Agreement”).

Under the Original Ceridian Agreement, Ceridian is responsible for all marketing costs and expenses, and must sell the licensed software on a per period, per employee, per paycheck basis or other repetitive payment model. Ceridian is required to pay the Company a monthly license fee based on the number of employees paid using the licensed software. These payments are subject to a minimum monthly payment of $500,000 per month with increases of 5% per annum, compounded beginning in January 2006. The aggregate minimum payments that Ceridian is obligated to pay Ultimate Software under the Original Ceridian Agreement over the minimum term of the Agreement are $42.7 million. To date, Ceridian has paid to Ultimate Software a total of $29.1 million under the Original Ceridian Agreement.

Effective March 9, 2006, Ceridian Corporation provided Ultimate Software with a two years’ advance written notice of termination of the Original Ceridian Agreement, as permitted under the terms of the Agreement. Pursuant to such notice, the Original Ceridian Agreement will terminate on March 9, 2008 (unless terminated earlier for an uncured material breach).

Ultimate Software expects to continue to recognize a minimum of $642,000 per month, $7.7 million per year, in recurring subscription revenues from the Original Ceridian Agreement until its termination on March 9, 2008. The percentage of the Company’s revenues recognized pursuant to the Original Ceridian Agreement for the years ended December 31, 2005, 2004 and 2003 were 8.7%, 15.5% and 16.6%, respectively. The Company anticipates a continued reduction in the percentage of total revenues contributed by Ceridian as fixed recurring revenues under the Original Ceridian Agreement of $642,000 per month will be recognized until the termination of the Original Ceridian Agreement on March 9, 2008.

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PART III

Item 10.   Directors and Executive Officers of the Registrant

The directors, executive officers (Messrs. Scott Scherr, Marc D. Scherr and Mitchell K. Dauerman) and other key employees of the Company, and their ages as of February 18, 2006, are as follows:

Name	Age		Position(s)
Scott Scherr		53	Chairman of the Board, President and Chief Executive Officer
Marc D. Scherr		48	Vice Chairman of the Board and Chief Operating Officer
Mitchell K. Dauerman		48	Executive Vice President, Chief Financial Officer and Treasurer
Jon Harris		41	Senior Vice President, Services
Robert Manne		52	Senior Vice President, General Counsel
Vivian Maza		44	Senior Vice President, People and Secretary
Linda Miller		61	Senior Vice President, Marketing
Laura Johnson		41	Senior Vice President, Product Strategy
Adam Rogers		31	Senior Vice President, Development
Greg Swick		42	Senior Vice President, Sales
Bill Hicks		40	Senior Vice President, Chief Information Officer
Roy L. Gerber, Ph.D.		49	Vice President, Chief Technology Officer
James A. FitzPatrick, Jr.		56	Director
LeRoy A. Vander Putten		71	Director
Rick A. Wilber		59	Director
Robert A. Yanover		69	Director

Scott Scherr has served as President and a director of the Company since its inception in April 1996 and has been Chairman of the Board and Chief Executive Officer of the Company since September 1996. Mr. Scherr is also a member of the Executive Committee of the Board of Directors (the “Board”). In 1990, Mr. Scherr founded The Ultimate Software Group, Ltd. (the “Partnership”), the business and operations of which were assumed by the Company in 1998. Mr. Scherr served as President of the Partnership’s general partner from the inception of the Partnership until its dissolution in March 1998. From 1979 until 1990, he held various positions at Automatic Data Processing, Inc. (“ADP”), a payroll services company, where his titles included Vice President of Operations and Sales Executive. Prior to joining ADP, Mr. Scherr operated Management Statistics, Inc., a data processing service bureau founded by his father, Reuben Scherr, in 1959. He is the brother of Marc Scherr, the Vice Chairman of the Board of the Company and the father-in-law of Adam Rogers, Senior Vice President, Development.

Marc D. Scherr has been a director of the Company since its inception in April 1996 and has served as Vice Chairman since July 1998 and as Chief Operating Officer since October 2003. Mr. Scherr is also a member of the Executive Committee of the Board. Mr. Scherr became an executive officer of the Company effective March 1, 2000. Mr. Scherr served as a director of Gerschel & Co., Inc., a private investment firm from January 1992 until March 2000. In December 1995, Mr. Scherr co-founded Residential Company of America, Ltd. (“RCA”), a real estate firm, and served as President of its general partnership until March 2000. Mr. Scherr also served as Vice President of RCA’s general partnership from its inception in August 1993 until December 1995. From 1990 to 1992, Mr. Scherr was a real estate pension fund advisor at Aldrich, Eastman & Waltch. Previously, he was a partner in the Boston law firm of Fine & Ambrogne. Mr. Scherr is the brother of Scott Scherr, Chairman of the Board, President and Chief Executive Officer of the Company.

Mitchell K. Dauerman has served as Executive Vice President of the Company since April 1998 and as Chief Financial Officer and Treasurer of the Company since September 1996. From 1979 to 1996,

66

Mr. Dauerman held various positions with KPMG LLP, serving as a Partner in the firm from 1988 to 1996. Mr. Dauerman is a Certified Public Accountant.

Jon Harris has served as Senior Vice President, Services since January 1, 2002. Mr. Harris served as Vice President, Professional Services from July 1998 through December 31, 2001. From 1992 to 1997, Mr. Harris held various management positions within ADP’s National Accounts Division. From 1989 to 1992, Mr. Harris held the position of Consulting Services Director for Sykes Enterprises, Inc., a diverse information technology company.

Robert Manne has served as Senior Vice President, General Counsel since February 2004 and served as Vice President, General Counsel from May 1999 through January 2004. Prior to joining the Company, Mr. Manne was an attorney and partner of Becker & Poliakoff, P.A., an international law firm, since 1978. In addition to administering the Litigation Department of the law firm, Mr. Manne was a permanent member of the firm’s executive committee which was responsible for law firm operations. Mr. Manne has performed legal services for the Company since its inception.

Vivian Maza has served as Senior Vice President, People for the Company since February 2004 and served as Vice President, People from January 1998 through January 2004. Ms. Maza has served as Secretary of the Company since September 1996. Prior to that, Ms. Maza served as the Office Manager of the Company from its organization in April 1996 and of the Partnership from its inception in 1990 until April 1996. Ms. Maza is a HR Generalist and holds a Professional in Human Resources (PHR) certification from the Society for Human Resource Management (SHRM) association. From 1985 to 1990, Ms. Maza was a systems analyst for the Wholesale Division of ADP.

Linda Miller has served as Senior Vice President, Marketing since February 2004 and served as Vice President, Communications and Public Relations from January 1999 through January 2004. Ms. Miller served as Vice President, Marketing, for the Company from July 1998 to January 1999. Prior to that, Ms. Miller served as the Company’s Director of Marketing from January 1997. From 1992 to 1996, Ms. Miller held various positions at Best Software, Inc., a developer of corporate resource management applications, Abra Products Division, including Public Relations Manager.

Laura Johnson has served as Senior Vice President, Product Strategy since February 2004 and served as Vice President, Product Strategy from July 1998 through January 2004. From May 1996 to July 1998, Ms. Johnson served as the Director of Applications Consulting for the Company. From 1991 to 1996, Ms. Johnson held various positions with Best Software, Inc., Abra Products Division. Ms. Johnson holds a Certified Payroll Professional (CPP) certification from the American Payroll Association (APA).

Adam Rogers has served as Senior Vice President, Development since December 2002. From July 2001 to December 2002, Mr. Rogers served as Vice President of Engineering. From May 1997 to July 2001, Mr. Rogers held various positions in the Company’s research and development organization, including Director of Technical Support from October 1998 to November 1999 and Director of Web Development from November 1999 to July 2001. Mr. Rogers is the son-in-law of Scott Scherr, Chairman of the Board, President and Chief Executive Officer of the Company.

Greg Swick has served as Senior Vice President, Sales since January 2001. Mr. Swick served as Vice President and General Manager of the PEO Division of the Company’s sales organization from November 1999 to January 2001. From February 1998 to November 1999, Mr. Swick was Director of Sales, Northeast Division. Prior to joining the Company, Mr. Swick was President of The Ultimate Software Group of New York and New England, G.P., a reseller of the Company which was acquired by the Company in March 1998. From 1987 to 1994, Mr. Swick held various positions with ADP, where the most recent position was Area Vice President — ADP Dealer Services Division.

Bill Hicks has served as Senior Vice President, Chief Information Officer since April 2005. Mr. Hicks served as Vice President, Chief Information Officer from February 2004 through March 2005. From 1993 until February 2004, Mr. Hicks held various positions in the management of technologies for Precision Response Corporation, a wholly-owned subsidiary of Interactive Corporation and a provider of call centers and on-line

67

commerce customer care services, including Chief Information Officer and Senior Vice President of Technology from August 2000 until February 2004.

Roy L. Gerber, Ph.D. has served as Vice President, Chief Technology Officer since January 1, 2002. Mr. Gerber served as Vice President, Engineering from October 1999 through December 31, 2001. From 1995 to October 1999, Mr. Gerber served in various positions in the research and development organization, including Director of Engineering. Prior to joining the Company, from 1988 to 1995, Mr. Gerber was Executive Vice President of Development for Cascade Interactive Designs, Inc. and dBSi which developed and marketed medical software products. From 1984 to 1988, Mr. Gerber was Executive Vice President and Chief Operating Officer of Pacific Retirement Plans, Inc.

James A. FitzPatrick, Jr. has served as a director of the Company since July 2000. Mr. FitzPatrick is a partner in the law firm Dewey Ballantine LLP, which provides legal services to the Company. Before joining Dewey Ballantine LLP as a partner in February 1989, Mr. FitzPatrick was a partner in the law firm LeBoeuf, Lamb, Leiby & MacRae.

LeRoy A. Vander Putten has served as a director of the Company since October 1997, is Chairman of the Compensation Committee of the Board and is a member of the Audit Committee of the Board. Mr. Vander Putten served as the Executive Chairman of The Insurance Center, Inc., a holding company for 14 insurance agencies, from October 2001 until January 2006 at which time the company was sold. Previously, he served as the Chairman of CORE Insurance Holdings, Inc., a member of the GE Global Insurance Group, engaged in the underwriting of casualty reinsurance, from August 2000 to August 2001. From April 1998 to August 2000, he served as Chairman of Trade Resources International Holdings, Ltd., a corporation engaged in trade finance for exporters from developing countries. From January 1988 until May 1997, Mr. Vander Putten was Chairman and Chief Executive Officer of Executive Risk Inc., a specialty insurance holding company. From August 1982 to January 1988, Mr. Vander Putten served as Vice President and Deputy Treasurer of The Aetna Life and Casualty Company, an insurance company.

Rick A. Wilber has served as a director of the Company since October 2002 and is a member of the Audit Committee and a member of the Compensation Committee of the Board. Mr. Wilber formerly served on the Company’s Board of Directors from October 1997 through May 2000. Mr. Wilber is currently the President of Lynn’s Hallmark Cards, which owns and operates a number of Hallmark Card stores. Mr. Wilber was a co-founder of Champs Sports Shops and served as its President from 1974 to 1984. He served on the Board of Royce Laboratories, a pharmaceutical concern, from 1990 until April 1997, when the company was sold to Watson Pharmaceuticals, Inc., a pharmaceutical concern.

Robert A. Yanover has served as a director of the Company since January 1997 and is Chairman of the Audit Committee and a member of the Compensation Committee of the Board. Mr. Yanover founded Computer Leasing Corporation of Michigan, a private leasing company, in 1975 and has served as its President since that time. Mr. Yanover also founded Lason, Inc., a corporation specializing in the imaging business, and served as Chairman of the Board from its inception in 1987 until 1998 and as a director through February 2001.

Each officer serves at the discretion of the Board and holds office until his or her successor is elected and qualified or until his or her earliest resignation or removal. Messrs. Marc D. Scherr, James A. FitzPatrick, Jr. and Rick A. Wilber serve on the Board in the class whose term expires at the annual meeting of the stockholders (the “Annual Meeting”) in 2006. Mr. Scott Scherr serves on the Board in the class whose term expires at the Annual Meeting in 2007. Messrs. LeRoy A. Vander Putten and Robert A. Yanover serve on the Board in the class whose term expires at the Annual Meeting in 2008.

Code of Ethics

The Company has adopted a Code of Ethics within the meaning of Item 406 of Regulation S-K of the Exchange Act. The Company’s Code of Ethics applies to its principal executive officer, principal financial officer and principal accounting officer. A copy of the Company’s Code of Ethics is posted on the Company’s website at www.ultimatesoftware.com. In the event that the Company makes any amendments to, or grants any

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waiver from, a provision of the Code of Ethics that requires disclosure under Item 5.05 of Form 8-K, the Company will post such information on its website.

Other Information

The information set forth in the Company’s Proxy Statement for the 2006 Annual Meeting of Stockholders under the headings “Section 16(a) Beneficial Ownership Reporting Compliance” and “Board Meetings and Committees of the Board-Audit Committee”, is incorporated by reference.

Item 11.   Executive Compensation

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2006 Annual Meeting of Stockholders under the heading “Executive Compensation.”

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plan Information

The following table summarizes the securities authorized for issuance under the Company’s equity compensation plans as of December 31, 2005:

	(a)				(c)
	Number of				Number of Securities
	Securities to be		(b)		Remaining Available for
	Issued Upon		Weighted — Average		Future Issuance Under
	Exercise of		Exercise Price of		Equity Compensation
	Outstanding		Outstanding		Plans (Excluding
	Options, Warrants		Options, Warrants		Securities Reflected in
Plan Category	and Rights		and Rights		Column(a))
Equity compensation plans approved by security holders		5,489,508	$	7.77		1,560,953
Total		5,489,508	$	7.77		1,560,953

The information set forth in the Company’s Proxy Statement for the 2006 Annual Meeting of Stockholders under the heading “Security Ownership of Certain Beneficial Owners and Management” is incorporated by reference.

Item 13.   Certain Relationships and Related Transactions

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2006 Annual Meeting of Stockholders under the heading “Certain Related Transactions.”

Item 14.   Principal Accountant Fees and Services

The information required by this item is incorporated by reference to the Company’s Proxy Statement for the 2006 Annual Meeting of Stockholders under the heading “KPMG LLP Fees”.

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PART IV

Item 15.   Exhibits and Financial Statement Schedules

Documents filed as part of this report:

(1)  Financial Statements.

The following financial statements of the Company are included in Part II, Item 8, of this Annual Report on Form 10-K:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2005 and 2004

Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003

Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2005, 2004 and 2003

Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003

Notes to Consolidated Financial Statements

(2) Consolidated Financial Statement Schedules:

Report of Independent Registered Public Accounting

Schedule II — Valuation and Qualifying Accounts

(3) Exhibits

Number				Description
	3	.1	—	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-1 (File No. 333-47881), initially filed March 13, 1998 (the “Registration Statement”)
	3	.2	—	Certificate of Designations of Series A Junior Preferred Stock (incorporated by reference to Exhibit 2 to the Company’s Current Report on Form 8-K dated October 23, 1998)
	3	.3	—	Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.5 to the Registration Statement)
	4	.1	—	Form of Certificate for the Common Stock, par value $0.01 per share**
	4	.2	—	Form of Warrant for Common Stock (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-3 (File No. 333-107527), initially filed July 31, 2003
	10	.1	—	Shareholders Rights Agreement, dated June 6, 1997 among the Company and certain stockholders named therein**
	10	.2	—	Asset Purchase Agreement, dated February 2, 1998, among The Ultimate Software Group of Virginia, Inc., the Company and certain principals named therein**
	10	.3	—	Asset Purchase Agreement, dated February 2, 1998, among the Company, The Ultimate Software Group of the Carolinas, Inc. and certain principals name therein**
	10	.4	—	Asset Acquisition Agreement, dated February 20, 1998, among the Company, The Ultimate Software Group of Northern California, Inc. and certain principals named therein**
	10	.5	—	Asset Purchase Agreement dated March 4, 1998, among the Company, Ultimate Investors Group, Inc. and certain principals name therein**

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Number				Description
	10	.6	—	Agreement and Plan of Merger dated February 24, 1998, among the Company, ULD Holding Corp., Ultimate Software Group of New York and New England, G.P. and certain principals named therein**
	10	.7	—	Nonqualified Stock Option Plan, as amended and restated as of December 20, 2002 (incorporated by reference to the corresponding exhibit in the Company’s Annual Report on Form 10-K dated March 31, 2003)
	10	.8	—	Commercial Office Lease agreement by and between UltiLand, Ltd., a Florida limited partnership, and the Company, dated December 31, 1998 (incorporated by reference herein to corresponding exhibit in the Company’s Annual Report on Form 10-K dated March 31, 1999)
	10	.9	—	Rights Agreement, dated as of October 22, 1998, between the Company and BankBoston, N.A., as Rights Agent. The Rights Agreement includes the Form of Certificate of Designations of Series A Junior Preferred Stock as Exhibit A, the Form of Rights Certificate as Exhibit B, and the Summary of Rights as Exhibit C (incorporated by reference herein to Exhibit 2 to the Company’s Current Report on Form 8-K dated October 23, 1998)
	10	.10	—	Commercial Office Lease by and between UltiLand, Ltd., a Florida limited partnership and the Company, dated December 22, 1998 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated August 15, 1999)
	10	.11	—	Letter Agreement between Aberdeen Strategic Capital LP and the Company, dated October 21, 1999 (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated November 15, 1999)
	10	.12	—	Warrant issued to Aberdeen Strategic Capital LP (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q dated November 15, 1999)
	10	.13	—	Software License Agreement between the Company and Ceridian Corporation dated as of March 9, 2001 (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K dated March 27, 2001)
	10	.14	—	Letter amendment between the Company and Ceridian Corporation dated as of August 9, 2001 (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K dated March 29, 2002)
	10	.15	—	Letter amendment between the Company and Ceridian Corporation dated as of February 5, 2002 (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K dated March 29, 2002)
	10	.16	—	Loan and Security Agreement by and between the Company and Silicon Valley Bank dated as of November 29, 2001 (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K dated March 29, 2002)
	10	.17	—	Revolving Promissory Note by and between the Company and Silicon Valley Bank dated as of November 29, 2001 (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K dated March 29, 2002)
	10	.18	—	Equipment Term Note by and between the Company and Silicon Valley Bank dated as of November 29, 2001 (incorporated herein by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K dated March 29, 2002)
	10	.19	—	Services Agreement between the Company and Ceridian Corporation dated as of February 10, 2003 (incorporated by reference to the corresponding exhibit in the Company’s Annual Report on Form 10-K dated March 31, 2003)
	10	.20	—	Third Loan Modification Agreement by and between the Company and Silicon Valley Bank dated March 27, 2003 (incorporated by reference to the corresponding exhibit in the Company’s Annual Report on Form 10-K dated March 31, 2003)
	10	.21	—	Fourth Loan Modification Agreement by and between the Company and Silicon Valley Bank dated as of April 29, 2003 (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q dated May 14, 2003)

71

Number				Description
	10	.22	—	Change in Control Bonus Plan for Executive Officers, effective March 5, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated May 13, 2004)
	10	.23	—	Fifth Loan Modification Agreement by and between the Company and Silicon Valley Bank dated as of May 28, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated August 12, 2004)
	10	.24	—	Silicon Valley Bank Second Amended and Restated Revolving Promissory Note by and between the Company and Silicon Valley Bank dated May 28, 2004 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q dated August 12, 2004)
	10	.25		Amended Nonqualified stock option agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated January 3, 2006)
	10	.26		Amended Director Fee Option Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated January 3, 2006)
	10	.27		Amended Director Fee Option Agreement for Non-Employee Directors*
	10	.28		Entry into a Material Definitive Agreement with executives (incorporated by reference to the Company’s Form 8-K, Item 1.01 dated February 10, 2006)
	10	.29		Seventh Loan Modification Agreement between the Company and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated June 17, 2005)
	10	.30		Term Note between the Company and Silicon Valley Bank (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated June 17, 2005)
	10	.31		Notice of Termination of License Agreement and Acknowledgement of Receipt by Ceridian Corporation dated, March 9, 2006*
	10	.32		Commercial Office Lease by and between ROHO Ultimate, LTD. II, a Florida limited partnership and the Company dated May 23, 2001*
	10	.33		Agreement of Purchase and Sale by and between Parry F. Goodman and Ivy Goodman and Robert J. Manne and/or assigns dated September 22, 2004*
	10	.34		Assignment of Agreement of Purchase and Sale by and between Robert J. Manne a/k/a Robert Manne and the Company, dated October 26, 2004*
	10	.35		Weston Town Center South Office Building Lease between South Office Building-DLB, LLC, a Florida Limited Liability Company, South Office Building Bagtrust, LLC, a Florida Limited Liability Company, and South Office Building-BJB, LLC, a Florida Limited Liability Company, and the Company and Weston Common Area Ltd., dated August 18, 2005*
	21	.1	—	Subsidiary of the Registrant**
	23	.1	—	Consent of Independent Registered Public Accounting Firm*
	31	.1	—	Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended*
	31	.2	—	Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended*
	32	.1	—	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
	32	.2	—	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
	99	.1	—	Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995*

*  Filed herewith.

** Incorporated by reference to the corresponding exhibit in the Company’s Registration Statement.

72

Report of Independent Registered Public Accounting Firm

The Board of Directors

The Ultimate Software Group, Inc.:

Under date of March 6, 2006, we reported on the consolidated balance sheets of The Ultimate Software Group, Inc. and subsidiary as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2005 which reports appear in the December 31, 2005, Annual Report on Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules as listed in Item 15 of this 10-K. These financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/  KPMG LLP

KPMG LLP

March 6, 2006

Miami, Florida

Certified Public Accountants

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SCHEDULE II

THE ULTIMATE SOFTWARE GROUP, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS

	Balance at
	Beginning of		Charged to Expenses		Write-offs and			Balance at
Classification	Year		and Other		Other			End of Year
Allowance for doubtful accounts:
December 31, 2005	$	500	$	869	$	(869	)	$	500
December 31, 2004		525		419		(444	)		500
December 31, 2003		1,000		213		(688	)		525
Valuation allowance for deferred tax asset:
December 31, 2005	$	31,759	$	2,129	$	—		$	33,888
December 31, 2004		28,377		3,382		—			31,759
December 31, 2003		24,233		4,144		—			28,377

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE ULTIMATE SOFTWARE GROUP, INC.

By:  /s/  Mitchell K. Dauerman

Mitchell K. Dauerman

Executive Vice President, Chief Financial

Officer and Treasurer

Date: March 15, 2006

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.

Signature	Title	Date
/s/  Scott Scherr Scott Scherr	President, Chief Executive Officer and Chairman of the Board	March 15, 2006
/s/  Mitchell K. Dauerman Mitchell K. Dauerman	Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)	March 15, 2006
/s/  Marc D. Scherr Marc D. Scherr	Vice Chairman of the Board and Chief Operating Officer	March 15, 2006
/s/  James A. FitzPatrick Jr. James A. FitzPatrick Jr.	Director	March 15, 2006
/s/  LeRoy A. Vander Putten LeRoy A. Vander Putten	Director	March 15, 2006
/s/  Rick Wilber Rick Wilber	Director	March 15, 2006
/s/  Robert A. Yanover Robert A. Yanover	Director	March 15, 2006

75

EX-10.27

Exhibt 10.27

THE ULTIMATE SOFTWARE GROUP, INC.
DIRECTOR FEE OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS

     This AGREEMENT, made as of this [___] day of [___], 20[___], by and between The Ultimate Software Group, Inc. (the “Company”) and __________________ (the “Optionee”);

     WHEREAS, the Company has adopted an Amended and Restated Nonqualified Stock Option Plan (the “Plan”) pursuant to which certain employees, officers and directors of the Company and its Subsidiaries are given the opportunity to acquire or increase their equity ownership in the Company through the purchase of shares of Common Stock, par value $.01 per share, of the Company (“Stock”); and

     WHEREAS, the Plan provides that each member of the Board of Directors that is not an employee of the Company (a “Nonemployee Director”) shall receive a grant of a stock option on the first business day of each calendar quarter in lieu of directors’ fees earned during the preceding calendar quarter;

     NOW, THEREFORE, in consideration of the premises, it is agreed by and between the parties as follows:

     1. Definition of Terms. All terms not defined herein shall have the meaning given to them in the Plan.

     2. Grant of Option. The Company has granted to the Optionee the right, privilege and option to purchase the number of shares of Stock specified in Appendix A hereto at a purchase price (the “Option Price”) per share set forth therein. Appendix A may be amended by the Company from time to time to reflect additional grants, or the exercise of Options, following the date hereof. Each option identified in Appendix A shall be subject to the conditions hereinafter provided and subject to the terms and conditions set forth in the Plan, a copy of which the Optionee acknowledges having received. (Each option identified in Appendix A is hereinafter referred to as an “Option”.)

     3. Vesting Schedule. Each Option shall vest and become exercisable immediately upon the date of grant. Each Option shall remain exercisable until it terminates as provided in Section 5 hereof.

     4. Exercise of Option.

          a. Method of Exercise. An Option shall be exercised in whole or in part by written notice of exercise delivered to the Secretary of the Company, at the Company’s principal place of business, which notice shall specify the number of shares being purchased. The notice shall be accompanied by a check or shares of Stock, or any combination thereof, in payment of the Option Price pursuant to the Plan for the number of shares specified in the notice of exercise. As an alternative, payment of the Option Price shall be deemed satisfied (i) if the Stock is listed on a national securities exchange, by delivery to the Company of an assignment of a sufficient amount of the proceeds from the sale of Stock acquired upon exercise to pay for all of the Stock acquired upon exercise and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be made at the Participant’s direction at the time of exercise, and (ii) if the Stock is not listed on a national securities exchange, by having the Company withhold a number of shares of Stock otherwise issuable to the Participant upon exercise of an Option, the Fair Market

1

Value of which equals the Option Price. For purposes hereof, the Fair Market Value of the shares of Stock delivered and withheld shall be determined as of the date on which an Option is exercised.

          b. Delivery of Stock Certificates Upon Exercise. Upon each exercise of an Option, the Company shall mail or deliver to the Optionee (or Beneficiary in the case of exercise by a Beneficiary), as promptly as practicable, a stock certificate or certificates representing the shares then purchased, and will pay all stamp taxes payable in connection therewith. Notwithstanding the foregoing, the Company shall not be obligated to deliver any such certificate or certificates upon exercise of an Option until the Company shall have received such assurances from its counsel as the Company may reasonably request that the exercise of the Option and the issuance of shares of Stock pursuant to such exercise will not violate the Securities Act of 1933 (the “Act”), as amended (as then in effect or any similar statute then in effect), or the securities laws of any State applicable to such exercise, issuance or transfer. Such assurances may include (but need not be limited to) opinions of counsel to the Company, covenants by the holder or transferee to observe such Act and laws and the placement of a legend on such certificate or certificates restricting subsequent transfers or sales except in compliance with such Act and laws.

     5. Termination of Option. Except as otherwise stated herein or in the Plan, each Option, to the extent not theretofore exercised, shall terminate on tenth anniversary of its date of grant. If the Optionee’s service as a member of the Board of Directors is terminated for any reason other than for “cause” (as defined in the Plan), the Optionee (or, to the extent provided in the Plan, his legal representative or estate) shall have the right, during the period ending three years after such termination, to exercise each Option to the extent not theretofore exercised; provided, however, that such three year period may be extended (but not beyond the terms of the Options) upon determination of the Committee. If the Optionee is removed from the Board of Directors for cause, the Optionee’s right to exercise any unexercised portion of an Option shall immediately terminate and all rights thereunder shall cease.

     6. Anti-Dilution. In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger or consolidation, or the sale, conveyance, lease or other transfer by the Company of all or substantially all of its property, or any other change in the corporate structure or shares of the Company, pursuant to any of which events the then outstanding shares of Stock are split up or combined, or are changed into, become exchangeable at the holder’s election for, or entitle the holder thereof to, other shares of stock, or in the case of any other transaction described in Section 424(a) of the Internal Revenue Code, then the number and kind of shares subject to an Option and the price per share shall be proportionately adjusted in accordance with the Plan (or other action taken with respect to an offering of rights, warrants or options) to prevent dilution or enlargement of the Optionee’s rights hereunder. Nothing in this paragraph shall require the issuance of any fractional shares.

     Notwithstanding anything herein to the contrary, upon a Change of Control in which shares of Stock are converted into cash, securities or other property, any outstanding Option may, at the election of the Committee, be terminated and the Participant would under such circumstances receive, with respect to each share of the Stock issuable under any Option outstanding at such time, a payment in cash equal to the excess of the Change of Control Price of the Stock over the Option Price of the Stock less amounts withheld in satisfaction of applicable federal and state withholding and other employment taxes. In making any election hereunder, the Committee shall act in accordance with this Agreement, the Plan and its fiduciary duties.

     7. Rights Prior to Exercise of Option. Each Option is nontransferable by the Optionee, except that (i) in the event of the Optionee’s death an Option may be transferred by the Optionee’s will or by the laws of descent and distribution and shall then be exercisable only until the date applicable under Section 5 above, and (ii) on a case by case basis as may be approved by the Committee in its discretion in accordance with the terms of the Plan, the Participant may, during his lifetime and subject to

2

the prior approval of the Committee at the time of proposed transfer, transfer all or part of an Option to or for the benefit of a Permitted Transferee in a manner consistent with the requirements for a Form S-8 registration statement under the Act. The Optionee or his Beneficiary shall have no rights as a stockholder with respect to the shares subject to an Option until exercise of the Option and delivery to the Optionee of shares of Stock.

     8. Entire Agreement. This Agreement sets forth the entire agreement and understanding between the parties hereto as to the Options, and merges and supersedes all prior discussions, agreements (including, without limitation, any stock option agreements) and understandings of every kind and nature between them with respect to the Options. This Agreement shall not be changed or amended except by a writing signed by each of the parties hereto.

     9. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

     10. Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.

[SIGNATURE ON FOLLOWING PAGE]

3

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written.

THE ULTIMATE SOFTWARE GROUP, INC.
By:	/s/ Scott Scherr
	Name: Scott Scherr
	Title: CEO, President and Founder
(Signature of Optionee)
(Print Name)

4

Appendix A

Date of Grant # of Shares Subject to Option Option Price

5

EX-10.31

Exhibit 10.31

NOTICE OF TERMINATION OF LICENSE AGREEMENT
AND
ACKNOWLEDGEMENT OF RECEIPT

This notice of Termination of License Agreement and Acknowledgement of Receipt is made as of the 9^th day of March 2006 by Ceridian Corporation, a Delaware corporation, having its principal place of business at 3311 E. Old Shakopee Road, Minneapolis, Minnesota (Ceridian”) and The Ultimate Software Group, Inc., a Delaware corporation, having its principal place of business at 2000 Ultimate Way, Weston, Florida 33326 (“Ultimate”). Each of Ceridian and Ultimate may be referred to as a Party, and collectively as the Parties.

WHEREAS the Parties entered into a License Agreement effective as of March 9, 2001, which has subsequently been amended (“License Agreement”); and

WHEREAS Ceridian desires to give Notice of Termination of the License Agreement, effective as of March 9, 2008, which is the seventh anniversary of the Effective Date of the License Agreement; and

WHEREAS Ultimate is prepared to provide an Acknowledgement of Receipt of Notice of Termination of License Agreement.

Therefore the Parties agree:

     1. Pursuant to Section 10.2(b) of the License Agreement, Ceridian gives Notice of Termination of the License Agreement as of March 9, 2008 (“the Termination Date”).

     2. Ceridian acknowledges that nothing herein shall be deemed to eliminate or reduce any payment obligation of Ceridian which is accrued or incurred pursuant to the License Agreement prior to the Termination Date.

     3. Ultimate and Ceridian acknowledge that the Notice delivery provisions of Section 11.3 of the License Agreement are deemed satisfied upon the signature of the Parties to this Notice of Termination of License Agreement and Acknowledgement of Receipt.

     4. This Notice of Termination of License Agreement and Acknowledgement of Receipt may be executed in counterparts and by facsimile and each such counterpart shall be deemed an original.

The parties have caused this Notice of Termination of License Agreement and Acknowledgement of Receipt to be executed by their duly authorized representatives below.

Ceridian Corporation
/s/ Gary M. Nelson
Gary M. Nelson
Executive Vice President, Chief Administrative Officer,
General Counsel and Corporate secretary

The Ultimate Software Group, Inc.
/s/ Robert J. Manne
Robert J. Manne
General Counsel

EX-10.32

Exhibit 10.32

COMMERCIAL OFFICE LEASE

by and between

ROHO ULTIMATE, LTD. II, a Florida limited partnership
(“Landlord”)

and

ULTIMATE SOFTWARE GROUP, INC., a Delaware corporation
(“Tenant”)

ARTICLE IX — TITLE
	9.01	POSSESSION BY TENANT
	9.02	SUBLEASE AND ASSIGNMENT
	9.03	FINANCING
	9.04	SURRENDER OF PREMISES
	9.05	EMINENT DOMAIN
	9.06	NONDISTURBANCE AND ATTORNMENT
ARTICLE X — DEFAULT
	10.01	DEFAULT BY TENANT
	10.02	LIEN OF LANDLORD FOR RENT, TAXES AND OTHER SUMS
	10.03	NO LIENS CREATED BY TENANT
ARTICLE XI — ENVIRONMENTAL
	11.01	COMPLIANCE WITH LAWS
	11.02	STORAGE OF CONTAMINATION
	11.03	NO LIENS
	11.04	ENVIRONMENTAL ASSESSMENT AND REMEDIATION
	11.05	NOTICE OF CONTAMINATION OR ENFORCEMENT
ARTICLE XII — MISCELLANEOUS
	12.01	NOTICES
	12.02	WAIVER
	12.03	RELATIONSHIP OF PARTIES
	12.04	GOVERNING LAW
	12.05	SAVINGS CLAUSE
	12.06	MARGINAL HEADINGS
	12.07	COVENANT TO BIND SUCCESSORS
	12.08	CREDIT REPORTS
	12.09	ESTOPPEL CERTIFICATE
	12.10	EXCULPATION
	12.11	FORCE MAJEURE
	12.12	PREVAILING PARTY
	12.13	RADON GAS
	12.14	ENTIRE AGREEMENT
	12.15	NEGOTIATION AND EXECUTION
	12.16	NO REPRESENTATION
	12.17	CONTINGENCY
	12.18	COMPLETION OF CONSTRUCTION

EXHIBITS
	Exhibit A	Legal Description
	Exhibit B	Landlord’s Work
	Exhibit C	Tenant’s Work
	Exhibit D	Change Order Schedule

3

COMMERCIAL OFFICE LEASE

     THIS LEASE, made and entered into this                       day of                                         ,                      , by and between ROHO Ultimate, Ltd. II, a Florida limited partnership (hereinafter referred to as “Landlord”) and ULTIMATE SOFTWARE GROUP, INC., a Delaware corporation (hereinafter referred to as “Tenant”);

W I T N E S S E T H: THAT

     In consideration of the rents, covenants and agreements hereinafter reserved and contained on the part of the Tenant to be observed and performed, the Landlord demises and leases to the Tenant, and Tenant takes, accepts and rents from Landlord, the premises hereinafter described, for the period, at the rental, and upon the terms and conditions hereinafter set forth.

ARTICLE I

DEMISED PREMISES

     Section 1.01 — Demised Premises: The Landlord demises and leases to the Tenant, and the Tenant rents from Landlord, that certain real property located in Broward County, Florida and more particularly described on Exhibit “A” attached hereto, (the “Property”) together with all improvements located or to be located thereon, including but not limited to a two-story office building and training rooms to be known as the Ultimate Software Group Building II, located in Town Center Circle, in the City of Weston, County of Broward, and State of Florida, (the “Demised Premises,”) Landlord shall be responsible for designing and constructing the building and improvements as described in Exhibit “B” hereto. In the event that any item in said Exhibit “B” is not accompanied by a corresponding specification and there is a resulting dispute or question as to the intent of the parties as to such specification, or in the event that there is an unintentional omission from such plans as to an item that would clearly be required in order to complete the building and improvements in accordance with Exhibit “B” hereto and would clearly not be Tenant’s responsibility under Exhibit “C” hereto and there is a resulting dispute or question as to the intent of the parties as to such item, then in either such event the parties agree that such missing specification or item shall be equal in design and construction to the Phase I Building of Ultimate Software Group located at 2000 Ultimate Way, Weston, FL (the “Phase I Ultimate Building”).

ARTICLE II

TERM

     Section 2.01 — Length of Term: The length of this Lease shall be for a term of fifteen (15) years (the “Term”), or as set forth below, unless otherwise terminated or extended as provided herein.

     Section 2.02 — Commencement Date: The term of this Lease shall commence on a date that is the later of (a) the date Landlord obtains a Certificate of Occupancy, or (b) the date that Landlord Improvements (as defined in section 4.01 below) are substantially complete so that all of the Demised Premises can be occupied by Tenant for Tenant to conduct business operations (the “Commencement Date”). If the Tenant occupies the Demised Premises prior to the Commencement Date, such early occupancy shall be subject to all terms and conditions contained in this Lease. All property of Tenant brought upon the Demised Premises shall be kept at Tenant’s sole risk, provided however that Landlord shall be responsible for any damages caused by the gross negligence or willful misconduct of Landlord, it’s contractors, subcontractors, agents and/or employees.

     Section 2.03 — Option to Renew: Provided Lessee shall not be in default hereunder and upon one hundred eighty (180) days’ written notice prior to the end of the Term, Lessee shall have one (1) option to renew this Lease for a term of five (5) years (“Option Term”).

     Section 2.04 — By virtue of occupying the Demised Premises and subject to any “punch list” items and the Warranty Obligations (as defined in section 4.01 hereof), Tenant shall conclusively be

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deemed to have accepted the Demised Premises and the Property and to have acknowledged that the Landlord has satisfied all of its construction obligations as required by this Lease.

ARTICLE III

RENT

     Section 3.01 — Payment of Rent: Tenant hereby covenants and agrees to pay rent to Landlord, which rent shall be as hereinafter provided. The payment of said Rent shall begin on the Commencement Date. In the event the Commencement Date occurs on a day other than the first day of a month, Tenant shall pay rent for the fractional month on a per diem basis (calculated on the basis of a thirty [30] day month) until the first day of the month following such Commencement Date, and thereafter the Rent shall be paid in equal monthly installments on the first day of each and every month in advance. Said Rent shall be paid to the Landlord at 3325 South University Drive, Suite 210, Davie, FL 33328-2020, or at such other place as may be designated in writing from time to time by Landlord.

     Section 3.02 — Rent:

     A. Tenant shall pay to Landlord during the first year of this Lease, commencing on the Commencement Date (the “Initial Lease Year”), and as adjusted pursuant to Section 3.02 (B) of this Lease, without any prior notice or demand therefor, and without any deduction or setoff, except for the Warranty Obligations and/or the guarantor obligations pursuant to section 12.18 hereof and the Guaranty To Lease attached hereto, a total fixed minimum annual rental of $453,195.24 per annum, payable in equal monthly installments of $37,766.27, plus sales tax and use tax as required by law. The parties acknowledge that the amount of fixed minimum annual rental has been arrived at by calculating $21.19 per square foot per annum, based on an assumed square footage of 21,392 feet of Demised Premises (as measured including the exterior faces of exterior walls). Rent shall be payable in advance on the first day of each and every calendar month, as provided in Section 3.01 hereof.

     B. Commencing with the second year of this Lease, for a term of twelve (12) months, and for each successive year of this Lease, fixed minimum annual rent shall be adjusted in accordance with CPI as more fully set forth in this Article III, Section 3.03 below with a minimum increase of three percent (3%) per annum and a maximum increase of six percent (6%) per annum, whereupon the adjusted Rent shall be payable in equal monthly installments, plus applicable sales tax and use tax as required by law. Rent shall be payable in advance on the first day of each and every calendar month, as provided in Section 3.01 hereof.

     C. INTENTIONALLY OMITTED:

     D. Late fee: Any payment not received by Landlord by the tenth (10th) day of the month shall be considered in arrears and in default of the terms hereof and shall be subject to a late charge in the amount of one (1%) percent of the monthly rent, which Tenant agrees to pay along with the late rent in the form of a cashier’s check, certified check or money order.

     E. Returned Checks: In the event that Tenant’s check is returned for any reason, Tenant agrees to pay Landlord $50.00 as a handling charge in addition any applicable late charge. Returned checks must be redeemed by cashier’s check, certified check or money order. In the event that more than one (1) check is returned, Tenant agrees to pay all subsequent rents and charges by cashier’s check, certified check or money order.

     Section 3.03 — Cost of Living Increase in Fixed Minimum Annual Rent: “CPI” is hereby defined as the Consumer Price Index For All Urban Consumers and Wage Earners and Clerical Workers (U.S. City Average: All Items) issued by the Bureau of Labor Statistics of the U.S. Department of Labor, using the year 1982-84 as a base of 100. At the commencement of each year of this Lease, and each year thereafter, the fixed minimum annual rent shall be adjusted by multiplying said rent by a fraction, the numerator of which shall be the Index Number for the month preceding the commencement of the successive year of this Lease, and the denominator of which shall be the Index Number for the month of the commencement of the Term of this Lease, subject to the minimum and maximum increases provided in section 3.02(B) above. In the event that the Index

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herein referred to ceases to be published during the term of this Lease, or if a substantial change is made in the method of establishing such Index, then the determination of the adjustment in the fixed minimum annual rent shall be made with the use of such conversion factor, formula or table as may be published by the Bureau of Labor Statistics, or if none is available, the parties shall accept comparable statistics on the cost of living in the United States, as shall then be computed and published by an agency of the United States, or if none, by a respected financial periodical selected by Landlord. Further, if the publication of the Index is delayed or receipt of same is untimely, then the Rent shall be adjusted as soon as the Index is received, and the Tenant agrees to pay any adjustments in rent for those months which may not have been calculable due to the unavailability of the Index.

ARTICLE IV

IMPROVEMENTS

     Section 4.01 — Improvements by Landlord: (a) Landlord shall be responsible for any and all improvements to the Demised Premises as set forth on Exhibit “B” attached hereto and made a part hereof (“Landlord Improvements”), and shall not be responsible for any other improvements to the Demised Premises. Landlord warrants that the design and construction of the Landlord Improvements will be (i) performed in a good and workmanlike manner, (ii) in compliance with the Plans, Specifications and other documents which constitute Exhibit “B” hereto, (iii) in accordance with all applicable laws, regulations and codes including but not limited to the applicable building code and that (iv) all labor, materials and equipment are free from defects, such warranty to expire one (1) year from the Commencement Date except as to latent defects existing but undetected during said one year period which Landlord hereby warrants against for the entire term of this Lease (the warranties contained in this sentence referred to herein as the “Warranty Obligation”). In the event that any changes are required by the applicable governmental authorities in order for Landlord to obtain a permit for construction of Landlord’s Improvements or in order to otherwise comply with the requirements of such governmental authority then the parties will jointly determine and agree to such changes which shall, to the extent possible, be resolved in a manner so that the building design and construction is equal to the Phase I Ultimate Building.

     (b) Tenant shall be responsible for reimbursing Landlord for one hundred percent of the costs of Landlord’s Improvements in the amount of Six Hundred And Forty Eight Thousand Six Hundred And Fifty Five Dollars and No Cents ($648,655.00) (the “Tenant Reimbursement”). Tenant shall deliver such Tenant Reimbursement as follows: commencing thirty (30) days following issuance of the building permit for Landlord’s Improvements, Tenant shall deliver one twelfth (l/12th) of the Tenant Reimbursement (Fifty Four Thousand And Fifty Four Dollars and Fifty Eight Cents ($54,054.58)) to Landlord per month for twelve consecutive months until said Tenant Reimbursement is paid in full. Landlord shall be responsible for any and all additional costs of Landlord’s Improvements except for costs arising from Tenant requested modifications, alterations or additions to Landlord’s Improvements. In the event that Tenant desires any such modifications, alterations or additions, then (a) Tenant shall notify Landlord, (b) Landlord shall conduct an analysis of Tenant’s request, at Landlord’s discretion using third parties, so as to complete Exhibit “D” hereto for such request, (c) Landlord shall deliver the completed Exhibit “D” to Tenant, (d) should Landlord and Tenant both agree in writing as to such Exhibit “D” analysis, then Tenant shall be fully responsible for all costs and expenses described on said Exhibit “D”, including but not limited to (i) overhead and profit as described therein, and (ii) reimbursement for time delays as described therein. Should Tenant believe that the Exhibit “D” analysis is unreasonable, then Tenant may consult with Synalovski Architects for its opinion of the Exhibit “D” analysis, and (i) if Synalovski Architects finds that the Exhibit “D” analysis is reasonable then such analysis shall remain unchanged, or (ii) if Synalovski Architects finds that the Exhibit “D” analysis is unreasonable then Synalovski Architects shall provide specific proposed modifications thereto which may be accepted by Landlord and Tenant, in their sole discretions, or (iii) if Synalovski Architects finds that the Exhibit “D” analysis is unreasonable and provides specific proposed modifications thereto which are not acceptable to either Landlord or Tenant, in their sole discretion, then a third party architect shall be chosen by Synalovski Architects to provide specific proposed modifications as to Exhibit “D” which shall be binding on Landlord and Tenant. In the event that either Landlord or Tenant does not approve, in writing at their sole discretions, of the proposed Tenant modifications based on the final Exhibit “D” analysis, then such proposed modifications shall not be performed by Landlord. All Exhibit “D” costs and

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expenses for Tenant’s requested modifications, alterations or additions shall be paid by Tenant within ten (10) days after completion of such modifications, alterations or additions. Tenant shall have the right to audit the records of Landlord, its agents, contractors, subcontractors (to the extent Landlord has such rights), etc. in order to verify any amounts due from Tenant to Landlord.

     Section 4.02 — Improvements by Tenant: Tenant, at its sole cost and expense, shall be responsible for all improvements to the Demised Premises except as provided to the contrary in Section 4.01 hereof. Provided however, that before any such improvements are made, Tenant shall submit its plans, drawings and specifications to Landlord for Landlord’s approval which approval shall be in writing and shall not be unreasonably withheld and provided that any and all improvements to be made by Tenant meet all applicable building codes and/or zoning requirements as may be required by the appropriate governmental authorities and that Tenant secure, in advance of commencement of any improvements, the requisite governmental approvals and permits. All bills shall be paid for in full, and Tenant does hereby agree to indemnify, defend and hold harmless Landlord from any and all liens, claims or demands in connection therewith. If any liens are placed against the Demised Premises, Tenant shall be responsible for clearing all such liens immediately, and, to the extent Landlord incurs any expenses (including attorney fees), Tenant shall be responsible for reimbursement. In the event that Tenant desires to perform any improvements to the Premises prior to the issuance of a certificate of occupancy for the Premises, then Tenant must obtain the consent of Landlord, at Landlord’s sole discretion, of the contractor to be hired by Tenant to perform such improvements. Tenant hereby acknowledges that under these circumstances, it would be unusual to have Tenant’s contractor or subcontractor perform Tenant’s improvements prior to the issuance of a certificate of occupancy and such improvements may cause liability or delays to Landlord for which Tenant hereby specifically agrees to be financially responsible. In addtion, Landlord will have no obligation whatsoever to approve any such contractor or subcontractor. Landlord hereby approves Silver Builders, Inc. as an acceptable contractor for Tenant’s improvements. In addition, Landlord acknowledges in advance that the following contractors and subcontractors will be permitted to perform the following work on the Tenant Improvements prior to the Certificate of Occupancy and Landlord shall cooperate with them, subject to the other provisions of this Section 4.02:

Contractor/Subcontractor:	Work:
Compulink	Computer Installation (limited to cabling and termination)
Security One	Security
To be approved by Landlord	Audio/Visual

     Section 4.03 — Installation of Fixtures: Prior to the commencement of the Term, if Tenant enters upon the Demised Premises for the purpose of installing trade fixtures and furnishings, Landlord shall not be liable to Tenant for damage to or loss of such fixtures, equipment or furnishings. It is mutually agreed that all work performed or requested by the Tenant shall be subject to the approval of the Landlord’s architect, mechanical and electrical engineers with the exception of those which are similar to those in the Phase I Ultimate Building which Landlord consents to in advance. Landlord’s architects and engineers shall not unreasonably withhold approval and shall expeditiously respond to approval requests or, if Landlord shall fail to respond within thirty (30) days after receipt of any such request, then the same shall be deemed approved by Landlord.

     Section 4.04 — Roof Penetrations: Tenant shall not penetrate the roof of the Demised Premises without Landlord’s prior written consent. Tenant shall be responsible for the repair of roof leaks caused by such penetration even though Tenant has obtained Landlord’s prior written consent thereto.

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ARTICLE V

USE BY TENANT

     Section 5.01 — Use of Premises: Tenant shall occupy and use the Demised Premises for any use permitted by law so long as such use does not violate section 5.02 hereof or any other provision of this Lease. Tenant shall continuously and uninterruptedly during the Term of this Lease conduct its customary business activity therein during all normal business days and hours, unless prevented from so doing by strikes, fire, casualty or other causes beyond Tenant’s control.

     Section 5.02 — Restrictions on Use: Tenant shall not use nor permit the Demised Premises to be used for any purpose other than that set forth in Section 5.01 above, will not use or suffer anyone to use, the Demised Premises, or any part thereof, for any purpose in violation of the laws of the United States, the State of Florida, or the ordinances and regulations of a county or a municipality having jurisdiction over the Demised Premises or in violation of any publicly recorded restriction. Tenant further covenants and agrees to execute and comply promptly with all statutes, ordinances, rules, orders, regulations and requirements of federal, state, county and city governments regulating the use by Tenant of the Demised Premises. Tenant will not use, or permit the use of the Demised Premises in any such manner that will tend to create a nuisance. The restrictions set forth in this Paragraph shall extend to all agents and employees of the Tenant. Tenant shall take good care of the Demised Premises, fixtures, appurtenances and all alterations, additions and improvements thereof; shall make all repairs in and about the Demised Premises as may be necessary to preserve same in good order and condition, which repairs shall be equal in quality to the original work; shall promptly pay the expenses of such repairs and shall promptly notify Landlord of damage that may occur to the Demised Premises.

     5.03 — Signs: Without Landlord’s prior consent and approval, Tenant shall not (a) install any exterior lighting, awnings, shades or exterior decorations or painting; (b) erect or install any exterior or interior window or door signs or advertising media, window or door lettering or placards or (c) keep or display any merchandise on, or otherwise obstruct the areaways adjacent to the premises. All signs must conform with the Landlord’s sign specifications and/or be approved by Landlord prior to installation which approval will not be unreasonably withheld. Landlord hereby approves signage and other items referred to in this Paragraph 5.03 which are similar and compatible in size, location, color and quality to that which exists as of the date that this Lease is executed by Landlord and Tenant for the Phase I Ultimate Building, subject to Tenant obtaining all governmental permits and approvals for same. Tenant shall pay for all signage except to the extent specifically included in Exhibit “B” attached hereto.

     5.04 — Utilities and Services: The Tenant shall be solely responsible for and shall promptly pay all charges for public utilities and/or private services rendered or furnished to the premises during the term hereof, including, but not limited to, heat, water, gas, electricity, rubbish disposal and sewer rental, together with all taxes or other charges based upon the use of such utilities. Landlord shall in no event be liable for the quality, quantity or interference of such services.

ARTICLE VI

MAINTENANCE AND REPAIRS

     Section 6.01 — Maintenance by Tenant: Tenant shall at all times keep the Demised Premises, including the foundations, exterior and structural walls and roof of the Demised Premises, fixtures, appurtenances, and all alterations, additions and improvements thereof, including, but not limited to all partitions, doors, equipment and all heating, air conditioning, lighting and plumbing fixtures, and the Property, including the parking areas, drives, lighting, underground or above ground utilities, fire protection systems and or security systems; in good order, condition and repair, any damage by unavoidable casualty excepted.

     Section 6.02 — Repairs by Tenant: Except (a) as caused by Landlord’s negligent or intentional act or omission, or (b) as provided elsewhere in this Lease relating to the Warranty

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Obligations, Tenant shall make all repairs to the Demised Premises and the Property, including without limitation, structural repairs to the Demised Premises.

     Section 6.03 — Maintenance and Repairs by Landlord: If Tenant refuses or neglects to maintain or repair promptly the Property and/or the Demised Premises as required in Sections 6.01 and 6.02 hereof, in a reasonable time after written demand by the Landlord, the Landlord may, in addition to all other remedies provided herein, make such repairs without liability to Tenant for any loss or damage that may accrue to Tenant’s equipment, fixtures and/or other property; or to the loss of business occasioned by reason thereof; and further, upon completion of such maintenance or repairs, Tenant shall pay Landlord’s incurred costs occasioned by such maintenance or repairs. It is further agreed and understood that said billing of costs so incurred shall include interest at the highest rate allowed by law from the date of completion of the repairs by the Landlord. The same provision shall apply if Landlord fails to comply with the Warranty Obligations after written demand by Tenant.

     Section 6.04 — Alterations: Tenant shall not make any material alterations or additions to the Demised Premises, nor make any contract therefor, without first procuring Landlord’s written consent which shall not be unreasonably withheld. All alterations, additions and improvements made by Tenant to or upon the Demised Premises, except signs, electrical equipment or other removable trade fixtures or furnishings shall, when made or installed, be deemed to have attached to the Demised Premises and to have become the property of Landlord; provided, however, if prior to termination of this Lease, or within fifteen (15) days thereafter, Landlord so directs by written notice to Tenant, Tenant shall promptly remove the additions, improvements, trade fixtures and installations which were placed in the Demised Premises by the Tenant and which are designated in said notice and shall repair any damage occasioned by such removal, and in default thereof, Landlord may effect said removal and repair at Tenant’s expense and Tenant hereby agrees to pay same. All signs, electrical equipment, fixtures, furnishings and other personal property of Tenant kept on the Demised Premises and not removed prior to the expiration of the term or earlier termination thereof shall become the property of the Landlord, to do with as Landlord exclusively deems appropriate.

     Section 6.05 — Waiver of Claims: Neither Landlord nor Landlord’s agents nor servants shall be liable, and Tenant waives all claims for damage to persons or property sustained by Tenant or any occupant of the Demised Premises, or any equipment or appurtenance becoming out of repair, or resulting from any accident in or about the Demised Premises, or resulting directly or indirectly from any act or neglect of any tenant or occupant or of any other person except Landlord, its contractor, subcontractor, employee or agent. This Paragraph shall apply especially, but not exclusively, to the flooding of basements or other subsurface areas, and to damage caused by roof leaks, air conditioning apparatus, sprinkling devices, water, excessive heat or cold, falling plaster, broken glass, sewage, gas odors or noise, or the bursting or leaking of pipes or plumbing fixtures, and shall apply equally whether any such damage results from the act or neglect of other tenants, occupants or servants in the Property or of any other person and whether such damage be caused or result from any thing or circumstances above mentioned or referred to, or any other thing or circumstances, whether of a like nature or of a wholly different nature. All property belonging to Tenant or any occupant of the Demised Premises shall be there at the risk of Tenant or such other person only, and Landlord shall not be liable for damage thereto or theft or misappropriation thereof unless caused by Landlord.

     Section 6.06 — Landlord’s Right to Inspect: Landlord and its agents shall have free access to the Demised Premises during all reasonable hours for the purpose of examining same and to ascertain if they are in good repair, to make reasonable repairs which the Landlord may be required to make hereunder and to exhibit the same to prospective purchasers, lenders or tenants provided however neither Landlord nor its agents may unreasonably interfere with or disrupt Tenant’s business operations.

     Section 6.07 — Cleanliness and Waste: Tenant shall keep the Demised Premises and the areaways adjacent thereto and the Property at all times in a neat, clean and sanitary condition, free from waste or debris and shall neither commit nor permit any waste or nuisance thereon. Tenant shall procure trash containers adequate to handle Tenant’s trash accumulation.

     Section 6.08 — Triple Net Lease: Notwithstanding any provision in this Lease to the contrary, it is understood and agreed that this is a triple net lease with all costs, expense, taxes

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(inclusive of real property taxes and assessments), insurances, repairs and maintenance to be paid by Tenant.

ARTICLE VII

INSURANCE

     Section 7.01 — Insurance by Tenant: Tenant shall procure, provide and pay for, and shall maintain throughout the term of this Lease, the following insurance coverages, in the following limits, in the name of the Tenant and with Landlord named therein as an additional insured:

(1) a policy of insurance covering the Tenant’s property in the Demised Premises in the amount determined by Tenant;

(2) a comprehensive general liability insurance against any and all claims for injuries to persons and property occurring in, upon, or about the Demised Premises during the Term of this Lease; such insurance, at all times, to be in an amount not less than One Million ($1,000,000) Dollars combined single limit per occurrence, $2,000,000.00 general aggregate; and

(3) casualty, fire, windstorm, flood and all risk insurance in the amount equal to the replacement cost of the Demised Premises, together with all improvements thereon.

All such insurance shall be written on a company or companies authorized to engage in the business of casualty and general liability insurance in the State of Florida, and there shall be delivered, by the Tenant, to the Landlord customary certificates evidencing such paid-up insurance, and certifying Landlord as an additional insured, which certificates are to be issued by the insurance companies, and delivered on a yearly basis at the commencement of each year during the Term of this Lease.

     The policies of insurance provided herein are to be provided by the Tenant, and shall be for a period of not less than one (1) year, it being understood and agreed that three (3) days prior to the expiration of any policy of insurance, the Tenant will deliver to the Landlord a binder or a renewal or new policy to take the place of the expiring policy, with the further understanding that, should the Tenant fail to furnish policies, as is provided in this Lease, and at the times herein provided, the Landlord may obtain such insurance, and the premiums on such insurance shall be deemed Additional Rental to be paid by the Tenant to the Landlord upon demand. Neither Landlord not Tenant shall make any claim for recovery against the other party and expressly waives any right of recovery against the other party for damage to or loss of the Demised Premises or improvements thereon, which damage or loss may arise by fire or any other peril covered by any policy of insurance containing a waiver of subrogation right against the other party in which said policy the claiming party is or may be the insured and when said loss is caused by or results from any acts of carelessness or negligence of the other party , its officers, employees or other persons under its control. Tenant further covenants and agrees to apply to its insurers for waiver of subrogation against Landlord, its agents and employees, and to obtain same if Tenant’s insurers will issue such waiver.

     Section 7.02 — Indemnity for Accidents: Tenant covenants and agrees that it will protect, defend and save and keep the Landlord forever harmless and indemnified against and from any penalty or damage or charges imposed for any violation of any laws or ordinances, whether occasioned by the neglect of Tenant or those holding under Tenant, and that Tenant will at all times protect, defend, indemnify and save and keep harmless the Landlord against and from any and all claims, loss, cost, damage or expense arising out of or from any accident or other occurrence on or about the Demised Premises or the Property, causing injury to any person or property whomsoever or whatsoever, and will protect, defend, indemnify and save and keep harmless the Landlord against and from any and all claims, loss, cost, damage or expense arising out of any failure of Tenant in any respect to comply with and perform all the requirements and provisions of this Lease.

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     Section 7.03 — Destruction by Fire or Casualty: The Tenant shall give immediate notice to Landlord in case of fire or other casualty in or about the Demised Premises or the Property. In the event the Demised Premises shall be damaged by fire, then Tenant shall repair such damages and put the Demised Premises and the Property back in good condition as rapidly as reasonably possible. Tenant shall not be entitled to any abatement of the Rent, unless such damage was occasioned by the negligent acts of Landlord, its agents or employees.

     In the event that the Property or Demised Premises are substantially damaged or destroyed by fire or other casualty and (a) such damage or destruction occurs during the last five (5) years of any lease or option or renewal term and Tenant has not or does not within thirty (30) days after such casualty extend the term hereof as provided herein to extent beyond five (5) years remaining, and/or (b) Landlord’s mortgagee retains the insurance proceeds and does not release said proceeds to Landlord for the reconstruction or repair of the Property or Demised Premises for Tenant, then in either such event Landlord may terminate this Lease by giving Tenant notice (“Casualty Termination Notice”) to such effect within sixty (60) days after the casualty causing such damage. The term of this Lease shall terminate and expire upon the thirtieth (30^th) day after the Casualty Termination Notice is given and Tenant shall vacate the Demised Premises and surrender same to Landlord on or before said date. The Demised Premises or the Property (whether or not the Demised Premises are damaged) shall be deemed substantially damaged or destroyed if the costs of repair and restoration after any insurable casualty occurs is fifty (50%) percent or more of the then full replacement cost of the Demised Premises or Property, as applicable.

ARTICLE VIII

TAXES

     Section 8.01 — Real Estate Taxes: Tenant shall pay, not less than thirty (30) days before delinquent, all real property taxes and assessments levied or payable during the term hereof, by the county and municipality upon the Property.

     Section 8.02 — Personal Property Taxes and Assessments: The Tenant shall pay, not less than thirty (30) days before delinquent, any and all taxes, licenses, fees and public charges levied, assessed or imposed, and which become payable during the lease term upon Tenant’s fixtures, furniture, appliances and personal property located or installed in the Demised Premises.

ARTICLE IX

TITLE

     Section 9.01 — Possession by Tenant: Tenant covenants and warrants that it has full right and authority to enter into this Lease for the full term hereof. Landlord covenants that Tenant, upon paying the Rent provided for herein and upon performance of the covenants and agreements of this Lease to be performed by said Tenant, will have, hold and enjoy quiet possession of the Demised Premises.

     Section 9.02 — Sublease and Assignment: Tenant shall not sublease, sublet or assign the Demised Premises or the Property or any portion thereof except by written permission and consent of Landlord which approval or disapproval shall be in Landlord’s reasonable discretion, references elsewhere contained herein to assignees notwithstanding. Any consent by Landlord once shall not constitute a waiver of the requirement for its consent to any future subletting or assignment of this Lease. Any such subleasing or assignment, even with the approval of the Landlord, shall not relieve the Tenant from liability for payment of the rental and any other monies due Landlord herein provided for or from the obligation to keep and be bound by the terms, conditions and covenants of this Lease. The acceptance of rent from any other person shall not be deemed to be a waiver of any of the provisions of this Lease or a consent to the assignment or subletting of the Demised Premises.

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     In the event Tenant shall desire to sublet the Demised Premises or the Property, in whole or in part, or assign Tenant’s interest under this Lease, in whole or in part, Tenant shall give Landlord not less than thirty (30) days prior written notice. Such notice shall set forth all pertinent business terms of the proposed assignment or subletting as well as the name and address of the proposed assignee or sublessee, information as to financial condition of such assignee or sublessee and proposed use which assignee or sublessee desires to make of the Demised Premises or the Property. Such notice shall bear the signature of the proposed lessee or assignee attesting to its accuracy. Tenant shall in addition, at Landlord’s request, furnish such other information as Landlord may reasonably request concerning such proposed assignment or subletting. Tenant shall reimburse Landlord for Landlord’s reasonable costs of obtaining mortgagee approval of such request, and Landlord’s reasonable legal fees and costs, and all other reasonable out-of-pocket costs incurred by Landlord, plus a reasonable administrative fee to Landlord.

     Section 9.03 — Financing: Subject to Paragraph 9.06 below, Tenant agrees that Tenant’s rights under this Lease are and shall always be subordinate to the lien of any mortgage or trust deeds now or hereafter placed from time to time upon the Demised Premises or the Property. Tenant shall, upon written demand from Landlord, execute such other and further instruments or assurances subordinating this Lease to the lien or liens of any such mortgage or trust deeds. If any mortgagee or trustee under a trust deed elects to have Tenant’s interest in this Lease superior to any such interest by notice to Tenant, then this Lease shall be deemed superior to any such mortgage or trust deed whether this Lease was executed before or after such mortgage or trust deed.

     Section 9.04 — Surrender of Premises: Tenant shall, upon the expiration date or sooner termination of this Lease, surrender to Landlord the Demised Premises, together with all replacements thereto in good order, condition and repair, except for ordinary wear and tear and loss by fire or other casualty. If Tenant fails to surrender the Premises as required herein, Tenant shall be deemed a month-to-month tenant and shall for the duration of such holdover period pay Landlord, as holdover rent, twice the monthly rental amount as was payable in the last month of the lease term in addition to all other payments required under this Lease Agreement.

     Section 9.05 — Eminent Domain: In the event the Demised Premises, the Property or any part thereof, shall be taken or condemned for public purposes by any competent authority, the entire compensation awarded therefor shall belong to the Landlord, without any deduction therefrom for any present or future estate of Tenant; provided, however, that in the event more than twenty (20%) percent of the Demised Premises shall be so taken or condemned, then either the Landlord or Tenant shall have the option of terminating the term of this Lease upon giving to the other written notice of such election within thirty (30) days after possession of the part condemned has been taken by proper authorities, whereupon the term of this Lease shall be terminated, as of the date on which possession is so taken. If neither Landlord or Tenant so elects to terminate the term of this Lease, the Landlord at its own expense, shall repair and restore the premises not affected by the taking and thereafter, if a part of Demised Premises itself has been taken or condemned, the Rent to be paid by the Tenant shall be equitably reduced.

     Section 9.06 — Nondisturbance and Attornment: In the event any proceedings are brought for the foreclosure of, or in the event of the conveyance by deed in lieu of foreclosure of, or in the event of the execution of the power of sale under any superior mortgage, or in the event of transfer or conveyance of the Demised Premises, or any part thereof, to any party for any reason whatsoever, Tenant hereby attorns to, and covenants and agrees to execute an instrument in writing reasonably satisfactory to the new owner whereby Tenant attorns to such successor in interest and recognizes such successor as the landlord under the Lease. Upon payment by the Tenant of the rent herein provided, and upon the observance by Tenant of each and every one of the material terms, provisions, covenants, agreements, undertakings, and conditions on Tenant’s part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Demised Premises and the Property for the term of this Lease without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under the Landlord, subject, nevertheless, to each and every one of the terms, provisions, covenants, agreements, undertakings and conditions of this Lease.

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ARTICLE X

DEFAULT

     Section 10.01 — Default by Tenant: All of the rights and remedies of Landlord herein enumerated shall be cumulative, and none shall exclude any other right or remedy allowed by law. It is agreed that in the event:

          (i) That the Tenant shall fail, neglect or refuse to pay any installment of Rent at the time, and in the amount as herein provided, or to pay any other monies agreed by it to be paid promptly when and as the same shall become due and payable under the terms hereof, provided however that Landlord must give Tenant fifteen (15) days written notice and opportunity to cure such alleged default;

          (ii) That any voluntary or involuntary petition or similar pleading, under any section or sections of any bankruptcy act, shall be filed by or against Tenant, or any voluntary or involuntary proceeding in any court or tribunal shall be instituted to declare Tenant insolvent or unable to pay Tenant’s debts, and the same shall not be dismissed or discharged within thirty (30) days after notice thereof in writing;

          (iii) That the Tenant shall fail, neglect or refuse to keep and perform any of the other covenants, conditions, stipulations or agreements herein contained and to be kept and performed by it, and in the event any such default shall continue, for a period of more than thirty (30) days after notice thereof in writing given to the Tenant, by the Landlord; provided, however, that if the cause for giving such notice involves the making of repairs, or other matters reasonably requiring a longer period of time than the period of such notice, the Tenant shall be deemed to have complied with such notice so long as it has commenced to comply with said notice within the period set forth in the notice, and is diligently prosecuting compliance with said notice, or has taken proper steps or proceedings, under the circumstances, to prevent the seizure, destruction, alteration or other interference with said Demised Premises by reason of non-compliance with the requirements of any law or any ordinance or with the regulations, rules or directions of any government authority, as the case may be;

          (iv) That the Tenant makes any assignment of its property for the benefit of creditors, or should the Demised Premises be taken under a levy of execution or attachment, in an action against the Tenant, and such levy, attachment or assignment is not dismissed and discharged within thirty (30) days after written notice thereof to Tenant by Landlord;

then in any event as described in Sections 10.01 (i), (ii), (iii) or (iv), the Tenant does hereby authorize and fully empower said Landlord or Landlord’s agent to cancel or annul this Lease at once and to re-enter and take possession of said Demised Premises immediately, and remove all persons and their property therefrom, and to use such force and assistance in effecting and perfecting such removal as said Landlord may deem necessary and advisable to recover at once full and exclusive possession of all of said Demised Premises, whether in possession of said Tenant or of their persons or otherwise. At Landlord’s option, Landlord may declare all installments of Rent for the remainder of the lease term to be immediately due and payable whereupon the same shall become immediately due and payable.

     The Landlord may, however, at its option, at any time after a default or violation of a condition or covenant, re-enter and take possession of said Premises without such re-entering working a forfeiture of the rents to be paid and the covenants, agreements and conditions to be kept and performed by said Tenant for the full term of this Lease. In such event, the Landlord shall have the right, but not the obligation, to divide or subdivide the Premises in any manner the Landlord may determine and to lease or let the same or portions thereof for such periods of time and at such rentals and for such use and upon such covenants and conditions as Landlord may elect, applying the net rentals from such letting first to the payment of Landlord’s expenses incurred in dispossessing the Tenant and the costs and expenses of making such improvements in the Premises as may be necessary in order to enable the Landlord to relet the same, and to the payment of any brokerage commissions or other necessary expenses of the Landlord in connection with such reletting. The balance, if any, shall be applied by the Landlord from time to time, but in any event not less than once

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each month, on account of the payments due or payable by the Tenant hereunder, with the right reserved to Landlord to bring such actions or proceedings for the recovery of any deficits remaining unpaid as it may deem advisable from time to time, without being obligated to await the end of the term hereof for a final determination of the Tenant’s account and the commencement or maintenance of one (1) or more actions shall not bar the Landlord from bringing other or subsequent actions for further accruals pursuant to the provisions of this Paragraph. Any balance remaining, however, after full payment and liquidation of Landlord’s account, as aforesaid, shall be paid to the Tenant from time to time with the right reserved to the Landlord at any time to give notice in writing to the Tenant of Landlord’s election to cancel and terminate this Lease and all Tenant’s obligations hereunder and upon the giving of such notice and the simultaneous payment by Landlord to Tenant of any credit balance in Tenant’s favor that may at the time be owing to Tenant shall constitute a final and effective cancellation and termination of this Lease and the obligations thereunder on the part of either party to the other.

     In addition to the foregoing, collection costs and reasonable attorneys’ fees shall be paid by Tenant if delinquencies are referred for collection.

     Section 10.02 — Lien of Landlord for Rent, Taxes and Other Sums: Landlord shall have, and Tenant hereby grants, a security interest in any furnishings, equipment, fixtures, inventory, accounts receivable, or other personal property of any kind belonging to Tenant, or the equity of Tenant therein, in the Demised Premises. The security interest is granted for the purpose of securing the payment of rent, other charges, assessments, penalties and damages herein covenanted to be paid by Tenant and for the purpose of securing the performance of all other obligations of Tenant under this Lease. Upon Tenant’s default or breach of any covenants of this Lease, Landlord shall have all remedies available under the law of the State of Florida including, but not limited to, the right to take possession of the above mentioned property and dispose of it by public or private sale in a commercially reasonable manner. Tenant shall, upon demand, reimburse Landlord for all filing and recording fees and taxes incurred in connection with filing and recording of Financing Statements if the same be necessary to perfect Landlord’s security interest. Landlord’s statutory lien for rent is not hereby waived, the express contractual lien herein granted being in addition and supplementary thereto.

     Section 10.03 No Liens Created By Tenant: The Tenant covenants and agrees that it has no power to incur any indebtedness giving a right to a lien of any kind or character upon the rights, title and interest of the Landlord in and to the property covered by this Lease, and that no person shall ever be entitled to any lien directly or indirectly derived through or under the Tenant, or its agents or servants, or on account of any act or remission of said Tenant, which lien shall be superior to the title of the Landlord to the Demised Premises. All persons contracting with said Tenant, or furnishing materials or labor to said Tenant, or to its agents or servants, as well as all persons whomsoever, shall be bound by this provision of this Lease. Should any such lien be filed, the Tenant shall discharge the same within thirty (30) days thereafter, by paying the same or by filing a bond, or otherwise, as permitted by law. The Tenant shall not be deemed to be the agent of the Landlord, so as to confer upon a laborer bestowing labor or confer upon a materialman furnishing materials upon the leased premises the right to a mechanic’s lien thereon.

     Section 10.04 — Jury Trials\Counter Claims: The parties hereto shall, and they hereby do, irrevocably waive trial by jury in any and every action or proceeding brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant’s use or occupancy of the Demised Premises or the Property, and any claim for injury or damage. In the event Landlord commences any proceeding, whether or not for nonpayment of rent, any additional rent, or otherwise, Tenant shall not interpose, and hereby irrevocably waives the right to, any non-compulsory counterclaim of whatever nature or description in any such proceeding(s). The provision in the immediately foregoing sentence shall not, however, be construed as a waiver of the Tenant’s right to assert claims, if any, in any separate action or actions brought by Tenant.

     Section 10.05 — Redemption: Tenant hereby expressly waives any and all rights of

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redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause or in the event of Landlord obtaining possession of the Demised Premises, by reason of a default by Tenant of any of the terms, covenants or condition of this Lease.

     Section 10.06 — Court Registry: In any action for eviction instituted by Landlord hereunder, Tenant may not assert any defense to such eviction until such time as Tenant has paid into the Registry of the Court all accrued and unpaid rents. Tenant must then continue throughout the litigation to pay all rents as they became due into the Registry of the Court.

ARTICLE XI

ENVIRONMENTAL

     Section 11.01 — Compliance With Laws: Tenant, at Tenant’s expense, shall keep and maintain the Demised Premises and the Property in compliance with, and shall not cause or permit the Demised Premises or the Property to be in violation of, any federal, state, county and municipal laws, ordinances or regulations including, without limitation, those relating to contamination, air and water quality, waste disposal, occupational safety and health, industrial hygiene, or to the environmental conditions on, under or about the Demised Premises, including, but not limited to, soil and groundwater conditions (“Laws”); provided, however, Tenant shall have no obligation to correct any violation in the Demised Premises or the Property that exists as of the date the Demised Premises is delivered to Tenant. Provided further, Tenant shall have no obligation or liability hereunder except as to any actions or matters caused by Tenant’s uses or actions, or the uses or actions of its employees, agents, officers and directors heirs and assigns.

     Section 11.02 — Contamination: Except in conducting normal business operations and subject to compliance with applicable laws, the use, generation, manufacture, storage or disposal of, on, under or about the Demised Premises or the Property or the transport to or from the Demised Premises or the Property of any flammable explosives, radioactive materials, including, without limitation, any substances defined as, or included in the definition of hazardous substances, hazardous materials, toxic substances or other similar or regulated substances, residues or wastes, pollutants, asbestos, petroleum products and by-products, including any other environmental contamination whatsoever is hereby defined as “Contamination”. Neither Landlord nor Tenant nor their respective employees, agents, officers and directors, heirs and assigns shall cause any Contamination to the Property or the Demised Premises.

     Section 11.03 — No Liens: Tenant shall not create or suffer to exist with respect to the Demised Premises or the Property or permit any of its agent to create or suffer to exist any lien, security interest or other charge or encumbrance of any kind, including without limitation, any lien imposed pursuant to Section 107(f) of the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9607(1)) or any similar Law.

     Section 11.04 — Environmental Assessment and Remediation: Notwithstanding any other provision of this agreement, Tenant shall be solely responsible for and agrees to indemnify, defend and hold harmless Landlord, its employees, agents, officers, directors, heirs and assigns, from and against any and all fines, suits and claims, demands, penalties, liabilities, costs or expenses, losses, settlements, remedial actions requirements and enforcement actions, administrative proceedings and any other actions of whatever kind or nature, including attorneys’ fees and costs (and costs and fees on appeal), fees of environmental consultants and laboratory fees, known or unknown, contingent or otherwise, arising out of or in any way related to the discovery, remediation, or disposal of any Contamination as heretofor defined in Section 11.02, on or about the Demised Premises or the Property except as is caused by Landlord or its employees, agents, officers and directors, heirs and assigns, including any personal injury (including wrongful death) or property damage (real or personal) arising therefrom. Landlord agrees to indemnify, defend and hold harmless Tenant, its employees, agents, officers, directors, heirs and assigns, from and against any and all fines, suits, claims, demands, penalties, liabilities, costs or expenses, losses, settlements, remedial action requirements and enforcement actions, administrative proceeds and all other actions of whatever kind or nature, including attorneys’ fees and costs (and costs and fees on appeal), fees of environmental consultants and laboratory fees, known or unknown, continent or otherwise, arising out of or in any

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way related to the discovery, remediation, or disposal of any Contamination on or about the Demised Premises or the Property, caused by Landlord, its employees, agents, officers, directors, heirs and/or assigns, including any personal injury (including wrongful death) or property damage (real or personal) arising therefrom. This paragraph shall survive termination or expiration of this Lease.

     Section 11.05 — Notice of Contamination or Enforcement: Each party shall immediately advise the other by telephone, followed up in writing, with a copy to Landlord, of any and all enforcement, cleanup, removal, claims made or threatened by any third party, or other governmental or regulatory actions instituted, completed, or threatened, or any release, discharge, or spill of Contamination, pursuant to any Laws affecting the Demised Premises, the Property or adjoining or neighboring properties. Each party shall provide copies to the other in a timely fashion, in whatever capacity and in whatever form obtained, any and all information, test results, correspondence or other data acquired in connection with the locating, remediating, removing, or disposing of contamination on or about the Demised Premises, , or regarding such parties notice of contamination or enforcement, or otherwise.

ARTICLE XII

MISCELLANEOUS

     Section 12.01 — Notices: Whenever under this Lease a provision is made for any demand or notice of any kind, or where it is deemed desirable or necessary by either party to give or serve any such notice or demand to the other, it shall be in writing sent by overnight mail or certified mail, return receipt requested, postage prepaid, or by hand if to the Tenant addressed to the Tenant at 2000 Ultimate Way, Weston, FL 33326 and if to the Landlord addressed to the Landlord at 3325 South University Drive, Suite 21O, Davie, FL 33328-2020, and either party may by like notice at any time and from time to time designate a different address to which notices shall be sent. Such notices or demands shall be deemed sufficiently served or given for all purposes hereunder at the time they shall be received or first attempted to be delivered, whichever occurs first.

     Section 12.02 — Waiver: One (1) or more waivers of any covenant, term or condition of this Lease by either party shall not be construed by the other party as a waiver of a subsequent breach of the same term, covenant or condition. The consent or approval of either party to or of any act by the other party of a nature requiring consent or approval shall not be deemed to waive or render unnecessary consent to or approval of any subsequent similar act.

     Section 12.03 — Relationship of Parties: Nothing contained in this Lease nor any act or acts of the parties shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent or of partnership or of joint venture or of any association whatsoever between Landlord and Tenant, other than the relationship of landlord and tenant.

     Section 12.04 — Governing Law: The laws of the State of Florida shall govern the validity, performance and enforcement of this Lease.

     Section 12.05 — Savings Clause: The invalidity or unenforceability of any provision of this Lease shall not affect or impair the validity of any other provision.

     Section 12.06 — Marginal Headings: The paragraph titles herein are for convenience only and do not define, limit or construe the contents of such paragraph.

     Section 12.07 — Covenant to Bind Successors: It is agreed that the provisions, covenants and conditions of this Lease shall be binding on the legal representatives, heirs, successors and assigns of the respective parties hereto.

     Section 12.08 — Credit Reports: The Tenant’s performance under this Lease Agreement may be reported to credit reporting agencies. The Landlord may also obtain a consumer report of Tenant’s credit history from a credit reporting’ agency. Upon request, Tenant will be

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informed whether a consumer report was obtained and if so, the name and address of the agency furnishing the report.

     Section 12.09 — Estoppel Certificate: Within ten (10) days after request therefor by Landlord, the Tenant shall furnish an estoppel certificate. Tenant agrees to deliver in recordable form a certificate to any proposed mortgagee or purchaser, or to Landlord, certifying (if such be the case) that this Lease is in full force and effect and there are no defenses or offsets thereto, or stating those claimed by Tenant , and providing all other information reasonable request by Landlord.

     Section 12.10 — Intentionally omitted .

     Section 12.11 —Force Majeure: (a) Landlord shall not be required to perform any term, condition or covenant in this Lease so long as such performance is delayed or prevented by Acts of God, strikes, lockouts, decree or restriction by any governmental authority, civil riot, floods, financing, and any other cause not reasonably within the control of Landlord, , and which by the exercise of due diligence Landlord is unable, wholly or in part to prevent or overcome.

     (b) The terms of Section 12.11 (a) hereof regarding force majeure shall be applicable to Tenant solely with regard to non-monetary issues. For all monetary issues, there shall be no events of force majeure and no excuse or delay permitted in connection with the obligation of Tenant to pay any sums required hereunder.

     Section 12.12 — Prevailing Party: In the event that litigation is required to enforce this Agreement, the prevailing party shall be entitled to reimbursement of its legal costs and attorney’s fees, including appeals.

     Section 12.13 — Radon Gas: In accordance with the provisions of Florida Statutes Chapter 404.29(8), notification is hereby tendered concerning the possible existence of Radon Gas in or about the Demised Premises. Please be advised that:

“RADON GAS: 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 overtime. Levels of radon that exceed Federal and State guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your County Public Health Unit.”

     Section 12.14 — Entire Agreement: This Lease sets forth all of the covenants, promises, agreements, conditions and understandings between the Landlord and the Tenant governing the Demised Premises. There are no covenants, promises, agreements, conditions and understandings, either oral or written, between them other than those herein set forth. Except as herein provided, no subsequent alterations, amendments, changes or additions to this Lease shall be binding upon the Landlord or Tenant, unless reduced to writing and signed by both parties.

     Section 12.15 — Negotiation and Execution: The furnishing of this Lease by the Landlord to the prospective Tenant shall not be considered an offer to lease, even though completed in every respect, until and unless the document has been executed by the appropriate officers of Landlord. No correspondence or other communication respecting this Lease shall create any obligation to go forward with this Lease until the Lease document is fully completed and executed by both the Landlord and Tenant.

     Section 12.16 — No Representations: (a) Tenant hereby acknowledges and agrees that neither Landlord nor Landlord’s agents (including Landlord’s managing agents, leasing agents and/or Landlord’s attorney) has made any representations, promises or other inducements to Tenant’s execution of this Lease except as specifically provided herein. Tenant further acknowledges and agrees that in all cases, if any, in which Landlord’s consent and/or approval has been provided to Tenant in this Lease, except where otherwise specifically provided in writing in the Lease, said consent and/or approval is subject to Tenant (at, its sole cost and expense) obtaining all necessary governmental and quasi-governmental approvals, and Landlord makes no representation whatsoever

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as to, and this Lease is in no way contingent, upon the governmental and/or quasi-governmental approval process or as to Tenant’s ability to obtain all necessary governmental and/or quasi-governmental approvals, and Landlord shall not be liable for Tenant’s inability to obtain such approvals.

           (b) Landlord hereby acknowledges and agrees that neither Tenant nor Tenant’s agents (including Tenant’s managing agents, leasing agents and/or Tenant’s attorney) has made any representations, promises or other inducements to Landlord’s execution of this Lease except as specifically provided herein. Landlord further acknowledges and agrees that in all cases, if any, in which Tenant’s consent and/or approval has been provided to Landlord in this Lease, except where otherwise specifically provided in writing in the Lease, said consent and/or approval is subject to Landlord (at its sole cost and expense) obtaining all necessary governmental and quasi-governmental approvals, and Tenant makes no representation whatsoever as to, and this Lease is in no way contingent, upon the governmental and/or quasi-governmental approval process or as to Landlord’s ability to obtain all necessary governmental and/or quasi-governmental approvals, and Tenant shall not be liable for Landlord’s inability to obtain such approvals.

     Section 12.17 — Intentionally omitted.

     Section 12.18 — Completion of Construction: (a) In the event that the Commencement Date (as defined in section 2.02 hereof) does not occur within eleven (11) months from the date of issuance of the Building Permits for construction of the building, which eleven (11) month period shall be extended by one day for each day of delay exclusively caused by Tenant or its agents, employees, officers, directors, contractors or invitees (the “Tenant Parties”) or by force majeure (the “Outside Delivery Date”), then Landlord shall pay to Tenant in the form of rent credits the amount of One Thousand Dollars ($1,000.00) per day for each day of delay not caused by the Tenant Parties or force majeure from the Outside Delivery Date until the Commencement Date (the “Construction Penalty”).

     (b) In the event that the Commencement Date occurs at any time prior to seven (7) months from the date of issuance of the Building Permits for construction of the building, which seven (7) month period shall be extended by one day for each day of delay exclusively caused by the Tenant Parties or force majeure (the “Early Delivery Date”), then Tenant shall pay to Landlord on the

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Commencement Date the amount of One Thousand Dollars ($1,000.00) per day for each day that the Commencement Date occurs prior to the Early Delivery Date.

     IN WITNESS WHEREOF, the parties hereto have executed this Lease this day and year first above written.

Signed and Acknowledged	Landlord:
In the Presence of:
	ROHO ULTIMATE, LTD. II, a
	Florida limited partnership
	By:	ROHO DEVELOPMENT LIMITED, a Florida
		limited partnership, its general
/s/ Melissa Ackerman Witness signature		partner
	By:	Silver Development Corp., a Florida
/s/ Melissa Ackerman Witness print name		corporation, its general partner
/s/ Annette D. Pappas	By:	/s/ David G. Hollander
Witness signature		David G. Hollander, President
/s/ Annette D. Pappas Witness print name	By:	Ross Realty Investments, Inc., a Florida corporation, its general partner
	By:	/s/ Barry Ross
		Barry Ross, President
	ULTIMATE SOFTWARE GROUP, INC.,
	a Delaware corporation
Witness signature
Witness print name
Witness signature
Witness print name	By:	/s/ Scott Scherr
		Scott Scherr, President

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GUARANTY TO LEASE

Silver Builders Inc. and ROHO Development Limited (jointly and severally, the “Guarantor”) hereby acknowledges that as the general contractor for construction of the Premises and the general partner of the Landlord, respectively, the Guarantor will benefit from this Lease. As such, the Guarantor hereby joins in this Lease for the sole purpose of guarantying Landlord’s Warranty Obligations as set forth in Section 4.01 of the Lease and Landlord’s Obligations under section 12.18(a) hereof as follows: in the event that Landlord fails to comply with section 12.18(a) hereof then upon demand the Guarantor shall pay the Construction Penalty to Tenant, and/or in the event that Landlord fails to comply with the Warranty Obligations set forth in Section 4.01 hereof then Guarantor shall comply with such Warranty Obligations. The guarantor shall have no other obligations or liabilities under the Lease except as expressly provided in this paragraph, and the obligations, liabilities and joinder of the Guarantor as expressed herein shall automatically terminate and be null and void upon Landlord’s satisfaction of section 12.18(a) and 4.01 hereof.

Signed and Acknowledged

In the Presence of:

	SILVER BUILDERS INC., a Florida           corporation
/s/ Melissa Ackerman
Witness signature
Melissa Ackerman
Witness print name
/s/ Evan Hollander
Witness signature
Evan Hollander Witness print name
	By:	/s/ David G. Hollander
	Print Name/Title:		David G. Hollander, Chairman
	Dated:	5-22-01
	ROHO DEVELOPMENT LIMITED, a Florida limited partnership
/s/ Melissa Ackerman
Witness signature
	By:	Silver Development Corp., a Florida corporation, its general partner
Melissa Ackerman
Witness print name
	By:	/s/ David G. Hollander
		David G. Hollander, President
/s/ Annette D. Pappas
Witness signature
	By:	Ross Realty Investment, Inc., a Florida corporation, its general partner
Annette D. Pappas
Witness print name
	By:	/s/ Barry Ross
		Barry Ross, President
	Dated:	5-23-01

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Exhibit “B”

Qualification Sheet
And Attached Construction Drawings Dated 5/01/01

October 19, 2000	Upgrades and extras	$	671,149
December 2, 2000	Revisions	$	26,197
April 04, 2001	Tenant and architectural changes and upgrades	$	440,109
	(see attached summary)
May 16, 2001	Tenant electrical changes	$	11,200
Total extra charges as per attached plans and specifications Thru May 16, 2001		$	1,148,655

$500,000 included in Lease at $21.19 per square foot

$648,655 payable in equal payments of
$54,054.58 for 12 months

Allowance of $5,000 included for cabinets in Room #229
Decorator etched glass privacy walls at coffee stations will be billed as extra.

Built-Ins: As per 10-19-00 Letter
“C” Units 36 @ $2,513.00
“D” Units 14 @ $3,329.00 w/ dividers and caps

Custom Built-Ins as per 04-04-01
Room 125,126,128,132,133 = $29,877.00

Items of Tenant’s Responsibility in addition to those designated on plans:

UPS systems
Data / Telephone systems including cabling and termination
Lightning and Surge Suppression Systems
Audio-Visual Systems including cabling and termination
CATV systems including cabling and termination
Security Systems including cabling and termination
Access Control Systems including cabling and termination
Tenant Signage
Window Treatments
Relocation or removal of cooling tower and associated utilities
Reconfiguration of partitions in Phase I
Data conduit from exterior of Phase I to server location

- 1 -

SYNALOVSKI GUTIERREZ ROMANIK ARCHITECTS, INC.

anuel Synalovski, AIA • Jorge Gutierrez, AIA • Merrill Romanik, AIA • David Rosenthal, AIA • Carlos Gonzalez, AIA • Nikolay Ryaboy • Luis LaRosa

04/04/01

To: Evan Hollander
From: Synalovski Gutierrez Romanik Architects, Inc.

          The following items correspond with sheets SP-1, A-1 and A-2 of the bid sets.

1. Tenant requested (4)-4” conduits from data center in existing (3)-story building to new Data Center Room- (130), in proposed (2) story building, refer to sheet SP-1

Include 230 lineal feet and stops outside building of Phase I for data center link $14,650.00

2. Tenant requested (2)-2” conduits from New Data Room- (130) to Street for *CATV* connection, refer to sheet SP-1.

Include 300 lineal feet to property line *for entry cameras* $ 7,100.00

3. Tenant requested (6) individual computer/telephone stations. The counter was enlarged from 18(d) to 24(d). Also, each station has a telephone & data connection Refer to sheet A-l and E-l.

Added depth & 3 lin. ft. and vertical supports for counter detail, *deduct device count* *$395.00*

4. Relocated coffee station in Training Room-112 from the Northwest corner to the East Wall.

No cost factor

5. Relocated door 112B in Training Room-112 from center of North Wall to Northeast corner. Refer to sheet A-l.

No cost factor

6. Tenant requested the following changes, refer to sheet A-1.

a• Replaced workstations with (2) open offices.

No cost factor

b• Added corridor with access to Lobby/Bathrooms.

Added 20 lin.ft. partitions and (3) doors $3,420.00

- 2 -

c• Added Storage Room-137

Included in above item

d• Added new door 001A with proxy card access controller, adjacent to lobby.

$3,600.00

e• Extended tile in Lobby 4-6’ x 6’-4’ to the west.

$350.00

7. Tenant requested a new door 001 B with proxy card access controller.

$3,600.00

8. Tenant requested elevator equipment to be moved to 1^st floor & enclosed with 8” concrete masonry units.

$4,100.00

9. Tenant requested Shipping and Reciving-133 and Office-132 be made larger. In order to accommodate this request, three rooms were converted into two.

Already factored in 1^st change sheet

10. Tenant requested the *inclusion* of glazing on North wall for Conf. Room-C- 229.

*Now requests including and adding (1) additional for South wall*

*$3,000.00*

11. Tenant requested a counter with base cabinets and under-counter refrigerator.

There is a $5,000.00 allowance in 1^st change sheet for this item.

12. Tenant requested Janitor-237 to be relocated from first floor to second floor.

Requires cast iron pipe for sanitary
$350.00

13. Tenant requested the tile from the lobby be extended into the Vending Room-238, and to add an ice maker and floor drain.

$1,600.00

- 3 -

14. Tenant requested proxy card access in 2nd floor balcony.

$200.00

General notes:

15• All partitions or rooms that have sound batt insulation are full height.

Credit total soundproofing amount in 1^st change sheet = ($3,025.00)
Add *573* lin. ft. x 14’ h soundproofing = *8,022* s.f. @ 1.85 = *$14,84100*
Add *573* lin .fi. x4’ h = *2,292* s.f. framing and drywall @ $4.90 = *$11,231.00*
Add (12) HVAC transfer ducts and fire damper grills @ $535.00 = $6,420.00

*$29,467.00*

16• Staircase has a *stucco* finish

*$8,870.00*

17• Tenant requested Air Conditioning be designed for 72 degrees in lieu of 75 degrees. I am attaching a Roof top unit schedule indicating the new requirements and the model numbers of the previously designed roof top units. *Owner will provide floor plan as-builts, highlighting zone coverage*

Equipment upgrade $18,150.00
Engineering change $2,685.00
Design upgrade from October 5, 2000 proposal $30,000

$50,835.00

Additional Items Not On SGR Narrative:

18. Add (4) sinks in 001A, 247,201A, 251A @ $862.50 ea.

$3,400.00

19. Add (2) local alarmed panic hardware at stairwell exits

$1,540.00

20. Add (131) computer power outlets with dedicated circuits. Requires (3) additional panels. Does not include isolated ground per circuit. Standard 20 amp receptacles. *with colored plates*

$21,800.00

21. Add 280 s.f. x 10” thick slab with (2) recesses for tenant supplied and installed file system

$2,700.00

- 4 -

22. Temporary parking reconfiguration (site fencing, equip, relocation, 2 stage asphalt)

*$15,000* to be deleted in the event the cross parking agreement with Arvida is executed.

23. Phase I parking reconfiguration

*Not including any paver, drainage, landscaping or patio work required*

*Deleted as per Bob Marnne / Walter Hollander agreement*

24. Closure of cooling tower and gates with decorative trim

$13,500.00

25. Landscaping of cooling tower

$8,850.00

26. Upgrade drywall to 5/8”

*$3,675.00*

27. *Closure of generator with gates and trim, landscaping addition, keep structure w/door on roof*

*$13,600.00*

28. Administration 32 hours @ $75.00 per hour

*Deleted as per Bob Marnne / Walter Hollander agreement*

29. *Built-In Furniture as shown on A-l & A-2 of attached plans*

*$167,102.00*

- 5 -

Summary

Narrative Item	Projected Cost
1	$	14,650.00
2	$	7,100.00
3	$	395.00
4	$	0.00
5	$	0.00
6a	$	0.00
6b	$	3,420.00
6c	$	0.00
6d	$	3,600.00
6e	$	350.00
7	$	3,600.00
8	$	4,100.00
9	$	0.00
10	$	3,000.00
11	$	0.00
12	$	350.00
13	$	1,600.00
14	$	200.00
15	$	29,467.00
16	$	8,870.00
17	$	50,835.00
18	$	3,400.00
19	$	1,540.00
20	$	21,800.00
21	$	2,700.00
22	$	15,000.00
23	$	0.00
24	$	13,500.00
25	$	8,850.00
26	$	3,675.00
27	$	13,600.00
28	$	0.00
29	$	167,102.00
Total Changes	$	382,704.00
15 % OVH & profit	$	57,405.60
Upcharge	$	440,109.60

EXHIBIT “C”
CONSTRUCTION AGREEMENT — TENANT’S WORK

All Tenant’s work shall conform to all applicable governing codes and shall include the work listed below. Any work required that is not listed in Exhibit “B” shall be Tenant’s work.

1. Tenant will pay for any utility charges associated with the Leased Premises from and after the Commencement Date.

2.	Tenant will require any contractor or sub-contractor to remove and dispose of, at least once a week, all debris and rubbish caused by the Tenant’s work and upon completion to remove all temporary structures, debris and rubbish of whatever kind remaining on any part of the Properly and/or the Demised Premises.
3.	Tenant and/or Tenant’s contractors and subcontractors shall be required to provide, in addition to the insurance required to be maintained by Tenant, the following types of insurance and the following minimum amounts naming Landlord and any other persons having interest in the whole Property as additional insureds as their interest may appear, issued by companies approved by Landlord.

(a)	Workmen’s Compensation coverage in accordance with the Florida statutes.
(b)	During any construction by Tenant, Automobile Liability coverage with bodily injury limits of at least $500,000 per person. $1,000,000 per accident, and $500,000 per accident for property damage.

Original or duplicate policies for all of the foregoing insurance shall be delivered to Landlord before Tenant’s work is started and before any contractor’s equipment is moved to any part of the whole Property. In all other respects the insurance coverage above mentioned shall comply with the provisions of this Lease.

4. All work done by Tenant to be by licensed contractors. Landlord may post notice of non-responsibility for Tenant’s work.

INITIALS: Landlord:                                          Tenant:                      

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EXHIBIT “D”

CHANGE ORDER                     

ULTIMATE SOFTWARE II

		ESTIMATE/
		HOURS/DAYS	EXPENSE
A	Best Estimate for Analysis charge @ $75.00/hr (Evan, Brett, David, Walter) To be paid regardless of whether or not change order is approved by Ultimate
B	Actual analysis charge @ $75.000/hr
C	Best estimate for hard cost of change order
D	In any event not to exceed
E	Actual cost of change order
F	15% Overhead/Profit    (Line (E) x 15%)
G	“AGREED TO” contract price for change order Including 15% Overhead/Profit (in Lieu of lines (E) + (F) )
H	Best Estimate for number of days delay in construction because of work pursuant to change order
I	Actual number of days delay in construction because of work pursuant to change order
J	“AGREED TO” number of days delay because of change order ( In Lieu of line (I) )

Each day is equal to:
1) General Conditions @ $                    
2) Delay in rent to landlord @ $                    
3) One day added to Section 12.18 of Lease Agreement, re: Completion of Construction

TOTAL COST OF CHANGE ORDER:

ULTIMATE SOFTWARE, INC.		ROHO-ULTIMATE LTD. II			SILVER BUILDERS, INC.
By:		By:		By:
	PRINT NAME		PRINT NAME		PRINT NAME
DATE:		DATE:		DATE:

EX-10.33

Exhibit 10.33

Agreement of Purchase And Sale

     This Agreement of Purchase And Sale (the “Agreement”), made and entered into this 22nd day of September, 2004, by and between the Seller (as hereinafter defined) and the Buyer (as hereinafter defined) is based upon the following recitals:

     A. Seller is the owner of the Property (as hereinafter defined) which Buyer desires to purchase upon the terms and conditions hereinafter set forth.

     B. Seller desires to sell the Property upon such terms and conditions.

     NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, Seller and Buyer do hereby mutually agree as follows:

1. DEFINITIONS.

(a)	Seller: Parry F. Goodman and Ivy Goodman, husband and wife whose address is 2905 Luckie Rd., Weston, FL 33331.
(b)	Buyer: Robert J. Manne and/or assigns, with offices at: 2000 Ultimate Way, Weston, FL 33326.
(c)	Property: the legal description of which is set forth on Exhibit “A” attached hereto and hereby made a part hereof.
	In the event that the legal description as contained in the survey and in the title commitment described below deviates from the legal description attached hereto, the legal description hereto shall be conformed to the legal description contained in the survey and title commitment, said Property consisting of one building (with approximate net rentable area of 5,000 square feet), together with any appurtenant parking.
(e)	Personalty: The Personalty shall include: (i) all insurance proceeds owned by Seller payable with respect to any casualty which occurs to the Improvements prior to the Closing Date (as hereinafter defined); (ii) any pending or future award concerning the Property made in condemnation or in lieu thereof; (iii) all architectural, engineering and construction plans, specifications and drawings relating to the Property owned by Seller; (iv) a complete copy of the Declaration of Restrictions and Protective Covenants Town Center Medical and Professional Campus together with any and all amendments thereto, and (v) those items of personal property, if any, to be listed on Exhibit “B” attached hereto and hereby made a part hereof prior to the expiration of the Inspection Period as hereinafter defined.

2. PERSONALTY. Seller agrees to sell and convey the Personalty to Buyer by Bill of Sale.

3.   PURCHASE PRICE. The Purchase Price to be paid by Buyer to Seller for the Property is ONE MILLION THREE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,300,000.00) and shall be payable as follows:

(a)	A deposit of TEN THOUSAND AND NO/100 DOLLARS ($10,000.00) (the “Deposit”) shall be delivered to the Escrow Agent by Buyer upon full execution hereof by both Seller and Buyer, which deposit shall be held in escrow subject to the terms of this Agreement by Becker & Poliakoff, P.A. (the “Escrow Agent”).
(b)	On or before October 5, 2004, an additional deposit of SIXTY-FIVE THOUSAND AND NO/100 DOLLARS ($65,000.00) (the “Additional Deposit”), which deposit shall be held in escrow subject to the terms of this Agreement by the Escrow Agent.
(c)	Subject to the terms of this Agreement, the balance of the Purchase Price, subject to prorations and adjustments as is provided for herein, is to be paid in unrestricted funds at the Closing.

4.   EFFECTIVE DATE. The “Effective Date” of this Agreement shall be the date when the last one of the Seller and Buyer has signed this Agreement.

5.    EVIDENCE OF TITLE. Seller shall, within five (5) days from the Effective Date, deliver to Buyer the Seller’s prior title insurance policy for the Property issued by a qualified title insurer. This Agreement is contingent upon Buyer being able to obtain, within thirty (30) days from the Effective Date, from a qualified title insurer selected by Buyer, a commitment agreeing to issue to Buyer, upon recording of the deed to Buyer, an Owner’s policy of title insurance in the amount of the purchase price, insuring title of the Buyer to the Property, subject only to liens, encumbrances, exceptions or qualifications set forth in this Agreement as Permitted Exceptions and as set forth on Exhibit “F” (“Permitted Exceptions”), and those which shall be discharged by Seller at or before Closing. Such Permitted Exceptions shall include only: (i) such easements and restrictions of record and applicable zoning ordinances as will not interfere with the existing use of the improvements as an office building occupied and operated by a computer software company; (ii) property taxes for the calendar year in which the Closing Date shall occur; and (iii) such other matters of which Buyer may approve in its discretion upon examining the Commitment, as hereinafter defined in accordance with the Florida Bar Uniform Title Standards. Any such matters other than the Permitted Exceptions are hereinafter referred to as “Title Defects”. Survey defects concerning the Property shall be deemed as Title Defects pursuant to this Article. Buyer shall have seven (7) business days from date of receiving evidence of title, in the form of a commitment to insure, together with legible copies of all exceptions listed in the Commitment, to examine same. If Buyer objects to any exceptions or items contained therein, Buyer shall, within the above referenced seven (7) business day period, notify Seller in writing specifying defect(s). Seller shall have Thirty (30) days from receipt of notice within which to use its best efforts to remove said defect(s), and if Seller is unsuccessful in removing them within said time, Buyer shall have the option of either (1) accepting the title as it then is but using such portion of the Purchase Price as may be necessary to reduce or remove any such title defect, or (2) demanding a refund of the Deposit and the Additional Deposit paid hereunder which shall

2

forthwith be returned to Buyer and thereupon Buyer and Seller shall be released, as to one another, of all further obligations under the Agreement. At Closing the Buyer shall pay to Buyer’s Title Agent, Becker & Poliakoff, P.A., the necessary premium to procure issuance of the Owner’s title policy as above set forth.

6.   EXISTING MORTGAGE. Prior to Closing, Seller shall furnish a current estoppel letter as to the existing mortgage, if any, which shall be satisfied at Closing.

7.   SURVEY. Seller shall deliver to Buyer within Five (5) days of the Effective Date its existing survey unless the survey as contained in the Condominium Documents and previously provided to Buyer is accurate and no improvements or corrections have been made to said survey. Buyer, within thirty (30) days of the delivery of Seller’s survey, may have the Property re-surveyed at Buyer’s expense. If the Buyer’s survey or the Seller’s survey, certified by a Florida surveyor, shows any encroachment of said Property, or that improvements intended to be located on the Property in fact encroach on lands of others, or violate any of the covenants set forth in this Agreement, or contain any matters other than the Permitted Exceptions not approved or waived by Buyer, the same shall be treated as a Title Defect. Seller shall cooperate with Buyer in any re-certification of such surveys as Buyer may require.

8.   UNDERTAKINGS OF SELLER: Seller shall, within Ten (10) days from the Effective Date, deliver to the Buyer the following documents (the “Submittals”):

(a)	To be marked Exhibit “B”, an itemized inventory of all PERSONALTY, listing thereon any and all liens applicable thereto (which due date shall coincide with the Inspection Period).
(b)	To be marked Exhibit “C”, copies of all engineering reports, traffic studies, plans, specifications, artist renderings, photographs, certificates of occupancy, and other documentation pertaining to the construction, operation, maintenance and/or use of the Property (including contracts and warranties, if any) as may be in the possession of Seller, or readily obtained from any consultant or agent of Seller.
(c)	To be marked Exhibit “D”, copies of all notices of violation from any party relating to the Property known to Seller.
(d)	To be marked Exhibit “E”, copies of the Permitted Exceptions.

ALL EXHIBITS AS HEREIN ABOVE SET FORTH SHALL BE DEEMED AS INCORPORATED HEREIN.

9.   REPRESENTATIONS AND WARRANTIES OF SELLER: Seller hereby represents and warrants to Buyer as of the Effective Date and as of the Closing Date, as follows:

(a) Seller has good and marketable title to the Property, free and clear of all mortgages, liens, encumbrances, leases, tenancies, security interests, covenants, conditions,

3

	restrictions, rights-of-way, easements, judgments or other matters except the Permitted Exceptions, no agreement other than this Agreement concerning or restricting the sale of the Property is in effect, and no person or entity has any right or option to acquire or possess property other than Buyer.
(b)	Except as set forth herein, or in the Exhibits, Seller has not contracted for any services or employment and has made no commitments or obligations therefor which will bind Buyer as a successor in interest with respect to the Property and except as set forth herein, or in the Exhibits, Seller is not a party to any Contracts affecting the Property which cannot be canceled upon not more than thirty (30) days notice to the other parties thereto. The provisions of this subparagraph shall survive the Closing.
(c)	Except as set forth herein, no commitments have been made to any governmental authority, utility company, school board, church or other religious body, any homeowners or homeowners’ association, or any condominium association, or to any other organization, group or individual relating to the Property which would impose an obligation upon Buyer or its successors or assigns to make any contributions or dedications of money or land or to construct, install or maintain any improvements of a public or private nature on or off the Property. Except as set forth herein, no governmental authority has imposed any requirement that any owner of the Property pay directly or indirectly any special fees or contributions or incur any expenses or obligations in connection with the ownership or development of the Property. The provisions of this subparagraph shall survive the Closing.
(d)	No notices or requests have been received by Seller from any insurance company issuing any of the insurance policies affecting the Property which have not been complied with. Any notices or requests from any such insurance company received prior to the Closing Date shall be complied with by Seller prior to the Closing Date.
(e)	The existing mortgage is currently in good standing.
(f)	To the best of Seller’s knowledge and belief, there are no pending or threatened condemnation or similar proceeding or assessment affecting the Property, or any part thereof.
(g)	Any PERSONALTY to be conveyed herein and as inventoried in attached Exhibit “B” is free from any and all encumbrances.
(h)	Seller has received no notice, oral or written, of the intention of any public authority or other entity to take or use the Property or any part thereof.
(i)	Seller is not a party or otherwise subject to any commitment, obligation, agreement, litigation or other proceeding which would prevent Seller from completing the sale of the Property under this Agreement or adversely affect the value of the Property in the hands of Buyer. Seller has full power to consummate the transaction described in

4

	this Agreement, the execution and delivery of this Agreement by Seller and the consummation by Seller of the transactions described herein having been duly and validly authorized by all necessary corporate action and the observance of all required formalities on the part of Seller, such that this Agreement constitutes a valid and legally binding obligation of Seller, enforceable against Seller in accordance with its terms. Neither the execution and delivery of this Agreement nor the consummation by Seller of the transaction contemplated hereby, nor compliance by Seller with any of the provisions hereof will: (i) conflict with or result in a breach of or default under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which Seller is a party or by which it or the Property is bound, or (ii) violate any order, injunction, decree, statute, rule or regulation applicable to Seller or the Property.
(j)	Seller is in sole possession and no other party has any interest, whether leasehold or otherwise, in the Property, and there are no rights of use or occupancy for any portion of the Property now in effect or hereafter to come into effect in favor of any party other than Seller.
(k)	Except as reflected upon Exhibit E, Seller has not received any notice of violation, of any applicable building, zoning or other ordinances, resolutions, statutes, or regulations from any insurance company or governmental agency in respect to the operation or condition of Property or Personalty, and, to the best of Seller’s knowledge there are no such violations.
(l)	The Property has not in the past, and is not now, used as a depository or storage area for trash, garbage or any toxic waste, hazardous materials or toxins.
(m)	Seller has full power and authority to own and sell the Property and to comply with the terms of this Agreement. This provision shall survive Closing.
(n)	The execution and delivery of this Agreement by Seller and the consummation by Seller of the transaction contemplated by this Agreement are within Seller’s capacity. This provision shall survive Closing.
(o)	All of the warranties and representations of the Seller set forth in this Agreement shall be true upon the execution of this Agreement, shall be deemed to be repeated at and as of the Closing Date, and shall be true as of the Closing Date and shall survive the Closing of this transaction, for a period of twelve (12) months, unless specifically provided for to the contrary herein.
(p)	In the event that Buyer becomes aware prior to Closing that any of Seller’s warranties or representations set forth in Article 9 of this Agreement that are material to Buyer’s intended purpose for the Property are not true on the Effective Date or at any time thereafter but prior to Closing, and in the event that Seller is unable to render any such representation or warranty true and correct as of the Closing Date, Buyer may

5

either: (i) terminate this Agreement by written notice thereof to Seller and Escrow Agent, in which event the Deposit and the Additional Deposit shall be returned to Buyer and the parties will be relieved of all further obligations hereunder, or (ii) elect to close under this Agreement notwithstanding the failure of such representation, in which event the Closing shall be deemed a waiver by Buyer of the failure of such representation and warranty.

10.   SPECIAL ASSESSMENT LIENS. Certified, confirmed and ratified special assessment liens as of the Closing Date (and not as of Effective Date) are to be paid by Seller. Pending liens as of the date of Closing shall be assumed by Buyer, provided, however, that where the improvement has been substantially completed as of the Effective Date, such pending lien shall be considered as certified, confirmed or ratified, and Seller shall, at Closing, be charged an amount equal to the last estimate by the public body, of the assessment for the improvement.

11.   RISK OF LOSS. Seller shall bear all risk of casualty loss to Property occurring prior to Closing and shall maintain in full force and effect all hazard, casualty and liability insurance now in force and insuring the Property against loss and damage or destruction through the Closing Date. In the event of any damage or destruction to any of the Property prior to Closing, not restored by the Closing Date, Buyer shall have the option to either:

(a)	Rescind this Agreement and receive a refund of the Deposit and the Additional Deposit together with all interest thereon; or
(b)	Close this transaction and be entitled to receive the full amount of any proceeds of such insurance payable on the account of loss, damage, or destruction. Seller shall maintain all present insurance in full force and effect through the Closing Date.

     In the event Buyer elects to close this transaction under subparagraph (b) of this Article, any loss shall be settled with the insurers only with the written consent of Buyer, and, if at Closing there shall be any losses which shall not have been settled or adjusted, Seller shall transfer and assign the insurance claim to Buyer, and this transaction shall be consummated in the same manner as if there had been no damage or destruction to Property. Anything herein to the contrary notwithstanding, Buyer agrees that Buyer shall not be entitled to rescind this transaction if any damage or destruction be less than Ten Thousand ($10,000.00) Dollars, provided such loss is compensable by insurance carriers insuring property and that such insurance proceeds are assigned to Buyer at Closing. The determination of the insurance adjuster for the respective insurance carrier regarding the extent of such loss shall be determinative as between Buyer and Seller relative to the value placed on such loss.

12.   SELLER’S OPERATIONS PRIOR TO CLOSING. Seller agrees that between the date hereof and the Closing Date, Seller shall:

(a) Not: (i) transfer any of the Property or create on the Property any easements, liens, mortgages, encumbrances or other interests that would affect the Property or Seller’s

6

ability to comply with the terms and conditions of this Agreement; (ii) enter into any leases relative to the Property without the prior written consent of Buyer.

(b) At Seller’s sole cost and expense:

(i)	Provide all services with respect to the Property and any tenant(s) required to be provided by any lease or, if not so required, that have customarily been provided; and
(ii)	Maintain and operate the Property and all improvements, fixtures, and equipment thereon in a customary and serviceable manner to the end that the improvements, equipment and fixtures will be in the same operating condition on the Closing Date as on the Effective Date, reasonable wear and tear excepted; and
(iii)	Promptly comply with any and all notices of violation of laws or municipal ordinances, regulations, orders or requirements of departments of housing, building, fire, labor, health, or other state, or municipal departments or other governmental authorities having jurisdiction over the Property or the use or operation thereof.

(c)	Not enter into, extend, renew, or replace any existing service agreements in respect to the Property that are the responsibility of the owner of the Property, unless said service agreements contain a provision for cancellation at the option of either party upon not more than thirty (30) days notice.
(d)	Promptly disclose in writing to Buyer any material change in any facts or circumstances which would make any of the representations, or other provisions of this Agreement inaccurate, incomplete or misleading.
(e)	Cooperate with Buyer and exercise its best efforts to assist Buyer in carrying out the transactions contemplated herein, in obtaining all required approvals and authorizations, and in delivering all documents, instruments, or copies thereof or other information deemed reasonably necessary or useful by Buyer, including Seller’s cooperation with Buyer, as reasonably requested by Buyer, to facilitate and expedite the issuance of building permits.
(f)	Be solely liable for the payment of all costs and expenses, liabilities, obligations and claims arising out of matters which shall have occurred during Seller’s ownership of the Property, Seller hereby agreeing to defend, indemnify and hold Buyer harmless, regardless whether or when the Closing shall have occurred, from any and all loss, cost or damage, (including without limitation legal fees and court costs) arising from, or related to, any of the foregoing. This paragraph shall survive the Closing.

7

13.   INSPECTION AND FEASIBILITY. Buyer shall have until thirty (30) calendar days from the Effective Date (hereinafter referred to as the “Inspection Period”) to determine, at Buyer’s sole expense and in Buyer’s sole and absolute discretion, whether the Property is suitable for Buyer’s intended use of the Property. Buyer, its employees, agents or independent contractors shall be permitted to come onto the Property, upon reasonable prior verbal notice, during the Inspection Period in order to examine the Property and perform their own investigations, engineering, surveying work, soil tests, percolation, permeability tests and feasibility studies thereon; all as may be necessary or desirable in the sole opinion of the Buyer in order for Buyer to evaluate the physical and economic characteristics of the Property, as well as other matters as may be deemed by the Buyer to be reasonably necessary in order for Buyer to generally evaluate the Property and determine the feasibility and advisability of Buyer’s purchasing of the same for the purposes and uses contemplated by the Buyer, including, without limitation, independent investigations and inquiries concerning the association governing the use and occupancy of the Property and pending assessments charged or to be charged by the association, all applicable zoning, environmental and other codes, ordinances, statutes, rules and regulations affecting the Property and its use as well as the availability of access and utility services thereto, the possibilities and conditions upon which the Property can be developed and used within the City of Weston, Broward County, Florida, flood plan analysis, suitability of access and financial feasibilities concerning the Property and all standards, guide lines, conditions, and criteria that such a development and/or use may require under all laws and ordinances applicable thereto including in said analysis any and all documentation that may be furnished Buyer pursuant to Articles 5, 7, 8 and 9 above. Buyer, as a condition to its exercise of such right of entry and inspection, specifically agrees to defend, indemnify, save and hold Seller harmless from and against any loss, damage, liens, liability, suit, claim, cost or expense (including reasonable attorneys’ fees) arising from the exercise by the Buyer or its employees, agents, engineers, surveyors, architects, or consultants of such right of entry.

     In the event that the results of such inspections, investigations, and inquiries are, in Buyer’s sole opinion and within Buyer’s sole discretion, unacceptable to Buyer for any reason whatsoever, and Buyer so notifies Seller in writing of that fact and determination on or before 5:00 p.m. on the date of the expiration of the Inspection Period then, at Buyer’s option, Buyer may thereupon terminate this Agreement and receive back the Deposit and Additional Deposit hereunder together with all interest earned thereon and this Agreement and all rights and obligations of the parties hereunder shall cease, terminate and be null and void. The failure of the Buyer to notify Seller in writing of the unacceptability of such inspections, investigations and inquiries before the expiration of said Inspection Period, however, shall be deemed to be and constitute a waiver by Buyer of its right to terminate this Agreement pursuant to the provisions of this Article. Nothing contained herein shall prevent or prohibit Buyer from giving Seller notice that Buyer’s intended use of the Property is not feasible at any time within said Inspection Period. Provided however, that should Seller delay in delivering to the Buyer the Submittals as provided for in Paragraph 8 hereinabove, each day of such delay shall be added to the Inspection Period, i.e., should Seller complete delivery of the Submittals Five (5) days late, the Inspection Period shall be changed to thirty-five (35) days. However, in no event shall the Submittals be more than five (5) business days late.

     Upon termination of this Agreement by the Buyer, in accordance with this Article, the Buyer shall:

8

(a)	Deliver to Seller possession and all right, title and interest in and the originals of all surveys, inspection reports, tests, results, verifications, engineering studies, geological studies, surveying work, plats, maps, results of test borings, studies, land use plans and the like prepared or conducted by or for Buyer pursuant to this Agreement;
(b)	Reasonably restore the Property to the condition as existed as of the date of this Agreement, in reference to any work undertaken by Buyer pursuant to this Article 13; and
(c)	Return to Seller all of the Submittals.

14.   THIS ARTICLE INTENTIONALLY OMITTED.

15.   CLOSING DATE. Subject to all of the terms, covenants, and conditions hereof, the sale and purchase transaction contemplated in this Agreement shall be closed on or before December 1, 2004 unless the Closing Date shall be extended by the parties in writing in accordance with the terms and provisions of this Agreement, at the offices of the Buyer’s attorney, Becker & Poliakoff, P.A., provided that the Agreement has not been prior thereto terminated by the Buyer in accordance with any of the provisions of this Agreement. At such Closing, Buyer shall deliver to Seller, in the form hereinabove specified, all monies required to complete Buyer’s payment of the Purchase Price of the Property, and Seller shall execute and deliver the statutory general warranty deed, and other documents contemplated and required to be executed and delivered pursuant to the provisions of this Agreement. Seller and Buyer shall also execute and deliver such other documents at Closing as may be reasonably required of them in order to consummate and close the sale and purchase transaction contemplated in this Agreement pursuant to the terms hereof.

16.   CLOSING DOCUMENTS. In addition to those documents otherwise required herein to be delivered, Seller shall deliver to Buyer the following documents at Closing satisfactory to Buyer and its counsel:

(a)	Any set of “as-built” plans and specifications and a certificate of occupancy for the improvements on Property, if in Seller’s possession;
(b)	A Bill of Sale by which Seller shall convey and warrant the title to (but not the condition of) the Personalty to Buyer;
(c)	A Statutory General Warranty Deed, in recordable form, by which Seller shall convey the Property to Buyer, subject only to the Permitted Exceptions;
(d)	Such other items, instruments, corporate resolutions, certificates of incumbency, or affidavits as Buyer’s counsel, Buyer’s lender, or the title insurance company insuring title may reasonably require;

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17.   PRORATIONS. The following matters concerning the Property will be apportioned between Buyer and Seller as of the Closing Date:

(a)	All taxes and special and other assessments (including future installments of special assessments) which have become a lien upon the Property or any part thereof prior to the Closing Date shall be paid by Seller and proof of such payment shall be given to Buyer prior to or at the Closing, or, at Seller’s option, credit shall be given to Buyer therefor. Taxes shall be prorated based on the current year’s tax with due allowance made for maximum allowable discount and any other exemptions if allowed for said year. If the Closing Date occurs on a date when the current year’s millage is not fixed, but the current year’s assessment is available, taxes will be prorated based upon such assessment and the prior year’s millage. If the current year’s assessment is not available, then taxes will be prorated on the prior year’s taxes; provided, however, if there are completed improvements on the Property by January 1st of the year in which the Closing Date occurs, which were not in existence on January 1st of the prior year, then taxes shall be prorated based upon the prior year’s millage and at an equitable assessment to be agreed upon between the parties, failing which, the parties shall use such informal assessment as may be developed by the County Property Appraiser. However, any tax proration based on such an estimate, at the request of either Buyer or Seller, shall be readjusted upon receipt of the final tax bill as a post-Closing adjustment. This provision shall survive the Closing;
(b)	Utility meters shall be read on or immediately prior to the Closing Date and the amounts due as disclosed by such readings shall be paid by Seller, or at Seller’s option, Buyer shall receive credit therefor; provided, however, that in the event such meters cannot be read, the parties shall prorate their respective responsibilities for such utilities based upon the last previous utility bill therefor;
(c)	Seller shall receive credit for all payments made prior to the Closing Date with respect to the Contracts, if any, as are assigned to Buyer at Closing and are allocable to periods subsequent to the Closing Date. Buyer shall receive credit for all payments becoming due subsequent to the Closing Date with respect to the Contracts, if any, as are assigned to Buyer at Closing and are allocable to periods prior to the Closing Date; and
(d)	All sales, use, and/or rental taxes shall have been paid at Closing, or shall be paid by Seller subsequent to Closing. If to be paid subsequent to Closing, an escrow shall be established, at Closing, to cover the cost of any unanticipated taxes. This provision shall survive Closing.

     Apportionment of matters set forth in subparagraphs (a) through (d) of this Article shall be for the tax year of Closing and shall be based on the latest available information. Should such proration be inaccurate based on the actual bill later received, then on notice, either party hereto may

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demand and shall be entitled to receive on demand, a payment from the other correcting such malapportionment. This paragraph shall survive the Closing.

18.   LIENS. Seller shall, both as to the Property and Personalty being sold hereunder, furnish to Buyer at time of Closing an affidavit attesting to the absence, unless otherwise provided for herein, of any financing statements, claims of lien or potential lienors known to Seller and further attesting that there have been no improvements to the Property for ninety (90) days immediately preceding date of Closing. If the Property has been improved within said time, Seller shall deliver releases or waivers of all mechanic’s liens, executed by general contractors, subcontractors, suppliers, and materialmen, in addition to Seller’s lien affidavit setting forth the names of all such general contractors, subcontractors, suppliers and materialmen and further reciting that in fact all bills for work to the Property which could serve as a basis for a mechanic’s lien have been paid or will be paid at Closing, except as to any then pending “work in progress”, as to which Buyer and Seller shall enter into an appropriate written agreement concerning the resolution and disposition of the cost of same.

19.   EXPENSES. State documentary stamps which are required to be affixed to the instrument of conveyance, and the cost of recording any corrective instruments shall be paid by Seller. The cost of recording the deed and all fees and costs in connection with the new mortgage if any shall be paid by Buyer.

20.   ESCROW. The Escrow Agent,receiving funds pursuant to this Agreement is authorized and agrees by acceptance thereof to promptly deposit and to hold same in escrow and to disburse same subject to clearance thereof in accordance with terms and conditions of this Agreement. Failure of clearance of funds shall not excuse performance by the Buyer. In the event of doubt as to its duties or liabilities under the provisions of this Agreement, the Escrow Agent may in his sole discretion, continue to hold the monies which are the subject of this escrow until the parties mutually agree to the disbursement thereof, or until a judgment or a court of competent jurisdiction shall determine the rights of the parties thereto, or may deposit all the monies then held pursuant to this Agreement with the Clerk of the Circuit Court of the County having jurisdiction of the dispute, and upon notifying all parties concerned of such action, all liability on the part of the Escrow Agent shall fully terminate, except to the extent of accounting for any monies theretofore delivered out of escrow. In the event of any suit between Buyer and Seller wherein the Escrow Agent is made a party by virtue of acting as such escrow agent hereunder, or in the event of any suit wherein Escrow Agent interpleads the subject matter of this escrow, the Escrow Agent shall be entitled to recover a reasonable attorney’s fee and costs incurred, said fees and costs to be charged and assessed as court costs in favor of the prevailing party. All parties agree that the Escrow Agent shall not be liable to any party or person whomsoever for misdelivery to Buyer or Seller of monies subject to this escrow, unless such misdelivery shall de due to willful breach of this Agreement or gross negligence on the part of the Escrow Agent. All parties acknowledge that the Escrow Agent has rendered and will continue to render legal services to Buyer in connection with the preparation of this Agreement, the consummation of the transaction to which it relates, the issuance of title insurance, and in the prosecution and resolution of any and all disputes which may arise in connection therewith.

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21.   ATTORNEY FEES AND COSTS. In connection with any litigation, including appellate proceedings arising out of this Agreement, the prevailing party shall be entitled to recover reasonable attorney’s fees and costs.

22.   DEFAULT. If this Agreement is not otherwise terminated pursuant to the terms hereof, and should Buyer fail to perform this Agreement within the time specified, the Deposit and Additional Deposit paid by the Buyer aforesaid, together with interest thereon, shall be retained by Seller as liquidated damages, consideration for the execution of this Agreement and in full settlement of any claims, and Buyer shall be obligated to return all documents to Seller; whereupon all parties shall be relieved of all obligations under the Agreement. Should the Seller default or breach any obligation hereunder, the Buyer may:

(a)	seek specific performance of this Agreement, thereby waiving any action for damages; or
(b)	elect to receive the return of its full deposit, together with all interest thereon and thereby waive any action for damages or for specific performance in which event the Agreement shall be terminated upon Buyer’s receipt of all deposit monies and the interest and thereupon, neither party shall have any further rights hereunder or obligations to each other.

23.   AGREEMENT NOT RECORDABLE, PERSONS BOUND AND NOTICE. Neither this Agreement nor any notice thereof shall be recorded in any public records. This Agreement shall bind and inure to the benefit of the parties hereto and their successors in interest. Whenever the context permits, singular shall include plural and one gender shall include all. Notice given by or to the attorney for either party shall be as effective as if given by or to said party.

24.   SOLE AND ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and agreements between the Parties with respect to the conveyance of Property and Personalty and constitutes the sole and entire Agreement between Seller and Buyer with respect hereto.

25.   MODIFICATIONS. No alteration, amendment, change or addition to this Agreement shall be binding upon either party hereto unless and until reduced to writing and signed by both parties.

26.   ASSIGNMENT. Buyer may assign this Agreement in its sole and absolute discretion.

27.   INTERPRETATION. For all purposes of this Agreement except as otherwise expressly provided or unless the context otherwise requires:

(a) This Agreement and all questions of interpretation, construction and enforcement hereof, and all controversies arising hereunder, shall be governed by and adjudicated in accordance with the internal laws of the State of Florida. Venue shall be in Broward County, Florida.

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(b)	Wherever in this Agreement the singular is used, the same shall include the plural, and vice-versa, and wherever in this Agreement the masculine gender is used, the same shall include the feminine and neuter genders, and vice-versa.
(c)	The captions, headings, and section numbers appearing in this Agreement are inserted as a convenience only and in no way define, limit, construe, or describe the scope or intent of such sections nor in any way effect the interpretation hereof.
(d)	The phrase “this Agreement” means this Agreement as it may be amended and/or supplemented from time to time.
(e)	Wherever the words “includes” or “including” are used in this Agreement, the same shall not be construed to restrict or limit any of the language, terms or definitions used in association therewith.
(f)	Any reference in this Agreement to an entity shall include and shall be deemed to be a reference to any entity that is a successor to such entity.
(g)	The words “Deposit”, “Additional Deposit” “Property”, “Submittals”, and “Personalty” shall be interpreted to include any and all respective portions thereof.
(h)	Whenever this Agreement requires that something be done within a period of days, such period shall: (i) not include the day from which such period commences; (ii) include the day upon which such period expires; (iii) expire at 5:00 p.m. local time on the date by which such thing is to be done; (iv) if five (5) days or more, be construed to mean calendar days; provided that if the final day of such period falls on a Saturday, Sunday or legal holiday in the state where such thing is to be done, such period shall be extended to the first business day thereafter; and (v) if less than five (5) days, be construed to exclude any Saturday, Sunday, or legal holiday in the state where such thing is to be done which falls within such period.
(i)	Wherever in this Agreement, the consent of either party to or of any act by the other is required, such consent shall not be unreasonably withheld or delayed, except as otherwise indicated, if at all. The consent by either party to or of any act by the other requiring further consent shall not be deemed to waive or render unnecessary the consent of such party to any subsequent similar act.
(j)	It is understood and agreed that this Agreement may be executed in several counterparts, each of which, for all purposes, shall be deemed to constitute an original and all of which counterparts, when taken together, shall be deemed to constitute one and the same Agreement, even though all of the parties hereto may not have executed the same counterpart.

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(k) Wherever in this Agreement provision is made for the doing of any act by any person it is understood and agreed that such act shall be done by such person at its own cost and expense unless a contrary intent is expressed.

28.   JUDICIAL CONSTRUCTION. Should any provision of this Agreement require judicial interpretation, it is agreed that the court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against one party by reason of the rule of construction that a document is to be construed more strictly against the Party who itself or through its agent prepared the same, it being agreed that the agents of all Parties have participated in the preparation hereof. This Agreement shall be construed pursuant to the laws of the State of Florida.

29.   CLOSING DATE. The words “Closing” and “Closing Date”, or words of similar importance as used in this Agreement, shall be construed to mean the originally fixed title and Closing Date specified herein or any adjourned time and date specified herein or agreed to in writing by the Parties or any earlier date permitted herein.

30.   DELIVERY OF POSSESSION. Possession of the Property shall be delivered to Buyer at Closing.

31.   INDEMNIFICATION. Seller hereby agrees that it alone shall be liable for the payment of all costs and expenses, liabilities, obligations and claims arising out of its ownership of the Property prior to the Closing Date, except as to any liabilities expressly assumed by Buyer in this Agreement (collectively, the “Liabilities”). Seller agrees to defend, indemnify and hold Buyer harmless from any and all loss, cost or damage, including, without limitation, attorney’s fees and court costs, arising from any of the Liabilities. The provisions of this paragraph shall survive Closing hereunder.

32.   NOTICES. All notices, demands, or requests required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed to have been properly given or served and shall be effective on being deposited in the United States mail, postage prepaid and registered, or certified with return receipt requested to the addresses appearing on the executed page hereof, or when delivered by hand to the addresses shown below:

AS TO SELLER:	Parry F. & Ivy Goodman
	2905 Luckie Rd.
	Weston, FL 33331
	Fax No.: (954) 389-6130
WITH A COPY TO:	Craig R. Stone, Esq.
	8751 W. Broward Blvd., Ste 307
	Plantation, FL 33324
	Fax No.: (954) 476-2347

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AS TO BUYER:	Robert J. Manne
	2000 Ultimate Way
	Weston, FL 33326
	Fax No.: (954) 331-7699
WITH A COPY TO:	Becker & Poliakoff, P.A.
	3111 Stirling Road
	Ft. Lauderdale, FL 33312-6525
	Attn: Lorrie Prettyman
	Fax No.: (954) 985-4170

     Rejection or other refusal to accept or inability to deliver because of changed address of which no notice has been given shall constitute receipt of the notice, demand, or request sent.

33.   SAVING CLAUSE. Should any provision of this Agreement for application thereof to any person or circumstance be held invalid or unenforceable, the remainder of this Agreement, or the application of such provision, to any person or circumstance, other than those to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of this Agreement shall be valid and enforceable to the full extent permitted by law.

34.   NO WAIVERS. No delay or omission by either Party hereto to exercise any right or power accruing on any noncompliance or default by the other Party with respect to any of the terms of this Agreement shall impair any such right or power or be construed to be a waiver thereof, except as otherwise herein provided. A waiver by either of the Parties hereto or any of the covenants, conditions, or agreements hereof to be performed by either shall not be construed to be a waiver of any succeeding breach thereof or any other covenant, condition, or agreement herein contained.

35.   NO MERGER. The statements, representations and warranties set forth in this Agreement shall not survive the Closing, except where specifically provided to the contrary.

36.   BROKERS: Seller and Buyer hereby acknowledge, represent and warrant to each other that no broker or finder has been employed by either Seller or Buyer. Seller and Buyer each warrant to the other that no commissions are payable by Seller and Buyer or due to any broker or finder in connection with this Agreement or the transaction contemplated herein, and Seller and Buyer each hereby agree to indemnify, defend, save and hold the other harmless from and against the payment of any commissions or fees or claims for commissions or fees; it being expressly agreed that the foregoing agreement of indemnification shall survive any Closing under this Agreement.

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37.   DISCLOSURES:

(a) Radon Gas: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit.

38.   AS IS. In the event that Buyer does not terminate this Agreement during the Inspection Period as hereinabove provided, the Property shall be sold in an “as is” condition as of the Closing Date. Provided however that, a condition precedent to such closing shall be that the Property is, as of the Closing Date, free and clear of all hazardous material, toxic waste, or toxins or Buyer shall have the option to terminate this Agreement. Should the Agreement be terminated under this provision, all deposits, together with all interest thereon, shall be returned to Buyer, and this Agreement shall be of no further force or effect.

39.   Seller requests a Section 1031 tax deferred exchange in connection with this transaction. The parties agree to cooperate in effecting the exchange in accordance with Section 1031 of the Internal Revenue Code, including execution of any documents that may be reasonably necessary to effect the exchange; provided that (1) the Seller shall bear all additional costs incurred in connection with the exchange, (2) the Buyer shall not be obligated to delay the closing or to execute any note, contract, or other document providing for any liability which would survive the exchange, and (3) provided that Escrow Agent has complied with written instructions from Seller regarding the disbursement of the sales proceeds, Escrow Agent shall not be liable to Seller for failure to effectuate the Section 1031 exchange.

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     IN WITNESS WHEREOF, the Parties have executed this Agreement on the day and year indicated.

	BUYER:
	/s/
Date: September 22, 2004
	By:	/s/ Robert Manne
		Robert Manne
	SELLER:
Date: September 22, 2004	/s/ Parry F. Goodman
	Parry F. Goodman
	/s/ Ivy Goodman
	Ivy Goodman

SCHEDULE OF EXHIBITS

Exhibit “A”	Legal Description of the Property.
Exhibit “B”	Inventory of Personalty.
Exhibit “C”	Copies of all engineering reports, traffic studies, plans, specifications, artist renderings, photographs, certificates of occupancy, and other documentation pertaining to the construction, operation, maintenance and/or use of the Property (including contracts and warranties, if any) as may be in the possession of Seller or readily obtained from any consultant or agent of Seller.
Exhibit “D”	Copies of all notices of violation from any party relating to the Property.
Exhibit “E”	Permitted Exceptions.

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EX-10.34

Exhibit 10.34

ASSIGNMENT OF AGREEMENT OF PURCHASE AND SALE

     This Assignment of Agreement of Purchase and Sales (“Assignment”) is made and entered into this 26th day of October, 2004 by and between Robert J. Manne, a/k/a Robert Manne (“Assignor”) and The Ultimate Software Group, Inc., a Delaware corporation (“Assignee”).

W I T N E S S E T H:

     Whereas, Assignor did heretofore on September 22, 2004 enter into an Agreement of Purchase and Sale with Assignor as Buyer and Parry F. Goodman and Ivy Goodman, husband and wife, as Seller, for the purchase and sale the real property legally described in attached Exhibit “A” (“Agreement”) and

     Whereas, the Agreement provides in Paragraph 26 that Buyer may assign the Agreement in its full and absolute discretion, and

     Whereas, Assignor is desirous of assigning the Agreement to Assignee, and

     Whereas, at a duly noticed and held meeting of the Board of Directors of Assignee, Assignee approved this Assignment,

     NOW THEREFORE, for mutual consideration given, the receipt of which is hereby acknowledged, Assignor and Assignee agree as follows:

1.	The recitals set forth hereinabove are true and correct;
2.	Assignor hereby assigns all of its rights, title, interests and obligations under the Agreement to Assignee and Assignee does hereby accept all rights, title, interests and obligations of Assignor under the Agreement.

ASSIGNOR:	ASSIGNEE:
	The Ultimate Software Group, Inc., a Delaware corporation
/s/ Robert J. Manne ROBERT J. MANNE, a/k/a ROBERT MANNE	By: /s/ Scott Scherr Name: Scott Scherr Title: President

EX-10.35

EXHIBIT 10.35

WESTON TOWN CENTER

SOUTH OFFICE BUILDING LEASE

Between

SOUTH OFFICE BUILDING-DLB, LLC, A FLORIDA LIMITED LIABILITY COMPANY,

SOUTH OFFICE BUILDING BAGTRUST, LLC, A FLORIDA LIMITED LIABILITY COMPANY, AND

SOUTH OFFICE BUILDING-BJB, LLC, A FLORIDA LIMITED LIABILITY COMPANY,

TENANTS IN COMMON

as Landlord

and

ULTIMATE SOFTWARE GROUP, INC.

as Tenant

and

WESTON COMMON AREA LTD.,

as Owner of the Common Property of Weston Town Center

Dated

August 18, 2005

WESTON TOWN CENTER

WESTON, FLORIDA

TABLE OF CONTENTS

1.	DEMISED PREMISES	2
2.	TERM	3
3.	RENT	4
4.	REPRESENTATIONS AND WARRANTIES OF LANDLORD AND COMMON AREA OWNER	6
5.	CONSTRUCTION OF THE PREMISES	6
6.	PERMITTED USE OF PREMISES	8
7.	COMMON PROPERTY	10
8.	SIGNS	11
9.	UTLITIES & TRASH REMOVAL; LANDLORD’S ADDITIONAL SERVICES	12
10.	MAINTENANCE & REPAIRS	12
11.	ALTERATIONS	13
12.	INSURANCE, WAIVER & INDEMNITY	15
13.	DAMAGE OR DESTRUCTION	16
14.	ASSIGNMENT, TRANSFER & SUBLETTING	18
15.	LANDLORD’S AND ASSOCIATION’S INTERESTS NOT SUBJECT TO LIENS	19
16.	EMINENT DOMAIN	19
17.	SUBORDINATION & ATTORNMENT	20
18.	END OF TERM	20
19.	ENVIRONMENTAL COMPLIANCE	21
20.	DEFAULT	22
21.	MISCELLANEOUS	25
EXHIBIT A            WESTON TOWN CENTER SITE PLAN		33
EXHIBIT B            SECOND FLOOR PLAN OF BUILDING		34
EXHIBIT C            INTENTIONALLY DELETED		35
EXHIBIT D            LANDLORD’S WORK		36
EXHIBIT E            WESTON TOWN CENTER RULES AND REGULATIONS		37

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WESTON TOWN CENTER SOUTH OFFICE BUILDING LEASE

     THIS WESTON TOWN CENTER SOUTH OFFICE BUILDING LEASE (this “Lease”) is made and entered into as of the Execution Date (as hereinafter defined), by and between, SOUTH OFFICE BUILDING-DLB, LLC, SOUTH OFFICE BUILDING-BAGTRUST, LLC, AND SOUTH OFFICE BUILDING-BJB, LLC, ALL FLORIDA LIMITED LIABILITY COMPANIES, TENANTS IN COMMON, whose addresses are c/o Belmont Investment Corp., 600 Haverford Road, Suite G101, Haverford, PA 19041 (the “Landlord”), and ULTIMATE SOFTWARE GROUP, INC., a Delaware Corporation (the “Tenant”), whose address is 2000 Ultimate Way, Weston, FL 33326, and WESTON COMMON AREA LTD., a Florida limited partnership (“Common Area Owner”), whose address is c/o Belmont Investment Corp., 600 Haverford Road, Suite G101, Haverford, PA 19041, not as the Landlord but as owner of the “Common Property” of “Weston Town Center” (as such terms are defined herein) and to consent to any provisions regarding the Common Property of Weston Town Center.

WITNESSETH

     WHEREAS, Weston Town Center located in Weston, Broward County, Florida, is a mixed-use property which includes such uses as retail shopping, restaurants, professional offices, residential apartments and other uses, covering an area of approximately twenty-five (25) acres (“Weston Town Center”); and

     WHEREAS, Weston Town Center is subject to a Declaration of Covenant Shared Parking recorded on March 1, 2000 in Official Records Book 30296, Pages 1010 — 1021, of the Public Records of Broward County, Florida, as the same may have been and may hereafter be amended, supplemented and/or modified from time to time, the same being incorporated herein by reference (the “Shared Parking Declaration”); and

     WHEREAS, Weston Town Center consists of a number of multi-tenant mixed use buildings, both attached and detached, single-level and multi-level (collectively the “Weston Town Center Buildings” and individually a “Weston Town Center Building”), together with certain other land and common facilities and improvements including, but not limited to, parking areas, driveways, truckways, delivery passages, truck-loading areas, access and egress roads, walkways, footbridges, landscaped and planted areas, elevators and public rest rooms (collectively, the “Common Property”) as the same may now or hereafter be located, constructed and developed on the Weston Town Center, which Common Property shall, in accordance with the provisions of this Lease and the Association Declaration (as hereinafter defined) be available for the non-exclusive common and joint use and benefit of the Landlord, Tenant, and all other tenants, owners and occupants of Weston Town Center, and their respective employees, agents, licensees, customers and invitees; and

     WHEREAS, the approximate location, but not the specific configuration, of the Weston Town Center Buildings and the Common Property within Weston Town Center and the respective relationships of each to the other are generally shown and depicted on the schematic site plan of Weston Town Center (the “Weston Town Center Site Plan”) attached hereto as Exhibit A; and

     WHEREAS, Tenant desires to lease from Landlord certain space within a Weston Town Center Building located at 2000 Main St., Weston, Florida, consisting of approximately 19,950 square feet of usable area on two floors (the “Building”), with the intention and for the purpose of operating a particular business therein, all as more particularly hereinafter provided and described; and

     NOW, THEREFORE, for and in consideration of the premises hereof, the sums of money to be paid hereunder, and the mutual and reciprocal obligations undertaken herein, the parties hereto do hereby covenant, stipulate and agree as follows:

1. DEMISED PREMISES.

     1.1. Premises. The Landlord demises and leases to the Tenant, and the Tenant rents from

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Landlord, that certain portion of the second floor of the building located at 2000 Main St., Weston, Broward County Florida (the “Building”), said portion being designated as Unit “A” on the second floor plan of the Building attached hereto as Exhibit B (“Premises”). The Premises and the second floor of the Building shall be configured approximately as shown on the floor plan attached hereto as Exhibit B. The Premises shall include only the space and appurtenances specifically demised and granted in this Lease and do not include the roof, the air space above the roof, the space and ground below the floor, the dividing walls between the Premises and the adjoining premises within the Building, if any, and the exterior walls of the Premises, if the Premises occupies less than the entire Building, and of the Building.

     1.2. Usable Area of Premises. The Usable Area of the Premises is approximately 8,234.05 square feet. The measurement and determination of the Usable Area of the Premises has been done in accordance with BOMA Standards. The Usable Area of the Premises has been stipulated and agreed to by the parties and the Base Rent shall not be changed even if it is subsequently determined that the Premises contain either a larger or a smaller area than indicated herein.

     1.3. Gross Usable Area of the Premises. Landlord and Tenant acknowledge and agree that the Gross Usable Area of the Premises is approximately 9,089.38 square feet, which has been determined using a modified BOMA standard, as described below. For purposes of this Lease, the Gross Usable Area of the Premises has been determined by multiplying (1) the Usable Area of the Premises times (2) an “add-on factor” for Tenant’s share of any portion of the total air conditioned area of the second floor (as set forth on the floor plan of the second floor, attached hereto as Exhibit B, which is approximately 10,741.17 square feet) that is converted to Common Property. The “add-on factor” for the second floor of the Building is 1.103877. The Gross Usable Area of the Premises has been stipulated and agreed to by the parties and the Base Rent shall not be changed even if it is subsequently determined that the Premises contain either a larger or a smaller area than indicated herein.

     1.4. Quiet Enjoyment. Landlord covenants and agrees that so long as Tenant shall timely pay all rents due to Landlord from Tenant hereunder and keep, observe and perform all covenants, promises and agreements on Tenant’s part to be kept, observed and performed hereunder, Tenant shall and may peacefully and quietly have, hold and occupy the Premises free of any interference from Landlord; subject, however, and nevertheless, to each of the terms, provisions and conditions of this Lease.

2. TERM.

     2.1. Term. The term of this Lease shall be Five (5) Years (“Term”) unless otherwise terminated or extended as provided herein. The word “Term” shall include any “Option Term” (as hereinafter defined), subject to the terms and provisions of Section 2.3, below.

     2.2. Commencement Date. The Term of this Lease shall commence (“Commencement Date”) on the earlier of: (a) two hundred forty (240) days following the date upon which the “Delivery Date” (as hereinafter defined) shall have occurred; or (b) the date that Tenant commences business operations at the Premises for the “Permitted Use” (as hereinafter defined), provided that all of Landlord’s Work set forth in Exhibit D has been completed. As used in this Lease, the term “Delivery Date” shall mean the date that exclusive possession of the Premises is delivered to Tenant with all of “Landlord’s Work” (as set forth in Exhibit “D” hereof) completed. If the Tenant occupies the Premises prior to the Commencement Date, such early occupancy shall be subject to all terms and conditions contained in this Lease (other than the payment of Base Rent). Notwithstanding that the Commencement Date shall be established in the manner set forth above, Tenant and Landlord acknowledge and agree that this Lease is binding upon them as of the date of the last one of Tenant and Landlord to sign this Lease and deliver a fully-executed original to the other party (the “Execution Date”).

     2.3. Option to Renew. Provided Tenant shall not be in default hereunder beyond any applicable notice or cure periods, Tenant shall have the option to renew this Lease for two (2) additional five (5) year terms (each, an “Option Term”), provided, however, that Tenant delivers to Landlord written notice of Tenant’s exercise of such option at least one hundred eighty (180) days prior to the end of the initial Term (or first Option Term, as the case may be). In the event Tenant fails to deliver its written notice to renew

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the Term of this Lease as and when required in the preceding sentence, Tenant shall be deemed to have irrevocably waived its right to the applicable Option Term. If the Term of this Lease is extended as aforesaid, all of the terms and conditions of this Lease shall remain in full force and effect during the Option Term (other than, upon expiration of the second Option Term, the right to extend the term of this Lease).

3. RENT.

     3.1. Payment of Rent. Tenant hereby covenants and agrees to pay rent to Landlord, which rent shall be as hereinafter provided. The payment of said rent shall commence on the Commencement Date. In the event the Commencement Date occurs on a day other than the first day of a month, Tenant shall pay rent for the fractional month on a per diem basis (calculated on actual number of days in the month) until the first day of the month following such Commencement Date, and thereafter the rent shall be paid in equal monthly installments on the first day of each and every month in advance. Said rent shall be paid to the Landlord at c/o Belmont Investment Corp., 600 Haverford Road, Suite G101, Haverford, PA 19041, or at such other place as may be designated in writing from time to time by the Landlord.

     3.2. Base Rent. Tenant shall pay to Landlord, in lawful money of the United States of America, without any prior demand by Landlord and without any deduction or set-off (except as otherwise provided in this Lease), the applicable “Base Rent” set forth below in this Section 3.2, in advance, on the first (1^st) day of each calendar month commencing on the Commencement Date, plus sales tax and use tax as required by law. The parties acknowledge and agree that the annual amount of Base Rent for the first 12-months commencing as of the Commencement Date has been arrived at by multiplying the Gross Usable Area of the Premises times $37.94 per foot.

Base Rent:

Period	Monthly Amount		Annual Amount
Commencement Date through the day prior to the 1st anniversary of the Commencement Date	$	28,737.59	$	344,851.08
1st anniversary of the Commencement Date through the day prior to the 2nd anniversary of the Commencement Date	$	29,599.72	$	355,196.61
2nd anniversary of the Commencement Date through the day prior to the 3rd anniversary of the Commencement Date	$	30,487.71	$	365,852.51
3rd anniversary of the Commencement Date through the day prior to the 4th anniversary of the Commencement Date	$	31,402.34	$	376,828.09
4th anniversary of the Commencement Date through the day prior to the 5th anniversary of the Commencement Date	$	32,344.41	$	388,132.93

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     If Tenant exercises each of its renewal options as provided in Section 2.3 above, Base Rent payable during each Option Term shall be as follows:

Period	Monthly Amount		Annual Amount
First Option Term:
5th anniversary of the Commencement Date through the day prior to the 6th anniversary of the Commencement Date	$	33,638.19	$	403,658.25
6th anniversary of the Commencement Date through the day prior to the 7th anniversary of the Commencement Date	$	34,983.71	$	419,804.58
7th anniversary of the Commencement Date through the day prior to the 8th anniversary of the Commencement Date	$	36,383.06	$	436,596.76
8th anniversary of the Commencement Date through the day prior to the 9th anniversary of the Commencement Date	$	37,838.39	$	454,060.63
9th anniversary of the Commencement Date through the day prior to the 10th anniversary of the Commencement Date	$	39,351.92	$	472,223.06
Second Option Term:
10th anniversary of the Commencement Date through the day prior to the 11th anniversary of the Commencement Date	$	40,926.00	$	491,111.98
11th anniversary of the Commencement Date through the day prior to the 12th anniversary of the Commencement Date	$	42,563.04	$	510,756.46
12th anniversary of the Commencement Date through the day prior to the 13th anniversary of the Commencement Date	$	44,265.56	$	531,186.72
13th anniversary of the Commencement Date through the day prior to the 14th anniversary of the Commencement Date	$	46,036.18	$	552,434.18
14th anniversary of the Commencement Date through the day prior to the 15th anniversary of the Commencement Date	$	47,877.63	$	574,531.5

     3.3. Late Fee. If any payment of Base Rent is not received by Landlord within five (5) days after its due date, Tenant shall pay to Landlord on each occasion as Additional Rent (as hereinafter defined) a service charge equal to $100.00 for the inconvenience of the collection and processing of such late payment, provided however, if the payment is not received by Landlord within ten (10) days after its due date, the amount of the late fee shall be increased from $100 to $500.

     3.4. Returned Check Fee. In the event that Tenant’s check is returned for any reason, Tenant

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agrees to pay Landlord $50.00 as a handling charge in addition any applicable late charge. Returned checks must be redeemed by cashier’s check, certified check or money order. In the event that more than one (1) check is returned, Tenant agrees to pay all subsequent rents and charges by cashier’s check, certified check or money order.

     3.5. Additional Rent. If Landlord shall make any expenditure for which Tenant is responsible or liable under this Lease, or if Tenant shall become obligated to Landlord under this Lease for any sum other than Base Rent, the amount thereof shall be deemed to constitute additional rent (the “Additional Rent”), whether or not the same be so designated, and shall be due and payable by Tenant to Landlord simultaneously with the next succeeding monthly installment of Base Rent or at such other time as may be expressly provided in this Lease for the payment of the same.

     3.6. Sales Tax. In addition to the Base Rent, Additional Rent and any other sums or amounts required to be paid by Tenant to Landlord pursuant to the provisions of this Lease, Tenant shall also pay to Landlord the amount of any applicable sales, use or excise tax on any such rents or other sums or amounts so paid by Tenant to Landlord, whether the same be levied, imposed or assessed by the State of Florida or any other federal, state, county or municipal governmental entity or agency. Any such sales, use or excise taxes shall be paid by Tenant to Landlord at the same time that each of the Base Rent, Additional Rent or any other sum or amount with respect to which such taxes are payable are paid by Tenant to Landlord.

     3.7. Gross Lease. The parties hereby acknowledge and agree that this Lease is a “gross lease”, meaning that the Base Rent is inclusive of all charges payable by Tenant in connection with this Lease (except for Additional Rent and other charges that are specifically set forth in this Lease). Except as otherwise expressly provided in this Lease, Tenant shall not be liable to pay or reimburse Landlord, the Association nor the Common Area Owner nor any other party for all or any portion of any charges or expenses incurred by Landlord, the Association, the Common Area Owner and/or such other party for any costs associated with the operation, maintenance, repair, replacement or alteration of any land or improvements located in Weston Town Center, the Common Property or the Building, including, without limitation, expenses for taxes, insurance, security, maintenance, management and/or administration of said areas.

4. REPRESENTATIONS AND WARRANTIES OF LANDLORD AND COMMON AREA OWNER.

     Each of Landlord and the Common Area Owner, in order to induce Tenant to enter into this Lease, hereby represents and warrants to Tenant that, as of the Execution Date: (a) it is duly organized and validly existing under the laws of the State of Florida and has full power and authority to conduct its business as presently conducted and to enter into this Lease; and (b) no condition, circumstance, event, agreement, document, instrument, restriction, litigation or proceedings (or threatened litigation or proceeding or basis therefor) exists which could adversely affect the ability of Landlord or the Common Area Owner to perform its obligations under this Lease or which would constitute a default on the part of Landlord or the Common Area Owner under this Lease, or which would constitute such a default with the giving of notice or lapse of time, or both.

5. CONSTRUCTION OF THE PREMISES.

     5.1. Landlord’s Work; Delivery Date. On or before the “Delivery Date” (as hereinafter defined), Landlord shall, at the sole cost and expense of Landlord, construct, improve, subdivide or finish out the Premises, substantially in accordance with its construction obligations set forth in Exhibit D, attached hereto. The term “Delivery Date” shall mean the date that exclusive possession of the Premises is delivered to Tenant with all of Landlord ‘s Work as set forth in Exhibit D hereof completed. If the Delivery Date does not occur within thirty (30) days after the Execution Date for any reason whatsoever (Section 21.9 being inapplicable), Tenant shall have the right and option (in addition to all other remedies available at law, in equity or hereunder) to terminate this Lease anytime thereafter upon written notice thereof given to Landlord prior to the Delivery Date actually occurring. Landlord represents and warrants to Tenant that

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Landlord’s Work shall be free from any defects (latent or otherwise) during the first twelve (12) months of the Term.

     5.2. Tenant’s Work. On or before the Delivery Date, Landlord shall cause to be delivered to Tenant an accurate and complete set of all as-built drawings and architectural plans and specifications with respect to the Premises, including a utilities plan and finished floor elevation, and all mechanical, electrical and other plans and specifications and information (the “Shell Information”) pertaining to or used in connection with the construction of the Premises necessary for Tenant’s architect to prepare plans for Tenant’s initial improvement work at the Premises (“Tenant’s Work”). Tenant’s Work shall be compatible with the Shell Information and must comply with all applicable laws, ordinances and building codes (including, without limitation, the Americans With Disabilities Act of 1990, the Florida Americans With Disabilities Accessibility Implementation Act, and the related implementing regulations, codes, rules and accessibility guidelines, as such acts and related regulations, codes, rules and guidelines may be amended from time to time (collectively, the “ADA”)). Tenant shall have the right, without payment of rent or any other charges, after the Execution Date and prior to the Delivery Date, whenever Tenant shall deem it appropriate, to enter the Premises to inspect the same and, at Tenant’s election, to commence Tenant’s Work; provided, however, that prior to the Delivery Date, any entry onto the Premises shall be at Tenant’s own risk and coordinated with Landlord so as to minimize any interference or disruption to Landlord’s Work. No such entry shall be deemed as Tenant’s acceptance of the Premises, nor shall Tenant be deemed to have assumed control of the Premises by so entering the Premises. All work performed in the Premises by the Tenant shall be done in a good and first-class workmanlike manner and free of any liens on Landlord’s fee simple interest or on Tenant’s leasehold interest in the Premises. Any modifications to the Building’s structural, mechanical, electrical, plumbing components shall be approved by Landlord prior to Tenant constructing Tenant’s Work, which approval shall not be unreasonably withheld, delayed or conditioned. All costs associated with such approved modifications shall be the sole responsibility of Tenant. Landlord agrees to do, execute, acknowledge and deliver all such further acts, instruments and assurances and to take all such further action (all at no cost to Landlord) as shall be necessary or desirable to fully consummate and effect the completion of Tenant’s Work, including, but not limited to, providing Tenant and Tenant’s employees, agents, contractors and licensees with full and complete access to the Building and the Common Property surrounding the Building at all times from and after the Delivery Date. In the event that, in the course of completing Tenant’s Work, Tenant experiences any interference, interruption, delay or disturbance that is caused by Landlord or any party claiming by, through or under Landlord, rent shall abate on a per diem basis in proportion to such interference, interruption, delay or disturbance. Upon completion of Tenant’s Work, Tenant, at its expense, shall install its furniture, trade fixtures, and equipment so that Tenant can occupy the Premises for the use and purpose intended. Promptly following completion of Tenant’s Work, Tenant shall deliver to Landlord a complete set of “as built” drawings for the Premises detailing all of Tenant’s Work.

     5.3. Tenant Improvement Allowance. In consideration for the performance by Tenant of Tenant’s Work, Landlord shall pay to Tenant an allowance of $48.00 per square foot of the Usable Area of the Premises (i.e. $395,234.40) (the “Tenant Improvement Allowance”). Any costs and expenses incurred by Tenant in excess of the Tenant Improvement Allowance as set forth above shall be at Tenant’s sole cost and expense and not subject to any refund by Landlord. Landlord shall pay the Tenant Improvement Allowance to Tenant as follows: (a) twenty-five percent (25%) of the Tenant Improvement Allowance shall be paid on or before the Delivery Date; (b) twenty-five percent (25%) of the Tenant Improvement Allowance shall be paid within fifteen (15) days of Tenant’s delivery to Landlord of a certified statement, executed by Tenant and Tenant’s architect, indicating that construction of the Tenant’s Work is at least fifty percent (50%) completed together with a waiver and partial release of lien upon progress payment from Tenant’s general contractor (substantially in the same form as set forth in Florida Statute Section 713.20(4)); and (c) the balance of the Tenant Improvement Allowance shall be paid within fifteen (15) days of the delivery of a certified statement, executed by Tenant and Tenant’s architect, certifying the completion of Tenant’s Work, together with a final lien waiver and release from Tenant’s general contractor (substantially in the same form as set forth in Florida Statute Section 713.20(5)) and copies of the same from any subcontractor or material supplier that has given Landlord a Notice to Owner pursuant to Florida law and the certificate of occupancy (or local equivalent) for the Premises. Tenant shall have no obligation to commence Tenant’s Work until receipt by Tenant of the first installment of the Tenant

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Improvement Allowance. Except as otherwise provided herein, the submission by Tenant of lien waivers from any other contractors, subcontractors or materialmen performing any work on behalf of Tenant at the Premises shall not be a condition precedent to the payment of any portion of the Tenant Improvement Allowance. If Landlord fails to pay any portion of the Tenant Improvement Allowance within fifteen (15) days after the same becomes due, then in addition to all other rights and remedies that Tenant may have against Landlord (but without duplication in recovering the amounts due Tenant), Tenant shall be entitled to deduct the unpaid and overdue portion of the Tenant Improvement Allowance from the Base Rent otherwise becoming due hereunder, together with interest on the unpaid balance thereof at the highest rate permitted by law.

     5.4. Indemnification. Tenant shall, and hereby agrees to, indemnify, defend, save and hold Landlord harmless from and against, and reimburse Landlord for, any and all obligations, damages, injunctions, suits, fines, penalties, demands, claims, costs, expenses, actions, liabilities, suits, proceedings and losses of whatever nature (including, without limitation, reasonable attorneys’ fees and court costs), arising out of any and all damage to or destruction of any portion of the Building, which damage or destruction is occasioned by or results, directly or indirectly, from any construction activities from time to time conducted upon the Premises including, without limitation, Tenant’s Work (other than any and all such obligations, damages, injunctions, suits, fines, penalties, demands, claims, costs, expenses, actions, liabilities, suits, proceedings and losses of whatever nature, which is occasioned by or results, directly or indirectly, from any negligence or misconduct of Landlord or any contractor, subcontractor, laborer, supplier, materialmen or any other third party acting, directly or indirectly, on behalf of Landlord); whether such damage or destruction is caused by or the fault of Tenant or any contractor, subcontractor, laborer, supplier, materialmen or any other third party acting, directly or indirectly, on behalf of Tenant.

     5.5 Tenant’s Obligation. Tenant shall be obligated to diligently pursue the completion of Tenant’s Work after the Execution Date of this Lease in accordance with its plans and specifications, so that the Premises are approved for use and occupancy by the appropriate government authorities and are in a suitable condition for the operation of Tenant’s Permitted Use.

6. PERMITTED USE OF PREMISES.

     6.1. Permitted Use; No Implied Covenant of Continued Operation. Tenant shall occupy and use the Premises for operation of a computer software company, including, without limitation, customer service, support, training, management and administration, software research and development, and general office purposes (“Permitted Use”). Tenant agrees to open for the Permitted Use in the Premises on or before the Commencement Date, subject to force majeure under Section 21.9, but once opened, Tenant shall not be obligated to continue operating for any period of time thereafter. Notwithstanding anything contained or set forth in this Lease to the contrary, nothing set forth in this Lease shall be construed, in any manner whatsoever, as an implied covenant of continuous operation on the part of Tenant, and Landlord specifically acknowledges that there is no covenant of continuous operation on the part of Tenant, express or implied. In the event that Tenant elects to cease its business operations at the Premises, such cessation shall not be deemed to be an “Event of Default” hereunder, nor shall such cessation relieve Tenant of any of its liabilities or obligations under this Lease.

     6.2. Restrictions on Use. Tenant shall not use nor permit the Premises to be used for any purpose other than the Permitted Use. All uses other than the Permitted Use are “Restricted Uses”. Tenant shall not use or suffer anyone to use, the Premises, or any part thereof, for any purpose in violation of the laws of the United States, the State of Florida, or the ordinances and regulations of a county or a municipality having jurisdiction over the Premises or in violation of any publicly recorded restriction. Tenant further covenants and agrees to execute and comply promptly with all statutes, ordinances, rules, orders, regulations and requirements of federal, state, county and city governments regulating the use by Tenant of the Premises. In the event that Tenant or any of its agents or employees shall fail to comply with the foregoing provisions of this Section 6.2, then Tenant shall, without affecting or limiting any of the rights and remedies otherwise available to Landlord pursuant to the terms and

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provisions of this Lease, indemnify, defend, save and hold Landlord harmless from and against, and reimburse Landlord for, any and all obligations, damages, injunctions, suits, fines, penalties, demands, claims, costs, expenses, actions, liabilities, suits, proceedings and losses of whatever nature (including, without limitation, attorneys’ fees and court costs), arising from such failure to so comply with the provisions of this Section 6.2.

     6.3. Compliance with Association Declaration. The Premises and all operations conducted thereon, therein and therefrom shall at all times be in compliance with the Association Declaration. For purposes of this Lease, the term “Association Declaration” shall mean the Declaration of Covenants for Weston Town Center, recorded on February 10, 2000 in Official Records Book 30249, Pages 1592 — 1702, of the Public Records of Broward County, Florida, as the same may have been and may hereafter be amended, supplemented and/or modified from time to time and shall also include the Articles of Incorporation, By-Laws, and Rules and Regulations of the Association, all as amended from time to time. Except as otherwise provided herein (specifically Section 21.20 of this Lease), Landlord covenants and agrees that it shall not violate, terminate or modify the Association Declaration or exercise any rights of consent or other rights thereunder which may materially adversely affect Tenant’s use or enjoyment of the Premises, Building or Common Property without Tenant’s prior written consent thereto. Landlord hereby grants and conveys to Tenant, its successors and assigns, for the Lease Term, the non-exclusive right and easement appurtenant to and for the benefit of the Premises and any occupant thereof and its customers, employees, and invitees, to use, for purposes of access, ingress, egress and parking, all those certain access, ingress, egress and parking easement areas granted to Landlord under the Association Declaration. Landlord agrees, at Landlord’s sole cost and expense, to promptly and diligently enforce the provisions of the Association Declaration against any party to the Association Declaration for the benefit of Tenant.

     6.4. Compliance with Weston Town Center Rules and Regulations. The Premises and all business operations conducted on, in and from the Premises from time to time shall at all times be in compliance with rules and regulations promulgated by Landlord for and with respect to the operation of the Premises and Weston Town Center, as the same may be changed, amended or modified by Landlord from time to time, provided that no such change, amendment or modification shall materially adversely affect Tenant’s use or enjoyment of the Premises or the Common Property without Tenant’s prior written consent thereto. Additionally, the Premises and all business operations conducted on the Premises from time to time shall at all times be in compliance with the rules and regulations promulgated by the Weston Town Center Maintenance Association, Inc. (the “Association”) for and with respect to the operation of the Premises and Weston Town Center pursuant to the provisions of the Association Declaration as the same may be changed, amended or modified by the Association from time to time (subject to the limitations set forth in Section 6.3 above). The failure of Tenant to comply with, abide by or conform to, said rules and regulations following written notice of failure by Landlord to Tenant as required under Section 20 of this Lease, shall constitute an Event of Default by Tenant under this Lease. Without limiting any of the terms or conditions of Section 6.3 above, Landlord shall not be liable or responsible to Tenant for the violation of any such rules and regulations by any other tenant of Weston Town Center or any other person or party, and the failure to enforce any such rules and regulations against Tenant or any other tenant of Weston Town Center shall not constitute a waiver of Landlord’s or the Association’s right to do so, nor shall it be deemed a default by Landlord hereunder, or excuse compliance therewith by Tenant. A copy of the existing Weston Town Center Rules and Regulations promulgated by Landlord are attached hereto as Exhibit E attached hereto and incorporated herein by reference.

     6.5. Indian Trace Community Development District and Association. The Premises are subject to the jurisdiction of the Indian Trace Community Development District (the “District”) created by the State of Florida pursuant to Chapter 190 of the Florida Statutes. The District was created to provide basic infrastructure improvements, such as road construction, water and sewer services, and fire protection, traditionally provided by municipal and county governments. To finance said services the District has the power to tax, impose special assessments collect user fees and charges, borrow money, and issue bonds. All such fees, charges, and assessments levied by the District will be collected by Broward County as a part of the annual ad valorem real property tax bills and/or through user charges and hook-up and impact fees. Such fees, charges and assessments shall be the sole responsibility of

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Landlord, and Tenant shall have no liability or obligation to pay or reimburse Landlord for any such amount(s).

     Tenant acknowledges that the Association Declaration encumbers the real property upon which Weston Town Center is located and that Landlord, as owner of Weston Town Center, is a member of the Association. Tenant further acknowledges and agrees that Landlord may or may not control the Association, but that even if Landlord has such right of control, same exists separate and apart from Landlord’s rights, duties and obligations hereunder and that Landlord shall not be obligated to exercise or refrain from exercising such control for Tenant’s benefit (subject to the provisions of Sections 6.3 and 6.4 above).

     Tenant acknowledges and agrees that while it is bound by the Association Declaration, the tenancy created by this Lease does not confer membership in the Association to Tenant and, further, that any rights, privileges or benefits flowing to Tenant from the Association Declaration or the Association derive solely through Landlord by virtue of this Lease and that Tenant has no separate entitlement to same but through Landlord.

7. COMMON PROPERTY.

     7.1. Tenant’s Right to Use Common Property. Tenant shall have and Landlord and the Common Area Owner hereby grants to Tenant and its employees, customers, patrons, suppliers, licensees and invitees, (during the Term of this Lease), the non-exclusive right, privilege and license to use and enjoy the Common Property in common with Landlord and all others entitled to such use, including, without limitation, all tenants of Weston Town Center and their respective employees, customers, patrons, suppliers, licensees and invitees; subject, however, at all times, to the Association Declaration and the rules and regulations promulgated by Landlord and/or the Association from time to time (as limited by the terms of Sections 6.3 and 6.4 above), and to the terms and provisions of this Lease; and subject further to Landlord’s and/or the Association’s right to grant to tenants within Weston Town Center the exclusive right to use portions of the Common Property for signage and advertising purposes and for the construction, installation, maintenance and repair of trash/garbage dumpster facilities to serve the premises leased by such tenants and the businesses operated by such tenants, or such other use as Landlord may deem necessary in its sole and absolute discretion. In the event that Landlord or the Association deems it necessary to discourage non-customer use or prevent the acquisition of public rights in Weston Town Center, or prevent a dedication thereof or the accrual of any rights to any person or to the public therein, and, in particular, with respect to any portion of the Common Property, Landlord or the Association may, from time to time (but at a minimum at least once a month), temporarily close all or portions of the Common Property, erect private boundary markers, or take such other steps as it deems appropriate in its sole and absolute discretion for that purpose and no such action shall be deemed to constitute or considered as an eviction or disturbance of Tenant’s quiet enjoyment or possession of the Premises so long as such steps are accomplished without substantial disruption of Tenant’s business.

     7.2. Landlord Reservation of Rights. Landlord, the Association, and the Common Area Owner reserve the right, from time to time and at any time in its sole and absolute discretion, to perform maintenance, repairs and alterations to, and reduce or expand the size of, Weston Town Center and its various improvements and component parts; to change the name, size, number, design, configuration, location and legal description of any Buildings located within Weston Town Center, including, without limitation, that of the Building and to build additional stories thereon and erect in connection with any construction thereof, temporary scaffolds and other construction aids (provided, however, that access to the Premises by Tenant shall not be denied); and to thereby change the size, configuration, location and legal description of the Common Property. Landlord, the Association, and the Common Area Owner also reserve the right to change the size, configuration, layout and pedestrian or vehicular traffic circulation pattern of all facilities and improvements from time to time located, developed and constructed on the Common Property, and to enter into, modify and terminate easements and other agreements pertaining to the maintenance and use of the parking areas and other portions of the Common Property. Landlord, the Association, and the Common Area Owner further reserves the right to install and operate music program services and loudspeaker systems within the Common Property. Tenant agrees to cooperate

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with Landlord, the Association, and the Common Area Owner with respect to the exercise of any of the foregoing rights.

     7.3. Management and Maintenance of Common Property. The Common Property shall at all times be subject to the exclusive management and control of the Association. The Association shall manage, operate and maintain the Common Property and all facilities and improvements from time to time located, developed and constructed thereon specifically including, without limitation, all lawn, landscaping and planting areas, in a first class manner and state and condition of appearance and repair, the costs for which shall be borne solely by the Association and/or Landlord (and not Tenant). The Association hereby reserves, and shall at all times hereafter have, the right, in its sole and absolute discretion, to delegate the management of the Common Property to a third party of its choice. In no event shall use of the Common Property be conditioned upon payment of parking charges. Landlord shall make, at the sole cost and expense of Landlord, all repairs, alterations or other improvements in and to the Premises and the Building and any Common Property which are required by governmental authority of Weston Town Center in general or of all similar centers in Broward County, Florida.

     7.4. Employee Parking. Tenant shall not permit more than 50 automobiles to be parked within Common Property at any one time. Landlord, the Association, and the Common Area Owner shall have the right, from time to time, upon at least thirty (30) days’ prior written notice to Tenant, to designate within the Common Property certain areas of Weston Town Center for tenant and tenant employee parking, and Tenant agrees that Tenant and its employees shall not thereafter park in any portion of Weston Town Center except those areas so designated by Landlord or the Association. The foregoing notwithstanding: (i) in the event any parking spaces are designated by Landlord or the Association for the use of Tenant and/or Tenant’s employees, the number and location of such spaces will be subject to Tenant’s prior written consent; and (ii) in no event shall any parking spaces adjacent to the Building be designated for the use of Landlord or any other tenant or occupant of Weston Town Center, or any of such parties’ employees, without Tenant’s prior written consent. EMPLOYEES SHALL BE STRICTLY PROHIBITED FROM PARKING EMPLOYEES’ CARS ON MAIN STREET. In order to facilitate the enforcement of such restriction on Tenant and employee parking, Tenant agrees that it shall, upon Landlord’s or the Association’s request, furnish and provide to Landlord or the Association the automobile license tag numbers of all Tenant and employee vehicles.

     7.5. Pedestrian and Golf Cart Access. Notwithstanding anything to the contrary contained in this Lease, Landlord and the Common Area Owner acknowledge and agree that at all times during the Term of this Lease, Tenant shall have free and unrestricted pedestrian and golf cart access between the Building and Tenant’s adjoining property in Weston Town Center located at 2000 Ultimate Way, Weston, FL 33326 in the area(s) shown on the Weston Town Center Site Plan attached hereto as Exhibit A (“Pedestrian and Golf Cart Access”), subject to the prior written approval of all applicable governmental authorities. The approval of all applicable government authorities relative to the Pedestrian and Golf Cart Access shall not be a condition of the Lease. Within 180-days after the final, unappealed and appealable approval of all applicable government authorities relative to the Pedestrian and Golf Cart Access, Landlord shall have fully completed all construction and other work required relative to the Pedestrian and Golf Cart Access. In the event that Landlord shall not have fully completed all construction and other work required relative to the Pedestrian and Golf Cart Access within such 180-day time period, Tenant may, at any time thereafter prior to Landlord’s completion of all construction and other work required relative to the Pedestrian and Golf Cart Access, terminate the Lease upon written notice to Landlord.

8. SIGNS.

     Landlord agrees that Tenant shall, at Landlord’s expense, be permitted to place its name on the Tenant directory for the Building. Tenant also shall, at Tenant’s expense, have the right to install an oversized logo sign (“Sign”) on the exterior of the Premises (similar in size to the existing EWM Realty exterior Building sign), provided, however, that any Sign, and the number, size, color, arrangement, placement and location of the same upon the Building shall be subject at all times to all applicable government laws, ordinances and regulations. Tenant shall have the right, at its expense and in compliance with applicable law, to erect, maintain, place and install its usual and customary signs and

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fixtures in the interior of the Premises. Except as otherwise provided in this Section 8, Tenant shall not be allowed to display signage on the Building or any windows of the Premises. Tenant agrees that, except as otherwise provided in this Section 8, it shall not place or suffer to be placed or maintained upon any exterior wall, roof, door or window of the Premises or upon any portion of the interior of the Premises which is prominently visible from the exterior thereof, any sign or other advertising or promotional materials or media whatsoever without the prior written consent and approval of all applicable government authorities, the Landlord and the Association, which consent and approval Landlord and the Association may withhold in its reasonable discretion. In no event shall Tenant install a sign on any façade or elevation of the Building that has an existing sign advertising Esslinger Wooten Maxwell Realtors, EWM Realtors or any other trade name of EWM Realtors.

9. UTLITIES & TRASH REMOVAL; LANDLORD’S ADDITIONAL SERVICES.

     9.1. Utilities. The Tenant shall be solely responsible for and shall promptly pay all charges for public utilities and/or private services rendered or furnished to the premises during the Term hereof, including, but not limited to, heat, gas and electricity, together with all taxes or other charges based upon the use of such utilities. Landlord shall be solely responsible for the performance of any and all repairs to all utility lines, pipes and other facilities serving the Building, unless such repair was necessitated by the gross negligence or willful misconduct of Tenant or anyone acting by, through or under Tenant. Tenant shall be solely responsible for the performance of any and all repairs to all utility lines, pipes and other facilities that exclusively serve the Premises, unless such repair was necessitated by the negligence or misconduct of Landlord or anyone acting by, through or under Landlord. Landlord shall not be liable to Tenant for any interruption of utility services to the Premises caused by events beyond Landlord’s reasonable control; provided, however, that Landlord shall be obligated to use its best efforts to obtain the resumption of such utility services as quickly as is reasonably possible (unless such interruption of service was caused by the gross negligence or willful misconduct of Tenant or anyone acting by, through or under Tenant). Except as otherwise expressly provided herein, Landlord shall in no event be liable for the quality, quantity or interference of such services. Tenant shall and hereby agrees to make all appropriate applications and arrangements for utility services required to serve the Premises directly with those utility companies and authorities providing such utilities to the Building. Tenant shall pay all fees, charges and deposits required by such utility companies and authorities as a condition to their providing such utility services to the Premises, excluding any impact, “tap-in”, or “hook-up” fees which shall be the sole responsibility of Landlord. If additional or special utility services or wiring are required for the conduct of Permitted Use within and from the Premises, the same shall be included in Tenant’s Work.

     9.2. Trash Removal. Landlord, directly or through the Association, shall remove trash and rubbish generated by Tenant in the ordinary course of the operation of Tenant’s business in the Premises, provided that such trash and rubbish is placed by Tenant either in designated containers or dumpsters provided by Landlord or, at Tenant’s option, in containers provided by Tenant and stored in locations designated by Landlord. The cost for removal of the trash and rubbish shall be borne solely by Landlord, and Tenant shall have no liability or obligation therefor.

     9.3. Landlord’s Additional Services. In addition to the foregoing, Landlord shall furnish the following services to Tenant at no additional cost or charge: (a) hot and cold water for use in lavatories in common with other tenants of the Building; (c) customary cleaning and janitorial services in the Building lavatories on weekdays (excluding national holidays); (d) twenty-four (24) hour working elevator service to the second floor of the Building; (e) twenty-four (24) hour access to the Premises; and (f) washing of the outside windows in the Premises at intervals reasonably determined by Landlord but not less than once per calendar year.

10. MAINTENANCE & REPAIRS.

     10.1. Tenant’s Obligations. Except for those portions of the Premises which shall be maintained, repaired and replaced by the Landlord as provided in Section 10.2 and elsewhere in this Lease, Tenant shall, at all times during the Term of this Lease, at its sole cost and expense, keep, clean, maintain, repair and replace all interior, non-structural portions of the Premises, including, without

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limitation, all exterior and interior windows (including, without limitation, plate glass windows), doors and entrances, floor coverings, and all exterior and interior signs and all interior walls, partitions, fixtures, equipment, systems and other appurtenances, including, without limitation, all electrical and lighting systems and fixtures, all plumbing systems and fixtures, all HVAC Systems in or serving the Premises (on which Tenant shall maintain a service and maintenance contract for regular service inspection, and emergency and extraordinary repair of the air conditioning unit(s) on the Premises), and the interior fire sprinkler system in the Premises, in good, clean, sanitary and safe order, condition and repair, ordinary wear and tear excepted. In furtherance thereof, Tenant shall make all necessary and desirable repairs and replacements to the Premises, ordinary and extraordinary, however the necessity or desirability for repairs and replacements shall occur, and shall use all reasonable precautions to prevent waste, damage or injury to the Premises, except for any repairs or replacements that are necessitated by the negligence or misconduct of Landlord or anyone claiming by, through or under Landlord. In connection with any maintenance, repairs or replacements conducted by, through or under Tenant, Tenant shall comply with all applicable federal, state, county and local laws and ordinances (including, without limitation, the ADA), and all rules and regulations of any governmental authority having jurisdiction over the Premises.

     10.2. Landlord’s Obligations. Landlord shall keep, maintain, repair and replace the exterior of the Premises, all structural elements of the Premises and Building (whether interior or exterior and including, without limitation, the foundations, supporting columns, load bearing walls, floors and floor slab and the roof structure), the public corridors, elevators, washrooms and lobby of the Building, all plumbing, electrical and other utility system components of the Building and Common Property (other than those that exclusively service the Premises or within the Premises and which are maintained and repaired by Tenant), in good, clean, sanitary and safe order, condition and repair, ordinary wear and tear excepted, and shall have the right of entry onto the Premises at reasonable times upon reasonable advance notice to Tenant for the purpose of performing same (except in the event of an emergency, as to which no notice shall be required; as used in this Lease, the term “emergency” shall mean a situation which requires, in the good faith judgment of the acting party, immediate action in order to prevent death, bodily injury or property damage). Landlord shall have no obligation to repair until receipt by Landlord of written notice of the need for repairs. In connection with any maintenance, repairs or replacements conducted by, through or under Landlord, Landlord shall comply with all applicable federal, state, county and local laws and ordinances (including, without limitation, the ADA), and all rules and regulations of any governmental authority having jurisdiction over the Premises.

     10.3. Right of Entry. Landlord and its agents and employees shall have the right to enter the Premises at reasonable hours and, except in cases of emergency, upon reasonable advance notice to Tenant (which notice, notwithstanding any other provision of this Lease, may be given orally) to make inspections, show the Premises to prospective tenants (but only during the last six months of the Term or earlier period if Tenant exercises its right of early termination pursuant to Section 21.19 of this Lease), purchasers, lenders or others, or to make alterations or repairs to the Building or the Premises for which it is responsible or which it is entitled to make hereunder, provided that Landlord shall use all reasonable efforts not to disturb Tenant’s use and occupancy of the Premises and business operations. Tenant shall be entitled at its own option to have an agent present during any such entry. In the event of emergency or in order to comply with all laws, orders, ordinances and requirements of any governmental unit or authority (regarding which compliance is the responsibility of Landlord), Landlord and its agents and employees shall have the right of entry at any time and may perform any acts related to safety, protection, preservation or improvement of the Building or the Premises or required by such governmental unit or authority. Except as otherwise expressly provided in this Lease, Tenant shall not be entitled to any abatement or reduction of rent because of work performed within the Building or Premises by Landlord (provided such work is performed in a manner so as to minimize interference with the conduct of Tenant’s business within the Premises).

11. ALTERATIONS.

     11.1. Alterations. Except as otherwise required herein, Tenant shall not make any alterations, additions or improvements to the exterior or structural portions of the Premises (including, without limitation, the roof) (herein referred to collectively as “Alteration”) without the prior written consent of

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Landlord and the Association (to the extent it has jurisdiction), which consent Landlord and the Association shall not unreasonably withhold. Tenant may install in the interior of the Premises without the consent of Landlord, unattached, movable trade fixtures and furniture which may be installed without drilling, cutting or otherwise defacing the Premises (herein referred to as “Removable Trade Fixtures”). Tenant shall submit to Landlord for its review and approval, complete plans and specifications for any proposed Alteration at the time approval is sought, and if necessary, resubmit the same from time to time, within fifteen (15) days after receipt of written notice of disapproval thereof from Landlord or the Association, until the same are approved by Landlord and the Association if applicable. In the event the Association or Landlord fails to grant its approval (or disapproval) of Tenant’s plans and specifications within ten (10) days of Tenant’s submission (and/or resubmission) of the same, then Landlord and/or the Association, as the case may be, shall be deemed to have approved the same. In connection with any Alteration of the Premises by Tenant, Tenant shall comply with all applicable federal, state, county and local laws and ordinances (including, without limitation, the ADA), and all rules and regulations of any governmental authority having jurisdiction over the Premises.

     11.2. Insurance by Tenant’s Contractor. Prior to Tenant commencing any improvements or Alterations to the Premises, Tenant shall deposit with Landlord a liability insurance certificate from Tenant’s general contractor, or if none, from each of Tenant’s independent contractors in an amount not less than $1,000,000 per occurrence or such amount as Landlord acting reasonably may require from time to time, with Landlord added as additional insured, which liability insurance shall be on a comprehensive form and shall cover all hazards related to any work performed by any such contractor on the Premises.

     11.3. Damage & Waste. Any damage to the Premises or the Building caused by Tenant or any of its employees, contractors, or workmen shall be repaired by and at the expense of Tenant. Tenant shall be responsible for the disposal of waste generated with respect to Tenant’s improvements or Alterations.

     11.4. Contractor’s Affidavit. On completion of Tenant’s improvements or Alterations, Tenant shall cause to be furnished to Landlord a Contractor’s Affidavit stating that there are no liens outstanding against the Premises on account of Tenant’s improvements and that all accounts for work, service and materials have been paid in full.

     11.5. Ownership of Fixtures. All Alterations made and all fixtures installed in or to the Premises (except Removable Trade Fixtures), including, without limitation, heating and air conditioning equipment, lighting fixtures, store front, ceiling, wall treatment, floor covering, plumbing and electrical systems and fixtures shall become the property of Landlord upon the termination of this Lease, without any compensation therefor to Tenant, and shall not be removed by Tenant at or before the expiration or earlier termination of this Lease, unless Landlord shall give notice to Tenant to remove any or all of the same, in which event Tenant shall remove such of said Alterations and Fixtures as may be specified by Landlord in Landlord’s notice to Tenant and Tenant shall repair all damage caused by such removal and restore the Premises to their original order and condition, normal wear and tear excepted.

     11.6. Ownership of Removable Trade Fixtures. All Removable Trade Fixtures installed in the Premises by Tenant shall remain the property of Tenant and shall be removed by Tenant upon the expiration or earlier termination of this Lease; provided that Tenant shall not at such time be in default hereunder beyond any applicable notice and cure periods and provided further that Tenant shall repair all damage caused by such removal and restore the Premises to its original order and condition. Any Removable Trade Fixtures not removed by Tenant upon the expiration or earlier termination of this Lease (including, without limitation, a termination of this Lease by Landlord) shall be and become the property of Landlord without any obligation on the part of Landlord to pay compensation therefor to Tenant, unless Landlord shall give notice to Tenant to remove any or all of the same, in which event Tenant shall remove such of said Removable Trade Fixtures as may be specified in Landlord’s notice to Tenant. The provisions of this Section 11.6 shall survive the expiration or earlier termination of this Lease.

     11.7. Failure to Remove Alterations or Fixtures. Should Tenant fail to remove any Alterations,

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fixtures or Removable Trade Fixtures, and/or fail to restore the Premises as required under this Section 11.7, Landlord may do so, in which event Tenant shall pay to Landlord the cost and expense thereby incurred as Additional Rent, plus interest thereon, which sums shall be payable within thirty (30) days of Tenant’s receipt of Landlord’s demand therefor.

12. INSURANCE, WAIVER & INDEMNITY.

     12.1. Tenant’s Insurance. Tenant shall procure, provide and pay for, and shall maintain throughout the Term (including any renewals or extensions thereof) of this Lease, the following insurance coverage, with the following limits, in the name of the Tenant and with Landlord, the Association and Common Area Owner named therein as an additional insured:

          12.1.1. Property Damage Insurance. Tenant shall provide and keep in full force and effect a policy of fire, windstorm and extended coverage insurance in an amount adequate to cover the replacement cost (subject to commercially reasonable deductibles) of Tenant’s Work, Tenant’s Alterations and Tenant’s Removable Trade Fixtures covering loss occasioned by fire, windstorm, vandalism, malicious mischief, sprinkler leakage and other hazards and/or casualties including special extended coverage and said insurance shall include coverage against water damage to the contents of the Premises and personal property of Tenant.

          12.1.2. Liability Insurance. Tenant shall provide and keep in full force and effect a policy or policies of comprehensive commercial general liability insurance (including contractual) providing coverage against claims and/or liability for personal injury, death and property damage having a combined single limit of not less than ONE MILLION DOLLARS ($1,000,000.00) with respect to injuries, deaths or damage to property in any one occurrence. Landlord reserves the right, upon at least thirty (30) days’ prior written notice to Tenant, to specify higher liability limits or additional insurance coverage from time to time to meet reasonably anticipated loss exposure, or to reflect changes in the value of the Premises.

          12.1.3. Workers’ Compensation Insurance. Tenant shall provide and keep in full force and effect workers’ compensation insurance, in a form and with coverage limits not less than as prescribed by the laws of the State of Florida, and employers’ liability insurance in an amount equal to the greater of One Million Dollars ($1,000,000.00) or the minimum amount required by law.

          12.1.4. Builder’s Risk Insurance. Tenant shall, prior to the commencement of and during the construction of alterations or improvements at or on the Premises, and as often a Tenant may construct, replace, reconstruct, restore or make a substantial alteration to, any improvement thereon, provide and keep in full force and effect builders’ risk insurance for the full replacement cost of such work.

     12.2. Carriers and Features.

          12.2.1. All such insurance shall be written on a company or companies authorized to engage in the business of casualty and general liability insurance in the State of Florida, and there shall be delivered, by the Tenant, to the Landlord customary certificates evidencing such paid-up insurance, and certifying Landlord, the Association and the Common Area Owner as additional insureds, which certificates are to be issued by the insurance companies and delivered to Landlord on a yearly basis during the Term of this Lease.

          12.2.2. The policies of insurance provided herein are to be provided by the Tenant, and shall be for a period of not less than one (1) year, it being understood and agreed that prior to the expiration of any policy of insurance, the Tenant will deliver to the Landlord a binder or a renewal or new policy to take the place of the expiring policy, with the understanding that, should the Tenant fail to furnish policies, as is provided in this Lease, and at the times herein provided, the Landlord may obtain such insurance, and the premiums on such insurance shall be deemed Additional Rental to be paid by the

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Tenant to the Landlord within thirty (30) days of Landlord’s written demand.

     12.3. Waiver. Neither Landlord nor Tenant shall make any claim for recovery against the other party, and each expressly waives any right of recovery against the other party for damage to or loss of the Premises, improvements thereon, the contents thereof, equipment, merchandise, inventory, furniture, furnishings or fixtures, which damage or loss may arise by fire or any other peril covered by any policy of insurance containing a waiver of subrogation right against the other party in said policy when said loss is caused by or results from any acts of carelessness or negligence of the other party, its officers, employees or other persons under its control. Each party agrees that, if any property shall be stolen, damaged or destroyed by an insured peril, such party shall not have any liability to the other party, nor to any insurer of the other party, for or in respect of such theft, damage or destruction, and each party shall require all policies of risk insurance carried by it to contain or be endorsed with a provision in and by which the insurer designated therein shall waive its right of subrogation against the other party.

     12.4. Tenant’s Indemnity. Tenant shall indemnify and hold harmless Landlord from all loss, claim, demand, damage, liability, or expense, including attorneys’ fees, resulting from any injury to or death of any person or any loss of or damage to any property caused by or resulting from any act, omission, or negligence of Tenant or any officer, employee, agent, contractor or licensee of Tenant in or about the Premises or the Building. The foregoing provision shall not be construed to make Tenant responsible for loss, damage, liability or expense resulting from injuries to third parties caused by any act, omission or negligence of Landlord or any member, officer, director, employee, agent contractor of Landlord.

     12.5. Landlord’s and Common Area Owner’s Insurance. During the Term of this Lease, Landlord (with respect to the Building and the Premises) and the Common Area Owner, directly or through the Association (with respect to the Common Property), shall maintain with responsible companies qualified to do business in the State of Florida, at no cost or expense to Tenant, a policy of fire, windstorm and extended coverage insurance in an amount adequate to cover the replacement cost (subject to commercially reasonable deductibles) of the Building, the Premises (other than the leasehold improvements comprising Tenant’s Work and Tenant’s Alterations, trade fixtures, inventory and other contents) and the Common Property, covering loss occasioned by fire, windstorm, flood, vandalism, malicious mischief, sprinkler leakage and other hazards and/or casualties including special extended coverage. All such insurance shall be written on a company or companies authorized to engage in the business of casualty and general liability insurance in the State of Florida, and Landlord and the Common Area Owner each shall deliver to Tenant customary certificates evidencing such paid-up insurance, which certificates are to be issued by the insurance companies and delivered to Tenant on a yearly basis during the Term of this Lease. The policies of insurance provided herein shall be for a period of not less than one (1) year, it being understood and agreed that fifteen (15) days prior to the expiration of any policy of insurance, Landlord and the Common Area Owner will deliver to Tenant customary certificates evidencing such paid-up insurance.

     12.6. Landlord’s Indemnity. Landlord shall indemnify, defend and hold Tenant harmless from and against all loss, claim, demand, damage, liability or expense, including attorneys’ fees and costs, resulting from any injury to or death of any person or any loss of or damage to any property caused by or resulting from any act, omission or negligence of Landlord or any officer, employee, agent, contractor or licensee of Landlord in or about the Premises, the Building or the Common Property. The foregoing provision shall not be construed to make Landlord responsible for loss, damage, liability or expense resulting from injuries to third parties caused by any act, omission or negligence of Tenant or of any officer, employee, agent contractor, invitee or visitor of Tenant.

13. DAMAGE OR DESTRUCTION.

     13.1. Partial Destruction. If, during the Term of this Lease, the Premises or the Building shall be damaged or destroyed, in part, by fire, windstorm or other hazard or casualty, Landlord shall, in accordance with and subject to the provisions of this Lease, at its own expense, promptly cause such

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damage or destruction to be repaired, reconstructed or replaced, as necessary, at least to the extent of the value and as nearly as practicable to the character thereof immediately prior to such occurrence, subject, however to any changes required by zoning, building and other laws then in existence. Rent shall be abated or reduced proportionately during any period in which by reason of such damage or destruction there is interference with the operation of Tenant’s business in the Premises, and such abatement or reduction shall continue for the period commencing with such destruction or damage and ending with (a) the completion by Landlord of such repair and/or restoration work as such party is obligated to do and (b) the expiration of a period two hundred forty (240) days thereafter to enable Tenant to refixture the Premises and reopen for business, but said two hundred forty (240) day period shall be deemed to have ended if Tenant shall reopen for business prior to the expiration thereof.

     13.2. Total Destruction. If the Premises or the Building shall be so damaged or destroyed as to render the Premises, in the reasonable judgment of Landlord, wholly untenantable by reason of such occurrence as aforesaid (hereinafter, “substantially damaged”), Landlord shall, in accordance with and subject to the provisions of this Lease, at its own expense, cause such damage or destruction to be repaired, reconstructed or replaced, as necessary, at least to the extent of the value and as nearly as practicable to the character thereof immediately prior to such occurrence, subject, however to any changes required by zoning, building and other laws then in existence. Rent shall be abated or reduced proportionately during any period in which by reason of such damage or destruction there is interference with the operation of Tenant’s business in the Premises, and such abatement or reduction shall continue for the period commencing with such destruction or damage and ending with (a) the completion by Landlord of such repair and/or restoration work as such party is obligated to do under this Lease and (b) the expiration of a period of two hundred forty (240) days thereafter to enable Tenant to refixture the Premises and to reopen for business, but said two hundred forty (240) day period shall be deemed to have ended if Tenant shall reopen for business prior to the expiration thereof. The foregoing notwithstanding: (i) if the Premises shall be substantially damaged or destroyed within the last two (2) years of the Lease Term, either party shall have the right to terminate this Lease, provided that notice thereof is given to the other party not later than sixty (60) days after such damage or destruction (provided, however, that, if Landlord shall exercise said right of termination and at that time Tenant shall have the right to extend the Lease Term, Tenant may render Landlord’s notice of termination null, provided that Tenant, within fifteen (15) days of receipt of the notice, shall elect to extend the term of this Lease); and (ii) if Landlord shall not commence, in good faith, repair and restoration work within sixty (60) days after any damage which such party is required to repair pursuant to the terms hereof, or if Landlord shall fail with all due diligence to continue with such repair and restoration work to completion (which completion shall in no event exceed two hundred forty (240) days from the date of the casualty), then Tenant shall have the right, in addition to all other rights and remedies available at law, in equity or under this Lease, to terminate this Lease by giving written notice of its election so to do to Landlord.

     13.3. Limitation of Landlord’s Obligation; Tenant’s Obligation. Landlord’s obligation of repair, reconstruction or replacement hereunder shall be limited to repairing, reconstructing and replacing the Premises (other than Tenant’s Work, Tenant’s Alterations, Tenant’s Removable Trade Fixtures, and Tenant’s fixtures), Building to as near to their condition prior to such damage or destruction as is reasonably possible (but in any event to a good and usable condition) (collectively, the “Restoration Work”). Moreover, Landlord shall not be liable for delays occasioned by adjustment or losses with insurance carriers or by any other cause so long as Landlord shall proceed in good faith and with due diligence. Tenant, at its sole cost and expense, shall be responsible for the repair, replacement and reconstruction of Tenant’s Work, Tenant’s Alterations, Tenant’s Removable Trade Fixtures, and fixtures. Tenant shall commence the performance of the foregoing repair, replacement and reconstruction promptly upon delivery to it of possession of Premises with the Restoration Work completed, and shall diligently prosecute the same to completion promptly thereafter, all such work by Tenant to be completed within a reasonable period of time not to exceed two hundred forty (240) days following the date on which possession of the Premises shall be redelivered to Tenant by Landlord. Landlord shall in no event be required to expend any of its own funds in connection with Tenant’s reconstruction work.

     13.4. Waiver by Tenant. Tenant hereby waives any and all right of recovery which it might otherwise have against the Landlord, its agents and employees, for loss or damage to any of the

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contents, merchandise, inventory, furniture, furnishings, fixtures and any other property contained within the Premises whether or not removable by Tenant under the provisions of this Lease, to the extent that the same are covered by Tenant’s insurance or would have been covered had Tenant maintained the insurance required under Section 12 of this Lease to be maintained by Tenant, unless such loss or damage is the result of the negligence or misconduct of the Landlord or any of its officers, employees, agents, contractors or licensees.

14. ASSIGNMENT, TRANSFER & SUBLETTING.

     Except as otherwise expressly provided in this Section 14, Tenant shall not assign the Lease nor sublet the Premises or any portion thereof without the prior written permission and consent of Landlord which approval or disapproval shall not be unreasonably withheld, delayed or conditioned. Any consent by Landlord once shall not constitute a waiver of the requirement for its consent to any future subletting or assignment of this Lease. If this Lease or any interest of Tenant herein is assigned or encumbered or if the whole or any part of the Premises is sublet after having obtained Landlord’s prior written consent thereto or as a Permitted Transaction (as defined below), Tenant shall nevertheless remain liable for the full performance of all obligations required to be performed by Tenant under this Lease and Tenant will require any assignee to execute and deliver to Landlord an assumption of liability agreement in form satisfactory to Landlord including, without limitation, an assumption by assignee of all of the obligations of Tenant and the assignee’s ratification of and agreement to be bound by all of the provisions of this Lease. The acceptance of rent from any other person shall not be deemed to be a waiver of any of the provisions of this Lease or consent to the assignment or subletting: of the Premises.

     In the event Tenant shall desire to assign the Lease or sublet the Premises, in whole or in part, Tenant shall give Landlord not less than thirty (30) days prior written notice. Such notice shall set forth all pertinent business terms of the proposed assignment or subletting, as the case may be, as well as, the name and address of the proposed assignee or subtenant, information as to the financial condition of the proposed assignee or subtenant and proposed use which assignee or subtenant desires to make of the Premises. Such notice shall bear the signature of the proposed assignee or subtenant attesting to its accuracy. Tenant shall in addition, at Landlord’s request, furnish such other information as Landlord may reasonably request concerning such proposed assignment or subletting. Tenant shall reimburse Landlord for Landlord’s reasonable costs of obtaining mortgagee approval of such request, and Landlord’s reasonable legal fees and costs, and all other reasonable out-of-pocket costs incurred by Landlord (currently not less than $500 or such greater amount as may be reasonable under the circumstances, relative to document review and/or preparation in connection with the proposed transaction, but in no event greater than $1,500).

     Notwithstanding the above, Tenant may, without the approval of Landlord, assign the Lease, or any part thereof, or sublease the Premises, in whole or in part, to: (a) any corporation which has the power to direct Tenant’s management and operation, or any corporation whose management and operation is controlled by Tenant; or (b) any corporation a majority of whose voting stock is owned by Tenant; or (c) any corporation in which or with which Tenant, its corporate successors or assigns, is merged or consolidated, in accordance with applicable statutory provisions for merger or consolidation of corporations, so long as the liabilities of the corporations participating in such merger or consolidation are assumed by the corporation surviving such merger or created by such consolidation; or (d) any corporation acquiring this Lease and a substantial portion of Tenant’s assets; or (e) any corporate successor to a successor corporation becoming such by either of the methods described in subsections (c) or (d). Each of the foregoing is referred to hereinafter as a “Permitted Transaction”.

     Prior to effecting a “Change of Control” (as defined herein), Tenant shall give Landlord at least fifteen (15) days prior written notice of such Change of Control and the same shall be considered an assignment of this Lease and unless otherwise exempt in accordance with the provisions of the following sentence, Landlord’s consent thereto shall be required. Notwithstanding the foregoing, any “Change of Control” occurring during the term of this Lease shall not be restricted in any manner and shall not require the Landlord’s consent: (a) if such transaction would have been a Permitted Transaction (not requiring the Landlord’s consent) had the same been effected by an assignment or sublease instrument alone

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rather than involving a stock transfer; (b) if the Tenant, the transferor or the transferee is a corporation, all or any portion of whose shares are traded and listed on a stock exchange (including the over-the-counter market) (a “public company”); (c) if the transaction is one by which Tenant becomes or ceases to be a public company; or (d) where the individuals or entities owning a controlling interest of the Tenant or of the Tenant’s parent company or partnership entity immediately prior to the transaction in question continue to retain voting control of the Tenant, either directly or through control of the Tenant’s parent company or partnership entity, after the transaction in question.

15. LANDLORD’S AND ASSOCIATION’S INTERESTS NOT SUBJECT TO LIENS.

     15.1. Liens, Generally. Tenant shall not create or cause to be imposed, claimed or filed upon the Premises, the Building, or any other portion of Weston Town Center, or upon the interest of Landlord or the Association therein, any lien, charge or encumbrance whatsoever. If, because of any act or omission of Tenant, any such lien, charge or encumbrance shall be imposed, claimed or filed, Tenant shall, at its sole cost and expense, cause the same to be fully paid and satisfied or otherwise discharged of record by bonding or otherwise, and Tenant shall indemnify, defend, save and hold Landlord harmless from and against, and reimburse Landlord for, any and all obligations, damages, injunctions, suits, fines, penalties, demands, claims, costs, expenses, actions, liabilities, suits, proceedings and losses of whatever nature (including, without limitation, attorneys’ fees and court costs), resulting or on account thereof and therefrom. In the event that Tenant shall fail to comply with the foregoing provisions of this Section 15, Landlord shall, in addition to Landlord’s other rights and remedies, have the option of paying, satisfying or otherwise discharging (by bonding or otherwise) such lien, charge or encumbrance and Tenant agrees to reimburse Landlord, upon demand and as Additional Rent, for all sums so paid and for all costs and expenses incurred by Landlord in connection therewith, together with interest thereon, until paid.

     15.2. Construction Liens. Landlord’s interest in the Premises shall not be subjected to liens of any nature by reason of Tenant’s Work, Tenant’s construction, alteration, repair, restoration, replacement or reconstruction of any improvements on or in the Premises, including, without limitation, those arising by reason of any other act or omission of Tenant (or of any person claiming by, through or under Tenant). All persons dealing with Tenant are hereby placed on notice that such persons shall not look to Landlord or to Landlord’s credit or assets (including, without limitation, Landlord’s interest in the Premises or in Weston Town Center) for payment or satisfaction of any obligations incurred in connection with the construction, alteration, repair, restoration, replacement or reconstruction thereof by, through or under Tenant. Tenant has no power, right or authority to subject Landlord’s or the Association’s interest in the Premises, the Building or any other portion of Weston Town Center, to any lien or claim of lien. If a lien, a claim of lien or an order for the payment of money shall be imposed against the Premises or any improvements thereon, therein or thereto, on account of work performed, or alleged to have been performed, for or on behalf of Tenant, Tenant shall, within thirty (30) days after written notice of the imposition of such lien, claim or order, cause the Premises and such improvements to be released therefrom by the payment of the obligation secured thereby or by furnishing a bond or by any other method prescribed or permitted by law. If a lien is released, Tenant shall thereupon furnish Landlord with a written instrument of release in form for recording in the office of the Clerk of the Circuit Court, Broward County, Florida, and otherwise sufficient to establish the release as a matter of record.

16. EMINENT DOMAIN.

     In the event the Premises, the Building or any part thereof shall be taken or condemned for public purposes by any competent authority, except as otherwise provided herein, the entire compensation awarded therefor shall belong to the Landlord, without any deduction therefrom for any present or future estate of Tenant; provided; however, that in the event more than twenty (20%) percent of the Premises shall be so taken or condemned, then either the Landlord or Tenant shall have the option of terminating the Lease upon giving to the other written notice of such election within thirty (30) days after possession of the part condemned has been taken by proper authorities, whereupon the Term of this Lease shall be terminated as of the date on which possession is so taken. If neither Landlord nor Tenant so elects to terminate the Lease, then Landlord at its own expense shall repair and restore the Premises not affected

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by the taking to its former condition as the circumstances will permit so that the remaining premises constitute a complete architectural unit. If the award is insufficient to pay for the restoration, Landlord shall be responsible for the remaining cost and expense of such restoration, provided, however, that Landlord shall in no event be required to expend any of its own funds for repairs or alterations which constitute Tenant’s Work, Tenant’s Alterations, Tenant’s Removable Trade Fixtures, and Tenant’s fixtures. During any period of time that, by reason of such taking or condemnation, there is any material interference with access to the Premises, there shall be a fair and equitable abatement of the rent payable hereunder, taking into account the extent to which Tenant’s operations may thereby be interfered with. Tenant shall have the right to make any claims allowed by the laws of the State of Florida against the condemning authority for the following: (a) the value or cost of its fixtures, equipment and other personalty; (b) its relocation expenses; and (c) the cost of any leasehold improvements made by Tenant in and to the Premises less the amount of the Tenant Improvement Allowance. Notwithstanding anything to the contrary set forth in this Section 16, in the event only one award is given, then Tenant shall have the right to share in such award relative to the aforesaid claims.

17. SUBORDINATION & ATTORNMENT.

     17.1. Subordination. Subject to the provisions of this Section 17.1, this Lease, Tenant’s interest hereunder and Tenant’s leasehold interest in and to the Premises, are hereby agreed by Tenant to be and are hereby made junior, inferior, subordinate and subject in right, title, interest, lien, encumbrance, priority, and all other respects, to any mortgage or mortgages placed on the property of which the Premises are a part, without the necessity of the execution of any further instrument or agreement of subordination on the part of Tenant. On or prior to the Commencement Date of the Lease, Landlord covenants to use its best efforts to obtain from each lender the security for whose loan encumbers the Premises or the Building as of the Execution Date, an executed nondisturbance agreement assuring Tenant that, notwithstanding any default by Landlord to the lender or any foreclosure or deed in lieu thereof, Tenant’ s rights under this Lease shall continue in full force and effect and its possession of the Premises shall remain undisturbed (including, without limitation, permission for insurance proceeds and eminent domain awards to be applied as required hereunder), except in accordance with the provisions of this Lease, so long as Tenant is not in default hereunder so as to permit Lease termination. The form and content of such agreement(s) shall be reasonably acceptable to Tenant. In no event shall such non-disturbance agreement be a condition of this Lease. Additionally, Tenant shall, upon Landlord’s request, subordinate this Lease in the future to any first lien placed by Landlord upon the Premises or the Building with an institutional first mortgagee, provided that such lender executes a nondisturbance agreement substantially similar in form and content to that which is required in the first sentence of this paragraph. Tenant will, upon request of the lienholder, be a party to such an agreement, and will agree that, if such lienholder succeeds to the interest of Landlord, Tenant will recognize said lienholder (or successor in interest of the lienholder) as its landlord under the terms of this Lease.

     17.2. Attornment. Tenant shall and hereby agrees to attorn, and be bound under all of the terms, provisions, covenants and conditions of this Lease, to any successor of the interest of Landlord under this Lease for the balance of the Term of this Lease remaining at the time of the succession of such interest to such successor. In particular, in the event that any proceedings are brought for the foreclosure of any mortgage encumbering any or all, or a combination of, the Premises or the Building, Tenant shall attorn to the purchaser at any such foreclosure sale and recognize such purchaser as Landlord under this Lease, subject, however, to the provisions of Section 17.1 and all of the other terms and conditions of this Lease. Tenant agrees that neither the purchaser at any such foreclosure sale nor the foreclosing mortgagee shall have any liability for any act or omission of Landlord, be subject to any offsets or defenses which Tenant may have as claim against Landlord or be bound by any advance rents which may have been paid by Tenant to Landlord for more than the current period in which such rents come due.

18. END OF TERM.

     18.1. Surrender of Premises. Tenant shall, on the last day of the Term of this Lease or upon the sooner termination thereof, peaceably and quietly surrender and deliver the Premises to Landlord

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“broom clean” in good order, condition and repair, reasonable wear and tear and damage by fire or other casualty excepted, and free and clear of liens and encumbrances. Tenant shall remove Tenant’s goods, effects, personal property, business and trade fixtures, machinery and equipment, and those of any persons claiming under Tenant (collectively, “Tenant’s Property”). Landlord may remove any of Tenant’s Property not removed at the expiration or other termination of this Lease without any liability whatsoever to Tenant. Tenant shall promptly reimburse Landlord upon demand for any expense incurred by Landlord in connection with such removal.

     18.2. Title to Leasehold Improvements. Upon surrender, or upon the expiration of the Term or sooner termination of this Lease, whichever shall first occur, all improvements, installations, fixtures (except Removable Trade Fixtures and Tenant’s Property), alterations and additions, whether originally constructed installed, delivered or placed in the Premises by Landlord or Tenant, shall remain in the Premises as part thereof and as the property of Landlord, and title thereto shall thereupon, and without further act of either party, vest in Landlord. However, if requested by Landlord, Tenant shall promptly thereafter execute and deliver to Landlord such deed or bill of sale as Landlord may reasonably require, provided that no covenant, warranty or representation of Tenant shall be contained therein.

     18.3. Holding Over. If Tenant or any other person or party shall remain in possession of the Premises or any part thereof following the expiration of the Term or earlier termination of this Lease without an agreement in writing between Landlord and Tenant with respect thereto, at the option of Landlord, in addition to any and all other rights and remedies of Landlord, the person or party remaining in possession shall be deemed to be a tenant at sufferance, and during any such holdover, the rents payable under this Lease by such tenant at sufferance shall be one hundred and fifty percent (150%) of the rate or rates in effect immediately prior to the expiration of the Term or earlier termination of this Lease. In addition, Tenant agrees to pay monthly all sales taxes assessed against such increased rent. In no event, however, shall such holding over be deemed or construed to be or constitute a renewal or extension of this Lease.

19. ENVIRONMENTAL COMPLIANCE.

     19.1. No Storage or Disposal. Tenant shall not handle, install, store, use, treat, transport or dispose of, spill or discharge (or knowingly permit or acquiesce in the handling, installation, storage, use, treatment, transportation, spilling, discharge or disposal by Tenant, its agents, employees, independent contractors, or subtenants) on the Premises, the Building, the Common Property or any other portions of Weston Town Center any: (a) asbestos in any form; (b) urea formaldehyde foam insulation; (c) transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million; or (d) any other chemical, material, air pollutant, toxic pollutant, waste, or substance which is regulated as toxic or hazardous or exposure to which is prohibited, limited or regulated by the Resource Conservation Recovery Act, the Comprehensive and Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act or any other federal, state, county, regional, local or other governmental authority or which, even if not so regulated, may or could pose a hazard to the health and safety of the occupants of the Premises, the premises adjacent to the Premises or any other portions of Weston Town Center; and which is either: (i) present in amounts in excess of that permitted or deemed safe under applicable law; or (ii) handled, installed, stored, used, treated, transported, spilled, discharged or disposed of in any manner which is prohibited or deemed unsafe under applicable law. (The substances referred to in (a), (b), (c) or (d) are collectively referred to hereinafter as “Hazardous Materials”). The foregoing is not intended to prevent the use of customary office products customarily used by Tenant, provided that the use, storage and disposal thereof is in strict compliance with all applicable Cleanup Laws.

     19.2. Cleanup Laws. Tenant shall, at Tenant’s own expense, comply with any presently existing or hereafter enacted laws relating to Hazardous Materials (“Cleanup Laws”). Tenant shall, at Tenant’s own expense, make all submissions to, provide all information to, and comply with all requirements of the appropriate governmental authority (the “Authority”) under the Cleanup Laws. Should any Authority require that a cleanup plan be prepared and that a cleanup be undertaken because of the

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existence of Hazardous Materials which were handled, installed, stored, used, treated, transported, disposed of, spilled or discharged in the Building or on the Premises, or on any portion of the Common Property or any other portion of Weston Town Center by Tenant, its agents, employees, independent contractors or subtenants during the Term of this Lease, Tenant shall, at Tenant’s own expense, prepare and submit the required plans and financial assurances and carry out the approved plans in accordance with such Cleanup Laws and to Landlord’s satisfaction. At no expense to Landlord, Tenant shall promptly provide all information requested by Landlord for preparation of affidavits or other documents required by Landlord to determine the applicability of the Cleanup Laws to the Building, the Premises, or any such portion of the Common Property or any other portion of Weston Town Center, as the case may be, and shall sign the affidavits promptly when requested to do so by Landlord. Tenant shall indemnify, defend, save and hold Landlord harmless from and against, and reimburse Landlord for, any and all obligations, damages, injunctions, suits, fines, penalties, demands, claims, costs, expenses, actions, liabilities, suits, proceedings and losses of whatever nature (including, without limitation, attorneys’ fees and court costs), and all cleanup or removal costs and all actions of any kind arising out of or in any way connected with the handling, installation, storage, use, treatment, transporting, disposal, spillage or discharge of Hazardous Materials in the Building or on the Premises, or on any portion of the Common Property or any other portion of Weston Town Center by Tenant, its agents, employees, independent contractors or subtenants during the Lease Term; and from all fines, suits, procedures, claims and actions of any kind arising out of Tenant’s failure to provide all information, make all submissions and take all steps required by the Authority under the Cleanup Laws or any other environmental law. Tenant’s obligations and liabilities under this Section 19.2 shall continue so long as Landlord, any of Landlord’s Affiliates and/or the Association remain responsible for Hazardous Materials at the Building, the Premises, or any portion of the Common Property or any other portion of Weston Town Center, that were handled, installed, stored, used, treated, transported, disposed of, spilled or discharged during the Lease Term by Tenant, its agents, employees, independent contractors or subtenants. In addition to and not in limitation of Landlord’s other rights and remedies, Tenant’s failure to abide by the terms of this Section 19.2 shall be restrainable by injunction.

     19.3. Environmental Notices. Each party shall promptly supply the other party with copies of any notices, correspondence and submissions made by such party to or received by such party from any governmental authorities of the United States Environmental Protection Agency, the United States Occupational Safety and Health Administration, or any other local, state or federal authority that relates to environmental matters or hazardous waste or substances.

20. DEFAULT.

     20.1. Events of Default. Each of the following events shall be an “Event of Default” hereunder by Tenant and shall constitute a breach of this Lease:

          20.1.1. If, at anytime during the Term of this Lease, Tenant shall file in any court, pursuant to any statute of either the United States or of any State, a petition in bankruptcy or insolvency, or for reorganization or arrangement, or for the appointment of a receiver or trustee of all or any portion of Tenant’s property, including, without limitation, its leasehold interest in the Premises, and such petition is not dismissed within one hundred twenty (120) days of filing or the Lease is rejected within a earlier period of time, or if Tenant shall make an assignment for the benefit of its creditors or petitions for or enters into an arrangement with its creditors.

          20.1.2. If, at any time during the Term of this Lease, there shall be filed against Tenant, in any courts pursuant to any statute of the United States or of any State, a petition in bankruptcy or insolvency, or for reorganization, or for the appointment of a receiver or trustee of all or a portion of Tenant’s property, including, without limitation, its leasehold interest in the Premises, and any such proceeding against Tenant shall not be dismissed within one hundred twenty days (120) days following the commencement thereof or the Lease is rejected within a earlier period of time.

          20.1.3. If Tenant’s leasehold interest in the Premises or property therein shall be seized

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under any levy, execution, attachment or other process of court where the same shall not be vacated or stayed on appeal or otherwise within ninety (90) days thereafter, or if Tenant’s leasehold interest in the Premises is sold by judicial sale and such sale is not vacated, set aside or stayed on appeal or otherwise within ninety (90) days thereafter.

          20.1.4. If Tenant shall fail to pay, when due, any rents payable hereunder or portion thereof, or any other sum due to Landlord from Tenant hereunder, and such failure continues for ten (10) days after Tenant’s receipt of written notice from Landlord.

          20.1.5. If the Premises or any portion thereof are used or permitted to be used for any Restricted Uses or other purpose, or for the conduct of any business or activity not permitted by this Lease.

          20.1.6. If Tenant removes or attempts to remove Tenant’s goods, merchandise or property from or out of the Premises, other than in the usual and ordinary course of Tenant’s business, without the prior written consent and approval of Landlord and without having first paid to Landlord all rents which may become due during the entire Term of this Lease.

          20.1.7. If any assignment or transfer shall be made, attempted to be made or deemed to be made that is in violation of any of the provisions of this Lease.

          20.1.8. If Tenant shall be in default of any other term or provision of this Lease, and Tenant, with respect to a non-monetary default, shall have failed within thirty (30) days of receipt of Landlord’s written notice (or such shorter time as is expressly provided in this Lease) to correct such default; provided that if such default is not curable within such thirty (30) day period, Tenant shall have failed within such thirty (30) day period to begin the correction of the default or thereafter fails actively and diligently and in good faith to proceed with and continue the correction of the default until it shall be fully corrected, but in no event shall such cure period exceed ninety (90) days in the aggregate.

     20.2. Remedies. If an Event of Default shall occur, then and in addition to any other rights or remedies Landlord may have under this Lease and at law or in equity, Landlord shall have the following rights upon no less than three (3) days written notice to Tenant:

          20.2.1. Without terminating this Lease, to accelerate the whole or any part of the Base Rent for the entire unexpired balance of the Term of this Lease, and any rent so accelerated shall, in addition to any and all installments of rent already due and payable and in arrears, and/or any other charge, expense or cost herein agreed to be paid by Tenant which may be due and payable and in arrears, be deemed due and payable as if, by the terms and provisions of this Lease, such accelerated rent were on that date payable in advance. The accelerated rent shall be discounted to its present value at an annual interest rate equal to eight percent (8%) per annum.

          20.2.2. After use of appropriate summary process, to enter the Premises, and without further demand or notice, proceed to distress and have sold the goods, chattels and personal property there found, to levy the rent, Tenant shall pay all costs and officer’s commissions, including, without limitation, watchmen’s wages and sums chargeable to Landlord, and further including, without limitation, any sums chargeable according to state law, as commissions to the constable or other person making the levy, and in such case all costs, officer’s commissions and other charges shall immediately attach and become part of the claim of Landlord for rent, and any tender of rent without said costs, commissions and charges made, shall not be sufficient to satisfy the claim of Landlord.

          20.2.3. After use of appropriate summary process, to re-enter the Premises and without further demand or notice, remove all persons and all or any property therefrom, by summary eviction proceedings or by any suitable action or proceeding at law, without being liable to indictment, prosecution or damages therefor, and repossess and enjoy the Premises, together with all alterations, fixtures, signs and other installations and improvements of Tenant. Upon recovering possession of the Premises by

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reason of or based upon or arising out of a default on the part of Tenant, Landlord may, at Landlord’s option, either terminate this Lease or make such alterations and repairs as may be necessary in order to relet the Premises and relet the Premises or any part or parts thereof for the account of Tenant, either in Landlord’s name or otherwise, for a term or terms which may at Landlord’s option be less than or exceed the period which would otherwise have constituted the balance of the Term of this Lease and at such rents and upon such other terms and conditions as in Landlord’s reasonable discretion may seem advisable and to such person or persons as may in Landlord’s discretion seem best; upon each such reletting all rents received by Landlord from such reletting shall be applied: first, to the payment of any costs and expenses of such reletting, including, without limitation, brokerage fees and attorney fees and all costs of such alterations and repairs; second, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; third, to the payment of rent due and unpaid hereunder, and the residue, if any, shall be held by Landlord and applied in payment of future rent as it may become due and payable hereunder. If such rentals received from such reletting during any month shall be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No such re-entry or taking possession of the Premises or the making of alterations and/or improvements thereto or the reletting thereof shall be construed as an election on the part of Landlord to terminate this Lease unless written notice of such intention be given to Tenant. Landlord shall in no event be liable in any way whatsoever for failure to relet the Premises or, in the event that the Premises or any part or parts thereof are relet, for failure to collect the rent thereof under such reletting. Tenant, for Tenant and Tenant’s successors and assigns, hereby irrevocably constitutes and appoints Landlord as Tenant’s and their agent to collect the rents due and to become due under all subleases of the Premises or any parts thereof without in any way affecting Tenant’s obligation to pay any unpaid balance of rent due or to become due hereunder. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach.

          20.2.4. To declare a default hereunder and take possession of the Premises without any right on the part of Tenant to waive the forfeiture by payment of any sum due or by other performance of any condition, term or covenant broken. Whereupon Landlord shall be entitled to recover, in addition to any and all sums and damages for violation of Tenant’s obligations hereunder in existence at such time, damages for Tenant’s default in an amount equal to the amount of the rent reserved for the balance of the Term of this Lease, as well as all other charges, payments, costs and expenses herein agreed to be paid by Tenant.

          20.2.5. To terminate this Lease and the term hereby created without any right on the part of Tenant to waive the forfeiture by payment of any sum due or by other performance of any condition, term or covenant broken. Whereupon Landlord shall be entitled to recover, in addition to any and all sums and damages for violation of Tenant’s obligations hereunder in existence at the time of such termination, damages for Tenant’s default in an amount equal to the amount of the rent reserved for the balance of the Term of this Lease, as well as all other charges, payments, costs and the expenses herein agreed to be paid by Tenant.

          20.2.6. In the event the Premises are relet by Landlord, Tenant shall be entitled to a credit against its rental obligations hereunder in the amount of rents received by Landlord from any such reletting of the Premises less any reasonable costs incurred by Landlord (not previously reimbursed by Tenant) in connection with the repossession and reletting of the Premises (including, without limitation, reasonable attorneys’ fees, brokerage commissions, and any cost of repairs, alterations and improvements to the Premises. In the event of any termination of this Lease or repossession of the Premises by Landlord as aforesaid, Landlord shall use reasonable efforts to relet the Premises at a fair market rental or as near thereto as is possible under the circumstances then existing so as to minimize the damages suffered by Landlord and payable by Tenant hereunder.

     20.3. Right of Injunctive Relief. In the event of a breach or threatened breach by Tenant of any of the terms, covenants, conditions or provisions thereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for.

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     20.4. Rights Not Exclusive, Additional Remedies. No right or remedy herein conferred upon or reserved to Landlord is intended to be exclusive of any other right or remedy herein or by law provided that each shall be cumulative and in addition to every other right or remedy given herein or now or hereafter existing at law or in equity or by statute. Nothing herein contained shall be construed as precluding the Landlord from having or exercising such lawful remedies as may be and become necessary in order to preserve the Landlord’s right or the interest of the Landlord in the Premises and in this Lease, even before the expiration of any notice periods provided for in this Lease, if under the particular circumstances then existing the allowance of such notice periods will prejudice or will endanger the rights and estate of the Landlord in this Lease and in the Premises. Landlord may assign any or all of its enforcement rights hereunder or in connection herewith to the Association, on an exclusive or nonexclusive basis, in Landlord’s sole discretion.

     20.5. Intentionally Deleted.

     20.6. Notice to Landlord. Landlord shall in no event be in default in the performance of any of its obligations contained in this Lease unless and until Landlord shall have failed to commence to perform such obligation within a reasonable period of time after receipt of written notice from Tenant by Landlord properly specifying wherein Landlord has failed to perform any such obligation or shall have failed to proceed thereafter with reasonable diligence to complete such performance. Notwithstanding the foregoing, if in Tenant’s reasonable judgment, an emergency (as defined in Section 10.1.2. hereof) shall exist, Tenant may cure such default without any prior notice to Landlord. If Landlord has not reimbursed Tenant within thirty (30) days after receipt of Tenant’s bill, Tenant may deduct the reasonable cost of such expense from the Base Rent next becoming due after the expiration of said thirty (30) day period. The self-help option given in this Section is for the sole protection of Tenant, and its existence shall not release Landlord from its obligation to perform the terms, provisions, covenants and conditions herein provided to be performed by Landlord or deprive Tenant of any legal rights which it may have by reason of any such default by Landlord.

     20.7. Landlord’s Lien. Landlord shall have at all times during the Term of this Lease, a valid lien for all rents and other sums of money becoming due hereunder from Tenant, upon all goods, wares, merchandise, inventory, furniture, fixtures, equipment and other personal property and effects of Tenant situated in or upon the Premises, and such property shall not be removed therefrom without the approval and consent of Landlord (which shall not be unreasonably withheld, delayed or conditioned) until all arrearage in rent as well as any and all other sums of money then due to Landlord hereunder shall first have been paid and discharged in full. Upon the occurrence of any Event of Default by Tenant, Landlord may, in addition to any other remedies provided herein or by law, enter upon the Premises and take possession of any and all goods, wares, merchandise, inventory, furniture, fixtures, equipment and other personal property and effects of Tenant situated in or upon the Premises without liability for trespass or conversion, and sell the same at public or private sale, with or without having such property at the sale, at which Landlord or its assigns may purchase, and apply the proceeds thereof, less any and all expenses connected with the taking of possession and sale of the property, as a credit against any sums due by Tenant and Tenant agrees to pay any deficiency forthwith. Alternatively, the lien hereby granted may be foreclosed in the manner and form provided by law for foreclosure of security interests or in any other manner and form provided by law. The statutory lien for rent, if any, is not hereby waived and the express contractual lien herein granted is in addition thereto and supplementary thereto.

21. MISCELLANEOUS.

     21.1. Waiver. One or more waivers of any covenant, term or condition of this Lease by either party shall not be construed by the other party as a waiver of a subsequent breach of the same term, covenant or condition. The consent or approval of either party to or of any act by the other party of a nature requiring consent or approval shall not be deemed to waive or render unnecessary consent to or approval of any subsequent similar act.

     21.2. Notices. Any notice required or permitted to be given under this Lease shall be deemed given if delivered personally to an officer or general partner of the party to be notified or sent by United

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States registered or certified mail, or by national overnight receipted delivery service (e.g. Federal Express), postage prepaid, return receipt requested, and if to Tenant addressed to Tenant at 2000 Ultimate Way, Weston, FL 33326, Attn: General Counsel, with a copy to Becker & Poliakoff, P.A., 3111 Stirling Rd., Ft. Lauderdale, FL 33312, Attn: Kelley Whiter, Esq., and if to Landlord addressed to Landlord at c/o Belmont Investment Corp., 600 Haverford Road, Suite G101, Haverford, PA 19041, or such other addresses as may be designated by either party by ten (10) days’ written notice to the other. Except as otherwise provided in this Lease, every notice, demand, request or other communication hereunder shall be deemed to have been given, or served and received upon the earlier to occur of: (i) the date of actual delivery thereof; or (ii) the first date on which the United States mail or receipted overnight carrier first attempted to deliver such notice (in the event said carrier is unable to deliver such notice, or delivery of such notice is refused). Notices sent via facsimile prior to 5:00 pm (Eastern Time) on any business day are permitted so long as same day written confirmation of such transmission is obtained by the sending party and shall be deemed to be received on the date of transmission, provided that a duplicate notice is sent simultaneously by one of the other delivery methods permitted herein.

     21.3. Relationship of Parties. Nothing contained in this Lease nor any act or acts of the parties shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent or of partnership or of joint venture or of any association whatsoever between Landlord and Tenant, other than the relationship of landlord and tenant.

     21.4. Governing Law. The laws of the State of Florida shall govern the validity, performance and enforcement of this Lease.

     21.5. Savings Clause. The invalidity or unenforceability of any provision of this Lease shall not affect or impair the validity of any other provision.

     21.6. Headings. The paragraph titles herein are for convenience only and do not define, limit or construe the contents of such paragraph.

     21.7. Covenant to Bind Successors. It is agreed that the provisions, covenants and conditions of this Lease shall be binding on the legal representatives, heirs, successors and assigns of the respective parties hereto.

     21.8. Estoppel Certificate. Each of Landlord and Tenant shall, within ten (10) days after a request from time to time made by the other party, give a certification in writing to any person, firm or corporation reasonably specified by the requesting party stating: (a) that this Lease is then in full force and effect and unmodified or, if modified, stating the modifications; (b) that, in the case of Tenant, Tenant is not in default in the payment of rent or any additional amounts to Landlord or, if in default, stating such default; (c) that so far as the maker of the certificate knows, the other party is not in default in the performance or observance of any other covenant or condition to be performed or observed under this Lease or, if the other party is in default, stating such default; (d) that so far as the maker of the certificate knows, no event has occurred which authorizes, or with the lapse of time will authorize, the other party to terminate this Lease or, if such event has occurred, stating such event; (e) that so far as the maker of the certificate knows, the other party does not have any offsets, counterclaims or defenses or, if either party has any such offsets, counterclaims or defenses, stating them; (f) in the case of Tenant, the date to which rent and other amounts payable hereunder by Tenant have been paid; and (g) any other matters which may be reasonably requested by the requesting party.

     21.9. Force Majeure. If the performance by either of the parties of its obligations under this Lease (excluding monetary obligations) is delayed or prevented in whole or in part by any law, rule, regulation, order or other action adopted or taken by any federal, state or local governmental authority (and not attributable to an act or omission of said party), or by any acts of God, fire or other casualty, floods, storms, explosions, accidents, epidemics, war, civil disorders, strikes or other labor difficulties, shortages or failure of supply of materials, labor, fuel, power, equipment, supplies or transportation, or by any other cause not reasonably within said party’s control, whether or not specifically mentioned herein, said party shall not be deemed to be in default hereunder with respect thereto unless such party fails to

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promptly remedy such lack of performance immediately following the end of such event of force majeure.

     21.10. Brokerage. Landlord and Tenant hereby represent and warrant to each other that there is no real estate broker or salesperson involved in this Lease other than: NONE. If a claim for brokerage or similar fees in connection with this Lease is made by any broker, salesperson or finder claiming to have dealt through or on behalf of one of the parties to this Lease, then that party shall indemnify, defend and hold the other party under this Lease harmless from all liabilities, damages, claims, costs, fees and expenses whatsoever (including, without limitation, attorneys’ fees and court costs, including those for appellate matters) with respect to said claim for brokerage or similar fees.

     21.11. Entire Agreement; Amendment. This Lease contains the entire agreement between the parties and, except as otherwise provided herein, can only be changed, modified, amended or terminated by an instrument in writing executed by the parties. It is mutually acknowledged and agreed by Landlord and Tenant that there are no verbal agreements, representations, warranties or other understandings affecting the same; and that Tenant hereby waives, as a material part of the consideration hereof, all claims against Landlord for rescission, damages or any other form of relief by reason of any alleged covenant, warranty, representation, agreement or understanding not contained in this Lease.

     21.12. Attorney’s Fees and Costs. In the event it shall become necessary for either party to employ the services of an attorney to enforce any of its rights under this Lease, regardless of whether a suit be brought, the non-prevailing party shall pay to the prevailing party the prevailing party’s attorneys’ fees. Should suit be brought for the recovery of possession of the Premises, or for rent or any other sums due Landlord under this Lease, or because of the default of any of Tenant’s covenants under this Lease, Tenant shall pay to Landlord all expenses of such suit and any appeal thereof, including, without limitation, attorneys’ fees.

     21.13. Radon Gas: In accordance with the provisions of Florida Statutes Chapter 404.29(8), notification is hereby tendered concerning the possible existence of Radon Gas in or about the Premises. Please be advised that: “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 overtime. Levels of radon that exceed Federal and State guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your County Public Health Unit.”

     21.14. Negotiation and Execution. The furnishing of this Lease by the Landlord to Tenant shall not be considered an offer to lease, even though completed in every respect, until and unless the appropriate officers of Landlord have executed the document. No correspondence or other communication respecting this Lease shall create any obligation to go forward with this Lease until the Lease document is fully completed and executed by both the Landlord and Tenant.

     21.15. Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS LEASE, NEITHER LANDLORD NOR ANY PRESENT OR FUTURE PARTNER IN OR AFFILIATE OF LANDLORD, NOR ANY SHAREHOLDER, OFFICER, DIRECTOR, MEMBER, EMPLOYEE OR AGENT OF ANY CORPORATION THAT IS OR BECOMES A PARTNER IN LANDLORD, SHALL BE PERSONALLY LIABLE, DIRECTLY OR INDIRECTLY, UNDER OR IN CONNECTION WITH THIS LEASE, OR ANY DOCUMENT, INSTRUMENT OR CERTIFICATE SECURING OR OTHERWISE EXECUTED IN CONNECTION WITH THIS LEASE, OR ANY AMENDMENTS OR MODIFICATIONS TO ANY OF THE FOREGOING MADE AT ANY TIME OR TIMES, HERETOFORE OR HEREAFTER, OR IN RESPECT OF ANY MATTER, CONDITION, INJURY OR LOSS RELATED TO THIS LEASE OR THE BUILDING, AND ONLY LANDLORD’S INTEREST IN THE BUILDING (OR PROCEEDS THEREOF) SHALL BE AVAILABLE TO SATISFY ANY CLAIMS AGAINST LANDLORD; AND THE TENANT AND EACH OF ITS SUCCESSORS AND ASSIGNEES WAIVES AND DOES HEREBY WAIVE ANY SUCH PERSONAL LIABILITY. For purposes of this Lease, and any such instruments and certificates, and any such amendments or modifications, neither the negative capital account of any partner in Landlord, nor any obligation of any partner in Landlord to restore a negative capital account or to contribute capital to Landlord or to any other partner in Landlord, shall at any time be deemed to be the property or an asset

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of Landlord or any such other partner (and neither Tenant nor any of its successors or assignees shall have any right to collect, enforce or proceed against or with respect to any such negative capital account or a partner’s obligation to restore or contribute).

     21.16. Waiver of Jury Trial. LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, TENANT’S USE OR OCCUPANCY OF THE PREMISES OR ANY CLAIM OF INJURY OR DAMAGE.

     21.17. Counterparts. This Lease may be executed in one or more counterparts, which shall be construed together as one document.

     21.18. Right of First Offer. Upon condition that Tenant is not in default in the performance of any covenant or obligation to be performed by Tenant under this Lease beyond any applicable notice or cure periods, Landlord agrees that Landlord will not enter into any new lease of any space within the Building which may become vacant during the Term of this Lease (the “First Offer Space”) with any tenant unless Landlord shall first offer in writing said space to Tenant. Prior to entering into negotiations with any other party to lease the First Offer Space, Landlord shall give Tenant notice (“Landlord’s First Offer Notice”) that such space is available for leasing. If Tenant fails to notify Landlord within ten (10) days of Tenant’s receipt of Landlord’s First Offer Notice that Tenant wishes to lease the First Offer Space, Tenant shall have waived any and all rights it may have under this Section 21.18 with respect to the First Offer Space. If Tenant notifies Landlord within ten (10) days of Tenant’s receipt of Landlord’s First Offer Notice that Tenant wishes to lease the First Offer Space, the First Offer Space shall automatically be leased to Tenant on the same terms and conditions as are set forth in this Lease with respect to the Premises, except that the Base Rent shall be then “Fair Market Rental Rate” for the First Offer Space. If Tenant shall fail to exercise its right of first offer, then at Landlord’s request, Tenant shall execute a release of its right of first offer herein granted as applicable to the space so offered to Tenant. For purposes of this Lease, the term “Fair Market Rental Rate” shall mean the annual rent for similar commercial type property in Weston, Florida (taking into account: size, location, condition and other relevant factors, and the term of the extension period, permitted use and other business provisions provided for in this Lease) at the time in which Tenant exercises its option.

     21.19. Future Premises. The parties acknowledge and agree that they are currently negotiating the terms of a build-to-suit lease (the “Build-to-Suit Lease”) for certain premises (“Future Premises”) to be located in a proposed building (the “Proposed Building”) consisting of approximately 40,000 square feet to be constructed by Landlord in Weston Town Center in a location to be mutually agreed upon by the parties. From and after the Execution Date, the parties agree to use good faith, diligent efforts to negotiate the terms of the Build-to-Suit Lease. In the event Landlord shall fail complete the Proposed Building and deliver the Future Premises to Tenant in a condition suitable for Tenant’s occupancy in accordance with the terms and conditions of the Build-to-Suit Lease on or before the second (2^nd) anniversary of the Execution Date, Tenant may, at any time thereafter prior to Landlord’s completion of the Proposed Building and delivery of the Future Premises to Tenant, terminate this Lease upon one hundred and eighty (180) days’ prior written notice to Landlord; provided that Tenant’s termination notice shall be deemed null, void and of no force or effect in the event Landlord completes the Proposed Building and delivers the Future Premises in accordance with the terms and conditions of the Build-to-Suit Lease at any time prior to the expiration of the aforesaid one hundred and eighty (180) day period. The foregoing notwithstanding, at any time after both parties’ execution of the Build-to-Suit Lease and Tenant’s opening for business in the Future Premises, Tenant shall have the right, upon thirty (30) days’ prior written notice to Landlord, to terminate this Lease.

     21.20. Future Development on Common Property. The parties acknowledge that the Common Area Owner is currently contemplating the development and construction of multilevel retail and residential use buildings, together with parking garages and certain other common facilities and improvements, on the Common Property of Weston Town Center (“Future Development”). The parties agree that nothing contained in this Lease shall prohibit nor prevent the Common Area Owner from

28

pursuing and constructing the Future Development. The parties further agree that the Future Development shall not constitute or be considered as an eviction or disturbance of Tenant’s quiet enjoyment or possession of the Premises so long as such steps are accomplished without unreasonable disruption of (i) access to the Premises, (ii) Tenant’s business or (ii) the Permitted Use.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

[SIGNATURE PAGES TO FOLLOW]

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     IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly executed as of the Execution Date.

Signed, sealed and delivered	“LANDLORD”
in the presence of:
	SOUTH OFFICE BUILDING-BJB, LLC a Florida limited liability company, tenant in common, and
	SOUTH OFFICE BUILDING-BAGTRUST, LLC, a Florida limited liability company, tenant in common, and
	SOUTH OFFICE BUILDING-DLB, LLC, a Florida limited liability company, tenants in common
	By: Belmont Investment Corp., a Pennsylvania corporation, registered to do business in Florida as Weston Leasing, Agent for Landlord
Print Name:
Print Name:	By: Barry J. Belmont, President

ACKNOWLEDGMENT

COMMONWEALTH OF PENNSYLVANIA	)
	)	SS:
COUNTY OF DELAWARE	)

     The foregoing instrument was acknowledged before me this ___ day of _______________, 2005, by Barry J. Belmont, President of Belmont Investment Corp., a Pennsylvania corporation, registered to do business in Florida as Weston Leasing, Agent of SOUTH OFFICE BUILDING-BJB, LLC , a Florida limited liability company, SOUTH OFFICE BUILDING-BAGTRUST, LLC, a Florida limited liability company, tenant in common, and SOUTH OFFICE BUILDING-DLB, LLC, a Florida limited liability company, who is personally known to me or has produced __________________ as identification.

NOTARY PUBLIC
Print Name:
Commission Exp.:
Commission No.:

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	“TENANT”
Signed, sealed and delivered
in the presence of:	Ultimate Software Group, Inc.,
	a Delaware corporation
/s/ Vivian Maza
Print Name: Vivian Maza
	By: /s/ Robert Manne
	Name: Robert Manne Title: Senior Vice President 8/19/05
/s/ Norma J. Gray
Print Name: Norma J. Gray

ACKNOWLEDGMENT

Individual

STATE OF Florida	)
	)	SS:
COUNTY OF Broward	)

     The foregoing instrument was acknowledged before me this 19th day of August, 2005, by Robert Manne, as Senior Vice President of Ultimate Software Group, Inc., a Delaware corporation, who is personally known to me or has produced ____________________ as identification.

/s/ Darlene J. Smith  

NOTARY PUBLIC STATE OF FLORIDA 

Print Name: Darlene J. Smith
Commission Exp.: 06/20/2009
Commission No.: DD439460 

[Signatures continued on the following page]

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Signed, sealed and delivered	“COMMON AREA OWNER”
in the presence of:
	WESTON COMMON AREA, LTD.,
	a Florida limited partnership,
	By: WESTON COMMON AREA, LLC
	a Florida limited liability company, Sole General Partner
Print Name:
	By:
	Barry J. Belmont, Managing Member
Print Name:

ACKNOWLEDGMENT

COMMONWEALTH OF PENNSYLVANIA	) )	SS:
COUNTY OF DELAWARE	)

     The foregoing instrument was acknowledged before me this ___ day of _______________, 2005, by Barry J. Belmont, the managing member of Weston Common Area, LLC, a Florida limited liability company, sole general partner of Weston Common Area, Ltd., a Florida limited partnership, who is personally known to me or has produced as identification.

/s/  

NOTARY PUBLIC 

Print Name:
Commission Exp.:
Commission No.: 

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EXHIBIT A
WESTON TOWN CENTER SITE PLAN

33

EXHIBIT B
SECOND FLOOR PLAN OF BUILDING

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EXHIBIT C
INTENTIONALLY DELETED

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EXHIBIT D
LANDLORD’S WORK

Landlord agrees, at its sole cost and expense, to perform any and all work necessary (“Landlord’s Work”) to deliver possession of the Premises to Tenant in the following condition:

1.	The Premises shall be delivered to Tenant by Landlord in a neat and clean condition, free of all tenants and occupants, and free of all store fixtures and the like of prior occupants, with any damage to the Premises caused by the removal of the fixtures of the prior occupant having been repaired (at Landlord’s cost) to Tenant’s reasonable satisfaction.
2.	The Premises shall be delivered in a structurally sound condition and with a completely watertight roof; and the Building Shell sprinkler system and the Building’s utilities (empty conduits will be run from the Premises to the meter room to facilitate electric and telephone service) shall be in good working order and of sufficient size, capacity and pressure to adequately and efficiently service Tenant’s Permitted Use of the Premises. All utilities shall be separately metered by Landlord at no cost or expense to Tenant. Landlord shall pay any and all impact, “tap-in” and/or “hook-up” fees due in connection with the furnishing of utility services to the Premises.
3.	The Premises shall be free of any Hazardous Materials, including, without limitation, any asbestos or asbestos-containing materials.
4.	Intentionally Deleted.
5.	Except as otherwise provided in this Lease and the exhibits thereto, Landlord shall deliver the Premises to Tenant in its present “As Is” physical condition. The foregoing reference to the Premises being delivered in “As Is” condition shall not relieve Landlord of any maintenance or repair obligations with respect to the Premises otherwise specifically set forth in this Lease as the responsibility of Landlord.

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EXHIBIT E
WESTON TOWN CENTER RULES AND REGULATIONS

The following are the Rules and Regulations of Weston Town Center and, as indicated, shall be applicable to the use and operation of the Common Property and to the use, occupancy and operation of all Buildings within Weston Town Center:

1. Access. Tenant shall not obstruct any elevators, vestibules, stairways, corridors, halls, sidewalks, passages, exits, entrances, roadways, truck ways, loading docks, package pick-up stations, or pedestrian sidewalks or ramps within any Building or any other portion of Weston Town Center. No sidewalk or walkway shall be used for other than pedestrian travel. No person shall use any roadway, sidewalk, or walkway, except as a means of egress or ingress to retail or commercial establishments or residential areas or automobile parking areas within Weston Town Center, or adjacent public streets. Such use shall be in an orderly manner, and in accordance with the directional and other signs or guides. Roadways shall not be used for parking or stopping, except for the immediate loading or unloading of passengers.

2. Advertising. Tenant shall not: (i) conduct any fire, bankruptcy, auction or “Going Out of Business” sale (whether real or fictitious), nor shall Tenant represent or advertise that it regularly or customarily sells merchandise at “manufacturer’s or distributor’s discount”, “wholesale,” “warehouse,” or other than at “retail” prices; (ii) use, or permit to be used, the Premises, the sidewalks or other portions of the Common Property for solicitation or for the sale or display of any merchandise or for any other business, occupation or undertaking, or for outdoor public meetings, circuses or other entertainment of any kind (except for promotional activities in cooperation with the Landlord); (iii) use or permit to be used any sound broadcasting or amplifying device which can be heard outside of the Premises; or (iv) use or permit to be used any flashing, beacon, strobe, chaser or other form of special attention-getting lighting which may be visible from the exterior of the Premises. Tenant shall not park any trailer, truck or other vehicle in Weston Town Center at any time for the purpose of advertising or promoting Tenant’s business. Upon Landlord’s request, Tenant shall cease any advertising by Tenant which uses or employs or references the name of Weston Town Center or any derivative thereof and which, in Landlord’s reasonable opinion, tends to adversely impact or impair the reputation of Weston Town Center or Landlord.

3. Illumination of Signs. The illumination of Tenant’s signs shall be controlled by Landlord during such hours as may be reasonably designated by Landlord.

4. Solicitation, Etc. Tenant shall not, and shall not permit any third parties to, solicit business or engage in any promotional activities or distribute any handbills or other promotional or advertising materials of any kind within the Premises or any other portion of Weston Town Center (except within the Premises and then only to the extent such advertising materials or promotional activities are intended solely to promote sales of the items sold within the Premises and are not also intended to promote or publicize any business or attraction not located within Weston Town Center), nor shall Tenant engage or permit any third parties to engage, in any sales or promotional practices within the Premises or any other portion of Weston Town Center. Tenant shall not, and shall not permit any third parties to, solicit for or distribute any promotional or advertising materials or engage in any promotional activities, which are intended to, or which may have the effect of encouraging customers of Tenant to attend, shop at, or order merchandise from any store, business, attraction or other location not contained within Weston Town Center, without Landlord’s prior written consent, which consent Landlord may withhold in its sole and absolute discretion. Tenant shall not solicit membership in or contributions for any organization, group, association or any other purpose, or permit any other third parties to do the same anywhere in the Premises or any portion of Weston Town Center, without Landlord’s prior written consent, which consent Landlord may withhold in its sole and absolute discretion. Canvassing, soliciting, and peddling within the Premises and within any other portion of Weston Town Center is prohibited, and Tenant shall cooperate to prevent the same. In addition to the foregoing, neither Tenant nor Weston Town Center employees or agents shall, in or on any part of Weston Town Center:

A. Engage in any conduct that might tend to interfere with or impede the use of any of the Common Property by any customer, business invitee, employee, or tenant of Weston Town

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Center, create a disturbance, attract attention, or harass, annoy, disparage, or be detrimental to the interest of any of the retail, commercial or residential (if any) establishments within Weston Town Center.

B.	Throw, discard, or deposit any paper, glass, or extraneous matter of any kind, except in a designated trash receptacle, or create litter hazards of any kind.
C.	Use any sound making device of any kind or create and produce in any manner noise or sound that is annoying, unpleasant or distasteful to any other tenant, occupant, or adjacent resident.
D.	Deface, damage, or demolish any sign, light standard or fixture, landscaping material, or other improvement within Weston Town Center, or the property of customers, business invitees, or employees situated within Weston Town Center.

5. Parking. Tenant, and Tenant’s employees and customers shall not use any automobile parking areas except for the parking of motor vehicles during the period of time the occupant(s) of such motor vehicles are working in or customers or business invitees of retail or commercial establishments within Weston Town Center. Usage of parking spaces shall be in common with all other tenants of the Building or of Weston Town Center, and their employees, agents, invitees and guests. Additionally, Tenant’s employees, agents, invitees and guests shall abide by all posted roadway signs on or about the parking facilities and all motor vehicles shall be parked in an orderly manner within the painted lines defining the individual parking spaces. Trailers, trucks or cars shall not be permitted to remain parked overnight within Weston Town Center, whether loaded, unloaded or partially loaded. Landlord shall have the right to tow away any vehicle, at Tenant’s expense, which is in violation of these Rules and Regulations or which is determined by Landlord to be objectionable, if after written notice to Tenant, Tenant has failed to remove the same. In the event that Tenant or its employees shall fail, after written notice, to park in the designated parking areas (in the event any such areas are hereafter so designated for employee parking as set forth in the Lease), Landlord, at its option, shall be entitled to charge Tenant Twenty-Five Dollars ($25.00) per day or partial day per car parked in any area other than the designated employee parking area. Tenant agrees that parking lots contained within Weston Town Center shall be managed by Landlord; and that Landlord may prohibit Tenant and Tenant’s employees from parking in such lots if Landlord deems it advisable to reserve such spaces for retail, commercial and other customers of Weston Town Center. EMPLOYEE PARKING ON MAIN STREET SHALL BE STRICTLY PROHIBITED.

6. Theft or Loss. Tenant shall be responsible for the protection and security of the Premises and all property therein from robbery, theft, vandalism, pilferage or other loss. Landlord shall not be responsible for lost or stolen personal property, equipment or money occurring within the Premises or the Building, regardless of how or when the loss occurs. Tenant, upon leaving the Premises at the end of any day, shall see that all windows and exit doors from the Premises are closed and locked. Tenant shall furnish Landlord with “after-hours” emergency telephone numbers, for the sole use of Landlord at its sole and absolute discretion. Except for emergency purposes, Landlord will use its best efforts to keep such telephone numbers confidential.

7. Keys. Landlord shall furnish Tenant (free of charge) with two (2) keys to each door lock in the Premises. Landlord shall have the right to retain at all times, and to use in appropriate instances, keys to all doors within and to the Premises. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes be made in existing locks or the mechanism thereof, without the prior written consent of Landlord, which consent Landlord may withhold in its own discretion, and unless a duplicate key is delivered to Landlord. Tenant, upon the expiration or earlier termination of the Lease, shall deliver to Landlord all keys to all doors in the Premises, and in the event of a failure of Tenant to do so, Landlord shall have the right to change any locks in the Premises and charge Tenant for the reasonable cost thereof.

8. Deliveries/Loading/Unloading. All deliveries to the Premises and loading and unloading of goods shall be done only at the rear entrance(s) to the Premises, or as may be otherwise determined by

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Landlord from time to time.

9. Moving/Equipment. Tenant shall not use any hand trucks or other material-handling equipment within the Premises or the Building, within which the Premises is located, except those equipped with rubber tires and side guards. Any damage to the Premises, said Building or any other portion of Weston Town Center arising out of the movement of any equipment, furniture or other property, shall be repaired by Tenant at its sole expense.

10. Equipment/Vibration. Landlord shall have the right to prescribe the weight, size and location of all equipment, materials, furniture or other property brought into the Premises, and the Building. Landlord shall also have the right to require all such items to be moved into and out of said Building or the Premises only at such times and in such manner as Landlord shall direct in writing; provided, however, movement of Tenant’s property into and out of the Premises of said Building are entirely at the risk and responsibility of Tenant. Tenant shall not place a load upon any floor which exceeds the designed load per square foot or the load permitted by law. Heavy objects shall stand on such platforms as may be necessary to properly distribute the weight thereof. Business machines and mechanical equipment which cause noise or vibration that may be transmitted, felt or heard outside the Premises, shall be placed and maintained by Tenant at Tenant’s expense, on vibration eliminators or other similar devices.

11. Installation of Services/Roof. Except for telephone, computers and fax equipment installed wholly within the Premises and intended solely to support Tenant’s business on the Premises, Tenant shall not install any signal, communications, telegraphic, telephonic, burglar alarm or similar services within the Premises, or any part of the Building, without Landlord’s prior written approval, and Tenant shall comply with all reasonable limitations or restrictions imposed by Landlord in connection with the installation thereof any such work, if approved by Landlord, shall be done at Tenant’s sole cost and expense. Tenant shall not go onto the roof of any Building for any reason without Landlord’s prior written approval, which approval Landlord may withhold in its sole and absolute discretion.

12. Antennas, Etc. Tenant shall not install any radio or television antenna, loudspeaker or other device on the roof or exterior walls of the Premises or the Building or any other portion of Weston Town Center. Tenant shall not interfere with radio or television broadcasting or reception from or within Weston Town Center or any property located within the general vicinity of Weston Town Center.

13. Exterior Appearance. Tenant shall not place or install any show cases, awnings, window coverings, shades, lighting, signs, canopies, or any other item or article, in front of or affixed to any part of the exterior of the Premises or the Building or any other portion of Weston Town Center which would affect the visual appearance of same, without Landlord’s prior written consent, which consent Landlord may withhold in its sole and absolute discretion.

14. Restrooms. The restrooms, toilets, urinals, wash bowls and other bathroom facilities and apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substances of any kind whatsoever shall be disposed of therein. All expenses of repair or replacement due to any breakage, stoppage or damage of any bathroom facilities or related sanitary sewer lines in the Premises shall be borne exclusively by Tenant.

15. Fire-Retardant Materials. All paneling or other wood products not considered furniture which Tenant shall install in the Premises shall be of fire-retardant materials. Prior to the installation of any such materials, Tenant shall submit to Landlord a satisfactory (in the reasonable opinion of Landlord) certification of such materials’ fire-retardant characteristics.

16. Landlord’s Right. Landlord shall have the right, but not the obligation, to remove or exclude from or to restrain (or take legal action to do so) any unauthorized person from, or from coming upon, Weston Town Center or any portion thereof, and to prohibit, abate, and recover damages arising from any unauthorized act, whether or not such act is in express violation of these Rules and Regulations or of this Lease.

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17. Compliance. Tenant shall be responsible for the compliance by its employees and agents with the foregoing Rules and Regulations, and, with respect to Tenant’s customers, invitees and guests, Tenant shall exercise due diligence in the enforcement and observation of these Rules and Regulations.

18. Waiver. No release or waiver by Landlord of any provisions herein shall be enforceable by Tenant unless in writing and executed by Landlord. The failure by Landlord to insist upon the strict performance of any of the terms or provisions hereof shall not be deemed a waiver of any rights or remedies of Landlord or a waiver of any subsequent violation or failure of compliance with these Rules and Regulations.

19. Amendment. Landlord shall have the right to promulgate additional Rules and Regulations or amend or rescind any of the foregoing Rules and Regulations from time to time as Landlord in its sole and absolute discretion deems suitable, including, without limitation, for the safety, care and cleanliness of Weston Town Center and the conduct of a first class retail shopping/commercial/residential district. Tenant shall comply with all new or amended Rules and Regulations upon receipt of written notice of the same from Landlord.

20. Consent. Whenever any consent or approval of Landlord is required pursuant to these Rules and Regulations, such consent shall be in writing and shall be given or withheld by Landlord in accordance with the standards for such consent or approval as set forth in this Lease, said consent or approval not to be unreasonably withheld.

21. Conflict with Lease. These Rules and Regulations are in addition to and shall not be construed to in any way modify or amend the terms, provisions, agreements, covenants and conditions of this Lease. In the event of any conflict between the Rules and Regulations and this Lease, the terms and provisions of this Lease shall prevail.

22. Association Declaration and Rules. These Rules and Regulations are in supplement to, and not in derogation of, the Association Declaration. In the event of conflict between these Rules and Regulations and the Association Declaration, the more restrictive shall control. Tenant shall comply with the Association Declaration.

23. Customers’ Store Entrance. All customers must enter the Premises only at the front entrance(s) to the Premises, or as may be otherwise determined by Landlord from time to time.

24. Sign Criteria. Tenants are encouraged to have window displays, however, no signage shall be affixed to the window. Any hang-down signs, etc. shall not be less than eighteen (18) inches from the store front window of the Premises.

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EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

The Ultimate Software Group, Inc.:

We consent to the incorporation by reference (i) in the registration statement (No. 333-107527 and No. 333-115894) on Form S-3 of The Ultimate Software Group, Inc. and (ii) the registration statements (No. 333-55985, No. 333-91332 and No. 333-125076) on Forms S-8 of The Ultimate Software Group, Inc. of our report dated March 6, 2006, with respect to the consolidated balance sheets of The Ultimate Software Group, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2005, and management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 and the effectiveness of internal control over financial reporting as of December 31, 2005, which report appears in the December 31, 2005, Annual Report on Form 10-K of The Ultimate Software Group, Inc.

/s/  KPMG LLP

KPMG LLP

March 15, 2006

Miami, Florida

Certified Public Accountants

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Scott Scherr, certify that:

1.	I have reviewed this annual report on Form 10-K of The Ultimate Software Group, Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) and 15d-15(f) for the Registrant and have:

a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.  The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/  Scott Scherr

Scott Scherr

Chief Executive Officer

Date: March 15, 2006

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Mitchell K. Dauerman, certify that:

1.	I have reviewed this annual report on Form 10-K of The Ultimate Software Group, Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) and 15d-15(f) for the Registrant and have:

a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.  The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/  Mitchell K. Dauerman

Mitchell K. Dauerman

Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: March 15, 2006

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott Scherr, Chief Executive Officer of The Ultimate Software Group, Inc., hereby certify to the best of my knowledge and belief that this Annual Report on Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that the information contained in this Annual Report on Form 10-K fairly represents, in all material respects, the financial condition and results of operations of The Ultimate Software Group, Inc.

/s/  Scott Scherr

Scott Scherr

Chief Executive Officer

Date: March 15, 2006

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mitchell K. Dauerman, Chief Financial Officer of The Ultimate Software Group, Inc., hereby certify to the best of my knowledge and belief that this Annual Report on Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that the information contained in this Annual Report on Form 10-K fairly represents, in all material respects, the financial condition and results of operations of The Ultimate Software Group, Inc.

/s/  Mitchell K. Dauerman

Mitchell K. Dauerman

Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: March 15, 2006

EX-99.1

Exhibit 99.1

CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 — “SAFE HARBOR” FOR FORWARD LOOKING STATEMENTS

     This Annual Report on Form 10-K (the “Form 10-K”) of The Ultimate Software Group, Inc. (“Ultimate Software” or the “Company”) may contain certain forward-looking statements 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. These forward-looking statements represent the Company’s expectations or beliefs, including, but not limited to, statements concerning the Company’s operations and financial performance and condition. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict. The Company’s actual results could differ materially from those contained in the forward-looking statements due to risks and uncertainties associated with fluctuations in the Company’s quarterly operating results, concentration of the Company’s product offerings, development risks involved with new products and technologies, competition, the Company’s contractual relationships with third parties, contract renewals with business partners, compliance by our customers with the terms of their contracts with us, and other factors disclosed in the Company’s filings with the Securities and Exchange Commission. Other factors that may cause such differences include, but are not limited to, those discussed in this Form 10-K, including this Exhibit 99.1. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Our cash flows from operations have historically been insufficient to fund our operations; if we are unable to fund future shortfalls, we may be unable to satisfy our financial obligations.

     Our cash flows from operations have historically been insufficient to fund operations. In the past, we have funded shortfalls in cash primarily through the private and public sale of equity securities and, to a lesser extent, equipment financing and borrowing arrangements.

     The Company believes that cash, cash equivalents and cash generated from operations will be sufficient to fund its operations for at least the next 12 months. This belief is based upon, among other factors, management’s expectations for future revenue growth, controlled expenses and collections of accounts receivable.

We may be adversely affected by substantial quarterly fluctuations in our revenues and operating results.

     Our quarterly revenues and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. Our operating results may fluctuate as a result of a number of factors, including:

• increased expenses (especially as they relate to product development and sales and marketing);

• timing of product releases;

• increased competition;

• variations in the mix of revenues;

• announcements of new products by us or our competitors;

• capital spending patterns of our customers; and

• a drop in near term demand for our products.

     We establish our expenditure levels based upon our expectations as to future revenues. If revenue levels are below expectations, expenses can be disproportionately high. Our operating results for previous fiscal quarters are not necessarily indicative of our operating results for the full fiscal years or for any future periods. We believe that, due to the underlying factors for quarterly fluctuations, period-to-period comparisons of our operations are not necessarily meaningful and that such comparisons should not be relied upon as indications of future performance.

Our quarterly revenues and operating results may be negatively impacted by seasonality, especially in the first fiscal quarter of each year.

     Sales production in the first fiscal quarter over the past several years was lower than in the other fiscal quarters of those years. Prior to 2004, we did not attribute the lower first quarter sales production to seasonality as we were uncertain of the impact of seasonality compared to non-seasonal factors such as the September 11, 2001 tragedy or the U.S. war overseas. However, during the first quarter of 2004, we concluded that seasonality was a contributing factor to the lower first quarter sales production during such period. In 2005, sales production for the first fiscal quarter was again lower than in the other fiscal quarters of the year. This seasonality is expected to continue.

     While we are unable to quantify the impact of seasonality on our business, particularly in the first quarter of a fiscal year, we believe that seasonality was a contributing factor, even in the recent past years impacted by non-seasonal factors. Our business, operating results and financial condition may be affected by such trends in the future.

     We believe the impact of seasonality on our business is due to a number of factors, including the reduced availability of certain key personnel of potential customers due to their involvement in the year-end payroll process that occurs in the first fiscal quarter. We believe that the seasonal trend that we have experienced in the recent past may continue in the foreseeable future.

Our failure to maintain and increase acceptance of UltiPro, which accounts for substantially all of our revenues, could cause a significant decline in our revenues.

     Currently, the UltiPro product and related services account for substantially all of our revenues. Our future success depends on maintaining and increasing acceptance of UltiPro, including Intersourcing (our hosting service through which we offer the hardware, infrastructure, ongoing maintenance and backup services for our customers), and related services. Any factors adversely affecting the demand for UltiPro would have a material adverse effect on our business, operating results and financial condition.

A systems failure or other service interruption at either of the data centers managed by IBM and used for our hosting services could result in substantial expense to us, loss of customers and claims by our customers for damages caused by any losses they incur.

     We offer hosting services, which include hardware, infrastructure, ongoing maintenance and back-up services, to our customers at two data centers managed by IBM. These hosting services, which we refer to as Intersourcing, must be able to be reliably operated on a 24 hours per day, seven days per week basis without interruption or data loss. The success of Intersourcing depends on our ability to protect the infrastructure, equipment and customer data files against damage from:

• human error;

• natural disasters;

• power loss or telecommunication failures; and

• sabotage or other intentional acts of vandalism.

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We perform a daily backup of our customer data which is stored offsite of the data centers. However, the occurrence of one of the above listed events or other unanticipated problems at either of the data centers could:

• result in interruptions in the services we provide to our customers, during which time our customers may be unable to retrieve their data;

• require us to spend substantial amounts of money replacing existing equipment and/or purchasing services from an alternative data center;

• cause existing customers to cancel their contracts;

• cause our customers to seek damages for losses incurred; or

• make it more difficult for us to attract new customers.

If our various sales channels are not successful, we may be unable to achieve significant revenue growth in the future.

     We sell our products and services primarily through a direct sales force and a network of business service providers that in turn market to their customers. Our ability to achieve significant revenue growth in the future will depend, in large part, upon the success of our direct sales force, our ability to establish and maintain relationships with business service providers and our ability to adapt our sales channels to address the evolving markets for our products. If any of these sales channels do not perform as expected, our revenues could suffer.

If we are not able to successfully recruit personnel, our revenues could be negatively affected.

     Our ability to achieve significant revenue growth in the future will also depend on our success in recruiting, training and retaining sufficient sales, marketing, professional services, product development and other personnel. From time to time, there is intense competition for personnel in the software industry.

Rapid technological changes and the introduction of new products and enhancements by new or existing competitors could undermine our current market position.

     The market for our products is characterized by rapid technological advancements, changes in customer requirements, frequent new product introductions and enhancements and changing industry standards. The life cycles of our products are difficult to estimate. Rapid technological changes and the introduction of new products and enhancements by new or existing competitors could undermine our current market position. Our growth and future success will depend, in part, upon our ability to:

• enhance our current products and introduce new products in order to keep pace with products offered by our competitors;

• adapt to technological advancements and changing industry standards; and

• expand the functionality of our products to address the increasingly sophisticated requirements of our customers.

     We may not have sufficient resources to make the necessary investments and we may experience difficulties that could delay or prevent the successful development, introduction or marketing of new products or enhancements. In addition, our products or enhancements may not meet the increasingly sophisticated customer requirements of the marketplace or achieve market acceptance at the rate we expect, or at all. Any failure by us to anticipate or respond adequately to technological advancements, customer requirements and changing industry standards, or any significant delays in the development, introduction or availability of new products or enhancements, could undermine our current market position.

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Our current and future competitors include companies with greater financial, technical and marketing resources than we have and if we are unable to compete successfully with other businesses in our industry or with in-house systems developed by potential customers, our profitability will be adversely affected.

     Our future success will depend significantly upon our ability to increase our share of our target market, to maintain and increase our recurring revenues from new and existing customers and to sell additional products, product enhancements, maintenance and support services and training and consulting services to existing and new customers. The human resource management and payroll market is intensely competitive. Ultimate Software’s competitors include:

• large service bureaus, primarily Automated Data Processing and, to a lesser extent, Ceridian Corporation;

• a number of companies, such as PeopleSoft/Oracle and Lawson, which offer human resource management and payroll software products for use on mainframes, client/server environments and/or Web servers;

• time and attendance vendors that include human resource management solutions in their product offerings, such as Kronos; and

• The internal payroll/human resources departments of potential customers which use custom-written software.

     Our competitors may develop products that are superior to our products or achieve greater market acceptance. Many of our competitors or potential competitors have significantly greater financial, technical and marketing resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and to changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than we can. We believe that existing competitors and new market entrants will attempt to develop in-house systems that will compete with our products. We may be unable to compete successfully against current or future competitors. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of our prospective customers. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share.

The loss of the services of one or more of our key employees could negatively affect our ability to implement our business strategy.

     Our success depends to a significant extent upon a limited number of members of senior management and other key employees, including Scott Scherr, our Chairman of the Board, President and Chief Executive Officer. We do not have employment contracts with any of our key personnel other than a non-competition and confidentiality agreement entered into with Mr. Scherr. The loss of the service of one or more of our key employees could have a material adverse effect upon us. In addition, uncertainty created by turnover of our key employees could cause further turnover of our employees.

The potential growth of our business and expansion of our customer base may place a significant strain on our management and operations and we may be unable to manage that growth and expansion successfully.

     We expect to increase research and development, professional services, sales and marketing and administrative operations as and when appropriate to accommodate our growth plans. Accordingly, our future operating results will depend on the ability of our management and other key employees to continue to implement and improve our systems for operations, financial control and information management and to recruit, train, manage and retain our employee base. We cannot be certain that we will be able to manage any future growth successfully.

Our business relies heavily on the products of Microsoft, which may not always be compatible with our products, and we may be required to spend significant capital if businesses adopt alternative technologies that are incompatible with our products.

     Our software products are designed primarily to operate with Microsoft Corporation technologies and our strategy requires that our products and technology be compatible with new developments in Microsoft technology.

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Although we believe that Microsoft technologies are currently widely utilized by businesses of all sizes, we cannot be certain that businesses will continue to adopt such technologies as anticipated, will migrate from older Microsoft technologies to newer Microsoft technologies or will not adopt alternative technologies that are incompatible with our products. As a result, we may be required to develop new products or improve our existing products to be compatible with any different technologies being used by our customers. We cannot be certain we will be able to adapt our product to any technology other than Microsoft’s.

If our third-party software is not adequately maintained or updated, our sales could be materially adversely affected.

     Our products utilize certain software licensed to us by third-party software developers. Although we believe that there are alternatives for these products, any significant interruption in the availability of such third-party software could have a material adverse impact on our sales unless and until we can replace the functionality provided by these products. Additionally, we are, to a certain extent, dependent upon such third parties’ abilities to enhance their current products, to develop new products on a timely and cost-effective basis and to respond to emerging industry standards and other technological changes. We may be unable to replace the functionality provided by the third-party software currently offered in conjunction with our products in the event that such software becomes obsolete or incompatible with future versions of our products or is otherwise not adequately maintained or updated.

If we are unable to release annual or periodic updates on a timely basis to reflect changes in tax laws and regulations or other regulatory provisions applicable to our products, the market acceptance of our products may be adversely affected and our revenues could decline.

     Our products are affected by changes in tax laws and regulations and generally must be updated annually or periodically to maintain their accuracy and competitiveness. We cannot be certain that we will be able to release these annual or periodic updates on a timely basis in the future. Failure to do so could have a material adverse effect on market acceptance of our products. In addition, significant changes in tax laws and regulations or other regulatory provisions applicable to our products could require us to make a significant investment in product modifications, which could result in significant unexpected costs to us.

If we are unable to protect our proprietary rights against unauthorized third-party copying or use, our revenues or our methods of doing business could be negatively impacted.

     Our success is dependent in part on our ability to protect our proprietary rights. We rely on a combination of copyright, trademark and trade secret laws, as well as confidentiality agreements and licensing arrangements, to establish and protect our proprietary rights. We do not have any patents or patent applications pending, and existing copyright, trademark and trade secret laws afford only limited protection. As a result, we cannot be certain that we will be able to protect our proprietary rights against unauthorized third-party copying or use. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or reverse engineer aspects of our products or to obtain and use information that we regard as proprietary. In addition, others may develop products that perform comparably to our proprietary products. Policing the unauthorized use of our products is difficult.

Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trademarks, copyrights or trade secrets or to determine the validity and scope of the proprietary rights of others; such litigation may be expensive and divert the attention of management.

     Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trademarks, copyrights or trade secrets or to determine the validity and scope of the proprietary rights of others. Any litigation could result in substantial costs and diversion of resources and management attention.

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     As is common in the software industry, from time to time we may become aware of third-party claims of infringement by our operations or products of third-party proprietary rights. While we are not currently aware of any such claim, our software products may increasingly be subject to such claims as the number of products and competitors in our industry grows and the functionality of products overlaps and as the issuance of software patents becomes increasingly common. Any such claims, with or without merit, can be time consuming and expensive to defend, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty agreements, if required, may not be available on terms acceptable to us, or at all.

Defects and errors in our software could affect market acceptance of our products.

     Software products such as those offered by us frequently contain undetected errors or failures when first introduced or as new versions are released. Testing of our products is particularly challenging because it is difficult to simulate the wide variety of computing environments in which our customers may use these products. Despite extensive testing, from time to time we have discovered defects or errors in our products. Defects and errors may:

• cause delays in product introductions and shipments;

• result in increased costs and diversion of development resources;

• require design modifications; or

• decrease market acceptance or customer satisfaction with our products.

     Despite testing by us and by current and potential customers, errors may be found after commencement of commercial shipments, which may result in loss of or delay in market acceptance.

Our software products may be vulnerable to break-ins and similar disruptive problems; addressing these issues may be expensive and require a significant amount of our resources.

     We have included security features in our products that are intended to protect the privacy and integrity of customer data. Despite the existence of these security features, our software products may be vulnerable to break-ins and similar disruptive problems. Addressing these evolving security issues may be expensive and require a significant amount of our resources.

The sale and support of software products and the performance of related services by us entail the risk of product liability claims, which could significantly affect our financial results.

     Customers use our products in connection with the preparation and filing of tax returns and other regulatory reports. If any of our products contain errors that produce inaccurate results upon which users rely, or cause users to misfile or fail to file required information, we could be subject to liability claims from users. Our license agreements with our customers typically contain provisions intended to limit our exposure to such claims, but such provisions may not be effective in limiting our exposure. Contractual limitations we use may not be enforceable and may not provide us with adequate protection against product liability claims in certain jurisdictions. A successful claim for product or service liability brought against us could result in substantial cost to us and divert management’s attention from our operations.

Anti-takeover provisions in our certificate of incorporation and by-laws, and under our Rights Agreement and Delaware law and our Change in Control Bonus Plans could substantially increase the cost to acquire us or prevent or delay a change in control and, as a result, negatively impact our stockholders and the price of our common stock.

     We have taken a number of actions that could have the effect of discouraging a takeover attempt. For example, we have adopted a Rights Agreement that would cause substantial dilution to a stockholder, and substantially increase the cost paid by a stockholder, who attempts to acquire us on terms not approved by our Board of Directors. This could prevent us from being acquired. Our Board of Directors is divided into three classes, each of whose members serve for a staggered three-year term. This may prevent a stockholder from gaining control of our Board of Directors by electing members who are not supported by management.

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     In addition, our certificate of incorporation grants our Board of Directors the authority to fix the rights, preferences and privileges of and issue up to 2,500,000 shares of preferred stock without stockholder approval. Although we have no present intention to issue shares of preferred stock, such an issuance could have the effect of making it more difficult and less attractive for a third-party to acquire a majority of our outstanding voting stock. Preferred stock may also have other rights, including economic rights senior to our common stock that could have a material adverse effect on our stock price.

     We are also subject to the anti-takeover provisions of Section 203 of Delaware General Corporation Law. This section provides that a corporation may not engage in any business combination with any interested stockholder (as defined in that section) during the three-year period following the time that a stockholder became an interested stockholder. This provision could have the effect of delaying or preventing a change in control of our company.

     We have adopted two Change in Control Bonus Plans. One plan provides for the payment of cash amounts to our three named executive officers, Scott Scherr, Marc D. Scherr and Mitchell K. Dauerman, upon a “change in control” of Ultimate Software. The other plan provides for the payment of cash amounts in the event of a “change in control” to our employees, other than named executive officers, designated by the Compensation Committee of our Board of Directors. A “change in control” would occur if more than 50% of our Common Stock were acquired by a person or entity other than Ultimate Software or a subsidiary or employee benefit plan of ours. There are other conditions that could result in a change in control event such as a sale or transfer of all or substantially all of our assets or business. The aggregate amount of payment that may be made to all participants under the two Change in Control Bonus Plans may be as much as 4% of the gross consideration received by us or our stockholders in a change in control transaction. The Change in Control Bonus Plans could substantially increase the cost to acquire us.

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