SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [x]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
OMEGA RESEARCH, INC.
...............................................................................
(Name of Registrant as Specified In Its Charter)
...............................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
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<PAGE>
OMEGA RESEARCH, INC.
8700 West Flagler Street
Miami, Florida 33174
---------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 24, 1998
To Our Shareholders:
The 1998 Annual Meeting of Shareholders of Omega Research, Inc. (the
"Company") will be held on Friday, July 24, 1998, at 10:00 a.m., local time, at
the Miami Airport Marriott, 1201 N.W. LeJeune Road, Miami, Florida 33126, for
the following purposes:
1. To elect directors; and
2. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
The Board of Directors has fixed Monday, June 15, 1998, as the record
date for the determination of shareholders entitled to vote at the 1998 Annual
Meeting of Shareholders. Only shareholders of record at the close of business on
that date will be entitled to notice of, and to vote at, the meeting or any
postponement or adjournment thereof.
Copies of the Company's Proxy Statement and annual report for the year
ended December 31, 1997 accompany this notice.
You are cordially invited to attend the meeting in person. Whether or
not you expect to attend the meeting in person, you are urged to sign and date
the enclosed proxy and return it promptly in the envelope provided for that
purpose.
By Order of the Board of Directors
/s/ Marc J. Stone
Marc J. Stone
Secretary
Miami, Florida
June 17, 1998
<PAGE>
OMEGA RESEARCH, INC.
8700 West Flagler Street
Miami, Florida 33174
PROXY STATEMENT
INTRODUCTION
GENERAL
This Proxy Statement, which, together with the accompanying proxy card,
is first being mailed to shareholders on or about June 22, 1998, is furnished to
the shareholders of the Company in connection with the solicitation of proxies
by the Board of Directors of the Company for use in voting at the 1998 Annual
Meeting of Shareholders, including any adjournment or postponement thereof.
Proxies in the form enclosed, if properly executed and received in time
for voting, and not revoked, will be voted as directed in accordance with the
instructions thereon. In voting by proxy in regard to the election of seven
directors to serve until the 1999 annual meeting of shareholders, shareholders
may vote in favor of all nominees or withhold their votes as to all or as to any
specific nominees. Any properly executed and timely received proxy not so
directing or instructing to the contrary will be voted FOR each of the Company's
nominees as directors. See "ELECTION OF DIRECTORS." Sending in a signed proxy
will not affect a shareholder's right to attend the meeting and vote in person
since the proxy is revocable. Any shareholder giving a proxy may revoke it at
any time before it is voted at the meeting by, among other methods, giving
notice of such revocation to the Secretary of the Company, attending the meeting
and voting in person or by duly executing and returning a proxy bearing a later
date.
The cost of this solicitation will be borne by the Company. In addition
to solicitation by mail, proxies may be solicited in person or by telephone,
telegraph or other means by officers and/or regular employees of the Company
without additional compensation or remuneration therefor. Arrangements have also
been made with brokers, dealers, banks, voting trustees and other custodians,
nominees and fiduciaries to forward proxy materials and annual reports to the
beneficial owners of the shares held of record by such persons, and the Company
will, upon request, reimburse them for their reasonable expenses in so doing.
The management knows of no other matters to be presented for action at
the meeting other than as mentioned herein. However, if any other matters come
before the meeting, it is intended that the holders of the proxies will vote
thereon in their sole discretion.
A copy of the Company's annual report for the fiscal year ended
December 31, 1997 (which has included therein audited financial statements for
the Company for the three fiscal years ended December 31, 1997) is being mailed
to the Company's shareholders together with this Proxy Statement. Such annual
report is not, however, incorporated into this Proxy Statement nor is it to be
deemed a part of the proxy soliciting material.
<PAGE>
VOTING SECURITIES
At the close of business on Monday, June 15, 1998, the record date for
the determination of shareholders entitled to receive notice of and to vote at
the meeting, the Company's outstanding voting securities consisted of 22,255,708
shares of Common Stock, par value $0.01 per share. Holders of Common Stock are
entitled to one vote per share.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock, as of June 15, 1998, by (i)
each person who is known by the Company to own beneficially more than 5% of the
Company's Common Stock; (ii) each of the Company's directors and nominees for
director who own shares of the Company's Common Stock; (iii) the Company's
Co-Chief Executive Officers ("Co-CEOs") and its executive officers other than
the Co-CEOs who were serving as executive officers at the end of fiscal year
1997; and (iv) all directors and executive officers of the Company as a group.
Except as otherwise described in the footnotes below, the Company believes that
the beneficial owners of the Common Stock listed below, based on information
provided by such owners, have sole investment and voting power with respect to
such shares. The address of each person who beneficially owns more than 5% of
the Common Stock is the Company's principal executive office.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)
-------------------------------
Name of Beneficial Owner Number(2) Percent
------------------------ -------------------------------
<S> <C> <C>
William R. Cruz(3)...................... 9,156,554 41.1%
Ralph L. Cruz(4)........................ 9,156,554 41.1
Peter A. Parandjuk...................... 50,500 *
Salomon Sredni.......................... 28,750 *
Marc J. Stone........................... 28,000 *
Christos M. Cotsakos.................... 33,700(5) *
Brian D. Smith.......................... - -
All executive officers and directors
as a group (7 persons)(6)............... 18,454,058 82.5%
</TABLE>
- --------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") that deem shares to be
beneficially owned by any person who has or shares voting or investment
power with respect to such shares.
(2) Includes options held by executive officers and/or directors which are
exercisable within 60 days of June 15, 1998.
(3) Includes 1,950,000 shares held by the RLCF-II 1997 Limited Partnership, as
to which William R. Cruz possesses voting and dispositive powers as trustee
under the Ralph L. Cruz 1997 Grantor Retained Annuity Trust #1. This trust
is a limited partner of RLCF-II 1997 Limited Partnership
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<PAGE>
and directly and indirectly wholly owns a Texas limited liability company
that is the sole general partner of RLCF-II 1997 Limited Partnership. The
Ralph L. Cruz 1997 Grantor Retained Annuity Trust #1 provides for annual
distributions of principal and income to Ralph L. Cruz for five years, and
thereafter any remainder interest is payable to the Ralph L. Cruz 1997
Family Trust for the benefit of certain family members and/or charitable
organizations.
(4) Includes 1,950,000 shares held by the WRCF-II 1997 Limited Partnership, as
to which Ralph L. Cruz possesses voting and dispositive powers as trustee
under the William R. Cruz 1997 Grantor Retained Annuity Trust #1. This
trust is a limited partner of WRCF-II 1997 Limited Partnership and directly
and indirectly wholly owns a Texas limited liability company that is the
sole general partner of WRCF-II 1997 Limited Partnership. The William R.
Cruz 1997 Grantor Retained Annuity Trust #1 provides for annual
distributions of principal and income to William R. Cruz for five years,
and thereafter any remainder interest is payable to the William R. Cruz
1997 Family Trust for the benefit of certain family members and/or
charitable organizations.
(5) Represents shares held by the Cotsakos Revocable Trust, of which Mr.
Cotsakos and his wife serve as trustees.
(6) See other footnotes above.
ELECTION OF DIRECTORS
Seven directors are to be elected at the 1998 Annual Meeting of
Shareholders to hold office until the annual meeting of shareholders next
succeeding their election and until their respective successors are elected and
qualified or as otherwise provided in the by-laws of the Company. The nominees
for directors who receive a plurality of the votes cast by the holders of
outstanding shares of Common Stock entitled to vote at the 1998 Annual Meeting
of Shareholders will be elected. Abstentions (withheld authority) and broker
non-votes are not counted in determining the number of shares voted for or
against any nominee for director.
The Board of Directors has designated the persons listed below to be
nominees for election as directors. Each is currently serving as a director of
the Company and each has consented to being named in the Proxy Statement and to
serve if elected. The Company has no reason to believe that any of the nominees
will be unavailable for election; however, should any nominee become unavailable
for any reason, the Board of Directors may designate a substitute nominee or the
number of authorized directors may be reduced. Each proxy will be voted for the
election to the Board of Directors of all of the Board of Director's nominees
unless authority is withheld to vote for all or any of said nominees.
The following information regarding the Company's nominees for election as
directors and executive officers is based, in part, on information furnished by
these individuals and is as of the date of this Proxy Statement:
3
<PAGE>
<TABLE>
<CAPTION>
Name Age Position(s) with the Company Director Since
- ---- --- ---------------------------- --------------
<S> <C> <C>
William R. Cruz 37 Co-Chairman of the Board, Co-Chief 1982
Executive Officer and President
Ralph L. Cruz 34 Co-Chairman of the Board and Co-Chief 1982
Executive Officer
Peter A. Parandjuk 35 Director and Vice President of Product 1997
Development
Salomon Sredni(1) 30 Director, Vice President of Operations, 1997
Chief Financial Officer and Treasurer
Marc J. Stone 37 Director, Vice President of Corporate 1997
Planning and Development, General
Counsel and Secretary
Christos M. Cotsakos(1)(2) 49 Director 1998
Brian D. Smith(1)(2) 53 Director 1997
</TABLE>
- --------------------
(1) Member of the Audit Committee of the Company's Board of Directors.
(2) Member of the Compensation Committee of the Company's Board of Directors.
The Company's directors hold office until the next annual meeting of
shareholders. The Company's executive officers serve at the discretion of the
Board of Directors.
WILLIAM R. CRUZ co-founded the Company in 1982 and has been its President
and a director since that time. Mr. Cruz was appointed Co-Chief Executive
Officer of the Company in 1996. Mr. Cruz studied classical violin at the
University of Miami, which he attended on a full scholarship, and Julliard
School of Music. Mr. Cruz left Julliard School of Music prior to graduation to
co-found the Company. Mr. Cruz has won numerous classical violin competitions.
Mr. Cruz has been primarily responsible for the conception and management of the
Company's products and product strategies.
RALPH L. CRUZ co-founded the Company in 1982 and has been a director since
that time. Mr. Cruz was Vice President of the Company from 1982 until 1996, at
which time he was appointed Co-Chief Executive Officer. Mr. Cruz studied
classical violin at the University of Miami, which he attended on a full
scholarship, and Indiana University. Mr. Cruz left Indiana University prior to
graduation to devote full time to the Company. Mr. Cruz has won numerous
classical violin competitions. Mr. Cruz has been primarily responsible for the
Company's marketing strategies.
PETER A. PARANDJUK joined the Company in 1988 as a software engineer,
became the Company's senior software engineer in 1991, was appointed Vice
President of Product Development in January 1995 and was named a director of the
Company in July 1997. Mr. Parandjuk has a bachelor's degree in Applied
Mathematics from the State University of New York at Buffalo.
SALOMON SREDNI joined the Company in December 1996 as its Vice President of
Operations and Chief Financial Officer and was named Treasurer in May 1997, a
director of the Company in July 1997 and a member of the Audit Committee of the
Board of Directors in January 1998. From August 1994 to November 1996, Mr.
Sredni was Vice President of Accounting and Corporate Controller at IVX
Biosciences, Inc. (formerly known as IVAX Corporation), a publicly-held
pharmaceutical company. Prior to that time, from January 1988 to August 1994,
Mr. Sredni was with Arthur Andersen LLP, an international accounting firm. Mr.
Sredni is a Certified Public Accountant
4
<PAGE>
and a member of the American Institute of Certified Public Accountants and the
Florida Institute of Certified Public Accountants. Mr. Sredni has a bachelor's
degree in Accounting from The Pennsylvania State University.
MARC J. STONE joined the Company in May 1997 as its Vice President of
Corporate Planning and Development, General Counsel and Secretary and was named
a director of the Company in July 1997. From January 1993 to May 1997, Mr. Stone
was a partner at a predecessor law firm of Bilzin Sumberg Dunn Price & Axelrod
LLP ("Bilzin Sumberg"), which currently serves as the Company's regular outside
counsel. Prior to that time, from 1985 to 1992, Mr. Stone was an associate with
that predecessor law firm. Mr. Stone is of counsel to Bilzin Sumberg. Mr. Stone
has a bachelor's degree in English and American Literature from Brown
University, and received his law degree from University of California (Boalt
Hall) School of Law at Berkeley.
CHRISTOS M. COTSAKOS has, since March of 1996, served as President, Chief
Executive Officer and a director of E*TRADE Group, Inc. Prior to joining
E*TRADE, he served as President, Chief Executive Officer, Chief Operating
Officer and a director of A.C. Nielson, Inc. (March 1995 to January 1996),
President and Chief Executive Officer of Nielson International (September 1993
to March 1995) and as President and Chief Operating Officer of Nielson Europe,
Middle East and Africa (March 1992 to September 1993). Mr. Cotsakos joined
Nielson after 19 years with Federal Express Corporation (1973 through 1992),
where he held a number of senior executive positions both in the United States
and Europe, including Vice President and General Manager for Europe, Africa and
the Near East from 1988 to March 1992. Mr. Cotsakos also currently serves as a
director of Forte Software, Inc., National Processing, Inc., Fourth
Communications Network and Datacard Corporation. Mr. Cotsakos became a director
in January 1998, at which time he was also elected to the Compensation Committee
and the Audit Committee of the Board of Directors.
BRIAN D. SMITH, who currently consults to the wireless communications
industry, from January 1990 until 1996 served as President of Data Broadcasting
Corporation ("DBC"), a leading provider of financial data services to the
individual investor market. Prior to becoming President, Mr. Smith, since 1983,
held several key positions with DBC and its predecessor companies. Prior to
that, Mr. Smith worked for 13 years for General Electric Company in engineering,
sales and management positions, and for Texas Instruments in engineering. Mr.
Smith also served as Chief Executive Officer of Mobile Broadcasting Corp., a
wireless communications company, from December 1996 to December 1997. Mr. Smith
became a director in December 1997, and was elected to the Compensation
Committee and the Audit Committee of the Board of Directors in January 1998.
BOARD MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held no formal meetings (excluding actions by the
Board of Directors taken by unanimous written consent in lieu of a meeting, of
which there were 29 such unanimous written consents) during the fiscal year
ended December 31, 1997.
In January 1998, the Company's Board of Directors elected Christos M.
Cotsakos and Brian D. Smith, two nonemployee, independent directors (the
"Independent Directors"), and Salomon Sredni as the members of the first Audit
Committee of the Board of Directors. The Audit Committee recommends the annual
engagement of the Company's auditors, with whom the Audit Committee reviews the
scope of audit and non-audit assignments, related fees, the accounting
principles used by the Company in financial reporting, internal financial
auditing procedures and the adequacy of the Company's internal control
procedures.
5
<PAGE>
In January 1998, the Board of Directors established a Compensation
Committee consisting solely of the Independent Directors. The Compensation
Committee determines executive officers' salaries and bonuses and administers
the Omega Research, Inc. Amended and Restated 1996 Incentive Stock Plan, as
amended (the "Incentive Stock Plan"), and the Omega Research, Inc. 1997 Employee
Stock Purchase Plan (the "Purchase Plan").
The Board of Directors does not currently have a nominating committee
or a committee performing similar functions.
DIRECTORS' COMPENSATION
The Company's Independent Directors receive $750 for attendance at each
meeting of the Board of Directors and each committee thereof, with an additional
$150 paid for each committee meeting which is chaired by an Independent
Director. Pursuant to the Company's 1997 Nonemployee Director Stock Option Plan,
as amended, each Independent Director also receives an option to purchase as
many as 75,000 shares of Common Stock upon initial election as a director of the
Company as determined by the Company's Board of Directors at such time, and an
option to purchase 3,000 shares of Common Stock upon each re-election as an
Independent Director at the Company's annual meeting of shareholders. See "Other
Compensation Arrangements--1997 Nonemployee Director Stock Option Plan." All
directors may also be reimbursed for certain expenses in connection with
attendance at Board of Directors and committee meetings. Other than with respect
to reimbursement of expenses, directors who are employees or officers of the
Company do not receive additional compensation for service as a director. In
connection with their initial appointments to the Board of Directors, Messrs.
Cotsakos and Smith were each paid a one-time retainer of $25,000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") , requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than ten percent shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished to the Company
and written representations that no Form 5's were required when applicable, the
Company believes that during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company did not have a Compensation Committee during its last completed
fiscal year. The compensation of the Company's executive officers for 1997 was
determined by the Company's Board of Directors. However, in January 1998 the
Board of Directors established a Compensation Committee consisting solely of the
Independent Directors. See "ELECTION OF DIRECTORS -
6
<PAGE>
Board Meetings and Committees of the Board" for a discussion of the Compensation
Committee and its responsibilities.
GENERAL COMPENSATION PHILOSOPHY
The Compensation Committee's strategy is to develop and implement an
executive compensation program that allows the Company to attract and retain
highly qualified persons to manage the Company in order to enhance shareholders'
value. The objectives of this strategy are to provide a compensation policy that
permits the recognition of individual contributions and achievements as well as
the Company's operating results. Within this strategy, the Compensation
Committee considers it essential to the vitality of the Company to maintain
levels of compensation opportunity that are competitive with companies in the
software industry as well as the overall high-tech industry. The Company's
compensation policy and strategy will be based in part upon the information and
recommendations provided in February 1998 by an independent compensation
consulting firm which was retained by the Board of Directors to undertake a
review on behalf of the Company with respect to 1997 executive compensation (the
"Compensation Review").
EXECUTIVE COMPENSATION
Executive compensation is comprised of base salary, annual bonus
compensation and long-term incentive compensation in the form of stock options.
BASE SALARIES
Base salary levels for executive officers are designed to be consistent
with competitive practice and level of responsibility. Based upon the
Compensation Review, the Co-CEOs' base salary level was significantly below
market levels, while the base salaries of the other executive officers were
within the competitive ranges. The Compensation Committee's strategy is to
provide a competitive salary for each executive officer with such salary
increasing based on individual performance, the Company's operating results and
changes in responsibility and competitive markets.
ANNUAL BONUS COMPENSATION
During fiscal 1997, neither of the Co-CEOs received an annual bonus, while
the other executive officers received quarterly bonuses that, based upon the
Compensation Review, provided them with total compensation within the medium
range of market total compensation. The Compensation Committee's strategy is to
provide in the future an annual rather than quarterly bonus for executive
officers that is strongly linked to the Company's operating performance. The
Compensation Committee believes that this strategy is consistent with the
approach typically taken by companies in the software industry.
LONG-TERM INCENTIVE COMPENSATION
The Compensation Committee believes that the use of equity-based long-term
compensation plans directly links executive officers' interests to enhancing
shareholders' value. Stock options are an integral part of the Company's
executive compensation program in order to align the interests of the executive
officers with the interests of the Company's shareholders. Stock option
compensation bears a direct relationship to corporate performance in that, over
the long term, share price appreciation depends upon corporate performance, and
without share price appreciation the stock
7
<PAGE>
options are of no value. Stock option grants are generally provided to executive
officers as a part of their initial compensation package at levels commensurate
with their experience and responsibility. Stock options will be considered at
least annually by the Compensation Committee for all executive officers. In that
regard, the Company awarded stock options pursuant to the Incentive Stock Plan
to executive officers of the Company (other than the Co-CEOs) during fiscal year
1996 or 1997 as described in "SUMMARY COMPENSATION TABLE" and "OPTION GRANTS IN
1997 FISCAL YEAR" hereinbelow.
Submitted by the Compensation Committee of the Board of Directors.
Christos M. Cotsakos
Brian D. Smith
EXECUTIVE COMPENSATION TABLES
The following tables provide information about executive compensation.
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to all compensation
paid or earned for services rendered to the Company in the years ended December
31, 1996 and 1997 by the Co-CEOs and the three other most highly compensated
executive officers of the Company whose aggregate annual compensation exceeded
$100,000 (together, the "Named Executive Officers"). The Company did not have a
pension plan or a long-term incentive plan, had not issued any restricted stock
awards and had not granted any stock appreciation rights as of December 31,
1997. The value of all perquisites and other personal benefits received by each
Named Executive Officer did not exceed 10% of the Named Executive Officer's
total annual compensation.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------- -------------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary Bonus Options(1) Compensation(2)
- --------------------------- ------ ------ ----- ------------- ---------------
<S> <C> <C> <C> <C>
William R. Cruz....................... 1997 $150,000 $ -- -- $3,800
Co-Chief Executive................. 1996 90,000 -- -- 4,320
Officer and President
Ralph L. Cruz......................... 1997 150,000 -- -- 3,800
Co-Chief Executive Officer......... 1996 90,000 -- -- 4,320
Peter A. Parandjuk................... 1997 130,000 34,125(3) -- 3,800
Vice President of.................. 1996 116,990 78,948(4) 250,000 5,700
Product Development
Salomon Sredni........................ 1997 130,000 34,125(3) -- --
Vice President of Operations,...... 1996 10,833(5) -- 140,000 --
Chief Financial Officer and Treasurer
Marc J. Stone......................... 1997 76,483(6) 107,875(3)(7) 140,000 --
Vice President of Corporate Planning 1996 -- -- -- --
and Development, General Counsel
and Secretary
</TABLE>
- -----------------------------------
8
<PAGE>
(1) Represents shares of Common Stock issuable upon the exercise of options
granted under the Company's Incentive Stock Plan.
(2) Represents 401(k) Plan contributions by the Company on behalf of the
Named Executive Officer for the year indicated.
(3) $4,875 of this amount was earned in 1997 but paid in 1998.
(4) $26,491 of this amount was earned in 1996 but paid in 1997.
(5) Mr. Sredni joined the Company in December 1996. His annual base salary
for 1996 was $130,000.
(6) Mr. Stone joined the Company in May 1997. His annual base salary for
1997 was $130,000.
(7) Includes a one-time bonus of $90,000 paid to Mr. Stone at the time he
became an employee of the Company.
OPTION GRANTS IN 1997 FISCAL YEAR
The following table summarizes the options which were granted during the
fiscal year ended December 31, 1997 to the Named Executive Officers.
<TABLE>
<CAPTION>
Potential
Realizable
Individual Grants Value at
-------------------------------------------------------- Assumed
% of Annual
Number Total Value at Rate of
of Options Market Grant-Date Stock Price
Securities Granted to Exercise Price on Market Appreciation for
Underlying Employees or Base Grant Price Option Term(1)
Options in Fiscal Price Date Expiration ---------- ----------------
Name Granted(2) Year ($)/(Sh) ($)/(Sh)(3) Date 0%($) 5%($) 10%($)
- ---- ---------- --------- --------- ---------- ---------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William R. Cruz...... -- -- -- -- -- -- -- --
Ralph L. Cruz........ -- -- -- -- -- -- -- --
Peter A. Parandjuk... -- -- -- -- -- -- -- --
Salomon Sredni....... -- -- -- -- -- -- -- --
Marc J. Stone........ 140,000 25% $3.00 $4.50 5/29/07 $210,000 $606,204 $1,214,058
</TABLE>
- --------------------
(1) Potential realizable value is based on the assumption that the Common Stock
price appreciates at the annual rate shown (compounded annually) from the
date of grant until the end of the option term. The amounts have been
calculated based on the requirements promulgated by the SEC. The actual
value, if any, a Named Executive Officer may realize will depend on the
excess of the stock price over the exercise price on the date the option is
exercised (if the executive were to sell the shares on the date of
exercise), so there is no assurance that the value realized will be at or
near the potential realizable value as calculated in this table.
(2) These options vest over five years and have a term of ten years from the
date of grant, subject to acceleration under certain circumstances.
(3) Prior to October 1, 1997, there was no public market for the Common Stock
of the Company. The market price on May 30, 1997, the date on which the
options were granted to Mr. Stone, was based on the Board of Director's
determination of the fair market value of the Common Stock on that date.
AGGREGATE OPTION EXERCISES IN 1997 FISCAL YEAR
AND 1997 FISCAL YEAR-END OPTION VALUES
The following table provides information regarding the value of all
unexercised options held at December 31, 1997 by the Named Executive Officers
measured in terms of the closing market price of the Company's Common Stock on
December 31, 1997. No Named Executive Officer exercised any stock options during
the fiscal year ended December 31, 1997.
9
<PAGE>
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1997(#) December 31, 1997($)
------------------------------------------ -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William R. Cruz..................... -- -- -- --
Ralph L. Cruz....................... -- -- -- --
Peter A. Parandjuk.................. 50,000 200,000 206,250 825,000
Salomon Sredni...................... 28,000 112,000 115,500 462,000
Marc J. Stone....................... -- 140,000 -- 332,500
</TABLE>
OTHER COMPENSATION ARRANGEMENTS
1996 INCENTIVE STOCK PLAN. The Incentive Stock Plan, pursuant to which
officers, employees and nonemployee consultants may be granted stock options,
stock appreciation rights, stock awards, performance shares and performance
units, was adopted by the Board of Directors and approved by the shareholders in
June 1996. It was amended and restated in August 1997 and further amended in
February 1998. The Company has reserved 3,000,000 shares of Common Stock for
issuance under the Incentive Stock Plan, subject to antidilution adjustments.
Prior to January 1998, the Incentive Stock Plan had been administered by
the Board of Directors of the Company, but, since the establishment of the
Compensation Committee of the Board of Directors in January 1998, the Incentive
Stock Plan has been administered by the Compensation Committee, whose members
must qualify as "nonemployee directors" (as such term is defined in Rule 16b-3
under the Exchange Act). The Compensation Committee is authorized to determine,
among other things, the employees to whom, and the times at which, options and
other benefits are to be granted, the number of shares subject to each option,
the applicable vesting schedule and the exercise price (provided that, for
incentive stock options, the exercise price shall not be less than 100% of the
fair market value of the Common Stock on the date of grant). The Compensation
Committee also determines the treatment to be afforded to a participant in the
Incentive Stock Plan in the event of termination of employment for any reason,
including death, disability or retirement. Under the Incentive Stock Plan, the
maximum term of an incentive stock option is ten years and the maximum term of a
nonqualified stock option is fifteen years.
In February 1998, the Board of Directors amended the Incentive Stock Plan
to permit the Compensation Committee to delegate to the Company's Co-Chief
Executive Officers the authority to grant options to employees (other than
executive officers) of the Company identified by the Co-Chief Executive
Officers. The Compensation Committee has delegated to the Co-Chief Executive
Officers the authority to grant options covering up to 100,000 shares of Common
Stock per annum, but retains the ability to revoke the delegation at any time.
The Board of Directors has the power to amend the Incentive Stock Plan from
time to time. Shareholder approval of an amendment is only required to the
extent that it is necessary to maintain the Incentive Stock Plan's status as a
protected plan under applicable securities laws or as a qualified plan under
applicable tax laws.
As of December 31, 1997, options to purchase 1,095,825 shares were
outstanding under the Incentive Stock Plan, of which options to purchase 530,000
shares had been granted to executive officers of the Company. During 1997, the
only options granted to an executive officer were options to purchase 140,000
shares of Common Stock which were granted to Mr. Stone at an exercise price
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of $3.00 per share. In general, options granted under the Incentive Stock Plan
vest at the rate of 20% per year and have a total term of ten years. The options
which have been granted under the Incentive Stock Plan to the Named Executive
Officers of the Company immediately vest and become exercisable upon termination
of employment due to death or permanent disability, or upon a sale or a change
in control of the Company, and, in the case of Mr. Parandjuk, upon termination
of employment by the Company without cause. The options to purchase the shares
granted under the Incentive Stock Plan that were outstanding as of December 31,
1997 have a weighted average exercise price of $3.04 per share.
1997 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN. The 1997 Nonemployee Director
Stock Option Plan, as amended (the "Nonemployee Director Stock Plan"), pursuant
to which annual grants of a nonqualified stock option are made to each
nonemployee director of the Company, was adopted by the Board of Directors and
approved by the shareholders in July 1997. It was amended by the Board of
Directors in January 1998 to increase the number of shares that may be covered
by an option granted to nonemployee directors upon their initial election to the
Board. Upon initial election to the Board of Directors, each nonemployee
director may be granted an option to purchase as many as 75,000 shares of Common
Stock as determined by the Company's Board of Directors at such time. Upon each
re-election to the Board of Directors at the annual meeting of shareholders,
each nonemployee director will be granted an additional option to purchase 3,000
shares of Common Stock. Each option will be granted at an exercise price equal
to the fair market value of the Common Stock on the date of grant. The Company
has reserved 175,000 shares of Common Stock for issuance under the Nonemployee
Director Stock Plan, subject to antidilution adjustments. In December 1997,
Brian D. Smith was awarded an option to purchase 12,000 shares at an exercise
price of $6.00 per share upon his initial election to the Board of Directors.
This option has a term of ten years and vests in equal installments over three
years. In January 1998, Mr. Smith was awarded an additional option to purchase
13,000 shares at an exercise price of $3.03 per share as part of his initial
election to the Board of Directors and Christos M. Cotsakos was issued an option
to purchase 75,000 shares at an exercise price of $3.03 per share upon his
initial election to the Board of Directors. These options have a term of five
years and vest in equal installments over three years.
The Board of Directors has the power to amend the Nonemployee Director
Stock Plan from time to time. Shareholder approval of an amendment is only
required to the extent that it is necessary to maintain the Nonemployee Director
Stock Plan's status as a protected plan under applicable securities laws.
1997 EMPLOYEE STOCK PURCHASE PLAN. The Purchase Plan was adopted by the
Board of Directors and approved by the Company's shareholders in July 1997. The
Purchase Plan provides for the issuance of a maximum of 500,000 shares of Common
Stock pursuant to the exercise of nontransferable options granted to
participating employees.
The Purchase Plan is administered by the Compensation Committee of the
Board of Directors. All employees of the Company whose customary employment is
more than 20 hours per week and more than five months in any calendar year and
who have completed at least three months of employment are eligible to
participate in the Purchase Plan. Employees who would immediately after the
grant own 5% or more of the total combined voting power or value of the
Company's stock and the nonemployee directors of the Company may not participate
in the Purchase Plan. To participate in the Purchase Plan, an employee must
authorize the Company to deduct an amount (not less than one percent nor more
than ten percent of a participant's total cash compensation) from his or her pay
during six-month periods (each a "Plan Period"). The maximum number of shares of
Common Stock an employee may purchase in any Plan Period is 500 shares. The
exercise price for
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the option for each Plan Period is 85% of the lesser of the market price of the
Common Stock on the first or last business day of the Plan Period. If an
employee is not a participant on the last day of the Plan Period, such employee
is not entitled to exercise his or her option, and the amount of his or her
accumulated payroll deductions will be refunded. An employee's rights under the
Purchase Plan terminate upon his or her voluntary withdrawal from the Purchase
Plan at any time or upon termination of employment. No options were granted
under the Purchase Plan during 1997. The first Plan Period began on January 1,
1998.
The Board of Directors has the power to amend or terminate the Purchase
Plan. Shareholder approval of an amendment is only required to the extent that
it is necessary to maintain the Purchase Plan's status as a protected plan under
applicable securities laws or as a qualified plan under applicable tax laws.
401(K) PLAN. The Company has a defined contribution retirement plan which
complies with Section 401(k) of the Code. All employees with at least three
months of continuous service are eligible to participate and may contribute up
to 15% of their compensation. Company contributions are vested 20% for each year
of service. Company contributions charged against income were $16,000, $62,000
and $63,000 in 1995, 1996 and 1997, respectively.
NON-COMPETITION AGREEMENTS
All employees of the Company, including the Named Executive Officers, have
entered into agreements with the Company which generally contain certain
non-competition, non-disclosure and non-solicitation restrictions and covenants,
including a provision prohibiting such employees from competing with the Company
during their employment with the Company and for a period of two years
thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during its last completed
fiscal year. The compensation of the Company's executive officers for 1997 was
determined by William R. Cruz and Ralph L. Cruz, as the sole members of the
Company's Board of Directors prior to the date on which additional members
joined the Board.
For information concerning cash dividends paid by the Company to its
shareholders in 1997 (including the Dividend which was paid by the Company to
its then current shareholders immediately prior to the consummation of the
Company's initial public offering (the "Initial Public Offering")), 1996 and
1995 and the dividend of the Company's former office facilities declared in the
second quarter of 1997 to William R. Cruz and Ralph L. Cruz, see "Certain
Transactions" herein.
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PERFORMANCE GRAPH
The following graph shows a monthly comparison for the period covering
October 1, 1997 (the first day of trading subsequent to the Company's Initial
Public Offering) through December 31, 1997 of cumulative total returns to
shareholders for the Company, Center for Research in Security Prices ("CRSP")
Index for NASDAQ Stock Market (U.S. Companies) and CRSP Index for NASDAQ Stocks
(SIC 7370-7379) U.S. Companies) of U.S. Companies in the computer programming,
data processing and other computer related services industries.
[PERFORMANCE GRAPH]
The following table presents in tabular form the data set forth in the
performance graph to be included in this Proxy Statement:
<TABLE>
<CAPTION>
CRSP Total Returns Index for: 10/01/97 10/31/97 11/28/97 12/31/97
- ----------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Omega Research, Inc. 100.0 70.2 43.6 45.7
Nasdaq Stock Market (US Companies) 100.0 94.5 95.0 93.5
NASDAQ Stocks (SIC 7370-7379 US Companies) 100.0 98.0 100.7 94.5
Computer Prog., Data Proc. & Other
Computer Related Services
</TABLE>
* * *
Notes:
A. The lines represent monthly index levels derived from compounded
daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization
on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 10/01/97.
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CERTAIN TRANSACTIONS
During 1995, 1996 and 1997 the Company distributed cash dividends in the
aggregate amount of $2.2 million, $5.2 million and $16.5 million (including the
Dividend described in the following paragraph which was paid immediately prior
to the consummation of the Company's Initial Public Offering), respectively, to
the then current shareholders of the Company (William R. Cruz and Ralph L. Cruz
and, in addition, commencing in the third quarter of 1997, certain of their
affiliates). Additionally, during the second quarter of 1997, the Company
declared a dividend to the then current shareholders of the Company, William R.
Cruz and Ralph L. Cruz, of the Company's former office facilities located at
9200 Sunset Drive, Miami, Florida 33173. The carrying value of the facility on
the Company's books was approximately $507,000.
Of the total amount of dividends paid in 1997, the Company's Board of
Directors declared and paid a dividend (the "Dividend") of $15.4 million to the
Company's then current shareholders immediately prior to the consummation of the
Initial Public Offering. The Dividend was equal to the Company's estimate at
that time of its cumulative taxable income prior to its conversion to a C
corporation to the extent such taxable income had not been previously
distributed. Subsequent to the payment of the Dividend, the Company
preliminarily determined that the actual cumulative taxable income would be less
than was originally estimated. Accordingly, in the fourth quarter of 1997, the
recipients of the Dividend repaid $800,000, plus interest, to the Company,
reducing the Dividend to $14.6 million. The Dividend is subject to further
adjustment based on actual cumulative taxable income as finally determined.
The Company and William R. Cruz and Ralph L. Cruz and certain of their
affiliates (collectively the "Cruz Shareholders") have entered into an S
Corporation Tax Allocation and Indemnification Agreement (the "Tax Agreement")
relating to the Dividend and their respective income tax liabilities. The Tax
Agreement provides that to the extent the Company's earnings during the period
in which it was an S corporation ("S Corporation Earnings"), as subsequently
established by the filing of the Company's tax return for the Company's short S
corporation tax year, are less than the Dividend paid prior to the consummation
of the Initial Public Offering, the Cruz Shareholders will make a payment equal
to such difference to the Company, and if the S Corporation Earnings are greater
than the Dividend, the Company will make an additional distribution equal to
such difference to the Cruz Shareholders, in either case, with interest thereon.
Subject to certain limitations, the Tax Agreement also provides for the
cross-indemnification of the Cruz Shareholders and the Company for any federal
and state income taxes, including interest and penalties, if any, as a result of
a final determination of a taxing authority that increases or decreases the
taxable income of the Company for an S corporation taxable year (resulting in a
change in the income taxes due by the Cruz Shareholders for such year) and
causes a corresponding increase or decrease in the taxable income of the Company
for a C corporation taxable year. Each party's obligation under the Tax
Agreement is limited to the amount of any reduction in such party's tax
liability as a result of any such determination. To the extent a payment is made
pursuant to the Tax Agreement by the Company to the Cruz Shareholders after the
one year anniversary of the date on which the Company's S corporation status
terminated, except to the extent it relates to the change of the Company's
method of accounting from the cash method to the accrual method effective on
July 1, 1997 (the "Change in Accounting Method"), the Company will be required
to make an additional payment to the Cruz Shareholders equal to any income taxes
payable by such persons on such payments. The Company will not receive a tax
deduction for any payments made pursuant to the Tax Agreement. The Cruz
Shareholders have not provided security for their obligations under the
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Tax Agreement; accordingly, the Company's ability to collect any such payments
will be dependent upon the financial condition of such persons at the time such
payments are to be made. The Company is not aware of any tax adjustments which
might require payments under the Tax Agreement other than related to the Change
in Accounting Method.
Marc J. Stone, the Company's Vice President of Corporate Planning and
Development, General Counsel and Secretary and a director, was a partner in a
predecessor law firm to Bilzin Sumberg until immediately prior to joining the
Company in May 1997. Thereafter, Mr. Stone was of counsel to the predecessor
firm and is currently of counsel to Bilzin Sumberg. Bilzin Sumberg and its
predecessor firms have acted as the Company's regular outside legal counsel
since 1994. The total fees and costs paid by the Company to the predecessor firm
of Bilzin Sumberg (Rubin Baum Levin Constant Friedman & Bilzin) in 1995, 1996
and 1997 were approximately $63,000, $34,000 and $349,000, respectively. The
Company believes that the fees paid are no less favorable to the Company than
could be obtained from comparable law firms in the Miami area.
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Arthur Andersen LLP ("Arthur Andersen") acted as the
Company's independent public accountants for the Company's fiscal year ended
December 31, 1997. It is anticipated that the Audit Committee of the Board of
Directors of the Company will recommend to the Board for its approval the
selection of Arthur Andersen to serve as the Company's independent public
accountants for the fiscal year ending December 31, 1998, after the Audit
Committee has undertaken the appropriate review, including reviewing the terms
of engagement of Arthur Andersen for fiscal year 1998. Such independent public
accountants, if selected by the Board of Directors, will continue to serve at
the pleasure of the Board. The selection of independent public accountant is not
being submitted to shareholders for approval because there is no legal
requirement to do so. A representative of Arthur Andersen is expected to be
present at the 1998 Annual Meeting of Shareholders in order to have the
opportunity to make a statement, if such representative desires to do so, and to
be available to respond to appropriate questions relating to the examination by
Arthur Andersen of the Company's 1997 financial statements.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholder proposals intended to be presented at the 1999 annual
shareholders' meeting must be submitted to the Secretary of the Company, at the
principal executive offices of the Company, 8700 West Flagler Street, Miami,
Florida 33174, no later than February 17, 1999 in order to receive consideration
for inclusion in the Company's 1999 proxy materials. Any such shareholder
proposal must comply with the requirements of Rule 14a-8 promulgated under the
Exchange Act.
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OTHER MATTERS
EACH PERSON SOLICITED HEREUNDER CAN OBTAIN, WITHOUT CHARGE, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K (WITH EXHIBITS) FOR THE COMPANY'S FISCAL
YEAR ENDED DECEMBER 31, 1997, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, BY SENDING A WRITTEN REQUEST TO MARC J. STONE, VICE PRESIDENT OF
CORPORATE PLANNING AND DEVELOPMENT, GENERAL COUNSEL AND SECRETARY OF THE
COMPANY, AT THE COMPANY'S EXECUTIVE OFFICES LOCATED AT 8700 WEST FLAGLER STREET,
MIAMI, FLORIDA 33174.
By Order of the Board of Directors
/s/ Marc J. Stone
Marc J. Stone
Secretary
June 17, 1998
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PROXY
OMEGA RESEARCH, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints William R. Cruz and
Ralph L. Cruz, and each of them, with full power of substitution, as attorneys
and proxies to appear and to vote all shares of common stock of Omega Research,
Inc. (the "Company") which the undersigned may be entitled to vote at the Annual
Meeting of Shareholders of the Company to be held at the Miami Airport Marriott,
1201 N.W. LeJeune Road, Miami, Florida 33126, on Friday, July 24, 1998, at 10:00
a.m. (local time) and at any postponements or adjournments thereof. The
undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and the Proxy Statement, each dated June 17, 1998, and instructs
its attorneys and proxies to vote as set forth on this Proxy.
(TO BE SIGNED ON REVERSE SIDE)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
[X] Please mark your
votes as in this
example.
FOR WITHHELD NOMINEES: William R. Cruz
1. ELECTION OF DIRECTORS [ ] [ ] Ralph L. Cruz
Peter A. Parandjuk
Salomon Sredni
FOR, EXCEPT vote withheld from the Marc J. Stone
following nominee(s): Christos M. Cotsakos
_______________________________________________________ Brian D. Smith
</TABLE>
2. In their discretion, to transact such other business as may properly
come before the meeting or any postponement or adjournment thereof.
The shares represented by this Proxy will be voted as specified. IF NO CHOICE IS
SPECIFIED, THE PROXY WILL BE VOTED FOR ALL OF THE SPECIFIED NOMINEES. THIS PROXY
CARD MUST BE PROPERLY COMPLETED, SIGNED, DATED AND RETURNED IN ORDER TO HAVE
YOUR SHARES VOTED.
PLEASE NOTE ANY CHANGE OF ADDRESS.
PLEASE MAIL IN THE ENVELOPE PROVIDED.
Signature_______________________________
Date____________________________________
Signature_______________________________
Date____________________________________
NOTE: Please sign exactly as name
appears above. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee, etc.,
indicate title. If the signer is a
corporation, sign in the corporate name
by a duly authorized officer.
