SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____ to______
Commission file number 0-22895
OMEGA RESEARCH, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2223464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
8700 West Flagler Street, Miami, Florida 33174
(Address of principal executive offices)
(Zip Code)
(305) 551-9991
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
AS OF AUGUST 3, 1998 THERE WERE 22,262,108 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING.
<PAGE>
OMEGA RESEARCH, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets
June 30, 1998 (unaudited) and December 31, 1997 (audited)........3
Statements of Income
Three and six months ended June 30, 1998 and 1997 (unaudited)....4
Statements of Cash Flows
Six months ended June 30, 1998 and 1997 (unaudited)..............5
Notes to Financial Statements......................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................7
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds......................12
Item 6. Exhibits and Reports on Form 8-K...............................12
Signature.....................................................................13
Exhibit Index.................................................................14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OMEGA RESEARCH, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ------------
ASSETS (Unaudited) (Audited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 10,201,476 $ 12,323,515
Marketable securities 3,336,562 1,014,590
Accounts receivable, net 9,574,720 9,438,218
Inventories 144,423 146,821
Other current assets 676,101 520,537
Deferred income taxes 3,837,000 2,963,000
------------ ------------
Total current assets 27,770,282 26,406,681
PROPERTY AND EQUIPMENT, net 1,304,550 971,511
OTHER ASSETS 114,526 91,626
============ =============
Total assets $ 29,189,358 $ 27,469,818
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,300,789 $ 1,119,202
Accrued expenses 873,060 561,552
Deferred revenue - 47,395
Income taxes payable 89,500 509,000
----------- ----------
Total current liabilities 2,263,349 2,237,149
----------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 25,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value; 100,000,000
shares authorized, 22,255,708 and 22,246,108
issued and outstanding at June 30, 1998 and
December 31, 1997, respectively 222,557 222,461
Additional paid-in capital 23,819,523 23,745,251
Retained earnings 2,883,929 1,264,957
----------- ----------
Total shareholders' equity 26,926,009 25,232,669
----------- ----------
Total liabilities and shareholders' equity $ 29,189,358 $ 27,469,818
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part
of these balance sheets.
3
<PAGE>
OMEGA RESEARCH, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- --------------------------------
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES:
Licensing fees $ 5,715,496 $ 6,542,799 $ 11,361,399 $ 12,092,426
Other revenues 1,936,101 1,403,104 3,320,992 2,526,560
----------- ----------- ------------ ------------
Total net revenues 7,651,597 7,945,903 14,682,391 14,618,986
----------- ----------- ------------ ------------
OPERATING EXPENSES:
Cost of licensing fees 518,833 467,929 970,085 855,583
Product development 835,868 478,966 1,550,887 842,917
Sales and marketing 3,837,243 2,949,724 7,158,839 4,945,968
General and administrative 1,276,184 1,332,134 2,673,440 2,595,505
--------- --------- ----------
Total operating expenses 6,468,128 5,228,753 12,353,251 9,239,973
--------- --------- ---------- ---------
Income from operations 1,183,469 2,717,150 2,329,140 5,379,013
115,549 10,560 220,832 17,664
OTHER INCOME, net --------- --------- ---------- ---------
Income before income taxes 1,299,018 2,727,710 2,549,972 5,396,677
482,000 - 931,000 -
--------- --------- --------- ---------
INCOME TAX PROVISIONS
Income before pro forma income
tax adjustment 817,018 2,727,710 1,618,972 5,396,677
PRO FORMA INCOME TAXES FOR
PERIODS PRIOR TO SEPTEMBER 30,
1997(Note 1) - 1,077,445 - 2,131,687
--------- ----------- ----------- -----------
Pro forma net income $ 817,018 $ 1,650,265 $ 1,618,972 $ 3,264,990
========= =========== =========== ===========
PRO FORMA EARNING PER
SHARE (Note 2):
Basic $ 0.04 $ 0.08 $ 0.07 $ 0.17
========= =========== =========== =========
Diluted $ 0.04 $ 0.08 $ 0.07 $ 0.15
========= =========== =========== ==========
</TABLE>
4
<PAGE>
OMEGA RESEARCH, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1998 1997
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Pro forma net income $ 1,618,972 $ 3,264,990
Adjustments to reconcile pro forma net income to net
cash provided by operating activities:
Pro forma tax adjustment - 2,131,687
Depreciation and amortization 178,494 351,081
Provision for doubtful accounts 882,835 1,231,684
Compensation expense on stock option grants 61,168 41,819
Deferred income tax benefit (874,000) -
(Increase) decrease in:
Accounts receivable (1,019,337) (4,773,663)
Inventories 2,398 (4,244)
Other current assets (178,464) (13,146)
Increase (decrease) in:
Accounts payable 181,587 385,627
Accrued expenses 311,508 96,059
Deferred revenue (47,395) -
Income taxes payable (419,500) -
--------------- ---------------
Net cash provided by operating activities 698,266 2,711,894
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (511,533) (600,574)
Investments in marketable securities (2,321,972) -
Capitalized software development costs - (29,358)
--------------- ---------------
Net cash used in investing activities (2,833,505) (629,932)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 13,200 -
Distributions to shareholders - (1,960,000)
--------------- ---------------
Net cash provided by (used in) financing activities 13,200 (1,960,000)
--------------- ---------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,122,039) 121,962
CASH AND CASH EQUIVALENTS, beginning of period 12,323,515 141,633
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 10,201,476 $ 263,595
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ - $ -
=============== ===============
Cash paid for income taxes $ 2,224,500 $ -
=============== ===============
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
5
<PAGE>
OMEGA RESEARCH, INC
Notes to Financial Statements
(Unaudited)
The accompanying financial statements should be read in conjunction
with the Financial Statements and Notes to Financial Statements included in the
Company's Annual Report on Form 10-K dated December 31, 1997. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial position as of June 30, 1998, the
results of operations for the three and six months ended June 30, 1998 and 1997
and cash flows for the six months ended June 30, 1998 and 1997 have been made.
The results of operations and cash flows for an interim period are not
necessarily indicative of the results of operations or cash flows which may be
reported for the year or for any subsequent period.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
in the preparation of these financial statements.
ACCOUNTS RECEIVABLE
Accounts receivable are principally from individuals, distributors and
retailers of the Company's products. The Company performs periodic credit
evaluations and maintains allowances for potential credit losses of
approximately $3,112,000 and $3,229,000 at June 30, 1998 and December 31, 1997,
respectively, and allowances for potential returns of approximately $6,400,000
and $4,150,000 at June 30, 1998 and December 31, 1997, respectively.
INCOME TAXES
For income tax purposes, the Company was an S corporation prior to
September 30, 1997. Accordingly, net income and related timing differences which
arise in the recording of income and expense items for financial reporting and
tax reporting purposes were included in the individual tax returns of the S
corporation shareholders. Effective September 30, 1997, the Company terminated
its S corporation election, and, as a result, adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. SFAS No. 109
requires that deferred income tax balances be recognized based on the
differences between the financial statement and income tax bases of assets and
liabilities using the enacted tax rates.
PRO FORMA INCOME TAX ADJUSTMENT
The pro forma income tax adjustment for the quarter and six month
periods ended June 30, 1997, included in the accompanying statements of income,
is for informational purposes only. Pro forma income taxes have been provided at
the estimated effective rate of 39.5%.
2. PRO FORMA EARNINGS PER SHARE
The computation of weighted average common and common equivalent shares
used to compute basic and diluted pro forma earnings per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding 22,249,575 19,480,000 22,247,863 19,480,000
Impact of dilutive options after applying
the treasury stock method 769,467 1,706,000 651,083 1,706,000
---------- ---------- ---------- ----------
Shares outstanding (diluted) 23,019,042 21,186,000 22,898,946 21,186,000
========== ========== ========== ==========
Options outstanding which are not included
in the calculation of diluted earnings per share
because their impact is antidilutive 273,500 - 380,000 -
========== ========== ========== ==========
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Financial Statements
and the Notes to Financial Statements contained herein. The results of
operations for an interim period may not give a true indication of results for
the year, or for any subsequent period.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items in the
Company's statement of income reflected as a percentage of total revenues and as
a percentage of licensing fees:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
As a Percentage of Total Net Revenues:
Licensing fees 74.7% 82.3% 77.4% 82.7%
Other revenues 25.3 17.7 22.6 17.3
----- ----- ----- -----
Total net revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Operating expenses:
Cost of licensing fees 6.8 5.9 6.6 5.9
Product development 10.9 6.0 10.6 5.8
Sales and marketing 50.1 37.1 48.7 33.8
General and administrative 16.7 16.8 18.2 17.7
----- ----- ----- -----
Total operating expenses 84.5 65.8 84.1 63.2
----- ----- ----- -----
Income from operations 15.5% 34.2% 15.9% 36.8%
===== ===== ===== =====
As a Percentage of Licensing Fees:
Operating expenses:
Cost of licensing fees 9.1 7.2 8.5 7.1
Product development 14.6 7.3 13.7 7.0
Sales and marketing 67.2 45.1 63.0 40.9
General and administrative 22.3 20.3 23.5 21.4
----- ----- ----- -----
Total operating expenses 113.2% 79.9% 108.7% 76.4%
===== ===== ===== =====
</TABLE>
QUARTERS ENDED JUNE 30, 1998 AND 1997
NET REVENUES
TOTAL NET REVENUES. The Company's total net revenues were $7.7 million
in the three months ended June 30, 1998 compared to $7.9 million in the
comparable period of 1997.
LICENSING FEES. Licensing fees were $5.7 million in the three months
ended June 30, 1998 compared to $6.5 million in the comparable period of 1997,
primarily due to a decrease in sales of the Company's products. The Company
believes that licensing fees in 1998 are being impacted by slower than
anticipated demand for its products, which was first experienced during the
fourth quarter of 1997. Management believes that the slower demand is due in
part to customer delays in decision making (in anticipation of the release of
the next versions of TRADESTATION and OPTIONSTATION expected later this year and
the release of the next version of SuperCharts following the release of the
Company's premier products ). Management also believes that product sales will
continue to be in line with the level of product sales experienced during the
first six months
7
<PAGE>
of 1998 until the next versions of such products are released and accepted by
the marketplace, however, no assurances can be given that the marketplace will
accept the next versions of such products.
OTHER REVENUES. Other revenues increased 38% from $1.4 million in the
three months ended June 30, 1997 to $1.9 million in the comparable period of
1998, primarily due to revenues generated from OmegaWorld, the Company's first
annual conference for users of Omega Research products. An increase in minimum
royalties under the Company's license agreement with Dow Jones Markets also
contributed to this increase.
OPERATING EXPENSES
COST OF LICENSING FEES. Cost of licensing fees consists primarily of
product media, packaging and storage and inventory costs. Cost of licensing fees
increased from $468,000 in the three months ended June 30, 1997 to $519,000 in
the comparable period of 1998, primarily due to an increase in the number of the
Company's shipments and an increase in sales of lower margin products. Cost of
licensing fees as a percentage of licensing fees increased from 7% in the three
months ended June 30, 1997 to 9% in the comparable period of 1998, primarily due
to this same reason.
PRODUCT DEVELOPMENT. Product development expenses include expenses
associated with the development of new products, enhancements to existing
products, testing of products and the creation of training manuals, and consist
primarily of salaries, other personnel costs and depreciation of computer and
related equipment. Product development expenses increased from $479,000 in the
three months ended June 30, 1997 to $836,000 in the comparable period of 1998,
primarily due to an increase in the number of individuals employed in product
development and recruiting fees related to the hiring of such employees. Product
development expenses as a percentage of licensing fees increased from 7% in the
three months ended June 30, 1997 to 15% in the comparable period of 1998,
primarily due to increased personnel and related expenses. The Company
anticipates that the absolute dollar amount of product development expense will
increase for the foreseeable future as the Company seeks to develop new products
and enhance existing products.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
marketing programs, including advertising, brochures, direct mail programs and
seminars to promote the Company's products to investors, sales commissions,
salaries for the customer support center and marketing personnel, other
personnel costs and shipping expenses. Sales and marketing expenses increased
from $2.9 million in the three months ended June 30, 1997 to $3.8 million in the
comparable period of 1998, primarily due to costs related to OmegaWorld,
increased personnel and related costs for the customer support center and
marketing, increased promotional costs (including the use of sales seminars and
the participation in, and sponsorship of, industry events), and increased
shipping costs, offset by decreased communications and other decreased expenses.
Sales and marketing expenses as a percentage of licensing fees increased from
45% in the three months ended June 30, 1997 to 67% in the comparable period of
1998. The Company expects to continue hiring additional sales and marketing
personnel and anticipates that sales and marketing expenses will increase in
absolute dollar amount at least through the remainder of 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of employee-related costs for administrative personnel such as
executive, human resources, finance and information systems employees, as well
as external professional fees, rent and other facilities expense, and provision
for bad debt. General and administrative expenses were approximately $1.3
million in each of the three months ended June 30, 1997 and 1998. General and
administrative expenses as a percentage of licensing fees increased from 20% in
the three months ended June 30, 1997 to 22% in the comparable period of 1998.
Management believes that the absolute dollar amount of its general and
administrative expenses in the future will depend, to a large extent, on the
levels of provision required for bad debt and for the defense of the class
action lawsuit against the Company, as well as the hiring of additional
personnel to support the expected growth of the Company and the extent, if any,
to which the Company enters new markets or related businesses.
8
<PAGE>
OTHER INCOME, NET
Other income, net consists primarily of investment income from cash and
cash equivalents. The Company generally invests in overnight investments, tax
exempt commercial paper and investment grade short-term municipal bonds. The
amount of interest income fluctuates based on the amount of funds available for
investment and the prevailing interest rates. Other income, net increased from
$11,000 in the three months ended June 30, 1997 to $116,000 in the comparable
period of 1998, primarily due to income earned on the proceeds from the
Company's initial public offering which closed in October 1997.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NET REVENUES
TOTAL NET REVENUES. The Company's total revenues were $14.7 million in
the six months ended June 30, 1998 compared to $14.6 million in the comparable
period of 1997.
LICENSING FEES. Licensing fees were $11.4 million in the six months
ended June 30, 1998 as compared to $12.1 million in the comparable period of
1997, primarily due to a decrease in sales of all of the Company's products
except OPTIONSTATION. The Company believes that licensing fees in 1998 are being
impacted by slower than anticipated demand for its products, which was first
experienced during the fourth quarter of 1997. Management believes that the
slower demand is due in part to customer delays in decision making (in
anticipation of the release of the next versions of TRADESTATION and
OPTIONSTATION expected later this year and the release of the next version of
SUPERCHARTS following the release of the Company's premier products). Management
also believes that product sales will continue to be in line with the level of
product sales experienced during the first six months of 1998 until the next
versions of such products are released and accepted by the marketplace, however,
no assurances can be given that the marketplace will accept the next versions of
such products.
OTHER REVENUES. Other revenues increased 31% from $2.5 million in the
six months ended June 30, 1997 to $3.3 million in the comparable period of 1998,
primarily due to revenues generated from OmegaWorld, the Company's first annual
conference for users of Omega Research products. An increase in minimum
royalties under the Company's license agreement with Dow Jones Markets also
contributed to this increase.
OPERATING EXPENSES
COST OF LICENSING FEES. Cost of licensing fees increased from $856,000
in the six months ended June 30, 1997 to $970,000 in the comparable period of
1998, primarily due to a one-time payment made to a third party in conjunction
with the development of certain technology for the Company. Cost of licensing
fees as a percentage of licensing fees increased from 7% in the six months ended
June 30, 1997 to 9% in the comparable period of 1998, primarily due to this
one-time royalty payment.
PRODUCT DEVELOPMENT. Product development expenses increased from
$843,000 in the six months ended June 30, 1997 to $1.6 million in the comparable
period of 1998, primarily due to an increase in the number of individuals
employed in product development and recruiting fees related to the hiring of
such employees. Product development expenses as a percentage of licensing fees
increased from 7% in the six months ended June 30, 1997 to 14% in the comparable
period of 1998, primarily due to increased personnel and related expenses. The
Company anticipates that the absolute dollar amount of product development
expense will increase for the foreseeable future as the Company seeks to develop
new products and enhance existing products.
SALES AND MARKETING. Sales and marketing expenses were $7.2 million in
the six months ended June 30, 1998 compared to $4.9 million in the comparable
period of 1997, primarily due to increased advertising (including print
advertising, the use of sales seminars, television advertising and direct
mailers), increased personnel and related costs for the customer support center
and marketing, costs related to OmegaWorld
9
<PAGE>
and increased shipping costs, offset by decreased communications and other
decreased expenses. Sales and marketing expenses as a percentage of licensing
fees increased from 41% in the six months ended June 30, 1997 to 63% in the
comparable period of 1998. The Company expects to continue hiring additional
sales and marketing personnel and anticipates that sales and marketing expenses
will increase in absolute dollar amount at least through the remainder of 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$2.7 million in the six months ended June 30, 1998 compared to $2.6 million in
the comparable period of 1997. General and administrative expenses as a
percentage of licensing fees increased from 21% in the six months ended June 30,
1997 to 24% in the comparable period of 1998. Management believes that the
absolute dollar amount of its general and administrative expenses in the future
will depend, to a large extent, on the levels of provision required for bad debt
and for the defense of the class action lawsuit against the Company, as well as
the hiring of additional personnel to support the expected growth of the Company
and the extent, if any, to which the Company enters new markets or related
businesses.
OTHER INCOME, NET
Other income, net increased from $18,000 in the six months ended June
30, 1997 to $221,000 in the comparable period of 1998, primarily due to income
earned on the proceeds from the Company's initial public offering which closed
in October 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $698,000 and $2.7 million
for the six months ended June 30, 1998 and 1997, respectively. The decrease in
net cash provided by operations in the six months ended June 30, 1998 was
primarily attributable to lower net income of the Company in the first six
months of 1998 as well as payments for income taxes during 1998. Such payments
for income taxes were not required during the same period of 1997 when the
Company was an S corporation.
The Company's investing activities used cash of $2.8 million and
$630,000 in the six months ended June 30, 1998 and 1997, respectively. The
principal use of cash in investing activities was for investments in marketable
securities and capital expenditures related to the acquisition of computer and
related equipment and software required to support expansion of the Company's
operations. During 1997 investing activities also used cash as a result of
purchases of furniture and fixtures and leasehold improvements related to the
Company's move to a new corporate headquarters in February 1997 and the
amortization capitalized software development costs.
The Company's financing activities provided cash of $13,000 for the six
months ended June 30, 1998 and used cash of $2 million for the six months ended
June 30, 1997. Cash provided during the six months ended June 30, 1998 was from
the exercise of stock options. Cash used during the six months ended June 30,
1997 was due to cash distributions to the Company's shareholders prior to the
Company's initial public offering.
As of June 30, 1998, the Company had cash and cash equivalents of
approximately $10.2 million and working capital of approximately $25.5 million.
Assuming there is no significant change in the Company's business, the Company
believes that existing cash balances and investments and cash flow from
operations will be sufficient to meet its normal working capital and capital
expenditure requirements for at least the next 12 months. The Company expects to
incur significant capital expenditures during the remainder of 1998 in order to
upgrade its telephone systems and complete the implementation of its new
customer tracking and management and accounting systems.
FORWARD-LOOKING STATEMENTS
This report contains statements that are forward-looking within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. When used in this report, the words "believes," "estimates,"
"plans," "expects," "intends," "anticipates," "may," "prospect" and similar
expressions as they relate to the Company or its management are intended to
identify the forward-looking statements. These statements, including but not
limited to the Company's statements regarding expected product sales, are based
on current expectations and beliefs concerning future events that are subject to
risks and uncertainties. Actual results may differ
10
<PAGE>
materially from the results suggested herein and from the results historically
experienced. Factors that may cause or contribute to such differences and impact
future events include, but are not limited to, the Company meeting its timetable
for the anticipated upgrade releases of its premium products later this year,
customer acceptance of such upgraded products, unfavorable critical reviews of
such upgraded products, the Company's ability to market effectively such
upgraded products, the ability of such upgraded products to support effectively
a network computer environment and to support Internet-delivered real-time
financial market data, the introduction of competitive products in the market or
increased customer acceptance of recently-introduced competitive products, the
ability of the Company and its data vendors to develop in a timely fashion, if
at all, technical compatibility between the Company's next generation of
products and the respective data services, the quality of such technical
compatibility, customer acceptance of the Company's next generation of products
as used with such data services, changes in conditions in the financial markets,
increases in the number of potential customers who delay purchases until the
Company's product upgrades are released, changes in operating expenses as a
result of decisions by the Company to enter into new markets or expand into
related businesses, or other reasons, and changes in the Company's ability to
attract and retain high-quality product development personnel, as well as those
discussed in the Company's press releases and filings with the Securities and
Exchange Commission, including but not limited to its Annual Report on Form 10-K
for the year ended December 31, 1997 (including in the section titled "Forward
Looking Statements; Business Risks" in Item 7 thereof), any of which could have
a material adverse effect on the results of operations and financial condition
of the Company.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDINGS
(c) SALES OF UNREGISTERED SECURITIES
During the three months ended June 30, 1998, the Company issued to 7
employees options to purchase an aggregate of 116,500 shares of Common Stock.
All such options vest ratably over a five-year period and are exercisable at
prices ranging from $3.63 through $5.34 per share, which was the fair market
value of the Company's Common Stock on the respective dates on which the options
were granted. The options issued to these employees were granted under the
Company's Amended and Restated 1996 Incentive Stock Plan, as amended, and
expire, if they remain unexercised, on the tenth anniversary of the date on
which they were granted.
All the foregoing options were granted by the Company in reliance upon
the exemption from registration available under Section 4(2) of the Securities
Act.
Other than as described above, the Company did not issue or sell any
unregistered securities during the second quarter of 1998.
(d) USE OF PROCEEDS
The Company effected an initial public offering pursuant to a
Registration Statement on Form S-1 (File No. 333-3207) which was declared
effective by the Securities and Exchange Commission on September 30, 1997. See
Item 2(d) of the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997 for a description of the Company's use of proceeds from
such offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Amended and Restated 1996 Incentive Stock Plan (as amended
through February 13, 1998)
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the three
months ended June 30, 1998.
12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OMEGA RESEARCH, INC.
Registrant
August 10, 1998 /s/ Salomon Sredni
- ------------------ --------------------------------------------
Date Salomon Sredni
Vice President of Operations, Chief Financial
Officer and Treasurer
(Signing both in his capacity as an
authorized officer and as Principal
Financial and Accounting Officer of the
Registrant)
13
<PAGE>
OMEGA RESEARCH, INC.
EXHIBIT INDEX
EXHIBIT
NO. DOCUMENT DESCRIPTION
- ------- --------------------
10.1 Amended and Restated 1996 Incentive Stock Plan (as amended through
February 13, 1998)
27.1 Financial Data Schedule
14
EXHIBIT 10.1
OMEGA RESEARCH, INC.
AMENDED AND RESTATED
1996 INCENTIVE STOCK PLAN*
1. PURPOSE. The OMEGA RESEARCH, INC. Amended and Restated 1996
Incentive Stock Plan (the "Plan") is intended to provide incentives which will
attract and retain highly competent persons at all levels as employees of OMEGA
RESEARCH, INC. and its subsidiaries (the "Company"), as well as independent
contractors providing consulting or advisory services to the Company, by
providing them opportunities to acquire the Company's common stock ("Common
Shares") or to receive monetary payments based on the value of such shares
pursuant to the Awards described in Paragraph 4 below.
2. ADMINISTRATION.
(a) Prior to the date, if any, upon which the Company becomes subject
to the Securities Exchange Act of 1934 (the "Act"), the Plan shall be
administered by the Board of Directors of the Company (the "Board") or a
committee appointed by the Board. After the date, if any, upon which the Company
becomes subject to the Act, the Plan will be administered by the Compensation
Committee (the administrator of the Plan, initially the Board or committee
thereof and thereafter the Compensation Committee, if and when the Company
becomes subject to the Act, shall be referred to hereinafter as the "Committee")
appointed by the Board from among its members PROVIDED, however, that as long as
Common Shares are registered under the Act, members of the Committee must
qualify as "non-employee directors" within the meaning of Securities and
Exchange Commission Regulation /section/ 240.16b-3; provided further, however,
that, notwithstanding the foregoing, the Board can continue to administer the
Plan after the Company becomes subject to the Act until the Board has a
sufficient number of members who qualify as "non-employee directors" to
constitute the Committee. Once appointed, the Committee shall continue to serve
until otherwise directed by the Board. From time to time the Board may increase
the size of the Committee and appoint additional members thereof, remove members
(with or without cause), and appoint new members in substitution therefor, and
fill vacancies however caused; provided, however, that at no time shall a
Committee of less than two members of the Board administer the Plan, and
provided further, that, once the Company becomes subject to the Act, all members
of the Committee if it consists of only two members must be "non-employee
directors." The Committee is authorized, subject to the provisions of the Plan,
to establish such rules and regulations as it deems necessary for the proper
administration of the Plan and to make such determinations and interpretations
and to take such action in connection with the Plan and any Awards (as
hereinafter defined) granted hereunder as it deems necessary or advisable. All
determinations and interpretations made by the Board and Committee shall be
binding and conclusive on all participants and their legal representatives. No
- --------
* As amended by the Company's Board of Directors and approved by the
Company's shareholders on August 14, 1997, and as amended pursuant to Section 17
hereof by the Company's Board of Directors on February 13, 1998.
1
<PAGE>
member of the Board, no member of the Committee and no employee of the Company
shall be liable for any act or failure to act hereunder, by any other member or
employee or by any agent to whom duties in connection with the administration of
this Plan have been delegated or, except in circumstances involving such
person's bad faith, gross negligence or fraud, for any act or failure to act by
the member or employee.
(b) Pursuant to its administrative duties described in Section
2(a) above and notwithstanding anything to the contrary contained herein, the
Compensation Committee may, by a resolution adopted at a meeting of the
Compensation Committee duly convened and called or by a unanimous written
consent in lieu of a meeting, delegate to the persons or persons who serve as
Chief Executive Officer or as Co-Chief Executive Officers of the Company the
authority to determine the identities of employees who are not officers or
directors of the Company who shall receive Stock Options under the Plan and the
terms, conditions, limitations and restrictions upon which such Stock Options
shall be granted; provided, however, that the per share exercise price of any
Stock Option awarded by the Chief Executive Officer or the Co-Chief Executive
Officers of the Company pursuant to any delegation of authority permitted
hereunder shall not be less than the Fair Market Value (as hereinafter defined)
of the Common Shares on the date the Stock Option is granted. The terms and
conditions of, and any limitation or restriction on, any such delegation shall
be at the sole discretion of the Compensation Committee and shall be set forth
in the resolution of the Compensation Committee establishing such delegation.
Any delegation pursuant to this Section 2(b) may be revoked by the Compensation
Committee at any time.
3. PARTICIPANTS. Participants will consist of such employees or
prospective employees (conditioned upon, and effective not earlier than his
becoming an employee) of the Company, and independent contractors (including
persons other than individuals) providing consulting or advisory services to the
Company, as the Committee in its sole discretion determines to be responsible
for the success and future growth and profitability of the Company and whom the
Committee may designate from time to time to receive Awards under the Plan.
Designation of a participant in any year shall not require the Committee to
designate such person to receive an Award in any other year or, once designated,
to receive the same type or amount of Awards as granted to the participant in
any year. The Committee shall consider such factors as it deems pertinent in
selecting participants and in determining the type and amount of their
respective Awards.
4. TYPES OF AWARDS. Awards under the Plan may be granted in any one or
a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock
Awards, (d) Performance Shares, and (e) Performance Units, all as described
below (collectively "Awards").
5. SHARES RESERVED UNDER THE PLAN. Subject to the following provisions
of this Section 5, there is hereby reserved for issuance under the Plan an
aggregate of 3,000,000 Common Shares, which may be authorized but unissued
shares. Any shares subject to Stock Options or Stock Appreciation Rights or
issued under such options or rights or as Stock Awards may thereafter be subject
to new options, rights or awards under this Plan if there is a lapse, expiration
or termination of any such options or rights prior to issuance of the shares or
the payment of the equivalent or if
2
<PAGE>
shares are issued under such options or rights or as such awards and thereafter
are reacquired by the Company pursuant to rights reserved by the Company upon
issuance thereof.
6. STOCK OPTIONS. Stock Options will consist of awards from the
Company, in the form of agreements, which will enable the holder to purchase a
specific number of Common Shares, at set terms and at a fixed purchase price.
Stock Options may be "incentive stock options" ("Incentive Stock Options")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") or Stock Options which do not constitute Incentive Stock
Options ("Nonqualified Stock Options"). The Committee will have the authority to
grant to any participant one or more Incentive Stock Options, Nonqualified Stock
Options, or both types of Stock Options (in each case with or without Stock
Appreciation Rights). Each Stock Option shall be subject to such terms and
conditions consistent with the Plan as the Committee may impose from time to
time, subject to the following limitations:
(a) EXERCISE PRICE. Each Stock Option granted hereunder shall
have such per-share exercise price as the Committee may determine at the date of
grant provided, however, that the per-share exercise price for Incentive Stock
Options shall not be less than 100% of the Fair Market Value (as hereinafter
defined) of the Common Shares on the date the option is granted.
(b) PAYMENT OF EXERCISE PRICE. The option exercise price may
be paid by check or, in the discretion of the Committee, by the delivery of
Common Shares of the Company then owned by the participant or a combination of
methods of payment; provided, however, that option agreements may provide that
payment of the exercise price by delivery of Common Shares of the Company then
owned by the participant may be made only if such payment does not result in a
charge to earnings for financial accounting purposes as determined by the
Committee. In the discretion of the Committee, if Common Shares are readily
tradeable on a national securities exchange or other market system at the time
of option exercise, payment may also be made by delivering a properly executed
exercise notice to the Company together with a copy of irrevocable instructions
to a broker to deliver promptly to the Company the amount of sale or loan
proceeds to pay the exercise price. To facilitate the foregoing, the Company may
enter into agreements for coordinated procedures with one or more brokerage
firms.
(c) EXERCISE PERIOD. Stock Options granted under the Plan will
be exercisable at such times and subject to such terms and conditions as shall
be determined by the Committee. In addition, Nonqualified Stock Options shall
not be exercisable later than fifteen years after the date they are granted and
Incentive Stock Options shall not be exercisable later than ten years after the
date they are granted. All Stock Options shall terminate at such earlier times
and upon such conditions or circumstances as the Committee shall in its
discretion set forth in such option at the date of grant.
(d) LIMITATIONS ON INCENTIVE STOCK OPTIONS. Incentive Stock
Options may be granted only to participants who are employees of the Company or
one of its subsidiaries (within the meaning of Section 424(f) of the Code) at
the date of grant. The aggregate Fair Market Value (determined as of the time
the option is granted) of the Common Shares with respect to which
3
<PAGE>
Incentive Stock Options are exercisable for the first time by a participant
during any calendar year (under all option plans of the Company) shall not
exceed $100,000. Incentive Stock Options may not be granted to any participant
who, at the time of grant, owns stock possessing (after the application of the
attribution rules of Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of stock of the Company, unless the option
price is fixed at not less than 110% of the Fair Market Value of the Common
Shares on the date of grant and the exercise of such option is prohibited by its
terms after the expiration of five years from the date of grant of such option.
(e) REDESIGNATION AS NONQUALIFIED STOCK OPTIONS. Options
designated as Incentive Stock Options that fail to continue to meet the
requirements of Section 422 of the Code shall be redesignated as Nonqualified
Stock Options for Federal income tax purposes automatically without further
action by the Committee on the date of such failure to continue to meet the
requirements of Section 422 of the Code.
(f) LIMITATION OF RIGHTS IN SHARES. The recipient of a Stock
Option shall not be deemed for any purpose to be a shareholder of the Company
with respect to any of the shares subject thereto except to the extent that the
Stock Option shall have been exercised and, in addition, a certificate shall
have been issued and delivered to the participant.
7. STOCK APPRECIATION RIGHTS. The Committee may, in its discretion,
grant Stock Appreciation Rights to the holders of any Stock Options granted
hereunder. In addition, Stock Appreciation Rights may be granted independently
of and without relation to Stock Options. Each Stock Appreciation Right shall be
subject to such terms and conditions consistent with the Plan as the Committee
shall impose from time to time, including the following:
(a) A Stock Appreciation Right relating to a Nonqualified
Stock Option may be made part of such option at the time of its grant or at any
time thereafter up to six months prior to its expiration, and a Stock
Appreciation Right relating to an Incentive Stock Option may be made part of
such option only at the time of its grant.
(b) Each Stock Appreciation Right will entitle the holder to
elect in lieu of exercising the Stock Option to receive the appreciation in the
Fair Market Value of the shares subject thereto up to the date the right is
exercised. In the case of a right issued in relation to a Stock Option, such
appreciation shall be measured from not less than the option price and in the
case of a right issued independently of any Stock Option, such appreciation
shall be measured from not less than 85% of the Fair Market Value of the Common
Shares on the date the right is granted. Payment of such appreciation shall be
made in cash or in Common Shares, or a combination thereof, as set forth in the
Award, but no Stock Appreciation Right shall entitle the holder to receive, upon
exercise thereof, more than the number of Common Shares (or cash of equal value)
with respect to which the right is granted.
(c) Each Stock Appreciation Right will be exercisable at the
times and to the extent set forth therein, but no Stock Appreciation Right may
be exercisable earlier than six months
4
<PAGE>
after the date it was granted or later than the earlier of (i) the term of the
related Stock Option, if any, and (ii) fifteen years after it was granted.
Exercise of a Stock Appreciation Right shall reduce the number of shares
issuable under the Plan (and the related Stock Option, if any) by the number of
shares with respect to which the right is exercised.
8. STOCK AWARDS. Stock Awards will consist of Common Shares transferred
to participants without other payment therefor or payment at less than Fair
Market Value as additional compensation for services to the Company. Stock
Awards shall be subject to such terms and conditions as the Committee determines
appropriate, including, without limitation, restrictions on the sale or other
disposition of such shares and rights of the Company to reacquire such shares
for no consideration upon termination of the participant's employment or other
contractual arrangement within specified periods. The Committee may require the
participant to deliver a duly signed stock power, endorsed in blank, relating to
the Common Shares covered by such an Award. The Committee may also require that
the stock certificates evidencing such shares be held in custody until the
restrictions thereon shall have lapsed. The participant shall have, with respect
to the Common Shares subject to a Stock Award, all of the rights of a holder of
Common Shares of the Company, including the right to receive dividends and to
vote the shares.
9. PERFORMANCE SHARES.
(a) Performance Shares may be awarded either alone or in
addition to other Awards granted under this Plan and shall consist of the right
to receive Common Shares or cash of an equivalent value at the end of a
specified Performance Period (defined below). The Committee shall determine the
participants to whom and the time or times at which Performance Shares shall be
awarded, the number of Performance Shares to be awarded to any person, the
duration of the period (the "Performance Period") during which, and the
conditions under which, receipt of the Common Shares will be deferred, and the
other terms and conditions of the Award in addition to those set forth in this
Section 9. The Committee may condition the grant of Performance Shares upon the
attainment of specified performance goals or such other factors or criteria as
the Committee shall determine.
(b) Performance Shares awarded pursuant to this Section 9
shall be subject to the following terms and conditions:
(i) Unless otherwise determined by the Committee at
the time of the grant of the Award, amounts equal to any
dividends declared during the Performance Period with respect
to the number of Common Shares covered by a Performance Share
Award will not be paid to the participant.
(ii) Subject to the provisions of the Performance
Share Award and this Plan, at the expiration of the
Performance Period, share certificates and/or cash of an
equivalent value (as the Committee may determine) shall be
delivered to the participant, or his, her or its legal
representative, in a number equal to the vested shares covered
by the Performance Share Award.
5
<PAGE>
(iii) Subject to the applicable provisions of the
Performance Share Award and this Plan, upon termination of a
participant's employment or contractual relationship with the
Company for any reason during the Performance Period for a
given Performance Share Award, the Performance Shares in
question will vest or be forfeited in accordance with the
terms and conditions established by the Committee.
10. PERFORMANCE UNITS.
(a) Performance Units may be awarded either alone or in
addition to other Awards granted under this Plan and shall consist of the right
to receive a fixed dollar amount, payable in cash or Common Shares or a
combination of both. The Committee shall determine the participants to whom and
the time or times at which Performance Units shall be awarded, the duration of
Performance Units to be awarded to any person, the duration of the period (the
"Performance Cycle") during which, and the conditions under which, a
participant's right to Performance Units will be vested, the ability of
participants to defer the receipt of payment of such Performance Units, and the
other terms and conditions of the Award in addition to those set forth in this
Section 10. The Committee may condition the vesting of Performance Units upon
the attainment of specified performance goals or such other factors or criteria
as the Committee shall determine.
(b) The Performance Units awarded pursuant to this Section 10
shall be subject to the following terms and conditions:
(i) At the expiration of the Performance Cycle, the
Committee shall determine the extent to which the performance
goals have been achieved, and the percentage of the
Performance Units of each participant that have vested.
(ii) Subject to the applicable provisions of the
Performance Unit Award and this Plan, at the expiration of the
Performance Cycle, cash and/or share certificates of an
equivalent value (as the Committee may determine) shall be
delivered to the participant, or his, her or its legal
representative, in payment of the vested Performance Units
covered by the Performance Unit Award.
(iii) Subject to the applicable provisions of the
Performance Unit Award and this Plan, upon termination of a
participant's employment or contractual relationship with the
Company for any reason during the Performance Cycle for a
given Performance Unit Award, the Performance Units in
question will vest or be forfeited in accordance with the
terms and conditions established by the Committee.
11. ADJUSTMENT PROVISIONS.
(a) If the Company shall at any time change the number of
issued Common Shares without new consideration to the Company (such as by stock
dividend, stock split, recapitalization, reorganization, exchange of shares,
liquidation, combination or other change in corporate structure affecting the
Common Shares other than as contemplated under Section 5 hereof)
6
<PAGE>
or make a distribution of cash or property which has a substantial impact on the
value of issued Common Shares, the total number of shares available for Awards
under this Plan shall be appropriately adjusted and the number of shares covered
by each outstanding Award and the reference price or Fair Market Value for each
outstanding Award shall be adjusted so that the net value of such Award shall
not be changed.
(b) In the case of any sale of assets, merger, consolidation,
combination or other corporate reorganization or restructuring of the Company
with or into another corporation which results in the outstanding Common Shares
being converted into or exchanged for different securities, cash or other
property, or any combination thereof (an "Acquisition"), subject to the
provisions of this Plan and any limitation applicable to the Award:
(i) any participant to whom a Stock Option has been
granted shall have the right thereafter and during the term of
the Stock Option to receive upon exercise thereof the
Acquisition Consideration (as defined below) receivable upon
the Acquisition by a holder of the number of Common Shares
which might have been obtained upon exercise of the Stock
Option or portion thereof, as the case may be, immediately
prior to the Acquisition;
(ii) any participant to whom a Stock Appreciation
Right has been granted shall have the right thereafter and
during the term of such right to receive upon exercise thereof
the difference on the exercise date between the aggregate Fair
Market Value of the Acquisition Consideration receivable upon
such acquisition by a holder of the number of Common Shares
which are covered by such right and the aggregate reference
price of such right; and
(iii) any participant to whom Performance Shares or
Performance Units have been awarded shall have the right
thereafter and during the term of the Award, upon fulfillment
of the terms of the Award, to receive on the date or dates set
forth in the Award, the Acquisition Consideration receivable
upon the Acquisition by a holder of the number of Common
Shares which are covered by the Award.
The term "Acquisition Consideration" shall mean the kind and
amount of securities, cash or other property or any
combination thereof receivable in respect of one Common Share
upon consummation of an Acquisition.
(c) Notwithstanding any other provision of this Plan, the
Committee may authorize the issuance, continuation or assumption of Awards or
provide for other equitable adjustments after changes in the Common Shares
resulting from any other merger, consolidation, sale of assets, acquisition of
property or stock, recapitalization, reorganization or similar occurrence upon
such terms and conditions as it may deem equitable and appropriate.
(d) In the event that another corporation or business entity
is being acquired by the Company, and the Company assumes outstanding stock
options and/or stock appreciation rights
7
<PAGE>
and/or the obligation to make future grants of options or rights to employees or
other persons affiliated with the acquired entity, the aggregate number of
Common Shares available for Awards under this Plan shall be increased
accordingly.
12. NONTRANSFERABILITY.
(a) Each Award granted under the Plan to a participant shall
not be transferable by such participant otherwise than as required by law or by
will or the laws of descent and distribution, and shall be exercisable, in the
case of an individual, only by him during his lifetime. In the event of the
death of a participant while the participant is rendering services to the
Company, each Stock Option or Stock Appreciation Right theretofore granted to
him shall be exercisable during such period after his death as the Committee
shall in its discretion set forth in such option or right at the date of grant
(but not beyond the stated duration of the option or right) and then only:
(i) By the executor or administrator of the estate of
the deceased participant or the person or persons to whom the deceased
participant's rights under the Stock Option or Stock Appreciation Right
shall pass by will or the laws of descent and distribution; and
(ii) To the extent that the deceased participant was
entitled to do so at the date of his death.
(b) Notwithstanding Section 12(a), in the discretion of the
Committee, Awards granted hereunder may be transferred to members of the
participant's immediate family (which for purposes of this Plan shall be limited
to the participant's children, grandchildren and spouse), or to one or more
trusts for the benefit of such immediate family members or partnerships in which
such immediate family members and/or trusts are the only partners, but only if
the Award expressly so provides. In the case of a participant who is not an
individual, transferability shall be determined by the Committee in its sole and
absolute discretion.
13. OTHER PROVISIONS. Awards under the Plan may also be subject to such
other provisions (whether or not applicable to any other Awards under the Plan)
as the Committee determines appropriate, including without limitation,
provisions for the installment purchase of Common Shares under Stock Options,
provisions for the installment exercise of Stock Appreciation Rights, provisions
to assist the participant in financing the acquisition of Common Shares,
provisions for the forfeiture of, or restrictions on resale or other disposition
of, Shares acquired under any form of Award, provisions for the acceleration of
exercisability or vesting of Awards in the event of a change of control of the
Company or other reasons, provisions for the payment of the value of Awards to
participants in the event of a change of control of the Company or other
reasons, or provisions to comply with Federal and state securities laws, or
setting forth understandings or conditions as to the participant's employment or
contractual relationship in addition to those specifically provided for under
the Plan.
8
<PAGE>
14. FAIR MARKET VALUE. For purposes of this Plan and any Awards
hereunder, Fair Market Value of Common Shares shall be the mean between the
highest and lowest sale prices for the Company's Common Shares as reported on
the NASDAQ National Market (or such other consolidated transaction reporting
system on which such Common Shares are primarily traded) on the date immediately
preceding the date of grant (or on the next preceding trading date if Common
Shares were not traded on the date immediately preceding the date of grant),
provided, however, that until the Company's Common Shares are readily tradeable
on a national securities exchange or market system, or if the Company's Common
Shares are not at the applicable time readily tradeable on a national securities
exchange or other market system, Fair Market Value shall mean the amount
determined in good faith by the Committee as the fair market value of the Common
Shares of the Company.
15. WITHHOLDING. All payments or distributions made pursuant to the
Plan shall be net of any amounts required to be withheld pursuant to applicable
federal, state and local tax withholding requirements. If the Company proposes
or is required to distribute Common Shares pursuant to the Plan, it may require
the recipient to remit to it an amount sufficient to satisfy such tax
withholding requirements prior to the delivery of any certificates for such
Common Shares. The Committee may, in its discretion and subject to such rules as
it may adopt, permit an optionee or Award or right holder to pay all or a
portion of the federal, state and local withholding taxes arising in connection
with (a) the exercise of a Nonqualified Stock Option or a Stock Appreciation
Right, (b) the receipt or vesting of Stock Awards, or (c) the receipt of Common
Shares upon the expiration of the Performance Period or the Performance Cycle,
respectively, with respect to any Performance Shares or Performance Units, by
electing to have the Company withhold Common Shares having a Fair Market Value
equal to the amount to be withheld.
16. TENURE. A participant's right, if any, to continue to serve the
Company as an officer, employee, independent contractor, or otherwise, shall not
be enlarged or otherwise affected by such person's designation as a participant
under the Plan, nor shall this Plan in any way interfere with the right of the
Company, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of the participant from the rate in existence at the time of
the grant of an Award.
17. DURATION, AMENDMENT AND TERMINATION. No Award shall be granted
after June 29, 2006 (the "Expiration Date"); provided, however, that the terms
and conditions applicable to any Award granted prior to such date may thereafter
be amended or modified by mutual agreement between the Company and the
participant or such other persons as may then have an interest therein. Also, by
mutual agreement between the Company and a participant hereunder, under this
Plan or under any other present or future plan of the Company, Awards may be
granted to such participant in substitution and exchange for, and in
cancellation of, any Awards previously granted such participant under this Plan,
or any other present or future plan of the Company. The Board may amend the Plan
from time to time or terminate the Plan at any time. However, no action
authorized by this Section 17 shall reduce the amount of any existing Award or
change the terms and conditions thereof without the participant's consent. The
approval of the Company's shareholders will be required for any amendment to the
Plan which (i) would change the class of persons eligible for the
9
<PAGE>
grant of Stock Options as specified in Section 3 or otherwise materially modify
the requirements as to eligibility for participation in the Plan, or (ii) would
increase the maximum number of shares subject to Stock Options, as specified in
Section 5 (unless made pursuant to the provisions of Section 11) or (iii) is
required to be approved by the shareholders pursuant to the Code, Section 16 of
the Act or by any stock market or exchange on which the Common Shares are
listed. With respect to persons subject to Section 16 of the Act, transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Act. To the extent any provision of the Plan
or action by the Committee fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the Committee. Moreover,
in the event the Plan does not include a provision required by Rule 16b-3 to be
stated therein, such provision (other than one relating to eligibility
requirements, or the price and amount of Awards) shall be deemed automatically
to be incorporated by reference into the Plan insofar as participants subject to
Section 16 of the Act are concerned.
18. GOVERNING LAW. This Plan and actions taken in connection herewith
shall be governed and construed in accordance with the laws of the State of
Florida (regardless of the law that might otherwise govern under applicable
Florida principles of conflict of laws).
19. SHAREHOLDER APPROVAL. The 1996 Incentive Stock Plan was originally
adopted by the Board of the Company and approved by the Company's shareholders
effective June 30, 1996 and the Plan, as amended and restated herein was adopted
by the Board of the Company and approved by the Company's shareholders as of
August 14, 1997.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S FINANCIAL
STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001042814
<NAME> OMEGA RESEARCH, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,201,476
<SECURITIES> 3,336,562
<RECEIVABLES> 19,086,720
<ALLOWANCES> 9,512,000
<INVENTORY> 144,423
<CURRENT-ASSETS> 27,770,282
<PP&E> 2,718,709
<DEPRECIATION> 1,414,159
<TOTAL-ASSETS> 29,189,358
<CURRENT-LIABILITIES> 2,263,350
<BONDS> 0
0
0
<COMMON> 222,557
<OTHER-SE> 26,703,452
<TOTAL-LIABILITY-AND-EQUITY> 29,189,358
<SALES> 11,361,399
<TOTAL-REVENUES> 14,682,391
<CGS> 970,085
<TOTAL-COSTS> 11,470,416
<OTHER-EXPENSES> (220,832)
<LOSS-PROVISION> 882,835
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,549,972
<INCOME-TAX> 931,000
<INCOME-CONTINUING> 1,618,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,618,972
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
