SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A (FIRST)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 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) 485-7000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation SK (17 CFR 229.405) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [X]
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT ON MARCH 17, 1999, BASED UPON THE CLOSING
MARKET PRICE OF THE REGISTRANT'S VOTING STOCK ON THE NASDAQ NATIONAL MARKET ON
MARCH 17, 1999 WAS APPROXIMATELY $56,814,671.
THE REGISTRANT HAD 22,317,992 SHARES OF COMMON STOCK, $.01 PAR VALUE,
OUTSTANDING AS OF MARCH 17, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
Items 10, 11, 12 and 13 of Part III of the Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 (the "Annual Report") of Omega
Research, Inc. ( "Omega Research" or the "Company") previously filed with the
Securities and Exchange Commission (the "SEC") are hereby amended and restated
in their entirety as follows:
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company and their ages and
positions with the Company as of April 16, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
William R. Cruz 37 Co-Chairman of the Board, Co-Chief Executive Officer and President
Ralph L. Cruz 35 Co-Chairman of the Board and Co-Chief Executive Officer
Peter A. Parandjuk 36 Chief Technology Officer, Vice President of Research and Technology
and Director
Salomon Sredni(1) 31 Vice President of Operations, Chief Financial Officer, Treasurer and Director
Marc J. Stone 38 Vice President of Corporate Development, General Counsel, Secretary and Director
Janette Perez 41 Vice President of Marketing
Christos M. Cotsakos(1)(2) 50 Director
Brian D. Smith(1)(2) 54 Director
</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 overseeing the conception and
management of the Company's products and product strategies.
RALPH L. CRUZ co-founded the Company in 1982 and has been a director
since that time. Mr. Cruz was Vice President of the Company from 1982 until
1996, at which time he was appointed Co-Chief Executive Officer. Mr. Cruz
studied classical violin at the University of Miami, which he attended on a full
scholarship, and Indiana University. 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
overseeing the Company's marketing strategies.
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PETER A. PARANDJUK joined the Company in 1988 as a software engineer,
became the Company's senior software engineer in 1991, was appointed Vice
President of Product Development in January 1995 and was named a director of the
Company in July 1997. In October 1998, Mr. Parandjuk was appointed Chief
Technology Officer and Vice President of Research and Technology. Mr. Parandjuk
has a bachelor's degree in Applied Mathematics from the State University of New
York at Buffalo.
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 IVAX Corporation, a publicly-held pharmaceutical company. Prior to
that time, from January 1988 to August 1994, Mr. Sredni was with Arthur Andersen
LLP, an international accounting firm. Mr. Sredni is a Certified Public
Accountant and a member of the American Institute of Certified Public
Accountants and the Florida Institute of Certified Public Accountants. Mr.
Sredni has a bachelor's degree in Accounting from The Pennsylvania State
University.
MARC J. STONE joined the Company in May 1997 as its Vice President of
Corporate Development (which title was formerly 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 bachelor's degrees in English and American Literature and Theatre Arts and
Dramatic Literature from Brown University, and received his law degree from
University of California (Boalt Hall) School of Law at Berkeley.
JANETTE PEREZ joined the Company in January of 1996 as its Public
Relations Manager and was appointed Corporate Relations Director in November
1997. In July 1998, she was appointed Vice President of Marketing. During 1994
and 1995, Ms. Perez traveled abroad. Prior to that, from 1979 to January 1994,
Ms. Perez was Office Manager and Controller for Simon Bolivar International, a
specialty advertising firm.
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, Co-Chief Executive Officer, Chief Operating
Officer and a director of A.C. Nielson, Inc. from March 1995 to January 1996,
President and Chief Executive Officer of Nielson International from September
1993 to March 1995, and as President and Chief Operating Officer of Nielson
Europe, Middle East and Africa from 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 National Processing, Inc., Digital Island, Inc, Critical
Path, Inc.,
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Datacard Corporation, ISR International and Eplay. A decorated Vietnam
Veteran, he received a BA from William Paterson College, an MBA from Pepperdine
University and is pursuing a PhD in economics at the Management School,
University of London. Mr. Cotsakos has been the recipient of several industry
and visionary awards during his tenure at E*TRADE Group, AC Nielsen and Federal
Express. 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 is currently a private investor, 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.
INDEPENDENT DIRECTORS; COMMITTEES OF THE BOARD OF DIRECTORS
During 1998, two nonemployee, independent members, Christos M. Cotsakos
and Brian D. Smith, served on the Company's Board of Directors (the "Independent
Directors").
In January 1998, the Company's Board of Directors appointed the
Independent Directors and Salomon Sredni as the members of the first Audit
Committee of the Board of Directors. All of them were reappointed to the Audit
Committee in July 1998 and currently serve as members of the Audit Committee.
The Audit Committee recommends the annual engagement of the Company's auditors,
with whom the Audit Committee reviews the scope of audit and non-audit
assignments, related fees, the accounting principles used by the Company in
financial reporting, internal financial auditing procedures and the adequacy of
the Company's internal control procedures. In January 1998, the Board of
Directors established a Compensation Committee consisting solely of the
Independent Directors, who were reappointed in July 1998 and currently serve on
the Compensation Committee. The Compensation Committee determines executive
officers' salaries and bonuses and administers the Omega Research, Inc. Amended
and Restated 1996 Incentive Stock Plan, as amended (the "Incentive Stock Plan"),
and the Omega Research, Inc. 1997 Employee Stock Purchase Plan, as amended (the
"Purchase Plan").
The Board of Directors does not currently have a nominating committee
or a committee that performs similar functions.
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,
1998 all Section 16(a) filing requirements applicable to its officers, directors
and greater than ten percent beneficial owners were complied with.
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ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION TABLES
The following tables provide information about executive compensation.
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to all
compensation paid or earned for services rendered to the Company in the three
years ended December 31, 1998 by the Co-Chief Executive Officers of the Company
and the four other most highly compensated executive officers of the Company
whose aggregate annual compensation exceeded $100,000 (together, the "Named
Executive Officers"). The Company did not have a pension plan or a long-term
incentive plan, had not issued any restricted stock awards and had not granted
any stock appreciation rights as of December 31, 1998. The value of all
perquisites and other personal benefits received by each Named Executive Officer
did not exceed 10% of the Named Executive Officer's total annual compensation.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- ------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS(2) COMPENSATION(3)
- --------------------------- ------ -------- --------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
William R. Cruz....................... 1998 $150,000 -- -- --
Co-Chief Executive 1997 150,000 -- -- $3,800
Officer and President 1996 90,000 -- -- 4,320
Ralph L. Cruz......................... 1998 150,000 -- -- --
Co-Chief Executive Officer 1997 150,000 -- -- 3,800
1996 90,000 -- -- 4,320
Peter A. Parandjuk.................... 1998 165,000 $ 15,077 205,000 --
Chief Technology Officer and Vice 1997 130,000 34,125(4) -- 3,800
President of Research and Technology 1996 116,990 78,984(5) 250,000 5,700
Salomon Sredni........................ 1998 165,000 10,000 150,000 --
Vice President of Operations, 1997 130,000 34,125(4) -- --
Chief Financial Officer and Treasurer 1996 10,833(6) -- 140,000 --
Marc J. Stone......................... 1998 165,000 10,000 130,000 --
Vice President of Corporate 1997 76,483(7) 107,875(4)(8) 140,000 --
Development, General Counsel 1996 -- -- -- --
and Secretary
Janette Perez......................... 1998 97,083 30,255(10) 100,000 --
Vice President of Marketing(9) 1997 36,875 9,858 12,000 573
1996 23,928 5,388 -- --
</TABLE>
(1) See "Other Compensation Arrangements - Executive Officer Bonus Plan"
for a discussion of the Company's bonus plan for executive offers for
fiscal years 1998 and 1999.
(2) Represents shares of Common Stock issuable upon the exercise of options
granted under the Company's Incentive Stock Plan.
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<PAGE>
(3) Represents 401(k) Plan Company contributions on behalf of the Named
Executive Officer.
(4) $4,875 of this amount was earned in 1997, but paid in 1998.
(5) $26,491 of this amount was earned in 1996, but paid in 1997.
(6) Mr. Sredni joined the Company on December 1, 1996. His annual base
salary for 1996 was $130,000.
(7) Mr. Stone joined the Company on May 30, 1997. His annual base salary
for 1997 was $130,000.
(8) Includes a one-time bonus of $90,000 paid to Mr. Stone at the time he
became an employee of the Company.
(9) Ms. Perez became an executive officer in July 1998.
(10) $9,000 of this amount was earned in 1998, but paid in 1999.
OPTION GRANTS IN 1998 FISCAL YEAR
The following table summarizes the options which were granted during
the fiscal year ended December 31, 1998 to the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER TOTAL ANNUAL RATE OF
OF OPTIONS MARKET VALUE AT STOCK PRICE
SECURITIES GRANTED TO EXERCISE PRICE GRANT-DATE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE ON GRANT MARKET PRICE OPTION TERM(1)
OPTIONS IN FISCAL PRICE DATE EXPIRATION ------------ --------------------
NAME GRANTED(#)(2) YEAR ($)(SH) ($)(SH) DATE 0%($)(3) 5%($) 10%($)
- ---- ------------- ---------- -------- -------- ---------- ------------ --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
William R. Cruz -- -- -- -- -- -- -- --
Ralph L. Cruz -- -- -- -- -- -- -- --
Peter A. Parandjuk 40,000 2% $ 2.88 $ 2.88 01/14/08 -- $ 72,449 $183,599
Peter A. Parandjuk 20,000 1 3.63 3.94 06/15/08 $ 6,200 55,757 131,787
Peter A. Parandjuk 120,000 6 1.59 1.69 10/25/08 12,000 139,540 335,211
Peter A. Parandjuk 25,000(4) 1 1.66 1.88 12/28/08 5,500 35,058 80,406
Janette Perez 5,000 -- 2.88 2.88 01/14/08 -- 9,056 22,950
Janette Perez 35,000 2 3.63 3.94 06/15/08 10,850 97,545 230,627
Janette Perez 60,000(4) 3 1.66 1.88 12/28/08 13,200 84,139 192,974
Salomon Sredni 20,000 1 3.03 2.91 01/08/08 -- 34,202 90,356
Salomon Sredni 40,000 2 2.88 2.88 01/14/08 -- 72,449 183,599
Salomon Sredni 20,000 1 3.63 3.94 06/15/08 6,200 55,757 131,787
Salomon Sredni 70,000(4) 4 1.66 1.88 12/28/08 15,400 98,163 225,137
Marc J. Stone 40,000 2 2.88 2.88 01/14/08 -- 72,449 183,599
Marc J. Stone 20,000 1 3.63 3.94 06/15/08 6,200 55,757 131,787
Marc J. Stone 70,000(4) 4 1.66 1.88 12/28/08 15,400 98,163 225,137
</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) For purposes of and as provided under the Company's Incentive Stock
Plan, "fair market value" on the date of grant of any option is the
average of the high and low sales prices of a share of Common Stock on
The Nasdaq National Market on the trading day immediately preceding
such date of grant. The Compensation Committee of the Company believes
this calculation more accurately reflects "fair market value" of the
Company's Common Stock on any given day as compared to simply using the
closing market price on the date of grant. As a result, the closing
market price on the date of grant at times may be different than the
exercise price per share.
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(4) This option grant is subject to the condition that the shareholders of
the Company approve, no later than December 28, 1999, an increase in
the number of total shares of Common Stock of the Company reserved for
issuance under the Company's Incentive Stock Plan to at least 3,500,000
shares of Common Stock and, if that condition does not occur, the grant
shall be void. See "Other Compensation Arrangements - 1996 Incentive
Stock Plan."
AGGREGATE OPTION EXERCISES IN 1998 FISCAL YEAR
AND 1998 FISCAL YEAR-END OPTION VALUES
The following table provides information regarding the value of all
unexercised options held at December 31, 1998 by the Named Executive Officers
measured in terms of the closing market price of the Company's Common Stock on
December 31, 1998. No Named Executive Officer exercised any stock options during
the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998(#) DECEMBER 31, 1998($)(1)
------------------------------ --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William R. Cruz..................... -- -- -- --
Ralph L. Cruz....................... -- -- -- --
Peter A. Parandjuk.................. 100,000 355,000 175,000 470,000
Salomon Sredni...................... 56,000 234,000 98,000 245,600
Marc J. Stone....................... 28,000 242,000 -- 98,600
Janette Perez....................... 2,400 109,600 1,000 85,000
</TABLE>
(1) Based on a per share price of $3.00 on December 31, 1998, which was the
closing market price of the Company's Common Stock on the last day of
the Company's 1998 fiscal year.
OTHER COMPENSATION ARRANGEMENTS
EXECUTIVE OFFICER BONUS PLAN. In February 1998, the Compensation
Committee of the Board of Directors approved a cash bonus plan for the 1998
fiscal year for the then executive officers of the Company, other than William
R. Cruz and Ralph L. Cruz who have no bonus plan, that provided for cash bonuses
of up to 40% of the executive officer's base salary determined by the extent, if
any, to which the Company's 1998 net income exceeded its 1997 net income. The
Co-Chief Executive Officers were also authorized to grant up to a $10,000 bonus
to each such executive officer regardless of whether application of the bonus
formula would result in a bonus payout. As 1998 net income of the Company was
lower than 1997 net income, no bonus was paid other than the $10,000 per
executive officer bonus. In February 1999, the Compensation Committee of the
Board of Directors approved a cash bonus plan for the 1999 fiscal year for the
executive officers of the Company, other than William R. Cruz and Ralph L. Cruz
who have no bonus plan, that provides for cash bonuses of up to 50% of the
executive officer's base salary depending upon the extent, if any, to which the
Company achieves its net income goals for 1999.
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
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approved by the shareholders in June 1996. It was amended and restated in August
1997 and further amended in February 1998. In addition, during the fourth
quarter of 1998, the Board of Directors increased, subject to shareholder
approval, the authorized number of shares of Common Stock for issuance under the
Incentive Stock Plan from 3,000,000 to 4,500,000, subject to future antidilution
adjustments. In connection with this increase, and included in the total options
granted during the fourth quarter of 1998, were 365,000 options granted to
executive officers and certain other senior management personnel of the Company
that are subject to shareholder approval of the aforementioned increase of
authorized shares being obtained within one year following such action of the
Board of Directors.
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, retirement or change in control. Under the
Incentive Stock Plan, the maximum term of an incentive stock option is ten years
and the maximum term of a nonqualified stock option is fifteen years.
In February 1998, the Board of Directors amended the Incentive Stock
Plan to permit the Compensation Committee to delegate to the Company's Co-Chief
Executive Officers the authority to grant options to employees of the Company
identified by the Co-Chief Executive Officers. The Compensation Committee has
delegated to the Co-Chief Executive Officers the authority to grant options
covering up to 150,000 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, 1998, options to purchase 2,793,336 shares were
outstanding under the Incentive Stock Plan, of which options to purchase
1,127,000 shares had been granted to executive officers of the Company. During
1998, options granted to executive officers totaled options to purchase 585,000
shares of Common Stock which were granted at exercise prices ranging from $1.59
to $3.63 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 and the Nonemployee Director Stock Plan
(as defined below) that were
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outstanding as of December 31, 1998 have a weighted average exercise price of
$2.52 per share. See Note 4 of Notes to Financial Statements.
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 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
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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. During the year ended December 31, 1998, 12,506
shares of common stock were issued under the Purchase Plan at an average price
of $3.06.
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. There were no contributions charged against income
during 1998. Company contributions charged against income during 1997 and 1996
were $63,000 and $62,000, 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 formed the Compensation Committee of the Board of Directors
in January 1998, at which time the two Independent Directors were appointed as
members. The compensation (including salaries, bonuses and stock options) of the
Company's executive officers for 1998 was determined by the Compensation
Committee. In 1998, neither member of the Compensation Committee had any
relationship with the Company requiring disclosure under Item 404 of the
Regulation S-K.
DIRECTOR COMPENSATION
The Company's Independent Directors receive $750 for attendance at each
meeting of the Board of Directors and each committee thereof, with an additional
$150 paid for each committee meeting which is chaired by an Independent
Director. Pursuant to the Nonemployee Director Stock Plan, each Independent
Director also receives an option to purchase 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
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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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 16, 1999 by (i)
each person who is known to the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) each director of the Company, (iii) each Named
Executive Officer, and (iv) all directors and executive officers of the Company
as a group. Except as otherwise described in the footnotes below, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information provided by such owners, have sole investment and voting power with
respect to such shares. The address of each person who beneficially owns more
than 5% of the Common Stock is the Company's principal executive office.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ ------ -------
<S> <C> <C>
William R. Cruz(2)...................... 9,156,654 41.0%
Ralph L. Cruz(3)........................ 9,156,554 41.0
Peter A. Parandjuk...................... 112,550 *
Salomon Sredni.......................... 72,750 *
Marc J. Stone........................... 68,000 *
Janette Perez........................... 11,600 *
Christos M. Cotsakos.................... 58,700(4) *
Brian D. Smith.......................... 8,333 *
All executive officers and directors
as a group (8 persons)(5)............... 18,645,141 82.4%
</TABLE>
- --------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC that deem shares to be beneficially owned by any person who has or
shares voting or investment power with respect to such shares. Includes
options held by executive officers and/or directors which are
exercisable within 60 days of April 16, 1999.
(2) 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, together with Ralph L. Cruz, are the limited partners of
RLCF-II 1997 Limited Partnership and this trust 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 commencing in
1997, and thereafter any remainder interest is payable to the Ralph L.
Cruz 1997 Family Trust for the benefit of certain family members and/or
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charitable organizations. Does not include 900 shares owned by the
spouse of William R. Cruz with respect to which Mr. Cruz disclaims
beneficial ownership.
(3) 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, together with William R. Cruz, are the limited partners
of WRCF-II 1997 Limited Partnership and this trust 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
commencing in 1997, 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.
(4) 33,700 of such shares are held by the Cotsakos Revocable Trust, of
which Mr. Cotsakos and his wife serve as trustees.
(5) See other footnotes above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning cash dividends paid by the Company to its
shareholders in 1997 (including the Dividend which was paid by the Company to
its then-existing shareholders immediately prior to the consummation of the
Company's initial public offering), 1996 and 1995 and the dividend of the
Company's former office facilities to William R. Cruz and Ralph L. Cruz declared
in the second quarter of 1997, see "Market for Registrant's Common Equity and
Related Stockholder Matters--Dividend Policy" contained in Item 5 of the Annual
Report.
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 Company's initial public offering, the Cruz Shareholders will make a
payment equal to such difference to the Company and if the S Corporation
Earnings are greater than the Dividend, the Company will make an additional
distribution equal to such difference to William R. Cruz and Ralph L. Cruz, in
either case, with interest thereon. Subject to certain limitations, the Tax
Agreement also provides for the cross-indemnification of the Cruz Shareholders
and the Company for any federal and state income taxes, including interest and
penalties, if any, as a result of a final determination of a taxing authority
that increases or decreases the taxable income of the Company for an S
corporation taxable year (resulting in a change in the income taxes due by the
Cruz Shareholders for such year) and causes a corresponding increase or decrease
in the taxable income of the Company for a C corporation taxable year. Each
party's obligation under the Tax Agreement is limited to the amount of any
reduction in such party's tax liability as a result of any such determination.
To the extent a payment is made pursuant to the Tax Agreement by the Company to
the Cruz Shareholders after the one year anniversary of the date on which the
Company's S corporation status terminated, except to the extent it relates to
the change of the Company's method of accounting from the cash method to the
accrual method effective on July 1, 1997 (the "Change in Accounting Method"),
the Company will be required to make an
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<PAGE>
additional payment to the Cruz Shareholders equal to any income taxes payable by
such persons on such payments. The Company will not receive a tax deduction for
any payments made pursuant to the Tax Agreement. The Cruz Shareholders have not
provided security for their obligations under the Tax Agreement; accordingly,
the Company's ability to collect any such payments will be dependent upon the
financial condition of such persons at the time such payments are to be made.
The Company is not aware of any tax adjustments which might require payments
under the Tax Agreement other than related to the Change in Accounting Method.
See "Market for Registrant's Common Equity and Related Stockholder
Matters--Dividend Policy" contained in Item 5 of the Annual Report and Note 7 of
Notes to Financial Statements.
Marc J. Stone, the Company's Vice President of Corporate Development,
General Counsel and Secretary and a director, was a partner in a predecessor law
firm to Bilzin Sumberg until immediately prior to joining the Company in May
1997. Thereafter, Mr. Stone was of counsel to the predecessor firm and is
currently of counsel to Bilzin Sumberg. Bilzin Sumberg and its predecessor firms
have acted as the Company's regular outside legal counsel since 1994. The total
fees and costs paid by the Company to the predecessor firm of Bilzin Sumberg
(Rubin Baum Levin Constant Friedman & Bilzin) in 1998, 1997 and 1996 were
approximately $10,100, $349,000 and $34,000, respectively, and to Bilzin Sumberg
in 1998 were approximately $69,000. 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.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this First Amendment to the Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 30th
day of April, 1999.
Omega Research, Inc.
By: /S/ WILLIAM R. CRUZ
------------------------------------------------
William R. Cruz, Co-Chairman of the Board,
President and Co-Chief Executive Officer
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